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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ARGO-TECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
3724
(PRIMARY STANDARD
INDUSTRIAL CLASSIFICATION CODE NUMBER)
31-1521125
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
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23555 Euclid Avenue
Cleveland, Ohio 44117
(216) 692-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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PAUL R. KEEN
Vice President, General Counsel & Secretary
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117
(216) 692-5800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
DAVID P. PORTER, Esq.
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
(216) 586-3939
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
8 5/8% Senior Subordinated Notes due
2007.................................. $140,000,000 100% $140,000,000 $42,424.24
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PROSPECTUS DATED OCTOBER , 1997
PROSPECTUS
[ARGO-TECH LOGO] ARGO-TECH CORPORATION
OFFER TO EXCHANGE ITS 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007, WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS OUTSTANDING 8 5/8%
SENIOR SUBORDINATED NOTES DUE 2007 ISSUED ON SEPTEMBER 26, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [THE 21st
BUSINESS DAY FOLLOWING THE EXCHANGE OFFER], 1997 UNLESS EXTENDED.
Argo-Tech Corporation, a Delaware corporation (the "Company"), hereby
offers to exchange (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), up to $140,000,000 in aggregate
principal amount of the Company's new 8 5/8% Senior Subordinated Notes due 2007
(the "Exchange Notes"), for $140,000,000 in aggregate principal amount of the
Company's outstanding 8 5/8% Senior Subordinated Notes due 2007 (the "Original
Notes") issued on September 26, 1997. The Original Notes and the Exchange Notes
are sometimes referred to herein collectively as the "Notes."
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity date) to the terms of
the Original Notes for which they may be exchanged pursuant to this Exchange
Offer, except that (i) the Exchange Notes will be freely transferable by holders
thereof (other than as provided herein) and issued free of any covenant
restricting transfer absent registration and (ii) holders of the Exchange Notes
will not be entitled to certain rights of holders of the Original Notes under
the Exchange and Registration Rights Agreement (as defined), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same debt as the Original Notes (which they replace) and will be
entitled to the benefits of an Indenture dated as of September 26, 1997
governing the Original Notes and the Exchange Notes (the "Indenture"). For a
complete description of the terms of the Exchange Notes, see "Description of
Notes." There will be no cash proceeds to the Company from the Exchange Offer.
The Original Notes were sold on September 26, 1997, by the Company in
connection with the following transactions (collectively, the "Transactions"):
(i) the financing of the acquisition of the J.C. Carter Company, Inc.
("Carter"); (ii) the repayment of Existing Notes (as defined) and (iii) the
offering of the Original Notes (the "Offering").
Interest on the Notes will be payable in cash semi-annually on each April 1
and October 1, commencing April 1, 1998. The Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after August 15, 2002, at
the redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, the Company, at its option, may redeem in the
aggregate up to 33 1/3% of the original principal amount of the Notes at any
time and from time to time prior to October 1, 2000 at 108.625% of the aggregate
principal amount so redeemed plus accrued interest to the redemption date, with
the Net Cash Proceeds (as defined) of one or more Public Equity Offerings (as
defined) by the Company or Parent (as defined), provided that at least 66 2/3%
of the original aggregate principal amount of the Notes originally issued remain
outstanding immediately after the occurrence of any such redemption. See
"Description of Notes -- Optional Redemption."
SEE "RISK FACTORS" COMMENCING ON PAGE 21 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October , 1997.
<PAGE> 3
(continued from prior page)
The Notes will not be subject to any sinking fund requirement. Upon a
Change of Control (as defined), each holder of the Notes will be entitled to
require the Company to repurchase such holder's Notes at 101% of the principal
amount thereof plus accrued and unpaid interest to the purchase date. See
"Description of Notes -- Change of Control." If a Change of Control occurs,
there can be no assurance that the Company will have, or will have access to,
sufficient funds to enable it to repurchase the Notes. In addition, the Company
is obligated in certain instances to make an offer to repurchase the Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued interest to the date of repurchase with the net cash proceeds of certain
asset sales. See "Description of Notes -- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock."
The Notes are unsecured obligations of the Company subordinated in right of
payment to all existing and future Senior Indebtedness (as defined) of the
Company and senior in right of payment to all subordinated indebtedness of the
Company and pari passu to any other future senior subordinated indebtedness. The
Notes have been fully guaranteed (the "Subsidiary Guarantees") on an unsecured,
senior subordinated basis by Argo-Tech Corporation (HBP), Argo-Tech Corporation
(OEM), Argo-Tech Corporation (Aftermarket), Carter and all future domestic
Restricted Subsidiaries (as defined) that incur Indebtedness (as defined) and
all future Restricted Subsidiaries (collectively, the "Subsidiary Guarantors")
that guarantee the Amended Credit Facility (as defined). See "Description of
Notes -- Subsidiary Guarantees." The Indenture permits the Company to incur
additional indebtedness, including Senior Indebtedness, subject to certain
restrictions. As of August 2, 1997, after giving effect to the Transactions, the
Offering, and the application of the net proceeds therefrom, (i) the outstanding
Senior Indebtedness of the Company would have been $110.0 million (exclusive of
unused commitments), all of which would have been Secured Indebtedness (as
defined), (ii) the Company would have had no Senior Subordinated Indebtedness
outstanding other than the Notes and no Indebtedness that is subordinate or
junior in right of repayment to the Notes, (iii) the outstanding Senior
Indebtedness of the Subsidiary Guarantors, consisting entirely of Guarantees of
the Amended Credit Facility, would have been $110.0 million, all of which would
have been Secured Indebtedness, and (iv) the Subsidiary Guarantors would have
had no outstanding Senior Subordinated Indebtedness other than the Subsidiary
Guarantees and no Indebtedness that is subordinate or junior in right of payment
to the Subsidiary Guarantees. See "Description of Notes -- Certain Covenants."
The Original Notes were sold on September 26, 1997, in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon an exemption provided in the Securities Act. Accordingly, the
Original Notes may not be offered, resold or otherwise pledged, hypothecated or
transferred in the United States unless registered under the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered to satisfy the obligations of
the Company under the Exchange and Registration Rights Agreement relating to the
Original Notes. See "The Exchange Offer -- Purposes and Effects of the Exchange
Offer." Each holder receiving Exchange Notes, other than a broker-dealer, will
represent that the holder is not engaging in or intending to engage in a
distribution of such Exchange Notes. Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold or otherwise transferred by the holder thereof (other than any holder
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. 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. The Letter of Transmittal states that by acknowledging 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. Despite this
acknowledgement, such broker-dealer may nonetheless be determined to be an
"underwriter" by the Securities and Exchange Commission (the "Commission"). See
"The Exchange Offer -- Purposes and Effects of the Exchange Offer" and "Plan of
Distribution." Broker-dealers may use this Prospectus, as amended or
supplemented, in connection with resales of the Exchange Notes received in
exchange for the Original Notes where such Original Notes were acquired by such
broker-dealer as a result of market making activities or other such trading. The
Company has agreed that, for a period of 180 days after the Expiration Date (as
defined), it will make this Prospectus available to any broker-dealer for use in
connection with any such resale.
<PAGE> 4
(continued from prior page)
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Company will accept
for exchange any and all validly tendered Original Notes not withdrawn prior to
5:00 P.M., New York City time, on [the 21st business day following the Exchange
Offer], 1997 unless extended by the Company, in its sole discretion (the
"Expiration Date"). Tenders of Original Notes may be withdrawn at any time prior
to the Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer -- Certain Conditions to the Exchange
Offer." Original Notes may be tendered only in integral multiples of $1,000. The
Company will pay all expenses incident to the Exchange Offer.
The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. The Company does not currently intend to list the Exchange
Notes on any securities exchange. To the extent that any Original Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Original Notes would be adversely affected. No assurances can be
given as to the liquidity of the trading market for either the Original Notes or
the Exchange Notes.
<PAGE> 5
AVAILABLE INFORMATION
As a result of the Exchange Offer, the Company will become subject to the
periodic reporting and other informational requirements of the Exchange Act.
Pursuant to the Indenture, the Company has agreed that, whether or not the
Company is subject to filing requirements under Section 13 or 15(d) of the
Exchange Act, and so long as any Notes remain outstanding, it will file with the
Commission (but only if the Commission at such time is accepting such voluntary
filings) and will send the Trustee copies of the financial information,
documents and reports that would have been required to be filed with the
Commission pursuant to the Exchange Act.
The Company's executive offices and principal production facilities are
located at 23555 Euclid Avenue, Cleveland, Ohio 44117-1795 and its telephone
number is (216) 692-6000 (the "Cleveland Facility").
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and notes thereto appearing elsewhere in this Prospectus.
As used herein, unless the context otherwise indicates, references to "Carter"
refer to the J.C. Carter Company, Inc., after the completion of the Acquisition
and references to the "Company" refer to Argo-Tech Corporation ("Argo-Tech") and
its wholly owned subsidiaries (the "Subsidiaries"), including, for periods after
the consummation of the Acquisition, Carter. As used in this Prospectus, "large
commercial aircraft" refers to jet aircraft manufactured outside of the former
Soviet bloc, seating 100 or more passengers, "large commercial aircraft engines"
refers to commercial jet engines manufactured outside of the former Soviet bloc,
having 10,000 pounds of thrust or more, and "airframes" refers to jet airframes
manufactured outside of the former Soviet bloc.
THE COMPANY
OVERVIEW
The Company is a leading designer, manufacturer and servicer of high
performance fuel flow devices for the aerospace industry. The Company provides a
broad range of products and services to substantially all commercial and
domestic military engine and airframe manufacturers, to airlines worldwide and
to the U.S. and certain foreign militaries. The Company is the world's leading
supplier of main engine fuel pumps to the commercial aircraft industry and is a
leading supplier of airframe products and aerial refueling systems. Main engine
fuel pumps are precision mechanical pumps, mounted to the engine, that maintain
the flow of fuel to the engine at a precise rate and pressure. Airframe products
include fuel pumps and airframe accessories, which are used to transfer fuel to
the engine systems and to shift and control fuel between tanks in order to
maintain aircraft balance. Aerial refueling systems permit military aerial
tankers to refuel fighter, bomber and other military aircraft while in flight.
The Company is also a leading manufacturer of components for ground fueling
systems and estimates that one or more of its fueling hydrants, couplers and
nozzles are installed in over 65% of major commercial airports worldwide. Ground
fueling systems transfer fuel from fueling trucks and underground tanks to the
underwing fuel receptacle of the aircraft. Sales to original equipment
manufacturers ("OEMs") provide the Company with a platform for its substantial
aftermarket business, which accounts for the major component of its net
revenues. The Company's aftermarket business provides repair and overhaul
services and distributes spare parts to commercial and military customers
worldwide.
As of December 31, 1996, the Company's main engine fuel pumps were used in
approximately 8,200, or two-thirds, of the large commercial aircraft in service
throughout the world. In addition, during 1996, the Company received orders for
approximately 75% of all new main engine fuel pumps ordered by large commercial
aircraft engine manufacturers worldwide. The Company is the sole source supplier
of main engine fuel pumps for all CFM56 series engines, which were selected for
installation on approximately 61% of all large commercial aircraft ordered in
1996. This engine powers the Airbus Industries ("Airbus") A-319, A-320, A-321
and A-340 and The Boeing Company ("Boeing") 737 aircraft. The Company is also
the sole source supplier of main engine fuel pumps for all engines used on the
Boeing 777 aircraft.
Complementing its position as a leading supplier of main engine fuel pumps,
the Company estimates that one or more of its airframe fuel pumps or accessories
are installed on over 80% of all large commercial and U.S. designed military
aircraft currently in use. Aerial refueling components manufactured by the
Company are installed on every U.S. designed military aircraft equipped with
aerial refueling capabilities. In addition, ground fueling components
manufactured by the Company have been selected for use in all nine of the major
commercial airports constructed in the past ten years, including the recently
completed Denver International Airport and the Hong Kong International Airport,
which is currently under construction. The Company also produces and
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services industrial liquefied natural gas ("LNG") pumps and operates a materials
laboratory and a business park in Cleveland, Ohio, where the Company maintains
its headquarters and primary production facilities.
Pro forma for the Acquisition, for the twelve month period ended August 2,
1997, the Company generated net revenues, income from operations and Adjusted
EBITDA (as defined) of $156.2 million, $33.0 million and $49.9 million,
respectively. For the same period, on a pro forma basis, aerospace products and
aftermarket sales accounted for approximately 85% and 49% of the Company's net
revenues, respectively.
COMPETITIVE STRENGTHS
The Company believes it has a strong competitive position as a result of
the following factors:
- Strong Industry Position and Large Existing Installed Base. The Company
has the largest installed base of large commercial main engine fuel pumps
(approximately 30,000) in the aerospace industry. The Company also has an
installed base of over 215,000 military engine and airframe pumps and
accessories; 145,000 other engine pumps and airframe accessories,
including fuel gear motors and small main engine fuel pumps for
helicopters, turboprop and business aircraft; and 5,800 aerial refueling
components. This extensive installed base provides the Company with
significant opportunities for aftermarket sales of spare parts and repair
and overhaul services. Manufacturers of aerospace parts and components
are required to obtain airworthiness certification by the Federal
Aviation Administration ("FAA") in the case of products used on
commercial aircraft, by the United States Department of Defense (the
"U.S. Department of Defense") in the case of products used on U.S.
military aircraft, or by similar agencies in most foreign countries. Such
regulatory restrictions, which limit the access of other manufacturers to
the aftermarket, contribute to significantly higher margins on commercial
spare parts and overhaul services.
- Technological Leadership/New Product Development. Management believes
that the Company is a technological leader in its industry. The Company
maintains its technological leadership by operating state-of-the-art
facilities and employing over 110 engineers. The Company also staffs an
on-site design engineer at two of its major OEM customers. These on-site
engineers, in combination with its engineering and design staffs, assist
the Company in the development of innovative products which address the
needs and requirements of its customers and enhance its ability to gain
early entrant advantages. As a result of this technological leadership,
the Company's main engine fuel pumps have been selected for 22 of the 33
large commercial aircraft engine programs put into production over the
last 20 years. For example, the Company is the only manufacturer to win a
new production contract for main engine fuel pumps from Rolls-Royce, PLC.
("Rolls-Royce") since 1988 and from General Electric Company ("GE") since
1989. In addition, with the aid of its aftermarket customers, the Company
recently replaced the incumbent main engine fuel pump supplier on both
the GE CF34-8C (Bombardier Canadair Aerospace ("Canadair") RJ700) and the
Rolls-Royce RB211-535 (Boeing 757) engine programs, despite the industry
norm against such replacements.
Management also believes that its experience with engine systems for
use on airframes ranging from the Cessna Aircraft Company ("Cessna")
Citation to the Boeing 777, is a competitive advantage that enhances the
Company's ability to effectively meet the technical requirements of all
new engine system designs.
- Strong Relationship with Customers. The Company has developed strong
relationships with its OEM customers (including GE, Pratt and Whitney
("Pratt & Whitney") and Rolls-Royce), airline customers (including
American Airlines, Lufthansa, Japan Air Lines and United Airlines) and
freight carrier customers (including Federal Express and United Parcel
Service). Specifically, the Company has been a major supplier of main
engine fuel pumps to
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Pratt & Whitney for over 40 years, and has maintained a relationship with
United Airlines since 1962. Management believes that the Company's
reputation for quality and service in the aftermarket has further
solidified its strong relationships with its airline and freight carrier
customers. In addition to purchasing parts and services in the
aftermarket, these customers are also influential in the engine OEM's
supplier selection process, enhancing the Company's ability to secure
positions on new engine platforms.
Management believes that Argo-Tech's relationships with its OEM
customers will enhance Carter's ability to sell products to existing
Argo-Tech customers. For example, management expects to introduce
Carter's cross-feed and shut-off valves to Argo-Tech's existing OEM
engine customers such as GE, Pratt & Whitney and Rolls-Royce. The Company
believes similar opportunities exist to increase sales of Argo-Tech
products to Carter's customers. For example, management expects to
introduce Argo-Tech airframe pumps to Carter's business and regional jet
OEM customers such as Canadair, Cessna, Gulfstream Aerospace Corp.
("Gulfstream") and Lear Corp. ("Lear").
- Strong Core Competencies. The Company has developed strong core
competencies that management believes will enable it to improve its
position as a leading aerospace component supplier and provide
opportunities for growth outside its current product lines. These core
competencies include: (i) operational skills for low volume manufacturing
of high precision fluid flow devices, (ii) the capability to rapidly
design unique solutions to difficult fluid flow problems, (iii) skill and
experience in meeting the demanding specifications of aerospace
customers, the FAA, the U.S. Department of Defense and other regulatory
bodies, and (iv) skill and experience in the design of integrated fuel
systems and subsystems. These core competencies have enabled the Company
to become the sole source supplier for a substantial number of aerospace
programs. Management also believes that these core competencies will
allow the Company to develop additional fuel system and other high
precision products for use throughout the aerospace industry.
- Experienced Management Team. Argo-Tech's Chairman and CEO, Michael
Lipscomb, and five other members of senior management, have been with
Argo-Tech or its predecessor since 1980. Under Mr. Lipscomb's leadership,
Argo-Tech has reduced inventory levels, improved quality and on-time
performance and reduced manufacturing lead times, all of which have
contributed to significant increases in gross margins, which have grown
from 28.5% for fiscal 1992 to 42.6% for the nine months ended August 2,
1997.
BUSINESS STRATEGY
The Company's strategy is to maintain its leadership position and to grow
through the expansion of its product lines and the pursuit of strategic
acquisitions. This strategy includes the following key components:
- Expansion of Product Lines. The Company plans to apply its core
competencies in the aerospace business and to take advantage of its
strong reputation and relationships with its customers to expand into
specific industrial markets. The Company has utilized its expertise in
main engine fuel pump technology to develop industrial engine power
generation applications, and plans to capitalize on Carter's expertise in
other industrial applications. The Company's strong relationships with
GE, Pratt & Whitney and Rolls-Royce have already led to development and
production contracts for industrial products such as lube and scavenge
pumps and fluid flow dividers. In addition, the high quality and
reliability of the Company's main engine fuel pumps have prompted several
customers to use the Company's components on certain of their industrial
turbine engines. For example, Company-designed and manufactured
components are or will be installed on Westinghouse Electric Corp.
("Westinghouse"), Pratt & Whitney, GE and Rolls-Royce land based power
generation applications. The Company anticipates further developing this
business by introducing Carter's products to these customers.
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- Aerospace Growth through Acquisitions. The Company plans to pursue
strategic acquisitions in the aerospace and industrial fluid flow device
industries in order to capitalize on the trend for development of
airframe and engine fluid flow systems that will result in increased
reliance on integrated systems providers. For example, the Acquisition
expands the Company's product lines to include aerial refueling
components, aerospace valves and other fuel transfer control components
and enhances its base from which to design, manufacture and deliver a
broader range of fuel transfer systems and components. While the Company
is currently evaluating, and will continue to evaluate other acquisition
opportunities, there are no pending agreements or understandings
regarding acquisitions.
- Enhancement of Operating Efficiencies. Management constantly reviews the
Company's operations for opportunities to further reduce costs and
increase manufacturing efficiencies through improved utilization of
production facilities, continual rationalization of the vendor base and
more efficient human resource allocation. Continued enhancements of
operating efficiencies include the transfer of production between
facilities to absorb fixed overhead, the installation of integrated
computer systems at its Costa Mesa facility (the "Costa Mesa Facility"),
strengthening of the certified operator and vendor programs and the
reassignment of some engineering resources to the development of new
products and technologies.
- Ground Fueling Growth. The Company intends to devote significant
resources to the enhancement of sales, marketing and development of
ground fueling products. The Company has recently developed digital
pressure control valves that incorporate a microprocessor to enhance fuel
flow control and accurately measure the pressure in an aircraft's fuel
tank during fueling, allowing for reduced fueling time. Although these
products have been available for less than a year, the Company has
already supplied over 35 systems to various locations around the world,
including the Middle East and Latin America. In addition, the Company has
identified three new potential product applications for its ground
fueling technology: railroad fluid transfers, fueling of off-road
construction and mining equipment and liquefied natural gas ("LNG")
nozzles and receptacles used on alternative fuel vehicles. Management
believes that these potential product applications could significantly
increase the Company's ground fueling sales.
ARGO-TECH HISTORY AND OWNERSHIP
Argo-Tech, a Delaware corporation, was formed in 1986 to acquire the Power
Accessories Division of TRW Inc. (the "TRW Transaction"). The Company and its
predecessors have more than 50 years' experience in the aerospace industry. In
1990, the Company underwent a corporate restructuring and disposed of
substantially all of its operations except for its aircraft accessories
business. The new owners of the Company after the restructuring included, among
others, (i) Vestar Capital Partners ("Vestar"), a private investment firm, (ii)
Masashi Yamada, a private investor, and (iii) a group of 29 executives led by
the Company's current President and CEO, Michael Lipscomb. In 1994, with the
participation of all of the Company's salaried employees, the ESOP (as defined)
was formed and acquired 30% of the common stock ("Parent Stock") of AT Holdings
Corp. (the "Parent"), including the Parent Stock previously owned by Vestar.
Currently, management and the ESOP own 36% of the outstanding Parent Stock. Mr.
Yamada holds approximately 49% of the outstanding Parent Stock through AT
Holdings, LLC ("AT LLC"), a domestic limited liability company under his
control, and an additional 6% through YC International, Inc. ("YCI"), a U.S.
subsidiary of Yamada Corporation, which is a Japanese trading company controlled
by Mr. Yamada.
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THE TRANSACTIONS
With the consummation of the Offering, the Company (i) consummated the
Acquisition for a cash purchase price of $107.0 million (subject to certain
post-closing adjustments), (ii) amended and restated the New Credit Facility (as
defined) to allow for, among other things, the Acquisition and the issuance of
the Original Notes (the "Amended Credit Facility"), (iii) borrowed the delayed
draw acquisition loans under the Amended Credit Facility in an aggregate
principal amount equal to $15.0 million (the "Delayed Draw Acquisition Loans")
and (iv) repaid $46.7 million of subordinated indebtedness (including accrued
interest) owed to affiliates (the "Existing Notes").
The Offering, the Acquisition, the execution of the Amended Credit
Facility, the borrowings under Delayed Draw Acquisition Loans and the repayment
of the Existing Notes are collectively referred to herein as the "Transactions."
See "Description of the Amended Credit Facility."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER.... The Original Notes were sold, in a
transaction exempt from the registration
requirements of the Securities Act, by the
Company on September 26, 1997 to Chase
Securities Inc. (the "Initial Purchaser").
In connection therewith, the Company
executed and delivered, for the benefit of
the holders of the Original Notes, an
Exchange and Registration Rights Agreement
dated September 26, 1997 (the "Exchange and
Registration Rights Agreement") which is
incorporated by reference as an exhibit to
the Registration Statement of which this
Prospectus is a part, providing for, among
other things, the Exchange Offer so that
the Exchange Notes will be freely
transferable by the holders thereof without
registration or any prospectus delivery
requirements under the Securities Act,
except that a "dealer" or any of its
"affiliates," as such terms are defined
under the Securities Act, who exchanges
Original Notes held for its own account
will be required to deliver copies of this
Prospectus in connection with any resale of
the Exchange Notes issued in exchange for
such Original Notes. See "The Exchange
Offer -- Purposes and Effects of the
Exchange Offer" and "Plan of Distribution."
THE EXCHANGE OFFER............... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Original Notes
that are properly tendered and accepted.
The Company will issue Exchange Notes on or
promptly after the Expiration Date. There
is $140,000,000 aggregate principal amount
of Original Notes outstanding. The Original
Notes and the Exchange Notes are
collectively referred to herein as the
"Notes." The terms of the Exchange Notes
are substantially identical in all respects
(including principal amount, interest rate
and maturity date) to the terms of the
Original Notes for which they may be
exchanged pursuant to the Exchange Offer,
except that (i) the Exchange Notes are
freely transferable by holders thereof
(other than as provided herein) and are not
subject to any covenant restricting
transfer absent registration under the
Securities Act and (ii) holders of the
Exchange Notes will not be entitled to
certain rights of holders of the Original
Notes under the Exchange and Registration
Rights Agreement, which rights will
terminate upon the consummation of the
Exchange Offer. See "The Exchange Offer."
The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Original Notes being tendered for exchange.
Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, the
Company believes that the Exchange Notes
issued
10
<PAGE> 12
pursuant to the Exchange Offer in exchange
for Original Notes may be offered for
resale, resold and otherwise transferred by
a holder thereof (other than (i) a
broker-dealer who purchases such Exchange
Notes directly from the Company to resell
pursuant to Rule 144A under the Securities
Act or any other available exemption under
the Securities Act or (ii) a person that is
an affiliate (as defined in Rule 405 under
the Securities Act) of the Company),
without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that the holder is
acquiring the Exchange Notes in the
ordinary course of its business and is not
participating, and has no arrangement or
understanding with any person to
participate, in the distribution of the
Exchange Notes. The Company has not sought,
and does not currently intend to seek a no-
action letter. There can be no assurance
that the staff of the Securities and
Exchange Commission would make a similar
determination with respect to the Exchange
Offer. Each broker-dealer that receives the
Exchange Notes for its own account in
exchange for the Original Notes, where such
Notes were acquired by such 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 such Exchange
Notes.
REGISTRATION RIGHTS AGREEMENT.... The Original Notes were sold by the Company
on September 26, 1997 to the Initial
Purchaser pursuant to a Securities Purchase
Agreement dated as of September 23, 1997 by
and between the Company, the Subsidiary
Guarantors and the Initial Purchaser (the
"Purchase Agreement"). Pursuant to the
Purchase Agreement, the Company, the
Subsidiary Guarantors and the Initial
Purchaser entered into the Exchange and
Registration Rights Agreement which grants
the holders of the Original Notes certain
exchange and registration rights. See "The
Exchange Offer -- Termination of Certain
Rights." This Exchange Offer is intended to
satisfy such rights, which terminate upon
the consummation of the Exchange Offer. The
holders of the Exchange Notes are not
entitled to any exchange of registration
rights with respect to the Exchange Notes.
EXPIRATION DATE.................. The Exchange Offer will expire at 5:00
p.m., New York City time, on [the 21st
business day following the Exchange Offer],
1997, unless the Exchange Offer is extended
by the Company in its reasonable
discretion, in which case the term
"Expiration Date" shall mean the latest
date and time to which the Exchange Offer
is extended.
11
<PAGE> 13
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND ORIGINAL NOTES....... Interest on the Exchange Notes will accrue
from (A) the last interest payment date on
which interest was paid on the Original
Notes surrendered in exchange therefor, or
(B) if no interest has been paid on the
Notes, from September 26, 1997. Holders
whose Original Notes are accepted for
exchange will be deemed to have waived the
right to receive any interest accrued on
the Original Notes.
CONDITIONS TO THE
EXCHANGE OFFER................. The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange
Offer -- Certain Conditions to the Exchange
Offer." The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Original Notes being
tendered for exchange. The Company reserves
the right to terminate or amend the
Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any
such conditions.
PROCEDURES FOR TENDERING
ORIGINAL NOTES................. Each holder of Original Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter
of Transmittal, or such facsimile, together
with the Original Notes and any other
required documentation to the exchange
agent (the "Exchange Agent") at the address
set forth herein. Original Notes may be
physically delivered, but physical delivery
is not required if a confirmation of a
book-entry of such Original Notes to the
Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Depository")
is delivered in a timely fashion. By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of
business of the person receiving such
Exchange Notes, whether or not such person
is the holder, that neither the holder nor
any such other person is engaged in, or
intends to engage in, or has an arrangement
or understanding with any person to
participate in, the distribution of such
Exchange Notes and that neither the holder
nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company. Each
broker or dealer that receives Exchange
Notes for its own account in exchange for
Original Notes, where such Original Notes
were acquired by such broker or 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 such Exchange Notes. See
"The
12
<PAGE> 14
Exchange Offer -- Procedures for Tendering"
and "Plan of Distribution."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.............. Any beneficial owner whose Original Notes
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such
owner must, prior to completing and
executing the Letter of Transmittal and
delivering his Original Notes, either make
appropriate arrangements to register
ownership of the Original Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange Offer
-- Procedures for Tendering."
GUARANTEED DELIVERY PROCEDURES... Holders of Original Notes who wish to
tender their Original Notes and whose
Original Notes are not immediately
available or who cannot deliver their
Original Notes, the Letter of Transmittal
or any other documents required by the
Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender
their Original Notes according to the
guaranteed delivery procedures set forth in
the "Exchange Offer -- Guaranteed Delivery
Procedures."
ACCEPTANCE OF THE ORIGINAL NOTES
AND DELIVERY OF THE EXCHANGE
NOTES.......................... Subject to the satisfaction or waiver of
the conditions to the Exchange Offer, the
Company will accept for exchange any and
all Original Notes which are properly
tendered in the Exchange Offer prior to the
Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange
Offer."
WITHDRAWAL RIGHTS................ Tenders of Original Notes may be withdrawn
at any time prior to the Expiration Date.
See "The Exchange Offer -- Withdrawal of
Tenders."
EXCHANGE AGENT................... Harris Trust and Savings Bank is serving as
the Exchange Agent in connection with the
Exchange Offer. See "The Exchange
Offer -- Exchange Agent."
EFFECT ON HOLDERS OF
THE ORIGINAL NOTES............. As a result of the making of, and upon
acceptance for exchange of all validly
tendered Original Notes pursuant to the
terms of this Exchange Offer, the Company
will have fulfilled one of the covenants
contained in the Exchange and Registration
Rights Agreement and, accordingly, no
liquidated damages will become payable in
respect of the Original Notes pursuant to
the applica-
13
<PAGE> 15
ble terms of the Exchange and Registration
Rights Agreement. Holders of the Original
Notes who do not tender their Original
Notes will be entitled to all the rights
and limitations applicable thereto under
the Indenture between the Company and
Harris Trust and Savings Bank, as trustee
(the "Trustee"), relating to the Original
Notes and the Exchange Notes, except for
any rights under the Indenture or the
Exchange and Registration Rights Agreement,
which by their terms terminate or cease to
have further effectiveness as a result of
the making of, and the acceptance for
exchange of all validly tendered Original
Notes pursuant to, the Exchange Offer. All
untendered Original Notes will continue to
be subject to the restrictions on transfer
provided for in the Original Notes and in
the Indenture. To the extent that Original
Notes are tendered and accepted in the
Exchange Offer, the trading market for
untendered Original Notes could be
adversely affected.
USE OF PROCEEDS.................. There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
THE NOTES
THE EXCHANGE NOTES............... The Exchange Offer applies to $140,000,000
aggregate principal amount of the Original
Notes. The form and terms of the Exchange
Notes are the same as the form and terms of
the Original Notes except that (i) the
exchange will have been registered under
the Securities Act and, therefore, the
Exchange Notes will not bear legends
restricting their transfer pursuant to the
Securities Act, and (ii) holders of the
Exchange Notes will not be entitled to
certain rights of holders of the Original
Notes under the Exchange and Registration
Rights Agreement, which rights will
terminate upon consummation of the Exchange
Offer. The Exchange Notes will evidence the
same debt as the Original Notes (which they
replace) and will be issued under, and be
entitled to the benefits of, the Indenture.
See "Description of Notes" for further
information and for definitions of certain
capitalized terms used below.
ISSUER........................... Argo-Tech Corporation
INTEREST RATE.................... The Notes will bear interest at a rate of
8 5/8% per annum.
MATURITY DATE.................... October 1, 2007.
INTEREST PAYMENT DATES........... April 1 and October 1 of each year,
commencing on April 1, 1998.
SINKING FUND..................... None.
OPTIONAL REDEMPTION.............. Except as described below, the Company may
not redeem the Notes prior to October 1,
2002. On or after
14
<PAGE> 16
such date, the Company may redeem the
Notes, in whole or in part, at the
redemption prices set forth herein,
together with accrued and unpaid interest,
if any, to the date of redemption. In
addition, at any time on or prior to
October 1, 2000, the Company may, subject
to certain requirements, redeem up to
33 1/3% of the original aggregate principal
amount of the Notes with the Net Cash
Proceeds (as defined) of one or more Public
Equity Offerings by the Company or Parent,
at a price equal to 108.625% of the
principal amount to be redeemed, together
with accrued and unpaid interest, if any,
to the date of redemption, provided that at
least 66 2/3% of the original aggregate
principal amount of the Notes remains
outstanding immediately after each such
redemption. See "Description of
Notes -- Optional Redemption."
CHANGE OF CONTROL................ Upon the occurrence of a Change of Control
(as defined), each holder will have the
right to require the Company to make an
offer to repurchase such holder's Notes at
a price equal to 101% of the principal
amount thereof, together with accrued and
unpaid interest, if any, to the date of
repurchase. See "Description of
Notes -- Change of Control."
SUBSIDIARY GUARANTEES............ The Notes are fully guaranteed (the
"Subsidiary Guarantees") on an unsecured,
senior subordinated basis by Argo-Tech
Corporation (HBP), Argo-Tech Corporation
(OEM), Argo-Tech Corporation (Aftermarket),
Carter and all future domestic Restricted
Subsidiaries (as defined) that incur
Indebtedness (as defined) and all future
Subsidiary Guarantors. The Subsidiary
Guarantors have also guaranteed the Amended
Credit Facility. In addition, the Amended
Credit Facility is guaranteed by Parent and
is secured by pledges of all of the capital
stock of the Company and the Subsidiary
Guarantors and security interests in
substantially all other tangible and
intangible assets of the Company and the
Subsidiary Guarantors. See "Description of
Notes -- Subsidiary Guarantees."
RANKING.......................... The Notes are unsecured and subordinated in
right of payment to all existing and future
Senior Indebtedness (as defined) of the
Company. The Notes will rank pari passu
with any future Senior Subordinated
Indebtedness (as defined) of the Company
and rank senior to all subordinated
indebtedness of the Company. The Subsidiary
Guarantees are unsecured, senior
subordinated obligations of the Subsidiary
Guarantors, subordinated in right of
payment to all existing and future Senior
Indebtedness of the Subsidiary Guarantors.
As of August 2, 1997, after giving effect
to the Transactions, the Offering, and the
application of the net proceeds therefrom,
(i) the outstanding Senior
15
<PAGE> 17
Indebtedness of the Company would have been
$110.0 million (exclusive of unused
commitments), all of which would have been
Secured Indebtedness, (ii) the Company
would have had no Senior Subordinated
Indebtedness outstanding other than the
Notes and no Indebtedness that is
subordinate or junior in right of repayment
to the Notes, (iii) the outstanding Senior
Indebtedness of the Subsidiary Guarantors,
consisting entirely of Guarantees of the
Amended Credit Facility, would have been
$110.0 million, all of which would have
been Secured Indebtedness, and (iv) the
Subsidiary Guarantors would have had no
outstanding Senior Subordinated
Indebtedness other than the Subsidiary
Guarantees and no Indebtedness that is
subordinate or junior in right of payment
to the Subsidiary Guarantees.
RESTRICTIVE COVENANTS............ The Indenture limits (i) the incurrence of
additional Indebtedness by the Company and
its Restricted Subsidiaries; (ii) the
payment of dividends on, and redemption of,
capital stock of the Company and its
Restricted Subsidiaries and the redemption
of certain Subordinated Obligations (as
defined) of the Company and its Restricted
Subsidiaries; (iii) certain other
restricted payments, including without
limitation, investments; (iv) sales of
assets and Restricted Subsidiary stock; (v)
certain transactions with affiliates; (vi)
the sale or issuance of capital stock of
its Restricted Subsidiaries; (vii) the
creation of liens; (viii) the lines of
business in which the Company and its
Restricted Subsidiaries may operate; (ix)
consolidations, mergers and transfers of
all or substantially all of the Company's
assets; and (x) sale and leaseback
transactions. The Indenture will also
prohibit certain restrictions on
distributions from Restricted Subsidiaries.
However, all of these limitations and
prohibitions are subject to a number of
important qualifications and exemptions.
See "Description of Notes -- Certain
Covenants" and "-- Merger and
Consolidation."
ASSET SALE PROCEEDS.............. The Company will be obligated in certain
instances to make offers to repurchase the
Notes at a purchase price in cash equal to
100% of the principal amount thereof plus
accrued interest to the date of repurchase
with the net cash proceeds of certain asset
sales. See "Description of Notes -- Certain
Covenants -- Limitation on Sales of Assets
and Subsidiary Stock."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the Notes.
16
<PAGE> 18
SUMMARY UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA OF THE COMPANY
The following table sets forth summary unaudited pro forma financial and
other data of the Company for the fiscal year ended October 26, 1996, the nine
months ended August 2, 1997 and the twelve months ended August 2, 1997 as if the
Transactions occurred at the beginning of the period indicated. The summary
unaudited pro forma balance sheet data give effect to the Transactions as if
they occurred on August 2, 1997. The information presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
included elsewhere herein. The unaudited pro forma financial data set forth
below are not necessarily indicative of the results that would have been
achieved had such transactions been consummated as of the dates indicated or
that may be achieved in the future. See "Unaudited Pro Forma Condensed
Consolidated Financial Information" for a more detailed presentation of the pro
forma financial information.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
OCTOBER 26, 1996 AUGUST 2, 1997 AUGUST 2, 1997
----------------- ----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................ $ 138,003 $ 119,939 $ 156,163
Gross profit............................................ 58,288 53,483 68,997
Operating expenses...................................... 33,050 26,749 35,953
--------- --------- ---------
Income from operations.................................. 25,238 26,734 33,044
Interest expense........................................ 21,422 16,066 21,422
Other, net.............................................. 123 (52) 49
Income tax provision.................................... 3,419 5,853 6,341
--------- --------- ---------
Income before extraordinary loss........................ $ 274 $ 4,867 $ 5,232
========= ========= =========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................ $ 301,192
Working capital......................................... 42,742
Long-term debt (including current maturities)........... 250,275
Redeemable common stock................................. 3,900
Shareholders' deficiency................................ (9,515)
OTHER DATA:
Gross margin............................................ 42.2% 44.6% 44.2%
Adjusted EBITDA(a)...................................... $ 41,455 $ 39,015 $ 49,909
Adjusted EBITDA margin(b)............................... 30.0% 32.5% 32.0%
Depreciation, goodwill and deferred financing fee
amortization.......................................... $ 14,709 $ 10,593 $ 14,881
Capital expenditures(c)................................. 3,759 2,137 3,989
Cash interest expense(d)................................ 20,601 15,450 20,601
Ratio of Adjusted EBITDA to cash interest expense....... 2.0x 2.5x 2.4x
Ratio of earnings to fixed charges(e)................... 1.2x 1.7x 1.5x
</TABLE>
- ---------------
(a) Adjusted EBITDA represents income from operations plus non-cash charges as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
OCTOBER 26, 1996 AUGUST 2, 1997 AUGUST 2, 1997
----------------- ----------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from operations.................................... $ 25,238 $ 26,734 $ 33,044
Depreciation and goodwill amortization.................... 13,888 9,977 14,060
Compensation expense -- ESOP.............................. 2,329 2,304 2,805
--------- --------- ---------
Adjusted EBITDA........................................... $ 41,455 $ 39,015 $ 49,909
========= ========= =========
</TABLE>
The Company's Adjusted EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles ("GAAP") and
should not be considered as an alternative to net income as an indicator of
operating performance or to cash flow as a measure of liquidity. The Company has
included information concerning Adjusted EBITDA as it understands that it is
used by certain investors as one measure of a borrower's historical ability to
service its debt. Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures reported by other companies, since not all companies
necessarily calculate Adjusted EBITDA in an identical manner, and therefore is
not necessarily an accurate means of comparison between companies.
(b) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.
(c) Capital expenditures for the fiscal year ended October 26, 1996 are net of
assets that were acquired and then immediately sold amounting to $3,855,000.
(d) Cash interest expense represents interest expense less amortization of
deferred financing fees of $821,000, $616,000 and $821,000 in the fiscal
year ended October 26, 1996, the nine months ended August 2, 1997 and the
twelve months ended August 2, 1997, respectively.
(e) For purposes of determining the ratio of earnings available to cover fixed
charges, earnings consist of income before taxes and the extraordinary loss
plus fixed charges. Fixed charges consist of interest on indebtedness
including amortization of deferred financing fees.
17
<PAGE> 19
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA OF ARGO-TECH CORPORATION
The following table sets forth summary historical financial and other data
of Argo-Tech for (i) the fiscal years 1994 through 1996, which have been derived
from Argo-Tech's audited consolidated financial statements for those years and
(ii) the 39 weeks ended July 27, 1996 and the 40 weeks ended August 2, 1997,
which have been derived from Argo-Tech's unaudited condensed consolidated
financial statements for those periods, which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the 40 weeks ended August 2, 1997 are not necessarily
indicative of results that may be expected for the entire year. Argo-Tech's
fiscal year ends on the last Saturday in October and is identified according to
the calendar year in which it ends. For example, the fiscal year ended October
26, 1996 is referred to as "fiscal 1996." All of the fiscal years presented
consisted of 52-week periods. The information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Selected Historical Financial and Other Data of
Argo-Tech Corporation" and the consolidated financial statements and notes
included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS 40 WEEKS
----------------------------------------- ENDED ENDED
OCTOBER 29, OCTOBER 28, OCTOBER 26, JULY 27, AUGUST 2,
1994 1995 1996 1996 1997
----------- ----------- ----------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 79,709 $ 86,671 $ 96,437 $ 71,493 $ 84,892
Gross profit.............................. 25,433 32,449 38,555 28,633 36,195
Operating expenses........................ 14,789 17,390 19,307 13,850 14,135
--------- --------- --------- -------- ---------
Income from operations.................... 10,644 15,059 19,248 14,783 22,060
Interest expense.......................... 10,117 11,924 10,138 7,643 9,222
Other, net................................ 75 (588) (142) (118) (313)
Income tax provision...................... 279 1,553 3,608 3,172 5,299
Extraordinary loss (a).................... -- -- -- -- 1,529
--------- --------- --------- -------- ---------
Net income................................ $ 173 $ 2,170 $ 5,644 $ 4,086 $ 6,323
========= ========= ========= ======== =========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................. $ 183,826 $ 167,057 $ 167,106 $158,990 $ 161,504
Working capital........................... 34,506 23,098 25,531 23,916 26,874
Long-term debt (including current
maturities)............................. 137,607 118,607 107,607 108,907 141,107
Redeemable preferred stock................ 25,908 25,908 25,908 25,908 --
Redeemable common stock................... -- 1,100 2,700 2,200 3,900
Shareholders' deficiency (b).............. (16,848) (17,639) (14,878) (15,510) (9,515)
OTHER DATA:
Gross margin.............................. 31.9% 37.4% 40.0% 40.1% 42.6%
Adjusted EBITDA (c)....................... $ 20,210 $ 23,901 $ 29,039 $ 21,753 $ 29,575
Adjusted EBITDA margin(d)................. 25.4% 27.6% 30.1% 30.4% 34.8%
Net cash flows provided by operating
activities.............................. $ 17,531 $ 17,846 $ 15,942 $ 6,964 $ 8,771
Net cash flows used in investing
activities.............................. (1,475) (2,918) (3,355) (1,762) (1,775)
Net cash flows used in financing
activities.............................. (5,855) (19,730) (11,000) (9,700) (13,181)
Depreciation, goodwill and deferred
financing fee amortization.............. 10,177 8,577 8,653 6,036 6,009
Capital expenditures...................... 1,475 2,918 3,355 1,762 1,775
Cash interest expense (e)................. 8,666 10,519 8,947 6,749 8,424
Ratio of Adjusted EBITDA to cash interest
expense................................. 2.3x 2.3x 3.2x 3.2x 3.5x
Ratio of earnings to fixed charges(f)..... 1.0x 1.3x 1.9x 1.9x 2.4x
</TABLE>
- ---------------
(a) The extraordinary loss, net of federal income tax benefits, relates to the
write-off of unamortized debt issuance costs of a credit facility (the "Old
Credit Facility") that was refinanced with the proceeds of the Tranche A
Term Loans (as defined) under the New Credit Facility on July 18, 1997.
18
<PAGE> 20
(b) In connection with Argo-Tech's ESOP, the current value of the outstanding
shares of Parent Stock is determined annually by an independent appraiser.
The current value per share as so determined times the total shares
outstanding amounted to $53,683,000, $64,842,000 and $79,650,000 as of
October 29, 1994, October 28, 1995 and October 26, 1996, respectively.
(c) Adjusted EBITDA represents income from operations plus non-cash charges as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS 40 WEEKS
----------------------------------------- ENDED ENDED
OCTOBER 29, OCTOBER 28, OCTOBER 26, JULY 27, AUGUST 2,
1994 1995 1996 1996 1997
----------- ----------- ----------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income from operations...................... $ 10,644 $ 15,059 $ 19,248 $ 14,783 $ 22,060
Depreciation and goodwill amortization...... 8,726 7,172 7,462 5,142 5,211
Compensation expense -- ESOP................ 840 1,670 2,329 1,828 2,304
--------- --------- --------- -------- ---------
Adjusted EBITDA............................. $ 20,210 $ 23,901 $ 29,039 $ 21,753 $ 29,575
========= ========= ========= ======== =========
</TABLE>
Argo-Tech's Adjusted EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. Argo-Tech has included
information concerning Adjusted EBITDA as it understands that it is used by
certain investors as one measure of a borrower's historical ability to service
its debt. Adjusted EBITDA, as presented, may not be comparable to similarly
titled measures reported by other companies, since not all companies necessarily
calculate Adjusted EBITDA in an identical manner, and therefore is not
necessarily an accurate means of comparison between companies.
(d) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.
(e) Cash interest expense represents interest expense less amortization of
deferred financing fees of $1,451,000, $1,405,000, $1,191,000 and $894,000
and $798,000 in the fiscal years ended October 29, 1994 through October 26,
1996 and the 39 weeks ended July 27, 1996 and 40 weeks ended August 2, 1997,
respectively.
(f) For purposes of determining the ratio of earnings available to cover fixed
charges, earnings consist of income before taxes and the extraordinary loss
plus fixed charges. Fixed charges consist of interest on indebtedness
including amortization of deferred financing fees and fixed loan guarantee
fees.
19
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SUMMARY HISTORICAL FINANCIAL AND OTHER DATA OF J.C. CARTER COMPANY, INC.
The following table sets forth summary historical financial and other data
of Carter for (i) the three years ended December 31, 1996, which have been
derived from Carter's audited financial statements for those years and (ii) the
six months ended June 30, 1996 and 1997, which have been derived from Carter's
unaudited condensed financial statements for those periods, which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. Results for the six months ending June 30, 1997 are
not necessarily indicative of results that may be expected for the entire year.
Carter's fiscal year coincides with the calendar year. The information presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Selected Historical
Financial and Other Data of J.C. Carter Company, Inc." and the financial
statements and notes included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $38,727 $39,986 $44,450 $22,131 $24,008
Gross profit.......................................... 19,744 19,602 21,892 10,079 11,864
Office of the President(a)............................ 7,963 10,994 9,339 4,840 6,088
Other operating expenses.............................. 8,460 8,822 9,926 4,354 5,704
------- ------- ------- ------- -------
Income (loss) from operations......................... 3,321 (214) 2,627 885 72
Interest expense...................................... 859 934 970 489 537
Other expense, net.................................... 396 101 226 54 214
Income tax provision (benefit)(b)..................... 60 188 105 43 (2,271)
------- ------- ------- ------- -------
Net income (loss)..................................... $ 2,006 $(1,437) $ 1,326 $ 299 $ 1,592
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.......................................... $20,698 $24,117 $24,516 $23,708 $27,705
Working capital....................................... 4,457 2,674 2,471 2,457 1,625
Long-term debt (including current maturities)......... 10,547 12,552 11,388 11,991 13,550
Shareholders' equity.................................. 5,518 4,081 5,407 4,380 6,999
OTHER DATA:
Gross margin.......................................... 51.0% 49.0% 49.3% 45.5% 49.4%
Adjusted EBITDA(c).................................... $11,739 $11,640 $12,553 $ 6,026 $ 6,519
Adjusted EBITDA margin(d)............................. 30.3% 29.1% 28.2% 27.2% 27.2%
Net cash flows provided by (used in) operating
activities.......................................... $ 1,005 $(1,057) $ 1,524 $ 525 $(1,472)
Net cash flows used in investing activities........... (831) (682) (780) (315) (476)
Net cash flows provided by (used in) financing
activities.......................................... (20) 2,005 (1,164) (561) 2,151
Depreciation and amortization......................... 455 860 587 301 359
Capital expenditures(e)............................... 867 712 1,136 315 69
</TABLE>
- ---------------
(a) Office of the President expenses were incurred by Carter for the benefit of
the President and a director of Carter. These expenses include salaries,
benefits, personal expenses and costs associated with operating and
maintaining personal assets such as a private airplane, an airplane hangar,
personal residences and numerous automobiles. These expenses and assets will
be terminated or disposed of concurrent with the Acquisition in accordance
with the Carter Stock Purchase Agreement. Any services which were provided
by such individuals will be assumed by existing officers of the Company with
no incremental costs. Accordingly, the Company believes it is appropriate to
exclude all Office of the President expenses in determining the pro forma
operating results of the Company.
(b) Effective January 1, 1997, Carter voluntarily terminated its Subchapter S
tax status and became taxable at the applicable state and federal statutory
rates. A tax benefit of $2,207,000 was recorded in the six months ended June
30, 1997 for the impact on deferred assets for the change in tax status.
(c) Carter's Adjusted EBITDA is defined as income (loss) from operations before
depreciation and amortization expense and Office of the President expenses.
Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. Carter has included
information concerning Adjusted EBITDA as it understands that it is used by
certain investors as one measure of a borrower's historical ability to
service its debt. Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate Adjusted EBITDA in an identical manner, and
therefore is not necessarily an accurate means of comparison between
companies.
(d) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.
(e) Capital expenditures for the year ended December 31, 1996 and the six months
ended June 30, 1996 are net of assets that were acquired and then
immediately sold amounting to $3,855,000.
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<PAGE> 22
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information included in this
Prospectus, the following risk factors:
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of August 2, 1997, on a pro forma basis
after giving effect to the Transactions as if they had occurred on such date,
the Company and its consolidated subsidiaries would have had an aggregate of
$250.3 million of outstanding indebtedness (excluding unused commitments),
redeemable common stock of $3.9 million and shareholders' deficiency of $9.5
million. The Indenture permits the Company and the Subsidiary Guarantors to
incur additional indebtedness, including indebtedness that is senior in rank to
the Notes. The Company will have additional borrowing capacity on a revolving
credit basis under the Amended Credit Facility. See "Capitalization" and
"Description of the Amended Credit Facility."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) certain of the Company's borrowings are and will continue to be
at variable rates of interest, which exposes the Company to the risk of
increased rates; (iv) all the indebtedness outstanding under the Amended Credit
Facility is secured by substantially all of the assets of the Company and the
Subsidiary Guarantors, and will mature prior to the Notes; and (v) the Company's
flexibility to adjust to changing market conditions and ability to withstand
competitive pressures could be limited and the Company may be more vulnerable to
a downturn in general economic conditions or its business. See "Description of
the Amended Credit Facility" and "Description of Notes."
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, obtain additional equity capital or
restructure its debt. There can be no assurance that the Company's cash flow and
capital resources will be sufficient for payment of its indebtedness in the
future. In the absence of such operating results and resources, the Company
could face substantial liquidity problems and might be required to dispose of
material assets or operations to meet its debt service and other obligations,
and there can be no assurance as to the timing of such sales or the adequacy of
the proceeds which the Company could realize therefrom. See "Description of the
Amended Credit Facility" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
RESTRICTIVE DEBT COVENANTS
The Amended Credit Facility contains a number of covenants that, among
other things, limit the Company's ability to incur additional indebtedness, pay
dividends, prepay subordinated indebtedness such as the Notes, dispose of
certain assets, create liens, make capital expenditures, make certain
investments or acquisitions and otherwise restrict corporate activities. The
Amended Credit Facility also requires the Company to comply with certain
financial ratios and tests, under which the Company will be required to achieve
certain financial and operating results. The ability of the Company to comply
with such provisions may be affected by events beyond its control. A breach of
any of these covenants would result in a default under the Amended Credit
Facility. In the event of any such default, depending on the actions taken by
the lenders under the Amended Credit Facility, the Company would be prohibited
from making any payments on the Notes. In addition, such
21
<PAGE> 23
lenders could elect to declare all amounts borrowed under the Amended Credit
Facility, together with accrued interest, due and payable. If the Company were
unable to pay those amounts, the lenders thereunder could proceed against the
collateral granted to them to secure such indebtedness. See "-- Subordination;
Unsecured Status of the Notes and the Subsidiary Guarantees." If the
indebtedness under the Amended Credit Facility were to be accelerated, there can
be no assurance that the assets of the Company would be sufficient to repay in
full such indebtedness and the other indebtedness of the Company, including the
Notes. Any refinancing of the Amended Credit Facility is likely to contain
similar covenants. See "Description of the Amended Credit Facilities."
SUBORDINATION; UNSECURED STATUS OF THE NOTES AND THE SUBSIDIARY GUARANTEES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness of the Company, including
all amounts owing under the Amended Credit Facility. As of August 2, 1997, on a
pro forma basis after giving effect to the Transactions, the aggregate amount of
Senior Indebtedness of the Company would have been approximately $110.0 million
(excluding unused commitments), all of which would have been secured.
Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company, assets of the
Company will be available to pay obligations on the Notes only after Senior
Indebtedness has been paid in full, and there can be no assurance that there
will be sufficient assets to pay amounts due on all or any of the Notes.
The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company. The Notes will rank pari
passu with any future Senior Subordinated Indebtedness of the Company and rank
senior to all subordinated indebtedness of the Company. The Subsidiary
Guarantees are unsecured, senior subordinated obligations of the Subsidiary
Guarantors, subordinated in right of payment to all existing and future Senior
Indebtedness of the Subsidiary Guarantors. As of August 2, 1997, after giving
effect to the Transactions, the Offering, and the application of the net
proceeds therefrom, (i) the outstanding Senior Indebtedness of the Company would
have been $110.0 million (exclusive of unused commitments), all of which would
have been Secured Indebtedness, (ii) the Company would have had no Senior
Subordinated Indebtedness outstanding other than the Notes and no Indebtedness
that is subordinate or junior in right of repayment to the Notes, (iii) the
outstanding Senior Indebtedness of the Subsidiary Guarantors, consisting
entirely of guarantees of the Amended Credit Facility, would have been $110.0
million, all of which would have been Secured Indebtedness, and (iv) the
Subsidiary Guarantors would have had no outstanding Senior Subordinated
Indebtedness other than the Subsidiary Guarantees and no Indebtedness that is
subordinate or junior to right of payment to the Subsidiary Guarantees. See
"Description of Notes -- Ranking" and "-- Subsidiary Guarantees."
The Indenture permits the Company and the Subsidiary Guarantors to incur
certain secured indebtedness, including indebtedness under the Amended Credit
Facility, which will be secured by a lien on substantially all of the assets of
the Company and the Subsidiary Guarantors. The Notes and the Subsidiary
Guarantees are unsecured and therefore do not have the benefit of such
collateral. Accordingly, if an event of default occurs under the Amended Credit
Facility, the lenders thereunder may foreclose upon such collateral to the
exclusion of the holders of the Notes, notwithstanding the existence of an event
of default with respect to the Notes. In such event, such assets would first be
used to repay in full amounts outstanding under the Amended Credit Facility,
resulting in all or a portion of the Company's assets being unavailable to
satisfy the claims of the holders of Notes and other unsecured indebtedness.
FRAUDULENT TRANSFER CONSIDERATIONS
The incurrence of indebtedness (such as the Notes) in connection with the
Acquisition and the repayment of debt owed to Parent and Parent's affiliates is
subject to review under relevant federal and state fraudulent conveyance and
similar statutes in a bankruptcy or reorganization case or a
22
<PAGE> 24
lawsuit by or on behalf of creditors of the Company. Under these statutes, if a
court were to find that obligations (such as the Notes) were incurred with the
intent of hindering, delaying or defrauding present or future creditors, that
the Company received less than a reasonably equivalent value or fair
consideration for those obligations and, at the time of the incurrence of the
obligations, the obligor either (i) was insolvent or rendered insolvent by
reason thereof, (ii) was engaged or was about to engage in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iii) intended to or believed that it would incur debts beyond
its ability to pay such debts as they matured or became due, such court could
void or subordinate the obligations in question.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair salable value of its
assets or if the fair salable value of its assets at that time is less than the
amount that would be required to pay its probable liability on its existing
debts as they become absolute and mature. Although management believes that,
after giving effect to the Transactions, the Company will be (i) neither
insolvent nor rendered insolvent by the incurrence of indebtedness in connection
with the Acquisition and the Amended Credit Facility, (ii) in possession of
sufficient capital to run its business effectively and (iii) incurring debts
within its ability to pay as the same mature or become due, there can be no
assurance, however, that a court would necessarily agree with these conclusions.
In addition, the Subsidiary Guarantees may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guarantees could also be
subject to the claim that, since the Subsidiary Guarantees were incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantors thereunder were
incurred for less than reasonably equivalent value or fair consideration. A
court could void any of the Subsidiary Guarantors' obligations under the
Subsidiary Guarantees, subordinate the Subsidiary Guarantees to other
indebtedness of a Subsidiary Guarantor or take other action detrimental to the
holders of the Notes.
POSSIBLE UNENFORCEABILITY OF THE SUBSIDIARY GUARANTEES
The Company is a holding company that derives all of its operating income
from its subsidiaries. The holders of the Notes will have no direct claim
against such subsidiaries other than a claim created by one or more of the
Subsidiary Guarantees, which may themselves be subject to legal challenge in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of a
Subsidiary Guarantor. See "-- Fraudulent Transfer Considerations." If such a
challenge were upheld, the Subsidiary Guarantees would be invalid and
unenforceable. To the extent that any of the Subsidiary Guarantees are not
enforceable, the rights of holders of the Notes to participate in any
distribution of assets of any Subsidiary Guarantor upon liquidation, bankruptcy,
reorganization or otherwise will, as is the case with other unsecured creditors
of the Company, be subject to prior claims of creditors of that Subsidiary
Guarantor. The Company must rely upon distributions from its subsidiaries to
generate the funds necessary to meet its obligations, including the payment of
principal of and interest on the Notes. The Indenture contains covenants that
restrict the ability of the Company's subsidiaries to enter into any agreement
limiting distributions and transfers, including dividends. However, the ability
of the Company's subsidiaries to make distributions may be restricted by, among
other things, applicable state corporate laws and other laws and regulations or
by terms of agreements to which they are or may become a party. In addition,
there can be no assurance that such distributions will be adequate to fund the
interest and principal payments on the Amended Credit Facility and the Notes
when due. See "Description of Notes."
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<PAGE> 25
CHANGE OF CONTROL; ABILITY TO SATISFY OBLIGATIONS
Upon a Change of Control, holders of the Notes will have the right to
require the Company to repurchase all or any part of such holders' Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The events that constitute a Change
of Control under the Notes will also constitute a default under the Amended
Credit Facility, which will prohibit the purchase of the Notes by the Company in
the event of certain Change of Control events unless and until such time as the
Company's indebtedness under the Amended Credit Facility is repaid in full.
There can be no assurance that the Company would have sufficient financial
resources available to satisfy all of its obligations under the Amended Credit
Facility and the Notes in the event of a Change of Control. The Company's
failure to repurchase the Notes would result in a default under the Indenture
and under the Amended Credit Facility, each of which could have adverse
consequences for the Company and the holders of the Notes. See "Description of
the Amended Credit Facility" and "Description of Notes -- Change of Control."
DEPENDENCE ON AEROSPACE INDUSTRY
Substantially all of the Company's gross profit and operating income is
derived from its sales of products to the aerospace industry. The Company
designs, engineers and manufactures aircraft components for OEMs and supplies
spare parts and performs repair and overhaul services on existing installed
components for its commercial and military customers (the "aftermarket"). The
commercial OEM segment of the aerospace industry has historically been subject
to fluctuations due to general economic conditions. A reduction in airline
travel will generally result in reduced orders for new commercial aircraft,
reduced utilization of commercial aircraft and a corresponding decrease in the
Company's sales of new components, related income and cash flow. The commercial
airline industry was adversely affected by a severe downturn during the three
year period ended December 31, 1993. This downturn resulted in record losses for
the commercial airline industry and a decrease in production of commercial
engine and airframe assemblies, which caused a corresponding decline in the
Company's commercial OEM business. In addition, aftermarket sales were
negatively affected as airlines delayed purchases of spare parts, preferring to
use existing spare parts inventory. Management believes that airlines currently
maintain little or no spare parts inventory which should cause future
aftermarket sales to remain relatively stable even in an OEM downturn. Although
management believes that the cyclicality of the commercial airline industry is
mitigated by the Company's aftermarket and military sales, there can be no
assurance that economic and other factors that affect the commercial aerospace
industry will not similarly affect the military aerospace industry. In addition,
because of the relatively small number of customers for certain of the Company's
products, such customers are able to influence the Company's prices and other
terms of sale. The loss of one or more significant customers could have a
material adverse effect on the Company. See "Business and Properties -- Industry
Overview."
GOVERNMENT REGULATION AND OVERSIGHT
The aerospace industry is highly regulated in the United States and in
other countries. The Company must be certified by the FAA, the U.S. Department
of Defense and similar agencies in foreign countries and by individual OEMs in
order to sell and service parts and components used in specific aircraft models.
If material authorizations or approvals were revoked or suspended, the
operations of the Company would be adversely affected. In the future, new and
more stringent government regulations may be adopted or industry oversight may
be heightened, which may have a material adverse effect on the Company.
REDUCTION IN DEFENSE SPENDING; GOVERNMENT CONTRACTS
Pro forma for the Acquisition, in fiscal 1996 approximately 19% of the
Company's sales were related to products used in U.S. designed military
aircraft. In general, the U.S. defense budget has been declining in recent
years, resulting in reduced demand for new aircraft and spare parts. Although
defense budget reductions in the U.S. may be offset in part by foreign military
sales, such
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<PAGE> 26
sales are affected by U.S. Government regulations, regulations by the purchasing
foreign government and political uncertainties in the U.S. and abroad. There can
be no assurance that the U.S. defense budget will not continue to decline or
that sales of defense related items to foreign governments will continue at
present levels. In addition, the terms of defense contracts with the U.S.
Government generally permit the Government to terminate such contract, with or
without cause, at any time.
RISKS ASSOCIATED WITH THE ACQUISITION AND FUTURE ACQUISITIONS
The Acquisition was the first major acquisition made by the Company.
Acquisitions of this magnitude are inherently subject to significant risk.
Although management believes Carter's business is and has been successful and
should complement the Company's product lines, there can be no assurance that
the Company will be able to successfully integrate Carter's operations. Although
many of Carter's operations are similar to Argo-Tech's, the integration of
Carter will require substantial attention from, and will place significant
demands upon, the Company's administrative systems and its senior management,
and will require the cooperation of Carter's management and employees. As a
result, the Company's ability to successfully integrate Carter may be adversely
affected if a member of the management team were to leave the Company. The
demands on the management of both Carter and Argo-Tech caused by the Acquisition
may divert attention from and adversely impact their ability to manage their
respective companies' existing business.
The Company's objective is to grow through, among other things, strategic
acquisitions. The Company's acquisition strategy entails risks inherent in
assessing the value, strengths, weaknesses, contingent and other liabilities and
potential profitability of acquisition candidates and in integrating the
operations of acquired businesses. There can be no assurance that acquisition
opportunities will be available, that the Company will have access to the
capital required to finance potential acquisitions or that any business acquired
will be integrated successfully or prove profitable. See "Business and
Properties -- Business Strategy -- Aerospace Growth through Acquisitions."
RISKS ASSOCIATED WITH THE COMPANY'S WORKFORCE AND SUPPLIERS
The Company's sophisticated production processes and the aerospace industry
standards imposed on its products make the Company's operations highly dependent
on an educated and trained workforce. The Company could be adversely affected by
long-term or short-term shortages of appropriately skilled production and
professional workers. All of the hourly employees at the Cleveland Facility have
been represented by the United Auto Workers Union ("UAW") since 1987. The
current collective bargaining agreement, signed in 1996 after an extended period
of negotiations commencing in 1994, expires on March 31, 2000. Although
management believes that its relations with its employees are good, there can be
no assurance that the Company will be able to negotiate a satisfactory renewal
of the collective bargaining agreement or that the Company's employee relations
will remain stable. Because the Company maintains a relatively small inventory
of finished goods and operates on relatively long lead times for production, any
interruption of the work force could have a material adverse effect on the
Company.
In addition, the Company's profitability is affected by the price and
continuity of supply of its raw materials and component parts. The Company, and
all other aerospace fuel pump manufacturers, rely on one supplier for CPM-10V, a
powdered metal used in the manufacture of certain pump components. If that
supply ceased to exist, the Company, along with all other fuel pump
manufacturers, would be adversely affected. The Company could be adversely
affected by factors affecting its suppliers, or by increased costs associated
with such materials or components if the Company is unable to increase the
prices of its own products. The Company maintains a relatively small inventory
of raw materials and component parts and could be adversely affected by a
curtailment of supply from its vendors. Although management believes that
alternative suppliers, or alternatives for such materials or components, could
be identified, the lengthy FAA and OEM certification process associated with
aerospace products could prevent efficient replacement of a material or supplier
25
<PAGE> 27
and could have a material adverse effect on the Company. See "Business and
Properties -- Suppliers and Raw Materials."
COMPETITION
The global aerospace industry is highly competitive. The industry has
experienced significant consolidation, and the Company's competitors include
several companies that have significantly greater financial resources available
to them than does the Company. The Company competes primarily with Sundstrand
Corporation ("Sundstrand"), Chandler-Evans Fuel Systems, a division of Coltec
Industries, Inc. ("CECO") and Lucas Aerospace, a division of Lucas Varity
("Lucas"), in the production of main engine fuel pumps. The Company competes
with a diverse group of companies in the production of other fuel transfer
products and systems including Parker Hannifin Corp. ("Parker-Hannifin"),
Intertechnique S.A. ("Intertechnique") and GEC Marconi Aerospace Inc. ("GEC
Aerospace"). See "Business and Properties -- Industry Overview."
PRODUCT LIABILITY; CLAIMS EXPOSURE
While the Company has never been a defendant in a products liability case
involving its aerospace or ground fueling products, the Company's overall
operations expose it to potential liabilities for personal injury or death as a
result of the failure of an aircraft component that has been designed,
manufactured or serviced by the Company, or the irregularity of metal products
processed or distributed by the Company. Carter is a defendant in one products
liability case involving an industrial marine product for which Carter is
entitled to indemnification from a previous owner, who has defended the lawsuit
since its filing in 1984. While management believes that its liability insurance
is adequate to protect it from future products liability claims, there can be no
assurance that, if claims were to arise, such insurance coverage will be
adequate. Additionally, there can be no assurance that insurance coverage can be
maintained in the future at an acceptable cost. Any such liability not covered
by insurance or for which third party indemnification is not available could
have a material adverse effect on the Company.
POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES
The Company's business operations and facilities are subject to a number of
federal, state and local laws and regulations, which govern, among other things,
the discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of such materials. Pursuant to certain
environmental laws, a current or previous owner or operator of real property may
be liable for the costs of removal or remediation of hazardous materials at such
property. Environmental laws typically impose liability whether or not the owner
or operator knew of, or was responsible for, the presence of such hazardous
materials. Persons who arrange, or are deemed to have arranged, for the disposal
or treatment of hazardous materials also may be liable for the costs of removal
or remediation of such substances at the disposal or treatment site, regardless
of whether the affected site is owned or operated by such person.
The Cleveland Facility is currently the subject of environmental
remediation activities, the cost of which is the responsibility of TRW Inc.
("TRW") pursuant to the purchase agreement by which Argo-Tech acquired TRW's
Power Accessories Division (which became Argo-Tech) in 1986 (the "TRW Purchase
Agreement"). In addition, the TRW Purchase Agreement requires TRW to indemnify
Argo-Tech for certain third party environmental claims for a period of 20 years.
See "Business and Properties -- Environmental Matters."
The stock purchase agreement (the "Carter Stock Purchase Agreement")
entered into between Argo-Tech and the selling stockholders of Carter (the
"Sellers") provides that Sellers will indemnify (the "Carter Indemnity" and
together with the TRW Purchase Agreement, the "Environmental Agreements") the
Company for all liabilities related to, among other things, known groundwater
contamination at the Costa Mesa Facility, pursuant to a Clean Up and Abatement
Order issued by the California Regional Water Control Board. If additional
environmental requirements are imposed by government agencies, or if TRW or
Sellers fail to satisfy their obligations
26
<PAGE> 28
under the Environmental Agreements, increased remediation and compliance
expenditures may be required, which could have a material adverse effect on the
Company.
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON RESALE
The Notes are new securities for which there currently is no market.
Although the Initial Purchaser has informed the Company that it currently
intends to make a market in the Original Notes and the Exchange Notes, it is not
obligated to do so and any such market making may be discontinued at any time
without notice. In addition, such market making activity may be limited during
the pendency of the Exchange Offer or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Notes and, if issued, the
Exchange Notes. The Notes are expected to be eligible for trading in the PORTAL
market. The Company does not intend to apply for listing of the Original Notes
or the Exchange Notes on any securities exchange or for quotation through an
automated dealer quotation system.
The liquidity of, and trading market for, the Original Notes or the
Exchange Notes also may be adversely affected by general declines in the market
for similar securities. Such declines may adversely affect such liquidity and
trading markets independently of the financial performance of, and prospects
for, the Company.
CONTROLLING STOCKHOLDERS
The Company is a wholly owned subsidiary of Parent. The Company's
management and an employee stock ownership plan (the "ESOP") currently own
approximately 36% of the Parent Stock. Mr. Masashi Yamada holds approximately
49% of the outstanding Parent Stock through AT LLC, a domestic limited liability
company under his control, and an additional 6% of Parent Stock through YCI,
which is a subsidiary of Yamada Corporation, a Japanese trading company
controlled by Mr. Yamada. The AT Holdings Corporation 1994 Stockholders
Agreement as amended (the "1994 Stockholders Agreement") currently provides that
AT LLC has the right to elect a majority of the directors of Parent and a
majority of the directors of the Company. As a result, Mr. Yamada will be able
to direct the election of the members of the Board of Directors of the Company
and, therefore, direct the management and policies of the Company. The 1994
Stockholders Agreement provides that specified actions require approval by 80%
or more of the Board of Directors of Parent. Due to the current structure of
Parent's Board of Directors, wherein Mr. Yamada appoints 60%, and management
appoints 40% of Parent's Board of Directors, management retains a veto over any
action requiring 80% approval. See "Principal Stockholders" and "Certain
Transactions."
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the offer or sale of the Original Notes pursuant to
an exemption from or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act or applicable state securities laws. The
Company does not currently expect that it will register the Original Notes under
the Securities Act. Based on interpretations by the staff of the Commission
issued in no-action letters to third parties, management believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Original
Notes may be offered for resale, resold or otherwise transferred by the Holder
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder has no arrangement with any person to participate in the
distribution of such Exchange Notes. Such no-action letters are not binding
interpretations of the law. The Company has not sought, and does not currently
intend to seek a no-action letter. There
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can be no assurances that the staff of the Commission would make a similar
determination with respect to the Exchange Offer. Any Holder of Original Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes would not be acting consistently with such
interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any Exchange Notes acquired by
such Holder will not be freely transferable except in compliance with the
Securities Act. Each Restricted Holder that receives Exchange Notes for its own
account in exchange for the Original Notes, where such Original Notes were
acquired by such 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 such Exchange Notes. See "Plan of Distribution."
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THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
The Original Notes were sold by the Company on September 26, 1997 to the
Initial Purchaser pursuant to the Purchase Agreement dated as of September 23,
1997. As a condition to the sale of the Original Notes, the Company, the
Subsidiary Guarantors and the Initial Purchaser entered into the Exchange and
Registration Rights Agreement on September 26, 1997. Pursuant to the Exchange
and Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would (i) file
with the Commission a Registration Statement under the Securities Act with
respect to the Exchange Notes within 30 days after the Issue Date, (ii) use its
reasonable best efforts to cause such Registration Statement to become effective
under the Securities Act within 105 days after the Issue Date and the Exchange
Offer to be consummated no later than 135 days after the Issue Date and (iii)
keep the Registration Statement effective for not less than 30 days (or longer
if required by law) after the date that notice of the Exchange Offer is mailed
to the Holders. As soon as practicable after the close of the Exchange Offer,
the Company will (i) accept for exchange all Original Notes tendered and not
validly withdrawn pursuant to the Exchange Offer, (ii) deliver to the Trustee
for cancellation all Original Notes so accepted for exchange, and (iii) cause
the Exchange Agent to promptly authenticate and deliver to each Holder of
Original Notes, Exchange Notes equal in principal amount to the Original Notes
of such Holder so accepted for exchange. Under existing Commission
interpretations, the Exchange Notes would in general be freely transferable
after the Exchange Offer without further registration under the Securities Act;
provided, that in the case of broker-dealers, a prospectus meeting the
requirements of the Securities Act be delivered as required. The Company has
agreed to make available a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any such
Exchange Notes acquired as described below for such period of 180 days after the
Expiration Date. A broker-dealer that delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act, and will be bound by the Exchange
and Registration Rights Agreement (including certain indemnification rights and
obligations). A copy of the Exchange and Registration Rights Agreement has been
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus is a part. The Registration Statement of which this Prospectus
is a part is intended to satisfy certain of the Company's obligations under the
Exchange and Registration Rights Agreement and the Purchase Agreement.
The Company is generally not required to file any registration statement to
register any outstanding Original Notes. Holders of Original Notes who do not
tender their Original Notes or whose Original Notes are tendered but not
accepted will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Original Notes.
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) who exchanges Original Notes for Exchange Notes in
the ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement 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. The Company has not
sought, and does not currently intend to seek a no-action letter. There can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. However, if any holder acquires the Exchange
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<PAGE> 31
Notes in the Exchange Offer for the purpose of distributing or participating in
the distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain
no-action letters issued to third parties 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. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Original Notes, where such Original Notes were acquired by such
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 such Exchange Notes. The Letter of Transmittal states that by
so acknowledging 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. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with the resale of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
by such broker-dealer as a result of market-making or other trading activities.
Pursuant to the Exchange and Registration Rights Agreement, the Company has
agreed to make this Prospectus, as it may be amended or supplemented from time
to time, available to broker-dealers for used in connection with any resale for
a period of 180 days after the Expiration Date. See "Plan of Distribution."
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
If (i) because any change in law or applicable interpretations of the staff
of the Commission does not permit the Company to effect the Exchange Offer as
contemplated thereby or (ii) for any other reason the Exchange Offer is not
consummated within 135 days after the Issue Date or (iii) the Initial Purchaser
so requests with respect to Original Notes purchased on the Issue Date not
eligible to be exchanged for Exchange Notes in the Exchange Offer and held by
the Initial Purchaser following the consummation of the Exchange Offer or (iv)
any holder either (A) is not eligible to participate in the Exchange Offer or
(B) participates in the Exchange Offer and does not receive freely transferrable
Exchange Notes in exchange for tendered Original Notes, the Company will file
with the Commission a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Transfer Restricted Securities (as defined) by
such holders who satisfy certain conditions relating to, among other things, the
provision of information in connection with the Shelf Registration Statement.
The Company will, in the event of the Shelf Registration Statement, provide to
each holder of the Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement for the Notes has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes. A holder of the Notes
that sells such Notes pursuant to the Shelf Registration Statement generally
would be required to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Act in connection with such sales,
and will be bound by the provisions of the Exchange and Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification rights and obligations).
Although the Company intends to file one of the registration statements
described above, there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Company fails to
comply with the above provisions or if such registration statement fails to
become effective, then, liquidated damages shall become payable in respect of
the Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 30 days after the Issue Date;
(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 105 days after the Issue Date;
(or, in the case of a Shelf Registration Statement required to be filed in
response to a change in law or applicable interpretations of the
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Commission's staff, if later, within 30 days after publication of the
change in law or interpretation), or
(iii) the Registered Exchange Offer is not consummated on or prior to
135 days after the Issue Date, or
(iv) the Shelf Registration Statement is filed and declared effective
within 105 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law
or the applicable interpretations of Commission's staff, if later, within
30 days after publication of the change in law or interpretation) but will
thereafter cease to be effective (at any time that the Company is obligated
to maintain the effectiveness thereof) without being succeeded within 30
days by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), the Company and the Subsidiary Guarantors will be jointly and
severally obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of
the Securities constituting Transfer Restricted Securities held by such Holder
until (i) the applicable Registration Statement is filed, (ii) the Exchange
Offer Registration Statement is declared effective and the Registered Exchange
Offer is consummated, (iii) the Shelf Registration Statement is declared
effective or (iv) the Shelf Registration Statement again becomes effective, as
the case may be. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease. As used herein, the term "Transfer Restricted
Securities" means each Original Note or Exchange Note until (i) the date on
which such Original Note or Exchange Note has been exchanged for a freely
transferable Exchange Note in the Registered Exchange Offer, (ii) the date on
which such Original Note or Exchange Note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) the date on which such Security or Exchange Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
salable pursuant to Rule 144(k) under the Securities Act. Notwithstanding
anything to the contrary in Section 3(a) of the Exchange and Registration Rights
Agreement, the Company and the Subsidiary Guarantors will not be required to pay
liquidated damages to the holder of Transfer Restricted Securities if such
holder failed to comply with its obligations to make the representations or
failed to provide the information required to be provided by it, if any,
pursuant to the Exchange and Registration Rights Agreement.
Such liquidated damages are intended to constitute the sole damages that
will be suffered by holders of Transfer Restricted Securities by reason of the
failure of (i) the Shelf Registration Statement or the Exchange Offer
Registration Statement to be filed, (ii) the Shelf Registration Statement to
remain effective or (iii) the Exchange Offer Registration Statement to be
declared effective and the Registered Exchange Offer to be consummated, in each
case to the extent required by the Exchange and Registration Rights Agreement.
The summary herein of the material provisions of the Exchange and
Registration Rights Agreement does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Exchange and Registration Rights Agreement, which has been incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part, a copy of which will be available upon request to the Company.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Original Notes validly tendered and not withdrawn prior to the Expiration
Date. The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Original Notes
surrendered pursuant to the Exchange Offer. Holders may tender some or all of
their Original Notes pursuant to the Exchange Offer; provided, however, that
Original Notes may be tendered only in
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integral multiples of $1,000. The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original Notes being tendered for
exchange.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and (ii) holders of the Exchange Notes will not be entitled to the
certain rights of holders of Original Notes under the Exchange and Registration
Rights Agreement, which rights will terminate upon the consummation of the
Exchange Offer. The Exchange Notes will evidence the same debt as the Original
Notes (which they replace) and will be issued under, and be entitled to the
benefits of, the Indenture, which also authorized the issuance of the Original
Notes, such that all outstanding Notes will be treated as a single class of debt
securities under the Indenture.
Interest on the Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Original Notes surrendered in exchange
therefor or, if no interest has been paid, from the Issue Date. Accordingly,
registered holders of Exchange Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offer will
receive interest accruing from the last interest payment date on which interest
was paid or, if no interest has been paid on the Notes, from the Issue Date.
Original Notes accepted for exchange will cease to accrue interest from and
after the date of the consummation of the Exchange Offer. Holders whose Original
Notes are accepted for exchange will not receive any payment in respect of
interest on such Original Notes otherwise payable on any interest payment date,
the record date for which occurs on or after consummation of the Exchange Offer.
As of the date of this Prospectus, $140,000,000 aggregate principal amount
of the Original Notes are outstanding and registered in the name of Cede & Co.,
as nominee for the Depository Trust Company ("DTC"). Only a registered holder of
the Original Notes (or such holder's legal representative or attorney-in-fact)
as reflected on the records of the Trustee under the Indenture may participate
in the Exchange Offer. There will be no fixed record date for determining
registered holders of the Original Notes entitled to participate in the Exchange
Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Exchange and Registration Rights Agreement and the applicable requirements of
the Securities Act, the Exchange Act and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Notes will be
returned without expense to the tendering holders thereof (or in the case of
Original Notes tendered by book-entry transfer, such Original Notes will be
credited to the account of such holder maintained at the Depository), as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Holders who tender Original 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 with respect to the exchange of Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See " -- Fees and Expenses."
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EXPIRATION DATE; EXTENSIONS; TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time on [the
21st business day following the Exchange Offer], 1997 unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date and time to which the Exchange Offer is
extended.
In order to extend the Exchange Offer the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date of the Exchange Offer. Without limiting the manner in which the Company may
choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if any
conditions set forth below under "-- Certain Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
Original Notes, and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to such registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "-- Certain Conditions to the Exchange
Offer."
If the Company extends the period of time during which the Exchange Offer
is open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Original Notes, or is unable to accept
for exchange of, or issue Exchange Notes for, any Original Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Company's rights
under the Exchange Offer, the Exchange Agent may, on behalf of the Company,
retain all Original Notes tendered, and such Original Notes may not be withdrawn
except as otherwise provided below in "-- Withdrawal of Tenders." The adoption
by the Company of the right to delay acceptance for exchange of, or the issuance
and the exchange of the Exchange Notes, for any Original Notes is subject to
applicable law, including Rule 14e-1(c) under the Exchange Act, which requires
that the Company pay the consideration offered or return the Original Notes
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of the Exchange Offer.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signature thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer of such
Notes, if such procedure is available, into the Exchange Agent's account at DTC
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent
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prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below.
Any financial institution that is a participant in the Depository's
Book-Entry Transfer Facility system may make book-entry delivery of the Original
Notes by causing the Depository to transfer such Original Notes into the
Exchange Agent's account in accordance with the Depository's procedure for such
transfer. Although delivery of Original Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depository, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
or confirmed by the Exchange Agent at its addresses set forth under "-- Exchange
Agent" below prior to 5:00 p.m., New York City time, on the Expiration Date.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY IN ACCORDANCE WITH ITS PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE
TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Original Notes whose Original 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 such registered holder to tender on such beneficial
owners's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Original Notes, either make appropriate
arrangements to register ownership of the Notes in such owner's name (to the
extent permitted by the Indenture) or obtain a properly completed assignment
from the registered holder. The transfer of registered ownership may take
considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes (which term includes any participants in
DTC whose name appears on a security position listing as the owner of the
Original Notes) or if delivery of the Exchange Notes is to be made to a person
other than the registered holder, such Original Notes must be endorsed or
accompanied by a properly completed bond power, in either case signed by such
registered holder as such registered holder's name appears on such Original
Notes with the signature on the Original Notes or the bond power guaranteed by
an Eligible Institution (as defined below).
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution unless the Original Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) 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, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United
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States, or another "Eligible Guarantor Institution" within the meaning of Rule
17Ad-15 under the Exchange Act (any of the foregoing, an "Eligible
Institution").
If the Letter of Transmittal or any Original Notes or assignments are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Original Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes, the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Notes. The Company's
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 Original Notes must be cured within such time as the Company shall determine.
Although the Company intends to request the Exchange Agent to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "-- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Original Notes in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, the holder is required to acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any
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resale of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
RETURN OF NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Original Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depository pursuant to the book-entry transfer procedures
described below, such Original Notes will be credited to an account maintained
with the Depository) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's system may make book-entry
delivery of Original Notes by causing the Depository to transfer such Original
Notes into the Exchange Agent's account at the Depository in accordance with the
Depository's procedures for transfer. However, although delivery of Original
Notes may be effected through book-entry transfer at the Depository, the Letter
of Transmittal or facsimile thereof, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the Exchange Agent at the address set forth below under "-- Exchange Agent"
on or prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes (or complete the procedures for book-entry transfer), the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Original Notes (if
available) and the principal amount of Original Notes tendered, stating
that the tender is being made thereby guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or a facsimile thereof) together with the certificate(s)
representing the Original Notes in proper form for transfer (or a
confirmation of a book-entry transfer into the Exchange Agent's account at
the Depository of Original Notes delivered electronically), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Original
Notes in proper form for transfer (or a confirmation of a book-entry
transfer into the Exchange Agent's account at the Depository of Original
Notes delivered electronically), and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
36
<PAGE> 38
Upon request to the exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number or numbers (if
applicable) and principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, whose determination shall be final and binding on all
parties. Any Original 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 thereto unless the Original Notes so withdrawn are validly
retendered. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might impair the ability of the Company
to proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company or there shall have
occurred any material adverse development in any existing action or proceeding
with respect to the Company or any of its subsidiaries; or
(b) there shall have been any material change, or development involving a
prospective change, in the business or financial affairs of the Company or any
of its subsidiaries which, in the reasonable judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could reasonably be
expected to materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or
(d) any governmental approval which the Company shall, in its reasonable
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby shall not have been obtained.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered
37
<PAGE> 39
prior to the expiration of the Exchange Offer, subject, however, to the rights
of holders to withdraw such Original Notes (see "-- Withdrawal of Tenders") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Original Notes which have not been withdrawn. If
such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders of the Original Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Holders may have certain rights and remedies against the Company under the
Exchange and Registration Rights Agreement should the Company fail to consummate
the Exchange Offer, notwithstanding a failure of the conditions stated above.
Such conditions are not intended to modify those rights or remedies in any
respect.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's reasonable discretion. The failure by the
Company at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
TERMINATION OF CERTAIN RIGHTS
All rights under the Exchange and Registration Rights Agreement (including
registration rights) of holders of the Original Notes eligible to participate in
this Exchange Offer will terminate upon consummation of the Exchange Offer
except with respect to the Company's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Original Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Original Notes pursuant to Rule 144A,
(iii) to use its reasonable best efforts to keep the Registration Statement
effective to the extent necessary to ensure that it is available for resales of
transfer restricted Notes by broker-dealers for a period of 180 days from the
date on which the Registration Statement is declared effective and (iv) to
provide copies of the latest version of the Prospectus to broker-dealers upon
their request for a period of 180 days from the date on which the Registration
Statement is declared effective. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. All questions and requests for assistance as well as all
correspondence in connection with the Exchange Offer and the Letter of
Transmittal should be addressed to the Exchange Agent, as follows:
By Registered or Certified Mail, Overnight Carrier or by Hand:
Harris Trust and Savings Bank
Corporate Trust Department
311 West Monroe
12th Floor
Chicago, Illinois 60606
38
<PAGE> 40
By Facsimile:
Harris Trust and Savings Bank
Corporate Trust Department
(312) 461-3525
Confirm by Telephone
(312) 461-2527
Requests for additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery should be directed to the
Exchange Agent.
39
<PAGE> 41
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will 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.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$200,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or Original Notes for principal amounts not
tendered or acceptable for exchange, are to be delivered to, or are to be issued
in the name of, any person other than the registered holders of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder of Original
Notes.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Original Notes which are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Original
Notes may be resold only (i) to a person whom the seller reasonably believes is
a qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
40
<PAGE> 42
THE TRANSACTIONS
The Acquisition
On August 1, 1997, Argo-Tech and Carter entered into a stock purchase
agreement (the "Carter Stock Purchase Agreement") whereby Argo-Tech agreed to
acquire all of the outstanding capital stock of Carter from certain trusts
organized by Robert L. Veloz, the President and Chief Executive Officer of
Carter (the "Veloz Trusts"), and certain trusts organized by Harry S.
Derbyshire, a director of Carter, (the "Derbyshire Trust", and together with the
Veloz Trusts, the "Trusts") for $107.0 million in cash, subject to post-closing
adjustments (the "Acquisition"). The Acquisition was consummated on September
26, 1997.
Carter, a California corporation, was founded in 1945 by James Coolidge
Carter, who developed a line of cryogenic pumps to support the U.S. space
industry. In 1958, Mr. Carter developed an innovative submerged electric motor
LNG gas pump which became recognized as the world standard. The technology and
principles used in these pumps has led to the expansion of Carter's product
lines into military aerial refueling systems and other fuel system components
including valves, couplings, regulators and ground fueling components.
The Amended Credit Facility
On July 18, 1997, the Company entered into the New Credit Facility, which
provides for Tranche A Term Loans in an aggregate principal amount not to exceed
$100.0 million (the "Tranche A Term Loans"), Delayed Draw Acquisition Loans in
an aggregate principal amount not to exceed $15.0 million (the "Delayed Draw
Acquisition Loans" and, together with the Tranche A Term Loans, the "Term
Loans") and Revolving Credit Loans in an aggregate principal amount not to
exceed $20.0 million (the "Revolving Loans")(the "New Credit Facility"). On
September 26, 1997, the Company amended and restated the New Credit Facility to
authorize the Acquisition and the issuance of the Original Notes and to adjust
certain financial covenants. In addition, the Company borrowed the Delayed Draw
Acquisition Loans in an aggregate principal amount equal to $15.0 million. See
"Description of the Amended Credit Facility."
The Note Repayment
In March 1997, Parent purchased all of its redeemable preferred stock from
the two preferred stockholders, AT LLC and Vestar/Argo-Tech Investment Limited
Partnership (the "Vestar Investment Partnership"). AT LLC's preferred stock was
purchased, including accrued dividends, in exchange for subordinated notes in
the aggregate principal amount of $41.1 million (the "Parent Notes") and cash of
$2.1 million. Vestar Investment Partnership's preferred stock was purchased,
including accrued dividends, in exchange for cash of $2.0 million. The Company
also had notes payable in the aggregate principal amount of $5.0 million (the
"AT Notes," and together with the Parent Notes, the "Existing Notes"). The AT
Notes were issued to the Yamada Trust, a trust organized under an irrevocable
trust agreement, and were subordinate to the Company's senior debt. The Existing
Notes were repaid with the proceeds of the Offering. See "Summary -- The
Transactions" and "Certain Transactions."
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in like principal amount, the terms of which are substantially
identical to the Exchange Notes. All Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any increase in
the indebtedness of the Company.
41
<PAGE> 43
The following table summarizes the sources and uses related to the issuance
of the Original Notes:
<TABLE>
<CAPTION>
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES:
Amended Credit Facility:
Revolving Credit Facility(1).................... $ --
Delayed Draw Acquisition Loans.................. 15.0
Senior Subordinated Notes due 2007................ 140.0
Cash on hand...................................... 4.7
------
Total Sources................................ $159.7
======
USES:
Acquisition Cash Purchase Price................... $107.0
Repayment of the Existing Notes................... 46.7
Fees and expenses................................. 6.0
------
Total Uses................................... $159.7
======
</TABLE>
- ---------------
(1) The Revolving Credit Facility under the Amended Credit Facility provides for
borrowings of up to $20.0 million (the "Revolving Credit Facility"), all of
which would have been available on a pro forma basis as of August 2, 1997.
42
<PAGE> 44
CAPITALIZATION
The following table sets forth as of August 2, 1997, (i) the historical
cash and capitalization of Argo-Tech and (ii) the pro forma cash and
capitalization of the Company giving effect to the Transactions, including the
application of the proceeds of the Offering as described under "Use of
Proceeds." The information was derived from, and is qualified by reference to,
the unaudited condensed consolidated financial statements of the Company,
including the notes thereto, included elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto, "Unaudited Pro Forma Condensed Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AUGUST 2, 1997
-------------------------
HISTORICAL PRO FORMA
---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents......................... $ 7,371 $ 2,882
========= =========
Long-term debt (including current portion)
Amended Credit Facility:
Revolving Credit Facility(1)................. $ -- $ --
Tranche A Term Loan Facility................. 95,000 95,000
Delayed Draw Acquisition Loans............... -- 15,000
Senior Subordinated Notes due 2007 offered
hereby....................................... -- 140,000
Capital lease obligations....................... -- 275
Subordinated Notes.............................. 41,100 --
Notes Payable................................... 5,007 --
--------- ---------
Total long-term debt............................ 141,107 250,275
Total redeemable common stock..................... 3,900 3,900
Total shareholders' deficiency(2)................. (9,515) (9,515)
--------- ---------
Total capitalization.............................. $ 135,492 $ 244,660
========= =========
</TABLE>
- ---------------
(1) The Revolving Credit Facility provides for borrowing of up to $20.0 million,
all of which would have been available on a pro forma basis as of August 2,
1997.
(2) In connection with Argo-Tech's ESOP, the current value of the outstanding
shares of Parent Stock is determined annually by an independent appraiser.
The current value per share as so determined times the total shares
outstanding amounted to $53.7 million, $64.8 million and $79.7 million as of
October 29, 1994, October 28, 1995 and October 26, 1996, respectively. An
appraisal was not performed prior to fiscal year 1994.
43
<PAGE> 45
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF ARGO-TECH CORPORATION
The following table sets forth selected historical financial and other data
of Argo-Tech for (i) the fiscal years 1992 through 1996, which have been derived
from Argo-Tech's audited consolidated financial statements for those years and
(ii) the 39 weeks ended July 27, 1996 and the 40 weeks ended August 2, 1997,
which have been derived from Argo-Tech's unaudited condensed consolidated
financial statements for those periods, which, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the unaudited interim
periods. Results for the 40 weeks ended August 2, 1997 are not necessarily
indicative of results that may be expected for the entire year. Argo-Tech's
fiscal year ends on the last Saturday in October and is identified according to
the calendar year in which it ends. For example, the fiscal year ended October
26, 1996 is referred to as "fiscal 1996." All of the fiscal years presented
consisted of 52-week periods. The information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39
------------------------------------------------------------------- WEEKS ENDED 40
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 28, OCTOBER 26, JULY 27, WEEKS ENDED
1992 1993 1994 1995 1996 1996 AUGUST 2, 1997
----------- ----------- ----------- ----------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............... $ 118,521 $ 88,484 $ 79,709 $ 86,671 $ 96,437 $ 71,493 $ 84,892
Gross profit............... 33,824 25,148 25,433 32,449 38,555 28,633 36,195
Operating expenses......... 16,077 14,497 14,789 17,390 19,307 13,850 14,135
--------- --------- --------- --------- --------- --------- --------
Income from operations..... 17,747 10,651 10,644 15,059 19,248 14,783 22,060
Interest expense........... 11,677 10,371 10,117 11,924 10,138 7,643 9,222
Other, net................. (111) 127 75 (588) (142) (118) (313)
Income tax provision....... 2,583 61 279 1,553 3,608 3,172 5,299
Extraordinary loss(a)...... -- -- -- -- -- -- 1,529
--------- --------- --------- --------- --------- --------- --------
Net income................. $ 3,598 $ 92 $ 173 $ 2,170 $ 5,644 $ 4,086 $ 6,323
========= ========= ========= ========= ========= ========= ========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............... $ 204,183 $ 188,963 $ 183,826 $ 167,057 $ 167,106 $ 158,990 $161,504
Working capital............ 31,366 31,289 34,506 23,098 25,531 23,916 26,874
Long-term debt (including
current maturities)...... 144,500 128,000 137,607 118,607 107,607 108,907 141,107
Redeemable preferred
stock.................... 24,400 24,400 25,908 25,908 25,908 25,908 --
Redeemable common stock.... -- -- -- 1,100 2,700 2,200 3,900
Shareholder's equity/
(deficiency)(b)(c)....... 3,911 1,245 (16,848) (17,639) (14,878) (15,510) (9,515)
OTHER DATA:
Gross margin............... 28.5% 28.4% 31.9% 37.4% 40.0% 40.1% 42.6%
Adjusted EBITDA(d)......... $ 29,534 $ 21,188 $ 20,210 $ 23,901 $ 29,039 $ 21,753 $ 29,575
Adjusted EBITDA
margin(e)................ 24.9% 23.9% 25.4% 27.6% 30.1% 30.4% 34.8%
Net cash flows provided by
operating activities..... $ 21,881 $ 20,907 $ 17,531 $ 17,846 $ 15,942 $ 6,964 $ 8,771
Net cash flows used in
investing activities..... (2,900) (2,190) (1,475) (2,918) (3,355) (1,762) (1,775)
Net cash flows used in
financing activities..... (14,692) (16,917) (5,855) (19,730) (11,000) (9,700) (13,181)
Depreciation, goodwill and
deferred financing fee
amortization............. 13,066 12,460 10,177 8,577 8,653 6,036 6,009
Capital expenditures....... 4,765 2,076 1,475 2,918 3,355 1,762 1,775
Cash interest expense(f)... 10,398 8,448 8,666 10,519 8,947 6,749 8,424
Ratio of Adjusted EBITDA to
cash interest expense.... 2.8x 2.5x 2.3x 2.3x 3.2x 3.2x 3.5x
Ratio of earnings to fixed
charges(g)............... 1.5x 1.0x 1.0x 1.3x 1.9x 1.9x 2.4x
</TABLE>
- ---------------
(a) The extraordinary loss, net of federal income tax benefits, relates to the
write-off of unamortized debt issuance costs of the Old Credit Facility that
was refinanced with the proceeds of the Tranche A Term Loans (as defined)
under the New Credit Facility on July 18, 1997.
(b) In connection with Argo-Tech's ESOP, the current value of the outstanding
shares of Parent Stock is determined annually by an independent appraiser.
The current value per share as so determined times the total shares
outstanding
44
<PAGE> 46
amounted to $53,683,000, $64,842,000 and $79,650,000 as of October 29, 1994,
October 28, 1995 and October 26, 1996, respectively. An appraisal was not
performed prior to fiscal year 1994.
(c) During the fiscal year ended October 29, 1994, Argo-Tech established its
ESOP. Shareholders' equity/(deficiency) reflects unearned ESOP shares of
$(15,960,000), $(14,280,000), $(12,600,000) and $(13,020,000) and
$(11,340,000) as of October 29, 1994, October 28, 1995 and October 26, 1996
and July 27, 1996 and August 2, 1997, respectively.
(d) Adjusted EBITDA represents income from operations plus non-cash charges as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------- 39 40
OCTOBER 31, OCTOBER 30, OCTOBER 29, OCTOBER 28, OCTOBER 26, WEEKS ENDED WEEKS ENDED
1992 1993 1994 1995 1996 JULY 27, 1996 AUGUST 2, 1997
----------- ----------- ----------- ----------- ----------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations.... $ 17,747 $ 10,651 $ 10,644 $ 15,059 $ 19,248 $ 14,783 $ 22,060
Depreciation and goodwill
amortization............ 11,787 10,537 8,726 7,172 7,462 5,142 5,211
Compensation expense --
ESOP.................... -- -- 840 1,670 2,329 1,828 2,304
--------- --------- --------- --------- --------- -------- --------
Adjusted EBITDA........... $ 29,534 $ 21,188 $ 20,210 $ 23,901 $ 29,039 $ 21,753 $ 29,575
========= ========= ========= ========= ========= ======== ========
</TABLE>
Argo-Tech's Adjusted EBITDA is not intended to represent cash flow from
operations as defined by generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. Argo-Tech has included
information concerning Adjusted EBITDA as it understands that it is used by
certain investors as one measure of a borrower's historical ability to service
its debt. Adjusted EBITDA, as presented, may not be comparable to similarly
titled measures reported by other companies, since not all companies necessarily
calculate Adjusted EBITDA in an identical manner, and therefore is not
necessarily an accurate means of comparison between companies.
(e) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.
(f) Cash interest expense represents interest expense less amortization of
deferred financing fees of $1,279,000, $1,923,000, $1,451,000, $1,405,000,
$1,191,000 and $894,000 and $798,000 in the fiscal years ended October 31,
1992 through October 26, 1996 and the 39 weeks ended July 27, 1996 and 40
weeks ended August 2, 1997, respectively.
(g) For purposes of determining the ratio of earnings available to cover fixed
charges, earnings consist of income before taxes and the extraordinary loss
plus fixed charges. Fixed charges consist of interest on indebtedness
including amortization of deferred financing fees and fixed loan guarantee
fees.
45
<PAGE> 47
SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF J.C. CARTER COMPANY, INC.
The following table sets forth selected historical financial and other data
of Carter for (i) the three years ended December 31, 1996, which have been
derived from Carter's audited financial statements for those years and (ii) the
six months ended June 30, 1996 and 1997, which have been derived from Carter's
unaudited condensed financial statements for those periods, which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. Results for the six months ending June 30, 1997 are
not necessarily indicative of results that may be expected for the entire year.
Carter's fiscal year coincides with the calendar year. The information presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................................. $38,727 $39,986 $44,450 $22,131 $24,008
Gross profit.............................................. 19,744 19,602 21,892 10,079 11,864
Office of the President(a)................................ 7,963 10,994 9,339 4,840 6,088
Other operating expenses.................................. 8,460 8,822 9,926 4,354 5,704
------- ------- ------- ------- -------
Income (loss) from operations............................. 3,321 (214) 2,627 885 72
Interest expense.......................................... 859 934 970 489 537
Other expense, net........................................ 396 101 226 54 214
Income tax provision (benefit)(b)......................... 60 188 105 43 (2,271)
------- ------- ------- ------- -------
Net income (loss)......................................... $ 2,006 $(1,437) $ 1,326 $ 299 $ 1,592
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................................. $20,698 $24,117 $24,516 $23,708 $27,705
Working capital........................................... 4,457 2,674 2,471 2,457 1,625
Long-term debt (including current maturities)............. 10,547 12,552 11,388 11,991 13,550
Shareholders' equity...................................... 5,518 4,081 5,407 4,380 6,999
OTHER DATA:
Gross margin.............................................. 51.0% 49.0% 49.3% 45.5% 49.4%
Adjusted EBITDA(c)........................................ $11,739 $11,640 $12,553 $ 6,026 $ 6,519
Adjusted EBITDA margin(d)................................. 30.3% 29.1% 28.2% 27.2% 27.2%
Net cash flows provided by (used in) operating
activities.............................................. $ 1,005 $(1,057) $ 1,524 $ 525 $(1,472)
Net cash flows used in investing activities............... (831) (682) (780) (315) (476)
Net cash flows provided by (used in) financing
activities.............................................. (20) 2,005 (1,164) (561) 2,151
Depreciation and amortization............................. 455 860 587 301 359
Capital expenditures(e)................................... 867 712 1,136 315 69
</TABLE>
- ---------------
(a) Office of the President expenses were incurred by Carter for the benefit of
the President and a director of Carter. These expenses include salaries,
benefits, personal expenses and costs associated with operating and
maintaining personal assets such as a private airplane, an airplane hangar,
personal residences and numerous automobiles. These expenses and assets will
be terminated or disposed of concurrent with the Acquisition in accordance
with the Carter Stock Purchase Agreement. Any services which were provided
by such individuals will be assumed by existing officers of the Company with
no incremental costs. Accordingly, the Company believes it is appropriate to
exclude all Office of the President expenses in determining the pro forma
operating results of the Company.
(b) Effective January 1, 1997, Carter voluntarily terminated its Subchapter S
tax status and became taxable at the applicable state and federal statutory
rates. A tax benefit of $2,207,000 was recorded in the six months ended June
30, 1997 for the impact on deferred assets for the change in tax status.
(c) Carter's Adjusted EBITDA is defined as income (loss) from operations before
depreciation and amortization expense and Office of the President expenses.
Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. Carter has included
information concerning Adjusted EBITDA as it understands that it is used by
certain investors as one measure of a borrower's historical ability to
service its debt. Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate Adjusted EBITDA in an identical manner, and
therefore is not necessarily an accurate means of comparison between
companies.
(d) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.
(e) Capital expenditures for the year ended December 31, 1996 and the six months
ended June 30, 1996 are net of assets that were acquired and then
immediately sold amounting to $3,855,000.
46
<PAGE> 48
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of August
2, 1997 includes the historical accounts of the Company and gives effect to the
Transactions as if they occurred as of August 2, 1997. The unaudited pro forma
condensed consolidated statements of operations of the Company for the fiscal
year ended October 26, 1996, the nine months ended August 2, 1997 and the twelve
months ended August 2, 1997 include the historical operations of the Company and
give effect to the Transactions as if they occurred at the beginning of the
period indicated.
The unaudited pro forma condensed consolidated financial data, which has
been prepared by the Company's management, has been derived from the historical
statements of operations and balance sheets of Argo-Tech and Carter. The
Acquisition has been accounted for under the purchase method of accounting using
the assumptions and adjustments disclosed in the notes to the unaudited pro
forma condensed consolidated financial data. A preliminary allocation of the
purchase price has been made based on available information. A balance sheet
will be prepared for Carter as of the date of closing, on which the post-closing
purchase price adjustment will be based. Management does not expect that
differences between the preliminary and final purchase price allocation will
have a material impact on the Company's financial position or results of
operations.
The information is not designed to represent and does not represent what
the Company's results of operations actually would have been had the
aforementioned transactions been completed as of the beginning of the periods
indicated, or to project the Company's results of operations for any future
period. The pro forma adjustments are based on available information and certain
assumptions that the Company currently believes are reasonable under the
circumstances. The unaudited pro forma condensed consolidated financial
information should be read in conjunction with the more detailed information
contained in the historical consolidated financial statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Use of Proceeds," "Capitalization," and the historical financial
information included elsewhere in this Prospectus.
47
<PAGE> 49
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AUGUST 2, 1997 (JUNE 30, 1997 FOR J.C. CARTER COMPANY, INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ARGO-TECH CARTER ADJUSTMENTS AS ADJUSTED
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ 7,371 $ 203 $ (4,692)(a) $ 2,882
Receivables, net...................... 19,021 4,856 -- 23,877
Note and accrued interest receivable
from an officer/shareholder........ -- 2,280 (2,280)(b) --
Inventories........................... 17,380 11,408 10,000(c) 38,788
Deferred income taxes, prepaid
expenses and other................. 4,019 3,408 (4,000)(d) 3,427
--------- -------- -------- ---------
Total Current Assets............... 47,791 22,155 (972) 68,974
--------- -------- -------- ---------
Property and equipment, net of
accumulated depreciation.............. 26,343 5,188 4,206(e) 35,737
Goodwill, net of accumulated
amortization.......................... 81,825 362 42,669(f) 124,856
Identifiable intangible assets.......... -- -- 60,580(g) 60,580
Other assets............................ 5,545 -- 5,500(h) 11,045
--------- -------- -------- ---------
Total Assets....................... $ 161,504 $ 27,705 $111,983 $ 301,192
========= ======== ======== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY/(DEFICIENCY)
Current Liabilities:
Current portion of long-term debt..... $ 5,000 $ 13,374 $(12,525)(i) $ 5,849
Accounts payable...................... 3,148 3,110 -- 6,258
Accrued liabilities................... 12,769 2,040 (684)(j) 14,125
Accrued officer/shareholder bonuses... -- 2,006 (2,006)(k) --
--------- -------- -------- ---------
Total Current Liabilities.......... 20,917 20,530 (15,215) 26,232
--------- -------- -------- ---------
Long-term debt, net of current
maturities............................ 136,107 176 108,143(i) 244,426
Other noncurrent liabilities............ 10,095 -- 26,054(l) 36,149
--------- -------- -------- ---------
Total Liabilities.................. 167,119 20,706 118,982 306,807
--------- -------- -------- ---------
Redeemable common stock................. 3,900 -- -- 3,900
Shareholders' Equity/(Deficiency):
Common stock.......................... -- 1,125 (1,125)(m) --
Paid-in capital....................... 11,288 -- -- 11,288
Accumulated earnings (deficit)........ (9,463) 5,874 (5,874)(m) (9,463)
Unearned ESOP shares.................. (11,340) -- -- (11,340)
--------- -------- -------- ---------
Total Shareholders'
Equity/(Deficiency).............. (9,515) 6,999 (6,999) (9,515)
--------- -------- -------- ---------
Total Liabilities and Shareholders'
Equity/(Deficiency).............. $ 161,504 $ 27,705 $111,983 $ 301,192
========= ======== ======== =========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
48
<PAGE> 50
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the financial position of Argo-Tech is as of August 2, 1997 and Carter is
as of June 30, 1997.
<TABLE>
<S> <C> <C> <C>
(a) Represents the net adjustment to cash as a result of the following:
Proceeds from the sale of the Notes........................................ $ 140,000
Proceeds from Delayed Draw Acquisition Loans............................... 15,000
Purchase of common stock of Carter......................................... (107,000)
Repayment of the Existing Notes, including accrued interest of $585........ (46,692)
Payment of fees and expenses related to the Acquisition and the sale of the
Notes.................................................................... (6,000)
---------
$ (4,692)
=========
(b) Represents the elimination of note and accrued interest receivable from an officer/shareholder of
Carter of $2,280.
(c) Represents the excess of inventory fair market value over historical value. As such inventory is
sold, this adjustment to fair value will be charged to cost of revenues. The Company expects the
inventory to be sold over a one-year period.
(d) Represents the deferred tax impact at the Company's 40% statutory tax rate of the inventory
adjustment described in Note (c).
(e) Represents the net increase in property and equipment as a result of the
following:
Excess of estimated fair market over historical value........................ ....... $ 4,554
Elimination of Carter's capitalized tooling historical value to conform to
Argo-Tech's accounting policies............................................ (348)
---------
$ 4,206
=========
(f) Represents the excess of the Acquisition price over the fair market value of
the assets and liabilities acquired. The following reflects the calculation
of goodwill:
Total purchase price, including $500 of Acquisition costs.................. $ 107,500
Less:
Inventory adjustment -- Note (c)......................................... 10,000
Property and equipment adjustment -- Note (e)............................ 4,206
Identifiable intangibles adjustment -- Note (g).......................... 60,580
Elimination of Carter indebtedness -- Note (i)........................... 13,275
Accrued interest on Carter indebtedness -- Note (j)...................... 99
Accrued officer/shareholder bonuses -- Note (k).......................... 2,006
Carter historical net book value -- Note (m)............................. 6,999 (97,165)
------
Add:
Elimination of officer/shareholder receivable -- Note (b)................ 2,280
Deferred tax effect -- Notes (d) and (l)................................. 30,054 32,334
------ ---------
Total Carter goodwill...................................................... $ 42,669
=========
(g) Represents the estimated increase in identifiable intangible assets (workforce, contracts, annuities
and patents) due to the application of purchase price accounting for assets to be acquired in the
Acquisition.
(h) Represents the net increase in other assets, related to deferred financing costs, as a result of the
sale of the Notes.
(i) Represents adjustments to long-term debt as follows:
Current portion:
Delayed Draw Acquisition Loans........................................... $ 750
Elimination of Carter indebtedness....................................... (13,275)
---------
$ (12,525)
=========
Long-term:
Sale of the Notes........................................................ $ 140,000
Delayed Draw Acquisition Loans........................................... 14,250
Repayment of the Existing Notes.......................................... (46,107)
---------
$ 108,143
=========
</TABLE>
49
<PAGE> 51
<TABLE>
<S> <C> <C>
(j) Represents adjustments to accrued liabilities as follows:
Elimination of accrued interest on the Existing Notes...................... $ (585)
Elimination of accrued interest on Carter indebtedness..................... (99)
---------
$ (684)
=========
(k) Represents the elimination of accrued officer/shareholder bonuses of $2,006.
(l) Represents deferred tax liability relating to the purchase price adjustments in Notes (e) and (g)
above at the Company's 40% statutory tax rate for the excess of estimated fair market over historical
value of property and equipment and identifiable intangible assets.
(m) Represents the elimination of Carter's shareholders' equity accounts.
</TABLE>
50
<PAGE> 52
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 26, 1996
(TWELVE MONTHS ENDED SEPTEMBER 30, 1996 FOR J.C. CARTER COMPANY, INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ARGO-TECH CARTER (a) ADJUSTMENTS AS ADJUSTED
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues.................................... $ 96,437 $ 41,566 $ -- $ 138,003
Cost of revenues................................ 57,882 21,163 670(b) 79,715
-------- -------- --------- ---------
Gross profit.................................. 38,555 20,403 (670) 58,288
Selling, general, and administrative............ 10,036 6,872 -- 16,908
Research and development........................ 6,429 1,784 -- 8,213
Office of the President......................... --...... 10,148 (10,148)(c) --
Amortization of intangible assets............... 2,842 -- 5,087(d) 7,929
-------- -------- --------- ---------
Operating expenses............................ 19,307 18,804 (5,061) 33,050
-------- -------- --------- ---------
Income from operations.......................... 19,248 1,599 4,391 25,238
Interest expense................................ 10,138 995 10,289(e) 21,422
Other, net...................................... (142) 141 124(f) 123
-------- -------- --------- ---------
Income (loss) before income taxes............... 9,252 463 (6,022) 3,693
Income tax provision (benefit).................. 3,608 208 (397)(g)(h) 3,419
-------- -------- --------- ---------
Income (loss) before extraordinary loss......... $ 5,644 $ 255 $ (5,625) $ 274
======== ======== ========= =========
OTHER DATA:
Gross margin............................................................................. 42.2%
Adjusted EBITDA(i)....................................................................... $ 41,455
Adjusted EBITDA margin................................................................... 30.0%
Depreciation, goodwill and deferred financing fee amortization........................... $ 14,709
Capital expenditures..................................................................... 3,759
Cash interest expense(j)................................................................. 20,601
Ratio of Adjusted EBITDA to cash interest expense........................................ 2.0x
Ratio of net debt to Adjusted EBITDA(k).................................................. 6.0x
Ratio of earnings to fixed charges (l)................................................... 1.2x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
51
<PAGE> 53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED AUGUST 2, 1997
(NINE MONTHS ENDED JUNE 30, 1997 FOR J.C. CARTER COMPANY, INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ARGO-TECH CARTER (a) ADJUSTMENTS AS ADJUSTED
--------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues................................... $ 84,892 $ 35,047 $ -- $119,939
Cost of revenues............................... 48,697 17,291 468(b) 66,456
-------- -------- ------- --------
Gross profit................................. 36,195 17,756 (468) 53,483
Selling, general, and administrative........... 7,210 6,799 -- 14,009
Research and development....................... 5,065 2,000 -- 7,065
Office of the President........................ -- 8,079 (8,079)(c) --
Amortization of intangible assets.............. 1,860... -- 3,815(d) 5,675
-------- -------- ------- --------
Operating expenses........................... 14,135 16,878 (4,264) 26,749
-------- -------- ------- --------
Income from operations......................... 22,060 878 3,796 26,734
Interest expense............................... 9,222 770 6,074(e) 16,066
Other, net..................................... (313) 261 -- (52)
-------- -------- ------- --------
Income (loss) before income taxes.............. 13,151 (153) (2,278) 10,720
Income tax provision (benefit)................. 5,299 (2,217) 2,771(g)(h) 5,853
-------- -------- ------- --------
Income (loss) before extraordinary loss........ $ 7,852 $ 2,064 $(5,049) $ 4,867
======== ======== ======= ========
OTHER DATA:
Gross margin............................................................................ 44.6%
Adjusted EBITDA(i)...................................................................... $ 39,015
Adjusted EBITDA margin.................................................................. 32.5%
Depreciation, goodwill and deferred financing fee amortization.......................... $ 10,593
Capital expenditures.................................................................... 2,137
Cash interest expense(j)................................................................ 15,450
Ratio of Adjusted EBITDA to cash interest expense....................................... 2.5x
Ratio of earnings to fixed charges (l).................................................. 1.7x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
52
<PAGE> 54
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED AUGUST 2, 1997
(TWELVE MONTHS ENDED JUNE 30, 1997 FOR J.C. CARTER COMPANY, INC.)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ARGO-TECH CARTER (a) Adjustments as Adjusted
--------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net revenues................................... $109,836 $ 46,327 $ -- $ 156,163
Cost of revenues............................... 63,719 22,650 797(b) 87,166
-------- -------- -------- ---------
Gross profit................................. 46,117 23,677 (797) 68,997
Selling, general, and administrative........... 9,938 8,749 -- 18,687
Research and development....................... 6,702 2,525 -- 9,227
Office of the President........................ -- 10,587 (10,587)(c) --
Amortization of intangible assets.............. 2,952... -- 5,087(d) 8,039
-------- -------- -------- ---------
Operating expenses........................... 19,592 21,861 (5,500) 35,953
-------- -------- -------- ---------
Income from operations......................... 26,525 1,816 4,703 33,044
Interest expense............................... 11,717 1,018 8,687(e) 21,422
Other, net..................................... (337) 386 -- 49
-------- -------- -------- ---------
Income (loss) before income taxes.............. 15,145 412 (3,984) 11,573
Income tax provision (benefit)................. 5,735 (2,208) 2,814(g)(h) 6,341
-------- -------- -------- ---------
Income (loss) before extraordinary loss........ $ 9,410 $ 2,620 $ (6,798) $ 5,232
======== ======== ======== =========
OTHER DATA:
Gross margin.......................................................................... 44.2%
Adjusted EBITDA(i).................................................................... $ 49,909
Adjusted EBITDA margin................................................................ 32.0%
Depreciation, goodwill and deferred financing fee amortization........................ $ 14,881
Capital expenditures.................................................................. 3,989
Cash interest expense(j).............................................................. 20,601
Ratio of Adjusted EBITDA to cash interest expense..................................... 2.4x
Ratio of net debt to Adjusted EBITDA(k)............................................... 5.0x
Ratio of earnings to fixed charges (l)................................................ 1.5x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations
53
<PAGE> 55
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Represents the results of operations of Carter for the period from October
1, 1995 through September 30, 1996, October 1, 1996 through June 30, 1997
and July 1, 1996 through June 30, 1997.
<TABLE>
<CAPTION>
NINE TWELVE
FISCAL YEAR MONTHS MONTHS
ENDED ENDED ENDED
OCTOBER 26, AUGUST 2, AUGUST 2,
1996 1997 1997
----------- --------- ---------
<S> <C> <C> <C> <C>
(b) Represents the addition to cost of goods sold for:
Expensing of Carter's tooling cost to conform to Argo-Tech's
accounting policies....................................... $ 18 $ (21) $ 145
Depreciation of property and equipment that was written up
to fair market value for the Acquisition and is being
depreciated over estimated useful lives ranging from 7 to
30 years.................................................. 652 489 652
--------- ------- ---------
$ 670 $ 468 $ 797
========= ======= =========
(c) Office of the President expenses were incurred by Carter for
the benefit of the President and a director of Carter.
These expenses include salaries, benefits, personal
expenses and costs associated with operating and
maintaining personal assets such as a private airplane, an
airplane hangar, personal residences and numerous
automobiles. These expenses and assets will be terminated
or disposed of concurrent with the Acquisition in
accordance with the Carter Stock Purchase Agreement. Any
services which were provided by such individuals will be
assumed by existing officers of the Company with no
incremental costs. Accordingly, the Company believes it is
appropriate to exclude all Office of the President
expenses in determining the pro forma operating results of
the Company............................................... $ (10,148) $(8,079) $ (10,587)
(d) Represents the incremental amortization due to:
Goodwill created as a result of the Acquisition which is
being amortized over 40 years............................. $ 1,067 $ 800 $ 1,067
Amortization of identifiable intangible assets resulting
from the Acquisition which are being amortized over
estimated useful lives ranging from 8 to 28 years......... 4,020 3,015 4,020
--------- ------- ---------
$ 5,087 $ 3,815 $ 5,087
========= ======= =========
(e) Represents the net effect on interest for pro forma
adjustments:
Interest expense related to the Notes incurred to finance
the Acquisition (rate of 8.625%).......................... $ 12,075 $ 9,056 $ 12,075
Amortization of deferred financing fees associated with the
purchase of the Notes..................................... 550 413 550
Increase resulting from the Delayed Draw Acquisition Loans
incurred to finance the Acquisition (assumed rate of
7.75%).................................................... 1,163 872 1,163
Interest expense related to Amended Credit Facility (assumed
rate of 7.75%)............................................ 7,363 5,522 7,363
Amortization of deferred financing fees associated with the
New Credit Facility....................................... 271 203 271
Eliminate historical interest expense on the Old Credit
Facility.................................................. (7,825) (5,816) (7,708)
Eliminate loan fee amortization and guarantee fees related
to the Old Credit Facility................................ (1,891) (1,313) (1,813)
Elimination of the interest expense incurred on the
refinanced Existing Notes................................. (422) (2,093) (2,196)
Elimination of historical interest expense related to Carter
indebtedness.............................................. (995) (770) (1,018)
--------- ------- ---------
$ 10,289 $ 6,074 $ 8,687
========= ======= =========
(f) Eliminate gain on sale of airplane.......................... $ 124 -- --
</TABLE>
54
<PAGE> 56
<TABLE>
<CAPTION>
NINE TWELVE
FISCAL YEAR MONTHS MONTHS
ENDED ENDED ENDED
OCTOBER 26, AUGUST 2, AUGUST 2,
1996 1997 1997
--------- ------- ---------
<S> <C> <C> <C> <C>
(g) Represents the elimination of the tax effect of changing
Carter's Subchapter S Corporation status to a C
Corporation, at the Company's 40% statutory tax rate...... $ (23) $ 2,156 $ 2,373
(h) Represents the income tax effects, at the Company's 40%
statutory tax rate, of the pro forma adjustments described
in Notes (b), (c), (e) and (f).
(i) Adjusted EBITDA represents income from operations plus
non-cash charges as follows:
Income from operations...................................... $ 25,238 $26,734 $ 33,044
Depreciation and goodwill amortization...................... 13,888 9,977 14,060
Compensation expense -- ESOP................................ 2,329 2,304 2,805
--------- ------- ---------
Adjusted EBITDA............................................. $ 41,455 $39,015 $ 49,909
========= ======= =========
Argo-Tech's Adjusted EBITDA is not intended to represent cash flow from operations as defined by
generally accepted accounting principles and should not be considered as an alternative to net income
as an indicator of operating performance or to cash flow as a measure of liquidity. Argo-Tech has
included information concerning Adjusted EBITDA as it understands that it is used by certain investors
as one measure of a borrower's historical ability to service its debt. Adjusted EBITDA, as presented,
may not be comparable to similarly titled measures reported by other companies, since not all
companies necessarily calculate Adjusted EBITDA in an identical manner, and therefore is not
necessarily an accurate means of comparison between companies.
(j) Cash interest expense represents interest expense less amortization of deferred financing fees.
(k) Net debt represents long-term debt, including current portion, less cash and cash equivalents on a pro
forma as adjusted basis.
(l) For purposes of determining the ratio of earnings available to cover fixed charges, earnings consist of
income before taxes and the extraordinary loss plus fixed charges. Fixed charges consist of interest
on indebtedness including amortization of deferred financing fees.
</TABLE>
55
<PAGE> 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In fiscal 1996 on a proforma basis, the aerospace business generated
approximately 83% of the Company's net revenues. The balance of the Company's
net revenues were generated from sales of ground fueling equipment, certain
industrial products and revenues from the operation of Heritage Business Park
(the "Business Park"). Approximately 77% of the aerospace revenues were derived
from sales to commercial OEMs and commercial aftermarket customers, while
military revenues represented approximately 23% of the Company's aerospace
revenues.
In fiscal 1996 on a pro forma basis, sales to commercial OEMs represented
approximately 34% of the Company's commercial aerospace revenues. As is
customary in the commercial aerospace industry, the Company incurs substantial
costs, for which it is generally not reimbursed, to design, test and qualify
original equipment for OEMs. Once qualified, OEM products generally are sold at
or below cost of production in anticipation of receiving orders for commercial
spare parts and overhaul services at significantly higher margins. Over the
approximately 25 year life cycle of an aircraft program, commercial spare parts
and overhaul services for products manufactured by the Company often generate
six or more times the aggregate net revenues of the OEM program.
In contrast to the practice in the commercial aerospace industry, the
Company is generally reimbursed for the design, test and qualification costs of
equipment used on military aircraft. Military original equipment shipments
generally are sold at cost plus a reasonable profit. Due to lower aircraft
utilization, military aftermarket sales are less significant than commercial
aftermarket sales. Aftermarket margins for military products are at a level
higher than original equipment shipments.
ARGO-TECH CORPORATION
GENERAL
The following should be read in conjunction with "Selected Financial and
Other Data of Argo-Tech Corporation" and the Financial Statements of the Company
and Notes thereto included elsewhere in this Prospectus. Argo-Tech's fiscal year
ends on the last Saturday of October and is identified according to the calendar
year in which it ends. For example, the fiscal year ended October 26, 1996 is
referred to as "fiscal 1996." All of the fiscal years discussed consisted of 52
weeks.
Argo-Tech's historical financial results are affected by a variety of
factors which impact the aerospace industry, in general, or Argo-Tech, in
particular. Significant factors are (i) the cyclicality of the commercial
aerospace industry, (ii) the funding of new aerospace product development
programs, (iii) the formation of Argo-Tech's ESOP in 1994 and (iv) Argo-Tech's
ownership of the Business Park.
During the period 1993 to 1995, the aerospace industry experienced a
significant downturn in its business cycle. During this period, Argo-Tech
initiated a workforce reduction of approximately 30%, including early retirement
programs. In addition, Argo-Tech undertook process improvement programs, which
are ongoing, such as Argo-Tech's Certified Operator and Certified Supplier
programs (together, known as "Cost Reductions"). As the aerospace industry has
moved into its recovery phase, the increase in volume coupled with the Cost
Reductions has allowed Argo-Tech to increase its absorption of fixed
manufacturing costs ("Operating Leverage").
56
<PAGE> 58
DEVELOPMENT EXPENSE TRENDS
In connection with new aerospace product development programs, Argo-Tech
incurs significant research and development expenditures to design, test and
qualify main engine fuel pumps and accessories for engine and airframe OEMs.
Prior to 1990, these engine and airframe OEMs reimbursed Argo-Tech for a
majority of these research and development expenditures. Since 1990, commercial
OEMs have significantly reduced, and in many cases eliminated, the reimbursement
of these development programs, which has resulted in increased levels of
research and development expenditures funded by Argo-Tech. Research and
development expenditures are expensed as incurred.
ESOP
Argo-Tech established its ESOP in 1994 by purchasing 420,000 shares of
Parent Stock with the proceeds of a $16.8 million ten-year loan funded through
Argo-Tech's Old Credit Facility. The ESOP, which includes each of the
approximately 310 salaried employees, represents an approximate 30% ownership
interest in the Parent. GAAP treatment requires that non-cash ESOP compensation
expense and a corresponding increase in shareholders' equity be recorded
annually as shares held by the ESOP are allocated to participants and the loan
made to the ESOP is repaid. GAAP also requires that this non-cash ESOP
compensation expense be added back to net income in the determination of cash
flow from operations. The aggregate amount of such non-cash ESOP compensation
expense was $2.8 million, $2.3 million, $1.7 million and $0.8 million for the
twelve months ended August 2, 1997 and the fiscal years ended 1996, 1995 and
1994, respectively. The Company believes that its ESOP has been successful in
motivating and compensating its salaried employees on a cost-efficient basis.
BUSINESS PARK
Argo-Tech owns and operates the Business Park, a 150 acre, 1.8 million
square foot business park in Cleveland, Ohio. Argo-Tech acquired the Business
Park as part of the TRW Transaction in 1986. In 1990, Argo-Tech underwent a
corporate restructuring and disposed of substantially all of its operations
except for its aircraft accessories business and the Business Park. In
connection with this corporate restructuring, Argo-Tech entered into certain
lease and service agreements with the disposed of operations located in the
Business Park. The service agreements covered certain support functions,
including computerized information services, equipment maintenance, and certain
office administrative services. The service agreements ensured that the disposed
of businesses would have the necessary support functions to operate during a
four to seven year transition period until they became self sufficient. The
planned elimination of services to these tenants has resulted in a continual
reduction of service-related revenues during the transition period. In addition
to providing space and services to operations formerly owned by it, the Company
also leases space in the Business Park to other manufacturers, and is working to
increase its rental and other income from the Business Park.
57
<PAGE> 59
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, selected items in
Argo-Tech's consolidated statements of income as a percentage of net revenues.
<TABLE>
<CAPTION>
52 WEEKS ENDED 39 WEEKS 40 WEEKS
------------------------------------------- ENDED ENDED
OCTOBER 29, OCTOBER 28, OCTOBER 26, JULY 27, AUGUST 2,
1994 1995 1996 1996 1997
----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................... 31.9% 37.4% 40.0% 40.1% 42.6%
Operating expenses................. 18.5% 20.0% 20.0% 19.4% 16.6%
Income from operations............. 13.4% 17.4% 20.0% 20.7% 26.0%
Interest expense................... 12.7% 13.8% 10.5% 10.7% 10.9%
Other, net......................... 0.1% (0.7)% (0.1)% (0.1)% (0.4)%
Income before income taxes......... 0.6% 4.3% 9.6% 10.1% 15.5%
Income tax provision............... 0.4% 1.8% 3.7% 4.4% 6.3%
Income before extraordinary
items............................ 0.2% 2.5% 5.9% 5.7% 9.2%
Extraordinary loss................. -- -- -- -- 1.8%
Net income......................... 0.2% 2.5% 5.9% 5.7% 7.4%
</TABLE>
40 WEEKS ENDED AUGUST 2, 1997 COMPARED WITH 39 WEEKS ENDED JULY 27, 1996
Net revenues for the first 40 weeks of fiscal 1997 increased $13.4 million,
or 18.7%, to $84.9 million from $71.5 million for the first 39 weeks of fiscal
1996 due to an increase of $15.1 million for aerospace products offset by a $1.7
million decrease in revenues related to the Business Park. Commercial
aftermarket revenues, which represented 61.5% of net revenues, increased 32.8%,
or $12.9 million, to $52.2 million and commercial OEM revenues increased 11.8%,
or $2.3 million, to $21.8 million due to a continued increase in both airline
traffic and airline capital spending. Total military revenues remained steady at
$6.6 million. The decline in Business Park revenues from the prior fiscal year
was due to a planned reduction in the maintenance and other services offered to
tenants and a reduction in the rental rate and square footage requirements of a
major tenant's lease.
Gross profit for the first 40 weeks of fiscal 1997 increased $7.6 million,
or 26.6%, to $36.2 million from $28.6 million for the first 39 weeks of fiscal
1996. Gross margin improved to 42.6% for fiscal 1997 from 40.1% in fiscal 1996
as a result of a higher percentage of aftermarket revenues and improved
Operating Leverage based on the overall increase in net revenues.
Operating expenses for the first 40 weeks of fiscal 1997 were $14.1
million, a slight increase from $13.9 million for the first 39 weeks of fiscal
1996. Operating expenses decreased as a percentage of net revenues to 16.6% in
the first 40 weeks of fiscal 1997 from 19.4% in the first 39 weeks of fiscal
1996. This decrease was primarily the result of improved Operating Leverage.
Income from operations for the first 40 weeks of fiscal 1997 increased $7.3
million, or 49.3%, to $22.1 million from $14.8 million for the first 39 weeks of
fiscal 1996 and increased as a percentage of net revenues to 26.0% in the first
40 weeks of fiscal 1997 from 20.7% in the first 39 weeks of fiscal 1996. This
increase was due to higher net revenues and improved Operating Leverage.
Interest expense for the first 40 weeks of fiscal 1997 increased $1.6
million, or 21.1%, to $9.2 million from $7.6 million for the first 39 weeks of
fiscal 1996 due to the increase in the average amount of indebtedness
outstanding related to the redemption of preferred stock and payment of accrued
dividends in March 1997. See Note 2 to Consolidated Financial Statements
(unaudited) for Argo-Tech.
The income tax provision for the first 40 weeks of fiscal 1997 of $5.3
million represents an effective tax rate of 40.3% compared to 43.7% for the
first 39 weeks of fiscal 1996. The decrease in
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the effective tax rate is primarily due to the impact of lower tax rates on the
Company's foreign sales corporation earnings.
The extraordinary loss for the first 40 weeks of fiscal 1997 of $1.5
million represents the write-off of unamortized debt issuance costs, net of
federal income tax benefits, related to the Old Credit Facility, which was
refinanced with the New Credit Facility on July 18, 1997.
Net income for the first 40 weeks of fiscal 1997 increased $2.2 million, or
53.7%, to $6.3 million, from $4.1 million for the first 39 weeks of fiscal 1996
primarily due to the factors discussed above.
FISCAL 1996 COMPARED TO FISCAL 1995
Net revenues for fiscal 1996 increased $9.7 million, or 11.2%, to $96.4
million from $86.7 million in fiscal 1995 due to an increased demand for
aerospace products. Commercial aftermarket revenues, which in fiscal 1996
represented 55.3% of net revenues, increased 6.8%, or $3.4 million, to $53.3
million from $49.9 million in fiscal 1995. Commercial OEM revenues, which
represented 27.4% of net revenues in fiscal 1996 increased 21.7%, or $4.7
million, to $26.4 million from $21.7 million in fiscal 1995, in each case
primarily driven by increased capital investment by Argo-Tech's commercial
airline customers. Total military revenues, which represented 8.8% of net
revenues in fiscal 1996, increased by 34.9% or $2.2 million, to $8.5 million
from $6.3 million in fiscal 1995, as a result of increased revenues relating to
the F119 actuator fuel pump and increased spare parts deliveries for C-5 and
F-15 aircraft. Business Park revenues in fiscal 1996 were $0.6 million lower
than in fiscal 1995 due to a planned reduction in the level of maintenance and
other services offered to tenants and a reduction of rental square footage
requirements by a major tenant. Approximately 45.7% of Argo-Tech's fiscal 1996
net revenues were attributable to export sales to foreign customers compared to
43.3% in fiscal 1995. Substantially all such sales were made in dollars.
Gross profit in fiscal 1996 increased $6.2 million, or 19.1%, to $38.6
million from $32.4 million in fiscal 1995. Gross margin improved to 40.0% in
fiscal 1996 from 37.4% in fiscal 1995 as a result of higher net revenues,
improved Operating Leverage and the continued benefits of Cost Reductions.
Operating expenses in fiscal 1996, while stable as a percentage of
revenues, increased $1.9 million, or 10.9%, to $19.3 million from $17.4 million
in fiscal 1995 as Argo-Tech added incremental customer support and increased the
level of research and development expenditures.
Income from operations in fiscal 1996 increased by $4.2 million, or 28.0%
to $19.2 million from $15.0 million and increased as a percentage of net
revenues from 20.0% in fiscal 1996 from 17.4% in fiscal 1995. Improved Operating
Leverage and the continued benefits of Cost Reductions initiated in prior years
were the primary reasons for the increase.
Interest expense in fiscal 1996 declined $1.8 million, or 15.1%, to $10.1
million from $11.9 million in fiscal 1995 primarily due to the lower average
level of outstanding indebtedness.
The income tax provision in fiscal 1996 of $3.6 million represents an
effective tax rate of 39.0% compared to 41.7% for fiscal 1995. The lower
effective income tax rate in fiscal 1996 is due to the impact of lower tax rates
on the Company's foreign sales corporation earnings and the effect of the
non-deductible amortization of goodwill in proportion to lower pre-tax income in
fiscal 1995.
Net income in fiscal 1996 increased $3.4 million, or 154.5%, to $5.6
million from $2.2 million in fiscal 1995 primarily due to the factors discussed
above.
FISCAL 1995 COMPARED TO FISCAL 1994
Net revenues in fiscal 1995 increased $7.0 million, or 8.8%, to $86.7
million from $79.7 million in fiscal 1994 due to increased aerospace revenues.
Commercial aftermarket revenues, which in fiscal 1995 represented 57.7% of net
revenues, increased 17.4%, or $7.4 million, to $49.9 million from $42.5 million
in fiscal 1994. Commercial OEM revenues, which in fiscal 1995 represented 25.0%
of net revenues, increased 8.0%, or $1.6 million, to $21.7 million, in each case
driven by increased
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<PAGE> 61
product shipments. Total military revenues in fiscal 1995 which represented 7.3%
of net revenues, decreased by 3.1%, or $0.2 million, to $6.3 million from $6.5
million in fiscal 1994, as a result of schedule changes for the Pratt & Whitney
F119 engine program for the F-22 aircraft. Business Park revenues in fiscal 1995
were lower than fiscal 1994 due to a planned reduction in the level of
maintenance and other services offered to tenants and a lower rental rate of a
major tenant's lease. Approximately 43.3% of Argo-Tech's fiscal 1995 net
revenues were attributable to export sales to foreign customers compared to
46.7% in fiscal 1994. Substantially all such sales were made in dollars.
Gross profit in fiscal 1995 increased $7.0 million, or 27.6%, to $32.4
million from $25.4 million in fiscal 1994. Gross margin improved to 37.4% in
fiscal 1995 from 31.9% in fiscal 1994 as a result of an increase in commercial
aftermarket revenues as a percentage of total net revenues, improved Operating
Leverage and the continued benefits of Cost Reductions instituted in prior
periods.
Operating expenses in fiscal 1995 increased $2.6 million, or 17.6%, to
$17.4 million in fiscal 1995 from $14.8 million in fiscal 1994. Research and
development expenses increased $3.2 million in fiscal 1995 to $5.7 million from
$2.5 million in fiscal 1994 due to a higher level of program activity and the
continuing trend by commercial OEMs of reducing or eliminating funding for
development projects. Partially offsetting this increase was the non-recurrence
of $1.4 million in legal and other expenses related to the formation of the ESOP
in fiscal 1994.
Income from operations in fiscal 1995 increased $4.4 million, or 41.5%, to
$15.0 million from $10.6 million and increased as a percentage of net revenues
to 17.4% in fiscal 1995 from 13.4% in fiscal 1994. This increase was due to
higher net revenues, improved Operating Leverage, the continued benefits of Cost
Reductions and the non-recurrence of ESOP formation expenses in fiscal 1994.
Interest expense in fiscal 1995 increased $1.8 million, or 17.8%, to $11.9
million from $10.1 million in fiscal 1994, primarily due to a general rise in
interest rates and a slightly higher average amount of outstanding indebtedness.
The income tax provision in fiscal 1995 of $1.6 million represents an
effective tax rate of 41.7% compared to 61.7% for fiscal 1994. This provision
included state and local taxes and the taxes related to the non-deductible
amortization of goodwill, reduced by a tax credit on foreign sales corporation
earnings which are subject to lower tax rates.
Net income in fiscal 1995 increased $2.0 million to $2.2 million from $0.2
million in fiscal 1994, primarily due to the factors discussed above.
J.C. CARTER COMPANY, INC.
GENERAL
The following should be read in conjunction with "Selected Historical
Financial and Other Data of J.C. Carter Company, Inc." and the Financial
Statements of Carter and the Notes thereto included elsewhere in this
Prospectus. Prior to the consummation of the Acquisition, Carter's fiscal year
ended on December 31. Following the Acquisition, Carter's fiscal year will
conform to the fiscal year of the Company.
In addition to the cyclicality of the commercial aerospace industry and the
funding of new aerospace product development programs discussed above under
"-- Argo-Tech Corporation," Carter's historical financial results have also been
affected by certain selling shareholder expenses captioned under "Office of the
President" expenses. Office of the President expenses were incurred by Robert
Veloz, the President and Chief Executive Officer of Carter, and Harry S.
Derbyshire, a director of Carter. These expenses include salaries, benefits,
personal expenses and costs associated with operating and maintaining personal
assets such as a private airplane, an airplane hangar, personal residences and
numerous automobiles. These expenses and assets will be
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<PAGE> 62
terminated or disposed of concurrent with the Acquisition in accordance with the
Carter Stock Purchase Agreement. Any services which were provided by such
individuals will be assumed by existing officers of the Company with no
incremental costs. Accordingly, the Company believes it is appropriate to
exclude all Office of the President expenses in determining the pro forma
operating results of the Company.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, selected items in
Carter's consolidated statements of income as a percentage of net revenues.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................................. 51.0% 49.0% 49.3% 45.5% 49.4%
Office of the President....................... 20.6% 27.5% 21.0% 21.9% 25.3%
Other operating expenses...................... 21.8% 22.0% 22.3% 19.6% 23.8%
Income (loss) from operations................. 8.6% (0.5)% 6.0% 4.0% 0.3%
Interest expense.............................. 2.2% 2.3% 2.2% 2.2% 2.2%
Other expense, net............................ 1.0% 0.3% 0.5% 0.2% 0.9%
Income (loss) before income taxes............. 5.4% (3.1)% 3.3% 1.6% (2.8)%
Income tax provision (benefit)................ 0.2% 0.5% 0.3% 0.2% (9.4)%
Net income (loss)............................. 5.2% (3.6)% 3.0% 1.4% 6.6%
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net revenues for the six months ended June 30, 1997 increased $1.9 million,
or 8.6%, to $24.0 million from $22.1 million for the six months ended June 30,
1996 due to increased sales volume from aerospace products and ground fueling
products offset by a slight decline in industrial marine products.
Gross profit for the six months ended June 30, 1997 increased $1.8 million,
or 17.8%, to $11.9 million for the six months ended June 30, 1997 from $10.1
million for the six months ended June 30, 1996 as a result of increased
aftermarket sales as a percentage of net revenues. As a result of this change in
product mix, gross margin in 1997 improved to 49.4% from 45.5% in 1996.
Other operating expenses for the six months ended June 30, 1997 increased
$1.3 million, or 29.5%, to $5.7 million from $4.4 million for the six months
ended June 30, 1996 primarily due to increases in engineering R&D expenses, as
well as selling and administrative expenses of Carter IMS, an acquisition
completed in February 1997. Office of the President expenses increased $1.3
million for the six months ended June 30, 1997, or 27.1% to $6.1 million from
$4.8 million in the six months ended June 30, 1996.
Interest expense remained flat at 2.2% of net revenues for each of the six
months ended June 30, 1997 and 1996.
Carter received an income tax benefit of $2.2 million as Carter voluntarily
terminated its Subchapter S tax status effective January 1, 1997.
Net income for the six months ended June 30, 1997 increased $1.3 million to
$1.6 million from $0.3 million for the six months ended June 30, 1996 to the
factors discussed above .
1996 COMPARED TO 1995
Net revenues in 1996 increased $4.5 million, or 11.3%, to $44.5 million
from $40.0 million in 1995 due to increased volume in aerospace and ground
fueling sales offset by a slight decline in industrial marine sales.
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Gross profit in 1996 increased $2.3 million, or 11.7%, to $21.9 million
from $19.6 million in 1995 due to increased sales volume. Gross profit as a
percentage of sales improved to 49.3% in 1996 from 49.0% in 1995.
Other operating expenses in 1996 increased to $9.9 million from $8.8
million in 1995 due to increased marketing expenses. Office of the President
expenses decreased $1.7 million in 1996, or 15.5% to $9.3 million from $11.0
million in 1995.
Interest expense in 1996 remained relatively flat at 2.2% of net revenues
compared to 2.3% of net revenues in 1995.
Carter was organized under Subchapter S of the Internal Revenue Code which
includes the Company's income in the shareholder's own income for federal income
tax purposes. The income tax provision recognized is for federal tax on built-in
gains recognized on the disposition of any prior appreciated C-Corporation
assets within 10 years from the first day of the S-Corporation's first tax year
and state income taxes offset by a manufacturing investment tax credit.
Net income in 1996 increased $2.7 million to $1.3 million from a loss of
$1.4 million in 1995 primarily due to the factors discussed above.
1995 COMPARED TO 1994
Net revenues in 1995 increased $1.3 million, or 3.4%, to $40.0 million from
$38.7 million in 1994 due to $4.9 million in increased business volume from
aerospace sales, partially offset by decreases in industrial marine sales of
$0.3 million and ground fueling sales of $3.3 million. Increased ground fueling
competition caused the Company to reduce prices.
Gross profit in 1995 decreased $0.1 million to $19.6 million from $19.7
million in 1994. Gross profit as a percentage of sales in 1995 declined to 49.0%
from 51.0% in 1994 due to competitive pricing pressure in the ground fueling
product lines.
Other operating expenses in 1995 increased to $8.8 million from $8.5
million in 1994. Office of the President expenses increased $3.0 million in
1995, or 37.5% to $11.0 million from $8.0 million in 1994.
Interest expense in 1995 remained relatively flat at 2.3% of net revenues
compared to 2.2% of net revenues for 1994.
The income tax provision recognized is for federal tax on built-in gains
recognized on the disposition of any prior appreciated C-Corporation assets
within 10 years from the first day of the S-Corporation's first tax year offset
by a manufacturing investment tax credit.
Net income in 1995 decreased to a loss of $1.4 million from $2.0 million in
1994 primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that derives all of its operating income
from its subsidiaries. As a result, Argo-Tech's primary source of liquidity for
conducting business activities and servicing its indebtedness has been cash
flows from operating activities, while Carter's liquidity has historically been
provided by both operating activities and revolving line of credit borrowings.
After the Acquisition, the primary source of liquidity is expected to be cash
flows from operating activities.
In July 1997, Argo-Tech refinanced its Old Credit Facility with the New
Credit Facility, consisting of a seven-year $100.0 million term loan of which
$95.0 million remains outstanding, a seven-year $20.0 million revolving credit
facility and the seven-year $15.0 million Delayed Draw Acquisition Loans. In
connection with the July refinancing, the Company recorded an extraordinary
charge of $2.5 million, consisting primarily of the write-off of unamortized
financing costs.
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Concurrently with the consummation of the Acquisition, the Company amended
the New Credit Facility to allow for, among other things, the Acquisition and
the issuance of the Notes. Under the Amended Credit Facility the Company has
outstanding $110.0 million principal amount of Term Loans and also has available
the seven-year $20.0 million Revolving Credit Facility. The Amended Credit
Facility contains a number of covenants that, among other things, limit the
Company's ability to incur additional indebtedness, pay dividends, prepay
subordinated indebtedness, dispose of certain assets, create liens, make capital
expenditures, make certain investments or acquisitions and otherwise restrict
corporate activities. The Amended Credit Facility also requires the Company to
comply with certain financial ratios and tests, under which the Company will be
required to achieve certain financial and operating results. Interest will be
calculated, at the Company's choice, using an alternate base rate (ABR) or
LIBOR, plus a supplemental percentage determined by the ratio of debt to EBITDA.
The interest rate is not to exceed ABR plus 1.00% or LIBOR plus 2.00%.
In March 1997, the Company repurchased all of the preferred stock reflected
on the Company's financial statements, totalling $25.9 million, along with
accrued dividends of $19.3 million, in exchange for $41.1 million of
subordinated notes and cash of $4.1 million. Interest on the notes is payable
quarterly at 11.25% and the notes are due on December 31, 2007. The Company also
has $5.0 million of notes payable, which are due December 31, 2007, pay interest
quarterly at the prime rate and are subordinate to the Company's senior debt.
These Existing Notes, together with accrued interest thereon of approximately
$0.6 million, will be paid with the proceeds of the Offering.
Cash Flows from Operating Activities. At Argo-Tech, cash provided by
operating activities for the first 40 weeks of fiscal 1997 increased $1.8
million to $8.8 million primarily as a result of improved operating results
offset by an increase in receivables and inventory. Cash provided by operations
for Argo-Tech for the fiscal years 1994, 1995, and 1996 was $17.5 million, $17.8
million, and $15.9 million, respectively. Cash flows at Argo-Tech for fiscal
1994 were favorably impacted primarily from a reduction of inventory and an
increase in accrued liabilities. Cash flow from operations at Argo-Tech for
fiscal 1995 increased as a result of improved operating results and a continued
reduction of working capital requirements. In fiscal 1996, cash flow from
operations at Argo-Tech decreased due to an increase in working capital
requirements, primarily the non-cash recognition of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," offset by an
increase in operating results. For Carter, cash used in operating activities for
the first six months of 1997 was $1.5 million compared to cash provided by
operating activities of $0.5 million for the first six months of 1996. Carter's
net income of $1.6 million was offset by an increase in deferred income taxes of
$2.2 million and an increase in inventory of $1.1 million. Cash provided by
(used in) operations for the years ended December 31, 1994, 1995, and 1996 were
$1.0 million, ($1.1) million and $1.5 million, respectively. Cash flows for
Carter in 1994 were impacted by favorable operating results and a reduction of
accounts receivable offset by an increase in inventory and a decrease in
accounts payable and accrued liabilities. Cash flow used in operations for
Carter in 1995 was a result of unfavorable operating results and increases in
accounts receivable, inventory and activity on uncompleted contracts offset by
an increase in accounts payable and accrued liabilities. In 1996, Carter's cash
flow increased primarily due to an increase in operating results.
Cash Flows from Investing Activities. Argo-Tech's expenditures for
property, plant and equipment were $1.8 million for each of the first 40 of
fiscal 1997 and the first 39 weeks of fiscal 1996. This reflects a normal level
of investing in capital requirements necessary to maintain the efficiency and
manufacturing capabilities of the Company. For the fiscal year ending October
25, 1997, Argo-Tech's capital expenditures are expected to total approximately
$3.5 million. Argo-Tech's expenditures for property, plant and equipment were
$1.5 million, $2.9 million, and $3.4 million for fiscal years 1994, 1995 and
1996, respectively. The increase in spending from fiscal 1994 to fiscal 1995
represents a return to the normal level of investing in capital requirements
following the end of the industry downturn. Carter's expenditures for property,
plant and equipment were $0.5 million, including the acquisition of IMS, and
$0.3 million for the six months ended
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<PAGE> 65
June 30, 1997 and 1996, respectively. Carter's expenditures for property, plant
and equipment were $0.8 million, $0.7 million, and $1.1 million for the years
ended December 31, 1994, 1995, and 1996, respectively.
Cash Flows from Financing Activities. For Argo-Tech, cash used in
financing for the first 40 weeks of fiscal 1997 was $13.2 million compared to
$9.7 million for the first 39 weeks of fiscal 1996. Activity in 1997 at
Argo-Tech consisted of borrowing $41.1 million to redeem the preferred stock and
pay accrued interest totaling $45.2 million, repaying $7.6 million, net of
additional borrowings, and $1.5 million in deferred financing fees on the New
Credit Facility. Cash used in financing at Argo-Tech for the fiscal years 1994,
1995, and 1996 was $5.9 million, $19.7 million, and $11.0 million, respectively.
In fiscal 1994, Argo-Tech increased its long-term debt by $10.0 million, net of
repayments, which was used to purchase a portion of the 420,000 shares of Class
A common stock for the ESOP. In fiscal 1995 and fiscal 1996 cash was used at
Argo-Tech to make scheduled repayments as well as voluntary pre-payments of its
long-term debt. At Carter, cash provided by financing activities was $2.2
million for the six months ended June 30, 1997 and represented a net borrowing
on Carter's credit line of $2.8 million offset by a payment of $0.6 million on
other debt. Carter's cash provided by (used in) financing for the years 1995 and
1996 was $2.0 million and ($1.2) million, respectively. In 1994, a repayment of
a note receivable from an officer of Carter and proceeds from bank borrowings
was offset by payments on Carter's long-term debt and credit line. In 1995, a
new term loan agreement and additional borrowings on the credit line were used
to repay an existing term loan and provide cash for operations and investing
activities. In 1996, cash was used primarily to repay obligations on the term
loan.
Capital Expenditures. Pro forma for the Acquisition, the Company expects
that its capital expenditures for fiscal 1997 and fiscal 1998 will be
approximately $4.4 million per year and will be financed with cash generated
from operations. Annual capital expenditures include approximately $3.5 million
of capital expenditures that management believes are maintenance level
requirements for existing facilities and equipment.
The Company believes that cash flow from operations will provide adequate
funds for its working capital needs, planned capital expenditures and debt
service obligations. The Company's ability to fund its operations, make planned
capital expenditures, and to make scheduled payments on its indebtedness depends
on its future operating performance and cash flow, which, in turn are subject to
prevailing conditions and to financial, business and other factors, some of
which are beyond its control.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt this
standard during fiscal 1998. Such adoption is not expected to have a material
effect on the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. The Company will adopt this standard during fiscal 1998.
Such adoption is not expected to have a material effect on the Company.
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BUSINESS AND PROPERTIES
GENERAL
The Company is a leading designer, manufacturer and servicer of high
performance fuel flow devices for the aerospace industry. The Company provides a
broad range of products and services to substantially all commercial and
domestic military engine and airframe manufacturers, to airlines worldwide and
to the U.S. and certain foreign militaries. The Company is the world's leading
supplier of main engine fuel pumps to the commercial aircraft industry and is a
leading supplier of airframe products and aerial refueling systems. Main engine
fuel pumps are precision mechanical pumps, mounted to the engine, that maintain
the flow of fuel to the engine at a precise rate and pressure. Airframe products
include fuel pumps and airframe accessories, which are used to transfer fuel to
the engine systems and to shift and control fuel between tanks in order to
maintain aircraft balance. Aerial refueling systems permit military aerial
tankers to refuel fighter, bomber and other military aircraft while in flight.
The Company is also a leading manufacturer of components for ground fueling
systems and estimates that one or more of its fueling hydrants, couplers and
nozzles are installed in over 65% of major commercial airports worldwide. Ground
fueling systems transfer fuel from fueling trucks and underground tanks to the
underwing fuel receptacle of the aircraft. Sales to OEMs provide the Company
with a platform for its substantial aftermarket business, which accounts for the
major component of its net revenues. The Company's aftermarket business provides
repair and overhaul services and distributes spare parts to its commercial and
military customers worldwide.
As of December 31, 1996, the Company's main engine fuel pumps were used in
approximately 8,200, or two-thirds, of the large commercial aircraft in service
throughout the world. In addition, during 1996, the Company received orders for
approximately 75% of all new main engine fuel pumps ordered by large commercial
aircraft engine manufacturers worldwide. The Company is the sole source supplier
of main engine fuel pumps for all CFM56 series engines, which were selected for
installation on approximately 61% of all large commercial aircraft ordered in
1996. This engine powers the Airbus A-319, A-320, A-321 and A-340 and Boeing 737
aircraft. The Company is also the sole source supplier of main engine fuel pumps
for all engines used on the Boeing 777 aircraft.
Complementing its position as a leading supplier of main engine fuel pumps,
the Company estimates that one or more of its airframe fuel pumps or accessories
are installed on over 80% of all large commercial and U.S. designed military
aircraft currently in use. Aerial refueling components manufactured by the
Company are installed on every U.S. designed military aircraft equipped with
aerial refueling capabilities. In addition, ground fueling components
manufactured by the Company have been selected for use in all nine of the major
commercial airports constructed in the past ten years, including the recently
completed Denver International Airport and the Hong Kong International Airport,
which is currently under construction. The Company also produces and services
LNG pumps and operates a materials laboratory and a business park in Cleveland,
Ohio, where the Company maintains its headquarters and primary production
facilities.
Pro forma for the Acquisition, for the twelve month period ended August 2,
1997, the Company generated net revenues, income from operations and Adjusted
EBITDA of $156.2 million, $33.0 million and $49.9 million, respectively. For the
same period, on a pro forma basis, aerospace products and aftermarket sales
accounted for approximately 85% and 49% of the Company's net revenues,
respectively.
INDUSTRY OVERVIEW
Aerospace
The airline industry has progressed through a low point in its business
cycle and is currently in a strong recovery phase as all key indicators of
demand -- the global economy, airline traffic and profitability, aircraft
utilization and firm aircraft orders -- remain favorable. According to Boeing's
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1997 Current Market Outlook (the "Boeing Report"), world air traffic grew at a
rate of 6.7% in 1996 and is expected to increase by an average of 5.5% per year
over the next ten years, driven by increased travel outside the U.S.,
particularly in developing areas such as China and the Asia Pacific region. The
Airline Monitor reports that load factors are currently at historically high
levels of approximately 70% which may suggest that the industry is bordering on
a capacity shortage. This potential shortage is evidenced by increased demand
for new aircraft as well as for spare parts and repair and overhaul services.
Moreover, prolonged airline retirements of existing aircraft as well as
conversions from retired commercial passenger to freight carrier service can
extend the normal life cycle of an aircraft from 25 years to 35 years, which in
turn increases and extends demand for aftermarket services. Management believes
that these favorable industry conditions will continue for the near term.
Unlike commercial aerospace demand which has been susceptible to normal
business cycles, demand for military aerospace products is primarily driven by
the requirements of the defense industry and Government budgetary constraints.
In addition, demand is tied to specific military aircraft programs which
typically call for steady, low-rate production volumes. Due to lower aircraft
utilization, military aftermarket sales are less significant than commercial
aftermarket sales.
Manufacturers of airframe and engine parts and components are required to
obtain regulatory airworthiness certification by the FAA in the case of products
used on commercial aircraft, by the U.S. Department of Defense in the case of
military aircraft, or by similar agencies in most foreign countries. This costly
and time consuming certification process involves testing both the airframe and
the engine to ensure compliance with safety and performance requirements.
Because replacement parts for airframe and engine products must also be
certified, these parts are almost exclusively provided by the original
manufacturer of the product. Moreover, guidelines and regulations established by
various Government agencies, OEMs and commercial airlines require that certain
components be tested and inspected at a certified repair facility after logging
specified levels of flight hours. Other components are tested as necessary to
monitor performance levels and are repaired and overhauled when a performance
degradation is detected. Since most modern aircraft have a useful life of 25
years or more, and require regular maintenance, the repair and overhaul of
airframe and engine components and sales of replacement parts generally provide
a continuous source of revenue for the original manufacturer. Over the life
cycle of an aircraft program, commercial spare parts and overhaul services often
generate six or more times the aggregate sales of OEM programs at significantly
higher margins.
In accordance with commercial aviation industry practice, competition among
airframe and engine component suppliers occurs at the time the airframe or
engine OEM makes its initial installation decision. In today's competitive
environment, commercial OEMs rarely pay for the development costs of new
components. To win selection of their products, airframe and engine component
suppliers customarily make significant investments in new product designs. In
some instances, component manufacturers have underwritten portions of the
development costs of new airframe or engine systems in order to secure a
position on the new system for several of their components.
Faced with a permanent decline in defense spending, the aerospace and
defense industry has undergone significant consolidation over the past five
years with major companies such as Martin Marietta Corp., Grumman Corp., Vought
Aircraft Co. and the defense businesses of GE, Loral Corp., Rockwell
International Corp. ("Rockwell"), Texas Instruments Inc. and Westinghouse being
acquired to form three dominant U.S. aerospace and defense firms: Boeing,
Lockheed Martin Corp. ("Lockheed Martin") and Raytheon Company ("Raytheon").
Boeing, the world's largest commercial aerospace company, purchased the defense
business of Rockwell in 1996 and then merged its operations with McDonnell
Douglas Corporation ("McDonnell Douglas") on August 1, 1997. The addition of
McDonnell Douglas, a leading military contractor and the largest producer of
military aircraft, is expected to significantly improve Boeing's competitive
posture in the defense sector. The combined company is expected to have annual
revenues of approximately $48 billion of
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which 60% will be commercial and 40% military, compared to Boeing's 80-85%
commercial revenues prior to the merger. In response to objections raised by the
European Commission, Boeing has agreed to maintain Douglas Aircraft Company as a
separate legal entity for ten years and to commit itself not to profit from its
relationships with suppliers in order to obtain preferential treatment through
its expanded purchasing power. In addition, Lockheed Martin and Raytheon have
announced transactions, still awaiting certain regulatory approvals which will
result in further consolidation in the aerospace and defense industry. Lockheed
Martin, with its pending acquisition of Northrop Grumman Corp. ("Northrop") is
expected to have a significant presence in aerospace and defense electronics
with combined annual revenues of approximately $36 billion while Raytheon, with
its pending merger with Hughes Defense, is expected to have annual revenues of
approximately $22 billion.
Ground Fueling
The demand for ground fueling products is directly related to the
construction and expansion of airports, the volume of air travel and the
maintenance and usage practices with which ground fueling products are used. As
detailed above, the Boeing Report projects that world air travel will continue
to grow. The Company believes, based on industry sources, that major investments
in airport expansion will be required to provide and support adequate
infrastructure. Airport expansion has already begun to take place in
international markets. According to Aviation Week Space Technology, countries in
the Asia Pacific region have added five new major airports since 1980 with six
more facilities planned or currently under construction. In recent years, one
new major airport has been completed in Europe and four more are currently under
construction or planned. This increase in expansion results in greater demand
for ground fueling components. For example, ground fueling components
manufactured by the Company have been selected for use in all nine of the major
commercial airports constructed in the past ten years, including the recently
completed Denver International Airport and the Hong Kong International Airport,
which is currently under construction.
COMPETITIVE STRENGTHS
The Company believes it has a strong competitive position as a result of
the following factors:
- Strong Industry Position and Large Existing Installed Base. The Company
has the largest installed base of large commercial main engine fuel pumps
(approximately 30,000) in the aerospace industry. The Company also has an
installed base of over 215,000 military engine and airframe pumps and
accessories; 145,000 other engine pumps and airframe accessories,
including fuel gear motors and small main engine fuel pumps for
helicopters, turboprop and business aircraft; and 5,800 aerial refueling
components. This extensive installed base provides the Company with
significant opportunities for aftermarket sales of spare parts and repair
and overhaul services. Manufacturers of aerospace parts and components
are required to obtain airworthiness certification by the FAA in the case
of products used on commercial aircraft, by the United States Department
of Defense (the "U.S. Department of Defense") in the case of products
used on U.S. military aircraft, or by similar agencies in most foreign
countries. Such regulatory restrictions, which limit the access of other
manufacturers to the aftermarket, contribute to significantly higher
margins on commercial spare parts and overhaul services.
- Technological Leadership/New Product Development. Management believes
that the Company is a technological leader in its industry. The Company
maintains its technological leadership by operating state-of-the-art
facilities and employing over 110 engineers. The Company also staffs an
on-site design engineer at two of its major OEM customers. These on-site
customer engineers, in combination with its engineering and design
staffs, assist the Company in the development of innovative products
which address the needs and requirements of its customers and enhances
its ability to gain early entrant advantages. As a result of this
technological leadership the Company's main engine fuel pumps have been
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selected for 22 of the 33 large commercial aircraft engine programs put
into production over the last 20 years. For example, the Company is the
only manufacturer to win a new production contract for main engine fuel
pumps from Rolls-Royce, PLC. ("Rolls-Royce") since 1988 and from General
Electric Company ("GE") since 1989. In addition, with the aid of its
aftermarket customers the Company recently replaced the incumbent main
engine fuel pump supplier on both the GE CF34-8C (Canadair RJ700) and the
Rolls-Royce RB211-535 (Boeing 757) engine programs, despite the industry
norm against such replacements.
Management also believes that its experience with engine systems for
use on airframes ranging from the Cessna Aircraft Company ("Cessna")
Citation to the Boeing 777, is a competitive advantage that enhances the
Company's ability to effectively meet the technical requirements of all
new engine system designs.
- Strong Relationship with Customers. The Company has developed strong
relationships with its OEM customers (including GE, Pratt & Whitney and
Rolls-Royce), airline customers (including American Airlines, Lufthansa,
Japan Air Lines and United Airlines) and freight carrier customers
(including Federal Express and United Parcel Service). Specifically, the
Company has been a major supplier of main engine fuel pumps to Pratt &
Whitney for over 40 years, and has maintained a relationship with United
Airlines since 1962. Management believes that the Company's reputation
for quality and service in the aftermarket has further solidified its
strong relationships with its airline and freight carrier customers. In
addition to purchasing parts and services in the aftermarket, these
customers are also influential in the engine OEM supplier selection
process enhancing the Company's ability to secure positions on new engine
platforms.
Management believes that Argo-Tech's relationships with its OEM
customers will enhance Carter's ability to sell products to existing
Argo-Tech customers. For example, management expects to introduce
Carter's cross-feed and shut-off valves to Argo-Tech's existing OEM
engine customers such as GE, Pratt & Whitney and Rolls-Royce. The Company
believes similar opportunities exist to increase sales of Argo-Tech
products to Carter's customers. For example, management expects to
introduce Argo-Tech airframe pumps to Carter's business and regional jet
OEM customers such as Canadair, Cessna, Gulfstream and Lear.
- Strong Core Competencies. The Company has developed strong core
competencies that management believes will enable it to improve its
position as a leading aerospace component supplier and provide
opportunities for growth outside its current product lines. These core
competencies include: (i) operational skills for low volume manufacturing
of high precision fluid flow devices, (ii) the capability to rapidly
design unique solutions to difficult fluid flow problems, (iii) skill and
experience in meeting the demanding specifications of aerospace
customers, the FAA, the U.S. Department of Defense and other regulatory
bodies, and (iv) skill and experience in the design of integrated fuel
systems and subsystems. These core competencies have enabled the Company
to become the sole source supplier for a substantial number of aerospace
programs. Management also believes that these core competencies will
allow the Company to develop additional fuel system and other high
precision products for use throughout the aerospace industry.
- Experienced Management Team. Argo-Tech's Chairman and CEO, Michael
Lipscomb, and five other members of senior management, have been with
Argo-Tech or its predecessor since 1980. Under Mr. Lipscomb's leadership,
Argo-Tech has reduced inventory levels, improved quality and on-time
performance and reduced manufacturing lead times, all of which have
contributed to significant increases in gross margins, which have grown
from 28.5% for fiscal 1992 to 42.6% for the nine months ended August 2,
1997.
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BUSINESS STRATEGY
The Company's strategy is to maintain its leadership position and to grow
through the expansion of its product lines and the pursuit of strategic
acquisitions. This strategy includes the following key components:
- Expansion of Product Lines. The Company plans to apply its core
competencies in the aerospace business and to take advantage of its
strong reputation and relationships with its customers to expand into
specific industrial markets. The Company has utilized its expertise in
main engine fuel pump technology to develop industrial engine power
generation applications, and plans to capitalize on Carter's expertise in
other industrial applications. The Company's strong relationships with
GE, Pratt & Whitney and Rolls-Royce have already led to development and
production contracts for industrial products such as lube and scavenge
pumps and fluid flow dividers. In addition, the high quality and
reliability of the Company's main engine fuel pumps have prompted several
customers to use the Company's components on certain of their industrial
turbine engines. For example, Company-designed and manufactured
components are or will be installed on Westinghouse, Pratt & Whitney, GE
and Rolls-Royce land based power generation applications. The Company
anticipates further developing this business by introducing Carter's
products to these customers.
- Aerospace Growth through Acquisitions. The Company plans to pursue
strategic acquisitions in the aerospace and industrial fluid flow device
industries in order to capitalize on the trend for development of
airframe and engine fluid flow systems that will result in increased
reliance on integrated systems providers. For example, the Acquisition
expands the Company's product lines to include aerial refueling
components, aerospace valves and other fuel transfer control components
and enhances its base from which to design, manufacture and deliver a
broader range of fuel transfer systems and components. While the Company
is currently evaluating, and will continue to evaluate other acquisition
opportunities, there are no pending agreements or understandings
regarding acquisitions.
- Enhancement of Operating Efficiencies. Management constantly reviews the
Company's operations for opportunities to further reduce costs and
increase manufacturing efficiencies through improved utilization of
production facilities, continual rationalization of the vendor base and
more efficient human resource allocation. Continued enhancements of
operating efficiencies include the transfer of certain production to
absorb fixed overhead, the installation of integrated computer systems at
its Costa Mesa Facility, strengthening of the certified operator and
vendor programs and the reassignment of some engineering resources to the
development of new products and technologies.
- Ground Fueling Growth. The Company intends to devote significant
resources to the enhancement of sales, marketing and development of
ground fueling products. The Company has recently developed digital
pressure control valves that incorporate a microprocessor to enhance fuel
flow control and accurately measure the pressure in an aircraft's fuel
tank during fueling, allowing for reduced fueling time. Although these
products have been available for less than a year, the Company has
already supplied over 35 systems to various locations around the world,
including the Middle East and Latin America. In addition, the Company has
identified three new potential product applications for its ground
fueling technology: railroad fluid transfers, fueling of off-road
construction and mining equipment and LNG nozzles and receptacles used on
alternative fuel vehicles. Management believes that these potential
product applications could significantly increase the Company's ground
fueling sales.
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PRODUCTS
Aerospace OEM
Main Engine Fuel Pumps. Main engine fuel pumps are precision mechanical
pumps, mounted to the engine, that maintain the flow of fuel to the engine at a
precise rate and pressure. All Argo-Tech main engine fuel pumps are designed at
the Cleveland Facility. These pumps consist of an aluminum body which is cast by
one of two selected certified subcontractors. The Company then machines the
casting, adds a variety of gears and other components, and performs rigorous
testing at the Cleveland Facility. Large main engine fuel pumps vary in size
according to the thrust power of the engine for which they are designed, and are
typically sold to OEMs at a cost ranging from $8,000 to $17,000 per unit.
In 1996, the Company received orders for approximately 75% of all new large
main engine fuel pumps ordered by large commercial aircraft engine manufacturers
worldwide. The Company is the sole source supplier of main engine fuel pumps for
all CFM56 series engines, one of the most popular series of large commercial
aircraft engines used today. The CFM56 series engines, which power the Airbus
A-319, A-320, A-321 and A-340 and the Boeing 737 aircraft, were installed on
approximately 61% of all commercial aircraft ordered in 1996. The Company is
also the sole source supplier of main engine fuel pumps for all engines used on
the Boeing 777 aircraft.
In 1992 the Company expanded its market to include large regional and
business jet applications by securing the BR710 engine program, which is used on
the high-end Canadair Global Express and the Gulfstream V aircraft. In 1996, the
Company added to its growing base of regional and business jet applications by
winning the GE CF34-8C engine program, which is used on the Canadair RJ700
aircraft.
As shown in the following chart, the Company's main engine fuel pumps are
used across the full spectrum of commercial engine designs. The Company believes
its experience with engine systems all sizes and performance characteristics is
a competitive advantage in the bidding process to become a supplier of
components for newly designed engine systems.
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ENGINE INSTALLED PUMP FOR ENGINE TYPE(4)
THRUST ----------------------------------------------------------------------------------------------
(X 1,000 LBS) AIRFRAME ARGO-TECH SUNDSTRAND LUCAS CECO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cessna Citation Williams FJ44 Pratt & Whitney Allison
Canada Engine
PW500 AE 3007
--------------------------------------------------------------------------------------------------------------------
Raytheon Premier 1 Williams FJ44
--------------------------------------------------------------------------------------------------------------------
Beechcraft Beech Jet Pratt & Whitney
Canada JT15D
--------------------------------------------------------------------------------------------------------------------
British Aerospace Allied Signal
BAe125 TFE-731
--------------------------------------------------------------------------------------------------------------------
Less British Aerospace AVRO Allied Signal
Than 10 ALF 507
--------------------------------------------------------------------------------------------------------------------
Dassault Falcon GE/Allied
Signal CFE 738
--------------------------------------------------------------------------------------------------------------------
Canadair GE
Challenger CF34-3
--------------------------------------------------------------------------------------------------------------------
Canadair RJ200 GE
CF34-3
--------------------------------------------------------------------------------------------------------------------
Embraer EMB-145 Allison
Engine
AE3007
- -----------------------------------------------------------------------------------------------------------------------------------
Canadair Global BMW/Rolls-Royce
Express BR 710
--------------------------------------------------------------------------------------------------------------------
Canadair RJ700 GE CF34-8C
--------------------------------------------------------------------------------------------------------------------
Boeing 727(1) 100/200 Pratt & Whitney
JT8D
--------------------------------------------------------------------------------------------------------------------
Boeing 737(1)100/200 Pratt & Whitney
JT8D
--------------------------------------------------------------------------------------------------------------------
McDonnell Douglas DC Pratt & Whitney
9(1) JT8D
--------------------------------------------------------------------------------------------------------------------
10-22 McDonnell Douglas MD Pratt & Whitney
80 JT8D
--------------------------------------------------------------------------------------------------------------------
Gulfstream IV Rolls-Royce
RR Tay
--------------------------------------------------------------------------------------------------------------------
Gulfstream V BMW/Rolls-Royce
BR 710
--------------------------------------------------------------------------------------------------------------------
McDonnell Douglas MD BMW/Rolls-Royce
95 BR 715
--------------------------------------------------------------------------------------------------------------------
Fokker 70, 100(1) Rolls-Royce
RR Tay
- -----------------------------------------------------------------------------------------------------------------------------------
Boeing 737 300/800 GE/SNECMA
CFM56-3,7
--------------------------------------------------------------------------------------------------------------------
Airbus A319 GE/SNECMA International
CFM56-5 Aero V2500
--------------------------------------------------------------------------------------------------------------------
22-35 Airbus A320 GE/SNECMA International
CFM56-5 Aero V2500
--------------------------------------------------------------------------------------------------------------------
Airbus A321 GE/SNECMA International
CFM56-5 Aero V2500
--------------------------------------------------------------------------------------------------------------------
McDonnell Douglas MD International
90 Aero V2500
- -----------------------------------------------------------------------------------------------------------------------------------
Airbus A340 GE/SNECMA
CFM56-5
35-45 --------------------------------------------------------------------------------------------------------------------
Boeing 757 Rolls-Royce Pratt & Whitney Rolls-Royce
RB211-535(3) PW2000 RB211-535(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Boeing 747 Pratt & Whitney GE Rolls-Royce GE
JT9(2), PW4000 CF6 RB211-524 CF6-50(2)
--------------------------------------------------------------------------------------------------------------------
Boeing 767 Pratt & Whitney GE GE
JT9(2), PW4000 CF6 CF6-50(2)
--------------------------------------------------------------------------------------------------------------------
Airbus A300 Pratt & Whitney GE GE
JT9(2), PW4000 CF6 CF6-50(2)
--------------------------------------------------------------------------------------------------------------------
Airbus A310 Pratt & Whitney GE GE
PW4000 CF6 CF6-50(2)
--------------------------------------------------------------------------------------------------------------------
45-75 Airbus A330 Rolls-Royce GE
RB211 - Trent, Pratt & CF6
Whitney PW4000
--------------------------------------------------------------------------------------------------------------------
McDonnell Douglas MD Pratt & Whitney GE
11(1) PW4000 CF6
--------------------------------------------------------------------------------------------------------------------
McDonnell Douglas DC Pratt & Whitney GE
10(1) PW4000, JT9(2) CF6
--------------------------------------------------------------------------------------------------------------------
Lockheed L1011(1) Rolls-Royce
RB211-524
- -----------------------------------------------------------------------------------------------------------------------------------
Boeing 777 Rolls-Royce
Greater RB211 - Trent,
Than 75 GE GE90, Pratt & Whitney
PW4084, PW4088,
PW4090, PW4098
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Airframe still in service, but not in current production.
(2) Engine still in service, but not in current production.
(3) The Company replaced the incumbent supplier and will begin supplying main
engine fuel pumps in January 1998.
(4) Source: Company Information.
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Airframe Products. Fuel pumps and other airframe fuel transfer control
systems in the airframe are necessary to transfer fuel to the engine systems and
to maintain aircraft balance by shifting fuel between tanks. The Company
manufactures boost and transfer fuel pumps and fuel transfer control components,
including fuel flow proportioners, fuel system gate assemblies, and a variety of
airframe valves, adapters, nozzles and caps. These components are used to manage
storage, fueling, transfer and engine feed functions during ground and flight
operations. The Acquisition significantly increases the Company's presence in
the airframe fuel transfer control systems market. Pro forma for the
Acquisition, the Company supplies airframe fuel transfer control components for
more than 100 models of commercial and military aircraft creating an installed
base of over 290,000 components.
Aerial Refueling Systems. The Company is a major supplier of components
for aerial refueling systems, which are produced only for military applications.
Aerial refueling components manufactured by the Company, including pumps and
couplers, are installed in the refueling systems of 100% of U.S. designed
military aircraft equipped with such capability. Pressure surges, resulting from
unplanned, rapid changes in fuel flow rates, can cause premature failure of fuel
system components. Management believes that the Company's expertise in the
development of fuel flow control devices that eliminate pressure surges has
resulted in the award of several contracts to retrofit aircraft with surge
control devices. In 1995, the Company was awarded the first of two sole-source
contracts to retrofit the U.S. Air Force's KC-135 fleet with dry run aerial
refueling pumps. Valued at approximately $10 million, the initial contract was
for 1,060 pumps. The Company anticipates that the second contract, expected to
be awarded in late 1997, will be for approximately 1,500 pumps to allow the
retrofit of all 600 U.S. Air Force KC-135 aircraft. Management believes that the
Company is well-positioned to obtain this contract.
New Products. The Company has successfully developed new market
opportunities which include lube oil and scavenge pumps and fuel flow dividers.
Lube oil and scavenging pumps supply lubrication to aerospace and industrial gas
turbine engine components. Fuel flow dividers divide fuel flow into precisely
metered portions for more efficient combustion and lower emissions. As a result
of an investment of more than $1 million, the Company has secured a contract
with Rolls-Royce to supply components on an industrial power generation platform
which is scheduled to begin production by the end of 1997. Due to aggressive
marketing and an established record of performance with its engine customers,
the Company has also gained entry into the land-based gas turbine business,
securing development and production contracts with GE, Pratt & Whitney, Rolls-
Royce and Westinghouse.
In 1993, McDonnell Douglas awarded the Company the development contract for
the 480 gallon external fuel tank used on the Navy's F-18 E/F aircraft. Due to
the proprietary design of the internal components of the fuel tank, the Company
believes it is well positioned to be awarded the initial production contract,
which management believes will exceed 1,000 fuel tanks.
Ground Fueling Products
The Company manufactures various ground fueling hydrants, couplers and
nozzles for commercial and military airports around the world. The Company
estimates that components of its ground fueling equipment systems, which connect
the fuel pumps to the fuel receptacles in the aircraft, are installed in
approximately 65% of major commercial airports worldwide. Ground fueling systems
are used to transfer fuel from underground fuel tanks and ground fueling trucks
to the underwing fuel receptacle of the aircraft. In addition to nozzles,
couplers and hydrants, the Company also sells pressure control valves and
systems. The Company has successfully implemented the use of dry-break
technology to its current line of ground fueling products. Dry-break technology,
which is used in some military applications, stops the flow of fuel
automatically if the fueling connection between the fuel pump and the fuel
receptacle breaks free. The Company also developed the AVR2000 Fuel Delivery
Meter, a hardware and software system for customized fuel utilization
management, data collection and billing.
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New Products. The Company has recently developed digital pressure control
valves which incorporate a microprocessor to enhance fuel flow control and allow
for accurate measurement of pressure into fuel tanks. In addition, the Company
has identified three new potential product applications for its ground fueling
technology: railroad fluid transfers, fueling of off-road construction and
mining equipment and LNG nozzles and receptacles for use on alternative fuel
vehicles. Management believes that these new potential product lines could add
significant ground fueling sales.
Industrial and Other
The Company has been widely recognized as a leading designer and supplier
of high performance submerged motor pumps for liquefied gas. Since 1961, the
Company has delivered over 3,400 of the approximately 6,200 liquefied submerged
motor gas pumps installed worldwide. The Company sold its OEM business for
industrial LNG pumps installed outside North America in 1987. As a result, new
pump delivery is extremely limited; however, the Company continues to provide
spare parts, testing, and upgrade and repair services. The Company also
maintains certain real estate and materials laboratory operations associated
with the Cleveland Facility.
AFTERMARKET SALES
Aftermarket sales comprise the largest component of the Company's business
and consist of spare parts sales and overhaul, retrofit, repair and technical
support services to commercial and military customers worldwide. Currently, over
35% of the Argo-Tech spare parts sales are attributable to overhaul and repair
services performed by the Argo-Tech, with the remaining sales resulting from
spare part purchases by third-party shops and airlines. The Company's Cleveland,
Costa Mesa and Inglewood facilities overhaul and repair approximately 30% of the
products manufactured by the Company. The Costa Mesa Facility also performs
overhaul services for non-Company manufactured products. On a pro forma basis,
the Company's aftermarket business accounted for approximately 49% of the
Company's net revenues during the twelve months ended August 2, 1997.
The strong demand for the Company's aftermarket parts and services is
directly related to the Company's extensive installed base. Since most modern
aircraft have a useful life of 25 years or more, and require regular
maintenance, spare parts and repair and overhaul services can often generate six
or more times the aggregate sales of the OEM program at significantly higher
margins. Replacement parts for airframe and engine components must be certified
by the FAA and similar agencies in foreign countries, as well as by the specific
airline customer. Accordingly, these parts are almost exclusively provided by
the original manufacturer of the component in order to avoid the time and
expense of recertification.
CUSTOMERS
Aerospace
OEM customers for the Company's aerospace products include the world's
major aircraft engine manufacturers: Allison Engine, BMW/Rolls-Royce (BRR), GE,
Pratt & Whitney (including Pratt & Whitney Canada), Rolls-Royce, SNECMA/GE
(CFMI) and Williams International Corp. Customers for the Company's airframe
pumps and valves include Airbus, Boeing, Cessna, Gulfstream, Lear, Lockheed
Martin, McDonnell Douglas, Raytheon, Rockwell and various U.S. Government
agencies. Orders for military components come to the Company through customers
such as Lockheed Martin, McDonnell Douglas and Pratt & Whitney. The Company's
aftermarket customers include all major aircraft and engine repair facilities
and all major airlines worldwide. Currently the total number of airline and
third party customers for spare parts and overhaul services exceeds 200.
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The Company is a leading supplier of components used on U.S. designed
military aircraft. The Company's products are used on a variety of fighter,
training, transport and cargo aircraft, bombers and helicopters. Military
aircraft using the Company's products include the KC-135, F-15, F-16, F-18,
F-22, B-1B, B-2, B-52, C-17, C-130 and CV-Helo. Substantially all of the
Company's military products are sold to the U.S. Department of Defense, certain
foreign militaries and airframe OEMs including Lockheed Martin, McDonnell
Douglas and Northrop. For the twelve months ended August 2, 1997, on a pro forma
basis, sales to the U.S. military accounted for approximately 19% of the
Company's net revenues.
Upsilon International Corporation ("UIC"), in its capacity as foreign
distributor of Argo-Tech products, accounted for approximately 16% of the
Company's net revenues for the twelve months ended August 2, 1997, on a pro
forma basis. No other customer accounted for more than 10% of the Company's
sales during the twelve months ended August 2, 1997 on a pro forma basis. See
"Certain Transactions."
Ground Fueling
Most ground fueling products are sold to customers through independent
distributors. Customers in the domestic markets include a variety of airlines,
airports and various fixed base operators. In international markets, the
Company's ground fueling products are purchased by several oil companies,
including several state-run oil companies and airport authorities. In 1996,
approximately 40% of the Company's ground fueling sales were to customers
outside the U.S.
Industrial and Other
The industrial customer base includes shipping vessels operated by domestic
and foreign carriers, liquefied gas ship loading terminal owners, liquefied gas
receiving terminals, petrochemical plants and large architectural and
engineering companies worldwide.
SALES AND MARKETING
The Company markets and sells its aerospace and ground fueling products and
services through a combination of direct marketing, sales personnel and
independent manufacturing representatives and U.S. and international
distributors. The Company supplies spare parts directly to domestic airlines and
third-party overhaul shops. Foreign customers of Argo-Tech receive their spare
parts from UIC which has a warehouse located in Torrance, California. Foreign
customers of Carter receive their spare parts directly from Carter. See "Certain
Transactions."
Engine and airframe OEMs select suppliers of aerospace components primarily
on the basis of custom design capabilities, product quality and performance,
prompt delivery, price and aftermarket service. The Company believes that it
meets these requirements in a timely, responsive manner which has resulted in an
extensive installed base of components and substantial aftermarket sales. The
Company also staffs an on-site design engineer with two of its customers to
represent its products and to work closely with the customer to develop new
components.
SUPPLIERS AND RAW MATERIALS
The Company utilizes a certified supplier program that demands a commitment
to 100% quality and on-time deliveries. In addition, for the last several years
a comprehensive supplier rating system has been in place at Argo-Tech to measure
supplier performance. While Carter's certified supplier program is in an earlier
stage of implementation, Argo-Tech believes that its experience will assist
Carter in the development of its program. Currently, the Company's total
supplier base includes approximately 200 firms. Pro forma for 1996,
approximately 40 certified suppliers accounted for a majority of the Company's
total purchases. The Company continues to move toward consolidating its supplier
base and increasing the number of certified suppliers.
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The largest single expenditure by Carter relates to outsourcing of
component machining, which is primarily provided by three long term suppliers.
While prices have generally remained constant for two years, the Company has
derived significant savings by taking advantage of advances in machining
technologies and coordinating engineering with its suppliers.
Aluminum castings are the highest volume raw material supplied to the
Company and are provided by five certified suppliers under long-term
arrangements. The Company also buys quantities of steel bar stock to produce
gears and shafts from multiple producers. However, CPM-10V, a powdered metal
which is essential for the manufacture of certain of the Company's main engine
fuel pumps, is available from only one supplier.
MANUFACTURING
The Company manufactures a major portion of its products at its Cleveland
Facility, which was acquired from TRW in 1986. This facility houses the
Company's senior management and the majority of its aerospace engineering and
design staff, sales team, and production and main distribution facilities. The
Cleveland Facility is organized around four manufacturing "cells" that operate
its bearing, gear, housing and shaft productions. By creating cells, the
necessary people, machinery, materials and methods are organized into four
distinct business teams. Within each manufacturing cell are members from each of
the Manufacturing, Quality, Production Control, Statistical Process Control, and
Manufacturing Engineering disciplines. In addition, the Company's design
engineering staff is organized into cells which correspond to and complement the
manufacturing cells. The manufacturing and engineering cells work together to
meet the Company's integrated operating plan and to ensure timely, production of
the Company's products.
By using the cell structure and continuous improvement initiatives, the
Cleveland Facility has greatly improved its production performance and quality
since 1986, achieving nearly 100 percent compliance with product development and
customer schedule requirements. For example, typical production lead time for a
new pump was reduced from nearly 60 weeks after first order in 1991, to less
than 20 weeks in 1996, and overdue pump shipments decreased from nearly 500 in
1991 to fewer than 10 in 1996. Management believes that these performance
standards are substantially better than those of its competition. Based on
industry statistics, management also believes that in 1996, its main engine fuel
pumps cost an average of approximately 20% less to operate per flight hour than
the pumps of its nearest competitor. Management believes that the Company's
manufacturing systems and state-of-the-art equipment are critical competitive
factors which permit it to meet the tight tolerances and cost sensitive price
structure of aerospace customers.
In contrast to Argo-Tech's substantial reliance on internal manufacturing,
Carter outsources most of its machining and pre-assembly production to external
providers. However, Carter does maintain internal equipment capacity which
enables it to produce small quantity, quick turn components and to reduce
setup/breakdown times on smaller jobs. Carter has consistently achieved lower
costs by outsourcing capital intensive tasks such as casting and machining,
while completing final assembly and testing on the premises. With lead times of
8 to 50 weeks depending on the complexity of the component, a typical production
cycle at Carter takes an additional four weeks once the machined and
pre-assembled parts are received.
In addition to its manufacturing facilities, the Company maintains
sophisticated testing facilities at its Cleveland, Inglewood and Costa Mesa
locations. These facilities allow for simulation of typical conditions and
stresses that will be endured by products during use. Products are also
thoroughly tested for design compliance, performance and durability. To
facilitate quality control and product development, the Company maintains a
sophisticated chemistry and metallurgy laboratory at the Cleveland Facility,
which includes a scanning electron microscope.
Both Argo-Tech and Carter have obtained and preserved their ISO
certifications, which is becoming a prerequisite for selling to customers
located in Europe. The ISO-9001 Certifications held by the Company are
recognized by most of the Company's customers, as well as by the FAA and
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U.S. Government supply organizations, as the most widely accepted replacement
for the Military Standards formerly used in the aerospace industry.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and to regulation by government agencies, including the
Environmental Protection Agency. Among other matters, these regulatory
authorities impose requirements that regulate the emission, discharge,
generation, management, transportation and disposal of hazardous materials and
pollutants, govern response actions to hazardous substances which may be or have
been released to the environment, and require the Company to obtain and maintain
permits in connection with its operations. This extensive regulatory framework
imposes significant compliance burdens and risks on the Company. Although
management believes that the Company's operations and its facilities are in
compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations thereof or the nature of the Company's operations will not
require the Company to make significant additional expenditures to ensure
compliance in the future. The Company does not presently contemplate material
capital expenditures for environmental remediation for the 1997 or 1998 fiscal
years.
The Cleveland Facility is currently the subject of environmental
remediation activities, the cost of which is the responsibility of TRW pursuant
to the TRW Purchase Agreement. Remediation has been underway since 1989 and is
expected to continue for the foreseeable future. Argo-Tech has not borne any
material portion of the cost of the remediation and does not expect to do so in
the future. TRW has borne all necessary remediation costs and is expected to do
so in the future. The Company estimates that TRW has spent in excess of $10
million for environmental remediation at the Cleveland Facility.
The TRW Purchase Agreement also requires TRW, for a period of 20 years, to
indemnify Argo-Tech for (i) costs associated with third party environmental
claims relating to environmental conditions arising from activities conducted by
TRW in TRW's operation of its Power Accessories Division, which have not been
conducted by Argo-Tech after its purchase of the assets of the Power Accessories
Division in 1986, and (ii) a portion of the costs associated with third party
environmental claims arising from activities conducted by TRW and Argo-Tech, the
portion of the costs to be paid by each party being determined based on the
length of time each party conducted the activity giving rise to the claim. There
have been no third party environmental claims relating to Argo-Tech or the
Cleveland Facility.
In March 1986, a two thousand gallon spent underground storage tank ("UST")
was removed from the Costa Mesa Facility. Petroleum hydrocarbon soil
contamination was discovered during the UST removal, prompting the Orange County
Health Care Agency to require a site assessment. Subsequent site investigations
revealed that groundwater underlying the site is impacted by trichloroethene
("TCE") and perchloroethylene ("PCE"). In 1990, the Regional Water Quality
Control Board ("RWQCB") issued a Cleanup and Abatement Order (the "Cleanup
Order") to Carter related to the investigation and remediation of groundwater
contamination. To date, the full lateral extent of the groundwater contamination
has not been ascertained. By virtue of its acquisition of Carter, the Company
has assumed responsibility for satisfying the Cleanup Order. As part of the
Acquisition, the Sellers have agreed to indemnify the Company for, among other
things, all costs and expenses related to satisfaction of the RWQCB's Cleanup
Order. However, there can be no assurance that the Sellers will satisfy their
indemnification obligations with respect to the Cleanup Order. See "Risk
Factors -- Potential Exposure to Environmental Liabilities."
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PATENTS AND TRADEMARKS
The Company has a number of patents and pending patent applications related
to its products. While in the aggregate its patents are of material importance
to its business, management believes no single patent or group of patents is of
material importance to its business as a whole.
GOVERNMENT REGULATIONS
The commercial aerospace industry is highly regulated by both the FAA in
the United States and by the Joint Aviation Authorities in Europe, while the
military aerospace industry is governed by military quality (ISO-9000)
specifications. The Company is required to be certified by one or more of these
entities, and, in some cases, by individual OEMs in order to engineer and
service parts and components used in specific aircraft models. If material
authorizations or approvals were revoked or suspended, the operations of the
Company would be adversely affected. In the future, new and more stringent
government regulations may be adopted, or industry oversight may be heightened,
which may have an adverse impact on the Company.
The Company must also satisfy the requirements of its customers, including
OEMs and airlines, that are subject to FAA regulations, and provide these
customers with products and services that comply with the government regulations
applicable to commercial flight operations. In addition, the FAA requires that
various maintenance routines be performed on aircraft components, and the
Company currently satisfies or exceeds these maintenance standards in its repair
and overhaul services. Several of the Company's operating divisions include
FAA-approved repair stations.
The Company's aviation and metals operations are also subject to a variety
of worker and community safety laws. The Occupational Safety and Health Act of
1970 ("OSHA") mandates general requirements for safe workplaces for all
employees. In addition, OSHA provides special procedures and measures for the
handling of certain hazardous and toxic substances. The Company believes that
its operations are in material compliance with OSHA's health and safety
requirements.
COMPETITION
Competition among aerospace component manufacturers is based on price,
product quality, reliability and on-time delivery. The Company's primary main
engine fuel pump competitors are Sundstrand, CECO and Lucas. Sundstrand is the
Company's closest competitor in the main engine fuel pump market. See "Risk
Factors -- Competition." Competitors in the Company's other aerospace product
lines range in size from divisions of large corporations to small privately held
entities, with only one or two components in their entire product line. The
Company's primary airframe pump competitors are GEC Aerospace, Hydroaire, a
division of Crane Corporation and Intertechnique; the Company's primary airframe
valve competitors are Parker Hannifin, ITT Aerospace Controls and Whittaker
Controls, Inc. ("Whittaker"); and the Company's primary aerial refueling
component competitor is Parker Hannifin.
Competition among ground fueling product manufacturers is based on price.
The Company's primary ground fueling competitor is Whittaker.
BACKLOG
For Carter, backlog at June 30, 1997 and June 30, 1996 amounted to
approximately $29 million and $37 million, respectively. Backlog consists of
firm orders for Carter's products which have not been shipped. Approximately 57%
of the Carter's backlog at June 30, 1997 is expected to be shipped before
December 31, 1997. However, due to the government funding process, backlog can
vary on a period to period basis due to the stage of completion of the contracts
represented by such backlog. Argo-Tech has no backlog of firm orders for its
products.
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PROPERTIES AND FACILITIES
The Company owns and operates a 150-acre Business Park, which includes 1.8
million square feet of engineering, manufacturing and office space. The Company
occupies approximately 475,000 square feet for its main engine fuel pump
business and leases over one million square feet of the facility to third
parties. Management believes that the Cleveland Facility's machinery, plants and
offices are in satisfactory operating condition, and has sufficient capacity to
meet foreseeable future needs without incurring significant additional capital
expenditures.
The Company also owns the 9.2 acre Costa Mesa Facility, which encompasses
165,000 covered square feet and manufactures certain of the Company's airframe
products and accessories and, ground fueling and aerial refueling equipment.
Management believes that the Costa Mesa Facility has sufficient capacity to
permit further growth in the Company's product lines without significant
additional capital expenditure.
The Company's Inglewood, California leased facility occupies approximately
10,000 square feet and includes available space for expansion. Its primary
purpose is to repair and overhaul main engine fuel pumps owned by airline
customers. Inglewood's assets include test stands for testing fuel pumps after
overhaul and a small machine shop for simple rework of pump components.
EMPLOYEES
As of July 31, 1997, the Company had 763 full-time employees; of which, 459
are salaried and 304 are hourly. Over 36% of the salaried employees have college
degrees, with over 10% holding advanced degrees. The 217 hourly employees
located at the Cleveland Facility are represented by the UAW under a collective
bargaining agreement expiring on March 31, 2000 and have an average of over 18
years of experience in the industry.
LEGAL PROCEEDINGS
While the Company is not presently involved in any material legal
proceedings, during the ordinary course of business, the Company, from time to
time, is threatened with, or may become a party to, legal actions and other
proceedings. The Company believes that its potential exposure to such legal
actions is adequately covered by its aviation product and general liability
insurance.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table sets
forth certain information concerning the directors and executive officers of the
Company. Directors serve until their successors are elected at each annual
meeting. Officers hold office until their successors are elected and qualified.
<TABLE>
<CAPTION>
YEARS IN
NAME AGE INDUSTRY POSITION
- ---------------------------------- --- -------- --------------------------------------------
<S> <C> <C> <C>
Michael S. Lipscomb............... 51 25 Chairman, President & CEO, Director
David L. Chrencik................. 46 20 Vice President, Operations
Yoichi Fujiki..................... 47 6 Vice President and Treasurer, Director
Paul R. Keen...................... 48 20 Vice President, General Counsel & Secretary
Badrik Melikian................... 44 10 Chief Operating Officer, Carter
Frances S. St. Clair.............. 42 6 Vice President and CFO
Remi de Chastenet................. 25 Director
Thomas F. Dougherty............... 54 Director
Prakash A. Melwani................ 39 Director
Robert Y. Nagata.................. 52 Director
Karl F. Storrie................... 60 Director
</TABLE>
Michael S. Lipscomb has been Chairman, President & Chief Executive Officer
since 1994. Mr. Lipscomb joined TRW's corporate staff in February 1981 and was
made Director of Operations for the Power Accessories Division in 1985. Mr.
Lipscomb was named Vice President of Operations when Argo-Tech was formed in
1986, becoming President in 1990 and Chairman in 1994. Mr. Lipscomb has also
served as a director of the Company and Parent since 1990.
David L. Chrencik has been Vice President, Operations since December 1990.
Since joining Argo-Tech (TRW) in 1977, Mr. Chrencik has held various
manufacturing engineering and operations management positions.
Yoichi Fujiki has been Vice President and Treasurer since joining Argo-Tech
in 1991. Prior to joining Argo-Tech, he was Senior Vice President and Chief
Credit Officer of American Pacific State Bank in Los Angeles. Mr. Fujiki has
also served as a director of the Company since 1991.
Paul R. Keen has been Vice President, General Counsel and Secretary since
1990. Mr. Keen was named Vice President and General Counsel in 1987, and became
Secretary in December 1990. Prior to 1987, he spent the majority of his career
with TRW as Senior Counsel, Securities and Finance and as primary legal counsel
to two operating groups.
Badrik Melikian has been Chief Operating Officer of Carter since January
1994. Mr. Melikian joined Carter in 1987 and held management positions in
Carter's Ground Fueling Group before becoming the General Manager of the
Industrial Marine division when it was formed in 1990.
Frances S. St. Clair has been Vice President and Chief Financial Officer
since 1992. Ms. St. Clair joined the Company in 1991 as Controller and was
promoted to Vice President and Controller in November 1991. Prior to joining
Argo-Tech, Ms. St. Clair served as the Vice President and Controller of the
Sheffield Measurement Unit of the Cross and Trecker Corporation. Ms. St. Clair
received her C.P.A. certification in 1984.
Remi de Chastenet became a director of the Company and Parent in 1997. Mr.
de Chastenet previously worked at Vestar Capital Partners as a Financial
Analyst.
Thomas F. Dougherty has served as a director of the Company and Parent
since 1995. Mr. Dougherty is President of the Columbiana Boiler Company,
Chairman of Anderson Columbiana Trading Corporation and Columbiana Texas
Corporation, and President of Dougherty Development Corp. Mr. Dougherty has been
Senior Vice President of National City Corporation and President of
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National City Financial Corporation, National City Venture Corporation and
National City Capital Corporation. He is also a principal in Dougherty Capital
Partners.
Prakash A. Melwani has served as a director of the Company since 1990. Mr.
Melwani is a founding partner of Vestar, which organized the Vestar Investment
Partnership to acquire Argo-Tech in 1990. Mr. Melwani is also a director of
Alvey Systems, Inc.
Robert Y. Nagata has served as a director of Parent since 1990, and became
a director of the Company in 1997. Mr. Nagata is a partner in the Los Angeles
law firm of Musick, Peeler & Garrett.
Karl F. Storrie has served as a director of the Company since 1990. Mr.
Storrie is President, CEO and a director of Dura Automotive Systems, Inc.
EXECUTIVE COMPENSATION
The following table sets forth, for fiscal 1996, certain information about
the compensation paid to the Chief Executive Officer and each of the other four
most highly compensated executive officers of the Company (the "Named
Executives").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)(2)
- ------------------------------------------ ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Michael S. Lipscomb....................... 1996 $ 263,680 $120,075 $ 21,334
Chairman, President and CEO
David Chrencik............................ 1996 $ 126,022 $ 57,037 $ 4,457
Vice President, Operations
Yoichi Fujiki............................. 1996 $ 131,072 $ 49,654 $ 4,754
Vice President and Treasurer
Paul R. Keen.............................. 1996 $ 146,552 $ 66,737 $ 5,574
Vice President, General Counsel and
Secretary
Frances S. St. Clair...................... 1996 $ 126,022 $ 57,037 $ 3,436
Vice President and CFO
</TABLE>
- ---------------
(1) Other annual compensation did not exceed the lesser of $50,000 or 10% of
salary plus bonus of any of the Named Executives in 1996.
(2) The amounts listed consist of the value of life insurance provided by the
Company for the benefit of the Named Executives in excess of the value of
life insurance provided by the Company for the benefit of all other salaried
employees.
CERTAIN AGREEMENTS
Management Retention Agreements
Stay Pay and Severance Agreements. The Company has entered into Stay Pay
and Severance Agreements (the "Severance Agreements") with each of the Named
Executives. The Board of Directors of the Company believes that such Severance
Agreements benefit the Company by securing the continued services of key
management personnel and by enabling management to perform their duties and
responsibilities without the distracting uncertainty generally associated with a
change in control.
The Severance Agreements provide that, if a Change in Control (as defined
in the Severance Agreements) occurs and the executive remains employed by the
Company on a full-time basis through the effective date of the Change in
Control, the executive will receive a single lump sum payment equal to 25% of
the sum of the highest annual base salary and the highest bonus amount received
by the executive in the preceding five years (the "Stay Payment").
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The Severance Agreements also provide that if an executive's full-time
employment is terminated without Cause (as defined in the Severance Agreements),
either before or after a Change in Control has occurred, or upon a voluntarily
termination of employment by an executive upon the reduction of his or her base
salary by 5% or more, if such reduction is not a result of a Company policy to
reduce the salaries of a substantial number of officers or employees, or if the
executive ceases to be employed in a position involving substantially the same
level of responsibility or duties as performed by the executive on the date the
Severance Agreement was executed (a "Qualifying Voluntary Termination"), the
executive will receive a payment consisting of a single lump sum equal to the
sum of the highest annual base salary and the highest bonus amount received by
the executive in the preceding five years (the "Basic Severance Payment").
Additional payments will be made to the executive in the event that a
Change in Control has occurred and the executive's employment is terminated
without Cause within the six-month period following the effective date of such
Change in Control, or upon a Qualifying Voluntary Termination within such
period. The executive will receive payments equal to the amount the executive
would have received had employment continued, at the same intervals and at the
same rate of base salary the executive was receiving during the month preceding
termination, until the six-month anniversary of the effective date of the Change
in Control (the "Additional Severance Payments"). The Additional Severance
Payments, if paid, would be in addition to the Basic Severance Payment and the
Stay Payment.
Each executive is entitled to several other benefits contained in the
Severance Agreements, including (i) life, health, medical/hospital, dental, and
vision insurance benefits for a period of 12 months in the event that an
executive's full-time employment is terminated without Cause or upon a
Qualifying Voluntary Termination, either before or after a Change in Control has
occurred and (ii) gross-up payments to cover any excise tax imposed by Section
4999 of the Internal Revenue Code upon any payment made to the executive under
the Severance Agreements, subject to certain limitations defined in therein.
The Company has agreed to be solely responsible for any and all attorneys'
fees and related expenses incurred by the executive in the event that the
Company fails to comply with its obligations under the Severance Agreements.
Trust Agreement. In connection with a Stay Pay Agreement, dated February
13, 1989 entered into between the Company and Mr. Lipscomb (the "Original Stay
Pay Agreement"), the Company and Key Trust Corporation of Ohio, N.A. (as
successor to Society National Bank) (the "Trustee") entered into a Trust
Agreement, dated as of October 28, 1994, (the "Trust Agreement") establishing an
irrevocable grantor trust (the "Trust") for the benefit of Mr. Lipscomb (the
"Beneficiary") or any Successor (as defined in the Trust Agreement). The
Original Stay Pay Agreement provides for payment of $315,600 (the "Payment") on
January 1, 2007, or earlier, upon Mr. Lipscomb's voluntary or involuntary
termination of full-time employment with the Company, with or without Cause (as
defined in the Original Stay Pay Agreement).
The assets to be held by the Trust include the original deposit of
principal and any other contributions made at the option of the Company (the
"Trust Assets"). The Trust Assets are to be disposed of by the Trustee when the
Trustee receives either (i) a certificate and affidavit signed by the
Beneficiary or Successor, in the form attached to the Trust Agreement, stating
that the conditions under the Original Stay Pay Agreement have occurred and the
Beneficiary or Successor is entitled to the Payment or (ii) a written direction
certified by two officers of the Company other than the Beneficiary or
Successor. If the amount disbursed by the Trustee is insufficient to fully fund
the Payment specified under the Original Stay Pay Agreement, the Company will be
required to pay the balance. However, if the amount disbursed by the Trustee
exceeds the amount to which the Beneficiary or Successor is entitled under the
Severance Agreement, the Beneficiary or Successor is entitled to retain such
excess. The Trust Assets and any income earned on such Trust Assets
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remain at all times subject to the claims of general creditors of the Company
under state and federal law.
The Original Stay Payment Agreement also provides for the payment of
attorneys' expenses if enforcement of the contract becomes necessary, and
contains certain restrictions on Competitive Activity (as defined in the
Original Stay Pay Agreement). The benefits provided by the Original Stay Pay
Agreement and the Trust Agreement are in addition to the benefits provided under
the Severance Agreements and Mr. Lipscomb's Additional Contract (as defined).
Additional Employment Agreements and Arrangements. The Company has entered
into additional employment contracts with two of the Named Executives, Mr.
Lipscomb and Mr. Keen (collectively, the "Additional Contracts"). Each
Additional Contract provides for the payment of severance benefits upon
termination of employment without Cause (as defined in the Additional
Contracts). In the event of such a termination, Mr. Lipscomb will receive all
salary and bonuses for a period of twelve months from the date of termination,
in an amount equal to all salary and bonuses received during the twelve month
period immediately preceding termination. Mr. Keen will receive, in the event of
such a termination, a single lump sum payment equal to 24 months of his base
salary, in an amount calculated from the base salary in effect for the full
month immediately preceding the date of termination. Both Mr. Lipscomb and Mr.
Keen will receive life, health, medical/hospital, dental and vision insurance
benefits for a period of twelve months. Mr. Keen's Additional Contract also
provides for the payment of attorneys' expenses if enforcement of the contract
becomes necessary, and contains restrictions on Competitive Activity (as defined
in the Additional Contract). The benefits provided by the Additional Contracts
are provided in addition to the benefits provided under the Severance
Agreements, the Original Stay Pay Agreement and the Trust Agreement.
COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE COMPANY
Retirement Plan
Salaried Pension Plan. The Company maintains the Argo-Tech Corporation
Salaried Pension Plan (the "Salaried Pension Plan"). The Salaried Pension Plan
was established effective November 1, 1986. Prior to July 1, 1994, regular,
permanent, salaried employees of the Company were eligible to participate in the
Salaried Pension Plan. Participation in the Salaried Pension Plan was closed to
any person who was not a participant on June 30, 1994, and all benefit accruals
ceased as of the close of business on June 30, 1994. The benefits of
participants in the Salaried Pension Plan who were employees on June 30, 1994,
became vested (to the extent otherwise non-vested) as of the close of business
on June 30, 1994. Employee contributions were neither required nor permitted.
All Salaried Pension Plan assets are presently invested in an annuity contract
with Aetna Life Insurance Company as the funding agent.
The monthly normal retirement benefit under the Salaried Pension Plan is
1.25% of a participant's final average monthly compensation multiplied by the
participant's years of benefit service. Compensation earned after June 30, 1994,
and service performed after June 30, 1994, are not taken into account in
determining a participant's benefit under the Salaried Pension Plan. Final
average monthly compensation means the average monthly compensation (computed
before withholdings, deductions for taxes or other purposes, and salary
reduction amounts under the Argo-Tech Employee Savings Plan (the "Salaried
Savings Plan")) paid or payable to the participant for the five calendar years
which produce the highest such average, determined as if the participant's
employment terminated on June 30, 1994 (or, if earlier, the date the
participant's employment actually terminated or the participant ceased to be
within the class of employees eligible to participate in the Salaried Pension
Plan). If a participant ceased to be within the class of employees eligible to
participate or a participant's employment terminated (or is deemed to have
terminated) prior to July 1 of a calendar year, that calendar year is not taken
into account for purposes of determining final average monthly compensation. A
participant's vested benefit cannot be less than the participant's vested
benefit under the Salaried Pension Plan, if any, as of October 31, 1989.
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Under the Internal Revenue Code of 1986, as amended (the "Code"), the
maximum annual retirement benefit payable under the Salaried Pension Plan and
the maximum amount of annual compensation that can be taken into account in
calculating benefits under the Salaried Pension Plan are limited.
At retirement, based on benefits accrued as of June 30, 1994, the monthly
retirement benefits payable to each of the individuals named in the Summary
Compensation Table are:
<TABLE>
<CAPTION>
NAME MONTHLY BENEFIT
------------------------------------------------------ ---------------
<S> <C>
Michael S. Lipscomb................................... $1,799.32
David L. Chrencik..................................... $ 949.57
Yoichi Fujiki......................................... $ 488.15
Paul R. Keen.......................................... $1,188.83
Frances S. St. Clair.................................. $ 411.56
</TABLE>
The benefits shown above are in the form of a single life annuity
commencing as of the first day of the month after the participant attains age
65. Benefits may commence at any time after age 55 if the participant had at
least five years of service when the participant's employment terminated.
Actuarial reductions would apply for early commencement and for payment in the
form of a joint and survivor annuity.
The normal form of payment under the Salaried Pension Plan is a single life
annuity; however, participants may elect payment of retirement benefits under
several joint and survivor forms of payment, subject to the requirement that a
married participant receive benefits in the form of a joint and survivor annuity
with the spouse as contingent annuitant unless the spouse consents to the
participant's election of another form of payment, another contingent annuitant,
or both, as applicable.
Salaried Savings Plan
The Company's Salaried Savings Plan became effective on May 1, 1987.
Regular, permanent, salaried employees of the Company who have completed at
least 3 months of service are eligible to participate in the Salaried Savings
Plan. All assets of the Salaried Savings Plan are held in trust by Key Trust
Company of Ohio, N.A., the current Trustee.
Participants may elect to have "tax-deferred" (401(k) compensation
reduction) contributions made to the Plan of up to 13% of their eligible
compensation. Participants may also elect to have after-tax contributions made
to the Plan of up to 10% of their eligible compensation. With respect to periods
prior to July 1, 1994, the Salaried Savings Plan provided for employer matching
contributions as follows: Basic matching contributions of 25% of each
participant's tax-deferred contributions in excess of 3% of compensation and
discretionary additional matching contributions of a percentage (within the
range of 0% and 125% established for each fiscal year (the "Plan Year")) of each
participant's tax-deferred contributions not in excess of 3% of compensation.
Employer matching contributions to the Salaried Savings Plan ceased on July 1,
1994. A participant's benefit under the Salaried Savings Plan is the balance of
the participant's accounts attributable to after-tax contributions and the
vested balance of the participant's accounts attributable to employer matching
contributions. Tax-deferred contributions and after-tax contributions are always
100% vested. Participants (including former employees) whose accounts
attributable to employer matching contributions had not been forfeited prior to
November 1, 1994, became, to the extent otherwise non-vested, 100% vested.
Benefits are payable in the form of a single lump sum payment.
Under the Code, the maximum annual contributions that can be made to the
Salaried Savings Plan and the maximum amount of annual compensation that can be
taken into account in calculating contributions to the Salaried Savings Plan are
limited. Contributions for a plan year on behalf of
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certain highly compensated individuals may also be limited to comply with
nondiscrimination requirements under the Code.
Benefits are generally payable after a participant is separated from
service. A participant who is an employee may, however, apply for an in-service
distribution of all or a portion of the participant's vested account balance
after attainment of age 59 1/2 or in the event of a hardship (as defined in the
Salaried Savings Plan). A participant may apply for an in-service distribution
of after-tax contributions at any age and for any reason. A participant who is a
"party in interest" may apply for a loan of up to 50% of the participant's
vested account balance under the Salaried Savings Plan.
Employee Stock Ownership Plan
The Company established its ESOP (as defined) effective May 17, 1994.
Salaried employees of the Company are eligible to participate in the ESOP. Key
Trust Company of Ohio, N.A., serves as Trustee (the "ESOP Trustee"), and holds
in trust all of the ESOP's assets.
On May 17, 1994, the ESOP Trustee purchased 420,000 shares of Parent Stock
with the proceeds of a $16,800,000 loan to the ESOP from Argo-Tech Corporation.
The term of the loan, unless it is prepaid or accelerated, ends on April 28,
2004. The interest rate for the ESOP loan is fixed for the ten year term at
7.16% per annum. The purchase price for the Parent Stock was $40 per share. The
Company agreed to make contributions to the ESOP necessary to repay the loan.
The shares of Parent Stock purchased by the ESOP with the proceeds of the
loan are held in an ESOP suspense account and released to eligible participants
on a pro rata basis as loan principal payments are made. Shares released from
the ESOP for the Plan Year are allocated to each eligible participant's ESOP
account based on the ratio of each such participant's eligible compensation to
the total eligible compensation of all eligible ESOP participants. Forfeitures
of the ESOP accounts of non-vested participants are reallocated among eligible
participants in the same manner as shares of Parent Stock released from the
suspense account.
For the Plan Years ended October 31, 1994, October 31, 1995, and October
31, 1996, the number of shares of Parent Stock released from the suspense
account were, 21,000, 42,000, and 42,000, respectively. Based on the loan
payment schedule, the number of shares of Parent Stock released from the
suspense account each future Plan Year during the loan period would be:
<TABLE>
<CAPTION>
NUMBER OF
PLAN YEAR ENDING SHARES RELEASED
---------------------------------------------------- ---------------
<S> <C>
October 31, 1997.................................... 42,000
October 31, 1998.................................... 42,000
October 31, 1999.................................... 42,000
October 31, 2000.................................... 42,000
October 31, 2001.................................... 42,000
October 31, 2002.................................... 42,000
October 31, 2003.................................... 42,000
October 31, 2004.................................... 21,000
</TABLE>
If the employer makes additional contributions to the ESOP to "prepay" the
loan, shares would be released from the suspense account more rapidly than shown
above. If, however, for any reason the Company does not make contributions to
the ESOP to pay the principal on the loan as described above, the shares would
not be released from the suspense account as rapidly as shown above.
The Company may, for any Plan Year, make additional discretionary
contributions for the benefit of ESOP participants. The Company's contributions
may be made in cash, shares of qualifying employer securities, or other
property.
Whether the ESOP will acquire additional shares of Parent Stock or other
qualifying employer securities in the future depends upon future business
conditions. Such purchases, if made, would
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<PAGE> 86
be funded through additional borrowings by the ESOP or additional contributions
from the Company. The timing, amount and manner of future contributions to the
ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations, and market
conditions.
ESOP participants may elect to receive the shares of qualifying employer
securities credited to their accounts after their termination of employment, and
in certain instances, after attaining age 55 with 10 or more years of
participation in the ESOP. ESOP participants vest in their ESOP accounts 20% per
year of service, and service prior to the effective date of the ESOP counts for
this purpose. An ESOP participant can require the Company to purchase qualifying
employer securities received from the ESOP at the value the stock then has, as
determined for ESOP purposes (a "put option"). Shares of qualifying employer
securities distributed from the ESOP are subject to a "right of first refusal"
in favor of the Company or the ESOP at the value the stock then has, as
determined for ESOP purposes. The put option and right of first refusal will no
longer apply if the qualifying employer securities become tradeable on an
established securities market.
Voting rights on and decisions whether to tender or exchange shares of
qualifying employer securities held in the ESOP are "passed through" to ESOP
participants. Each participant is entitled to direct the ESOP Trustee as to the
voting of (1) shares of qualifying employer securities credited to the
participant's account; and (2) a proportionate part of the unallocated shares of
qualifying employer securities held in the ESOP suspense account and shares of
qualifying employer securities allocated to participants' ESOP accounts as to
which no direction is received by the ESOP Trustee. In the event of a tender or
exchange offer for qualifying employer securities held in the ESOP, each
participant is entitled to direct the ESOP Trustee whether to tender or exchange
shares of qualifying employer securities held in the ESOP in a manner similar to
the voting directions described above.
Because the employers' contributions to the ESOP are not fixed, benefits
payable under the ESOP cannot be estimated.
For the Plan Year ended October 31, 1996, the number of shares of Parent
Stock allocated under the ESOP to the accounts of the individuals named in the
Summary Compensation Table were:
<TABLE>
<CAPTION>
SHARES ALLOCATED
--------------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCTOBER 31, 1996 OCTOBER 31, 1996
----------------------------------- ---------------- ----------------
<S> <C> <C>
Michael S. Lipscomb................ 389.4886 1062.3804
David L. Chrencik.................. 389.4886 1022.8018
Yoichi Fujiki...................... 389.4886 1044.5887
Paul R. Keen....................... 389.4886 1062.3804
Frances S. St. Clair............... 389.4886 1013.4160
</TABLE>
Generally Accepted Accounting Principles require that any third party
borrowing by the ESOP be reflected as a liability on the Company's statement of
financial condition. Since the ESOP is borrowing from the Company, such
obligation is not treated as a liability, but will be excluded from
stockholders' equity. If the ESOP purchases newly issued shares of Parent Stock
from the Company, total stockholders' equity would neither increase nor
decrease, but per share stockholders' equity and per share net earnings would
decrease as the newly issued shares of Parent Stock are allocated to the ESOP
participants.
The Internal Revenue Service has issued a determination letter that the
ESOP is qualified under Section 401(a) of the Code and is an employee stock
ownership plan under Section 4975(e)(7) of the Code. Contributions to the ESOP
and allocations to the accounts of eligible participants thereunder are subject
to applicable limitations imposed under the Code. The ESOP is subject to the
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<PAGE> 87
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the regulations thereunder.
ESOP Excess Benefit Plan
The Company maintains an unfunded plan to provide for cash payments to
employees participating in the ESOP in respect of reduction to allocations to
their ESOP accounts because of limitations under the Code applicable to
tax-qualified plans (the "ESOP Excess Benefit Plan"). Benefits under the ESOP
Excess Benefit Plan vest in the same manner as benefits under the ESOP and are
payable at the same time or times as benefits under the ESOP are distributable
from the ESOP, or in the case of benefits with respect to qualifying employer
securities subject to the put option under the ESOP at the time the ESOP Excess
Benefit Plan participant exercises (or is deemed to have exercised) a
hypothetical "put option" under the Excess Benefit Plan. All benefits under the
ESOP Excess Benefit Plan are payable solely from the Company's general assets.
The Company maintains a bookkeeping account for amounts credited to the
accounts of ESOP Excess Benefit participants. For the Plan Year ended October
31, 1996, the amounts credited to the ESOP Excess Benefit Plan accounts of the
individuals named in the Summary Compensation Table were:
<TABLE>
<CAPTION>
EQUIVALENT SHARES ALLOCATED
--------------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCTOBER 31, 1996 OCTOBER 31, 1996
----------------------------------- ---------------- ----------------
<S> <C> <C>
Michael S. Lipscomb................ 582.675 1,267.954
David L. Chrencik.................. 73.425 73.425
Yoichi Fujiki...................... 67.500 100.626
Paul R. Keen....................... 150.125 250.154
Frances S. St. Clair............... 73.425 73.425
</TABLE>
Incentive Stock Option Plans
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
% OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR MARKET PRICE FOR OPTION TERMS($)
OPTIONS EMPLOYEES IN BASE PRICE ON DATE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR ($/SH) OF GRANT DATE 0% 5% 10%
- --------------------------------------- ------------ ----------- ------------ ---------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S. Lipscomb.......... 1,990 20.1% $ 10.00 58.63 11/09/01 96,774 129,008 168,004
David L. Chrencik............ 790 8.0% $ 10.00 58.63 11/09/01 38,418 51,214 66,695
Yoichi Fujiki................ 790 8.0% $ 10.00 58.63 11/09/01 38,418 51,214 66,695
Paul R. Keen................. 790 8.0% $ 10.00 58.63 11/09/01 38,418 51,214 66,695
Frances S. St. Clair......... 790 8.0% $ 10.00 58.63 11/09/01 38,418 51,214 66,695
</TABLE>
1991 Performance Stock Option Plan. The 1991 Performance Stock Option Plan
provides for option agreements on the purchase of Class D non-voting Parent
Stock, at a price of $10.00 per share, unless and until such stock is offered
for sale to the public, in which case the price will be not less than fair
market value. The options, which were granted by the Compensation Committee of
Parent upon the recommendation of the Argo-Tech Compensation Committee, expire
on November 9, 2001. The options may be exercised only in quarters over four
successive years, but shall become exercisable in full in the event that the
shares become registered or traded on a national exchange or in the event of a
change in control.
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<PAGE> 88
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISABLE IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Lipscomb................ 0 0 7,432 2,238 361,418 108,834
David L. Chrencik.................. 0 0 2,097 893 101,977 43,427
Yoichi Fujiki...................... 0 0 497 893 24,169 43,427
Paul R. Keen....................... 0 0 2,097 893 101,977 43,427
Frances S. St. Clair............... 0 0 2,097 893 101,977 43,427
</TABLE>
1991 Management Incentive Stock Option Plan. The 1991 Management Incentive
Stock Option Plan provides for option agreements on the purchase of Class A
voting Parent Stock, at a price not less than $10.00 per share unless and until
the stock is offered for sale to the public, in which case the price will be not
less than fair market value. The options, which were granted by the Compensation
Committee of Parent upon the recommendation of the Argo-Tech Compensation
Committee, expire on November 9, 2001. The options may be exercised only in
quarters over four successive years, but shall become exercisable in full in the
event that the shares become registered or traded on a national exchange, or in
the event of a change in control.
Executive Life Insurance Plan
The Company's executive life insurance plan permits certain officers and
key employees to obtain life insurance benefits in addition to those generally
provided to salaried employees. The level of coverage provided to such officers
and key employees consists of basic term and whole life insurance coverage equal
to 3 times the individual's salary.
Bonus Plan
The Company has in effect a plan pursuant to which officers and other key
management employees may receive cash bonuses paid upon (1) the achievement of
specified cash flow goals in the preceding fiscal year and (2) individual
performance. The amounts of such bonus awards are approved by the Compensation
Committee of the Company.
Compensation of Directors
The Company pays each Director a quarterly fee of $2,500. Each director
also receives $3,000 plus reasonable out-of-pocket expenses for each board
meeting attended. Members of the Audit and the Compensation Committees of the
Company receive $3,000 for attendance at a committee meeting that is not held on
the same day as a meeting of the Board of Directors.
The members of the Company's Audit Committee are Thomas F. Dougherty, Remi
de Chastenet and Karl F. Storrie. The members of the Company's Compensation
Committee are Prakash A. Melwani, Karl F. Storrie and Robert Y. Nagata. The
members of the Compensation Committee of Parent are Michael S. Lipscomb and
Robert Y. Nagata.
CERTAIN TRANSACTIONS
UIC Distribution Agreement
UIC, a company owned by YCI (which is under the control of Mr. Yamada,
Parent's majority stockholder), was appointed by Argo-Tech as its exclusive
distributor of Argo-Tech products in
1990 with respect to the Japanese market and in 1994 for the entire
international market under a long-term agreement (the "Distribution Agreement").
Management believes that the Distribution Agreement was entered into on terms
and conditions customary for the industry in all respects with the exception of
the basic contract term of 50 years and termination provisions which are more
favorable to UIC than industry norm. The Distribution Agreement provides for a
15% discount from
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<PAGE> 89
Argo-Tech catalog prices on all purchases of Argo-Tech products by UIC. For the
twelve months ended August 2, 1997, on a pro forma basis, sales by UIC accounted
for approximately 16% of the Company's net revenues.
Vestar Consulting Agreement
The Company has retained Vestar (of which Prakash A. Melwani, a director of
the Company, is a Managing Director) to provide it with financial and corporate
consulting services. In exchange for such services, the Company has agreed to
pay Vestar an annual consulting fee of approximately $110,000, payable
semi-annually in advance, plus Vestar's reasonable out-of-pocket costs and
expenses. Management believes that these terms of the consulting agreement are
no less favorable to the Company than would have been available pursuant to
arms' length negotiations with unaffiliated parties. The consulting agreement
will continue until December 31, 2000 and thereafter shall be renewed
automatically for additional one-year terms unless the Company or Vestar gives
written notice of termination.
Officer Loans
Several of the Named Executives have entered into presently outstanding
loan agreements with Parent. The largest amount of indebtedness outstanding
since the beginning of fiscal 1996 was: $243,418 (Mr. Lipscomb), $222,026 (Mr.
Keen) and $81,421 (Mr. Chrencik). Each loan is due October 28, 2000 and accrues
interest at 6.75% annually. These loans, secured by a pledge of Parent Stock,
were extended for the purchase of Parent Stock, or for the personal use of the
Named Executive. Each of the Named Executives having an outstanding loan has
entered into a Pledge Agreement and Promissory Note with Parent in connection
with such loans. Management believes that the terms of these loans are no less
favorable to the Company than would have been available pursuant to arms' length
negotiations with unaffiliated parties.
The Note Repayment
In March 1997, Parent purchased all of its redeemable preferred stock from
the two preferred stockholders, AT LLC and Vestar/Argo-Tech Investment Limited
Partnership (the "Vestar Investment Partnership"). AT LLC's preferred stock was
purchased, including accrued dividends, in exchange for subordinated notes in
the aggregate principal amount of $41.1 million (the "Parent Notes") and cash of
$2.1 million. Vestar Investment Partnership's preferred stock was purchased,
including accrued dividends, in exchange for cash of $2.0 million. The Company
also had notes payable in the aggregate principal amount of $5.0 million (the
"AT Notes," and together with the Parent Notes, the "Existing Notes"). The AT
Notes were issued to the Yamada Trust, a trust organized under an irrevocable
trust agreement, and were subordinate to the Company's senior debt. The Existing
Notes were repaid with the proceeds of the Offering. See "Summary -- The
Transactions" and "Certain Transactions."
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<PAGE> 90
PRINCIPAL STOCKHOLDERS
The Company is a wholly owned subsidiary of Parent, which owns 3,000
shares, or 100% of the Argo-Tech's Common Stock, par value of $.01 per share.
The shares of the Company held by the Parent are the only shares of the
Company's capital stock that are outstanding. The following table sets forth the
ownership of the Parent Stock as of August 2, 1997 by (i) each person known to
the Company to be the beneficial owner of more than 5% of any class of Parent
Stock, (ii) each director of the Company and (iii) all directors and executive
officers of the Company as a group. On August 2, 1997, the number of shares of
Parent Stock outstanding was 1,363,493 shares.
Shares of Parent's Class A and Class B Stock are voting shares and are
identical in all respects. Shares of Parent's Class C Stock are non-voting
shares which are convertible into shares of Parent's Class B Stock pursuant to
the terms of the 1994 Stockholders Agreement. Shares of Parent's Class D Stock
are non-voting, and all such shares are currently unissued and reserved for
issuance pursuant to the 1991 Performance Stock Option Plan. No Parent's Class D
Stock options have been exercised.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES OF SHARES OF SHARES OF PERCENT OF CLASS
NAME OF CLASS A CLASS B CLASS C ------------------
BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK A B C
-------------------- ------------ ------------ ------------ ----- ---- ---
<S> <C> <C> <C> <C> <C> <C>
AT Holdings, LLC............................ 20,000 614,000(2) 27,560 3.1 89.1 100
1890 Highway 50 East
Suite 4
Carson City, NV 89701
Key Trust Company of Ohio, N.A.(1).......... 415,520 -- -- 64.2 -- --
127 Public Square
Cleveland, OH 44114
Sunhorizon International, Inc............... 129,402 -- -- 20.0 -- --
13221 Ranchwood Road
Tustin, CA 92680
YC International Inc........................ -- 75,000(2) -- -- 10.9 --
725 South Figueroa Street
Suite 3870
Los Angeles, CA 90117
Chrencik, David............................. 5,512 ** -- --
de Chastenet, Remi*......................... -- -- -- -- -- --
Dougherty, Thomas*.......................... 1,654 -- -- ** -- --
Fujiki, Yoichi*............................. 2,000 -- -- ** -- --
Keen, Paul.................................. 12,027 -- -- 1.9 -- --
Lipscomb, Michael*.......................... 20,670 -- -- 3.2 -- --
Melwani, Prakash*........................... -- -- -- -- -- --
Nagata, Robert*............................. -- -- -- -- -- --
St. Clair, Frances.......................... 5,812 -- -- ** -- --
Storrie, Karl*.............................. 1,654(3) -- -- ** -- --
Directors and Officers as a Group........... 57,635 -- -- 8.9 -- --
(15 persons)
</TABLE>
- ---------------
* Director of the Company
** Less than 1%
(1) Key Trust holds shares of Parent Stock in trust for the benefit of the
ESOP.
(2) AT Holdings, LLC has the option to purchase all of YC International, Inc.'s
shares of Class B Common Stock. AT Holdings, LLC disclaims all beneficial
ownership of such shares.
(3) Includes options to purchase 450 shares of Class A Common Stock that are
immediately exercisable.
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<PAGE> 91
Stockholder Agreements
On May 17, 1994, the stockholders of Parent entered into the 1994
Stockholders Agreement, which was amended as of May 1, 1997 to reflect the
acquisition of Parent Stock by AT LLC from YCI, and was subsequently amended as
of July 18, 1997 to facilitate the reorganization of the Company's corporate
structure.
The 1994 Stockholders Agreement provides that the Board of Directors of
Parent will consist of five directors, three of whom are to be nominated by AT
LLC and two of whom are to be nominated by the then-serving chief executive
officer of the Company, of which, one of whom may be such chief executive
officer and at least one of whom is to be an independent director whose
selection is subject to AT LLC's approval. The 1994 Stockholders Agreement
further provides that the Board of Directors of the Company will consist of
seven directors, (i) four of whom are to be selected by AT LLC, (ii) two of whom
are to be selected by the chief executive officer of the Company, of which, one
of whom may be such chief executive officer and at least one of whom is to be an
independent director whose selection is subject to AT LLC's approval, and (iii)
one of whom is to be selected by Vestar Investment Partnership until December
31, 2000 and thereafter selected jointly by AT LLC and the chief executive
officer of the Company. The composition of the Board of Directors of the Company
is subject to change based on the occurrence of certain specified events
described in the 1994 Stockholders Agreement.
The 1994 Stockholders Agreement provides that until the consummation of an
Acceptable Company Offering or an Acceptable Demand Offering (each as defined in
the 1994 Stockholders Agreement), each of the stockholders agree to vote its
Parent Stock so that the Restated Certificate will provide that certain
specified actions require the approval of not less than 80% of the members of
the Board of Directors of Parent then serving. The specified actions include,
among other things, (i) certain transactions, on other than arms-length terms
among the Parent and YCI, AT LLC or an affiliate of YCI or AT LLC, or any
transaction between Parent and another Person (as defined in the 1994
Stockholders Agreement); (ii) transactions related to any merger, consolidation,
liquidation or dissolution of Parent or Argo-Tech, or the sale, lease, exchange,
transfer or other disposition or grant of a security interest or mortgage by
Argo-Tech relating to all or substantially all of its assets (except where the
net per share amount received by holders of Parent stock is the same and an
independent investment banking firm shall have determined that the price to be
realized from such transaction is fair to all stockholders); (iii) transactions
resulting in (a) a dilution of the percentage ownership interest of any
Non-Yamada Stockholder (as defined in the 1994 Stockholders Agreement), (b) the
issuance of capital stock of Argo-Tech to any person, (c) an amendment of the
Restated Certificate of Incorporation of Parent (the "Restated Certificate"),
(d) the issuance of, or amendment of the Restated Certificate to provide for the
issuance of, any preferred stock, (e) the issuance of any debt securities, (f) a
change of the capital structure of Parent which has a material adverse effect on
the Non-Yamada Stockholders that is different in kind from the effect on Yamada
and its affiliates, or (g) the declaration or payment of any dividend to any
Person; (iv) changes in the arrangements for the distribution of the Company's
products; (v) changes in the Certificate of Incorporation relating to election
or removal of directors; or (vi) any action taken by Parent as the sole
stockholder of the Company. The 1994 Stockholders Agreement further provides
that until the consummation of an Acceptable Company Offering or an Acceptable
Demand Offering, the Restated Certificate will provide that the power of Parent,
as sole stockholder of the Company, to elect and remove members of the Board of
Directors of the Company is vested exclusively in the stockholders of Parent.
The 1994 Stockholders Agreement imposes certain restrictions on the rights
of the stockholders of Parent to sell or otherwise dispose of their Parent
Stock. In certain circumstances, the stockholders have tag-along rights to
participate in certain transactions by AT LLC, YCI or Sunhorizon involving
Parent Stock. Additionally, the stockholders are subject to drag-along rights in
the event that Parent's or the Company's Board of Directors approves a
transaction in which the terms and conditions relating to such stockholder are
no less favorable than those relating to AT
90
<PAGE> 92
LLC. The 1994 Stockholders Agreement also grants a right of first refusal in the
event that a stockholder attempts to dispose of its Parent Stock other than as
permitted pursuant to the 1994 Stockholders Agreement.
Members of the Company's management (the "Management Stockholders") and
certain outside directors of the Company who are parties to the 1994 Stockholder
Agreement have the right, exercisable no more than once in any calendar year, to
put to Parent or the Company the shares of Parent Stock beneficially owned by
such stockholders. The exercise of such put rights, which must occur on or
before April 30, 2004, is to be effected during a four-week period, which is
selected annually by the chief executive officer of the Company, during the
Company's second fiscal quarter.
The 1994 Stockholders Agreement further provides that after December 24,
1996, each of AT LLC, the Management Stockholders and the ESOP Trustee (acting
by vote or consent of a majority of the aggregate number of shares held by them)
have the right to demand that Parent make an initial registered public offering
of its Parent Stock under the Securities Act, provided that (i) following such
offering, AT LLC, Sunhorizon and their respective transferees will own no less
than 36% in the aggregate of the outstanding Parent Stock, (ii) any underwriters
chosen to assist in such offering are reasonably acceptable to not less than 80%
of the members of Parent's Board of Directors and (iii) the minimum amount
received pursuant to such offering is no less than $35,000,000 in gross proceeds
in the aggregate. In addition, each of AT LLC and the non-AT LLC stockholders
have the right, subject to certain restrictions and limitations, to require
Parent to effect registration under the Securities Act of such stockholder's
Parent Stock. In addition, in certain circumstances and subject to certain
restrictions and limitations, if Parent registers shares of Parent Stock, such
stockholders are entitled to include their shares of Parent Stock in such
registration.
On May 17, 1994, the Company and Parent also entered into a supplemental
stockholders agreement (the "Supplemental Stockholders Agreement") with Key
Trust Company of Ohio, N.A. as ESOP Trustee. The Supplemental Stockholders
Agreement contains, among other things, provisions relating to tag along and
drag along rights and demand and piggyback registration rights for the benefit
of the ESOP. The Supplemental Stockholders Agreement was amended as of July 18,
1997 to facilitate the reorganization of the Company's corporate structure.
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<PAGE> 93
DESCRIPTION OF THE AMENDED CREDIT FACILITY
On September 26, 1997, the New Credit Facility was amended and restated (as
amended and restated, the "Amended Credit Facility") substantially in accordance
with the following description. The description set forth below does not purport
to be complete and is qualified in its entirety by reference to certain
agreements setting forth the principal terms and conditions of the Amended
Credit Facility, which are available upon request from the Company. Capitalized
terms used but not otherwise defined in this "Description of the Amended Credit
Facility" shall have the meaning ascribed to them in the Amended Credit
Facility.
On July 18, 1997, the Company entered into the New Credit Facility. The New
Credit Facility provides for Tranche A Term Loans in an aggregate principal
amount not to exceed $100 million, Delayed Draw Acquisition Loans in an
aggregate principal amount not to exceed $15 million and Revolving Credit Loans
in an aggregate principal amount not to exceed $20 million. All loans under the
New Credit Facility mature on July 18, 2004.
The proceeds of the Tranche A Term Loans, initially aggregating $100
million, were used in July 1997 to repay in full the Company's Old Credit
Facility. On July 23, 1997, the Company optionally prepaid $5 million of the
Tranche A Term Loans. The proceeds of the Delayed Draw Acquisition Loans were
used, together with the proceeds of the Offering and cash on hand, to pay the
purchase price of the Acquisition and related fees and expenses. The proceeds of
the Revolving Loans may be used at any time (1) for working capital purposes,
(2) in an amount not to exceed a maximum of $10 million, and subject to excess
cash flow availability, to finance permitted acquisitions, to fund distributions
from the ESOP and to fund purchases of Parent Stock (a) pursuant to outstanding
Put Options and (b) from directors and employees of the Company and its
subsidiaries. In addition, up to $2 million of the revolving commitments may be
used for letters of credit issued for general corporate purposes.
The Term Loans are repayable in twenty-eight quarterly installments,
beginning with an aggregate amortization payment of $1,375,000 in October 1997
and continuing with gradually increasing amortization payments until the
maturity date, at which time an aggregate amortization payment of $8,250,000
will become due.
The Company may optionally prepay the Term Loans from time to time in whole
or in part, without premium or penalty. At the Company's option, Revolving Loans
may be prepaid, and revolving commitments may permanently be reduced, in whole
or in part, at any time.
The Company is required to make mandatory prepayments of the Term Loans in
an amount equal to (a) 50% of excess cash flow for each fiscal year (or, in the
case of the fiscal year ending October 25, 1997, 12.5%) if at the end of the
fiscal year the Senior Leverage Ratio (as defined in the Amended Credit
Facility) is more than 2.10 to 1.00 and (b) 100% of the net cash proceeds of
certain dispositions of assets, issuance of stock or occurrence of certain
indebtedness.
The Amended Credit Facility contains a number of covenants that, among
other things, restrict the ability of Parent, the Company and its subsidiaries
to incur additional indebtedness, issue preferred stock, create liens on assets,
incur guarantee obligations, enter into mergers, consolidations or amalgamations
or liquidate, wind up or dissolve, dispose of assets, pay dividends, make
capital expenditures, purchase Parent Stock, make advances, acquisitions, loans,
extensions of credit, capital contributions to, or purchases of any stock,
bonds, notes, debentures or other securities, prepay certain indebtedness or
amend other debt instruments, engage in certain transactions with subsidiaries
and affiliates, enter into sale and leaseback transactions, pay dividends or
make other distributions and otherwise restrict certain corporate activities. In
addition, the Company will be required to comply with specified financial ratios
and tests, including minimum interest coverage and maximum leverage ratios.
The Amended Credit Facility contains customary events of default,
including, but not limited to, nonpayment of principal or interest; violation of
covenants; incorrectness of representations and
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<PAGE> 94
warranties in any material respect; cross default and cross acceleration;
bankruptcy; material judgments; ERISA; actual or asserted invalidity of security
documents; and Change in Control (as defined in the Credit Agreement).
The obligations of the Company under the Amended Credit Facility are
unconditionally and irrevocably guaranteed by Parent and by each of the
Company's existing and future domestic operating subsidiaries including Carter
and each future foreign subsidiary to the extent such guarantee would not result
in adverse consequences to the Borrower (the "Subsidiary Guarantors"). In
addition, the Company and the Subsidiary Guarantors have granted and/or pledged
a first priority security interest in all of their respective tangible and
intangible assets and capital stock held by them, except for the Business Park.
Although it has no immediate plans to do so, the Company is permitted by the
Amended Credit Facility to dispose of the Business Park.
All loans under the Amended Credit Facility will bear interest, at the
Company's election, at a spread over either (1) the Eurodollar Rate or (2) the
Alternate Base Rate ("ABR") which is equal to the highest of (a) the
Administrative Agent's Prime Rate, (b) the secondary market rate for three-month
certificates of deposit plus 1.0% and (c) the Federal funds rate plus 0.5%, in
each case as in effect from time to time. The Eurodollar Rate is the rate
offered for Eurodollar deposits for one, two, three or six months (as selected
by the Company) in the London interbank market. The spread with respect to the
Eurodollar Rate ranges from 2.00% to 1.00% and the spread with respect to the
ABR ranges from 1.00% to 0% and in each case is determined based on the ratio of
Total Debt to Consolidated EBITDA (the "Leverage Ratio") as of the most recent
fiscal quarter end. The spread with respect to the ABR ranges from 1.00% to 0%.
The Company also will pay a commitment fee on the unused portion of the
revolving commitments at a rate ranging from 0.50% to 0.20% determined based on
the Leverage Ratio as of the most recent fiscal quarter end.
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DESCRIPTION OF NOTES
GENERAL
The Original Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of September 26, 1997 (the "Indenture"), among the Company,
the Subsidiary Guarantors and Harris Trust and Savings Bank, as Trustee (the
"Trustee"), a copy of which is available upon request to the Company.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used herein
and not otherwise defined have the meanings set forth in the section "Certain
Definitions".
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at Wall Street Plaza, 88 Pine
Street, 19th Floor, New York, New York 10005), except that, at the option of the
Company, payment of interest may be made by check mailed to the registered
holders of the Notes at their registered addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $140 million aggregate principal amount, and will mature on October
1, 2007. Each Note bears interest at the rate per annum shown on the front cover
of this Prospectus from September 26, 1997, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the March 15 or September 15 immediately
preceding the interest payment date on April 1 and October 1 of each year,
commencing April 1, 1998.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after October 1, 2002, and prior to maturity, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed as a
percentage of principal amount), plus accrued interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on October 1 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
---------------------------------------------------------------- ---------
<S> <C>
2002............................................................ 104.313%
2003............................................................ 102.875%
2004............................................................ 101.438%
2005 and thereafter............................................. 100.000%
</TABLE>
In addition, at any time and from time to time prior to October 1, 2000,
the Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a
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redemption price (expressed as a percentage of principal amount thereof) of
108.625% plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that at least 66 2/3%
of the original aggregate principal amount of the Notes must remain outstanding
after each such redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancelation of the original Note.
RANKING
The indebtedness evidenced by the Notes are unsecured Senior Subordinated
Indebtedness of the Company. The payment of principal of, premium (if any) and
interest on the Notes is subordinated in right of payment, as set forth in the
Indenture, to all existing and future Senior Indebtedness of the Company, will
rank pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company and is senior in right of payment to
all existing and future Subordinated Obligations of the Company. The Notes are
also effectively subordinated to any Secured Indebtedness of the Company to the
extent of the value of the assets securing such Indebtedness. However, payment
from the money or the proceeds of U.S. Government Obligations held in any
defeasance trust described under "-- Defeasance" below is not subordinated to
any Senior Indebtedness or subject to the restrictions described herein.
The indebtedness evidenced by a Subsidiary Guarantee is unsecured Senior
Subordinated Indebtedness of the Subsidiary Guarantor issuing such Subsidiary
Guarantee. The Payment of a Subsidiary Guarantee is subordinate in right of
payment, as set forth in the Indenture, to all existing and future Senior
Indebtedness of such Subsidiary Guarantor, ranks pari passu in right of payment
with the existing and future Senior Subordinated Indebtedness of such Subsidiary
Guarantor and is senior in right of payment to all existing and future
Subordinated Obligations of such Subsidiary Guarantor. Each Subsidiary Guarantee
is also effectively subordinated to any Secured Indebtedness of the applicable
Subsidiary Guarantor to the extent of the value of the assets securing such
indebtedness.
As of August 2, 1997, after giving pro forma effect to the Transactions,
the Offering and the application of the proceeds therefrom as described herein
under "Use of Proceeds", (i) the outstanding Senior Indebtedness of the Company
would have been $110.0 million (exclusive of unused commitments), all of which
would have been Secured Indebtedness, (ii) the Company would have had no Senior
Subordinated Indebtedness outstanding other than the Notes and no indebtedness
that is subordinate or junior in right of repayment to the Notes, (iii) the
outstanding Senior Indebtedness of the Subsidiary Guarantors, consisting
entirely of Guarantees of Senior Indebtedness, would have been $110.0 million,
all of which would have been Secured Indebtedness, and (iv) the outstanding
Senior Subordinated Indebtedness of the Subsidiary Guarantors would consist
entirely of the Subsidiary Guarantees. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company and the
Subsidiary Guarantors may Incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness of the Company or a Subsidiary Guarantor, as the case may
be. See "Certain Covenants -- Limitation on Indebtedness" below.
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"Senior Indebtedness" of the Company means the principal of, premium (if
any) and interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization of the Company, regardless of
whether or not a claim for post-filing interest is allowed in such proceedings)
on, and fees and other amounts owing in respect of, Bank Indebtedness and all
other Indebtedness of the Company including interest thereon, whether
outstanding on the Issue Date or thereafter Incurred, unless in the instrument
creating or evidencing the same or pursuant to which the same is outstanding it
is provided that such obligations are not superior in right of payment to the
Notes; provided, however, that Senior Indebtedness shall not include (i) any
obligation of the Company to any Subsidiary, (ii) any liability for Federal,
state, local or other taxes owed or owing by the Company, (iii) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) any Indebtedness or obligation of the Company that by its
terms is subordinate or junior in any respect to any other Indebtedness or
obligation of the Company, including any Senior Subordinated Indebtedness and
any Subordinated Obligations, (v) any obligations with respect to any Capital
Stock or (vi) any Indebtedness Incurred in violation of the Indenture. "Senior
Indebtedness" of any Subsidiary Guarantor has a correlative meaning.
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guarantee
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guarantee will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. The Company and each Subsidiary Guarantor have agreed in the
Indenture that they will not Incur, directly or indirectly, any Indebtedness
that is subordinate or junior in ranking in any respect to Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness of the Company or a Subsidiary Guarantor is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"-- Defeasance" below and may not otherwise purchase, redeem or otherwise retire
any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness of the
Company is not paid when due or (ii) any other default on Senior Indebtedness of
the Company occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, the default has been cured
or waived and any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the second preceding sentence) with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full of such Designated Senior Indebtedness or (iii) because the
default giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period,
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including any missed payments. Not more than one Blockage Notice may be given in
any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period. However, if any
Blockage Notice within such 360-day period is given by or on behalf of any
holders of Designated Senior Indebtedness other than the Bank Indebtedness, the
Representative of the Bank Indebtedness may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any 360 consecutive day period. For purposes of this Section, no default
or event of default that existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Designated
Senior Indebtedness initiating such Payment Blockage Period shall be, or be
made, the basis of the commencement of a subsequent Payment Blockage Period by
the Representative of such Designated Senior Indebtedness, whether or not within
a period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebted ness
will be entitled to receive payment in full of the Senior Indebtedness before
the Noteholders are entitled to receive any payment and until the Senior
Indebtedness is paid in full, any payment or distribution to which Note holders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of the Senior Indebtedness as their respective interests may
appear. If a distribution is made to Noteholders that due to the subordination
provisions of the Indenture should not have been made to them, such Noteholders
are required to hold it in trust for the holders of Senior Indebtedness and pay
it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representative) of the acceleration. If any
Designated Senior Indebtedness is outstanding, the Company may not pay the Notes
until five Business Days after such holders (or their Representative) receive
notice of such acceleration and, thereafter, may pay the Notes only if the
subordination provisions of the Indenture otherwise permit payment at that time.
The terms of the subordination provisions described above with respect to
the Company's obligations under the Notes apply equally to a Subsidiary
Guarantor and the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company or a Subsidiary Guarantor who
are holders of Senior Indebtedness of the Company or such Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Senior Indebtedness or of Senior
Subordinated Indebtedness (including the Notes) may recover less, ratably, than
holders of Senior Indebtedness of the Company.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors, as primary obligors and not merely as sureties,
have irrevocably and unconditionally Guaranteed, on an unsecured senior
subordinated basis, the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes, whether for payment of principal of or
interest on the Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by such Subsidiary Guarantors being herein called the
"Guaranteed Obligations"). The Subsidiary Guarantors have also agreed to pay, in
addition to the amount stated above, any and all expenses (including reasonable
counsel fees and expenses) incurred by the Trustee or the Holders in enforcing
any rights under the Subsidiary Guarantees. Each Subsidiary Guarantee is limited
in
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amount to an amount not to exceed the maximum amount that can be Guaranteed by
the applicable Subsidiary Guarantor without rendering the Subsidiary Guarantee,
as it relates to such Subsidiary Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. On or after the Issue Date, the
Company will cause (a) each Restricted Subsidiary that is a Domestic Subsidiary
that incurs Indebtedness and (b) each Restricted Subsidiary that is not a
Domestic Subsidiary that enters into a Guarantee of any of the obligations of
the Company, Parent or any of the Company's Subsidiaries pursuant to the Credit
Agreement, to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes. See "Certain Covenants -- Future Subsidiary Guarantors" below.
Each Subsidiary Guarantee is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
except as provided below, (b) be binding upon each Subsidiary Guarantor and (c)
enure to the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
A Subsidiary Guarantee will be automatically released upon the sale
(including through merger or consolidation) of the Capital Stock, or all or
substantially all the assets, of the applicable Subsidiary Guarantor if (a) such
sale is made in compliance with the covenant described under "Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and (b) such
Subsidiary Guarantor is released from its guarantees of, and all pledges and
security granted in connection with, the Credit Agreement and any other
Indebtedness of the Parent, the Company or any Restricted Subsidiary. A
Subsidiary Guarantee also will be automatically released upon the applicable
Subsidiary Guarantor ceasing to be a Subsidiary of the Company as a result of
any foreclosure of any pledge or security interest securing Bank Indebtedness or
other exercise of remedies in respect thereof if such Subsidiary Guarantor is
released from its guarantees of, and all pledges and security interests granted
in connection with, the Amended Credit Facility.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(i) prior to the earlier to occur of the first public offering of
Voting Stock of Parent or the Company, the Permitted Holders cease to be
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of a majority in the aggregate of
the total voting power of the Voting Stock of the Company or Parent,
whether as a result of issuance of securities of the Company or Parent, as
the case may be, any merger, consolidation, liquidation or dissolution of
the Company or Parent, as the case may be, any direct or indirect transfer
of securities by any Permitted Holder or otherwise (for purposes of this
clause (i) and clause (ii) below, the Permitted Holders shall be deemed to
own beneficially any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity);
(ii) (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except that
such person shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company or Parent, as the case may be, and (B) the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or
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indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company or Parent, as the case may be, than such
other person and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the Board of
Directors of the Parent or the Company, as the case may be (for the
purposes of this clause (ii), such other person shall be deemed to own
beneficially any Voting Stock of a specified corporation held by a parent
corporation, if such other person "beneficially owns" (as defined in this
clause (ii)), directly or indirectly, more than 35% of the voting power of
the Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation);
or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of Parent
or the Company, as the case may be (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of Parent or the Company, as the case may be, was approved by
a vote of 66 2/3% of the directors of Parent or the Company, as the case
may be, then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the Board of
Directors of the Parent or the Company, as the case may be, then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Company shall (i) repay in full all Bank Indebtedness or
offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness of
each lender who has accepted such offer or (ii) obtain the requisite consent
under the agreements governing the Bank Indebtedness to permit the repurchase of
the Notes as provided for in the immediately following paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts and financial information regarding such Change
of Control; (3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with this covenant, that a
Holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute
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a Change of Control under the Indenture, but that could increase the amount of
indebtedness outstanding at such time or otherwise affect the Company's capital
structure or credit ratings.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events that
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that
the Company may Incur Indebtedness if on the date thereof the Consolidated
Coverage Ratio would be greater than 2.00:1.00, if such Indebtedness is Incurred
on or prior to September 30, 1999, and 2.25:1.00 if such Indebtedness is
Incurred thereafter. Notwithstanding the foregoing, the Company will not permit
any Subsidiary to issue, to any party other than the Company, any Preferred
Stock.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (i) Bank
Indebtedness relating to the Term Loan Facilities in an aggregate principal
amount not to exceed $110 million less the aggregate amount of all prepayments
of principal applied permanently to reduce any such Indebtedness; (ii) Bank
Indebtedness relating to the Revolving Facility or Indebtedness Incurred
pursuant to other revolving credit, working capital or letter of credit
financings in an aggregate principal amount outstanding not in excess of the
greater of $20.0 million and the Borrowing Base in effect from time to time;
(iii) Indebtedness of the Company owing to and held by any Subsidiary or
Indebtedness of a Restricted Subsidiary owing to and held by the Company or any
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock or any other event that results in any such Subsidiary ceasing to
be a Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) will be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof; (iv)
Indebtedness represented by the Notes, the Subsidiary Guarantees, any
Indebtedness (other than the Indebtedness described in clauses (i) through (iii)
above) outstanding on the Issue Date and any Refinancing Indebtedness Incurred
in respect of any Indebtedness described in this clause (iv) or paragraph (a);
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred as consideration in, in contemplation
of, or to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Subsidiary or was otherwise acquired by the
Company); provided, however, that at the time such Restricted Subsidiary is
acquired by the Company, the Company would have been able to Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) after giving effect to the
Incurrence of such Indebtedness pursuant to this clause (v) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (v); (vi)
Indebtedness (A) in respect of performance bonds, bankers' acceptances, letters
of credit and surety or appeal bonds provided by the Company and the Restricted
Subsidiaries in the ordinary course of their business and which do not secure
other Indebtedness, and (B) under Currency Agreements and Interest Rate
Agreements, in each case entered into for bona fide hedging purposes of the
Company in the ordinary course of business; provided, however, that, in the case
of Currency Agreements and
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Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements
do not increase the Indebtedness of the Company outstanding at any time other
than as a result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable thereunder;
(vii) Purchase Money Indebtedness and Capitalized Lease Obligations in an
aggregate principal amount not to exceed $10.0 million at any time outstanding;
(viii) Indebtedness of Restricted Subsidiaries (other than Indebtedness
permitted to be Incurred pursuant to any other clause of this paragraph (b)) in
an aggregate principal amount on the date of Incurrence that, when added to all
other Indebtedness Incurred pursuant to this clause (viii) and then outstanding,
will not exceed $5.0 million; or (ix) Indebtedness (other than Indebtedness
permitted to be Incurred pursuant to paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence that,
when added to all other Indebtedness Incurred pursuant to this clause (ix) and
then outstanding, will not exceed $10.0 million.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations. The Company may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, the Company may not Incur any Secured Indebtedness that is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with (or on a senior basis to, in the case
of Indebtedness subordinated in right of payment to the Notes) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien. A
Subsidiary Guarantor may not Incur any Indebtedness if such Indebtedness is by
its terms expressly subordinate or junior in ranking in any respect to any
Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness of such
Subsidiary Guarantor. In addition, a Subsidiary Guarantor may not Incur any
Secured Indebtedness that is not Senior Indebtedness of such Subsidiary
Guarantor unless contemporaneously therewith effective provision is made to
secure the Subsidiary Guarantee of such Subsidiary Guarantor equally and ratably
with (or on a senior basis to, in the case of Indebtedness subordinated in right
of payment to such Subsidiary Guarantee) such Secured Indebtedness for so long
as such Secured Indebtedness is secured by a Lien.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness Incurred pursuant to the Credit
Agreement prior to or on the Issue Date shall be treated as Incurred pursuant to
clause (i) of paragraph (b) above, (ii) Indebtedness permitted by this covenant
need not be permitted solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such provision and in part by
one or more other provisions of this covenant permitting such Indebtedness and
(iii) in the event that Indebtedness or any portion thereof meets the criteria
of more than one of the types of Indebtedness described in this covenant, the
Company, in its sole discretion, shall classify such Indebtedness and only be
required to include the amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable to the
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Company or another Restricted Subsidiary (and, if such Restricted Subsidiary is
not wholly owned, to its other shareholders on a pro rata basis), (ii) purchase,
redeem, retire or otherwise acquire for value any Capital Stock of the Company
or any Restricted Subsidiary held by Persons other than the Company or another
Restricted Subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) make any Investment (other than a Permitted Investment) in any Person
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment") if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default will have occurred and be
continuing (or would result therefrom); (2) the Company could not Incur at least
$1.00 of additional Indebtedness under paragraph (a) of the covenant described
under "-- Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination will be conclusive and evidenced by a resolution of the
Board of Directors) declared or made subsequent to the Issue Date would exceed
the sum of: (A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter in
which the Issue Date occurs to the end of the most recent fiscal quarter ending
at least 45 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company or an employee
stock ownership plan or other trust established by the Company or any of its
Subsidiaries); (C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to the Issue Date
of any Indebtedness of the Company or its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash or other property distributed by the Company or any
Restricted Subsidiary upon such conversion or exchange); and (D) the amount
equal to the net reduction in Investments in Unrestricted Subsidiaries resulting
from (i) payments of dividends, repayments of the principal of loans or advances
or other transfers of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any purchase or redemption of Capital Stock of the Company or Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); provided, however, that (A) such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale will be excluded from clause (3)(B) of paragraph
(a) above; (ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company that is permitted to be Incurred pursuant to
paragraph (b) of the covenant described under "-- Limitation on Indebtedness";
provided, however, that such purchase or redemption will be excluded in the
calculation of the amount of Restricted Payments; (iii) any purchase or
redemption of Subordinated Obligations from Net Available Cash to the extent
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permitted by the covenant described under "-- Limitation on Sales of Assets and
Subsidiary Stock"; provided, however, that such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments; (iv) dividends
paid within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with this covenant; provided,
however, that such dividend will be included in the calculation of the amount of
Restricted Payments; (v) payment of dividends, other distributions or other
amounts by the Company for the purposes set forth in clauses (A) through (D)
below; provided, however, that such dividend, distribution or amount set forth
in clauses (A) through (D) shall be included in the calculation of the amount of
Restricted Payments for the purposes of paragraph (a) above: (A) to Parent in
amounts equal to the amounts required for Parent to pay franchise taxes and
other fees required to maintain its corporate existence, and to provide for
other operating costs of up to $100,000 per fiscal year; (B) to Parent in
amounts equal to amounts required for Parent to pay federal, state and local
income taxes to the extent such income taxes are attributable to the income of
the Company and its Restricted Subsidiaries (and, to the extent of amounts
actually received from its Unrestricted Subsidiaries, in amounts required to pay
such taxes to the extent attributable to the income of such Unrestricted
Subsidiaries); (C) to Parent in amounts equal to amounts expended by Parent to
repurchase Capital Stock of Parent owned by former employees of the Company or
its Subsidiaries or their assigns, estates and heirs; provided, however, that
the aggregate amount paid, loaned or advanced to Parent pursuant to this clause
(C) shall not, in the aggregate, exceed (1) for each fiscal year of the Company
prior to the 2000 fiscal year, $1.0 million per fiscal year and (2) for all
other fiscal years, $2.0 million, in each case plus any amounts contributed by
Parent to the Company as a result of resales of such repurchased shares of
Capital Stock; and (D) in amounts equal to amounts expended by the Company to
repurchase shares of its Capital Stock from deceased or retired employees in
accordance with the terms of the ESOP as in effect on the Issue Date and from
employees whose employment with the Company or any of its Subsidiaries has
terminated for any other reason but only to the extent mandatorily required by
the ESOP as in effect on the Issue Date, the Code or ERISA; provided that in
each case the Company has deferred making any cash payments in respect of such
repurchase obligations to the maximum extent possible under the ESOP as in
effect on the Closing Date.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date; (2) any encumbrance or restriction
with respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, in contemplation of, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date; (3) any encumbrance or restriction pursuant to an
agreement constituting Refinancing Indebtedness of Indebtedness Incurred
pursuant to an agreement referred to in clause (1) or (2) of this covenant or
this clause (3) or contained in any amendment to an agreement referred to in
clause (1) or (2) of this covenant or this clause (3); provided, however, that
the encumbrances and restrictions contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than encumbrances and
restrictions contained in such agreements; (4) in the case of clause (iii), any
encumbrance or restriction (A) that restricts in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to a
lease, license or similar contract, (B) by virtue of any transfer of, agreement
to transfer, option or right with respect to, or Lien on, any property or assets
of the Company or any Restricted Subsidiary
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not otherwise prohibited by the Indenture or (C) contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such encumbrance or restrictions restrict the transfer of the property
subject to such security agreements or mortgages; and (5) any restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered into
for the sale or disposition of all or substantially all the Capital Stock or
assets of such Restricted Subsidiary pending the closing of such sale or
disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair value of the shares and
assets subject to such Asset Disposition, (ii) at least 75% (or 50% in the case
of an Asset Disposition relating to the Specified Real Estate) of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, within one year from the later of
such Asset Disposition or the receipt of such Net Cash Proceeds, either (1) to
the extent the Company elects (or is required by the terms of any Senior
Indebtedness or Indebtedness (other than Preferred Stock) of a Wholly Owned
Subsidiary), to prepay, repay, redeem, defease or purchase Senior Indebtedness
or such Indebtedness (in each case other than Indebtedness owed to the Company
or an Affiliate of the Company) or (2), to the extent the Company or such
Restricted Subsidiary elects, to reinvest in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary), or (3)
a combination of the foregoing; (B) second, to the extent of the balance of such
Net Available Cash after application in accordance with clause (A), to make an
Offer (as defined below) to purchase Notes pursuant to and subject to the
conditions set forth in section (b) of this covenant, provided that if the
Company elects (or is required by the terms of any Senior Subordinated
Indebtedness), such Offer may be made to ratably purchase the Notes and other
Senior Subordinated Indebtedness, and (c) third, to the extent of the balance of
such Net Available Cash after application in accordance with clauses (A) and
(B), to prepay, repay, redeem or purchase Indebtedness of the Company (other
than Indebtedness owed to an Affiliate of the Company and other than
Disqualified Stock of the Company) or Indebtedness of any Restricted Subsidiary
(other than Indebtedness owed to the Company or an Affiliate of the Company), in
each case described in this clause (C) within one year from the receipt of such
Net Available Cash or, if the Company has made an Offer pursuant to clause (B),
six months from the date such Offer is consummated; provided, however that in
connection with any prepayment, repayment, redemption or purchase of
Indebtedness pursuant to clause (A), (B) or (C) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid, redeemed or purchased. Notwithstanding the
foregoing provisions of this covenant, the Company and the Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $10.0 million.
For the purposes of clause (ii) of this covenant, the following are deemed
to be cash: (x) the assumption of Indebtedness of the Company (other than
Disqualified Stock of the Company) or any Restricted Subsidiary and the release
of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition, (y) securities received
by the Company or any Restricted Subsidiary from the transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash and
(z) in the case of an Asset Disposition relating to the Specified Real Estate,
REIT Securities.
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(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(B) of this covenant, the Company will be
required to purchase Notes tendered pursuant to an offer by the Company for the
Notes (the "Offer") at a purchase price of 100% of their principal amount plus
accrued interest to the date of purchase in accordance with the procedures
(including prorationing in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the Notes,
the Company will apply the remaining Net Available Cash in accordance with
clause (a)(iii)(C) of this covenant. The Company will not be required to make an
Offer for Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clause (A) of this
covenant section (a)(iii)) is less than $5.0 million for any particular Asset
Disposition (which lesser amount will be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including, the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") on terms (i) that are less favorable to the Company
or such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate and (ii) that, in the event such Affiliate
Transaction involves an aggregate amount in excess of $10.0 million, are not in
writing and have not been approved by a majority of the members of the Board of
Directors having no personal stake in such Affiliate Transaction and who are not
employed by or otherwise associated with such Affiliates. In addition, if such
Affiliate Transaction involves an amount in excess of $15.0 million, a fairness
opinion must be provided by a nationally recognized appraisal or investment
banking firm.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"-- Limitation on Restricted Payments," (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors, (iii) loans or advances to employees
in the ordinary course of business in accordance with past practices of the
Company, but in any event not to exceed $2.0 million in the aggregate
outstanding at any one time, (iv) the payment of reasonable fees to directors of
the Company and its Subsidiaries who are not employees of the Company or its
Subsidiaries, (v) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries or (vi) transactions pursuant to
the Existing Agreements, as in effect on the Issue Date.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell any shares of Capital Stock of a
Restricted Subsidiary, and will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except: (i) to
the Company or a Wholly Owned Subsidiary or (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary. The proceeds of any sale of such Capital
Stock permitted hereby will be treated as Net Available Cash from an Asset
Disposition and must be applied in accordance with the terms of the covenant
described under "-- Limitation on Sales of Assets and Subsidiary Stock."
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SEC Reports. Notwithstanding that the Company may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the SEC and provide the Trustee and
Noteholders and prospective Noteholders (upon request) within 15 days after it
files them with the SEC, copies of its annual report and the information,
documents and other reports that are specified in Sections 13 and 15(d) of the
Exchange Act. In addition, following a Public Equity Offering, the Company shall
furnish to the Trustee and the Noteholders, promptly upon their becoming
available, copies of the annual report to shareholders and any other information
provided by the Company or Parent to its public shareholders generally. The
Company also will comply with the other provisions of Section 314(a) of the TIA.
Future Subsidiary Guarantors. The Company will cause (a) each Restricted
Subsidiary that is a Domestic Subsidiary that Incurs Indebtedness or that is a
guarantor of Indebtedness Incurred pursuant to clause (b)(i), (b)(ii) or (b)(ix)
of the covenant described under "-- Limitation on Indebtedness" and (b) each
Restricted Subsidiary that is not a Domestic Subsidiary that enters into a
Guarantee of any of the obligations of the Company, Parent or any of the
Company's Subsidiaries pursuant to the Credit Agreement to execute and deliver
to the Trustee a supplemental indenture pursuant to which such Subsidiary will
Guarantee payment of the Notes. Each Subsidiary Guarantee will be limited to an
amount not to exceed the maximum amount that can be Guaranteed by that
Subsidiary without rendering the Subsidiary Guarantee, as it relates to such
Subsidiary, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer or similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any material respect in any line of
business, other than a Related Business. The Company shall not be deemed to be
engaged in the line of business associated with assets held for sale.
Limitation on Sale/Leaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (a) the net cash proceeds
received by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
in good faith by the Board of Directors) of such property, (b) the transfer of
such property is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described under "-- Limitation on
Sale of Assets and Subsidiary Stock" and (c) the Company or such Subsidiary
would be entitled to (i) in the case of a Sale/Leaseback Transaction involving
the Specified Real Estate, Incur $1.00 of additional Indebtedness pursuant to
the covenant described under paragraph (a) of "-- Limitation on Indebtedness"
and (ii) in all other cases (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "-- Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without equally and
ratably securing the Notes pursuant to the covenant described under "--
Limitation on Indebtedness".
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) will expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be
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continuing; (iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "-- Limitation on
Indebtedness"; (iv) immediately after giving effect to such transaction, the
Successor Company will have Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, whether or not prohibited by the
provisions described under "-- Ranking" above, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated Maturity,
upon optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment is prohibited by the provisions described
under "-- Ranking" above, (iii) the failure by the Company to comply with its
obligations under the covenant described under "-- Merger and Consolidation"
above, (iv) the failure by the Company to comply for 30 days after notice with
any of its obligations under the covenants described under "-- Change of
Control" or "-- Certain Covenants" above (in each case, other than a failure to
purchase Notes), (v) the failure by the Company to comply for 60 days after
notice with its other agreements contained in the Notes or the Indenture, (vi)
the failure by the Company or any Significant Subsidiary to pay any Indebtedness
within any applicable grace period after final maturity or the acceleration of
any such Indebtedness by the holders thereof because of a default if the total
amount of such Indebtedness unpaid or accelerated exceeds $5.0 million or its
foreign currency equivalent (the "cross acceleration provision"), (vii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (viii) the rendering of
any judgment or decree for the payment of money in excess of $5.0 million or its
foreign currency equivalent against the Company or a Significant Subsidiary if
(A) an enforcement proceeding thereon is commenced or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment and
is not discharged, waived or stayed (the "judgment default provision") or (ix)
any Subsidiary Guarantee ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Subsidiary Guarantor denies or
disaffirms its obligations under the Indenture or any Subsidiary Guarantee and
such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason 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.
However, a default under clauses (iv) or (v) will not constitute an Event
of Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iv) and (v) hereof after
receipt of such notice.
If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Company may declare the
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principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the Notes will become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any Note, the Trustee may withhold notice if and so long as a committee of
its Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Company is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the amount of
Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest or any liquidated damages on any Note,
(iii) reduce the principal of or extend the Stated Maturity of any Note, (iv)
reduce the premium payable upon the redemption of any Note or change the time at
which any Note may be redeemed as described under "-- Optional Redemption"
above, (v) make any Note payable in money other than that stated in the Note,
(vi) make any change to the
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subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (viii) make any change in the amendment provisions that require
each Holder's consent or in the waiver provisions or (ix) modify the Subsidiary
Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Company for the benefit of the Noteholders or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the TIA. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to a selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "-- Change of Control," "-- Certain Covenants," the operation of
the cross acceleration provision, the bankruptcy provisions with respect to
Subsidiaries and the judgment default provision described under "-- Defaults"
above and the limitations contained in clauses (iii) and (iv) under "-- Merger
and Consolidation" above ("covenant defeasance"). If the Company exercises its
legal defeasance option or its covenant defeasance option, each Subsidiary
Guarantor will be released from all of its obligations with respect to its
Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the
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Notes may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Notes may not be accelerated because of an Event of Default specified in clause
(iv), (vi), (vii) with respect only to Subsidiaries, (viii) or (ix) under
"Defaults" above or because of the failure of the Company to comply with clause
(iii) or (iv) under "Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
Harris Trust and Savings Bank is to be the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with regard to
the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any tangible property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary described in
clauses (ii) or (iii) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" and "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the
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Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a
disposition of inventory in the ordinary course of business, (iii) dispositions
with a fair value of less than $250,000 in the aggregate in any fiscal year,
(iv) an exchange of real estate for other similar property structured on a
tax-free like-kind basis and (v) for purposes of the provisions described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock"
only, a disposition subject to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments".
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments (other than rental payments in the nature of supplemental
rent for the lessee's proportional share of taxes, maintenance, insurance and
similar customary payments) during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement, the other Senior Credit Documents and any Refinancing
Indebtedness with respect thereto, as amended from time to time, including
principal, premium (if any), interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, guarantees and
all other amounts payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Parent or the
Company or any committee thereof duly authorized to act on behalf of such Board.
Unless the context otherwise requires, references to the Board of Directors are
to the Board of Directors of the Company.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
50% of the aggregate book value of inventory (adjusted to include any LIFO
reserves) and (ii) 85% of the aggregate book value of all accounts receivable
(net of bad debt reserves) of the Company and its Restricted Subsidiaries on a
Consolidated basis, as determined in accordance with GAAP consistently applied.
To the extent that information is not available as to the amount of inventory or
accounts receivable as of a specific date, the Company shall use the most recent
available information for purposes of calculating the Borrowing Base.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters
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ending at least 45 days prior to the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (B) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset Disposition for
such period or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (C) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (D) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (B) or (C) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
of assets occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in
accordance with GAAP. If any Indebtedness bears a floating rate of interest and
is being given pro forma effect, the interest expense on such Indebtedness shall
be calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Subsidiaries in such period but not
included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges with respect to letters of
credit and bankers' acceptance financing, (vi) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary; provided that payment of such
amounts by the Company or any Restricted Subsidiary is being made to, or is
sought by, the holders of such
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Indebtedness pursuant to such guarantee, (vii) net costs associated with Hedging
Obligations (including amortization of fees), (viii) Preferred Stock dividends
in respect of all Preferred Stock of Subsidiaries of the Company and
Disqualified Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary, and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
provided, however, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any net income (loss) of any
person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any net
income (loss) of any Restricted Subsidiary if such Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted Subsidiary as
a dividend (subject, in the case of a dividend that could have been made to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain (but not loss) realized upon the sale or other disposition of any asset
of the Company or its consolidated Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) that is not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon the sale
or other disposition of any Capital Stock of any Person; (v) any extraordinary
gain or loss; and (vi) the cumulative effect of a change in accounting
principles. Notwithstanding the foregoing, for the purpose of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments" only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but
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the interest of the Company or any Restricted Subsidiary in a Unrestricted
Subsidiary will be accounted for as an investment. The term "Consolidated" has a
correlative meaning.
"Credit Agreement" means the credit agreement dated as of July 18, 1997, as
amended and in effect as of the Issue Date and as thereafter amended, restated,
waived or otherwise modified from time to time, among the Company, Parent, the
financial institutions from time to time party thereto and The Chase Manhattan
Bank, as administrative agent (except to the extent that any such amendment,
waiver or other modification thereto would be prohibited by the terms of the
Indenture, unless otherwise agreed to by the Holders of at least a majority in
aggregate principal amount of Notes at the time outstanding).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $25.0
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period
(adjusted to exclude any non-cash items attributable to purchase accounting for
any acquisition transactions consummated subsequent to the Issue Date), plus the
following to the extent deducted in calculating such Consolidated Net Income:
(i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation
expense, (iv) amortization expense and (v) all extraordinary charges during such
period and all non-cash charges associated with ESOP compensation and Management
Put Options, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the Net Income of such Subsidiary was included in calculating Consolidated Net
Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statuses, rules and
governmental regulations applicable to such Subsidiary or its stockholders.
"ESOP" means the employee stock ownership plan created pursuant to the
terms of the Argo-Tech Corporation Employee Stock Ownership Plan and Trust
Agreement, dated May 17, 1994, between the Company and Society National Bank in
its capacity as ESOP Trustee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Agreements" means the Distributorship Agreement (1994) dated as
of December 24, 1990, among the Company, Yamada Corporation and Venture Capital
Partners, Inc. and the Japan Distributorship Agreement dated as of December 24,
1990, between Argo-Tech and Upsilon International Corporation as in effect on
the Issue Date.
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"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not organized under the laws of the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those 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 such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keepwell, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
person at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Debt of such Person; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of the
Company, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
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"Initial Purchaser" means Chase Securities Inc.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Company at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Put Options" means the put option created pursuant to Article
IX of the Stockholders' Agreement.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received (x) by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, or (y) in
the case of REIT Securities, upon the sale, redemption, transfer or other
disposition of such REIT Securities, in each case, only as and when received,
but excluding any other consideration received in the form of assumption by the
acquiring person of Indebtedness or other obligations relating to the properties
or assets that are the subject of such Asset Disposition or received in any
other noncash form) therefrom, in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or
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placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Parent" means AT Holdings Corporation, any successor corporation and any
corporation succeeding to the ownership of the Company.
"Permitted Holders" means (a) Mr. Masashi Yamada and members of his
immediate family (b) corporations and other entities that are Controlled by one
or more of the persons referred to in clause (a), (c) trusts for the sole
benefit of one or more of the persons referred to in clause (a), (d) the ESOP,
(e) individuals who are members of management of Parent or the Company as of the
Issue Date and (f) any Person acting in the capacity of an underwriter in
connection with a public or private offering of the Company's or Parent's
Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business; (ii)
another Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; provided, however, that such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary and not exceeding
$1.0 million in the aggregate outstanding at any one time; (vii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; and (viii) stock, obligations or
securities received in a transaction permitted under "-- Limitation on Sales of
Assets and Subsidiary Stock."
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company or Parent pursuant to an effective registration
statement under the Securities Act.
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"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding common
stock of the Company or Parent (as applicable) has been distributed by means of
an effective registration statement under the Securities Act.
"Purchase Agreement" means the agreement for the purchase of $140 million
principal amount of senior subordinated Securities among the Company, the
Subsidiary Guarantors and the Initial Purchaser dated September 23, 1997.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company of such asset, including additions and
improvements; provided, however, that any Lien arising in connection with any
such Indebtedness shall be limited to the specified asset being financed or, in
the case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; and provided further, that such
Indebtedness is Incurred within 180 days after such acquisition by the Company
of such asset.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of the Company
that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; provided, however, that (i) the
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
refinanced, (iii) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate issue
price) that is equal to or less than (x) the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding of the Indebtedness being refinanced plus (y) the amount of premium
or other amounts paid and fees and expenses incurred in connection with such
refinancing and (iv) if the Indebtedness being refinanced is subordinated in
right of payment to the Notes, such Refinancing Indebtedness is subordinated in
right of payment to the Notes to the extent of the Indebtedness being
refinanced; provided further, however, that Refinancing Indebtedness shall not
include (x) Indebtedness of a Restricted Subsidiary that refinances Indebtedness
of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary
that refinances Indebtedness of an Unrestricted Subsidiary.
"REIT" means a real estate investment trust under the Code.
"REIT Securities" means equity securities of a publicly traded (either on a
national securities exchange or on NASDAQ) REIT or equity securities convertible
into equity securities of a publicly traded (either on a national securities
exchange or on NASDAQ) REIT.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the Issue
Date.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
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"Revolving Facility" means the revolving credit facility provided to the
Company under the Credit Agreement.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases between the Company and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Senior Credit Documents" means the collective reference to the Credit
Agreement, the notes issued pursuant thereto (if any) and the Guarantees
thereof, and the Security Agreements, the Mortgages and the Pledge Agreements
(each as defined in the Credit Agreement).
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes and is not subordinated by its terms to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Specified Real Estate" means the real estate owned by Argo-Tech
Corporation (HBP) as of the Issue Date.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Stockholders' Agreement" means the AT Holdings Corporation Stockholders'
Agreement dated as of May 17, 1994, as amended by Amendment No. 1 thereto dated
as of May 1, 1997 and Amendment No. 2 thereto dated as of July 18, 1997, by and
among Parent, the Company, YC International Inc., Yamada Corporation, Sunhorizon
International Inc. and the other Persons party thereto.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
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 (i) such Person or (ii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantee" means any Guarantee of the Notes that may from time
to time be executed and delivered by a Subsidiary Guarantor pursuant to the
terms of the Indenture. Each such Subsidiary Guarantee will have subordination
provisions equivalent to those contained in the Indenture and will be
substantially in the form prescribed in the Indenture.
"Subsidiary Guarantors" means Argo-Tech Corporation (HBP), Argo-Tech
Corporation (OEM), Argo-Tech Corporation (Aftermarket), J.C. Carter Company,
Inc. and each Subsidiary of the Company acquired or organized after the Issue
Date that becomes a Subsidiary Guarantor in accordance with the terms of the
Indenture.
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"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by the
United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act), (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized and in existence
under the laws of the United States of America or any foreign country recognized
by the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Service, a division of The McGraw-Hill Companies, Inc. ("S&P"), and (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or "A" by Moody's Investors
Service, Inc.
"Term Loan Facilities" means the Tranche A Term Loans and the Delayed Draw
Acquisition Loans provided to the Company under the Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under the covenant entitled
"Limitation on Restricted Payments." The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under paragraph (a) of the covenant described
under "Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing. Any such designation of a Subsidiary as a Restricted Subsidiary or
an Unrestricted Subsidiary by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to
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such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
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EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The following description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration Rights
Agreement, a copy of the form of which is available from the Initial Purchaser
upon request.
The Company, the Subsidiary Guarantors and the Initial Purchaser entered
into the Exchange and Registration Rights Agreement on September 26, 1997 (the
"Issue Date"). Pursuant to the Exchange and Registration Rights Agreement, the
Company and the Subsidiary Guarantors agreed to (i) file with the Commission on
or prior to 30 days after the Issue Date a registration statement on Form S-1 or
Form S-4, if the use of such form is then available (the "Exchange Offer
Registration Statement") relating to a registered exchange offer (the "Exchange
Offer") for the Notes under the Securities Act and (ii) use their best efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act within 105 days after the Issue Date. As soon as
practicable after the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of Transfer Restricted
Securities (as defined) who are not prohibited by any law or policy of the
Commission from participating in the Exchange Offer the opportunity to exchange
their Transfer Restricted Securities for an issue of a second series of notes
(the "Exchange Notes"), identical in all material respects to the Notes (except
that the Exchange Notes will not contain terms with respect to transfer
restrictions), that would be registered under the Securities Act. The Company
will keep the Exchange Offer open for not less than 30 days (or longer, if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Notes. If (i) because any change in law or
applicable interpretations of the staff of the Commission does not permit the
Company to effect the Exchange Offer as contemplated thereby or (ii) for any
other reason the Exchange Offer is not consummated within 135 days after the
Issue Date or (iii) the Initial Purchaser so requests with respect to Notes
purchased on the Issue Date not eligible to be exchanged for Exchange Notes in
the Exchange Offer and held by the Initial Purchaser following the consummation
of the Exchange Offer or (iv) any holder either (A) is not eligible to
participate in the Exchange Offer or (B) participates in the Exchange Offer and
does not receive freely transferrable Exchange Notes in exchange for tendered
Notes, the Company will file with the Commission a shelf registration statement
(the "Shelf Registration Statement") to cover resales of Transfer Restricted
Securities by such holders who satisfy certain conditions relating to, among
other things, the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to have the
Exchange Offer Registration Statement and, if applicable, a Shelf Registration
Statement (each, a "Registration Statement") declared effective by the
Commission as promptly as practicable after the filing thereof. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such Note has been exchanged for a freely transferable Exchange
Note in the Exchange Offer; (ii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Securities Act ("Rule
144") or is salable pursuant to Rule 144(k) under the Securities Act ("Rule
144(k)").
Unless the Exchange Offer would not be permitted by a policy of the
Commission, the Company will commence the Exchange Offer and will use its best
efforts to consummate the Exchange Offer as promptly as practicable, but in any
event prior to 135 days after the Issue Date. If applicable, the Company will
use its best efforts to keep the Shelf Registration Statement effective for a
period of two years after the date the Shelf Registration Statement is declared
effective by the Commission or such shorter period that will terminate when all
the Notes covered by the Shelf Registration Statement (i) have been sold
pursuant to the Shelf Registration Statement or (ii) are distributed to the
public pursuant to Rule 144 are saleable pursuant to Rule 144(k). If (i) the
applicable Registration Statement is not filed with the Commission on or prior
to 30 days after the Issue Date, (ii) the Exchange Offer Registration Statement
or the Shelf Registration Statement, as the case may
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be, is not declared effective within 105 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of the Commission's staff, if
later, within 30 days after publication of the change in law or interpretation),
(iii) the Exchange Offer is not consummated on or prior to 135 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 105 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of the Commission's staff, if later, within 30
days after publication of the change in law or interpretation) but will
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a "Registration Default"), the Company
will pay liquidated damages to each holder of Transfer Restricted Securities,
during the period of Registration Default, in an amount equal to $0.192 per week
per $1,000 principal amount of the Notes constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed or declared effective, the Exchange Offer is consummated or the Shelf
Registration Statement again becomes effective, as the case may be. All accrued
liquidated damages will be paid to holders in the same manner as interest
payments on the Notes on semi-annual payment dates that correspond to interest
payment dates for the Notes. Following the cure of all Registration Defaults,
the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that the
Company and the Subsidiary Guarantors (i) will make available for a period of
180 days after the consummation of the Exchange Offer a prospectus meeting the
requirements of the Securities Act and any amendment or supplement thereto to
any broker-dealer for use in connection with any resale of any such Exchange
Notes and (ii) will pay all expenses incident to the Exchange Offer (including
the expense of one counsel to the holders of the Notes) and will indemnify
holders of the Notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act. A broker-dealer that delivers
such a prospectus to purchasers in connection with such resales is subject to
certain of the civil liability provisions under the Securities Act and is bound
by the provisions of the Exchange and Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in the Exchange Offer is required to make certain representations, including
representations that (i) any Exchange Notes to be received by it have been
acquired in the ordinary course of its business; (ii) it has no arrangement or
understanding with any person to participate in the distribution of the Notes or
the Exchange Notes and (iii) it is not an affiliate of the Company or a
Subsidiary Guarantor or an Exchanging Dealer (as defined) not complying with the
requirements of the next paragraph, or if it is an affiliate, that it has
complied with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it is required to represent that it
is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that receives Exchange Notes
for its own account in exchange for Notes that were acquired as a result of
market-making activities or other trading activities (an "Exchanging Dealer"),
it is required to acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
Holders of the Notes are required to make certain representations to the
Company (as described above) in order to participate in the Exchange Offer and
are required to deliver information to be used in connection with the Shelf
Registration Statement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding liquidated
damages set forth in the preceding paragraphs. A holder who sells Notes pursuant
to the Shelf Registration Statement generally is required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, is subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and is bound by the provisions of
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the Exchange and Registration Rights Agreement that are applicable to such a
holder (including certain indemnification obligations).
For so long as the Notes are outstanding, the Company and the Subsidiary
Guarantors will continue to provide to holders of the Notes and to prospective
purchasers of the Notes the information required by Rule 144A(d)(4) under the
Securities Act ("Rule 144A"). The Company will provide a copy of the Exchange
and Registration Rights Agreement to prospective purchasers of Notes identified
to the Company by the Initial Purchaser upon request.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more registered Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited on the date of the closing of
the sale of the Notes (the "Closing Date") with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of
DTC, or will remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve system, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and 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 (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Holders who are not Participants may
beneficially own securities held by or on behalf of the Depository only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Notes and
(ii) ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of beneficial ownership therein will be effected only through,
records maintained by DTC (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes or to pledge the Notes as collateral
to persons in such states will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Transfer Restrictions."
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the Indenture
and the Notes. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities, and will not be considered the owners or
Holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instruction or approval to the Trustee thereunder.
As a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize holders owning through such Participants to take
125
<PAGE> 127
such action or would otherwise act upon the instruction of such holders. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes or for any other matter relating to the actions or procedures of DTC.
Payments with respect to the principal of, premium (if any) and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Issuer nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interests in the Global Notes (including principal, premium (if any)
and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of DTC. The Company expects that payments by the Participants and
the Indirect Participants to the beneficial owners of interests in the Global
Note will be governed by standing instructions and customary practice and will
be the responsibility of the Participants or the Indirect Participants and DTC.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Securities Exchange Act of 1934, as amended ("the
Exchange Act") and the Company is unable to locate a qualified successor within
90 days, (ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Notes in definitive form under the Indenture
or (iii) upon the occurrence of certain other events, then, upon surrender by
DTC of its Global Notes, Certificated Securities will be issued to each person
that DTC identifies as the beneficial owner of the Notes represented by the
Global Notes. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
126
<PAGE> 128
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "Affiliate," (ii) a broker-dealer who acquired Original Notes directly
from the Company or (iii) broker-dealers who acquired Original Notes as a result
of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement with any person to participate in
a distribution of such Exchange Notes and that broker-dealers receiving Exchange
Notes in the Exchange Offer will be subject to a prospectus delivery requirement
with respect to resales of such Exchange Notes.
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 a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1998,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by 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 at 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 or the purchasers of any such Exchange Notes. Any
broker-dealer that resells 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 commission 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.
Despite this acknowledgement, such broker-dealer may nonetheless be determined
to be an "underwriter" by the Commission.
For a period of 180 days after the Expiration Date the Company 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. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Notes) other than commissions or concessions of any broker-dealer
and will indemnify the Holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
127
<PAGE> 129
EXPERTS
The consolidated financial statements of Argo-Tech Corporation and
Subsidiaries (A Wholly-Owned Subsidiary of AT Holdings Corporation) as of
October 26, 1996 and October 28, 1995 and for each of the three years in the
period ended October 26, 1996 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and is included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of J.C. Carter Company, Inc. at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and Registration Statement on Form S-1 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
128
<PAGE> 130
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheet at August 2, 1997.......................... F-2
Condensed Consolidated Statements of Operations for the 40 Weeks Ended August 2,
1997 and the 39 Weeks Ended July 27, 1996.................................... F-3
Condensed Consolidated Statements of Cash Flows for the 40 Weeks Ended August 2,
1997 and the 39 Weeks Ended July 27, 1996.................................... F-4
Notes to Condensed Consolidated Financial Statements............................ F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.................................................... F-8
Consolidated Balance Sheets at October 26, 1996 and October 28, 1995............ F-9
Consolidated Statements of Operations for the 52 Weeks Ended October 26, 1996,
October 28, 1995 and October 29, 1994........................................ F-10
Consolidated Statements of Shareholders' Equity/(Deficiency) for the 52 Weeks
Ended October 26, 1996, October 28, 1995 and October 29, 1994................ F-11
Consolidated Statements of Cash Flows for the 52 Weeks Ended October 26, 1996,
October 28, 1995 and October 29, 1994........................................ F-12
Notes to Consolidated Financial Statements...................................... F-13
J.C. CARTER COMPANY, INC.
UNAUDITED FINANCIAL STATEMENTS:
Condensed Balance Sheet at June 30, 1997........................................ F-24
Condensed Statements of Operations for the Six Months Ended June 30, 1997 and
1996......................................................................... F-25
Condensed Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996......................................................................... F-26
Notes to Condensed Financial Statements......................................... F-27
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors.................................................. F-29
Balance Sheets at December 31, 1996 and 1995.................................... F-30
Statements of Operations and Retained Earnings for the Years Ended December 31,
1996, 1995 and 1994.......................................................... F-31
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994................................................................ F-32
Notes to Financial Statements................................................... F-33
</TABLE>
F-1
<PAGE> 131
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 2,
1997
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 7,371
Receivables, net............................................................... 19,021
Inventories.................................................................... 17,380
Deferred income taxes and prepaid expenses..................................... 4,019
---------
Total current assets................................................... 47,791
---------
PROPERTY AND EQUIPMENT, net of accumulated depreciation.......................... 26,343
GOODWILL, net of accumulated amortization........................................ 81,825
OTHER ASSETS..................................................................... 5,545
---------
Total Assets........................................................... $ 161,504
=========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 5,000
Accounts payable............................................................... 3,148
Accrued liabilities............................................................ 12,769
---------
Total current liabilities.............................................. 20,917
---------
LONG-TERM DEBT, net of current maturities........................................ 136,107
OTHER NONCURRENT LIABILITIES..................................................... 10,095
---------
Total liabilities...................................................... 167,119
---------
REDEEMABLE COMMON STOCK.......................................................... 3,900
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common stock, $.01 par value, authorized 3,000 shares; 3,000 shares issued and
outstanding................................................................. --
Paid-in capital................................................................ 11,288
Accumulated deficit............................................................ (9,463)
Unearned ESOP shares........................................................... (11,340)
---------
Total shareholders' equity/(deficiency)................................ (9,515)
---------
Total Liabilities and Shareholders' Equity/(Deficiency)................ $ 161,504
=========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-2
<PAGE> 132
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
40 WEEKS 39 WEEKS
ENDED ENDED
AUGUST 2, JULY 27,
1997 1996
----------- -----------
<S> <C> <C>
Net revenues.......................................................... $84,892 $71,493
Cost of revenues...................................................... 48,697 42,860
------- -------
Gross profit................................................ 36,195 28,633
------- -------
Selling, general and administrative................................... 7,210 7,308
Research and development.............................................. 5,065 4,792
Amortization of intangible assets..................................... 1,860 1,750
------- -------
Operating expenses.......................................... 14,135 13,850
------- -------
Income from operations................................................ 22,060 14,783
Interest expense...................................................... 9,222 7,643
Other, net............................................................ (313) (118)
------- -------
Income before income taxes............................................ 13,151 7,258
Income tax provision.................................................. 5,299 3,172
------- -------
Income before extraordinary loss...................................... 7,852 4,086
Extraordinary loss on early extinguishment of debt, net of income tax
benefit of $1,019................................................... 1,529 --
------- -------
Net income............................................................ $ 6,323 $ 4,086
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-3
<PAGE> 133
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
40 WEEKS 39 WEEKS
ENDED ENDED
AUGUST 2, JULY 27,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 6,323 $ 4,086
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation..................................................... 3,351 3,392
Amortization of goodwill and deferred financing costs............ 2,658 2,644
Compensation expense recognized in connection with employee stock
ownership plan.................................................. 2,304 1,828
Deferred income taxes............................................ (239) 453
Extraordinary loss on early extinguishment of debt............... 1,529 --
Changes in operating assets and liabilities:
Receivables.................................................... (3,916) (1,053)
Inventories.................................................... (1,743) (717)
Prepaid expenses............................................... 10 612
Accounts payable............................................... (1,408) (1,569)
Accrued and other liabilities.................................. (579) (2,880)
Other, net....................................................... 481 168
--------- ---------
Net cash provided by operating activities........................... 8,771 6,964
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -- Capital expenditures.......... (1,775) (1,762)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt......................................... (107,600) (9,700)
Additional borrowing of long-term debt.............................. 141,100 --
Payment of financing related fees................................... (1,475) --
Redemption of redeemable preferred stock............................ (25,908) --
Payment of redeemable preferred dividends........................... (19,298) --
--------- ---------
Net cash used in financing activities............................... (13,181) (9,700)
--------- ---------
CASH AND CASH EQUIVALENTS:
Net decrease for the period........................................... (6,185) (4,498)
Balance, Beginning of period.......................................... 13,556 11,969
--------- ---------
Balance, End of period................................................ $ 7,371 $ 7,471
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.............................................................. $ 9,198 $ 7,269
Income taxes.......................................................... 3,058 1,902
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-4
<PAGE> 134
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Argo-Tech Corporation and Subsidiaries (the "Company") (A
Wholly-Owned Subsidiary of AT Holdings Corporation) pursuant to the rules of the
Securities and Exchange Commission ("SEC") and, in the opinion of the Company,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of financial position, results of operations and cash flows.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules. The
Company believes that the disclosures made are adequate to make the information
presented not misleading. The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company's annual
financial statements and footnotes, including footnote 2, which presents the
Company's summary of significant accounting policies. The unaudited condensed
consolidated statement of operations for the 40 weeks ended August 2, 1997 is
not necessarily indicative of the results to be expected for the full year.
2. PREFERRED STOCK TRANSACTION
In March 1997, the Company redeemed all of its redeemable preferred stock,
along with accrued dividends, in exchange for subordinated notes in the
principal amount of $41.1 million and cash of $4.1 million. Interest on the
notes is payable quarterly at 11.25% and the notes are due on December 31, 2007.
Such subordinated notes were repaid with the proceeds of the Offering.
3. BANK CREDIT AGREEMENT
In July 1997, the Company refinanced its existing credit facility. The New
Credit Facility, totaling $135.0 million, consisted of a seven-year $100.0
million Term Loan of which $95.0 million is currently outstanding, a seven-year
$20.0 million Revolving Credit Facility and a seven-year $15.0 million Delayed
Draw Acquisition Loans. The Delayed Draw Acquisition Loans were fully utilized
for the Acquisition. The New Credit Facility contains a number of covenants
that, among other things, limit the Company's ability to incur additional
indebtedness, pay dividends, prepay subordinated indebtedness, dispose of
certain assets, create liens, make capital expenditures, make certain
investments or acquisitions and otherwise restrict corporate activities. The New
Credit Facility also requires the Company to comply with certain financial
ratios and tests, under which the Company will be required to achieve certain
financial and operating results. Interest will be calculated, at the Company's
choice, using an alternate base rate (ABR) or LIBOR, plus a supplemental
percentage determined by the ratio of debt to EBITDA. The interest rate is not
to exceed ABR plus 1.00% or LIBOR plus 2.00%. Concurrently with the consummation
of the Acquisition, the Company amended the New Credit Facility, and such
Amended Credit Facility includes a seven-year $110.0 million Term Loan and a
seven-year $20.0 million Revolving Credit Facility with zero drawn on the
Revolving Credit Facility.
4. ACQUISITION AND SENIOR SUBORDINATED NOTE OFFERING
On August 1, 1997, Argo-Tech Corporation entered into an agreement with the
shareholders of J.C. Carter Company, Inc. ("Carter") to purchase 100% of the
outstanding common stock of Carter for $107.0 million in cash, subject to
post-closing adjustment. The sale was completed on September 26, 1997. The
Company offered $140.0 million of Senior Subordinated Notes due 2007
F-5
<PAGE> 135
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
through a "Rule 144A" private placement with registration rights under the
Securities Act of 1933. The proceeds of the offering were used for the
acquisition of Carter and the repayment of $46.1 million of subordinated notes
and notes payable.
5. ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt this
standard during fiscal 1998. Such adoption is not expected to have a material
effect on the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprises report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. The Company will adopt this standard during fiscal 1998.
Such adoption is not expected to have a material effect on the Company.
6. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 2,
1997
---------
<S> <C>
Finished goods............................... $ 1,603
Work-in-process and purchased parts.......... 17,499
Raw materials and supplies................... 388
---------
Total...................................... 19,490
Reserve for excess and obsolete inventory.... (2,110)
---------
Inventories -- net........................... $ 17,380
=========
</TABLE>
7. EXTRAORDINARY LOSS
In connection with the early extinguishment of debt under the Company's
previous bank credit agreement, the Company recognized an extraordinary loss of
$1.5 million, net of income tax benefit of $1.0 million, resulting from the
write-off of unamortized debt issuance costs.
8. CONTINGENCIES
ENVIRONMENTAL MATTERS -- The soil and groundwater at the Company's
Cleveland Facility contain elevated levels of certain contaminants which are
currently in the process of being removed and/or remediated. Because the Company
has certain indemnification rights from former owners of the facility for
liabilities arising from these or other environmental matters, in the opinion of
the Company's management, the ultimate outcome is not expected to materially
affect the Company's financial condition, results of operations or liquidity.
OTHER MATTERS -- The Company is subject to various legal actions and other
contingencies. In the opinion of the Company's management, after reviewing the
information which is currently
F-6
<PAGE> 136
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
available with respect to such matters and consulting with the Company's legal
counsel, any liability which may ultimately be incurred with respect to these
additional matters is not expected to materially affect the Company's financial
condition, results of operations or liquidity.
* * * * * *
F-7
<PAGE> 137
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Argo-Tech Corporation and Subsidiaries
(A Wholly-Owned Subsidiary of AT Holdings Corporation):
We have audited the accompanying consolidated balance sheets of Argo-Tech
Corporation and Subsidiaries (the "Company")(A Wholly-Owned Subsidiary of AT
Holdings Corporation) as of October 26, 1996 and October 28, 1995 and the
related consolidated statements of operations, shareholders'
equity/(deficiency), and cash flows for the three years in the period ended
October 26, 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of October 26,
1996 and October 28, 1995, and the results of their operations and their cash
flows for each of the three years in the period ended October 26, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
November 27, 1996
Cleveland, Ohio
F-8
<PAGE> 138
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $ 13,556 $ 11,969
Receivables, net................................................. 15,105 15,539
Inventories...................................................... 15,637 15,469
Deferred income taxes and prepaid expenses....................... 3,821 5,123
--------- ---------
Total current assets.......................................... 48,119 48,100
--------- ---------
PROPERTY AND EQUIPMENT, net of accumulated depreciation............ 27,919 29,184
GOODWILL, net of accumulated amortization.......................... 83,686 83,042
OTHER ASSETS....................................................... 7,382 6,731
--------- ---------
Total Assets.................................................. $ 167,106 $ 167,057
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt................................ $ 4,500 $ 4,700
Accounts payable................................................. 4,556 4,265
Accrued liabilities.............................................. 13,532 16,037
--------- ---------
Total current liabilities..................................... 22,588 25,002
--------- ---------
LONG-TERM DEBT, net of current maturities.......................... 103,107 113,907
OTHER NONCURRENT LIABILITIES....................................... 27,681 18,779
--------- ---------
Total liabilities............................................. 153,376 157,688
--------- ---------
REDEEMABLE PREFERRED STOCK......................................... 25,908 25,908
REDEEMABLE COMMON STOCK............................................ 2,700 1,100
COMMITMENTS AND CONTINGENCIES (Notes 9 and 14)
SHAREHOLDERS' EQUITY/(DEFICIENCY):
Common stock, $.01 par value, authorized 3,000 shares; 3,000
shares issued and outstanding................................. -- --
Paid-in capital.................................................. 11,444 12,395
Accumulated deficit.............................................. (13,722) (15,754)
Unearned ESOP shares............................................. (12,600) (14,280)
--------- ---------
Total shareholders' equity/(deficiency)....................... (14,878) (17,639)
--------- ---------
Total Liabilities and Shareholders' Equity/(Deficiency)....... $ 167,106 $ 167,057
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-9
<PAGE> 139
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------
OCTOBER 26, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues.............................................. $96,437 $86,671 $79,709
Cost of revenues.......................................... 57,882 54,222 54,276
------- ------- -------
Gross profit............................................ 38,555 32,449 25,433
------- ------- -------
Selling, general and administrative....................... 10,036 9,392 8,527
Research and development.................................. 6,429 5,664 2,543
Amortization of intangible assets......................... 2,842 2,334 2,334
Fees and costs associated with the formation of an ESOP... -- -- 1,385
------- ------- -------
Operating expenses...................................... 19,307 17,390 14,789
------- ------- -------
Income from operations.................................... 19,248 15,059 10,644
Interest expense.......................................... 10,138 11,924 10,117
Other, net................................................ (142) (588) 75
------- ------- -------
Income before income taxes................................ 9,252 3,723 452
Income tax provision...................................... 3,608 1,553 279
------- ------- -------
Net income................................................ $ 5,644 $ 2,170 $ 173
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-10
<PAGE> 140
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNEARNED
COMMON PAID-IN ACCUMULATED ESOP
STOCK CAPITAL DEFICIT SHARES TOTAL
------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993...... $ -- $13,505 $ (12,260) $ -- $ 1,245
Net income..................... -- -- 173 -- 173
Acquisition of common stock
upon formation of ESOP....... -- -- -- (16,800) (16,800)
ESOP shares committed to be
released..................... -- -- -- 840 840
Dividends accrued on preferred
stock........................ -- -- (3,124) -- (3,124)
Other, net..................... -- -- 818 -- 818
----- ------- --------- -------- --------
Balance, October 29, 1994...... $ -- $13,505 $ (14,393) $(15,960) $(16,848)
Net income..................... -- -- 2,170 -- 2,170
ESOP shares committed to be
released..................... -- (10) -- 1,680 1,670
Dividends accrued on preferred
stock........................ -- -- (3,509) -- (3,509)
Accretion of redeemable common
stock........................ -- (1,100) -- -- (1,100)
Other, net..................... -- -- (22) -- (22)
----- ------- --------- -------- --------
Balance, October 28, 1995...... $ -- $12,395 $ (15,754) $(14,280) $(17,639)
Net income..................... -- -- 5,644 -- 5,644
ESOP shares committed to be
released..................... -- 649 -- 1,680 2,329
Dividends accrued on preferred
stock........................ -- -- (3,848) -- (3,848)
Accretion of redeemable common
stock........................ -- (1,600) -- -- (1,600)
Other, net..................... -- -- 236 -- 236
----- ------- --------- -------- --------
Balance, October 26, 1996...... $ -- $11,444 $ (13,722) $(12,600) $(14,878)
===== ======= ========= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-11
<PAGE> 141
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
---------------------------------------------
OCTOBER 26, OCTOBER 28, OCTOBER 29,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 5,644 $ 2,170 $ 173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 4,620 4,838 6,392
Amortization of goodwill and deferred financing
costs.......................................... 4,033 3,739 3,785
Compensation expense recognized in connection
with employee stock ownership plan............. 2,329 1,670 840
Deferred rental income........................... (288) (670) (1,336)
Deferred income taxes............................ 825 700 32
Changes in operating assets and liabilities:
Receivables.................................... 434 270 612
Inventories.................................... (168) 5,793 6,284
Prepaid expenses............................... 958 (290) (123)
Accounts payable............................... 291 1,777 (1,727)
Accrued and other liabilities.................. (2,972) (2,693) 1,780
Other, net....................................... 236 542 819
------- ------- -------
Net cash provided by operating activities........... 15,942 17,846 17,531
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures................................ (3,355) (2,918) (1,475)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowing of long-term debt.............. -- -- 22,007
Repayment of long-term debt......................... (11,000) (19,000) (12,400)
Payment of financing costs.......................... -- (730) (170)
Proceeds from sale of redeemable preferred stock.... -- -- 1,508
Acquisition of unearned ESOP shares................. -- -- (16,800)
------- ------- -------
Net cash used in financing activities............... (11,000) (19,730) (5,855)
------- ------- -------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period................ 1,587 (4,802) 10,201
Balance, Beginning of period.......................... 11,969 16,771 6,570
------- ------- -------
Balance, End of period................................ $13,556 $11,969 $16,771
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-12
<PAGE> 142
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
1. BASIS OF PRESENTATION
Argo-Tech Corporation and Subsidiaries' (the "Company") (A Wholly-Owned
Subsidiary of AT Holdings Corporation) principal operations include the design,
manufacture and distribution of aviation products, primarily aircraft fuel
pumps, throughout the world. In addition, the Company leases a portion of its
manufacturing facility to other parties. The Company's fiscal year ends on the
last Saturday in October. The Company is obligated to fulfill certain
obligations of AT Holdings. As a result, those obligations have been reflected
by the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company. All material intercompany accounts and
transactions between these entities have been eliminated.
CASH EQUIVALENTS -- Cash equivalents represent short-term investments with
an original maturity of three months or less.
ACCOUNTS RECEIVABLE -- The Company does not generally require collateral or
other security to guarantee trade receivables.
INVENTORIES -- Inventories are stated at standard cost which approximates
the costs which would be determined using the first-in, first-out (FIFO) method.
The recorded value of inventories at both dates is not in excess of market
value.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated using principally an accelerated method over their estimated useful
lives as follows:
<TABLE>
<S> <C>
Buildings and improvements........... 15 to 30 years
Equipment............................ 5 to 10 years
</TABLE>
GOODWILL -- Goodwill is amortized on a straight-line basis over forty
years. Accumulated amortization at October 26, 1996 and October 28, 1995 was
$14,947,000 and $12,105,000, respectively. The Company assesses the
recoverability of goodwill by determining whether the amortization over the
remaining life can be recovered through projected undiscounted future
operations.
DEFERRED FINANCING COSTS -- The costs of obtaining financing are amortized
over the terms of the financing. The amortized cost is included in interest
expense in the consolidated statements of income. Accumulated amortization at
October 26, 1996 and October 28, 1995 was $8,314,000 and $7,123,000,
respectively.
REVENUE AND COST RECOGNITION -- The Company recognizes revenues and costs
upon the shipment of goods or rendering of services to customers. The Company's
product development activities are conducted principally under cost-sharing
arrangements that are funded by the Company. The need for and timing of
expenditures under these arrangements is generally determined by the Company.
The estimated unreimbursable costs under the activities are expensed as
incurred.
F-13
<PAGE> 143
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
INCOME TAXES -- Income taxes are accounted for under the asset and
liability approach, which can result in recording tax provisions or benefits in
periods different than the periods in which such taxes are paid or benefits
realized. Expected tax benefits from temporary differences that will result in
deductible amounts in future years and from carryforwards, if it is more likely
than not that such tax benefits will be realized, are recognized currently.
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. Actual results could differ from those estimates.
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
The major components of the following balance sheet captions were (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Other assets:
Deferred financing costs........................................... $ 3,305 $ 4,496
Deferred income taxes.............................................. 3,733 1,891
Other.............................................................. 344 344
------- -------
Total........................................................... $ 7,382 $ 6,731
======= =======
Accrued liabilities:
Salaries and accrued compensation.................................. $ 4,867 $ 4,858
Accrued interest................................................... 2,070 3,051
Accrued income taxes............................................... 865 659
Accrued warranty................................................... 1,725 1,475
Deferred rental income............................................. 108 1,035
Other.............................................................. 3,897 4,959
------- -------
Total........................................................... $13,532 $16,037
======= =======
Other noncurrent liabilities:
Accumulated dividends on redeemable preferred stock................ $17,770 $13,922
Pension and other employee benefits................................ 9,245 3,624
Other.............................................................. 666 1,233
------- -------
Total........................................................... $27,681 $18,779
======= =======
</TABLE>
F-14
<PAGE> 144
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
4. RECEIVABLES
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Amounts billed -- net of allowance for uncollectible amounts of $164
and $118.......................................................... $ 13,002 $ 12,841
--------- ---------
Amounts unbilled (principally commercial customers):
Net reimbursable costs incurred on uncompleted contracts.......... 16,785 13,287
Billings to date.................................................. (14,682) (10,589)
--------- ---------
Total unbilled -- net.......................................... 2,103 2,698
--------- ---------
Receivables -- net.................................................. $ 15,105 $ 15,539
========= =========
</TABLE>
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Finished goods...................................................... $ 1,658 $ 1,675
Work-in-process and purchased parts................................. 15,658 15,985
Raw materials and supplies.......................................... 499 607
------- -------
Total............................................................. 17,815 18,267
Reserve for excess and obsolete inventory........................... (2,178) (2,798)
------- -------
Inventories -- net.................................................. $15,637 $15,469
======= =======
</TABLE>
6. PROPERTY AND EQUIPMENT
OWNED PROPERTY -- Property and equipment owned by the Company consists of
the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Land and land improvements.......................................... $ 4,488 $ 4,488
Buildings and building equipment.................................... 29,042 29,101
Machinery and equipment............................................. 26,442 24,338
Office and automotive equipment..................................... 4,748 4,009
Construction-in-progress............................................ 2,043 1,979
--------- ---------
Total............................................................. 66,763 63,915
Accumulated depreciation............................................ (38,844) (34,731)
--------- ---------
Total -- net........................................................ $ 27,919 $ 29,184
========= =========
</TABLE>
PROPERTY LEASED TO OTHERS -- The Company leases certain portions of its
Cleveland Facility. The leases have been accounted for as operating leases
whereby revenue is recognized as earned over the lease terms. Rents paid in
advance are deferred and recognized in income on a straight-line basis over the
remaining life of the lease. The cost of property leased to others is included
in property and equipment and is being depreciated over its estimated useful
life. It is not practical to
F-15
<PAGE> 145
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
determine the cost of the property that is being leased to others or the related
amount of accumulated depreciation. In addition, the Company has separate
service contracts with its tenants under which the Company provides maintenance,
telecommunications and various other services. A large portion of the Company's
cost related to the receipts based on usage is variable in nature.
Total rental revenue under the property leases and service contracts was as
follows for the fiscal years ended 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Minimum contractual amounts under property leases............. $ 5,768 $ 6,005 $ 6,604
Recognition of deferred rental income......................... 288 670 1,336
Service contracts revenue based on usage...................... 1,484 2,055 2,636
------- ------- -------
Total....................................................... $ 7,540 $ 8,730 $10,576
======= ======= =======
</TABLE>
Future minimum rentals under the noncancelable property leases and service
contracts at October 26, 1996 are (in thousands): $3,719 in 1997, $3,017 in
1998, $1,767 in 1999, $1,764 in 2000, and $1,764 in 2001.
7. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN -- The Company has an Employee Stock
Ownership Plan (ESOP) to provide retirement benefits to qualifying, salaried
employees. The ESOP grants to participants in the plan certain ownership rights
in, but not possession of, the common stock of the Company held by the Trustee
of the Plan. Shares of common stock are allocated annually to participants in
the ESOP pursuant to a prescribed formula. The value of the shares committed to
be released by the Trustee under the Plan's provisions for allocation to
participants was recognized as an expense of $2,329,000, $1,670,000, and
$840,000 for the fiscal years ended 1996, 1995, and 1994, respectively. The cost
of the shares acquired for the ESOP that are not committed to be released to
participants is shown as a contra-equity account, "Unearned ESOP shares".
Summary information regarding ESOP activity for the fiscal years ended 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Allocated shares................................................ 63,000 21,000
Shares released for allocation.................................. 42,000 42,000
Unearned ESOP shares............................................ 315,000 357,000
----------- -----------
Total ESOP shares............................................... 420,000 420,000
Repurchased shares received as distributions.................... (862) --
----------- -----------
Total available ESOP shares..................................... 419,138 420,000
=========== ===========
Fair market value of unearned ESOP shares....................... $18,468,450 $17,039,610
=========== ===========
</TABLE>
All of the shares acquired for the ESOP (both allocated and unearned
shares) are owned and held in trust by the ESOP.
The Company's stock is not listed or traded on an active stock market and
market prices are, therefore, not available. Annually, an independent financial
consulting firm determines the fair market value based upon the Company's
performance and financial condition.
F-16
<PAGE> 146
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
The Company provides an "internal market" for shareholders through its
purchase of their common shares. Participants in the Company's ESOP have the
right to require the Company, within a specified period, to repurchase shares
received as distributions under the ESOP at their fair market value.
PENSION AND SAVINGS PLANS -- The Company has two noncontributory defined
benefit pension plans which together cover substantially all of its employees. A
plan covering salaried employees provides pension benefits that are based on the
employees' compensation and years of service. The future accrual of benefits was
terminated in connection with the formation of the ESOP. A plan covering hourly
employees provides benefits of stated amounts for each year of service. The
Company's funding policy is to contribute actuarially determined amounts
allowable under Internal Revenue Service regulations. The Company also sponsors
two employee savings plans which cover substantially all of the Company's
employees. Neither plan provides for a Company match of participating employees
contributions.
A summary of the components of net periodic pension cost for the pension
plans for the fiscal years ended 1996, 1995 and 1994 is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period............ $ 218 $ 167 $ 735
Interest cost on projected benefit obligation................ 805 701 768
Actual return on plan assets................................. (1,488) (1,520) 68
Net amortization and deferral................................ 483 576 (1,007)
------- ------- -------
Net periodic pension cost.................................... $ 18 $ (76) $ 564
======= ======= =======
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's balance sheets for its pension plan (in thousands):
<TABLE>
<CAPTION>
OCTOBER 26, 1996 OCTOBER 28, 1995
--------------------------- ---------------------------
(ACCUMULATED (ASSETS (ACCUMULATED (ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS) BENEFITS) ASSETS) BENEFITS)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation............ $ (3,450) $ (7,328) $ (2,831) $ (6,774)
======== ========= ======== =========
Accumulated benefit obligation....... $ (3,526) $ (7,328) $ (2,896) $ (6,774)
======== ========= ======== =========
Projected benefit obligation......... $ (3,526) $ (7,328) $ (2,896) $ (6,774)
Plan assets at fair value.............. 2,923 8,535 2,379 7,581
-------- --------- -------- ---------
Projected benefit obligation (in excess
of) or less than plan assets......... (603) 1,207 (517) 807
Unrecognized prior service cost........ 451 -- 163 --
Unrecognized net gain from past
experience different from that
assumed.............................. (874) (2,661) (829) (2,494)
-------- --------- -------- ---------
Accrued pension cost recognized in the
consolidated balance sheets.......... $ (1,026) $ (1,454) $ (1,183) $ (1,687)
======== ========= ======== =========
</TABLE>
F-17
<PAGE> 147
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
The assumptions used to determine net periodic pension cost as well as the
funded status are:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Discount rate................................ 8.0% 8.0%
Long-term rate of return on plan assets...... 9.0% 9.0%
</TABLE>
The plans' assets consist primarily of insurance company pooled separate
accounts.
OTHER POSTRETIREMENT BENEFITS -- The Company provides certain
postretirement health care benefits to hourly retirees and their dependents.
Effective November 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires that costs
of these postretirement benefits be accrued during an employee's active working
career. Prior to adoption of this statement, the cost of providing these
benefits was previously recognized on a pay-as-you-go basis and amounted to
$83,000 for fiscal 1995.
The Company implemented SFAS No. 106 on the immediate recognition basis by
recording a postretirement benefit obligation of $5,808,941, and, according to
Statement provisions related to business combinations occurring after December
21, 1990, a resulting increase in Goodwill and Deferred Income Taxes of
$3,485,365 and $2,323,576, respectively.
The net postretirement benefit cost for fiscal 1996 includes the following
components (in thousands):
<TABLE>
<S> <C>
Service cost......................................................... $158
Interest cost on accumulated postretirement benefit obligation....... 460
----
Net postretirement benefit cost...................................... $618
====
</TABLE>
Benefit costs were generally estimated assuming retiree health care costs
would initially increase at an 11% annual rate, decreasing gradually to a 5%
annual growth rate after 12 years and remain at a 5% annual growth rate
thereafter. A 1% increase in this annual trend rate would have increased the
accumulated postretirement benefit obligation at October 26, 1996 by $1,093,000
with a corresponding effect on the 1996 postretirement benefit expense of
$115,000. The discount rate used to estimate the accumulated postretirement
benefit obligation was 8.0%.
The accumulated postretirement benefit obligation at October 26, 1996
consisted of unfunded obligations related to the following (in thousands):
<TABLE>
<S> <C>
Retirees and dependents.............................................. $1,464
Fully eligible active plan participants.............................. 1,629
Other active participants............................................ 3,196
------
Postretirement benefit liability recognized on the balance sheet..... $6,289
======
</TABLE>
F-18
<PAGE> 148
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
8. INCOME TAXES
The income tax provision consists of the following for the fiscal years
ended 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current tax provision:
Federal.................................................... $ 2,153 $ 764 $ (35)
State and local............................................ 630 89 282
------- ------- -------
Total................................................... 2,783 853 247
Deferred tax provision....................................... 825 700 32
------- ------- -------
Income tax provision......................................... $ 3,608 $ 1,553 $ 279
======= ======= =======
</TABLE>
The difference between the recorded income tax provision and the amounts
computed using the statutory U.S. Federal income tax rate are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income tax provision at statutory rate....................... $ 3,146 $ 1,266 $ 154
State tax provision -- net of federal benefits............... 416 78 --
Other -- net................................................. 46 209 125
------- ------- -------
Income tax provision......................................... $ 3,608 $ 1,553 $ 279
======= ======= =======
</TABLE>
During the fiscal years ended 1996, 1995, and 1994 the Company paid (net of
refunds received) approximately $2.0, $1.2 and $3.1 million in income taxes,
respectively.
The components of the Company's net deferred tax asset (liability) are as
follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Current:
Deductible temporary differences.................................. $ 3,493 $ 3,854
Taxable temporary differences..................................... -- (17)
------- -------
Total............................................................... $ 3,493 $ 3,837
======= =======
Long-term:
Taxable temporary differences..................................... $ (347) $ (608)
Hourly retiree medical............................................ 2,453 --
Deductible temporary differences.................................. 1,627 2,499
------- -------
Total............................................................... $ 3,733 $ 1,891
======= =======
</TABLE>
The temporary differences described above principally represent differences
between the tax bases of assets (principally inventory, property and equipment)
or liabilities (principally related to employee benefits, loss reserves and
rental credits) and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years
when the reported amounts of the assets or liabilities are recovered or settled,
respectively.
F-19
<PAGE> 149
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
9. DEBT
SUMMARY -- The Company's long-term debt consists of the following (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 28,
1996 1995
----------- -----------
<S> <C> <C>
Term loans.................... $ 52,600 $ 63,600
Subordinated loan............. 50,000 50,000
Notes payable................. 5,007 5,007
--------- ---------
Total borrowings............ 107,607 118,607
Current maturities............ (4,500) (4,700)
--------- ---------
Long-term portion............. $ 103,107 $ 113,907
========= =========
</TABLE>
CREDIT FACILITY AND TERM LOANS -- The Company has a credit facility with a
financial institution consisting of a revolving line of credit of $25.0 million
and term loans. Approximately $0.2 million of letters of credit were outstanding
under the line of credit to guarantee performance under certain contracts at
October 26, 1996. The unused balance of the revolving line of credit ($24.8
million at October 26, 1996) is subject to a .25% commitment fee. The revolving
line of credit expires on October 28, 1997 at which time any amount borrowed
thereunder must be repaid; however, after this date, the revolving line of
credit may be extended on an annual basis through October 28, 2000 subject to
approval by the financial institution.
The principal amount of the term loans is payable in generally increasing
amounts semi-annually through October 28, 2000. Pre-payments on the term loans
will modify the repayment schedule. During the years ended October 26, 1996 and
October 28, 1995, the Company prepaid $6.5 million and $12.0 million,
respectively. The repayment schedule under the term loans will be accelerated if
the Company generates "Excess Cash Flow" as defined in the Loan Agreement. There
is a payment required for excess cash flow generated during the year ended
October 26, 1996 in the amount of $200,000. There was no payment required for
the year ended October 28, 1995.
The credit facility bears interest at the Company's option of (1) the LIBO
Rate for Eurodollar Loans plus 1.5% or (2) the higher of the overnight federal
funds rate or the prime rate plus .50%. With respect to $20.0 million of the
term loans, the Company has entered into an interest rate swap agreement with
the financial institution which fixed the interest rate at 7.215% through
October 1997. The interest rate on the credit facility ranged from 6.98% to
7.215% at October 26, 1996.
The credit facility is collateralized by substantially all of the tangible
assets of the Company (including the capital stock of Argo-Tech and a mortgage
on the Company's real property) as well as the unearned shares of the Company's
common stock held by the ESOP. The agreement also contains a number of
restrictive covenants that, among other things, limit the ability of AT Holdings
Corporation and its subsidiaries to enter into leasing arrangements, incur
indebtedness, pay dividends, transfer assets among subsidiaries, engage in
transactions with stockholders and affiliates, create liens, engage in mergers
and consolidations, make capital expenditures, engage in sales of assets or the
stock of subsidiary companies and make certain investments.
SUBORDINATED LOAN -- The repayment of the subordinated loan, which is due
October 28, 2000 and has been guaranteed by the parent company of the majority
shareholder of the Company, is subordinate to amounts payable under the
Company's credit facility. The loan is payable to the financial institution
which provided the Company's credit facility and bears interest at the Company's
F-20
<PAGE> 150
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
option equal to (1) the LIBO Rate for Eurodollar Loans plus 1.0% or (2) the
higher of the overnight federal funds rate or the prime rate. With respect to
the $50.0 million subordinated loan, the Company has entered into two interest
rate swap agreements with the financial institution which fixes the interest
rate on $20.0 million at 6.80% through October 1997, and 7.66% through October
2000 on the remaining $30.0 million. The interest rate on the subordinated loans
ranged from 6.80% to 7.66% at October 26, 1996. The subordinated loan contains
many of the same restrictive covenants that are included in the loan agreement
which governs the credit facility.
NOTES PAYABLE -- The repayment of the notes, which are due on October 28,
2000, is subordinate to the Company's other long-term debt. Interest on the
notes is payable at the prime rate.
ANNUAL MATURITIES AND INTEREST PAYMENTS -- The maturities of the Company's
long-term debt during each of the next five fiscal years are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- --------
<S> <C>
1997....... $ 4,500
1998....... 5,300
1999....... 5,300
2000....... 92,507
2001....... --
--------
Total...... $107,607
========
</TABLE>
The total interest paid during the fiscal years ended 1996, 1995 and 1994
was $9.2 million, $9.8 million and $5.1 million, respectively.
10. REDEEMABLE STOCK
Redeemable preferred stock consists of $1 par value Series A Cumulative
Redeemable Preferred Stock. The preferred stock must be redeemed by December 24,
2000 at a liquidation preference of $25.9 million ($100 per share) plus accrued
dividends. All of the preferred stock is redeemable prior to December 24, 2000
upon a change in the control of the Company (as defined) and up to $10.0 million
is redeemable from the proceeds from certain sales of the Company's real estate,
including the Euclid, Ohio facility. Under the terms of the Company's articles
of incorporation and by-laws, no additional shares of preferred stock are
available for issuance.
Dividends are accrued at an annual rate of 9.33% (based on a $100 per share
value), compounded quarterly. Dividends accrued during the period December 24,
1990 through December 24, 1997 may be paid at any time prior to December 24,
2000. Dividends accrued during the period December 25, 1997 through December 24,
2000 are to be paid quarterly to the extent sufficient funds are available to
legally pay the dividends. At October 26, 1996 and October 28, 1995, dividends
of $17.8 million and $13.9 million, respectively, were accrued on the preferred
stock and included in other long-term liabilities on the accompanying
consolidated balance sheets.
Redeemable common stock represents a right (a "put") that management
shareholders have to require the Company to repurchase shares of common stock at
the greater of their fair market value or $40 per share, subject to certain
limitations through April 30, 2004. There were 69,363 of these shares
outstanding at October 26, 1996 and October 28, 1995.
F-21
<PAGE> 151
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
11. RELATED PARTY TRANSACTIONS
Management fees and out-of-pocket expenses were charged to operations in
accordance with the provisions of a management agreement between the Company and
a related party. Fees payable to the parent company of the majority shareholder
for the guarantee of the Company's subordinated loan were charged to operations.
The total related party fees charged to operations during 1996, 1995 and 1994
approximated 0.8%, 1.0% and 1.6% of net revenues, respectively. In addition,
during the fiscal years ended 1996, 1995 and 1994 sales of $21.1 million, $17.4
million and $5.6 million, respectively, were made to a related party.
12. MAJOR CUSTOMERS AND EXPORT SALES
During the fiscal years ended 1996, 1995 and 1994, the Company had revenues
in excess of 10% from the following customers (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Customer A........... $21,167 $17,444 $12,287
Customer B........... 16,177 12,172 12,538
Customer C........... -- -- 8,281
</TABLE>
During the fiscal years ended 1996, 1995 and 1994, export sales to foreign
customers amounted to $44.1 million, $37.5 million and $37.2 million,
respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash and
short-term investments, interest rate swaps, long-term debt, and preferred
stock. The Company has determined the estimated fair value of these financial
instruments by soliciting available market information and utilizing appropriate
valuation methodologies which require judgment. The Company believes that the
carrying values of these financial instruments approximate their fair value.
14. CONTINGENCIES
ENVIRONMENTAL MATTERS -- The soil and groundwater at the Company's
Cleveland Facility contain elevated levels of certain contaminants which are
currently in the process of being removed and/or remediated. Because the Company
has certain indemnification rights from former owners of the facility for
liabilities arising from these or other environmental matters, in the opinion of
the Company's management, the ultimate outcome is not expected to materially
affect the Company's financial condition, results of operations or liquidity.
OTHER MATTERS -- The Company is subject to various legal actions and other
contingencies. In the opinion of the Company's management, after reviewing the
information which is currently available with respect to such matters and
consulting with the Company's legal counsel, any liability which may ultimately
be incurred with respect to these additional matters is not expected to
materially affect the Company's financial condition, results of operations or
liquidity.
15. SUBSEQUENT EVENTS (UNAUDITED)
PREFERRED STOCK TRANSACTION -- In March 1997, the Company redeemed all of
its redeemable preferred stock, along with accrued dividends, in exchange for
subordinated notes in the principal
F-22
<PAGE> 152
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 26, 1996, OCTOBER 28, 1995 AND OCTOBER 29, 1994
amount of $41.1 million and cash of $4.1 million. Interest on the notes is
payable quarterly at 11.25% and the notes are due on December 31, 2007.
BANK CREDIT AGREEMENT -- In July 1997, the Company refinanced its existing
credit facility. The New Credit Facility, totaling $135.0 million, consisted of
a seven-year $100.0 million Term Loan of which $95 million is currently
outstanding, a seven-year $20.0 million Revolving Credit Facility and a
seven-year $15.0 million Delayed Draw Acquisition Loans. The Delayed Draw
Acquisition Loans were fully utilized for the Acquisition. The New Credit
Facility contains a number of covenants that, among other things, limit the
Company's ability to incur additional indebtedness, pay dividends, prepay
subordinated indebtedness, dispose of certain assets, create liens, make capital
expenditures, make certain investments or acquisitions and otherwise restrict
corporate activities. The New Credit Facility also requires the Company to
comply with certain financial ratios and tests, under which the Company will be
required to achieve certain financial and operating results. Interest will be
calculated, at the Company's choice, using an alternative base rate (ABR) or
LIBOR, plus a supplemental percentage determined by the ratio of debt to EBITDA.
The interest rate is not to exceed ABR plus 1.00% or LIBOR plus 2.00%.
Concurrently with the consummation of the Acquisition, the Company amended the
New Credit Facility, and such Amended Credit Facility includes a seven-year
$110.0 million Term Loan and a seven-year $20.0 million Revolving Credit
Facility with zero drawn on the Revolving Credit Facility.
ACQUISITION AND SENIOR SUBORDINATED NOTE OFFERING -- On August 1, 1997,
Argo-Tech Corporation entered into an agreement with the shareholders of J.C.
Carter Company, Inc. ("Carter") to purchase 100% of the outstanding common stock
of Carter for $107.0 million in cash, subject to post-closing adjustment. The
sale was completed on September 26, 1997. The Company offered $140.0 million of
Senior Subordinated Notes due 2007 through a "Rule 144A" private placement with
registration rights under the Securities Act of 1933. The proceeds of the
offering were used for the acquisition of Carter and the repayment of $46.1
million of subordinated notes and notes payable.
* * * * * *
F-23
<PAGE> 153
J.C. CARTER COMPANY, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................... $ 203
Accounts receivable, net of allowance of $63................................... 4,856
Note and accrued interest receivable from an officer/shareholder............... 2,280
Costs and estimated earnings in excess of billings on uncompleted contracts.... 659
Inventory...................................................................... 11,408
Prepaid expenses and other..................................................... 426
Deferred income taxes.......................................................... 2,323
-------
Total current assets................................................... 22,155
PROPERTY, PLANT AND EQUIPMENT, net............................................... 5,188
GOODWILL, net.................................................................... 362
-------
TOTAL ASSETS..................................................................... $27,705
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 3,110
Accrued liabilities............................................................ 1,985
Accrued bonuses................................................................ 2,061
Current portion of capital lease obligation.................................... 99
Current portion of long-term debt.............................................. 13,275
-------
Total current liabilities.............................................. 20,530
CAPITAL LEASE OBLIGATION, less current portion................................... 176
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, no par value: authorized shares -- 2,000,000; issued and
outstanding shares -- 1,125,000............................................. 1,125
Retained earnings.............................................................. 5,874
-------
Total shareholders' equity............................................. 6,999
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $27,705
=======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-24
<PAGE> 154
J.C. CARTER COMPANY, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net revenues.......................................................... $24,008 $22,131
Cost of revenues...................................................... 12,144 12,052
------- -------
Gross profit................................................ 11,864 10,079
------- -------
Selling, general and administrative................................... 4,395 3,564
Engineering and development........................................... 1,309 790
Office of the President............................................... 6,088 4,840
------- -------
Operating expenses.......................................... 11,792 9,194
------- -------
Income from operations................................................ 72 885
Interest expense...................................................... 537 489
Other expense, net.................................................... 214 54
------- -------
Income (loss) before income taxes..................................... (679) 342
Income tax provision (benefit)........................................ (2,271) 43
------- -------
Net income............................................................ $ 1,592 $ 299
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-25
<PAGE> 155
J.C. CARTER COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................. $ 1,592 $ 299
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................... 359 301
Provision for deferred income taxes................................. (2,207) --
Loss on sale of property, plant and equipment....................... 150 123
Changes in operating assets and liabilities:
Accounts receivable............................................... 360 (215)
Cost and estimated earnings in excess of billings on uncompleted
contracts........................................................ 133 (146)
Inventory......................................................... (1,124) 205
Prepaid expenses, other and refundable income taxes............... (13) 86
Note and accrued interest receivable from an
officer/shareholder............................................ (14) 245
Accounts payable and accrued liabilities.......................... (188) (234)
Accrued bonuses................................................... (520) (139)
------- -------
Net cash provided by (used in) operating activities.................... (1,472) 525
INVESTING ACTIVITIES:
Capital expenditures................................................... (69) (4,170)
Proceeds from sale of property, plant and equipment.................... -- 3,855
Acquisition of IMS..................................................... (407) --
------- -------
Net cash used in investing activities.................................. (476) (315)
FINANCING ACTIVITIES:
Proceeds from bank borrowings.......................................... -- 42
Principal payments on debt............................................. (650) (650)
Net borrowings on credit line.......................................... 2,847 55
Payments on capital lease obligations.................................. (46) (8)
------- -------
Net cash provided by (used in) financing activities.................... 2,151 (561)
------- -------
NET INCREASE (DECREASE) IN CASH.......................................... 203 (351)
CASH AT BEGINNING OF YEAR................................................ -- 420
------- -------
CASH AT END OF YEAR...................................................... $ 203 $ 69
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-26
<PAGE> 156
J. C. CARTER COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by J.C.
Carter Company, Inc. (the "Company") pursuant to the rules of the Securities and
Exchange Commission ("SEC") and, in the opinion of the Company, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of financial position, results of operations and cash flows.
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 SEC rules. The Company believes
that the disclosures made are adequate to make the information presented not
misleading. The statement of operations for the six months ended June 30, 1997
is not necessarily indicative of the results to be expected for the full year.
INVENTORY
Inventory is stated at the lower of cost or market. Cost has been
determined under the first-in, first-out method.
CASH FLOWS
Net cash flows from operating activities reflect cash payments for income
taxes and interest of $187,000 and $488,000, respectively for six months ended
June 30, 1997.
INCOME TAXES
Effective January 1, 1997, the Company voluntarily terminated the
Subchapter S tax status and will be taxed at the applicable state and federal
statutory rates. The Company will record a tax benefit of approximately
$2,207,000, in the six months ended June 30, 1997, for the impact on the
deferred assets for the change in tax status.
REVENUE RECOGNITION
The Company uses the unit-of-delivery or percentage-of-completion methods
for recognizing sales and cost of sales under long-term contracts. A majority of
revenues from product sales and long-term contracts are recorded as units are
shipped. Revenues, which includes costs incurred plus a portion of estimated
profit, applicable to certain fixed-price long-term contracts (principally
design and development contracts), are recognized on the
percentage-of-completion (cost-to-cost) method, whereby revenue is measured by
relating costs incurred to total estimated costs. Any anticipated losses on
contracts are charged to earnings when identified. Revenues related to claims or
contract changes that have not been completely priced, negotiated, documented or
funded are not recognized unless realization is considered probable.
CONTRACTS IN PROCESS
Costs and estimated earnings in excess of billings on uncompleted contracts
represents costs incurred plus estimated profit, less amounts billed to
customers. Incurred costs include production costs and related overhead.
CONTINGENCIES
During 1990, the Company received a cleanup and abatement order from the
California Regional Ground Water Quality Control Board (Santa Ana Region)
related to certain hazardous waste materials that are present under the
Company's facilities. The Company filed an appeal of the
F-27
<PAGE> 157
J. C. CARTER COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
order with the State Water Resources Control Board (the State Board). The
Company continues to negotiate with the Regional Board as to that
responsibility, if any, the Company will have for site investigation or cleanup.
Management and their consultants believe that much of the pollution is from
sources outside the Company, and the Company intends to vigorously defend
against all liability arising from this issue.
The potential costs related to the above matters, and the possible impact
thereof on future operations, are uncertain and it is not possible at the
present time to estimate the ultimate range of legal and financial liability
with regard to the above matters. No reserve is included in accrued liabilities
at June 30, 1997 for anticipated cleanup or other costs related to the hazardous
waste materials mentioned in the previous paragraph. Management believes that
the remaining liability will not materially affect the Company's financial
condition, results of operations or liquidity.
The Company is a defendant in various lawsuits. In the opinion of
management, potential losses, if any, would not materially affect the Company's
financial condition, results of operations or liquidity.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The Statement requires that an enterprise
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt this
standard during fiscal 1998. Such adoption is not expected to have a material
effect on the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
statement requires that a public business enterprises report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. The Company will adopt this standard during fiscal 1998.
Such adoption is not expected to have a material effect on the Company.
SUBSEQUENT EVENTS
On August 1, 1997, the shareholders of J.C. Carter Company, Inc. entered
into an agreement to sell 100% of the outstanding common stock of the Company to
Argo-Tech Corporation for approximately $107.0 million in cash, subject to
post-closing adjustment. The sale was completed on September 26, 1997.
On August 25, 1997 the Company met with the California Regional Quality
Control Board, Santa Ana Region (the "Board") to present recent results from
newly installed wells. The Board's position is that both onsite remediation and
offsite groundwater investigation will be required. The Company intends to
propose additional solutions to the Board. The estimate to remediate onsite and
investigate offsite groundwater is approximately $500,000 to $1,500,000. The
shareholders of J.C. Carter Company, Inc. have agreed to indemnify Argo-Tech
Corporation for the costs of all known environmental liabilities if the purchase
agreement is finalized.
* * * * * *
F-28
<PAGE> 158
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
J.C. Carter Company, Inc.
We have audited the accompanying balance sheets of J.C. Carter Company,
Inc. as of December 31, 1996 and 1995, and the related statements of operations
and retained earnings, and cash flows for each of the three years in the period
ended December 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 J.C. Carter Company, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Long Beach, California
March 21, 1997
F-29
<PAGE> 159
J.C. CARTER COMPANY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................................... $ -- $ 420
Accounts receivable, net of allowance of $63 in 1996 and $73 in 1995... 5,161 4,741
Note and accrued interest receivable from an officer/shareholder....... 2,266 2,256
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................... 792 859
Inventory.............................................................. 10,228 10,203
Prepaid expenses and other............................................. 520 496
------- -------
Total current assets................................................ 18,967 18,975
PROPERTY, PLANT AND EQUIPMENT, net....................................... 5,549 5,142
------- -------
TOTAL ASSETS............................................................. $24,516 $24,117
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................... $ 3,071 $ 2,974
Accrued liabilities.................................................... 2,069 2,238
Accrued bonuses........................................................ 2,581 2,272
Current portion of capital lease obligation............................ 95 17
Current portion of long-term debt...................................... 8,680 8,800
------- -------
Total current liabilities........................................... 16,496 16,301
CAPITAL LEASE OBLIGATION, less current portion........................... 226 77
LONG-TERM DEBT, less current portion..................................... 2,387 3,658
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common stock, no par value: authorized shares -- 2,000,000; issued and
outstanding shares -- 1,125,000..................................... 1,125 1,125
Retained earnings...................................................... 4,282 2,956
------- -------
Total shareholders' equity.......................................... 5,407 4,081
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $24,516 $24,117
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-30
<PAGE> 160
J.C. CARTER COMPANY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net revenues.................................................... $44,450 $39,986 $38,727
Cost of revenues................................................ 22,558 20,384 18,983
------- ------- -------
Gross profit.................................................. 21,892 19,602 19,744
Selling, general and administrative............................. 7,919 6,760 6,452
Engineering and development..................................... 2,007 2,062 2,008
Office of the President......................................... 9,339 10,994 7,963
------- ------- -------
Operating expenses............................................ 19,265 19,816 16,423
------- ------- -------
Income (loss) from operations................................... 2,627 (214) 3,321
Interest expense................................................ 970 934 859
Other expense, net.............................................. 226 101 396
------- ------- -------
Income (loss) before income taxes............................... 1,431 (1,249) 2,066
Income tax provision............................................ 105 188 60
------- ------- -------
Net income (loss)............................................... 1,326 (1,437) 2,006
Retained earnings at beginning of year.......................... 2,956 4,393 2,387
------- ------- -------
Retained earnings at end of year................................ $ 4,282 $ 2,956 $ 4,393
======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-31
<PAGE> 161
J.C. CARTER COMPANY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................ $ 1,326 $(1,437) $ 2,006
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 587 860 455
Provision for deferred income taxes................. 5 7 33
Gain on sale of property, plant and equipment....... (214) (19) (11)
Changes in operating assets and liabilities:
Accounts receivable.............................. (420) (1,187) 1,039
Cost and estimated earnings in excess of billings
on uncompleted contracts....................... 67 (827) (8)
Inventory........................................ (25) (1,180) (782)
Prepaid expenses and other....................... (29) 102 23
Note and accrued interest receivable from an
officer/shareholder............................ (10) (227) 435
Accounts payable and accrued liabilities......... (72) 579 (2,185)
Accrued bonuses.................................. 309 2,272 --
------- ------- -------
Net cash provided by (used in) operating activities...... 1,524 (1,057) 1,005
INVESTING ACTIVITIES:
Capital expenditures..................................... (4,991) (712) (867)
Proceeds from sale of property, plant and equipment...... 4,211 30 12
Long-term accounts receivable from officer/shareholder... -- -- 24
------- ------- -------
Net cash used in investing activities.................... (780) (682) (831)
FINANCING ACTIVITIES:
Proceeds from bank borrowings............................ -- 5,500 1,614
Principal payments on debt............................... (1,261) (6,067) (1,500)
Net (payments) borrowings on credit line................. (130) 2,488 (1,088)
Net borrowings (payments) on capital lease obligations... 227 84 (12)
Net repayments on note receivable from
officer/shareholder................................... -- -- 966
------- ------- -------
Net cash (used in) provided by financing activities...... (1,164) 2,005 (20)
------- ------- -------
NET (DECREASE) INCREASE IN CASH............................ (420) 266 154
CASH AT BEGINNING OF YEAR.................................. 420 154 --
------- ------- -------
CASH AT END OF YEAR........................................ $ -- $ 420 $ 154
======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-32
<PAGE> 162
J. C. CARTER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS AND CREDIT RISK -- J. C. Carter Company, Inc. (the "Company")
manufactures certain aircraft fluid control component parts, industrial marine
cryogenic pumps, and special ground fueling components which are sold to U.S.
and foreign government prime contractors and subcontractors, commercial airlines
and airplane manufacturers.
Sales under U.S. government prime contractors and subcontractors were
$23,495,000, or 53% of total sales, $19,654,000, or 49% of total sales, and
$19,205,000, or 50% of total sales, in 1996, 1995 and 1994, respectively.
INVENTORY -- Inventory is stated at the lower of cost or market. Cost has
been determined under the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated on
the basis of cost. Depreciation is computed using the straight-line method, at
rates designated to distribute the cost of assets over the useful lives,
estimated as follows:
<TABLE>
<S> <C>
Buildings and improvements........... 7 years
Furniture and fixtures............... 5 years
Machinery and equipment.............. 3-7 years
</TABLE>
REVENUE RECOGNITION -- The Company uses the unit-of-delivery or
percentage-of-completion methods for recognizing sales and cost of sales under
long-term contracts. A majority of revenues from product sales and long-term
contracts are recorded as units are shipped. Revenues, which includes costs
incurred plus a portion of estimated profit, applicable to certain fixed-price
long-term contracts (principally design and development contracts), are
recognized on the percentage-of-completion (cost to-cost) method, whereby
revenue is measured by relating costs incurred to total estimated costs. Any
anticipated losses on contracts are charged to earnings when identified.
Revenues related to claims or contract changes that have not been completely
priced, negotiated, documented or funded are not recognized unless realization
is considered probable.
Revenues, costs, and earnings on long-term contracts are based, in part, on
estimates and as a result, actual earnings may differ from estimates.
CONTRACTS IN PROCESS -- Costs and estimated earnings in excess of billings
on uncompleted contracts represents costs incurred plus estimated profit, less
amounts billed to customers. Incurred costs include production costs and related
overhead.
General and administrative expenses and research and development expenses
are considered period costs and, accordingly, are charged to operations on a
current basis.
Certain customers have title to, or security interest in, certain
inventories by reason of progress payments.
RESEARCH AND DEVELOPMENT -- Research and development expenses of $411,000,
$416,000 and $512,000 in 1996, 1995 and 1994, respectively, are included in
engineering and development costs and expenses in the accompanying statements of
operations.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
and 1994 financial statements to conform to the 1996 presentation.
F-33
<PAGE> 163
J. C. CARTER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- 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 disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Finished goods awaiting shipment.............................. $ 249 $ 283
Work in process............................................... 1,564 2,396
Material and spare parts...................................... 8,415 7,524
------- -------
$10,228 $10,203
======= =======
</TABLE>
Inventory is reflected net of certain valuation allowances. Included in the
inventory valuation allowance is a reserve of $503,000 and $623,000 at December
31, 1996 and 1995, respectively, for losses on certain contracts where the
estimated cost at completion of the contract exceeds the contract sales value.
Contracts in process are recorded net of progress payments received of
approximately $1,284,000 and $0 at December 31, 1996 and 1995, respectively.
3. NOTE AND ACCRUED INTEREST RECEIVABLE FROM AN OFFICER/SHAREHOLDER
The note and accrued interest receivable from an officer/shareholder,
consisting of approximately $1,593,000 and $1,343,000 in borrowings and accrued
interest amounting to $673,000 and $663,000 at December 1, 1996 and 1995,
respectively, accrues interest at the bank's prime rate. The entire balance,
including accrued interest amounting to $2,266,000 at December 31, 1996, was due
on March 31, 1995. The Company is verbally extending the term on a monthly
basis.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Land.......................................................... $ 2,909 $ 2,909
Buildings and improvements.................................... 1,664 1,645
Furniture and fixtures........................................ 1,475 1,883
Machinery and equipment....................................... 6,381 5,639
------- -------
12,429 12,076
Less accumulated depreciation and amortization................ 6,880 6,934
------- -------
$ 5,549 $ 5,142
======= =======
</TABLE>
F-34
<PAGE> 164
J. C. CARTER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Credit line with a bank for borrowings up to $9,500, expiring
May 31, 1997, with interest payable at either the bank's
reference rate plus .25% or the Eurodollar rate plus
2.25%....................................................... $ 7,370 $ 7,500
Term loan with a bank for borrowings up to $5,500, expiring
July 31, 1999, with principal and interest payable monthly
at the bank's reference rate plus .375%, cost of funds rate
plus 2.375% or the Eurodollar rate plus 2.375%.............. 3,658 4,958
Other long-term debt.......................................... 39 --
------- -------
11,067 12,458
Less current portion.......................................... 8,680 8,800
------- -------
$ 2,387 $ 3,658
======= =======
</TABLE>
The bank facility requires the Company to maintain certain net worth, debt
to equity, and other financial ratio levels and is secured by substantially all
of the assets of the Company.
The Company had $1,500,000 of available letters of credit, of which,
$1,247,000 and $1,500,000 were unused at December 31, 1996 and 1995,
respectively.
Interest paid was $1,047,000, $984,000 and $716,000 during 1996, 1995 and
1994, respectively. Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997...................................................................... $ 8,680
1998...................................................................... 1,316
1999...................................................................... 1,071
--------
Total..................................................................... $ 11,067
========
</TABLE>
6. LEASES
The Company leases various office equipment under both capital and
operating leases. Included in machinery and equipment is $344,000 and $95,000 at
December 31, 1996 and 1995, respectively, under capital leases. Accumulated
amortization of equipment under capital lease amounted to $19,000 and $0 at
December 31, 1996 and 1995, respectively, and is included in accumulated
depreciation and amortization.
F-35
<PAGE> 165
J. C. CARTER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
Future minimum payments, by year and in the aggregate, under capital leases
and noncancelable operating leases with initial or remaining terms of one year
or more, consisted of the following at December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ---------
<S> <C> <C>
1997............................................................ $121 $ 696
1998............................................................ 121 603
1999............................................................ 121 576
2000............................................................ 25 576
2001............................................................ -- 48
---- -------
Total minimum lease payments.................................... 388 $ 2,499
=======
Amounts representing interest................................... 67
----
Present value of net minimum lease payments (including $95
classified as current)........................................ $321
====
</TABLE>
Gross rental expense on operating leases was $759,000, $660,000 and
$555,000 in 1996, 1995 and 1994, respectively.
7. INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................. $120 $237 $ 27
State.................................................... (20) (56) --
---- ---- ----
100 181 27
Deferred -- State.......................................... 5 7 33
---- ---- ----
Total................................................. $105 $188 $ 60
==== ==== ====
</TABLE>
Significant components of the Company's deferred tax assets as of December
31, 1996 and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Bonus accrual..................................................... $ 39 $ 33
Manufacturing investment credit................................... 34 35
Excess and obsolete inventory reserve............................. 15 13
Other............................................................. 28 40
---- ----
Total.......................................................... $116 $121
==== ====
</TABLE>
F-36
<PAGE> 166
J. C. CARTER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The following table reconciles the provision for income taxes to the
statutory income tax rate (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
State income tax provision (benefit)..................... $ 21 $ (18) $ 31
Federal built-in gains tax............................... 120 237 27
Manufacturing investment tax credit...................... (43) (35) --
Other.................................................... 7 4 2
----- ----- -----
$ 105 $ 188 $ 60
===== ===== =====
Effective tax rate....................................... 7.34% 15.05% 2.90%
===== ===== =====
</TABLE>
The manufacturing investment credit expires through fiscal 2006. Effective
October 1, 1992, the shareholders of the Company elected under Subchapter S of
the Internal Revenue Code to include the Company's income in their own income
for federal income tax purposes. Accordingly, effective October 1, 1992, the
Company is not generally subject to federal income tax and is subject to a 1.5%
state franchise tax. In addition to the franchise tax, the Company is subject to
a federal tax on built-in gains recognized on the disposition of any prior
appreciated C-Corporation assets within 10 years from the first day of the
S-Corporation's first tax year. Income taxes paid were $156,000, $220,000 and
$50,000 during 1996, 1995 and 1994, respectively.
Effective January 1, 1997, the Company voluntarily terminated the
Subchapter S tax status and will be taxed at the applicable state and federal
statutory rates. The Company will receive a tax benefit of approximately
$2,207,000 in fiscal 1997, for the impact on the deferred assets for the change
in tax status. If the Company were taxed at the applicable C-Corporation state
and federal statutory rates, net income and tax expense (benefit) for the years
ending December 31, 1996, 1995 and 1994, would have been approximately (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income (loss) before income taxes.................. $ 1,431 $(1,249) $ 2,066
Pro forma tax expense (benefit).................... 529 (535) 826
------- ------- -------
Pro forma net income (loss)........................ $ 902 $ (714) $ 1,240
======= ======= =======
</TABLE>
8. CONTINGENCIES
During 1990, the Company received a cleanup and abatement order from the
California Regional Ground Water Quality Control Board (Santa Ana Region)
related to certain hazardous waste materials that are present under the
Company's facilities. The Company filed an appeal of the order with the State
Water Resources Control Board (the State Board). The Company continues to
negotiate with the Regional Board as to that responsibility, if any, the Company
will have for site investigation or cleanup. Management and their consultants
believe that much of the pollution is from sources outside the Company, and the
Company intends to vigorously defend against all liability arising from this
issue.
The potential costs related to the above matters, and the possible impact
thereof on future operations, are uncertain and it is not possible at the
present time to estimate the ultimate range of legal and financial liability
with regard to the above matters. Included in accrued liabilities is $0 and
$250,000 at December 31, 1996 and 1995, for anticipated cleanup or other costs
related to the
F-37
<PAGE> 167
J. C. CARTER COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
hazardous waste materials mentioned in the previous paragraph. Management
believes that the remaining liability will not materially affect the Company's
financial condition, results of operations or liquidity.
The Company is a defendant in various lawsuits. In the opinion of
management, potential losses, if any, would not materially affect the Company's
financial condition, results of operations or liquidity.
9. EMPLOYEES' 401(k) PLAN
The Company maintains a 401(k) Plan (the "Plan"), which is qualified under
the Internal Revenue Code. Substantially all employees over age 21 are eligible
to participate in the Plan after six months of employment. Employees may make
voluntary contributions to the Plan, which are matched by the Company, subject
to certain limitations. The Company's contributions, recognized as expense, were
approximately $414,000, $350,000 and $382,000 in 1996, 1995 and 1994,
respectively.
10. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS
On August 1, 1997, the shareholders of J.C. Carter Company, Inc. entered
into an agreement to sell 100% of the outstanding common stock of the Company to
Argo-Tech Corporation for approximately $107.0 million in cash, subject to
post-closing adjustment. The sale was completed on September 26, 1997.
On August 25, 1997 the Company met with the California Regional Quality
Control Board, Santa Ana Region (the "Board") to present recent results from
newly installed wells. The Board's position is that both onsite remediation and
offsite groundwater investigation will be required. The Company intends to
propose additional solutions to the Board. The estimate to remediate onsite and
investigate offsite groundwater is approximately $500,000 to $1,500,000. The
shareholders of J.C. Carter Company, Inc. have agreed to indemnify Argo-Tech
Corporation for the costs of all known environmental liabilities if the purchase
agreement is finalized.
F-38
<PAGE> 168
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary............................ 5
Risk Factors.................................. 21
The Exchange Offer............................ 29
The Transactions.............................. 41
Use of Proceeds............................... 41
Capitalization................................ 43
Selected Historical Financial and Other
Data........................................ 44
Unaudited Pro Forma Condensed Consolidated
Financial Information....................... 47
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 56
Business and Properties....................... 65
Management.................................... 79
Principal Stockholders........................ 89
Description of the Amended Credit Facility.... 92
Description of Notes.......................... 94
Exchange and Registration Rights Agreement.... 122
Book-Entry, Delivery and Form................. 125
Plan of Distribution.......................... 127
Legal Matters................................. 127
Experts....................................... 128
Index to Financial Statements................. F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PROSPECTUS
WHEN SELLING EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL NOTES HELD FOR
THEIR OWN ACCOUNT. SEE "PLAN OF DISTRIBUTION."
$140,000,000
ARGO-TECH CORPORATION
[ARGO-TECH LOGO]
OFFER TO EXCHANGE ITS
8 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT FOR ANY AND ALL
OUTSTANDING
8 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
OCTOBER , 1997
<PAGE> 169
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Notes being
registered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............................. $ 42,424
Printing costs................................................................... 50,000
Accounting fees and expenses..................................................... 30,000
Legal fees and expenses (not including Blue Sky)................................. 50,000
Blue Sky fees and expenses....................................................... 10,000
Miscellaneous expenses........................................................... 17,576
--------
Total.......................................................................... $200,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VIII of the Company's Restated Certificate of Incorporation
provides that the Company will, to the fullest extent permitted by the General
Corporation Law of the State of Delaware (including, without limitation, Section
145 thereof), as the same may be amended from time to time, indemnify any
promoter, director, or officer whom it will have power to indemnify from and
against any and all of the expenses, liabilities, or other loss of any nature,
and such indemnification will not be deemed exclusive of any other rights to
which those indemnified may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and will continue as to a person who has ceased to be promoter,
director, or officer and will inure to the benefit of the heirs, executors, and
administrators of such a person.
Subsection (a) of the Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth in the paragraph above, except that
no indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought determines that
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court deems proper.
II-1
<PAGE> 170
Section 145 further provides that, to the extent that a director or officer
of a corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, he will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that any indemnification under subsections (a) and
(b) of Section 145 (unless ordered by a court) will be made by a corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of Section 145; that expenses incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
unless it is ultimately determined that he is not entitled to be indemnified by
the corporation; that indemnification provided for by Section 145 will not be
deemed exclusive of any other rights to which the indemnified party may be
entitled; and that a corporation is empowered to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under Section 145.
Section 8.01(a) of the Company's By-laws provides that the Company will
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or arbitrative or investigative (other than an
action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, except in such cases as involve gross negligence or
willful misconduct.
Section 8.01(b) of the Company's By-laws provides that the Company will
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and except that no indemnification
will be made in respect of any claim, issue or matter as to which such person
has been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Company unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
deems proper.
In addition, Section 801(c) of the Company's By-laws provides that expenses
incurred in defending a civil or criminal action, suit or proceeding will be
paid by the Company in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it is ultimately
determined that he is not entitled to be indemnified by the Company as
authorized in Article VIII of the Company's By-laws.
II-2
<PAGE> 171
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company which were not registered under the Securities
Act have been issued or sold by the Company within the past three years, except
as follows:
On March 31, 1997, Parent subscribed for and purchased one share of the
Company's Common Stock, par value $.01 per share, at a price of $1.00 per share,
in reliance on the exemption from registration afforded by Section 4(2) of the
Securities Act.
On September 26, 1997, the Company sold the Original Notes in an aggregate
principal amount of $140,000,000 to Chase Securities Inc. The issuance of the
Original Notes was exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<S> <C>
3.1(i) Restated Certificate of Incorporation of the Company.
3.2(ii) By-Laws of the Company.
4.1 Indenture dated September 26, 1997, between the Company, the Subsidiary
Guarantors signatory thereto and Harris Trust and Savings Bank, as Trustee,
relating to the 8 5/8% Senior Subordinated Notes due 2007 (the form of which is
included in such Indenture).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
4.3 Exchange and Registration Rights Agreement dated September 26, 1997, between the
Company, the Subsidiary Guarantors and Chase Securities Inc.
4.4 The Company by this filing agrees, upon request, to file with the Commission the
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries where the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
5* Opinion of Jones, Day, Reavis & Pogue as to the validity of the Exchange Notes
being offered.
10.1 Form of Stay Pay and Severance Agreement dated June 6, 1996, by and among the
Company and certain Executive Officers of the Company (Michael S. Lipscomb,
Yoichi Fujiki, Frances S. St. Clair, Paul R. Keen and David Chrencik).
10.2 Employment Agreement dated February 13, 1989 between the Company and Paul R.
Keen.
10.3 Employment Agreement dated October 15, 1986 between the Company and Michael S.
Lipscomb.
10.4 Argo-Tech Corporation Trust Agreement dated October 28, 1994 between the Company
and Society National Bank, as Trustee, relating to the Employment Agreement dated
October 15, 1986 between the Company and Michael S. Lipscomb.
10.5 Argo-Tech Corporation Salaried Pension Plan, dated November 1, 1995.
10.6 Form of First Amendment to Argo-Tech Corporation Salaried Pension Plan.
10.7 Argo-Tech Corporation Employee Stock Ownership Plan and Trust Agreement, dated
May 17, 1994.
10.8 First Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated October 26, 1994.
10.9 Second Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 9, 1996.
10.10 Third Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated July 18, 1997.
10.11 Argo-Tech Corporation Employee Stock Ownership Plan Excess Benefit Plan, dated
May 17, 1994.
</TABLE>
II-3
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<S> <C>
10.12 AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17, 1994.
10.13 First Amendment to AT Holdings Corporation 1994 Stockholders' Agreement, dated
May 1, 1997.
10.14 Second Amendment to AT Holdings Corporation 1994 Stockholders' Agreement, dated
July 18, 1997.
10.15 AT Holdings Corporation Supplemental Stockholders Agreement dated May 17, 1994.
10.16 First Amendment to AT Holdings Corporation Supplemental Stockholders Agreement,
dated July 18, 1997.
10.17 Amendment, Termination and Release under Vestar/AT Holdings Corporation
Stockholders' Agreement, dated May 17, 1994.
10.18 Consulting Agreement between the Company and Vestar Capital Partners, Inc. dated
May 17, 1994.
10.19 Form of Management Incentive Compensation Plan for key employees of the Company.
10.20 1991 Management Incentive Stock Option Plan, as amended, dated May 16, 1994.
10.21 Form of Stock Option Agreement in connection with the Management Incentive Stock
Option Plan, as amended, between the Company and all members of the Company's
Executive Staff.
10.22 1991 Performance Stock Option Plan, as amended, dated May 16, 1997.
10.23 Form of Stock Option Agreement in connection with the 1991 Performance Stock
Option Plan, as amended, between the Company and certain key employees.
10.24* Amended Credit Facility, dated September 26, 1997, between the Company and Chase
Manhattan Bank.
10.25 Distributorship Agreement, dated December 24, 1990, between the Company, Yamada
Corporation and Vestar Capital Partners, Inc.
10.26 Japan Distributorship Agreement, dated December 24, 1990, between the Company,
Yamada Corporation, Aerotech World Trade Corporation and Vestar Capital Partners,
Inc.
12 Statement regarding computation of ratios.
21 List of Subsidiaries.
23.1* Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
24 Powers of Attorney.
25 Statement of Eligibility of Trustee, Harris Trust and Savings Bank, on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement.
II-4
<PAGE> 173
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on October 17, 1997.
ARGO-TECH CORPORATION
By: /s/ Paul R. Keen
----------------------------------
Paul R. Keen
Vice President, General Counsel
and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB Chairman, President, Chief Executive October 17, 1997
- ------------------------------ Officer and Director
Michael S. Lipscomb (Principal Executive Officer)
/s/ FRANCES S. ST. CLAIR Vice President and Chief Financial October 17, 1997
- ------------------------------ Officer
Frances S. St. Clair (Principal Financial Officer)
/s/ PAUL A. SKLAD Manager, Financial Accounting October 17, 1997
- ------------------------------ (Principal Accounting Officer)
Paul A. Sklad
* Director October 17, 1997
- ------------------------------
Remi de Chastenet
* Director October 17, 1997
- ------------------------------
Thomas Dougherty
* Director October 17, 1997
- ------------------------------
Yoichi Fujiki
* Director October 17, 1997
- ------------------------------
Prakash A. Melwani
* Director October 17, 1997
- ------------------------------
Robert Y. Nagata
* Director October 17, 1997
- ------------------------------
Karl F. Storrie
</TABLE>
- ---------------
* The undersigned, pursuant to a Power of Attorney executed by each of the
Directors and officers identified above and filed with the Securities and
Exchange Commission, by signing his name hereto, does hereby sign and execute
this Registration Statement on behalf of each of the persons noted above, in
the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Paul R. Keen October 17, 1997
--------------------------------------------
Paul R. Keen, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 175
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<S> <C>
3.1(i) Restated Certificate of Incorporation of the Company.
3.2(ii) By-Laws of the Company.
4.1 Indenture dated September 26, 1997, between the Company, the Subsidiary
Guarantors signatory thereto and Harris Trust and Savings Bank, as Trustee,
relating to the 8 5/8% Senior Subordinated Notes due 2007 (the form of which is
included in such Indenture).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
4.3 Exchange and Registration Rights Agreement dated September 26, 1997, between the
Company, the Subsidiary Guarantors and Chase Securities Inc.
4.4 The Company by this filing agrees, upon request, to file with the Commission the
instruments defining the rights of holders of long-term debt of the Company and
its subsidiaries where the total amount of securities authorized thereunder does
not exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis.
5* Opinion of Jones, Day, Reavis & Pogue as to the validity of the Exchange Notes
being offered.
10.1 Form of Stay Pay and Severance Agreement dated June 6, 1996, by and among the
Company and certain Executive Officers of the Company (Michael S. Lipscomb,
Yoichi Fujiki, Frances S. St. Clair, Paul R. Keen and David Chrencik).
10.2 Employment Agreement dated February 13, 1989 between the Company and Paul R.
Keen.
10.3 Employment Agreement dated October 15, 1986 between the Company and Michael S.
Lipscomb.
10.4 Argo-Tech Corporation Trust Agreement dated October 28, 1994 between the Company
and Society National Bank, as Trustee, relating to the Employment Agreement dated
October 15, 1986 between the Company and Michael S. Lipscomb.
10.5 Argo-Tech Corporation Salaried Pension Plan, dated November 1, 1995.
10.6 First Amendment to Argo-Tech Corporation Salaried Pension Plan.
10.7 Argo-Tech Corporation Employee Stock Ownership Plan and Trust Agreement, dated
May 17, 1994.
10.8 First Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated October 26, 1994.
10.9 Second Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 9, 1996.
10.10 Third Amendment to the Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated July 18, 1997.
10.11 Argo-Tech Corporation Employee Stock Ownership Plan Excess Benefit Plan, dated
May 17, 1994.
10.12 AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17, 1994.
10.13 First Amendment to AT Holdings Corporation 1994 Stockholders' Agreement, dated
May 1, 1997.
10.14 Second Amendment to AT Holdings Corporation 1994 Stockholders' Agreement, dated
July 18, 1997.
10.15 AT Holdings Corporation Supplemental Stockholders Agreement, dated May 17, 1994.
10.16 First Amendment to AT Holdings Corporation Supplemental Stockholders Agreement,
dated July 18, 1997.
</TABLE>
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<S> <C>
10.17 Amendment, Termination and Release under Vestar/AT Holdings Corporation
Stockholders' Agreement, dated May 17, 1994.
10.18 Consulting Agreement between the Company and Vestar Capital Partners dated May
17, 1994.
10.19 Form of Management Incentive Compensation Plan for key employees of the Company.
10.20 1991 Management Incentive Stock Option Plan, as amended, dated May 16, 1994.
10.21 Form of Stock Option Agreement in connection with the Management Incentive Stock
Option Plan, as amended, between the Company and all members of the Company's
Executive Staff.
10.22 1991 Performance Stock Option Plan, as amended, dated May 16, 1997.
10.23 Form of Stock Option Agreement in connection with the 1991 Performance Stock
Option Plan, as amended, between the Company and certain key employees.
10.24* Amended Credit Facility, dated September 26, 1997, between the Company and Chase
Manhattan Bank.
10.25 Distributorship Agreement, dated December 24, 1990, between the Company, Yamada
Corporation and Vestar Capital Partners, Inc.
10.26 Japan Distributorship Agreement, dated December 24, 1990, between the Company,
Aerotech World Trade Corporation and Vestar Capital Partners, Inc.
12 Statement regarding computation of ratios.
21 List of Subsidiaries.
23.1* Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 5).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
24 Powers of Attorney.
25 Statement of Eligibility of Trustee, Harris Trust and Savings Bank, on Form T-1.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1(i)
RESTATED
CERTIFICATE OF INCORPORATION
OF
ARGO-HOLDINGS, INC.
(Under Section 245 of the
Delaware General Corporation Law)
-------------------------
Argo-Holdings, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The present name and the name under which the Corporation was
originally incorporated is Argo-Holdings, Inc. The Corporation filed its
original Certificate of Incorporation with the Secretary of State of Delaware on
March 30, 1997. This Restated Certificate of Incorporation was proposed to the
stockholders of the Corporation by the Board of Directors as of July 17, 1997
and was duly adopted in accordance with the provisions of Section 242 and 245 of
the Delaware General Corporation Law, as amended, by unanimous written consent
of the holder of all outstanding stock entitled to vote thereon April 30, 1997.
SECOND: The Restated Certificate of Incorporation of the Corporation is
hereby restated and amended to read in its entirety as follows:
ARTICLE I
NAME
----
The name of the Corporation is ARGO-TECH CORPORATION (hereinafter
referred to as the "Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
--------------------------------------
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road in the City of Wilmington, County of New Castle,
19805. The name of the Corporation's registered agent at such address is CSC/The
United States Corporation Company.
<PAGE> 2
ARTICLE III
PURPOSE
-------
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 and to conduct and promote any business in
connection therewith.
ARTICLE IV
CAPITAL STOCK
-------------
A. CLASSES AND NUMBER OF SHARES. The Corporation shall be authorized to
issue one class of Common Stock (the "Common Stock"). The aggregate number of
shares of Common Stock that the Corporation shall have authority to issue is
Three Thousand (3,000), and each such share of Common Stock shall have a par
value of one cent ($.01).
B. RIGHTS AND POWERS OF THE COMMON STOCK.
1. VOTING RIGHTS AND POWERS. Subject to any restrictions contained
in this Certificate of Incorporation, each holder of any outstanding shares of
the Common Stock shall be entitled to cast thereon one (1) vote in person or by
proxy for each such share of Common Stock standing in his, her, or its name on
any matters to be voted on by the holder or holders of such stock.
2. BOARD OF DIRECTORS.
a. DEFINITIONS. Unless otherwise defined herein, capitalized terms
used herein are defined in Paragraph 4 of this Article IV.B.
b. NUMBER; ELECTION. The Board of Directors of the Corporation shall
initially consist of seven (7) members.
c. [Intentionally omitted]
d. VOTING OF STOCK ON CERTAIN MATTERS. From and after the filing
date of this Certificate of Incorporation until the consummation of an
Acceptable Company Offering or an Acceptable Demand Offering, neither the Board
of Directors of the Corporation nor any Person purporting to act on behalf of
the Corporation shall have any authority whatsoever to authorize or approve the
Corporation entering into any of the following types of transactions or actions
and the power and authority to approve or authorize any such transactions or
actions shall be vested exclusively in the sole stockholder of the Corporation:
2
<PAGE> 3
(i) entering into any transaction or series of
transactions with Yamada, ATLLC or an Affiliate of Yamada or ATLLC,
or entering into any other transaction or series of transactions
between the Corporation and another Person, unless the terms and
conditions thereof are at least as favorable to the Corporation as
terms and conditions reasonably obtainable at the time for a
comparable transaction or series of similar transactions in arm's
length dealings with an independent and unrelated third party;
PROVIDED, HOWEVER, that this clause (i) shall not apply to (x) the
payment of any investment banking, financing, or consulting fees to
Vestar, or (y) the transactions contemplated by and the payment of
fees pursuant to and in accordance with the terms and conditions of
the Guaranty Agreement, that certain Consulting Agreement, dated
December 24, 1990, by and between Sumitomo Bank and Vestar/AT
Acquisition Corporation, the Guaranty Fee Agreement, that certain
Consulting Agreement, dated December 24, 1990, by and between
Vestar/AT Acquisition Corporation and Sumitomo Bank, the
Distribution Agreement, the Yamada Distribution Agreement, the
Yamada-Japan Distributorship Agreement, and the Supplemental
Distribution Performance Agreement;
(ii) selling, leasing, exchanging, transferring, or
otherwise disposing of, including without limitation a mortgage or
any other security device, all or substantially all of the
Corporation's or any of its Operating Subsidiaries' assets, except
that such transaction may be entered into if (w) the Non-Yamada
stockholders at any time and in any manner have consummated the sale
of 100% of the Common Stock of Holdings owned by them (as such sale
is evidenced and reflected on the stock transfer books of Holdings),
or any Acceptable Company Offering or Acceptable Demand Offering has
occurred, or a Control Event, Post-Default Contribution or
Pre-Control Event Contribution has occurred and is continuing; (x)
the net per share amount of proceeds realized as a result of such
transaction by all the holders of the Common Stock of Holdings is
the same, and is paid upon the same terms and conditions as that
realized by all the other holders of the Common Stock of Holdings;
(y) in the event of the sale, lease, exchange, transfer, or other
disposition, including without limitation a mortgage or any other
security device, by the Corporation of all or substantially all of
the assets of the Corporation and the
3
<PAGE> 4
Operating Subsidiaries, taken as a whole, the net proceeds thereof
that holders of the Common Stock of Holdings are eligible to receive
shall be distributed ratably per share to all the holders of the
Common Stock of Holdings; and (z) an independent investment banking
firm mutually acceptable to ATLLC and the representatives of the
Management Stockholders then serving on the Board of Directors of
Holdings, or such other representative as the Management
Stockholders may designate (or, in the event that ATLLC and such
representatives of the Management Stockholders shall fail to agree
to the selection of an independent investment banking firm, then
each such party shall choose an independent investment banking firm,
which two independent investment banking firms shall select a third
independent investment banking firm whose selection and decision
shall be binding) shall have determined that the price to be
realized from such transaction is fair from a financial point of
view to all the stockholders of Holdings, which investment banking
firm(s) shall have all of their fees and expenses related to such
determination paid for by the Corporation;
(iii) issuing or authorizing the issuance of any debt
securities, equity securities or securities convertible into or
exchangeable for equity securities of the Corporation or declaring
or paying any dividend to any Person (other than any dividends paid
in connection with the payment by the Corporation of any dividends
paid in connection with the repayment by Holdings of the ATLLC
Note);
(iv) making or authorizing the making of any change in
the distribution arrangements related to the Corporation's or any of
its Operating Subsidiaries' products other than pursuant to any
written agreements or understandings that have been or shall
hereafter be entered into between Yamada or an Affiliate of Yamada
and the directors then serving on the Board of Directors of Holdings
who were selected by the chief executive officer of the Corporation
(or if the chief executive officer is not a Management Stockholder,
who were selected by the vote of the holders of a majority of the
shares of Common Stock held by the Management Stockholders);
PROVIDED, HOWEVER, that any change in the distribution arrangements
related to the Corporation's or any of its Operating Subsidiaries'
products reflected in the
4
<PAGE> 5
Distribution Agreement and the Supplemental Performance Agreement
must be approved by Yamada or an Affiliate thereof and the
Corporation; PROVIDED, FURTHER, that any change in the distribution
arrangements related to products of the Corporation or any Operating
Subsidiary reflected in the Yamada Distributorship Agreement and the
Yamada-Japan Distributorship Agreement shall be approved by each of
the parties thereto; and PROVIDED, FURTHER, that the Distribution
Term, as that term is defined in the Yamada Distributorship
Agreement will commence on November 1, 1994, that Vestar's right to
defer the commencement of the Distribution Term has lapsed due to
the Vestar Investment Partnership ceasing to be a holder of five
percent of the Common Stock of Argo-Tech, and that none of the
stockholders has any right to defer the commencement of such
Distribution Term or to object to the succession of Yamada Sales to
Aerotech, under the terms of the Yamada Distributorship Agreement,
that certain Supplemental Distribution Performance Agreement, or
otherwise; or
(v) making or authorizing the making of any change in
this Restated Certificate of Incorporation of the Corporation
relating to the election or removal of directors or the requirement
for stockholder approval of any of the types of actions or
transactions specified in this Article IV.B.2.d.
3. OTHER PROVISIONS REGARDING ELECTION AND REMOVAL OF DIRECTORS.
From the filing date of this Restated Certificate of Incorporation until the
consummation of an Acceptable Company Offering or an Acceptable Demand Offering,
neither the Board of Directors of Holdings nor any officer or any other Person
purporting to act on behalf of Holdings by itself or himself shall have any
right, power, or authority whatsoever to vote the stock of the Corporation to
elect or remove members of the Board of Directors of the Corporation. The right,
power, and authority of Holdings, as sole stockholder of the Corporation, to
elect or remove members of the Board of Directors of the Corporation shall be
vested exclusively in the stockholders of Holdings.
4. DEFINITIONS.
a. "ACCEPTABLE COMPANY OFFERING" shall mean a Public Offering of
Common Stock of Holdings that is a Primary Offering following which: (i) Yamada,
ATLLC, any Affiliates of Yamada or ATLLC, Sunhorizon, and any transferees to
whom such entities have transferred Common Stock of Holdings shall own no less
than 36% in the aggregate of the outstanding Common Stock of
5
<PAGE> 6
Holdings (including shares sold to satisfy any over-allotment option granted to
any underwriters in such offering); (ii) any underwriters chosen to assist in
effecting such offering are reasonably acceptable to not less than 80% of the
members of the Board of Holdings then serving; and (iii) the MINIMUM amount
raised pursuant to such offering for Holdings is no less than $35,000,000 in
gross proceeds in the aggregate. The occurrence of an Acceptable Company
Offering shall be evidenced by a resolution of the Board of Directors of
Holdings to the effect that such offering qualifies as an Acceptable Company
Offering.
b. "ACCEPTABLE DEMAND OFFERING" shall mean a Public Offering of
Common Stock of Holdings pursuant to the exercise of a Demand Registration Right
following which: (i) Yamada, ATLLC, any Affiliates of Yamada or ATLLC,
Sunhorizon, and any transferees to whom such entities have transferred Common
Stock of Holdings shall own no less than 36% in the aggregate of the outstanding
Common Stock of Holdings (including shares sold to satisfy any over-allotment
option granted to any underwriters in such offering); (ii) any underwriters
chosen to assist in effecting such offering are reasonably acceptable to not
less than 80% of the members of the Board of Holdings then serving; and (iii)(a)
the minimum amount reasonably anticipated to be received by selling stockholders
of Holdings as a result of such offering at the time (x) such Demand
Registration Right is exercised, and (y) the applicable Registration Statement
is declared effective, is no less than $15,000,000 in gross proceeds if there
has not been a Primary Offering prior to the exercise of the Demand Registration
Right, or (b) the minimum amount of Common Stock of Holdings to be sold pursuant
to such offering, if at any time prior to the exercise of such Demand
Registration Right a Primary Offering has occurred shall be no less than the
greater of (i) two percent (2%) of the outstanding Common Stock of Holdings, and
(ii) two (2) times the average weekly trading volume in such Common Stock on all
national security exchanges and/or reported through the automated quotation
system of a registered securities association during the four (4) week period
immediately preceding the exercise of such Demand Registration Right. The
occurrence of an Acceptable Demand Offering shall be evidenced by a resolution
of the Board of Directors of Holdings to the effect that such offering qualifies
as an Acceptable Demand Offering.
c. "AEROTECH" shall mean Aerotech World Trade Corp., a Delaware
corporation.
d. [Intentionally omitted]
e. "AFFILIATE" shall mean with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition, the
term "control" (including the correlative meanings of the terms "controlling,"
"controlled by" and "under direct or indirect common control
6
<PAGE> 7
with") 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
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise. Notwithstanding the foregoing, for purposes of this
Restated Certificate of Incorporation, in no event shall the Corporation or any
of its Operating Subsidiaries or Holdings be or be deemed, construed,
considered, or interpreted to be an Affiliate of Yamada or ATLLC or an Affiliate
of any Affiliate or group of Affiliates of Yamada or ATLLC, nor shall Yamada,
ATLLC or any Affiliate thereof be deemed, construed, considered, or interpreted
to be an Affiliate of the Corporation or any of its Operating Subsidiaries or
Holdings.
f. "ATLLC" shall mean AT Holdings LLC, a Nevada limited liability
company.
g. "BUSINESS DAY" means any day that is not a Saturday or Sunday
or a day on which state, provincial, or national banking institutions are
authorized or obligated by law or executive order to remain closed in the State
of New York.
h. "CAUSE" shall mean the commission by a director of an act of
fraud or embezzlement against the Corporation or any of its Operating
Subsidiaries or Holdings or a conviction of a felony (or a guilty plea or a plea
of NOLO CONTENDERE related thereto) or the willful disclosure or unauthorized
use of material confidential information of the Corporation or any of its
Operating Subsidiaries or Holdings that is used in competition with the
Corporation or any of its Operating Subsidiaries or Holdings and which
disclosure has a material adverse effect on the Corporation or any of its
Operating subsidiaries or Holdings.
i. "CONTROL EVENT" shall mean an event where a payment default
shall have occurred and be continuing for six (6) months or more on the Senior
Bank Financing, the Subordinated Notes, or any other indebtedness for borrowed
money of at least Thirty Million Dollars ($30,000,000), which default shall not
have been waived or cured within such six (6)-month period. A Control Event
shall be deemed to cease to exist at the conclusion of one payment period after
the curing of the default that triggered the Control Event.
j. "DEMAND REGISTRATION RIGHT" shall mean the right of the
Non-Yamada stockholders and Yamada to have securities of Holdings owned by each
of them registered by Holdings pursuant to the terms of the Stockholders'
Agreement.
k. "DISTRIBUTION AGREEMENT" shall mean that certain
Distributorship Agreement, dated as of October 29, 1985, by and between TRW,
Inc. ("TRW") and Aerotech, the rights and obligations of TRW under which
agreement were assigned to and accepted by a predecessor of Old Argo-Tech with
the consent of
7
<PAGE> 8
Aerotech as of September 25, 1986, which agreement, as so assigned and accepted,
was amended by Rider I thereto executed by the predecessor of Old Argo-Tech on
September 24, 1987 and by Aerotech on January 20, 1988, and was further amended
by Rider II thereto executed by the predecessor of Old Argo-Tech on October 11,
1989 and by Aerotech on October 13, 1989, and was further amended on December
24, 1990, and as such Distributorship Agreement may be amended, modified, and
revised by the parties thereto from time to time and any successor agreement
thereto.
l. "GUARANTY AGREEMENT" shall mean that certain Guaranty
Agreement, dated December 24, 1990, by and between Yamada Corporation or an
Affiliate thereof and Sumitomo Bank, pursuant to which Yamada or an Affiliate
thereof has agreed to guaranty the payment of the Subordinated Notes.
m. "GUARANTY FEE AGREEMENT" shall mean that certain Guaranty Fee
Agreement, dated December 24, 1990, by and between Yamada Corporation and Old
Argo-Tech, pursuant to which Yamada Corporation shall receive a semi-annual fee
for guarantying payment of the Subordinated Notes.
n. "HOLDINGS" means AT Holdings Corporation, a Delaware
corporation.
o. [Intentionally omitted]
p. [Intentionally omitted]
q. "MANAGEMENT STOCKHOLDERS" shall mean those members of the
Management of the Corporation or any of its Subsidiaries whose names appear
under the heading Management Stockholders in Schedule A of the Stockholders'
Agreement, those members of the management of the Corporation who acquire shares
of Class D Common Stock issued pursuant to the Performance Option Plan, and/or
those Persons who have executed such Stockholders' Agreement in the capacity of
a Management Stockholder.
r. [Intentionally omitted]
s. "MERGER AGREEMENT" shall mean that certain
Agreement and Plan of Merger, dated as of August 17, 1990, by and among
Holdings, Vestar/AT Acquisition Corporation, Old Argo-Tech, and the stockholders
of Old Argo-Tech Corporation named therein, as such Agreement and Plan of Merger
was amended as of November 30, 1990.
t. "NON-YAMADA STOCKHOLDERS" shall mean the Management
Stockholders, the Outside Directors, and the Trustee.
u. "OUTSIDE DIRECTORS" shall mean those persons whose names appear
under the heading Outside Directors in Schedule A to the Stockholders' Agreement
and/or who have
8
<PAGE> 9
otherwise executed the Stockholders' Agreement in the capacity of an Outside
Director.
v. "PERSON" shall mean any individual, corporation, partnership,
joint venture, trust, association, joint-stock company, unincorporated
association or organization or government (or any department, agency, or
political subdivision thereof), or any other entity.
w. "PERFORMANCE OPTION PLAN" shall mean the Performance Stock
Option Plan authorizing the issuance of not more than 34,450 shares of Class D
Common Stock approved by the Board of Directors of Holdings by written consent
dated November 10, 1991 and the stockholders of Holdings by written consent
dated November 10, 1991, as the same may be amended from time to time in
accordance with its terms.
x. "POST-DEFAULT CONTRIBUTION" shall mean an event where a payment
default has occurred and is continuing for thirty (30) days on the Senior Bank
Financing, the Senior Subordinated Notes or any other indebtedness for borrowed
money of at least Thirty Million Dollars ($30,000,000), which event shall not
have been waived or cured within such thirty (30)-day period, where Yamada
Corporation, ATLLC or any Affiliate thereof elects to, and does, make a
contribution of funds to the Corporation or its corporate parent for the purpose
of curing such default.
y. "PRE-CONTROL EVENT CONTRIBUTION" shall mean an event where
Yamada Corporation, ATLLC or any Affiliate thereof, at the request of the Board
of Directors of the Corporation, makes a contribution of funds to the
Corporation or its corporate parent for the purpose of preventing a Control
Event or a Post-Default Contribution.
z. [intentionally omitted]
aa. "PUBLIC OFFERING" means a public offering of securities of
Holdings pursuant to any effective registration statement filed on Form S-1 or
any other form for the general registration of securities with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended
(other than a registration statement on Form S-4 or Form S-8, or any other
similar form or successor form thereto).
ab. "SENIOR BANK FINANCING" shall mean the revolving credit loan
and the term loan to Old Argo-Tech provided by Sumitomo Bank pursuant to that
certain Loan Agreement, dated December 24, 1990, by and between Old Argo-Tech
and Sumitomo Bank, among others, as such Loan Agreement may be amended, revised,
and modified by the parties thereto from time to time, and any refunding or
refinancings thereof. The Loan Agreement was modified by the Sumitomo Consent
dated ____________, 1997 to,
9
<PAGE> 10
among other things, replace Old Argo-Tech as the Borrower thereunder with
Argo-Tech.
ac. "SUBORDINATED NOTES" shall mean the Subordinated Notes of Old
Argo-Tech in the aggregate principal amount of $50,000,000 due October 28, 2000,
issued and sold to Sumitomo Bank pursuant to that certain Subordinated Loan
Agreement, dated December 24, 1990, by and between, among others, Old Argo-Tech
and Sumitomo Bank. Pursuant to the Sumitomo Consent, the Corporation became the
obligor thereunder effective ________________, 1997.
ad. [intentionally omitted]
ae. "STOCKHOLDERS" shall mean the stockholder(s) of the
Corporation.
af. "STOCKHOLDERS' AGREEMENT" shall mean that certain
Stockholders' Agreement by and among Holdings, the Corporation, ATLLC, Yamada,
Yamada Corporation, Sunhorizon, the Management stockholders, and the Outside
Directors, as in effect on or as of the effective date hereof.
ag. "SUMITOMO BANK" shall mean Sumitomo Bank Limited, New York
Branch.
ah. "SUMITOMO CAPITAL" shall mean Sumitomo Bank Capital Markets,
Inc., a Delaware corporation.
ai. "SUNHORIZON" means Sunhorizon International, Inc., a
California corporation.
aj. "SUPPLEMENTAL DISTRIBUTION PERFORMANCE AGREEMENT" shall mean
that certain Supplemental Distribution Performance Agreement, dated December 24,
1990, by and among Yamada Corporation, Yamada, Old Argo-Tech, Aerotech, and
Vestar.
ak. "TRUSTEE" shall mean Key Trust Company of Ohio, N.A. (formerly
known as Society National Bank), a national banking association in its capacity
as Trustee under the Argo- Tech Corporation Employee Stock Ownership Plan and
Trust, or any successor trustee thereunder.
al. "VESTAR" shall mean Vestar Capital Partners, Inc., a Delaware
corporation.
am. "YAMADA" shall mean YC International Inc., a California
corporation.
an. "YAMADA CORPORATION" shall mean Yamada Corporation, a Japanese
corporation.
ao. "YAMADA DISTRIBUTORSHIP AGREEMENT" means that certain
Distributorship Agreement, dated December 24, 1990, by
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and among Old Argo-Tech, Yamada Corporation, the Vestar Investment Partnership
(for certain purposes only), and Vestar, whereby Yamada Corporation will, in
November 1994, become a distributor of certain products manufactured by Borrower
and its Subsidiaries.
ap. "YAMADA-JAPAN DISTRIBUTORSHIP AGREEMENT" means that certain
Japan Distributorship Agreement, dated December 24, 1990, by and between Old
Argo-Tech and the other party signatory to such Agreement.
ARTICLE V
AUTHORITY OF BOARD OF DIRECTORS
-------------------------------
1. In furtherance and not in limitation of the powers conferred by
statute, but subject to the provisions of Paragraph 2 of this Article V, the
Board of Directors is expressly authorized to (a) make, adopt, alter, amend, or
repeal the By-Laws of the Corporation, and (b) adopt from time to time By-Law
provisions with respect to indemnification of directors, officers, employees,
agents, and other persons as it shall deem expedient and in the best interests
of the Corporation and to the extent permitted by law.
2. a. Notwithstanding any other provision in this Restated
Certificate of Incorporation, the By-Laws of the Corporation, or the Restated
Certificate of Incorporation of Holdings to the contrary, in addition to the
parties who may, pursuant to the By-Laws of the Corporation, call a special
meeting of the stockholders of the Corporation, or who may have such a special
meeting of stockholders called upon their request, the right, power, and
authority of Holdings (as sole stockholder of the Corporation) to have a special
meeting of stockholders called upon its request pursuant to the terms of the
By-Laws of the Corporation shall also be vested in the directors of Holdings who
shall, for the purpose of electing and removing directors of the Board of
Directors of the Corporation only, have the authority to request that a special
meeting of stockholders be called for the purpose of electing and removing
directors of the Board of Directors of the Corporation. The President or
Secretary of the Corporation shall, at the written request of a majority of the
directors of Holdings, call such special meeting subject to any other applicable
provisions of the By-Laws of the Corporation.
b. Notwithstanding any other provision in this Restated
Certificate of Incorporation, the By-Laws of the Corporation, or the Restated
Certificate of Incorporation or the Restated By-Laws of Holdings to the
contrary, none of the Board of Directors of the Corporation, any officer or
other Person purporting to act on behalf of the Corporation, or the stockholders
shall approve, be authorized to approve, or be
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deemed to have approved the alteration, amendment, repeal, or modification in
any manner (i) any provision of this Restated Certificate of Incorporation or
the By-Laws of the Corporation relating to (x) who is entitled to call a special
meeting of the stockholders of the Corporation or have such a special meeting
called upon request, or (y) the notice provisions for calling a special meeting,
or (ii) Paragraph 2.a. or this Paragraph 2.b. of this Article V, unless any such
action to so alter, amend, repeal, or otherwise modify this Restated Certificate
of Incorporation or the By-Laws of the Corporation, Paragraph 2.a. or Paragraph
2.b. has been approved by the affirmative vote of not less than eighty percent
(80%) of the directors of Holdings then serving.
ARTICLE VI
ELECTIONS OF DIRECTORS
----------------------
Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
ARTICLE VII
AUTHORITY TO AMEND CERTIFICATE
------------------------------
Subject to any limitations contained in this Restated Certificate
of Incorporation, the Corporation reserves the right to amend, alter, change, or
repeat any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by Statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
ARTICLE VIII
LIABILITY OF DIRECTORS
----------------------
1. The liability of the Corporation's directors to the Corporation
or its stockholders shall be eliminated to the full extent permitted by the
General Corporation Law of the State of Delaware (including, without limitation,
Section 102(b)(7) thereof), as amended from time to time.
2. The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Delaware (including, without limitation,
Section 145 thereof), as the same may be amended from time to time, indemnify
any promoter, director, or officer whom it shall have power to indemnify from
and against any and all of the expenses, liabilities, or other loss of any
nature, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of
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stockholders or disinterested directors, or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be promoter,
director, or officer and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
The Corporation has caused this Restated Certificate of
Incorporation to be signed on its behalf by Michael S. Lipscomb, its President,
and attested to by Paul R. Keen, its Secretary, as of this ____ day of July,
1997.
-----------------------------
Michael S. Lipscomb
President
Attest:
- -----------------------------
Paul R. Keen
Secretary
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<PAGE> 1
Exhibit 3.2(ii)
ARGO-HOLDINGS, INC.
------
BY-LAWS
------
ARTICLE I
OFFICES
-------
Section 1.01. REGISTERED OFFICE. The registered office of
Argo-Holdings, Inc. (hereinafter referred to as the "Corporation") shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 1.02. ADDITIONAL OFFICES. The Corporation may also have offices
at such other places, both within and without the State of Delaware, as the
Board of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.01. TIME AND PLACE. All meetings of stockholders for the
election of Directors shall be held at such time and place, either within or
without the State of Delaware, as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting. Meetings of stockholders for any other purpose
may be held at such time and place either within or without the State of
Delaware as shall be stated in the notice of the meeting or in a duly executed
waiver of notice of the meeting.
Section 2.02. ANNUAL MEETING. Annual meetings of stockholders shall be
held for the purpose of electing a Board of Directors and transacting such other
business as may properly be brought before the meeting.
Section 2.03. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting, stating the place, date and time of such annual meeting, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10)
(unless a longer period is required by law) nor more than fifty (50) days prior
to the meeting.
<PAGE> 2
Section 2.04. SPECIAL MEETING. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation may be called by the Chairman of the Board, if any,
or, if the Chairman is not present (or, if there is none), by the President and
shall be called by the President or Secretary at the request in writing a
majority of the Board of Directors, or at the request in writing of the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at such meeting. Such request shall
state the purpose or purposes of the proposed meeting. The person calling such
meeting shall cause notice of the meeting to be given in accordance with the
provisions of Section 2.05 of this Article II and of Article V.
Section 2.05. NOTICE OF SPECIAL MEETING. Written notice of special
meeting, stating the place, date and time of such special meeting and the
purpose or purposes for which the meeting is called, shall be delivered either
personally or mailed to the last known address to each stockholder not less than
ten (10) (unless a longer period is required by law) nor more than fifty (50)
days prior to the meeting.
Section 2.06. LIST OF STOCKHOLDERS. The Officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
ten (10) days prior to every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting, at
a place within the city where the meeting is to be held. Such place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting and may be inspected by any stockholder who
is present.
Section 2.07. PRESIDING OFFICER. Meetings of stockholder shall be
presided over by the Chairman of the Board, if any, or if the Chairman is not
present (or if there is none), by the President, or, if the President is not
present, by a Vice President, or, if a Vice President is not present, by such
person who may have been chosen by the Board of Directors, or, if none of such
persons is present, by a Chairman to be chosen by the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy. The Secretary of the Corporation, or, if the Secretary is
not present, an Assistant Secretary, or, if an Assistant Secretary is not
present, such person as may be chosen by the Board of Directors, shall act as
secretary of meetings of
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<PAGE> 3
stockholders, or, if none of such persons is present, the stockholders owning a
majority of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy shall choose any person present to act as secretary of the
meeting.
Section 2.08. QUORUM AND ADJOURNMENTS. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at stockholders meetings, present in person or represented by proxy,
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. The stockholders present in
person or represented by proxy at a duly organized meeting may continue to do
business until final adjournment of such meeting whether on the same day or on a
later day, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. If a meeting cannot be organized because a quorum has not
attended, those present in person or represented by proxy may adjourn the
meeting from time to time, until a quorum shall be present or represented.
Notice of the adjourned meeting need not be given if the time and place of the
adjourned meeting are announced at the meeting at which the adjournment is
taken. Even if a quorum shall be present or represented at any meeting of the
stockholders, the stockholders entitled to vote at such meeting, present in
person or represented by proxy, may adjourn the meeting from time to time
without notice of the adjourned meeting if the time and place of the adjourned
meeting are announced at the meeting at which the adjournment is taken, until a
date which is not more than thirty (30) days after the date of the original
meeting. At any adjourned meeting at which a quorum is present in person or
represented by proxy and business may be transacted which might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at such meeting.
Section 2.09. VOTING. (a) At any meeting of stockholders, every
stockholder having the right to vote shall be entitled to vote in person or by
proxy, but no such proxy shall be voted or acted upon after three (3) years from
its date, unless the proxy provides for a longer period. Except as otherwise
provided by law or the Certificate of Incorporation, each stockholder of record
shall be entitled to one (1) vote for each share of capital stock registered in
his, her, or its name on the books of the Corporation.
(b) At a meeting at which a quorum is present, all elections of
Directors shall be determined as provided in the Certificate of Incorporation,
and, except as otherwise provided by law or the Certificate of Incorporation,
all other matters
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<PAGE> 4
shall be determined by a vote of a majority of the shares present in person or
represented by proxy and voting on such other matters.
Section 2.10. CONSENT. Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted by law or the Certificate of
Incorporation to be taken at any meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a written
consent, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present or represented by proxy and voted.
Such written consent shall be filed with the minutes of meetings of
stockholders. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not so consented in writing.
ARTICLE III
DIRECTORS
---------
Section 3.01. NUMBER AND TENURE. There shall be such number of
Directors, not less than one (1), as shall be specified in the Certificate of
Incorporation. Except for initial directors named in the Corporation's
Certificate of Incorporation or elected by the incorporator, and except as
provided in Section 3.02 of this Article, the Directors shall be elected at the
annual meeting of the stockholders, or at any special meeting of stockholders
called for such purpose, and each Director elected shall hold office until his
successor is elected and shall qualify. Directors need not be stockholders.
Section 3.02. VACANCIES. Any Director of the Corporation may be removed
with or without cause. Each Director chosen to fill a vacancy shall hold office
until the next annual election of Directors and until his successor is duly
elected and shall qualify. If there are no directors in office, any Officer or
stockholder may call a special meeting of stockholders in accordance with the
provisions of these By-laws, at which meeting such vacancies shall be filled.
Section 3.03. RESIGNATION. Any Director may resign at any time by
giving written notice to the Chairman of the Board, the President or the
Secretary of the Corporation, or, in the absence of all of the foregoing, by
notice to any other director or officer of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect upon delivery
to the designated director or officer. It shall not become necessary for a
resignation to be accepted before it becomes effective.
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<PAGE> 5
Section 3.04. PLACE OF MEETINGS. The Board of Directors may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.05. ANNUAL MEETING. Unless otherwise agreed by the newly
elected Directors, the annual meeting of each newly elected Board of Directors
shall be held immediately following the annual meeting of stockholders, and no
notice of such meeting to either incumbent or newly elected Directors shall be
necessary.
Section 3.06. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice, at such time and place as may from time to
time be determined by the Board of Directors.
Section 3.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on four
(4) hours' notice to each Director, if such notice is delivered personally or
sent by telegram or telefax, or on five (5) days' notice if sent by mail.
Special meetings shall be called by the Chairman of the Board or the President
in like manner and on like notice on the written request of one-half or more of
the number of Directors then in office. The purpose of the special meeting of
the Board of Directors need not be stated in the notice of such meeting.
Section 3.08. QUORUM AND ADJOURNMENTS. Unless otherwise provided by the
Certificate of Incorporation, at all meetings of the Board of Directors,
one-half of the total number of Directors shall constitute a quorum for the
transaction of business; provided, however, that when the board consists of one
(1) Director, then one (1) Director shall constitute a quorum. If a quorum is
not present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting, from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 3.09. PRESIDING OFFICER. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or if the Chairman
is not present (or if there is none), by the President, or, if the President is
not present, by such person as the board may appoint for the purpose of
presiding at the meeting from which the President is absent.
Section 3.10. ACTION BY CONSENT. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee. Such consent shall
have the same force and effect as the unanimous vote of the Board of Directors.
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<PAGE> 6
Section 3.11. TELEPHONE MEETINGS. Members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.12. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of personal
interest of any Director, shall have the authority to establish reasonable
compensation for directors and may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
COMMITTEES
----------
Section 4.01. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one (1) or more
committees, each committee to consist of one (1) or more Directors of the
Corporation. The Board of Directors may designate one (1) or more persons who
are not Directors as additional members of any committee, but such persons shall
be non-voting members of such committee. The Board of Directors may designate
one (1) or more Directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee. In the
absence or disqualification of a member of a committee, the member or members of
the committee present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Such committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board of Directors.
Section 4.02. MINUTES OF COMMITTEE MEETINGS. Unless otherwise provided
in the resolution of the Board of Directors establishing such committee, each
committee shall keep minutes of action taken by it and file the same with the
Secretary of the Corporation.
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Section 4.03. QUORUM. One-half of the number of Directors constituting
any committee shall constitute a quorum for the transaction of business, and the
affirmative vote of such Directors present at the meeting shall be required for
any action of the committee; provided, however, that, when a committee of one
(1) member is authorized under the provisions of Section 4.01 of this Article,
such one (1) member shall constitute a quorum.
Section 4.04. VACANCIES, CHANGES, AND DISCHARGE. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of, and to discharge any committee.
Section 4.05. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of the
personal interest of any director, shall have authority to establish reasonable
compensation for committee members for their services as such and may, in
addition, authorize reimbursement of any reasonable expenses incurred by
committee members in connection with their duties.
ARTICLE V
NOTICES
-------
Section 5.01. FORM AND DELIVERY. (a) Whenever, under the provisions of
law, the Certificate of Incorporation or these By-laws, notice is required to be
given to any stockholder, it shall not be construed to mean personal notice
unless otherwise specifically provided, but such notice may be given in writing,
by mail, telecopy, telegram or messenger addressed to such stockholder, at his
address as it appears on the records of the Corporation. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, with
postage prepaid.
(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these By-laws, notice is required to be given to any director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such director at the usual place of residence or
business of such director as in the discretion of the person giving such notice
will be likely to be received most expeditiously by director. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
with postage prepaid. Notice to a director may also be given personally or be
sent to such address.
Section 5.02. WAIVER. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these By-laws, a
written waiver of notice, signed by the person or persons entitled to said
notice, whether
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before or after the time for the meeting stated in such notice, shall be deemed
equivalent to such notice.
ARTICLE VI
OFFICERS
--------
Section 6.01. DESIGNATIONS. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President and a Secretary. The
Board of Directors may also choose a Chairman of the Board, one (1) or more Vice
Presidents, a Treasurer, one (1) or more Assistant Secretaries and one (1) or
more Assistant Treasurers and other officers and agents as it shall deem
necessary or appropriate. Any officer of the Corporation shall have the
authority to affix the seal of the Corporation and to attest the affixing of the
seal by his signature. All officers and agents of the Corporation shall exercise
such powers and perform such duties as shall from time to time be determined by
the Board of Directors.
Section 6.02. TERM OF OFFICE AND REMOVAL. The Board of directors at its
annual meeting after each annual meeting of stockholders or at a meeting called
for that purpose shall choose Officers and agents, if any, in accordance with
the provisions of Section 6.01. Each Officer of the Corporation shall hold
office until his successor is elected and shall qualify. Any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of a majority of the Directors then
in office. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of directors.
Section 6.03. COMPENSATION. The salaries of all officers and agents, if
any, of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer or agent, shall be prevented from receiving such
salary by reason of the fact that he is also a director of the Corporation.
Section 6.04. THE CHAIRMAN OF THE BOARD AND THE PRESIDENT. The Chairman
of the Board shall be the chief executive officer of the Corporation. If there
is no Chairman of the Board, the President shall be the chief executive officer
of the Corporation. The duties of the Chairman of the Board, and of the
President at the direction of the Chairman of the Board, shall be the following:
(i) Subject to the direction of the Board of Directors, to
have general charge of the business, affairs and property of the
Corporation and general supervision over its other officers and agents
and, in general, to perform all duties incident to the office of
Chairman of the Board (or President, as the case may be) and to see
that all
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orders and resolutions of the Board of Directors are carried into
effect.
(ii) Unless otherwise prescribed in the Certificate of
Incorporation of the Corporation or by the Board of Directors, to have
full power and authority on behalf of the Corporation to attend, act
and vote at any meeting of security holders of other Corporations in
which the Corporation may hold securities. At such meeting the Chairman
of the Board (or the President, as the case may be) shall possess and
may exercise any and all rights and powers incident to the ownership of
such securities which the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time
to time confer like powers upon any other person or persons.
(iii) To preside over meetings of the stockholders and of the
Board of Directors, to call special meetings of stockholders, to be an
ex-officio member of all committees of the Board, and to have such
other duties as may from time to time be prescribed by the Board of
Directors.
Section 6.05. THE VICE PRESIDENT. The Vice President, if any (or in the
event there be more than one (1), the Vice Presidents in the order designated,
or in the absence of any designation, in the order of their election), shall, in
the absence of the President or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the President and shall generally
assist the President and perform such other duties and have such other powers as
may from time to time be prescribed by the Board of Directors.
Section 6.06. THE SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for any committees of the Board of Directors, if requested
by such committee. He shall give, or cause to be given, notice of all meetings
of stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may from time to time be prescribed by the Board of
Directors or the President, under whose supervision he shall act. He shall have
custody of the seal of the Corporation, and he, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and, when so
affixed, the seal may be attested by his signature or by the signature of such
Assistant Secretary.
Section 6.07. THE ASSISTANT SECRETARY. The Assistant Secretary, if any
(or in the event there be more than one (1), the Assistant Secretaries in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the
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powers of the Secretary and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors.
Section 6.08. THE TREASURER. The Treasurer, if any, shall have the
custody of the corporate funds and other valuable effects, including securities,
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may from time to time be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursement, and shall render to the President and the
Board of Directors, at regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the Corporation.
Section 6.09. THE ASSISTANT TREASURER. The Assistant Treasurer, if any,
(or in the event there be more than one (1), the Assistant Treasurers in the
order designated, or in the absence of any designation, in the order of their
election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 6.10. CHAIRMAN OF THE BOARD. If a Chairman of the Board shall
be elected by the Board of Directors, the Chairman of the Board shall preside
over meetings of the stockholders and of the Board of Directors, shall call
special meetings of stockholders, shall be an ex-officio member of all
committees of the board, and shall have such other duties as may from time to
time be prescribed by the Board of Directors or the President. In the absence of
a Chairman of the Board, the above described duties shall be carried out by the
President.
Section 6.11. TRANSFER OF AUTHORITY. In case of the absence of any
officer or for any other reason that the Board of Directors deems sufficient,
the Board of Directors may transfer the powers or duties of that officer to any
other officer or to any director or employee of the Corporation, provided a
majority of the full Board of Directors concurs.
ARTICLE VII
STOCK CERTIFICATES
------------------
Section 7.01. FORM AND SIGNATURES. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board, the President or a Vice President
and the Treasurer,
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an Assistant Treasurer, the Secretary or an Assistant Secretary of the
Corporation, certifying the number and class (and series, if any) of shares
owned by him, and bearing the seal of the Corporation. Such seal and any or all
of the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed, or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Section 7.02. REGISTRATION OF TRANSFER. Upon surrender to the
Corporation or any transfer agent of the Corporation of a certificate for shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 7.03. REGISTERED STOCKHOLDERS. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person who is registered on its books as the owner of shares of its capital
stock to receive dividends or other distributions, to vote as such owner, and to
hold liable for calls and assessments a person who is registered on its books as
the owner of shares of its capital stock. The Corporation shall not be bound to
recognize any equitable, legal, or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
Section 7.04. ISSUANCE OF CERTIFICATE. No certificate shall be issued
for any share until (i) consideration for such share in the form of cash,
service rendered, personal or real property, leases of real property or a
combination thereof in an amount not less than the par value or stated capital
of such share has been received by the Corporation and (ii) the Corporation has
received a binding obligation of the subscriber or purchaser to pay the balance
of the subscription or purchase price.
Section 7.05. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen, or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and to give the
11
<PAGE> 12
Corporation a bond in such sum, or other security in such form as it may direct,
as indemnity against any claim that may be made against the Corporation on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.01. DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS. (a) The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or arbitrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, except in
such cases as involve gross negligence or willful misconduct.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or
12
<PAGE> 13
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article.
ARTICLE IX
GENERAL PROVISIONS
------------------
Section 9.01. FISCAL YEAR. The fiscal year of the Corporation shall be
as determined from time to time by the Board of Directors.
Section 9.02. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware." The seal or any facsimile thereof may be, but need not be,
unless required by law, impressed or affixed to any instrument executed by an
officer of the Corporation.
ARTICLE X
AMENDMENTS
----------
Section 10.01. Subject to any limitations contained in the Certificate
of Incorporation, these By-laws may be altered, amended or repealed or new
By-laws may be adopted by the stockholders or by the Board of Directors, to the
extent that such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such proposed alteration, amendment, repeal or
adoption of new By-laws be contained in the notice of such special meeting.
13
<PAGE> 1
Exhibit 4.1
================================================================================
ARGO-TECH CORPORATION
8 5/8% Senior Subordinated Notes due 2007
-----------------------------
INDENTURE
Dated as of September 26, 1997
-----------------------------
HARRIS TRUST AND SAVINGS BANK,
Trustee
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.............................................. 1
SECTION 1.02. Other Definitions........................................ 23
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act......................................... 23
SECTION 1.04. Rules of Construction.................................... 24
ARTICLE 2
The Securities
--------------
SECTION 2.01. Form and Dating.......................................... 24
SECTION 2.02. Execution and Authentication............................. 26
SECTION 2.03. Registrar and Paying Agent............................... 27
SECTION 2.04. Paying Agent to Hold Money in Trust...................... 28
SECTION 2.05. Securityholder Lists..................................... 28
SECTION 2.06. Transfer and Exchange.................................... 29
SECTION 2.07. Replacement Securities................................... 30
SECTION 2.08. Outstanding Securities................................... 30
SECTION 2.09. Temporary Securities..................................... 31
SECTION 2.10. Cancelation.............................................. 31
SECTION 2.11. Defaulted Interest....................................... 31
SECTION 2.12. CUSIP Numbers............................................ 32
SECTION 2.13. Book-Entry Provisions for U.S. Global
Security............................................... 32
SECTION 2.14. Special Transfer Provisions.............................. 34
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee....................................... 39
SECTION 3.02. Selection of Securities
To Be Redeemed......................................... 39
SECTION 3.03. Notice of Redemption..................................... 40
SECTION 3.04. Effect of Notice of Redemption........................... 41
SECTION 3.05. Deposit of Redemption Price.............................. 41
<PAGE> 3
SECTION 3.06. Securities Redeemed in Part.............................. 41
SECTION 3.07. Optional Redemption...................................... 41
SECTION 3.08. No Sinking Fund.......................................... 42
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities.................................... 42
SECTION 4.02. SEC Reports.............................................. 43
SECTION 4.03. Limitation on Indebtedness............................... 43
SECTION 4.04. Limitation on Restricted Payments........................ 46
SECTION 4.05. Limitation on Restrictions on
Distributions from Subsidiaries........................ 49
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock....................................... 51
SECTION 4.07. Limitation on Transactions with
Affiliates............................................. 54
SECTION 4.08. Change of Control........................................ 55
SECTION 4.09. Compliance Certificate................................... 57
SECTION 4.10. Further Instruments and Acts............................. 57
SECTION 4.11. Future Note Guarantors................................... 57
SECTION 4.12. Limitation on Lines of Business.......................... 57
SECTION 4.13. Limitation on Sale/Leaseback
Transactions........................................... 57
SECTION 4.14. Limitation on the Sale or Issuance of
Capital Stock or Restricted
Subsidiaries........................................... 58
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer
Assets................................................. 58
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default........................................ 59
SECTION 6.02. Acceleration............................................. 62
SECTION 6.03. Other Remedies........................................... 62
SECTION 6.04. Waiver of Past Defaults.................................. 62
SECTION 6.05. Control by Majority...................................... 63
SECTION 6.06. Limitation on Suits...................................... 63
<PAGE> 4
SECTION 6.07. Rights of Holders to
Receive Payment........................................ 63
SECTION 6.08. Collection Suit by Trustee............................... 64
SECTION 6.09. Trustee May File Proofs of Claim......................... 64
SECTION 6.10. Priorities............................................... 64
SECTION 6.11. Undertaking for Costs.................................... 65
SECTION 6.12. Waiver of Stay or Extension Laws......................... 65
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee........................................ 65
SECTION 7.02. Rights of Trustee........................................ 67
SECTION 7.03. Individual Rights of Trustee............................. 68
SECTION 7.04. Trustee's Disclaimer..................................... 68
SECTION 7.05. Notice of Defaults....................................... 68
SECTION 7.06. Reports by Trustee to Holders............................ 68
SECTION 7.07. Compensation and Indemnity............................... 68
SECTION 7.08. Replacement of Trustee................................... 69
SECTION 7.09. Successor Trustee by Merger.............................. 70
SECTION 7.10. Eligibility; Disqualification............................ 71
SECTION 7.11. Preferential Collection of Claims
Against Company ....................................... 71
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities;
Defeasance............................................. 71
SECTION 8.02. Conditions to Defeasance................................. 72
SECTION 8.03. Application of Trust Money............................... 74
SECTION 8.04. Repayment to Company..................................... 74
SECTION 8.05. Indemnity for Government
Obligations............................................ 74
SECTION 8.06. Reinstatement............................................ 74
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders............................... 75
SECTION 9.02. With Consent of Holders.................................. 76
SECTION 9.03. Compliance with Trust Indenture Act...................... 77
SECTION 9.04. Revocation and Effect of Consents and
Waivers................................................ 77
SECTION 9.05. Notation on or Exchange
of Securities.......................................... 78
<PAGE> 5
SECTION 9.06. Trustee to Sign Amendments............................... 78
SECTION 9.07. Payment for Consent...................................... 78
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate................................ 78
SECTION 10.02. Liquidation, Dissolution, Bankruptcy.................... 79
SECTION 10.03. Default on Senior Indebtedness.......................... 79
SECTION 10.04. Acceleration of Payment of Securities................... 81
SECTION 10.05. When Distribution Must Be Paid Over..................... 81
SECTION 10.06. Subrogation............................................. 81
SECTION 10.07. Relative Rights......................................... 81
SECTION 10.08. Subordination May Not Be Impaired by
Company............................................... 81
SECTION 10.09. Rights of Trustee and Paying Agent...................... 82
SECTION 10.10. Distribution or Notice to
Representative........................................ 82
SECTION 10.11. Article 10 Not To Prevent Events
of Default or Limit
Right To Accelerate................................... 82
SECTION 10.12. Trust Moneys Not Subordinated........................... 82
SECTION 10.13. Trustee Entitled To Rely................................ 83
SECTION 10.14. Trustee to Effectuate Subordination..................... 83
SECTION 10.15. Trustee Not Fiduciary for Holders of
Senior Indebtedness................................... 83
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions............................................ 84
SECTION 10.17. Trustee's Compensation Not Prejudiced................... 84
ARTICLE 11
Subsidiary Guarantees
---------------------
SECTION 11.01. Subsidiary Guarantees................................... 84
SECTION 11.02. Limitation on Liability................................. 86
SECTION 11.03. Successors and Assigns.................................. 87
SECTION 11.04. No Waiver............................................... 87
SECTION 11.05. Modification............................................ 87
ARTICLE 12
Subordination of The Subsidiary Guarantees
------------------------------------------
SECTION 12.01. Agreement to Subordinate................................ 88
SECTION 12.02. Liquidation, Dissolution, Bankruptcy.................... 88
<PAGE> 6
SECTION 12.03. Default on Senior Indebtedness of a
Subsidiary Guarantor.................................. 88
SECTION 12.04. Demand for Payment...................................... 90
SECTION 12.05. When Distribution Must Be Paid Over..................... 90
SECTION 12.06. Subrogation............................................. 90
SECTION 12.07. Relative Rights......................................... 90
SECTION 12.08. Subordination May Note Be Impaired by a
Subsidiary Guarantor ................................. 91
SECTION 12.09. Rights of Trustee and Paying Agent...................... 91
SECTION 12.10. Distribution or Notice
to Representative..................................... 92
SECTION 12.11. Article 12 Not to Prevent Events of
Default or Limit Right
To Accelerate......................................... 92
SECTION 12.12. Trustee Entitled to Rely................................ 92
SECTION 12.13. Trustee To Effectuate Subordination..................... 92
SECTION 12.14. Trustee Not Fiduciary for Holders of
Senior Indebtedness of a Subsidiary
Guarantor............................................. 93
SECTION 12.15. Reliance by Holders of Senior
Indebtedness of a Subsidiary Guarantor
on Subordination Provisions........................... 93
ARTICLE 13
Miscellaneous
-------------
SECTION 13.01. Trust Indenture Act Controls............................ 93
SECTION 13.02. Notices................................................. 94
SECTION 13.03. Communication by Holders with Other
Holders............................................... 94
SECTION 13.04. Certificate and Opinion as to Conditions
Precedent............................................. 94
SECTION 13.05. Statements Required in Certificate or
Opinion............................................... 95
SECTION 13.06. When Securities Disregarded............................. 95
SECTION 13.07. Rules by Trustee, Paying Agent and
Registrar............................................. 96
SECTION 13.08. Legal Holidays.......................................... 96
SECTION 13.09. Governing Law........................................... 96
SECTION 13.10. No Recourse Against Others.............................. 96
SECTION 13.11. Successors.............................................. 96
SECTION 13.12. Multiple Originals...................................... 96
SECTION 13.13. Table of Contents; Headings............................. 96
Exhibit A - Form of Initial Security
Exhibit B - Form of Exchange Security
Exhibit C - Form of Certificate to be Delivered in
Connection with Transfers to Non-QIB
Institutional Accredited Investors
Exhibit D - Form of Certificate to be Delivered Upon
Termination of Restricted Period
<PAGE> 7
Exhibit E - Form of Certificate to be Delivered in
Connection with Transfers Pursuant to
Rule 144A
Exhibit F - Form of Certificate to be Delivered in
Connection with Transfers pursuant to
Regulation S
<PAGE> 8
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
------- -------
310(a)(1) ............................. 7.10
(a)(2) ............................. 7.10
(a)(3) ............................. N.A.
(a)(4) ............................. N.A.
(b) ............................. 7.08; 7.10
(c) ............................. N.A.
311(a) ............................. 7.11
(b) ............................. 7.11
(c) ............................. N.A.
312(a) ............................. 2.05
(b) ............................. 13.03
(c) ............................. 13.03
313(a) ............................. 7.06
(b)(1) ............................. N.A.
(b)(2) ............................. 7.06
(c) ............................. 13.02
(d) ............................. 7.06
314(a) ............................. 4.02; 4.12;
11.02
(b) ............................. N.A.
(c)(1) ............................. 13.04
(c)(2) ............................. 13.04
(c)(3) ............................. N.A.
(d) ............................. N.A.
(e) ............................. 13.05
(f) ............................. 4.12
315(a) ............................. 7.01
(b) ............................. 7.05; 13.02
(c) ............................. 7.01
(d) ............................. 7.01
(e) ............................. 6.11
316(a)(last
sentence) ............................. 13.06
6.05
(a)(1)(A) ............................. 6.04
(a)(1)(B)
(a)(2) ............................. N.A.
(b) ............................. 6.07
317(a)(1) ............................. 6.08
(a)(2) ............................. 6.09
(b) ............................. 2.04
318(a) ............................. 13.01
<PAGE> 9
N.A. means Not Applicable.
- ---------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 10
INDENTURE dated as of September 26, 1997,
among ARGO-TECH CORPORATION, a Delaware corporation
(the "Company"), ARGO-TECH CORPORATION (HBP), a
Delaware corporation, ARGO-TECH CORPORATION (OEM), a
Delaware corporation, ARGO-TECH CORPORATION
(AFTERMARKET), a Delaware corporation, and J.C.
CARTER COMPANY, INC., a California corporation
(collectively, the "Subsidiary Guarantors") and
HARRIS TRUST AND SAVINGS BANK, a banking corporation
organized under the laws of the State of Illinois
(the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of the Company's
8-5/8% Senior Subordinated Notes due 2007 (the "Initial Securities") and, if and
when issued as provided in the Exchange and Registration Rights Agreement of
even date herewith, the Company's 8-5/8% Senior Subordinated Series A Notes due
2007 (the "Exchange Securities", and together with the Initial Securities, the
"Securities").
ARTICLE 1
Definitions and Incorporation By Reference
------------------------------------------
SECTION 1.01. DEFINITIONS.
"Additional Assets" means (i) any tangible property or assets
(other than Indebtedness and Capital Stock) to be used by the Company or a
Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person
that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted Subsidiary
described in clauses (ii) or (iii) above is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the
<PAGE> 11
4
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of Sections 4.06 and 4.07 only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Disposition" means any sale, lease, trans fer or other
disposition of shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares), property or other assets (each referred to for
the purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory in the
ordinary course of business, (iii) dispositions with a fair value of less than
$250,000 in the aggregate in any fiscal year, (iv) an exchange of real estate
for other similar property structured on a tax-free like-kind basis and (v) for
purposes of Section 4.06 only, a disposition subject to Section 4.04.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments (other than rental payments in the
nature of supplemental rent for the lessee's proportional share of taxes,
maintenance and insurance and similar customary payments) during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determina tion, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multi plied by the amount of such payment by (ii) the sum of all
such payments.
"Bank Indebtedness" means any and all amounts payable under or
in respect of the Credit Agreement, the other Senior Credit Documents and any
Refinancing Indebtedness with respect thereto, as amended from time to
<PAGE> 12
5
time, including principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof.
"Board of Directors" means the Board of Directors of Parent or
the Company or any committee thereof duly authorized to act on behalf of such
Board. Unless the context otherwise requires, references to the Board of
Directors are to the Board of Directors of the Company.
"Borrowing Base" means, as of any date, an amount equal to the
sum of (i) 50% of the aggregate book value of inventory (adjusted to include any
LIFO reserves) and (ii) 85% of the aggregate book value of all accounts
receivable (net of bad debt reserves) of the Company and its Restricted
Subsidiaries on a Consolidated basis, as determined in accordance with GAAP
consistently applied. To the extent that information is not available as to the
amount of inventory or accounts receivable as of a specific date, the Company
shall use the most recent available information for purposes of calculating the
Borrowing Base.
"Business Day" means a day other than a Saturday, Sunday or
other day on which banking institutions in New York State are authorized or
required by law to close.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP; and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease.
"Change of Control" means the occurrence of any of the
following events:
<PAGE> 13
6
(i) prior to the earlier to occur of the first public offering
of Voting Stock of Parent or the Company, the Permitted Holders cease
to be the "benefi cial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of a majority in the
aggregate of the total voting power of the Voting Stock of the Company
or Parent, whether as a result of issuance of securities of the Company
or Parent, as the case may be, any merger, consolidation, liquidation
or dissolution of the Company or Parent as the case may be, any direct
or indirect transfer of securities by any Permitted Holder or otherwise
(for purposes of this clause (i) and clause (ii) below, the Permitted
Holders shall be deemed to own beneficially any Voting Stock of an
entity (the "specified entity") held by any other entity (the "parent
entity") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent entity);
(ii) (A) any "person" (as such term is used in Sec tions 13(d)
and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (i)
above, except that such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 35% of the total voting
power of the Voting Stock of the Company or Parent, as the case may be
and (B) the Permitted Holders "beneficially own" (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company
or Parent, as the case may be, than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the
Company or Parent, as the case may be (for the purposes of this clause
(ii), such other person shall be deemed to own beneficially any Voting
Stock of a specified corporation held by a parent corporation, if such
other person "beneficially owns" (as defined in this clause (ii)),
directly or indirectly, more than 35% of the voting power of the Voting
Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not have the right
or ability by voting power, contract or otherwise to elect or designate
for election a majority
<PAGE> 14
7
of the board of directors of such parent corporation); or
(iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of
the Company or Parent, as the case may be (together with any new
directors whose election by such Board of Directors or whose nomination
for election by the shareholders of the Company or Parent, as the case
may be, was approved by a vote of 66-2/3% of the directors of the
Company or Parent, as the case may be, then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any
reason to constitute a majority of the Board of Directors of the
Company or Parent, as the case may be, then in office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision contained herein and required by the TIA, each other
obligor on the indenture securities.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days prior to the
date of such determination to (ii) Consolidated Interest Expense for such four
fiscal quarters; PROVIDED, HOWEVER, that (A) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, (B) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition, the EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive) directly attributable to the assets that are the
subject of such Asset Disposition for such period or increased by an amount
equal to the EBITDA (if negative) directly attributable thereto for such period
and Consolidated
<PAGE> 15
8
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (C) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (D) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (B) or (C) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in accordance with GAAP. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term as at the
date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its consolidated Restricted
Subsidiaries, plus, to the extent
<PAGE> 16
9
Incurred by the Company and its Subsidiaries in such period but not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) noncash interest expense, (v) commissions, discounts
and other fees and charges attributable to letters of credit and bankers'
acceptance financing, (vi) interest accruing on any Indebtedness of any other
Person to the extent such Indebtedness is Guaranteed by the Company or any
Restricted Subsidiary; PROVIDED that payment of such amounts by the Company or
any Restricted Subsidiary is being made to, or is sought by, the holders of such
Indebtedness pursuant to such guarantee, (vii) net costs associated with Hedging
Obligations (including amortization of fees), (viii) Preferred Stock dividends
in respect of all Preferred Stock of Subsidiaries of the Company and
Disqualified Stock of the Company held by Persons other than the Company or a
Wholly Owned Subsidiary, and (ix) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust;
PROVIDED, HOWEVER, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its consolidated Subsidiaries; PROVIDED,
HOWEVER, that there shall not be included in such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not
a Restricted Subsidiary, except that (A) subject to the limitations
contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (iii) below) and (B)
the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income;
(ii) any net income (loss) of any person acquired by the
Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition;
<PAGE> 17
10
(iii) any net income (loss) of any Restricted Subsidiary if
such Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except
that (A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend
that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the Company's equity in a
net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other
disposition of any asset of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction)
that is not sold or otherwise disposed of in the ordinary course of
business and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; and
(vi) the cumulative effect of a change in accounting
principles.
Notwithstanding the foregoing, for the purposes of Section 4.04 only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
section pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and the Restricted Subsidiaries, determined
on a Consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus
<PAGE> 18
11
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each
of the Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; PROVIDED, HOWEVER, that "Consolidation" shall not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in a Unrestricted Subsidiary shall
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of July
18, 1997, as amended and restated as of the Issue Date and as thereafter
amended, restated, waived or otherwise modified from time to time, among the
Company, Parent, the financial institutions from time to time party thereto and
The Chase Manhattan Bank, as administrative agent (except to the extent that any
such amendment, waiver or other modification thereto would be prohibited by the
terms of this Indenture, unless otherwise agreed to by the Holders of at least a
majority in aggregate principal amount of the Securities at the time
outstanding).
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Definitive Securities" means Securities that are in the form
of Exhibit A or Exhibit B attached hereto that do not include the Global
Security Legend thereof.
"Depository" means, with respect to the Securities issuable or
issued in whole or in part in global form, the person specified in Section 2.03
as the Depository with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depository" shall mean or include such successor.
"Designated Senior Indebtedness" means (i) the Bank
Indebtedness and (ii) any other Senior Indebtedness that, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof, are committed to lend up to,
at least $25,000,000 and is specifically designated by the Company in the
instrument evidencing or governing
<PAGE> 19
12
such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of
this Indenture.
"Disqualified Stock" means, with respect to any Person, 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 or exercisable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Securities.
"Domestic Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for
such period (adjusted to exclude any non-cash items attributable to purchase
accounting for any acquisition transactions consummated subsequent to the Issue
Date), plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense and (v) all
extraordinary charges and non-cash charges associated with ESOP compensation and
Management Put Options, in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Subsidiary or
its stockholders.
"ESOP" means the employee stock ownership plan created
pursuant to the terms of the Argo-Tech Corporation Employee Stock Ownership Plan
and Trust Agreement, dated May 17, 1994, as amended from time to time, between
the Company and Society National Bank in its capacity as ESOP
Trustee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 20
13
"Exchange and Registration Rights Agreement" means the
Exchange and Registration Rights Agreement dated as of the Issue Date, by and
among the Initial Purchaser, the Company and the Subsidiary Guarantors, as such
agreement may be amended, modified, or supplemented from time to time in
accordance with the terms thereof.
"Exchange Securities" means the 8-5/8% Senior Subordinated
Series A Notes due 2007 to be issued pursuant to this Indenture in connection
with the offer to exchange Securities for the Initial Securities that may be
made by the Company pursuant to the Exchange and Registration Rights Agreement.
"Existing Agreements" means the Distributorship Agreement
(1994) dated as of December 24, 1990, among the Company, Yamada Corporation and
Venture Capital Partners, Inc. and the Japan Distributorship Agreement dated as
of December 24, 1990, between the Company and Upsilon International Corporation,
in each case as in effect on the Issue Date.
"Foreign Subsidiary means any Restricted Subsidiary of the
Company that is not organized under the laws of the United States of America or
any state thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Issue Date, including those 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 such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
this Indenture shall be computed in conformity with GAAP.
"Global Security" means a Security that is in the form of
Exhibit A or Exhibit B hereto that includes the Global Security Legend thereof.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise,
<PAGE> 21
14
of such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); PROVIDED,
HOWEVER, that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Indenture" means this Indenture as amended or
supplemented from time to time.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person on any date
of determination (without duplication),
(i) the principal of and premium (if any) in respect of
indebtedness of such Person for borrowed money;
(ii) the principal of and premium (if any) in respect of
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement
obligations with respect thereto);
(iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services (except Trade Payables),
which purchase price
<PAGE> 22
15
is due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services;
(v) all Capitalized Lease Obligations and all
Attributable Debt of such Person;
(vi) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of the Company, any Preferred
Stock (but excluding, in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed
by such Person; PROVIDED, HOWEVER, that the amount of Indebtedness of
such Person shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such
Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the
extent Guaranteed by such Person; and
(ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Initial Purchaser" means Chase Securities Inc.
"Initial Securities" means the 8-5/8% Senior Subordinated
Notes due 2007, issued under this Indenture on or about the date hereof.
"Interest Rate Agreement" means with respect to any Person any
interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of
<PAGE> 23
16
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and Section 4.04,
(i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Initial Securities
are originally issued.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Management Put Options" means the put option created pursuant
to Article IX of the Stockholders' Agreement.
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received (x) by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
or (y) in the case of REIT Securities, upon the sale, redemption, transfer or
other disposition of such REIT Securities, in each case only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any
<PAGE> 24
17
Indebtedness that is secured by any assets subject to such Asset Disposition, in
accordance with the terms of any Lien upon such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (iv) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two
Officers.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Parent" means AT Holdings Corporation, any successor
corporation and any corporation succeeding to the ownership of the Company.
"Permitted Holders" means (a) Mr. Masashi Yamada and members
of his immediate family, (b) corporations and other entities that are Controlled
by one or more of the persons referred to in clause (a), (c) trusts for the sole
benefit of one or more of the persons referred to in clause (a), (d) the ESOP,
(e) individuals who are members of management of Parent or the Company as of the
Issue Date and (f) any Person acting in the capacity of an underwriting in
connection with a public or private offering of the Company's or Parent's
Capital Stock.
"Permitted Investment" means an Investment by the Company or
any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person that will,
upon the making of such
<PAGE> 25
18
Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary
business of such Restricted Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary and not exceeding
$1,000,000 in the aggregate outstanding at any time; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; and (viii) stock, obligations or securities received
in a transaction permitted under Section 4.06.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
that is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security
plus the premium, if any, payable on the Security that is due or overdue or is
to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company or Parent pursuant to an effective
registration statement under the Securities Act.
<PAGE> 26
19
"Public Market" means any time after (i) a Public Equity
Offering has been consummated and (ii) at least 15% of the total issued and
outstanding common stock of the Company or Parent (as applicable) has been
distributed by means of an effective registration statement under the Securities
Act.
"Purchase Agreement" means the agreement for the purchase of
$140.0 million principal amount of senior subordinated Securities between the
Company and the Initial Purchaser dated September 23, 1997.
"Purchase Date" shall have the meaning set forth in Section
4.06(c).
"Purchase Money Indebtedness" means Indebtedness (i)
consisting of the deferred purchase price of property, conditional sale
obligations, obligations under any title retention agreement and other purchase
money obligations, in each case where the maturity of such Indebtedness does not
exceed the anticipated useful life of the asset being financed, and (ii)
incurred to finance the acquisition by the Company of such asset, including
additions and improvements; provided, however, that any Lien arising in
connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements, the real property on which such asset is attached; and
provided further, that such Indebtedness is Incurred within 180 days after such
acquisition by the Company of such asset.
"Refinancing Indebtedness" means Indebtedness that is Incurred
to refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," and "refinanced"
shall have a correlative meaning) any Indebtedness existing on the date of this
Indenture or Incurred in compliance with this Indenture (including Indebtedness
of the Company that refinances Indebtedness of any Restricted Subsidiary (to the
extent permitted in this Indenture) and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness; PROVIDED,
HOWEVER, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being refinanced, (ii) the
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than (x) the
aggregate
<PAGE> 27
20
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus (y)
the amount of premium or other amounts paid and fees and expenses incurred in
connection with such refinancing and (iv) if the Indebtedness being refinanced
is subordinated in right of payment to the Securities, such Refinancing
Indebtedness is subordinated in right of payment to the Securities to the extent
of the Indebtedness being refinanced; PROVIDED FURTHER, HOWEVER, that
Refinancing Indebtedness shall not include (A) Indebtedness of a Restricted
Subsidiary that refinances Indebtedness of the Company or (B) Indebtedness of
the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary.
"REIT" means a real estate investment trust under the Code.
"REIT Securities" means equity securities of a publicly traded
(either on a national securities exchange or on NASDAQ) REIT or equity
securities convertible into equity securities of a publicly traded (either on a
national securities exchange or on NASDAQ) REIT.
"Registered Exchange Offer" shall have the meaning set forth
in the Exchange and Registration Rights Agreement.
"Related Business" means any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the trustee, agent or representative
(if any) for an issue of Senior Indebtedness.
"Restricted Securities Legend" means the legend set forth in
Section 2.06 hereof.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Revolving Facility" means the revolving credit facility
provided to the Company under the Credit Agreement.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person, other than leases between the Company and
a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
<PAGE> 28
21
"Secured Indebtedness" means any Indebtedness of the Company
secured by a Lien.
"Securities" means, collectively, the Initial Securities and,
when and if issued as provided in the Exchange and Registration Rights
Agreement, the Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to the
Global Security (as appointed by the Depository), or any successor entity
thereto and shall initially be the Trustee.
"Senior Credit Documents" means the collective reference to
the Credit Agreement, the notes issued pursuant thereto (if any) and the
Guarantees thereof, and the Security Agreements, the Mortgages and the Pledge
Agreements (each as defined in the Credit Agreement).
"Senior Indebtedness" means the principal of, premium (if any)
and interest (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization of the Company, regardless of whether or not
a claim for post-filing interest is allowed in such proceedings) on, and fees
and other amounts owing in respect of, Bank Indebtedness and all other
Indebtedness of the Company including interest thereon, whether outstanding on
the Issue Date or thereafter Incurred, unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is provided
that such obligations are not superior in right of payment to the Securities;
PROVIDED, HOWEVER, that Senior Indebtedness shall not include (i) any obligation
of the Company to any Subsidiary, (ii) any liability for Federal, state, local
or other taxes owed or owing by the Company, (iii) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (iv)
any Indebtedness or obligation of the Company that by its terms is subordinate
or junior in any respect to any other Indebtedness or obligation of the
Company, including any Senior Subordinated Indebtedness and any Subordinated
Obligations, (v) any obligations with respect to any Capital Stock, or (vi) any
Indebtedness Incurred in violation of the Indenture. "Senior Indebtedness" of
any Subsidiary Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" means the Securities and
any other Indebtedness of the Company that
<PAGE> 29
22
specifically provides that such Indebtedness is to rank PARI PASSU with the
Securities and is not subordinated by its terms to any Indebtedness or other
obligation of the Company that is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "Significant Subsidiary" of the Company within the meaning of Rule
1-02 under Regulation S-X promulgated by the SEC.
"Specified Real Estate" means the real estate owned by
Argo-Tech Corporation (HBP) as of the Issue Date.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency beyond the control of the issuer unless such
contingency has occurred).
"Stockholders' Agreement" means the AT Holdings Corporation
Stockholders' Agreement dated as of May 17, 1994, as amended by Amendment No. 1
thereto dated as of May 1, 1997, and Amendment No. 2 thereto dated as of July
18, 1997, by and among Parent, the Company, YC International Inc., Yamada
Corporation, Sunhorizon International Inc. and the other Persons party thereto,
as in effect on the Issue Date.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) that is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) 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 (i) such Person or (ii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantee" means any Guarantee of the Securities
that may from time to time be executed and delivered by a Subsidiary Guarantor
pursuant to the terms of this Indenture.
<PAGE> 30
23
"Subsidiary Guarantors" means Argo-Tech Corporation (HBP),
Argo-Tech Corporation (OEM), Argo-Tech Corporation (Aftermarket), J.C. Carter
Company, Inc. and each Subsidiary of the Company acquired or organized after the
Issue Date that becomes a Subsidiary Guarantor in accordance with the terms of
the Indenture.
"Temporary Cash Investments" means any of the following: (i)
any investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company that is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America having capital, surplus and
undivided profits aggregating in excess of $250,000,000 (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act), (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) investments in
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time as
of which any investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc. ("S&P"),
and (v) investments in securities with maturities of six months or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's
Investors Service, Inc.
"Term Loan Facilities" means the Tranche A Term Loans and the
Delayed Draw Acquisition Loans provided to the Company under the Credit
Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture.
<PAGE> 31
24
"Trade Payables" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person arising in the ordinary course of
business in connection with the acquisition of goods or services.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.06 hereof.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of,
or owns or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED, HOWEVER, that either (A) the Subsidiary to be so
designated has total consolidated assets of $1,000 or less or (B) if such
Subsidiary has consolidated assets greater than $1,000, then such designation
would be permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under Section 4.03(a) and (y) no Default shall
have occurred and be continuing. Any such designation of a Subsidiary as a
Restricted Subsidiary or Unrestricted Subsidiary by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obliga tions (or
certificates representing an ownership interest in
<PAGE> 32
25
such obligations) of the United States of America (including any agency or
instrumentality thereof) for the payment of which the full faith and credit of
the United States of America is pledged and which are not callable or redeemable
at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital
Stock of such corporation then outstanding and normally entitled to vote in the
election of directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the
Company all the Capital Stock of which (other than directors' qualifying shares)
is owned by the Company or another Wholly Owned Subsidiary.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- -------
"Affiliate Transaction" ................ 4.07
"Bankruptcy Law" ....................... 6.01
"Blockage Notice" ...................... 10.03
"covenant defeasance option" ........... 8.01(b)
"Custodian" ............................ 6.01
"Event of Default" ..................... 6.01
"IAI" .................................. 2.01(b)
"legal defeasance option" .............. 8.01(b)
"Legal Holiday" ........................ 13.08
"Offer" ................................ 4.06
"Offer Amount" ......................... 4.06
"Offer Period" ......................... 4.06
"pay the Securities" ................... 10.03
"Paying Agent" ......................... 2.03
"Payment Blockage Period" .............. 10.03
"Purchase Date" ........................ 4.06
"QIB" .................................. 2.01(b)
"Registrar"............................. 2.03
"Restricted Payment" ................... 4.04
"Successor Company" .................... 5.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE
ACT. This Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
<PAGE> 33
26
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the
Company and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.04. RULES OF CONSTRUCTION. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without
limitation;
(5) words in the singular include the plural and
words in the plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with GAAP and accretion of principal on such
security shall be deemed to be the Incurrence of Indebtedness; and
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemption or mandatory repurchase price with
respect to such Preferred Stock, whichever is greater.
ARTICLE 2
The Securities
--------------
<PAGE> 34
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SECTION 2.01. FORM AND DATING. (a) The Initial Securities and
the Trustee's certificate of authentication shall be substantially in the form
of Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture, and as otherwise provided in this Article 2. Any Exchange Securities
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit B, which is incorporated in and expressly made a part of this
Indenture, and as otherwise provided in this Article 2. The Securities may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which the Company or the Subsidiary Guarantors are subject
(PROVIDED that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit A and B are part of the terms
of this Indenture. The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and integral multiples
thereof.
(b) The Initial Securities are being offered and sold by the
Company pursuant to the Purchase Agreement. Initial Securities offered and sold
to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act ("Rule 144A")) ("QIBs") in accordance with Rule 144A as provided
in the Purchase Agreement, shall be issued on the Issue Date initially in the
form of a permanent Global Security substantially in the form set forth in
Exhibit A (the "QIB Global Security"). On the Issue Date, a similar Global
security (the "IAI Global Security" and, together with the QIB Global Security,
the "U.S. Global Securities") will also be issued to accommodate transfers of
Securities from QIBs to institutional "Accredited Investors" (within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("IAIs"). On the
Issue Date, each U.S. Global Security will be deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of each U.S.
Global Security may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian for the Depositary or its
nominee, as hereinafter provided. Transfers of Initial Securities from QIBs to
IAIs, and from IAIs to QIBs, will be represented by appropriate increases and
decreases to the respective amounts of the appropriate U.S. Global Security, as
more fully provided in Section 2.13.
(c) Initial Securities offered and sold in reliance on
Regulation S, if any, shall be issued initially in the form of temporary
certificated Securities in registered form substantially in the form set forth
in Exhibit A (the "Temporary Offshore Physical Securities").
<PAGE> 35
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The Temporary Offshore Physical Securities will be registered in the name of,
and held by, a temporary certificate holder designated by the Initial Purchaser
until the later of the completion of the distribution of the Initial Securities
and the termination of the "restricted period" (as defined in Regulation S) with
respect to the offer and sale of the Initial Securities (the "Offshore
Securities Exchange Date"). The Company shall promptly notify the Trustee in
writing of the occurrence of the Offshore Securities Exchange Date and, at any
time following the Offshore Securities Exchange Date, upon receipt by the
Trustee and the Company of a certificate substantially in the form set forth in
Exhibit D, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, one or more permanent certificated Securities in
registered form substantially in the form set forth in Exhibit A (the "Permanent
Offshore Physical Securities") in exchange for the Temporary Offshore Physical
Securities of like tenor and amount.
(d) Initial Securities offered and sold other than as
described in the preceding two paragraphs, if any, shall be issued in the form
of permanent certificated Securities in registered form in substantially the
form set forth in Exhibit A (the "U.S. Physical Securities").
(e) The Temporary Offshore Physical Securities,
Permanent Offshore Physical Securities and U.S. Physical
Securities are at times collectively herein referred to as
the "Physical Securities".
SECTION 2.02. EXECUTION AND AUTHENTICATION. One or more
Officers of the Company shall sign the Securities by manual or facsimile
signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be con clusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate and make available for delivery
(1) Initial Securities for original issue in an aggregate principal amount of
$140,000,000 and (2) Exchange Securities for issue only in a Registered Exchange
Offer, pursuant to the Exchange and Registration Rights Agreement, for Initial
Securities for a like principal amount of Initial Securities exchanged pursuant
thereto, in each case
<PAGE> 36
29
upon a written order of the Company signed by two of its Officers. Such order
shall specify the amount of the Securities to be authenticated, the date on
which the original issue of Securities is to be authenticated and whether the
Securities are to be Initial Securities or Exchange Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed
$140,000,000 except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Any such appointment
shall be evidenced by an instrument signed by an authorized officer of the
Trustee, a copy of which shall be furnished to the Company. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
7.07. Either the Company or any domestically organized Wholly Owned Subsidiary
may act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities.
The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the Global Securities, and the Trustee shall
initially be the Securities Custodian with respect to the Global Securities.
<PAGE> 37
30
The Company may remove any Registrar or Paying Agent upon
written notice to such Registrar or Paying Agent and to the Trustee, PROVIDED
that no such removal shall become effective until (1) acceptance of an
appointment by a successor as evidenced by an appropriate agreement entered into
by the Company and such successor Registrar or Paying Agent, as the case may be,
and delivered to the Trustee or (2) notification to the Trustee that the Trustee
shall serve as Registrar or Paying Agent until the appointment of a successor in
accordance with clause (1) above. The Registrar or Paying Agent may resign at
any time upon written notice; PROVIDED, HOWEVER, that the Trustee may resign as
Paying Agent or Registrar only if the Trustee also resigns as Trustee in
accordance with Section 7.08.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. Prior to
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent (or if the Company or a permitted Wholly Owned
Subsidiary is acting as Paying Agent, segregate and hold in trust for the
benefit of the Persons entitled thereto) a sum sufficient to pay such principal
and interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Securities and
shall notify the Trustee of any default by the Company in making any such
payment. If the Company or a permitted Wholly Owned Subsidiary acts as Paying
Agent, it shall segregate the money held by it as Paying Agent and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and to account for any funds disbursed by
the Paying Agent. Upon complying with this Section, the Paying Agent shall have
no further liability for the money delivered to the Trustee.
Any money deposited with any Paying Agent, or then held by the
Company or a permitted Wholly Owned Subsidiary in trust for the payment of
principal or interest on any Security and remaining unclaimed for two years
after such principal and interest has become due and payable shall be paid to
the Company at its request, or, if then held by the Company or a permitted
Wholly Owned Subsidiary, shall be discharged from such trust; and the
Securityholders shall thereafter, as unsecured general creditors, look only to
the Company for payment thereof, and all liability of the Paying Agent with
respect to such money, and all liability of the Company or such permitted Wholly
Owned Subsidiary as trustee thereof, shall thereupon cease.
<PAGE> 38
31
SECTION 2.05. SECURITYHOLDER LISTS. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee is
not the Registrar, the Company shall furnish, or cause the Registrar to furnish,
to the Trustee, in writing at least five Business Days before each interest
payment date and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE. The Securities shall be
issued in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(l)
of the Uniform Commercial Code are met. When Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Company shall not be required to make,
and the Registrar need not register, transfers or exchanges of Securities
selected for redemption (except, in the case of Securities to be redeemed in
part, the portion thereof not to be redeemed) or transfers or exchanges of any
Securities for a period of 15 days before a selection of Securities to be
redeemed.
Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the Person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and accrued and unpaid interest (if any) on such
Security and for all other purposes whatsoever, whether or not such Security is
overdue, and none of the Company, the Trustee, the Paying Agent, the Registrar
or any co-registrar shall be affected by notice to the contrary.
Any Holder of a U.S. Global Security shall, by acceptance of
such Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Holder of
<PAGE> 39
32
such Global Security (or its agent), and that ownership of a beneficial interest
in such Global Security shall be required to be reflected in a book entry.
All Securities issued upon any transfer or exchange pursuant
to this Section 2.06 will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security
is surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met, such that the Holder (i)
satisfies the Company or the Trustee within a reasonable time after he has
notice of such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (ii) makes such
request to the Company or the Trustee prior to the Security being acquired by a
bona fide purchaser and (iii) satisfies any other reasonable requirements of the
Trustee. If required by the Trustee or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Trustee to protect the Company,
the Trustee, the Paying Agent, the Registrar and any co-registrar from any loss
that any of them may suffer if a Security is replaced. The Company and the
Trustee may charge the Holder for their expenses in replacing a Security. In
the event any such mutilated, lost, destroyed or wrongfully taken Security has
become or is about to become due and payable, the Company in its discretion may
pay such Security instead of issuing a new Security in replacement thereof.
Every replacement Security is an additional obligation of the
Company.
The provisions of this Section 2.07 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, lost, destroyed or wrongfully taken
Securities.
SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding
at any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancelation and those described in
this Section as not outstanding. A Security does not cease to be outstand ing
because the Company or its Affiliate holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee
<PAGE> 40
33
and the Company receive proof satisfactory to them that the replaced Security is
held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date money
sufficient to pay all principal and interest payable on that date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by either of the Company or any of their Affiliates shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that the Trustee knows are so owned shall be disregarded.
SECTION 2.09. TEMPORARY SECURITIES. Until Definitive
Securities and Global Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of Definitive Securities but may have
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate Definitive Securities and deliver them in exchange for temporary
Securities upon surrender of such temporary Securities at the office or agency
of the Company, without charge to the Holder.
SECTION 2.10. CANCELATION. The Company at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver canceled Securities to the Company pursuant to written
direction by an Officer of the Company. The Company may not issue new Securities
to replace Securities they have redeemed, paid or delivered to the Trustee for
cancelation. The Trustee shall not authenticate Securities in place of canceled
Securities other than pursuant to the terms of this Indenture.
SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, the
<PAGE> 41
34
Company shall pay the defaulted interest (plus interest on such defaulted
interest to the extent lawful) in any lawful manner. The Company may pay the
defaulted interest to the persons who are Securityholders on a subsequent
special record date. The Company shall fix or cause to be fixed any such special
record date and payment date to the reasonable satisfaction of the Trustee and
shall promptly mail or cause to be mailed to each Securityholder a notice that
states the special record date, the payment date and the amount of defaulted
interest to be paid.
The Company may make payment of any defaulted interest in any other
lawful manner not inconsistent with the requirements (if applicable) of any
securities exchange on which the Securities may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company to
the Trustee of the proposed payment pursuant to this paragraph, such manner of
payment shall be deemed practicable by the Trustee.
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; PROVIDED,
HOWEVER, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.
SECTION 2.13. BOOK-ENTRY PROVISIONS FOR U.S. GLOBAL SECURITY.
(a) Each U.S. Global Security initially shall (i) be registered in the
name of the Depositary for such U.S. Global Security or the nominee of such
Depositary and (ii) be delivered to the Trustee as the initial Securities
Custodian for such Depositary.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any U.S. Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under such U.S. Global Security, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such U.S. Global Security for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Trustee or any
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
<PAGE> 42
35
shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of any
Security.
(b) Transfers of a U.S. Global Security shall be limited to transfers
of such U.S. Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
U.S. Global Security may be transferred in accordance with the rules and
procedures of the Depositary and the provisions of Section 2.14. If required to
do so pursuant to any applicable law or regulation, beneficial owners may obtain
U.S. Physical Securities in exchange for their beneficial interests in a U.S.
Global Security upon written request in accordance with the Depositary's and the
Registrar's procedures. In addition, U.S. Physical Securities shall be
transferred to all beneficial owners in exchange for their beneficial interests
in a U.S. Global Security if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such U.S. Global Security or
the Depositary ceases to be a clearing agency registered under the Exchange Act,
at a time when the Depositary is required to be so registered in order to act as
Depositary, and in each case a successor depositary is not appointed by the
Company within 90 days of such notice or, (ii) the Company executes and delivers
to the Trustee and Security Registrar an Officers' Certificate stating that such
U.S. Global Security shall be so exchangeable or (iii) an Event of Default has
occurred and is continuing and the Registrar has received a request from the
Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in a U.S. Global Security pursuant to subsection (b) of this Section to
beneficial owners who are required to hold U.S. Physical Securities, the
Registrar shall reflect on its books and records the date and a decrease in the
principal amount of such U.S. Global Security in an amount equal to the
principal amount of the beneficial interest in the U.S. Global Security to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more U.S. Physical Securities of like tenor and amount.
(d) In connection with the transfer of an entire U.S. Global Security
to beneficial owners pursuant to subsection (b) of this Section, such U.S.
Global Security shall be deemed to be surrendered to the Trustee for
cancelation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in such U.S. Global Security, an equal aggregate
<PAGE> 43
36
principal amount of U.S. Physical Securities of authorized denominations.
(e) Any U.S. Physical Security delivered in exchange for an interest
in a U.S. Global Security pursuant to subsection (c) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (f) of Section 2.14,
bear the Restricted Securities Legend.
(f) The registered holder of a U.S. Global Security may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action that a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.14. SPECIAL TRANSFER PROVISIONS.
Unless and until an Initial Security is transferred or exchanged under
an effective registration statement under the Securities Act, the following
provisions shall apply:
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Security to any IAI that is not a QIB (excluding
Non-U.S. Persons) that is consistent with the Restricted Securities Legend:
(i) The Registrar shall register the transfer of such Initial Security
if (x) the requested transfer is after the date that is two years after the
later of the Issue Date and the last date on which the Company or any of
its Affiliates was the owner of such Initial Security (such later date, the
"Resale Restriction Termination Date") or (y) the proposed transferee has
delivered to the Registrar a certificate substantially in the form set
forth in Exhibit C.
(ii) If the proposed transferee is an Agent Member, and the Initial
Security to be transferred consists of U.S. Physical Securities or an
interest in the QIB Global Security, upon receipt by the Registrar of (x)
the document, if any, required by paragraph (i) and (y) instructions given
in accordance with the Depositary's and the Registrar's procedures
therefor, the Registrar shall reflect on its books and records the date and
an increase in the principal amount of the IAI Global Security in an amount
equal to (x) the principal amount of the U.S. Physical Securities to be
transferred, and the Trustee shall cancel the U.S. Physical Security so
transferred or
<PAGE> 44
37
(y) the amount of the beneficial interest in the QIB Global Security to be
so transferred (in which case the Registrar shall reflect on its books and
records the date and an appropriate decrease in the principal amount of the
QIB Global Security).
(iii) If the proposed transferee is entitled to receive a U.S.
Physical Security as provided in Section 2.13 and the proposed transferor
is an Agent Member holding a beneficial interest in a U.S. Global Security,
upon receipt by the Registrar of (x) the documents, if any, required by
paragraph (i) and (y) instructions given in accordance with the
Depositary's and the Registrar's procedures therefor, the Registrar shall
reflect on its books and records the date and a decrease in the principal
amount of such U.S. Global Security in an amount equal to the principal
amount of the beneficial interest in such U.S. Global Security to be
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Securities of like
tenor and amount.
(iv) If the Initial Security to be transferred consists of U.S.
Physical Securities and the proposed transferee is entitled to receive a
U.S. Physical Security as provided in Section 2.13, upon receipt by the
Registrar of the document, if any, required by paragraph (i), the Registrar
shall register such transfer and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more U.S. Physical Securities of
like tenor and amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Security to a
QIB (excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of U.S. Physical
Securities, Temporary Offshore Physical Securities, Permanent Offshore
Physical Securities or an interest in the IAI Global Security, the
Registrar shall register the transfer if such transfer is being made by a
proposed transferor who has provided the Registrar with a certificate
substantially in the form set forth in Exhibit E hereto.
(ii) If the proposed transferee is an Agent Member, and the Initial
Security to be transferred consists of U.S. Physical Securities, Temporary
Offshore Physical Securities, Permanent Offshore Physical Securities or an
interest in the IAI Global Security, upon receipt by the Registrar of (x)
the
<PAGE> 45
38
document, if any, required by paragraph (i) and (y) instructions given in
accordance with the Depositary's and the Registrar's procedures therefor,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the QIB Global Security in an amount
equal to (x) the principal amount of the U.S. Physical Securities,
Temporary Offshore Physical Securities or Permanent Offshore Physical
Securities, as the case may be, to be transferred, and the Trustee shall
cancel the Physical Security so transferred or (y) the amount of the
beneficial interest in the IAI Global Security to be so transferred (in
which case the Registrar shall reflect on its books and records the date
and an appropriate decrease in the principal amount of the IAI Global
Security).
(iii) If the proposed transferee is entitled to receive a U.S.
Physical Security as provided in Section 2.13 and the proposed transferor
is an Agent Member holding a beneficial interest in a U.S. Global Security,
upon receipt by the Registrar of (x) the documents, if any, required by
paragraph (i) and (y) instructions given in accordance with the
Depositary's and the Registrar's procedures therefor, the Registrar shall
reflect on its books and records the date and a decrease in the principal
amount of such U.S. Global Security in an amount equal to the principal
amount of the beneficial interest in such U.S. Global Security to be
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Securities of like
tenor and amount.
(iv) If the Initial Security to be transferred consists of U.S.
Physical Securities, Temporary Offshore Physical Securities or Permanent
Offshore Physical Securities and the proposed transferee is entitled to
receive a U.S. Physical Security as provided in Section 2.13, upon receipt
by the Registrar of the document, if any, required by paragraph (i), the
Registrar shall register such transfer and the Company shall execute, and
the Trustee shall authenticate and deliver, one or more U.S. Physical
Securities of like tenor and amount.
(c) TRANSFERS BY NON-U.S. PERSONS PRIOR TO NOVEMBER 5, 1997. The
following provisions shall apply with respect to registration of any proposed
transfer of an Initial Security by a Non-U.S. Person prior to November 5, 1997.
<PAGE> 46
39
(i) The Registrar shall register the transfer of any Initial Security
(x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has provided the Registrar with a certificate substantially in
the form set forth in Exhibit F hereto or (y) if the proposed transferee is
a QIB and the proposed transferor has provided the Registrar with a
certificate substantially in the form set forth in Exhibit E hereto. Unless
clause (ii) below is applicable, the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Temporary Offshore Physical
Securities of like tenor and amount.
(ii) If the proposed transferee is an Agent Member in connection with
a proposed transfer of an Initial Security to a QIB, upon receipt by the
Registrar of (x) the document, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and records
the date and an increase in the principal amount of the QIB Global Security
in an amount equal to the principal amount of the Temporary Offshore
Physical Security to be transferred, and the Registrar shall cancel the
Temporary Offshore Physical Securities so transferred.
(d) TRANSFERS BY NON-U.S. PERSONS ON OR AFTER NOVEMBER 5, 1997. The
following provisions shall apply with respect to any transfer of an Initial
Security by a Non-U.S. Person on or after November 5, 1997:
(i) (x) If the Initial Security to be transferred is a Permanent
Offshore Physical Security, the Registrar shall register such transfer, (y)
if the Initial Security to be transferred is a Temporary Offshore Physical
Security, upon receipt of a certificate substantially in the form set forth
in Exhibit D from the proposed transferor, the Registrar shall register
such transfer and (z) in the case of either clause (x) or (y), unless
clause (ii) below is applicable, the Company shall execute, and the Trustee
shall authenticate and deliver, one or more Permanent Offshore Physical
Securities of like tenor and amount.
(ii) If the proposed transferee is an Agent Member in connection with
a proposed transfer of an Initial Security to a QIB, upon receipt by the
Registrar of instructions given in accordance with the Depositary's and the
Registrar's procedures therefor, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the QIB
Global Security in an amount equal to the principal amount of the Temporary
Offshore Physical Security or of the
<PAGE> 47
40
Permanent Offshore Physical Security to be transferred, and the Trustee
shall cancel the Physical Security so transferred.
(e) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following
provisions shall apply with respect to any transfer of an Initial Security to a
Non-U.S. Person:
(i) Prior to November 5, 1997, the Registrar shall register any
proposed transfer of an Initial Security to a Non-U.S. Person upon receipt
of a certificate substantially in the form set forth in Exhibit F from the
proposed transferor and the Issuer shall execute, and the Trustee shall
authenticate and make available for delivery, one or more Temporary
Offshore Physical Securities.
(ii) On and after November 5, 1997, the Registrar shall register any
proposed transfer to any Non-U.S. Person (w) if the Initial Security to be
transferred is a Permanent Offshore Physical Security, (x) if the Initial
Security to be transferred is a Temporary Offshore Physical Security, upon
receipt of a certificate substantially in the form set forth in Exhibit D
from the proposed transferor, (y) if the Initial Security to be transferred
is a U.S. Physical Security or an interest in a U.S. Global Security, upon
receipt of a certificate substantially in the form set forth in Exhibit D
from the proposed transferor and (z) in the case of either clause (w), (x)
or (y), the Company shall execute, and the Trustee shall authenticate and
deliver, one or more Permanent Offshore Physical Securities of like tenor
and amount.
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Security, upon receipt by the
Registrar of (x) the document, if any, required by paragraph (i), and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of such U.S. Global
Security in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Security to be transferred and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Permanent Offshore Physical Securities of like tenor and amount.
(f) RESTRICTED SECURITIES LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Restricted Securities Legend, the
Registrar shall deliver Securities that do not bear the Restricted Securities
Legend. Upon the transfer, exchange or
<PAGE> 48
41
replacement of Securities bearing the Restricted Securities Legend, the
Registrar shall deliver only Securities that bear the Restricted Securities
Legend unless either (i) such transfer, exchange or replacement of such
Securities occurs after the Resale Restriction Termination Date or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(g) GENERAL. By its acceptance of any Security bearing the Restricted
Securities Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Restricted
Securities Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.13 or this Section 2.14.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
Interest payable on the Securities shall be computed on the basis of a
360-day year comprised of 30-day months.
ARTICLE 3
Redemption
----------
SECTION 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein. If fewer than all the
Securities are to be redeemed, the record date relating to such redemption shall
be selected by the Company and given to the Trustee, which record date shall be
not fewer than 15 days after the date of notice to the Trustee. Any such notice
may be canceled
<PAGE> 49
42
at any time prior to notice of such redemption being mailed to any Holder and
shall thereby be void and of no effect.
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If fewer than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed pro rata or by lot or by a method that complies with applicable
legal and securities exchange requirements, if any, and that the Trustee in its
sole discretion considers fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar circumstances.
The Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them the Trustee selects shall be in amounts of $1,000 or a
whole multiple of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail a
notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or portion
thereof) called for redemption ceases to accrue on and after the redemption
date;
<PAGE> 50
43
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest (if any) to the redemption
date, PROVIDED that if the redemption date is after a regular record date and on
or prior to the interest payment date, the accrued interest shall be payable to
the Securityholder of the redeemed Securities registered on the relevant record
date. Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. Prior to 10:00 a.m. on the
redemption date, the Company shall deposit with the Paying Agent (or, if the
Company or a permitted Wholly Owned Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and
accrued interest (if any) on all Securities to be redeemed on that date other
than Securities or portions of Securities called for redemption that have been
delivered by the Company to the Trustee for cancelation.
SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
<PAGE> 51
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SECTION 3.07. OPTIONAL REDEMPTION. (a) Except as set forth in the next
paragraph, the Securities may not be redeemed prior to October 1, 2002. On and
after that date, the Company may redeem the Securities in whole at any time or
in part from time to time at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest (if any) to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date), if
redeemed during the 12-month period beginning on or after October 1, of the
years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ ----------
<S> <C>
2002........................................... 104.313
2003........................................... 102.875
2004........................................... 101.438
2005 and thereafter............................ 100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to October 1,
2000, the Company may redeem in the aggregate up to 33-1/3% of the original
aggregate principal amount of Securities with the proceeds of one or more Public
Equity Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 108.625% plus accrued
interest (if any) to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption); PROVIDED,
HOWEVER, that at least 66-2/3% of the original aggregate principal amount of the
Securities must remain outstanding after each such redemption.
SECTION 3.08. NO SINKING FUND. There shall be no sinking fund for the
payment of principal on the Securities to the Securityholders.
<PAGE> 52
45
ARTICLE 4
Covenants
---------
SECTION 4.01. PAYMENT OF SECURITIES. The Company shall promptly pay
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent (but only if other than the Company or a Wholly Owned Subsidiary) holds by
11:00 a.m., New York City time, in accordance with this Indenture available
funds sufficient to pay all principal and interest then due and the Trustee or
the Paying Agent, as the case may be, is not prohibited from paying such money
to the Securityholders on that date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC REPORTS. Notwithstanding that the Company may not be
required to be subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall file with the SEC, and provide the Trustee
and Securityholders and prospective Securityholders (upon request) within 15
days after it files them with the SEC, copies of its annual report and the
information, documents and other reports that are specified in Section 13 or
15(d) of the Exchange Act. In addition, following a Public Equity Offering, the
Company shall furnish to the Trustee and the Securityholders, promptly upon
their becoming available, copies of the annual report to shareholders and any
other information provided by the Company or Parent to its public shareholders
generally. The Company also shall comply with the other provisions of TIA ss.
314(a).
SECTION 4.03. LIMITATION ON INDEBTEDNESS. (a) The Company shall not,
and shall not permit any Restricted Subsidiary to, Incur any Indebtedness;
PROVIDED, HOWEVER, that the Company may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 2.00:1.00 if such
Indebtedness is Incurred on or prior to September 30, 1999, and 2.25:1.00 if
such Indebtedness is Incurred thereafter. Notwithstanding the foregoing, the
Company shall not permit any Subsidiary to issue, to any party other than the
Company, any Preferred Stock.
<PAGE> 53
46
(b) Notwithstanding Section 4.03(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Bank Indebtedness relating to the Term Loan Facilities in an
aggregate principal amount not to exceed $110,000,000 less the aggregate
amount of all prepayments of principal applied permanently to reduce any
such Indebtedness;
(ii) Bank Indebtedness relating to the Revolving Facility provided to
the Company under the Credit Agreement or Indebtedness Incurred pursuant to
other revolving credit, working capital or letter of credit financings in
an aggregate principal amount outstanding not in excess of the greater of
$20,000,000 million and the Borrowing Base in effect from time to time;
(iii) Indebtedness of the Company owing to and held by any Subsidiary
or Indebtedness of a Restricted Subsidiary owing to and held by the Company
or any Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or
transfer of any Capital Stock or any other event that results in any such
Subsidiary ceasing to be a Subsidiary or any subsequent transfer of any
such Indebtedness (except to the Company or a Restricted Subsidiary) will
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the issuer thereof;
(iv) Indebtedness represented by the Securities, the Subsidiary
Guarantees, any Indebtedness (other than the Indebtedness described in
clauses (i) through (iii) above) outstanding on the date of this Indenture
and any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in this clause (iv) or Section 4.03(a);
(v) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration
in, in contemplation of or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Subsidiary or was otherwise acquired by the Company); PROVIDED, HOWEVER,
that at the time such Restricted Subsidiary is acquired by the Company, the
Company would have been able to Incur $1.00 of additional Indebtedness
pursuant to Section 4.03(a) after giving effect to the Incurrence of such
Indebtedness pursuant to this clause (v) and
<PAGE> 54
47
(B) Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect
of Indebtedness Incurred by such Restricted Subsidiary pursuant to this
clause (v);
(vi) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and the Restricted Subsidiaries to their customers in the ordinary
course of their business and which do not secure other Indebtedness, and
(B) under Currency Agreements and Interest Rate Agreements, in each case
entered into for bona fide hedging purposes of the Company in the ordinary
course of business; PROVIDED, HOWEVER, that, in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and
Interest Rate Agreements do not increase the Indebtedness of the Company
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities
and compensation payable thereunder;
(vii) Purchase Money Indebtedness and Capitalized Lease Obligations in
an aggregate principal amount not to exceed $10,000,000 at any time
outstanding;
(viii) Indebtedness of Restricted Subsidiaries (other than
Indebtedness permitted to be Incurred pursuant to any other clause of this
Section 4.03(b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(viii) and then outstanding, will not exceed $5,000,000; or
(ix) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to Section 4.03(a) or any other clause of this Section 4.03(b)) in
an aggregate principal amount on the date of Incurrence that, when added to
all other Indebtedness Incurred pursuant to this clause (ix) and then
outstanding, will not exceed $10,000,000.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Securities to at least the same extent as such Subordinated
Obligations. The Company shall not Incur any Indebtedness if such Indebtedness
is subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
<PAGE> 55
48
subordinated in right of payment to Senior Subordinated Indebtedness. In
addition, the Company shall not Incur any Secured Indebtedness that is not
Senior Indebtedness unless contemporaneously therewith effective provision is
made to secure the Securities equally and ratably with (or on a senior basis to,
in the case of Indebtedness subordinated in right of payment to the Securities)
such Secured Indebtedness for so long as such Secured Indebtedness is secured by
a Lien. A Subsidiary Guarantor may not Incur any Indebtedness if such
Indebtedness is by its terms expressly subordinate or junior in ranking in any
respect to any Senior Indebtedness of such Subsidiary Guarantor unless such
Indebtedness is Senior Subordinated Indebtedness of such Subsidiary Guarantor or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness of such Subsidiary Guarantor. In addition, a Subsidiary Guarantor
may not Incur any Secured Indebtedness that is not Senior Indebtedness of such
Subsidiary Guarantor unless contemporaneously therewith effective provision is
made to secure the Subsidiary Guarantee of such Subsidiary Guarantor equally and
ratably with (or on a senior basis to, in the case of Indebtedness subordinated
in right of payment to such Subsidiary Guarantee) such Secured Indebtedness for
so long as such Secured Indebtedness is secured by a Lien.
(d) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or any Restricted Subsidiary may
Incur pursuant to this Section 4.03 shall not be deemed to be exceeded solely as
a result of fluctuations in the exchange rates of currencies. For purposes of
determining the outstanding principal amount of any particular Indebtedness
Incurred pursuant to this Section 4.03, (i) Indebtedness Incurred pursuant to
the Credit Agreement prior to or on the date of this Indenture shall be treated
as Incurred pursuant to Section 4.03(b)(i), (ii) Indebtedness permitted by this
Section 4.03 need not be permitted solely by reference to one provision
permitting such Indebtedness but may be permitted in part by one such provision
and in part by one or more other provisions of this Section permitting such
Indebtedness and (iii) in the event that Indebtedness or any portion thereof
meets the criteria of more than one of the types of Indebtedness described in
this Section, the Company, in its sole discretion, shall classify such
Indebtedness and only be required to include the amount of such Indebtedness in
one of such clauses.
<PAGE> 56
49
SECTION 4.04. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall
not, and shall not permit any Restricted Subsidiary, directly or indirectly, to
(i) declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company) except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) and except dividends
or distributions payable to the Company or another Restricted Subsidiary (and,
if such Restricted Subsidiary is not wholly owned, to its other shareholders on
a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of the Company or any Restricted Subsidiary held by Persons
other than the Company or another Restricted Subsidiary, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) make any Investment
(other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment") if
at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company could not Incur at least $1.00 of additional
Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to the Issue Date would exceed the
sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter in which the Issue Date occurs to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be
a deficit, minus 100% of such deficit);
<PAGE> 57
50
(B) the aggregate Net Cash Proceeds received by the Company from
the issue or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company or an employee stock ownership plan or other
trust established by the Company or any of its Subsidiaries); and
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary) subsequent to
the Issue Date of any Indebtedness of the Company or its Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
other property distributed by the Company or any Restricted Subsidiary
upon such conversion or exchange); and
(D) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (i) payments of dividends,
repayments of the principal of loans or advances or other transfers of
assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by
the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary, which amount was included in the calculation of the amount
of Restricted Payments.
(b) The provisions of Section 4.04(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or
Subordinated Obligations made by exchange for, or out of the proceeds of
the substantially concurrent sale of, Capital Stock of the Company (other
than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or other trust established
by the Company or any of its Subsidiaries); PROVIDED, HOWEVER, that (A)
such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
applied in the manner set forth in this clause (i) shall be excluded from
clause (3)(B) of Section 4.04(a);
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51
(ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of the Company that is permitted to be Incurred pursuant
to Section 4.03; PROVIDED, HOWEVER, that such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by Section 4.06; PROVIDED, HOWEVER,
that such purchase or redemption shall be excluded in the calculation of
the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.04(a); PROVIDED, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments; or
(v) payment of dividends, other distributions or other amounts by the
Company for the purposes set forth in clauses (A) through (D) below;
PROVIDED, HOWEVER, that such dividend, distribution or amount set forth in
clauses (A) through (D) shall be included in the calculation of the amount
of Restricted Payments for the purposes of Section 4.04(a):
(A) to Parent in amounts equal to the amounts required for Parent
to pay franchise taxes and other fees required to maintain its
corporate existence and provide for other operating costs of up to
$100,000 per fiscal year;
(B) to Parent in amounts equal to amounts required for Parent to
pay federal, state and local income taxes to the extent such income
taxes are attributable to the income of the Company and its Restricted
Subsidiaries (and, to the extent of amounts actually received from its
Unrestricted Subsidiaries, in amounts required to pay such taxes to
the extent attributable to the income of such Unrestricted
Subsidiaries);
(C) to Parent in amounts equal to amounts expended by Parent to
repurchase Capital Stock of Parent owned by former employees of the
Company or its Subsidiaries or their assigns, estates and heirs;
PROVIDED, HOWEVER, that the aggregate amount paid, loaned or advanced
to Parent pursuant to this clause (C) shall not, in the aggregate,
<PAGE> 59
52
exceed (1) for each fiscal year prior to the 2000 fiscal year,
$1,000,000 per fiscal year and (2) for all other fiscal years,
$2,000,000, in each case plus any amounts contributed by Parent to the
Company as a result of resales of such repurchased shares of Capital
Stock; and
(D) in amounts equal to amounts expended by the Company to
repurchase shares of its Capital Stock from deceased or retired
employees in accordance with the terms of the ESOP as in effect on the
Issue Date and from employees whose employment with the Company or any
of its Subsidiaries has terminated for any other reason but only to
the extent mandatorily required by the ESOP as in effect on the Issue
Date, the Code or ERISA; PROVIDED that in each case the Company has
deferred making any cash payments in respect of such repurchase
obligations to the maximum extent possible under the ESOP as in effect
on the Issue Date;
SECTION 4.05. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM
RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock or pay any Indebtedness owed to the Company, (ii) make any
loans or advances to the Company or (iii) transfer any of its property or assets
to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the date of this Indenture;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, in contemplation of, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date;
(3) any encumbrance or restriction pursuant to an agreement
constituting Refinancing Indebtedness of Indebtedness Incurred pursuant to
an agreement referred
<PAGE> 60
53
to in clause (1) or (2) of this Section or this clause (3) or contained in
any amendment to an agreement referred to in clause (1) or (2) of this
Section or this clause (3); PROVIDED, HOWEVER, that the encumbrances and
restrictions contained in any such refinancing agreement or amendment are
no less favorable to the Securityholders than encumbrances and
restrictions contained in such agreements;
(4) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or transfer
of any property or asset that is subject to a lease, license or similar
contract, (B) by virtue of any transfer of, agreement to transfer, option
or right with respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by this Indenture or
(C) contained in security agreements or mortgages securing Indebtedness of
a Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security agreements
or mortgages; and
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition.
SECTION 4.06. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a)
The Company shall not, and shall not permit any Restricted Subsidiary to, make
any Asset Disposition unless (i) the Company or such Restricted Subsidiary
receives consideration (including by way of relief from, or by any other Person
assuming sole responsibility for, any liabilities, contingent or otherwise) at
the time of such Asset Disposition at least equal to the fair value of the
shares and assets subject to such Asset Disposition, (ii) at least 75% (or 50%
in the case of an Asset Disposition relating to the Specified Real Estate) of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash and (iii) an amount equal to 100% of the Net Available
Cash from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) FIRST, within one year from the later of
such Asset Disposition or the receipt of such Net Cash Proceeds, either (1) to
the extent the Company elects (or is required by the terms of any Senior
Indebtedness or Indebtedness (other than Preferred Stock) of a Wholly Owned
Subsidiary), to prepay, repay, redeem, defease or purchase Senior Indebtedness
or such Indebtedness (in each case other than Indebtedness owed to
<PAGE> 61
54
the Company or an Affiliate of the Company) or (2) to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets (including
by means of an Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by the Company or another Restricted Subsidiary), or
(3) a combination of the foregoing; (B) SECOND, to the extent of the balance of
such Net Available Cash after application in accordance with clause (A), to make
an Offer to purchase Securities pursuant to and subject to the conditions of
Section 4.06(b), PROVIDED that if the Company elects (or is required by the
terms of any Senior Subordinated Indebtedness), such Offer may be made to
ratably purchase the Securities and other Senior Subordinated Indebtedness and
(C) THIRD, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to prepay, repay, redeem,
defease or purchase Indebtedness of the Company (other than Indebtedness owed to
an Affiliate of the Company and other than Disqualified Stock of the Company) or
Indebtedness of any Restricted Subsidiary (other than Indebtedness owed to the
Company or an Affiliate of the Company), in each case described in this clause
(C) within one year from the receipt of such Net Available Cash or, if the
Company has made an Offer pursuant to clause (B), six months from the date such
Offer is consummated; PROVIDED, HOWEVER that in connection with any prepayment,
repayment, redemption, defeasance or purchase of Indebtedness pursuant to clause
(A), (B) or (C) above, the Company or such Restricted Subsidiary shall retire
such Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid, redeemed, defeased or purchased. Notwithstanding the foregoing
provisions of this covenant, the Company and the Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with this Section
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions that is not applied in accordance with this Section 4.06 exceeds
$10,000,000.
For the purposes of this Section 4.06, the following are deemed to be
cash: (x) the assumption of Indebtedness of the Company (other than Disqualified
Stock of the Company) or any Restricted Subsidiary and the release of the
Company or such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition, (y) securities received by the Company
or any Restricted Subsidiary from the transferee that are promptly converted by
the Company or such Restricted Subsidiary into cash and (z) in the case of an
Asset Disposition relating to the Specified Real Estate, REIT Securities.
<PAGE> 62
55
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to Section 4.06(a)(iii)(B), the Company shall be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
plus accrued interest (if any) to the Purchase Date in accordance with the
procedures (including prorationing in the event of oversubscription) set forth
in Section 4.06(c). If the aggregate purchase price of Securities tendered
pursuant to the Offer is less than the Net Available Cash allotted to the
purchase of the Securities, the Company shall apply the remaining Net Available
Cash in accordance with Section 4.06(a)(iii)(C). The Company shall not be
required to make an Offer for Securities pursuant to this Section if the Net
Available Cash available therefor (after application of the proceeds as provided
in clause (A) of Section 4.06(a)(iii)) is less than $5,000,000 for any
particular Asset Disposition (which lesser amount shall be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company that the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum shall
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such Reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the address referred to in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided
<PAGE> 63
56
above, the Company shall deliver to the Trustee an Officers' Certificate as to
(i) the amount of the Offer (the "Offer Amount"), (ii) the allocation of the Net
Available Cash from the Asset Dispositions pursuant to which such Offer is being
made and (iii) the compliance of such allocation with the provisions of Section
4.06(a). On such date, the Company shall also irrevocably deposit with the
Trustee or with a paying agent (or, if the Company is acting as its own paying
agent, segregate and hold in trust) an amount equal to the Offer Amount to be
invested in Temporary Cash Investments and to be held for payment in accordance
with the provisions of this Section. Upon the expiration of the period for which
the Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancelation the Securities or portions thereof that have been
properly tendered to and are to be accepted by the Company. The Trustee (or the
Paying Agent, if not the Trustee) shall, on the Purchase Date, mail or deliver
payment to each tendering Holder in the amount of the purchase price. In the
event that the aggregate purchase price of the Securities delivered by the
Company to the Trustee is less than the Offer Amount, the Trustee shall deliver
the excess to the Company immediately after the expiration of the Offer Period
for application in accordance with this Section.
(3) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
Purchase Date. Holders shall be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security that was delivered
by the Holder for purchase and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee that
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Security shall
be deemed to have been accepted for purchase at the time the Trustee, directly
or through an
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57
agent, mails or delivers payment therefor to the surrendering
Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.07. LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, enter into or conduct any transaction (including, the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any Affiliate of the Company (an "Affiliate Transaction") on terms (i) that are
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate and (ii) that,
in the event such Affiliate Transaction involves an aggregate amount in excess
of $10,000,000, are not in writing and have not been approved by a majority of
the members of the Board of Directors having no personal stake in such Affiliate
Transaction and who are not employed by or otherwise associated with such
Affiliate. In addition, if such Affiliate Transaction involves an amount in
excess of $15,000,000, a fairness opinion must be provided by a nationally
recognized appraisal or investment banking firm.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii)
loans or advances to employees in the ordinary course of business in accordance
with past practices of the Company, but in any event not to exceed $2,000,000 in
the aggregate outstanding at any one time, (iv) the payment of reasonable fees
to directors of the Company and its Subsidiaries who are not employees of the
Company or its Subsidiaries, (v) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries or (vi)
transactions pursuant to the Existing Agreements, as in effect on the date of
this Indenture.
<PAGE> 65
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SECTION 4.08. CHANGE OF CONTROL. (a) Upon a Change of Control, each
Holder shall have the right to require that the Company repurchase all or any
part of such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest (if any) to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), in
accordance with the terms contemplated in Section 4.08(b). In the event that at
the time of such Change of Control the terms of the Bank Indebtedness restrict
or prohibit the repurchase of Securities pursuant to this Section, then prior to
the mailing of the notice to Holders provided for in Section 4.08(b) below but
in any event within 30 days following any Change of Control, the Company shall
(i) repay in full all Bank Indebtedness or offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has accepted
such offer or (ii) obtain the requisite consent under the agreements governing
the Bank Indebtedness to permit the repurchase of the Securities as provided for
in Section 4.08(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest (if any) to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Company
at the address specified in the notice at least three Business Days prior to the
purchase date. Holders shall be entitled to withdraw their election if the
Trustee or the Company receives not
<PAGE> 66
59
later than one Business Day prior to the purchase date a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security that was delivered for purchase by the Holder
and a statement that such Holder is withdrawing his election to have such
Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered to the Trustee for cancelation, and the
Company shall pay the purchase price plus accrued and unpaid interest (if any)
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
SECTION 4.09. COMPLIANCE CERTIFICATE. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with Section 314(a)(4) of
the TIA.
SECTION 4.10. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. FUTURE SUBSIDIARY GUARANTORS. The Company shall cause
(a) each Restricted Subsidiary that is a Domestic Subsidiary that Incurs
Indebtedness or that is a guarantor of Indebtedness Incurred pursuant to clause
(b)(i), (b)(ii) or (b)(ix) of Section 4.03 and (b) each Restricted Subsidiary
that is not a Domestic Subsidiary that enters into a Guarantee of any of the
obligations of the Company, Parent or any of the Company's Subsidiaries pursuant
to the Credit Agreement to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Subsidiary shall Guarantee payment of the
Securities. Each Subsidiary Guarantee shall be limited to an amount not to
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exceed the maximum amount that can be Guaranteed by that Subsidiary without
rendering the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
SECTION 4.12. LIMITATION ON LINES OF BUSINESS. The Company shall not,
and shall not permit any Restricted Subsidiary to, engage in any material
respect in any line of business, other than a Related Business. The Company
shall not be deemed to be engaged in the line of business associated with assets
held for sale.
SECTION 4.13. LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company
shall not, and shall not permit any Restricted Subsidiary to, enter into any
Sale/Leaseback Transaction with respect to any property unless (a) the net cash
proceeds received by the Company or any Restricted Subsidiary in connection with
such Sale/Leaseback Transaction are at least equal to the fair value (as
determined in good faith by the Board of Directors) of such property, (b) the
transfer of such property is permitted by, and the Company applies the proceeds
of such transaction in compliance with Section 4.06 and (c) the Company or such
Subsidiary would be entitled to (i) in the case of a Sale/ Leaseback Transaction
involving the Specified Real Estate, Incur $1.00 of additional Indebtedness
pursuant to Section 4.03(a) and (ii) in all other cases (A) Incur Indebtedness
in an amount equal to the Attributable Debt with respect to such Sale/Leaseback
Transaction pursuant to Section 4.03(a) and (B) create a Lien on such property
securing such Attributable Debt without equally and ratably securing the
Securities pursuant to Section 4.03.
SECTION 4.14. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. The Company shall not sell any shares of Capital Stock
of a Restricted Subsidiary, and shall not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of its Capital Stock except
(i) to the Company or a Wholly Owned Subsidiary or (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary. The proceeds of any sale of such
Capital Stock permitted hereby shall be treated as Net Available Cash from an
Asset Disposition and shall be applied in accordance with Section 4.06.
<PAGE> 68
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ARTICLE 5
Successor Company
-----------------
SECTION 5.01. WHEN COMPANY MAY MERGE OR TRANSFER ASSETS. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease
all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of the Company immediately prior
to such transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
The Successor Company shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets shall not be released from the obligation to pay
the principal of and interest on the Securities.
<PAGE> 69
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Notwithstanding the foregoing clauses (ii), (iii) and (iv), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company (i) defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon declaration or otherwise, whether or not such
payment shall be prohibited by Article 10 or (ii) fails to redeem or
purchase Securities when required pursuant to this Indenture or the
Securities, whether or not such redemption or purchase shall be prohibited
by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.11, 4.12 or 4.13 (other than a failure to purchase
Securities when required under Section 4.06 or 4.08) and such failure
continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (1), (2), (3)
or (4) above) and such failure continues for 60 days after the notice
specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or the
acceleration by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5,000,000 or its
foreign currency equivalent at the time;
<PAGE> 70
63
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property;
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order or
decree remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$5,000,000 or its foreign currency equivalent at the time is entered
against the Company or any Significant Subsidiary and is not discharged,
waived or stayed and either (A) an enforcement proceeding has been
commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following the entry of such judgment or decree during
which such judgment or decree is not discharged, waived or the execution
thereof stayed; or
(10) any Subsidiary Guarantee shall cease to be in full force and
effect (except as contemplated by the terms thereof) or any Subsidiary
Guarantor or person acting by or on behalf of such Guarantor shall deny or
disaffirm its obligations under this Indenture or any Subsidiary Guarantee
and such Default continues for 10 days after the notice specified below.
<PAGE> 71
64
The foregoing shall constitute Events of Default whatever the reason
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.
The term "Bankruptcy Law" means Title 11, UNITED STATES CODE, or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the outstanding
Securities notify the Company of the Default and the Company does not cure such
Default within the time specified in clauses (4) or (5) after receipt of such
notice. Such notice must specify the Default, demand that it be remedied and
state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) and any event that with the giving of
notice or the lapse of time would become an Event of Default under clause (4),
(5) or (9), its status and what action the Company is taking or proposes to take
with respect thereto.
SECTION 6.02. ACCELERATION. If an Event of Default (other than an
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the outstanding Securities by
notice to the Company, may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or (8) with respect to the Company occurs,
the principal of and interest on all the Securities shall IPSO FACTO become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Securityholders. The Holders of a majority in principal
amount of the Securities by notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such
<PAGE> 72
65
rescission shall affect any subsequent Default or impair any right consequent
thereto.
SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. WAIVER OF PAST DEFAULTS. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed cured, but no
such waiver shall extend to any subsequent or other Default or impair any
consequent right.
SECTION 6.05. CONTROL BY MAJORITY. The Holders of a majority in
principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee may determine is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
<PAGE> 73
66
SECTION 6.06. LIMITATION ON SUITS. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do
not give the Trustee a direction inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and liquidated damages and interest on the Securities
held by such Holder, on or after the respective due dates expressed in the
Securities, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, any Subsidiary or
Subsidiary Guarantor, their creditors or their property and, unless prohibited
by law or applicable
<PAGE> 74
67
regulations, may vote on behalf of the Holders in any election of a trustee in
bankruptcy or other Person performing similar functions, and any Custodian in
any such judicial proceeding is hereby authorized by each Holder to make
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
SECTION 6.10. PRIORITIES. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to holders of Senior Indebtedness to the extent required by
Article 10;
THIRD: to Securityholders for amounts due and unpaid on the Securities
for principal and interest, ratably, and any liquidated damages without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal, any liquidated damages and
interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Trustee shall mail to each Securityholder and the Company a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount of the Securities.
<PAGE> 75
68
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. Neither the Company
nor any Subsidiary Guarantor (to the extent it may lawfully do so) shall at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance of
this Indenture; and the Company and each Subsidiary Guarantor (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law, and shall not hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 7
Trustee
-------
SECTION 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
<PAGE> 76
69
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. RIGHTS OF TRUSTEE. Subject to Section 7.01: (a) The
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
<PAGE> 77
70
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its rights or
powers; PROVIDED, HOWEVER, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, debenture,
note or other paper or document unless requested in writing to do so by the
Holders of not less than a majority in principal amount of the Securities at the
time outstanding, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney.
(g) The Trustee shall not be required to give any note, bond or surety
in respect of the execution of the trusts and powers under this Indenture.
(h) The permissive rights of the Trustee to take any action enumerated
in this Indenture shall not be construed as a duty to take such action.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Secur-
<PAGE> 78
71
ities, it shall not be accountable for the Company's use of the proceeds from
the Securities, and it shall not be responsible for any statement of the Company
in this Indenture or in any document issued in connection with the sale of the
Securities or in the Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within the earlier of 90 days after it
occurs or 30 days after it is known to a trust officer. Except in the case of a
Default in payment of principal of or interest on any Security (including
payments pursuant to the mandatory redemption provisions of such Security, if
any), the Trustee may withhold the notice if and so long as a committee of its
Trust Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with Section 313(a) of the TIA. The Trustee shall also comply with
Section 313(b) of the TIA.
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the
Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Company and each Subsidiary Guarantor, jointly and severally shall
indemnify the Trustee against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by them without negligence or bad faith on
their part in connection with the administration of this trust and the
performance of their duties hereunder. The Trustee shall notify the Company of
any claim for which it may seek indemnity promptly upon obtaining actual
knowledge thereof;
<PAGE> 79
72
PROVIDED that any failure so to notify the Company shall not relieve the Company
or any Subsidiary Guarantor of its indemnity obligations hereunder. The Company
shall defend the claim and the indemnified party shall provide reasonable
cooperation at the Company's expense in the defense. Such indemnified parties
may have separate counsel and the Company shall pay the fees and expenses of
such counsel; PROVIDED that the Company shall not be required to pay such fees
and expenses if it assumes such indemnified parties' defense and, in such
indemnified parties' reasonable judgment, there is no conflict of interest
between the Company and such parties in connection with such defense. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by an indemnified party through such party's own wilful
misconduct, negligence or bad faith. The Company shall also pay the fees and
expenses (including reasonable attorneys' fees) incurred by any indemnified
party in enforcing this right of indemnity.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest and any liquidated damages on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the satisfaction or discharge of this Indenture, any rejection or
termination of this Indenture under any bankruptcy law or the resignation or
removal of the Trustee. When the Trustee incurs expenses after the occurrence of
a Default specified in Section 6.01(7) or (8) with respect to the Company, the
expenses are intended to constitute expenses of administration under the
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
of the Securities may remove the Trustee by so notifying the Trustee and may
appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
<PAGE> 80
73
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking associa-
tion, the resulting, surviving or transferee corporation without any further act
shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the
<PAGE> 81
74
name of the successor to the Trustee; and in all such cases such certificates
shall have the full force that it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall at all
times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with
TIAss. 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operation of TIAss. 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA ss. 310(b)(1) are met.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shalL be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE. (a)
When (i) the Company delivers to the Trustee all outstanding Securities (other
than Securities replaced pursuant to Section 2.07) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Company irrevocably deposits with the Trustee funds or U.S. Government
Obligations on which payment of principal and interest when due will be
sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than
Securities replaced pursuant to Section 2.07), and if in either case the Company
pays all other sums payable hereunder by the Company, then this Indenture shall,
subject to Section 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance
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75
option") or (ii) its obligations under Sections 4.02, 4.03, 4.04, 4.05, 4.06,
4.07, 4.08, 4.11, 4.12, 4.13, 4.14, 4.15, 5.01(iii) and 5.01(iv) and the
operation of Section 6.01(4), 6.01(6), 6.01(7) (with respect to Subsidiaries of
the Company only), 6.01(9) (with respect to Subsidiaries of the Company only)
and 6.01(10) ("covenat defeasance option"). The Company may exercise its legal
defeasance option notwithstanding its prior exercise of its covenant defeasance
option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Section 6.01(4),
6.01(6), 6.01(7) (with respect to Subsidiaries of the Company only), 6.01(9)
(with respect to Subsidiaries of the Company only) and 6.01(10) or because of
the failure of the Company to comply with (iii) and (iv) of Section 5.01.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05 and
8.06 shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. CONDITIONS TO DEFEASANCE. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal, premium (if
any) and interest on the Securities to maturity or redemption, as the case
may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all the Securities to maturity or redemption, as the case may be;
<PAGE> 83
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(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this 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 Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such 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 defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders 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; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. APPLICATION OF TRUST MONEY. The Trustee shall hold in
trust money or U.S. Government Obliga-
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77
tions deposited with it pursuant to this Article 8. It shall apply the deposited
money and the money from U.S. Government Obligations through the Paying Agent
and in accordance with this Indenture to the payment of principal of and
interest on the Securities. Money and securities so held in trust are not
subject to Article 10.
SECTION 8.04. REPAYMENT TO COMPANY. The Trustee and the Paying Agent
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.05. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations.
SECTION 8.06. REINSTATEMENT. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
<PAGE> 85
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ARTICLE 9
Amendments
----------
SECTION 9.01. WITHOUT CONSENT OF HOLDERS. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; PROVIDED, HOWEVER, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
therefor) under Article 10;
(5) to add further Guarantees with respect to the Securities or to
secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA;
(8) to make any change that does not adversely affect the rights of
any Securityholder; or
(9) to provide for the issuance of the Exchange Securities, which
shall have terms substantially identical in all material respects to the
Initial Securities (except that the transfer restrictions contained in the
Initial Securities shall be modified or eliminated, as appropriate), and
which shall be treated, together with any outstanding Initial Securities,
as a single issue of securities.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless
<PAGE> 86
79
the holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. WITH CONSENT OF HOLDERS. The Company, the Subsidiary
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in principal amount of the Securities. However, without the
consent of each Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article 10 that adversely affects the rights of
any Securityholder under Article 10;
(7) make any change in Section 6.04 or 6.07 or the second sentence of
this Section; or
(8) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of any Subsidiary Guarantor for the due
and punctual payment of the principal of or any liquidated damages or
interest on Securities.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
<PAGE> 87
80
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Securityholder. An amendment or
waiver becomes effective once the requisite number of consents are received by
the Company or the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an
<PAGE> 88
81
appropriate notation on the Security regarding the changed terms and return it
to the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate notation or to issue a new Security shall not affect the validity of
such amendment.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment is authorized or permitted by this Indenture that such amendment is
the legal, valid and binding obligation of the Company and the Subsidiary
Guarantors enforceable against them in accordance with its terms, subject to
customary exceptions, and complies with the provisions hereof (including Section
9.03).
SECTION 9.07. PAYMENT FOR CONSENT. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subordination
-------------
<PAGE> 89
82
SECTION 10.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each
Securityholder by accepting a Security agrees, that the Indebtedness evidenced
by the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article 10, to the prior payment in full of all Senior
Indebtedness and that the subordination is for the benefit of and enforceable by
the holders of Senior Indebtedness. The Securities shall in all respects rank
PARI PASSU with all other Senior Subordinated Indebtedness of the Company and
only Indebtedness of the Company that is Senior Indebtedness shall rank senior
to the Securities in accordance with the provisions set forth herein. For
purposes of these subordination provisions, the Indebtedness evidenced by the
Securities is deemed to include the liquidated damages payable pursuant to the
provisions set forth in the Securities and the Exchange and Registration Rights
Agreement. All provisions of this Article 10 shall be subject to Section 10.12.
SECTION 10.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment
or distribution of the assets of the Company to creditors upon a total or
partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full of the Senior Indebtedness before Securityholders shall be
entitled to receive any payment of principal of or interest on the
Securities; and
(2) until the Senior Indebtedness is paid in full, any payment or
distribution to which Securityholders would be entitled but for this
Article 10 shall be made to holders of Senior Indebtedness as their
interests may appear, except that Securityholders may receive shares of
stock and any debt securities that are subordinated to Senior Indebtedness
to at least the same extent as the Securities.
SECTION 10.03. DEFAULT ON SENIOR INDEBTEDNESS. The Company may not pay
the principal of, premium (if any) or interest on the Securities or make any
deposit pursuant to Section 8.01 and may not repurchase, redeem or otherwise
retire any Securities (collectively, "pay the Securities") if (i) any Senior
Indebtedness is not paid when due or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, (x) the default has been
cured or waived and any such acceleration has been rescinded or (y) such Senior
Indebtedness has been
<PAGE> 90
83
paid in full; PROVIDED, HOWEVER, that the Company may pay the Securities without
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of the Designated Senior
Indebtedness with respect to which either of the events in clause (i) or (ii) of
this sentence has occurred and is continuing. During the continuance of any
default (other than a default described in clause (i) or (ii) of the preceding
sentence) with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Company may not pay the
Securities for a period (a "Payment Blockage Period") commencing upon the
receipt by the Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice, (ii) by repayment in full of such
Designated Senior Indebtedness or (iii) because the default giving rise to such
Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of this Section), unless the holders of such
Designated Senior Indebtedness or the Representative of such holders shall have
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Securities after the end of such Payment Blockage Period,
including any missed payments. Not more than one Blockage Notice may be given in
any consecutive 360-day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period; PROVIDED, HOWEVER,
that if any Blockage Notice within such 360-day period is given by or on behalf
of any holders of Designated Senior Indebtedness other than the Bank
Indebtedness, the Representative of the Bank Indebtedness may give another
Blockage Notice within such period; PROVIDED FURTHER, HOWEVER, that in no event
may the total number of days during which any Payment Blockage Period or Periods
is in effect exceed 179 days in the aggregate during any 360 consecutive day
period. For purposes of this Section, no default or event of default that
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis of the commencement
of a subsequent Payment Blockage Period by the Representative of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
<PAGE> 91
84
unless such default or event of default shall have been cured or waived for a
period of not less than 90 consecutive days.
SECTION 10.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of
the Securities is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify known holders of the Designated Senior
Indebtedness (or their Representative) of the acceleration. If any Designated
Senior Indebtedness is outstanding, the Company may not pay the Securities until
five Business Days after such holders (or their Representative) of the
Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Securities only if this Article 10 otherwise permits
payment at that time.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution
is made to Securityholders that because of this Article 10 should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Indebtedness and pay it over to them as their
interests may appear.
SECTION 10.06. SUBROGATION. After all Senior Indebtedness is paid in
full and until the Securities are paid in full, Securityholders shall be
subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness. A distribution made under this
Article 10 to holders of Senior Indebtedness that otherwise would have been made
to Securityholders is not, as between the Company and Securityholders, a payment
by the Company on Senior Indebtedness.
SECTION 10.07. RELATIVE RIGHTS. This Article 10 defines the relative
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness to receive distributions otherwise payable to
Securityholders.
SECTION 10.08. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right
of any holder of Senior Indebtedness to enforce the subordination of the
Indebtedness evidenced
<PAGE> 92
85
by the Securities shall be impaired by any act or failure to act by the Company
or by its failure to comply with this Indenture.
SECTION 10.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments unless, not less than two
Business Days prior to the date of such payment, a Trust Officer of the Trustee
receives notice satisfactory to it that payments may not be made under this
Article 10. The Company, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness may give the notice; PROVIDED,
HOWEVER, that, if an issue of Senior Indebtedness has a Representative, only the
Representative may give the notice. The Trustee shall be entitled to rely on the
delivery to it of a written notice by a Person representing himself or itself to
be a holder of any Senior Indebtedness (or a Representative of such holder) to
establish that such notice has been given by a holder of such Senior
Indebtedness or Representative thereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 10 with respect to any Senior Indebtedness that may at any time be held
by it, to the same extent as any other holder of Senior Indebtedness; and
nothing in Article 7 shall deprive the Trustee of any of its rights as such
holder. Nothing in this Article 10 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 7.07.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative (if
any).
SECTION 10.11. ARTICLE 10 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE. The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect on
the right of the Securityholders or the Trustee to accelerate the maturity of
the Securities.
<PAGE> 93
86
SECTION 10.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Securities shall not be subordinated
to the prior payment of any Senior Indebtedness or subject to the restrictions
set forth in this Article 10, and none of the Securityholders shall be obligated
to pay over any such amount to the Company or any holder of Senior Indebtedness
of the Company or any other creditor of the Company.
SECTION 10.13. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10. In the event that the Trustee determines, in good
faith, that evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 10, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article 10, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 10.
SECTION 10.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article 10 and appoints the Trustee as
attorney-in-fact for any and all such purposes.
<PAGE> 94
87
SECTION 10.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article 10 or otherwise.
SECTION 10.16. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS ON
SUBORDINATION PROVISIONS. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness.
SECTION 10.17. TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in this
Article shall apply to amounts due to the Trustee pursuant to other sections of
this Indenture.
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88
ARTICLE 11
Subsidiary Guarantees
---------------------
SECTION 11.01. SUBSIDIARY GUARANTEES. Each Subsidiary Guarantor hereby
jointly and severally unconditionally and irrevocably guarantees, as a primary
obligor and not merely as a surety, to each Holder and to the Trustee and its
successors and assigns (a) the full and punctual payment of principal of and
interest on the Securities when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Company under
this Indenture (including obligations to the Trustee) and the Securities and (b)
the full and punctual performance within applicable grace periods of all other
obligations of the Company whether for expenses, indemnification or otherwise
under this Indenture and the Securities (all the foregoing being hereinafter
collectively called the "Obligations"). Each Subsidiary Guarantor further agrees
that the Obligations may be extended or renewed, in whole or in part, without
notice or further assent from each such Subsidiary Guarantor, and that each such
Subsidiary Guarantor shall remain bound under this Article 11 notwithstanding
any extension or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or Trustee to exercise
any right or remedy against any other guarantor of the Obligations; or (f) any
change in the ownership of such Subsidiary Guarantor, except as provided in
Section 11.02(b).
Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Obligations.
<PAGE> 96
89
The obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing that may or might in any
manner or to any extent vary the risk of any Subsidiary Guarantor or would
otherwise operate as a discharge of any Subsidiary Guarantor as a matter of law
or equity.
Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee
herein shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of principal of or interest on any
Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and shall, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid principal amount of such Obligations, (ii) accrued
and unpaid interest on such Obligations (but only to the extent not prohibited
by law) and (iii) all other monetary Obligations of the Company to the Holders
and the Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any Obligations
guaranteed hereby until payment in full of all Obligations. Each Subsidiary
Guarantor further agrees that, as between it, on the one
<PAGE> 97
90
hand, and the Holders and the Trustee, on the other hand, (x) the maturity of
the Obligations guaranteed hereby may be accelerated as provided in Article VI
for the purposes of any Subsidiary Guarantee herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article VI, such Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees and expenses) incurred by the
Trustee or any Holder in enforcing any rights under this Section.
SECTION 11.02. LIMITATION ON LIABILITY. (a) Any term or provision of
this Indenture to the contrary notwithstanding, the maximum, aggregate amount of
the obligations guaranteed hereunder by any Subsidiary Guarantor shall not
exceed the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to any Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
(b) This Subsidiary Guarantee as to any Subsidiary Guarantor shall
terminate and be of no further force or effect upon the sale (including through
merger or consolidation) of the Capital Stock, or all or substantially all the
assets, of the applicable Subsidiary Guarantor if (a) such sale is made in
compliance with the covenant described under Section 4.06 and (b) such
Subsidiary Guarantor is released from its guarantees of, and all pledges and
security granted in connection with, the Credit Agreement and any other
Indebtedness of Parent, the Company or any Restricted Subsidiary. A Subsidiary
Guarantee also will be automatically released upon the applicable Subsidiary
Guarantor ceasing to be a Subsidiary of the Company as a result of any
foreclosure of any pledge or security interest securing Bank Indebtedness or
other exercise of remedies in respect thereof if such Subsidiary Guarantor is
released from its guarantees of, and all pledges and security interests granted
in connection with, the Credit Agreement.
SECTION 11.03. SUCCESSORS AND ASSIGNS. This Article 11 shall be
binding upon each Subsidiary Guarantor and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and
<PAGE> 98
91
privileges conferred upon that party in this Indenture and in the Securities
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions of this Indenture.
SECTION 11.04. NO WAIVER. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits that either may have under this Article 11 at law,
in equity, by statute or otherwise.
SECTION 11.05. MODIFICATION. No modification, amendment or waiver of
any provision of this Article 11, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
ARTICLE 12
Subordination of the Subsidiary Guarantees
------------------------------------------
SECTION 12.01. AGREEMENT TO SUBORDINATE. Each Subsidiary Guarantor
agrees, and each Securityholder by accepting a Security agrees, that the
Obligations of a Subsidiary Guarantor are subordinated in right of payment, to
the extent and in the manner provided in this Article 12, to the prior payment
in full of all Senior Indebtedness of such Subsidiary Guarantor and that the
subordination is for the benefit of and enforceable by the holders of Senior
Indebtedness of such Subsidiary Guarantor. The Obligations with respect to a
Subsidiary Guarantor shall in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of such Subsidiary Guarantor, and only Indebtedness of
such Subsidiary Guarantor that is Senior Indebtedness of such Subsidiary
Guarantor shall rank senior to the Obligations of such Subsidiary Guarantor in
accordance with the provisions set forth herein.
<PAGE> 99
92
SECTION 12.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment
or distribution of the assets of a Subsidiary Guarantor to creditors upon a
total or partial liquidation or a total or partial dissolution of such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor and its
properties:
(1) holders of Senior Indebtedness of such Subsidiary Guarantor shall
be entitled to receive payment in full of such Senior Indebtedness before
Securityholders shall be entitled to receive any payment of any Obligations
from such Subsidiary Guarantor; and
(2) until the Senior Indebtedness of such Subsidiary Guarantor is paid
in full, any payment or distribution to which Securityholders would be
entitled but for this Article 12 shall be made to holders of such Senior
Indebtedness as their respective interests may appear.
SECTION 12.03. DEFAULT ON SENIOR INDEBTEDNESS OF A SUBSIDIARY
GUARANTOR. A Subsidiary Guarantor may not make any payment pursuant to any of
the Obligations or repurchase, redeem or otherwise retire any Securities
(collectively, "pay its Guarantee") if (i) any Senior Indebtedness of such
Subsidiary Guarantor is not paid when due or (ii) any other default on Senior
Indebtedness of such Subsidiary Guarantor occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Senior Indebtedness has been paid in full; PROVIDED,
HOWEVER, that such Subsidiary Guarantor may pay its Subsidiary Guarantee without
regard to the foregoing if such Subsidiary Guarantor and the Trustee receive
written notice approving such payment from the Representative of the holders of
such Senior Indebtedness with respect to which either of the events in clause
(i) or (ii) of this sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the preceding sentence) with respect to any Designated Senior Indebtedness of
a Subsidiary Guarantor pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
such Subsidiary Guarantor may not pay its Guarantee for a period (a "Subsidiary
Guarantor Payment Blockage Period") commencing upon the receipt by the Trustee
(with a copy to such Subsidiary Guarantor and the Company) of written notice (a
<PAGE> 100
93
"Subsidiary Guarantor Blockage Notice") of such default from the Representative
of the holders of the Designated Senior Indebtedness of such Subsidiary
Guarantor specifying an election to effect a Subsidiary Guarantor Payment
Blockage Period and ending 179 days thereafter (or earlier if such Subsidiary
Guarantor Payment Blockage Period is terminated (i) by written notice to the
Trustee (with a copy to such Subsidiary Guarantor and the Company) from the
Person or Persons who gave such Subsidiary Guarantor Blockage Notice, (ii)
because such Designated Senior Indebtedness has been repaid in full or (iii)
because the default giving rise to such Subsidiary Guarantor Blockage Notice is
no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this Section), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders shall have accelerated the
maturity of such Designated Senior Indebtedness, such Subsidiary Guarantor may
resume to pay its Guarantee after such Subsidiary Guarantor Payment Blockage
Period, including any missed payments. Not more than one Subsidiary Guarantor
Blockage Notice may be given with respect to a Subsidiary Guarantor in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness of such Subsidiary Guarantor during such
period; PROVIDED, HOWEVER, that if any Subsidiary Guarantor Blockage Notice
within such 360-day period is given by or on behalf of any holders of Designated
Senior Indebtedness of such Subsidiary Guarantor (other than the Bank
Indebtedness), the Representative of the Bank Indebtedness may give another
Subsidiary Guarantor Blockage Notice within such period; PROVIDED FURTHER,
HOWEVER, that in no event may the total number of days during which any
Subsidiary Guarantor Payment Blockage Period or Periods is in effect exceed 179
days in the aggregate during any 360 consecutive day period.
SECTION 12.04. DEMAND FOR PAYMENT. If payment of the Securities is
accelerated because of an Event of Default and a demand for payment is made on a
Subsidiary Guarantor pursuant to Article 11 the Trustee shall promptly notify
known holders of the Designated Senior Indebtedness of such Subsidiary Guarantor
(or the Representative of such holders) of such demand. If any Designated Senior
Indebtedness of such Subsidiary Guarantor is outstanding, such Subsidiary
Guarantor may not pay its Guarantee until five Business Days after such holders
or the Representative of the holders of the Designated Senior Indebtedness of
such Subsidiary Guarantor receive notice of such demand and, thereafter, may pay
its Guarantee only if this Article 12 otherwise permits payment at that time.
<PAGE> 101
94
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a payment or
distribution is made to Securityholders that because of this Article 12 should
not have been made to them, the Securityholders who receive the payment or
distribution shall hold such payment or distribution in trust for holders of the
Senior Indebtedness of the relevant Subsidiary Guarantor and pay it over to them
as their respective interests may appear.
SECTION 12.06. SUBROGATION. After all Senior Indebtedness of a
Subsidiary Guarantor is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor to receive distributions applicable to
Senior Indebtedness of such Subsidiary Guarantor. A distribution made under this
Article 12 to holders of Senior Indebtedness of such Subsidiary Guarantor which
otherwise would have been made to Securityholders is not, as between such
Subsidiary Guarantor and Securityholders, a payment by such Subsidiary Guarantor
on Senior Indebtedness of such Subsidiary Guarantor.
SECTION 12.07. RELATIVE RIGHTS. This Article 12 defines the relative
rights of Securityholders and holders of Senior Indebtedness of a Subsidiary
Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders, the
obligation of a Subsidiary Guarantor that is absolute and unconditional, to
pay its Obligations to the extent set forth in Article 11; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by a Subsidiary Guarantor under its
Obligations, subject to the rights of holders of Senior Indebtedness of
such Subsidiary Guarantor to receive distributions otherwise payable to
Securityholders.
SECTION 12.08. SUBORDINATION MAY NOT BE IMPAIRED BY ASUBSIDIARY
GUARANTOR. No right of any holder of Senior Indebtedness of a Subsidiary
Guarantor to enforce the subordination of the Obligations of such Subsidiary
Guarantor shall be impaired by any act or failure to act by such Subsidiary
Guarantor or by its failure to comply with this Indenture.
SECTION 12.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding
Section 12.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of facts
that would prohibit the making of any such payments
<PAGE> 102
95
unless, not less than two Business Days prior to the date of such payment, a
Trust Officer of the Trustee receives notice satisfactory to it that payments
may not be made under this Article 12. A Subsidiary Guarantor, the Registrar or
co-registrar, the Paying Agent, a Representative or a holder of Senior
Indebtedness of a Subsidiary Guarantor may give the notice; PROVIDED, HOWEVER,
that, if an issue of Senior Indebtedness of a Subsidiary Guarantor has a
Representative, only the Representative may give the notice. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Indebtedness of a
Subsidiary Guarantor (or a Representative of such holder) to establish that such
notice has been given by a holder of such Senior Indebtedness or Representative
thereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of a Subsidiary Guarantor with the same rights it would have if it
were not Trustee. The Registrar and co-registrar and the Paying Agent may do the
same with like rights. The Trustee shall be entitled to all the rights set forth
in this Article 12 with respect to any Senior Indebtedness of a Subsidiary
Guarantor which may at any time be held by it, to the same extent as any other
holder of Senior Indebtedness of such Subsidiary Guarantor; and nothing in
Article VII shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 7.07.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of a Subsidiary Guarantor, the distribution may be made and the notice given to
their Representative (if any).
SECTION 12.11. ARTICLE 12 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT
RIGHT TO ACCELERATE. The failure of a Subsidiary Guarantor to make a payment on
any of its Obligations by reason of any provision in this Article 12 shall not
be construed as preventing the occurrence of a default by such Subsidiary
Guarantor under its Obligations. Nothing in this Article 12 shall have any
effect on the right of the Securityholders or the Trustee to make a demand for
payment on a Subsidiary Guarantor pursuant to Article 11.
SECTION 12.12. TRUSTEE ENTITLED TO RELY. Upon any payment or
distribution pursuant to this Article 12, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
12.02 are pending, (ii) upon a certificate of the
<PAGE> 103
96
liquidating trustee or agent or other Person making such payment or distribution
to the Trustee or to the Securityholders or (iii) upon the Representatives for
the holders of Senior Indebtedness of a Subsidiary Guarantor for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness of a Subsidiary Guarantor
and other Indebtedness of a Subsidiary Guarantor, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 12. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness of a Subsidiary Guarantor to
participate in any payment or distribution pursuant to this Article 12, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of Senior Indebtedness of such
Subsidiary Guarantor held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and other facts
pertinent to the rights of such Person under this Article 12, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be applicable to all
actions or omissions of actions by the Trustee pursuant to this Article 12.
SECTION 12.13. TRUSTEE TO EFFECTUATE SUBORDINATION. Each
Securityholder by accepting a Security authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of each of the Subsidiary Guarantor as provided in this
Article 12 and appoints the Trustee as attorney-in-fact for any and all such
purposes.
SECTION 12.14. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR
INDEBTEDNESS OF A SUBSIDIARY GUARANTOR. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness of a Subsidiary
Guarantor and shall not be liable to any such holders if it shall mistakenly pay
over or distribute to Securityholders or the relevant Subsidiary Guarantor or
any other Person, money or assets to which any holders of Senior Indebtedness of
such Subsidiary Guarantor shall be entitled by virtue of this Article 12 or
otherwise.
SECTION 12.15. RELIANCE BY HOLDERS OF SENIOR INDEBTEDNESS OF A
SUBSIDIARY GUARANTOR ON SUBORDINATION PROVISIONS. Each Securityholder by
accepting a Security acknowledges and agrees that the foregoing subordination
provisions are, and are intended to be, an inducement and a
<PAGE> 104
97
consideration to each holder of any Senior Indebtedness of a Subsidiary
Guarantor, whether such Senior Indebtedness was created or acquired before or
after the issuance of the Securities, to acquire and continue to hold, or to
continue to hold, such Senior Indebtedness and such holder of Senior
Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Senior Indebtedness.
ARTICLE 13
Miscellaneous
-------------
SECTION 13.01. TRUST INDENTURE ACT CONTROLS. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. NOTICES. Any notice or communication shall be in
writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company or any Subsidiary Guarantor:
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, OH 44117-1795
Attention of:
Chief Financial Officer
if to the Trustee:
Harris Trust and Savings Bank
311 West Monroe
12th Floor
Chicago, IL 60606
Attention of:
Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Security holder shall be
mailed to the Securityholder at the Securityholder's address as it appears on
the registration books of the Registrar and shall be sufficiently given if so
mailed within the time prescribed.
<PAGE> 105
98
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Subsidiary Guarantors, the Trustee, the Registrar
and anyone else shall have the protection of TIA ss. 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
<PAGE> 106
99
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. WHEN SECURITIES DISREGARDED. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities that the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 13.07. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 13.08. LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a
Sunday or a day on which banking institutions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 13.09. GOVERNING LAW. This Indenture and the Securities shall
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 13.10. NO RECOURSE AGAINST OTHERS. A director, officer,
employee or stockholder, as such, of the Company or any Subsidiary Guarantor
shall not have any liability for any obligations of the Company or any
Subsidiary Guarantor under the Securities or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Security, each Securityholder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
SECTION 13.11. SUCCESSORS. All agreements of the Company and each
Subsidiary Guarantor in this Indenture and
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100
the Securities shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
SECTION 13.12. MULTIPLE ORIGINALS. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 13.13. TABLE OF CONTENTS; HEADINGS. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE> 108
101
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
ARGO-TECH CORPORATION,
by /s/ Yoichi Fujiki
----------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
ARGO-TECH CORPORATION (HBP),
by /s/ Yoichi Fujiki
-----------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
ARGO-TECH CORPORATION (OEM),
by /s/ Yoichi Fujiki
-----------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
ARGO-TECH CORPORATION
(AFTERMARKET),
by /s/ Yoichi Fujiki
-----------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
J.C. CARTER COMPANY, INC.,
by /s/ Yoichi Fujiki
------------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
HARRIS BANK, as Trustee,
by /s/ Judith Bartolini
--------------------------------------
Name: Judith Bartolini
Title: Vice President
<PAGE> 109
102
STATE OF OHIO )
) SS
COUNTY OF CUYAHOGA )
On September 26, 1997, before me personally came Yoichi Fujiki, to me
known, who, being by me duly sworn, did depose and say that he is the Vice
President and Treasurer of Argo-Tech Corporation, Argo-Tech Corporation (OEM),
Argo-Tech Corporation (Aftermarket), Argo-Tech Corporation (HBP), and JC Carter
Co., Inc., a Delaware corporation and that he signed his name thereto on
behalf of such corporation.
/s/ Laura A. Harn
-----------------------------
Notary Public in and for the
State of Ohio
Name:
My commission expires:
August 19, 2001
-----------------------------
<PAGE> 110
103
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On September 24, 1997, before me personally came J. Bartolini, to
me known, who, being by me duly sworn, did depose and say that she is Vice
President of Harris Trust and Savings Bank, a [state; nation] banking
corporation and that she signed her name thereto on behalf of such corporation.
/s/ M. Tinerella
-----------------------------
Notary Public in and for the
State of New York
Name:
My commission expires:
5-21-01
-----------------------------
<PAGE> 111
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. (1)
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL
ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF
- ---------------------
(1) This paragraph should only be added if the Security is issued in global
form.
<PAGE> 112
2
THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 FOR
SUCH SECURITIES FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR
SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR
(F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF ANY OF THE FOREGOING CLAUSES
(A) THROUGH (F), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
ARGO-TECH CORPORATION
8_% SENIOR SUBORDINATED NOTE DUE 2007
No. CUSIP No.
------- ---------
$
---------
ARGO-TECH CORPORATION, a Delaware corporation (the "Company"),
promises to pay to _________, or registered
<PAGE> 113
3
assigns, the principal sum of on October 1, 2007.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
<PAGE> 114
4
Additional provisions of this Security are set forth on the
other side of this Security.
Dated: September ___, 1997
ARGO-TECH CORPORATION,
by
-------------------------------------
Name:
Title:
by
-------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
HARRIS TRUST AND SAVINGS BANK,
as Trustee, certifies that
this is one of the Securities [Seal]
referred to in the Indenture,
by
----------------------------
Authorized Signatory
<PAGE> 115
5
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
8_% Senior Subordinated Note due 2007
1. Interest
--------
<PAGE> 116
6
ARGO-TECH CORPORATION, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will use its best efforts to have the
Exchange Offer Registration Statement or, if applicable, the Shelf Registration
Statement (each a "Registration Statement") declared effective by the Commission
as promptly as practicable after the filing thereof. If (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement, as
applicable, under the Exchange and Registration Rights Agreement is not filed
with the Commission on or prior to 30 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or, as the case may be, the Shelf
Registration Statement, is not declared effective within 105 days after the
Issue Date (or in the case of a Shelf Registration Statement required to be
filed in response to a change in law or the applicable interpretation of the
Commission's staff, if later, within 30 days after publication of the law or
interpretation), (iii) the Exchange Offer is not consummated on or prior to 135
days after the Issue Date, or (iv) the Shelf Registration Statement is filed and
declared effective within 105 days after the Issue Date (or in the case of a
Shelf Registration Statement required to be filed in response to a change in law
or the applicable interpretation of the Commission's staff, if later, within 30
days after publication of the law or interpretation) but shall thereafter cease
to be effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company will pay
liquidated damages to each holder of Transfer Restricted Securities, during the
period of such Registration Default, in an amount equal to $0.192 per week per
$1,000 principal amount of the Securities constituting Transfer Restricted
Securities held by such holder until the applicable Registration Statement is
filed or declared effective, the Exchange Offer is consummated or the Shelf
Registration Statement again becomes effective, as the case may be. All accrued
liquidated damages shall be paid to holders in the same manner as interest
payments on the Securities on semi-annual payment dates that correspond to
interest payment dates for the Securities. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease. The Trustee
shall have no responsibility with respect to the
<PAGE> 117
7
determination of the amount of any such liquidated damages. For purposes of the
foregoing, "Transfer Restricted Securities" means each Initial Security until
(i) the date on which such Initial Security has been exchanged for a freely
transferable Exchange Security in the Exchange Offer, (ii) the date on which
such Initial Security has been effectively registered under the Securities Act
and disposed of in accordance with the Shelf Registration Statement or (iii) the
date on which such Initial Security is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act.
The Company will pay interest and liquidated damages, if any,
semiannually on April 1 and October 1 of each year. Interest on the Securities
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from September 26, 1997. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal at the rate borne by the Securities, and it shall
pay interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
-----------------
The Company will pay interest (except defaulted interest) on
and liquidated damages, if any, in respect of the Securities to the Persons who
are registered holders of Securities at the close of business on the March 15 or
September 15 next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company will pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money or by wire transfer of federal funds.
3. Paying Agent and Registrar
--------------------------
Initially, HARRIS TRUST AND SAVINGS BANK, ("Trustee"), will
act as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar
<PAGE> 118
8
or co-registrar without notice to the Holders. The Company or any domestically
organized Wholly Owned Subsidiary may act as Paying Agent, Registrar or
co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as
of September 26, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors and the Trustee. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture and
the Act for a statement of those terms.
The Securities are unsecured senior subordinated obligations
of the Company limited to $140,000,000 aggregate principal amount at any one
time outstanding (subject to Section 2.07 of the Indenture). This Security is
one of the Initial Securities referred to in the Indenture. The Securities
include the Initial Securities and any Exchange Securities issued in exchange
for the Initial Securities pursuant to the Indenture. The Initial Securities and
the Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries; the payment of
dividends on, and redemption of, Capital Stock of the Company and its Restricted
Subsidiaries and the redemption of certain Subordinated Obligations of the
Company and its Restricted Subsidiaries; Investments; sales of assets and
Capital Stock of Restricted Subsidiaries; certain transactions with Affiliates
of the Company; the sale or issuance of Capital Stock of the Restricted
Subsidiaries; the lines of business in which the Company and its Restricted
Subsidiaries may operate; Sale/Leaseback Transactions; and consolidations,
mergers and transfers of all or substantially all of the Company's assets. In
addition, the Indenture prohibits certain restrictions on distributions and
dividends from Restricted Subsidiaries.
<PAGE> 119
9
5. Optional Redemption
-------------------
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to October 1, 2002. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest (if any) to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption),
if redeemed during the 12-month period beginning on or after October 1 of the
years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ ----------
<S> <C>
2002......................................................... 104.313%
2003......................................................... 102.875%
2004......................................................... 101.438%
2005 and thereafter.......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to October
1, 2000, the Company may redeem in the aggregate up to 33_% of the original
aggregate principal amount of Securities with the proceeds of one or more Public
Equity Offerings by the Company following which there is a Public Market at a
redemption price (expressed as a percentage of principal amount) of 108.625%
plus accrued and unpaid interest (if any) to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the date of
redemption); PROVIDED, HOWEVER, that at least 66_% of the original aggregate
principal amount of the Securities must remain outstanding after each such
redemption.
6. Notice of Redemption
--------------------
<PAGE> 120
10
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at its registered address. In case of any
partial redemption, the Trustee shall select the Securities to be redeemed pro
rata or by lot or by a method that complies with applicable legal and securities
exchange requirements, if any, and that the Trustee in its sole discretion
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest (if any) on all Securities (or portions thereof) to be redeemed
on the redemption date is deposited with the Paying Agent on or before the
redemption date and certain other conditions are satisfied, on and after such
date interest ceases to accrue on such Securities (or such portions thereof)
called for redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions set forth in the Indenture, to cause
the Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest (if any) to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of repurchase) as provided in, and subject to the terms of, the
Indenture.
<PAGE> 121
11
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Securities may be
paid. The Company agrees, and each Securityholder by accepting a Security
agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. Upon any transfer or
exchange, the Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or to transfer or exchange any Securities for a
period of 15 days prior to a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
<PAGE> 122
12
12. Discharge and Defeasance
------------------------
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of their obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any past default or noncompliance with any provision may be waived with
the consent of the Holders of a majority in principal amount then outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to make any change in Article 10 that would limit or terminate the benefits
available to any holder of Senior Indebtedness (or representative thereof) under
Article 10, or to add guarantees with respect to the Securities or to secure the
Securities, or to add additional covenants or surrender rights and powers
conferred on the Company, or to comply with any request of the SEC in connection
with qualifying the Indenture under the Act, or to make any other change that
does not adversely affect the rights of any Securityholder or to provide for the
issuance and authorization of the Exchange Securities.
<PAGE> 123
13
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities (whether or not such payment is
prohibited by Article 10); (ii) default in payment of principal on the
Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, or failure by the Company to redeem or purchase, upon declaration or
otherwise (whether or not such payment is prohibited by Article 10), Securities
when required; (iii) failure by the Company to comply with other agreements in
the Indenture or the Securities, in certain cases subject to notice and lapse of
time; (iv) certain accelerations (including failure to pay within any grace
period after final maturity) of other Indebtedness of the Company or any
Significant Subsidiary if the amount accelerated (or so unpaid) exceeds
$5,000,000 or its foreign currency equivalent; (v) certain events of bankruptcy,
insolvency or reorganization with respect to the Company and the Significant
Subsidiaries; (vi) certain judgments or decrees for the payment of money in
excess of $5,000,000 or its foreign currency equivalent against the Company or a
Significant Subsidiary; and (vii) a Subsidiary Guarantee ceasing to be in full
force and effect (other than in accordance with its terms) or any Subsidiary
Guarantor denies or disaffirms its obligations under the Indenture or its
Subsidiary Guarantee and such Default continues for 30 days. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities to be due and
payable immediately. Certain events of bankruptcy or insolvency are Events of
Default that will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal, premium, if any, or interest)
if and so long as a committee of its Trust Officers in good faith determines
that withholding notice is in the interest of the Holders.
<PAGE> 124
14
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, partner (including any general partner),
employee, incorporator or equityholder of the Company, as such, shall not have
any liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Governing Law
-------------
THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
<PAGE> 125
15
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
20. CUSIP Numbers
--------------
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company have caused CUSIP numbers
to be printed on the Securities and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
ARGO-TECH CORPORATION
23555 EUCLID AVENUE
CLEVELAND, OH 44117-1795
ATTENTION OF CHIEF FINANCIAL OFFICER
<PAGE> 126
16
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _______________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Date: ________________ Your Signature: ________________________________________
Signature Guarantee:___________________________________________________________
(Signature must be guaranteed by a guarantee medallion
program)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE> 127
17
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER RESTRICTED SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
[ ] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Security held by the Depository a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial
interest in such Global Security (or the portion thereof indicated
above);
[ ] has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW:
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration
statement under the Securities Act of 1933;
or
(3) [ ] inside the United States to a "qualified
institutional buyer" (as defined in Rule
144A under the Securities Act of 1933) that
purchases for its own account or for the
account of a qualified institutional buyer
to whom notice is given that such transfer
is being made
<PAGE> 128
18
in reliance on Rule 144A under the
Securities Act, in each case pursuant to
and in compliance with Rule 144A under the
Securities Act of 1933; or
(4) [ ] outside the United States in an offshore
transaction within the meaning of Regulation
S under the Securities Act in compliance
with Rule 904 under the Securities Act of
1933; or
(5) [ ] to an institutional "accredited investor"
(as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter
containing certain representations and
agreements (the form of which letter is
attached to this Indenture as Exhibit F and
which may be obtained from the Trustee); or
(6) [ ] pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Securities evidenced by this certificate
in the name of any person other than the registered holder
thereof; PROVIDED, HOWEVER, that if box (4), (5) or (6) is
checked, the Trustee may require, prior to registering any
such transfer of the Securities, such legal opinions,
certifications and other information as the Company has
reasonably requested to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities
Act of 1933, such as the exemption provided by Rule 144 under
such Act.
------------------------
Signature
<PAGE> 129
19
Signature Guarantee:
----------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
<PAGE> 130
20
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933 ("Rule 144A"), and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has requested pursuant to
Rule 144A or has determined not to request such information and that it is aware
that the transferor is relying upon the undersigned's foregoing representations
in order to claim the exemption from registration provided by Rule 144A.
Dated:
------------------------- -------------------------------------
NOTICE: To be executed by
an executive officer
<PAGE> 131
21
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal in Principal Amount this Global Security authorized officer
Amount of this of this Global following such of Trustee or
Global Security Security decrease or increase Securities Custodian
</TABLE>
<PAGE> 132
22
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.06 or 4.08 of the Indenture,
state the amount: $ .
------------------
Date: Your Signature:
-------------------- ---------------------------------------
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
<PAGE> 133
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
[Global Securities Legend]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. (1)
ARGO-TECH CORPORATION
8_% SENIOR SUBORDINATED NOTE DUE 2007
No. # CUSIP No.
$
ARGO-TECH CORPORATION, a Delaware corporation (the "Company"),
promises to pay to , or registered assigns,
the principal sum of $ on October 1, 2007.
- --------------------------
(1) This paragraph should only be added if the Security is issued in global
form.
<PAGE> 134
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
<PAGE> 135
3
Additional provisions of this Security are set forth on the
other side of this Security.
Dated:
ARGO-TECH CORPORATION,
by
---------------------------------------
Name:
Title:
by
---------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
HARRIS TRUST AND SAVINGS
BANK, as Trustee,
certifies that this is [Seal]
one of the Securities
referred to in the
Indenture,
by
---------------------------
Authorized Signatory
<PAGE> 136
4
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
8_% Senior Subordinated Note due 2007
1. Interest
--------
ARGO-TECH CORPORATION, a Delaware corporation (the "Company")
promises to pay interest on the principal amount of this Security at the rate
per annum shown above.
The Company will pay interest and liquidated damages, if any,
semiannually on April 1 and October 1 of each year. Interest on the Securities
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from September 26, 1997. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal at the rate borne by the Securities, and it shall
pay interest on overdue installments of interest at the same rate to the extent
lawful.
2. Method of Payment
-----------------
The Company will pay interest (except defaulted interest) to
the Persons who are registered holders of Securities at the close of business on
the March 15 or September 15 next preceding the interest payment date even if
Securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company may pay principal and interest by check
payable in such money or by wire transfer of federal funds.
3. Paying Agent and Registrar
--------------------------
Initially, HARRIS TRUST AND SAVINGS BANK ("Trustee"), will act
as Paying Agent and Registrar. The Company may appoint and change any Paying
Agent, Registrar or co-registrar without notice to the Holders. The Company or
any domestically organized Wholly Owned Subsidiary may act as Paying Agent,
Registrar or co-registrar.
<PAGE> 137
5
4. Indenture
---------
The Company issued the Securities under an Indenture dated as
of September 26, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors and the Trustee. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture and
the Act for a statement of those terms.
The Securities are unsecured senior subordinated obligations
of the Company limited to $140,000,000 aggregate principal amount at any one
time outstanding (subject to Section 2.07 of the Indenture). This Security is
one of the Exchange Securities referred to in the Indenture. The Securities
include the Initial Securities and any Exchange Securities issued in exchange
for the Initial Securities pursuant to the Indenture. The Initial Securities and
the Exchange Securities are treated as a single class of securities under the
Indenture. The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries; the payment of
dividends on, and redemption of, Capital Stock of the Company and its Restricted
Subsidiaries and the redemption of certain Subordinated Obligations of the
Company and its Restricted Subsidiaries; Investments; sales of assets and
Capital Stock of Restricted Subsidiaries; certain transactions with Affiliates
of the Company; the sale or issuance of Capital Stock of the Restricted
Subsidiaries; the lines of business in which the Company and its Restricted
Subsidiaries may operate; Sale/Leaseback Transactions; and consolidations,
mergers and transfers of all or substantially all of the Company's assets. In
addition, the Indenture prohibits certain restrictions on distributions and
dividends from Restricted Subsidiaries.
5. Optional Redemption
-------------------
<PAGE> 138
6
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to October 1, 2002. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest (if any) to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption),
if redeemed during the 12-month period beginning on or after October 1 of the
years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
- ------ -----------
<S> <C>
2002..................................................... 104.313%
2003..................................................... 102.875%
2004..................................................... 101.438%
2005 and thereafter...................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to October
1, 2000, the Company may redeem in the aggregate up to 33_% of the original
aggregate principal amount of Securities with the proceeds of one or more Public
Equity Offerings by the Company following which there is a Public Market at a
redemption price (expressed as a percentage of principal amount) of 108.625%
plus accrued and unpaid interest (if any) to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the date of
redemption); PROVIDED, HOWEVER, that at least 66_% of the original aggregate
principal amount of the Securities must remain outstanding after each such
redemption.
6. Notice of Redemption
--------------------
<PAGE> 139
7
Notice of redemption will be mailed by first-class mail at
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at its registered address. In case of any
partial redemption, the Trustee shall select the Securities to be redeemed pro
rata or by lot or by a method that complies with applicable legal and securities
exchange requirements, if any, and that the Trustee in its sole discretion
considers fair and appropriate and in accordance with methods generally used at
the time of selection by fiduciaries in similar circumstances. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest (if any) on all Securities (or portions thereof) to be redeemed
on the redemption date is deposited with the Paying Agent on or before the
redemption date and certain other conditions are satisfied, on and after such
date interest ceases to accrue on such Securities (or such portions thereof)
called for redemption.
7. Put Provisions
--------------
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions set forth in the Indenture, to cause
the Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest (if any) to the date of repurchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of repurchase) as provided in, and subject to the terms of, the
Indenture.
<PAGE> 140
8
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness of the
Company, as defined in the Indenture. To the extent provided in the Indenture,
Senior Indebtedness of the Company must be paid before the Securities may be
paid. The Company agrees, and each Securityholder by accepting a Security
agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as
attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. Upon any transfer or
exchange, the Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes required by law or permitted by the Indenture. The Registrar need not
register the transfer of or exchange any Securities selected for redemption
(except, in the case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or to transfer or exchange any Securities for a
period of 15 days prior to a selection of Securities to be redeemed or 15 days
before an interest payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at their written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
<PAGE> 141
9
12. Discharge and Defeasance
------------------------
Subject to certain conditions set forth in the Indenture, the
Company at any time may terminate some or all of their obligations under the
Securities and the Indenture if the Company deposits with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
------------------
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any past default or noncompliance with any provision may be waived with
the consent of the Holders of a majority in principal amount then outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to make any change in Article 10 that would limit or terminate the benefits
available to any holder of Senior Indebtedness (or representative thereof) under
Article 10, or to add guarantees with respect to the Securities or to secure the
Securities, or to add additional covenants or surrender rights and powers
conferred on the Company, or to comply with any request of the SEC in connection
with qualifying the Indenture under the Act, or to make certain changes in the
subordination provisions, or to make any change that does not adversely affect
the rights of any Securityholder.
<PAGE> 142
10
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities (whether or not such payment is
prohibited by Article 10); (ii) default in payment of principal on the
Securities at maturity, upon redemption pursuant to paragraph 5 of the
Securities, or failure by the Company to redeem or purchase, upon declaration or
otherwise (whether or not such payment is prohibited by Article 10), Securities
when required; (iii) failure by the Company to comply with other agreements in
the Indenture or the Securities, in certain cases subject to notice and lapse of
time; (iv) certain accelerations (including failure to pay within any grace
period after final maturity) of other Indebtedness of the Company if the amount
accelerated (or so unpaid) exceeds $5,000,000 or its foreign currency
equivalent; (v) certain events of bankruptcy, insolvency or reorganization with
respect to the Company and the Significant Subsidiaries; (vi) certain judgments
or decrees for the payment of money in excess of $5,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; (vii) a
Subsidiary Guarantee ceasing to be in full force and effect (other than in
accordance with its terms) or any Subsidiary Guarantor denies or disaffirms its
obligations under the Indenture or its Subsidiary Guarantee and such Default
continues for 30 days. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the Securities may
declare all the Securities to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default that will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal, premium, if any, or interest)
if and so long as a committee of its Trust Officers in good faith determines
that withholding notice is in the interest of the Holders.
<PAGE> 143
11
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, partner (including any general partner),
employee, incorporator or equityholder of the Company, as such, shall not have
any liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
17. Governing Law
-------------
THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
-------------
<PAGE> 144
12
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
20. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company have caused CUSIP numbers
to be printed on the Securities and have directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH
HAS IN IT THE TEXT OF THIS SECURITY IN LARGER TYPE. REQUESTS MAY BE MADE TO:
ARGO-TECH CORPORATION
23555 EUCLID AVENUE
CLEVELAND, OH 44117-1795
ATTENTION OF CHIEF FINANCIAL OFFICER
<PAGE> 145
13
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ___________________________ agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Date: Your Signature:
----------------- -----------------------------------------
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE> 146
14
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<S> <C> <C> <C> <C>
Date of Amount of decrease Amount of increase Principal amount of Signature of
Exchange in Principal Amount in Principal Amount this Global Security authorized officer
of this Global of this Global following such of Trustee or
Security Security decrease or increase Securities Custodian
</TABLE>
<PAGE> 147
15
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased
by the Company pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this
Security purchased by the Company pursuant to Section 4.06 or 4.08 of the
Indenture, state the amount: $ _________.
Date: Your Signature:
-------------------- --------------------------------------
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
<PAGE> 148
EXHIBIT C
[FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS]
Transferee Letter of Representation
ARGO-TECH CORPORATION
c/o HARRIS TRUST AND SAVINGS BANK
311 West Monroe
12th Floor
Chicago, Illinois 60606
Dear Sirs:
This certificate is delivered to request a transfer of
$___,___,___ principal amount of the 8_% Senior Subordinated Notes due 2007 (the
"Securities") issued by Argo-Tech Corporation (the "Company").
Upon transfer, the Securities would be registered in the name
of the new beneficial owner as follows:
Name: ___________________________________
Address: ________________________________
Taxpayer ID Number: _____________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended
(the "Securities Act")) purchasing for our own account or for the account of
such an institutional "accredited investor" at least $250,000 principal amount
of the Securities and we are acquiring the Securities not with a view to, or for
offer or sale in connection with, any distribution in violation of the
Securities Act. We have such knowledge and experience in
<PAGE> 149
2
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities and invest in or purchase securities
similar to the Securities in the normal course of our business. We and any
accounts for which we are acting are each able to bear the economic risk of our
or its investment.
<PAGE> 150
3
2. We understand that the Securities have not been registered
under the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf of
any investor account for which we are purchasing Securities to offer, sell or
otherwise transfer such Securities prior to the date that is two years after the
later of the date of original issue and the last date on which the Company or
any affiliate of the Company was the owner of such Securities (or any
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to
either of the Issuers, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) in a transaction complying with
the requirements of Rule 144A ("Rule 144A") under the Securities Act to a person
we reasonably believe is a qualified institutional buyer under Rule 144A (a
"QIB") that purchases for its own account or for the account of a QIB and to
whom notice is given that the transfer is being made in reliance on Rule 144A,
(d) pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act that is purchasing for its own account or for the
account of such an institutional "accredited investor", in each case in a
minimum principal amount of Securities of $250,000 or (f) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or accounts
be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resale will not
apply subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Securities is proposed to be made pursuant to clause (e)
above prior to the Resale Restriction Termination Date, the transferor shall
deliver a letter from the transferee substantially in the form of this letter to
the Issuers and the Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. Each purchaser acknowledges that the Company and the Trustee
reserve the right prior to the offer, sale or other transfer
<PAGE> 151
4
prior to the Resale Termination Date of the Securities pursuant to clause (d),
(e) or (f) above to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and the
Trustee.
TRANSFEREE:___________________
by _________________________
<PAGE> 152
EXHIBIT D
[FORM OF CERTIFICATE TO BE DELIVERED
UPON TERMINATION OF RESTRICTED PERIOD]
[For use on or after _____________]
HARRIS TRUST AND SAVINGS BANK
311 West Monroe
12th Floor
Chicago, Illinois 60606
Attention: Corporate Trust Department
Re: Argo-Tech Corporation 8_% Senior Subordinated Notes due 2007 (the
"Securities").
Ladies and Gentlemen:
This letter relates to Securities represented by a temporary
global note certificate (the "Temporary Certificate"). Pursuant to Section 2.01
of the Indenture dated as of September 26, 1997 relating to the Securities (the
"Indenture"), we hereby certify that (1) we are the beneficial owner of $
principal amount of Initial Securities represented by the Temporary Certificate
and (2) we are a person outside the United States to whom the Initial Securities
could be transferred in accordance with Rule 904 of Regulation S promulgated
under the Securities Act of 1933, as amended. Accordingly, you are hereby
requested to issue a Certificated Security representing the undersigned's
interest in the principal amount of Initial Securities represented by the
Temporary Certificate, all in the manner provided by the Indenture.
<PAGE> 153
2
The Company and you are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
-----------------------------------
[Name of Holder]
by
---------------------------------
Authorized Signatory
<PAGE> 154
EXHIBIT E
[FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO RULE 144A]
HARRIS TRUST AND SAVINGS BANK
311 West Monroe
12th Floor
Chicago, Illinois 60606
Attention:
Re: Argo-Tech Corporation (the "Company)
8_% Senior Subordinated Notes
due 2007 (the "Securities").
Ladies and Gentlemen:
In connection with our proposed sale of $_______ aggregate
principal amount at maturity of the Securities, we hereby certify that such
transfer is being effected pursuant to and in accordance with Rule 144A ("Rule
144A") under the United States Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, we hereby further certify that the
Securities are being transferred to a person that we reasonably believe is
purchasing the Securities for its own account, or for one or more accounts with
respect to which such person exercises sole investment discretion, and such
person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and
such Securities are being transferred in compliance with any applicable blue sky
or securities laws of any state of the United States.
<PAGE> 155
2
The Company and you are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
---------------------------------
[Name of Transferor]
by
-------------------------------
Authorized Signatory
<PAGE> 156
EXHIBIT F
[FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS
PURSUANT TO REGULATION S]
HARRIS TRUST AND SAVINGS BANK
311 West Monroe
12th Floor
Chicago, Illinois 60606
Attention: Corporate Trust Department
Re: Argo-Tech Corporation (the "Company") 8_% Senior
Subordinated Notes due 2007 (the "Securities").
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Securities was not made to a person in
the United States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the
United States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we
nor any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
<PAGE> 157
2
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period
and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale has been made in accordance with
the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may
be.
The Company and you are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
----------------------------------
[Name of Transferor]
by
-------------------------------
Authorized Signatory
<PAGE> 1
Exhibit 4.3
ARGO-TECH CORPORATION
$140,000,000
8-5/8% Senior Subordinated Notes due 2007
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
------------------------------------------
September 26, 1997
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Argo-Tech Corporation, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to you (the "INITIAL PURCHASER"), upon the terms and
subject to the conditions set forth in a purchase agreement dated September 23,
1997 (the "PURCHASE AGREEMENT"), $140,000,000 aggregate principal amount of its
8-5/8% Senior Subordinated Notes due 2007 (the "SECURITIES") to be guaranteed
on a senior subordinated basis by Argo-Tech Corporation (HBP), Argo-Tech
Corporation (OEM), Argo-Tech Corporation (Aftermarket), each a Delaware
corporation and a wholly owned subsidiary of the Company, and J.C. Carter
Company, Inc., a California corporation and, following the consummation of the
Acquisition, a wholly owned subsidiary of the Company (collectively, the
"Subsidiary Guarantors"). Capitalized terms used but not defined herein shall
have the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchaser to enter into the
Purchase Agreement and in satisfaction of a condition to your obligations
thereunder, the Company and the Subsidiary Guarantors agree with you, for the
benefit of the holders of the Securities (including the Initial Purchaser)
(collectively, the "HOLDERS"), as follows:
<PAGE> 2
1. REGISTERED EXCHANGE OFFER. The Company shall (i) prepare
and, not later than 30 days following the date of original issuance of the
Securities (the "ISSUE DATE"), file with the Commission a registration statement
(the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the
Securities Act with respect to a proposed offer to the Holders (the "REGISTERED
EXCHANGE OFFER") to issue and deliver to such Holders, in exchange for the
Securities, a like aggregate principal amount of debt securities of the Company
(the "EXCHANGE SECURITIES") identical in all material respects to the
Securities, except for the transfer restrictions relating to the Securities,
(ii) use its reasonable best efforts to cause the Exchange Offer Registration
Statement to become effective under the Securities Act no later than 105 days
after the Issue Date and the Registered Exchange Offer to be consummated no
later than 135 days after the Issue Date, and (iii) keep the Exchange Offer
Registration Statement effective for not less than 30 days (or longer, if
required by applicable law) after the date that notice of the Registered
Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE
OFFER REGISTRATION PERIOD"). The Exchange Securities will be issued under the
Indenture or an indenture (the "EXCHANGE SECURITIES INDENTURE") among the
Company, the Subsidiary Guarantors and the Trustee or such other bank or trust
company reasonably satisfactory to you, as trustee (the "EXCHANGE SECURITIES
TRUSTEE"), such indenture to be identical in all material respects to the
Indenture except for the transfer restrictions relating to the Securities (as
described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer, it
being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as
defined below) not complying with the requirements of the next sentence, (b)
acquires the Exchange Securities in the ordinary course of such Holder's
business and (c) has no arrangements or understandings with any person to
participate in the distribution of the Exchange Securities) and to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. The Company, the
Initial Purchaser and each Exchanging Dealer acknowledge that, pursuant to
current interpretations by the Commission's staff of Section 5 of the Securities
Act, (i) each Holder that is a broker-dealer electing to exchange Securities,
acquired for its own account as a result of market making activities or other
trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is
required to deliver a prospectus containing the information set forth in Annex A
hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C hereto in
the "Plan of Distribution" section of such prospectus in connection with a sale
of any such Exchange Securities received by such Exchanging Dealer pursuant to
the Registered Exchange Offer and (ii) if the Initial Purchaser elects to sell
Exchange Securities acquired in exchange for Securities constituting any portion
of an unsold allotment, it is required to deliver a prospectus containing the
information required by Items 507 or 508 of Regulation S-K under the Securities
Act and the Exchange Act ("REGULATION S-K"), as applicable, in connection with
such a sale.
<PAGE> 3
3
In connection with the Registered Exchange Offer, the Company
shall:
(a) mail to each Holder a copy of the prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less than
30 days after the date that notice of the Registered Exchange Offer is
mailed to the Holders (or longer if required by applicable law);
(c) utilize the services of a Depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York;
(d) permit Holders to withdraw tendered Securities at any time
prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply in all respects with all laws applicable
to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer;
(b) deliver to the Trustee for cancelation all Securities so
accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as
the case may be, promptly to authenticate and deliver to each Holder of
Securities, Exchange Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
The Company shall make available, for a period of 180 days
after the consummation of the Registered Exchange Offer, a copy of the
prospectus forming part of the Exchange Offer Registration Statement to any
broker-dealer for use in connection with any resale of any Exchange Securities.
Interest on each Exchange Security issued pursuant to the
Registered Exchange Offer will accrue from the last interest payment date on
which interest was paid on the Securities
<PAGE> 4
4
surrendered in exchange therefor or, if no interest has been paid on the
Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act and (iii) such Holder is not an
affiliate of the Company or the Subsidiary Guarantors or, if it is such an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Company and
the Subsidiary Guarantors will ensure that (i) any Exchange Offer Registration
Statement and any amendment thereto and any prospectus forming part thereof and
any supplement thereto complies in all material respects with the Securities Act
and the rules and regulations of the Commission thereunder, (ii) any Exchange
Offer Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any prospectus forming part of any Exchange
Offer Registration Statement, and any supplement to such prospectus, does not
include, as of the consummation of the Registered Exchange Offer, an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
2. SHELF REGISTRATION. If (i) because of any change in law or
applicable interpretations of the Commission's staff the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) for any other reason the Registered Exchange Offer is not
consummated within 135 days after the Issue Date, or (iii) the Initial Purchaser
so requests with respect to Securities not eligible to be exchanged for Exchange
Securities in the Registered Exchange Offer and held by it following the
consummation of the Registered Exchange Offer, or (iv) any applicable law or
interpretations do not permit any Holder to participate in the Registered
Exchange Offer, or (v) any Holder that participates in the Registered Exchange
Offer does not receive freely transferable Exchange Securities in exchange for
tendered Securities, or (vi) the Company so elects, then the following
provisions shall apply:
(a) The Company shall use its reasonable best efforts to file
as promptly as practicable with the Commission, and thereafter shall use its
reasonable best efforts to cause to be declared effective, a shelf registration
statement on an appropriate form under the Securities Act relating to the offer
and sale of the Transfer Restricted Securities (as defined below) by the Holders
from time to time in accordance with the methods of distribution set forth in
such
<PAGE> 5
5
registration statement (hereafter, a "SHELF REGISTRATION STATEMENT" and,
together with any Exchange Offer Registration Statement, a "REGISTRATION
STATEMENT").
(b) The Company shall use its reasonable best efforts to keep
the Shelf Registration Statement continuously effective in order to permit the
prospectus forming part thereof to be used by Holders for a period of two years
from the Issue Date or such shorter period that will terminate when all the
Securities and Exchange Securities covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement or pursuant to Rule
144 under the Securities Act (in any such case, such period being called the
"SHELF REGISTRATION PERIOD"). The Company shall be deemed not to have used its
reasonable best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would result
in Holders of Securities or Exchange Securities covered thereby not being able
to offer and sell such Securities or Exchange Securities during that period,
unless such action is required by applicable law.
(c) Notwithstanding any other provisions hereof, the Company
will ensure that (i) any Shelf Registration Statement and any amendment thereto
and any prospectus forming part thereof and any supplement thereto complies in
all material respects with the Securities Act and the rules and regulations of
the Commission thereunder, (ii) any Shelf Registration Statement and any
amendment thereto (in either case, other than with respect to information
included therein in reliance upon or in conformity with written information
furnished to the Company by or on behalf of any Holder specifically for use
therein (the "HOLDERS' INFORMATION")) does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Shelf Registration
Statement, and any supplement to such prospectus (in either case, other than
with respect to Holders' Information), does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
3. LIQUIDATED DAMAGES. (a) The parties hereto agree that the
Holders of Securities will suffer damages if the Company and the Subsidiary
Guarantors fail to fulfill their obligations under Section 1 or Section 2, as
applicable, and that it would not be feasible to ascertain the extent of such
damages. Accordingly, if (i) the applicable Registration Statement is not filed
with the Commission on or prior to 30 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 105 days after the Issue Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of Commission's
staff, if later, within 30 days after publication of the change in law or
interpretation), (iii) the Registered Exchange Offer is not consummated on or
prior to 135 days after the Issue Date, or (iv) the Shelf Registration Statement
is filed and declared effective within 105 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of Commission's staff, if later,
<PAGE> 6
6
within 30 days after publication of the change in law or interpretation) but
shall thereafter cease to be effective (at any time that the Company is
obligated to maintain the effectiveness thereof) without being succeeded within
30 days by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "REGISTRATION
DEFAULT"), the Company and the Subsidiary Guarantors will be jointly and
severally obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of one or more such Registration
Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of
the Securities constituting Transfer Restricted Securities held by such Holder
until (i) the applicable Registration Statement is filed, (ii) the Exchange
Offer Registration Statement is declared effective and the Registered Exchange
Offer is consummated, (iii) the Shelf Registration Statement is declared
effective or (iv) the Shelf Registration Statement again becomes effective, as
the case may be. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease. As used herein, the term "TRANSFER RESTRICTED
SECURITIES" means each Security or Exchange Security until (i) the date on which
such Security or Exchange Security has been exchanged for a freely transferable
Exchange Security in the Registered Exchange Offer, (ii) the date on which such
Security or Exchange Security has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iii) the date on which such Security or Exchange Security is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding
anything to the contrary in this Section 3(a), the Company and the Subsidiary
Guarantors shall not be required to pay liquidated damages to the holder of
Transfer Restricted Securities if such holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying Agent
under the Indenture immediately upon the happening of each and every
Registration Default. The Company and the Subsidiary Guarantors shall pay the
liquidated damages due on the Transfer Restricted Securities by depositing with
the Paying Agent (which may not be the Company or a Subsidiary Guarantor for
these purposes), in trust, for the benefit of the holders thereof, prior to
10:00 a.m., New York City time, on the next interest payment date specified by
the Indenture and the Securities, sums sufficient to pay the liquidated damages
then due. The liquidated damages due shall be payable on each interest payment
date specified by the Indenture and the Securities to the record holder entitled
to receive the interest payment to be made on such date. Each obligation to pay
liquidated damages shall be deemed to accrue from and including the date of the
applicable Registration Default.
(c) The parties hereto agree that the liquidated damages
provided for in this Section 3 constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by holders of
Transfer Restricted Securities by reason of the failure of (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement
to be filed, (ii) the Shelf Registration Statement to remain effective or (iii)
the Exchange Offer Registration Statement
<PAGE> 7
7
to be declared effective and the Registered Exchange Offer to be consummated,
in each case to the extent required by this Agreement.
4 REGISTRATION PROCEDURES. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to you, prior to the filing
thereof with the Commission, a copy of the Registration Statement and each
amendment thereof and each supplement, if any, to the prospectus included
therein and, in the event that the Initial Purchaser (with respect to any
portion of an unsold allotment from the original offering) is participating in
the Registered Exchange Offer or the Shelf Registration, shall use its
reasonable best efforts to reflect in each such document, when so filed with the
Commission, such comments as you reasonably may propose; (ii) if applicable,
include the information set forth in Annex A hereto on the cover, in Annex B
hereto in the "Exchange Offer Procedures" section and the "Purpose of the
Exchange Offer" section and in Annex C hereto in the "Plan of Distribution"
section of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if
requested by the Initial Purchaser, include the information required by Items
507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of
the Exchange Offer Registration Statement.
(b) The Company shall advise you and the Holders (if
applicable) and, if requested by you or any such Holder, confirm such advice in
writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied
by an instruction to suspend the use of the prospectus until the requisite
changes have been made):
(i) when any Registration Statement and any amendment
thereto has been filed with the Commission and when such Registration
Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities or the
Exchange Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
<PAGE> 8
8
(v) of the happening of any event that requires the making
of any changes in any Registration Statement or the prospectus included
therein so that, as of such date, the statements therein are not
misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(c) The Company will make every reasonable effort to obtain
the withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time.
(d) The Company will furnish to each holder of Transfer
Restricted Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules and, if the Holder so requests in writing, all exhibits
(including those incorporated by reference).
(e) The Company will, during the Shelf Registration Period,
promptly deliver to each holder of Transfer Restricted Securities included
within the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included in
such Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use of such
prospectus or any amendment or supplement thereto by each of the selling holders
of Transfer Restricted Securities in connection with the offer and sale of the
Transfer Restricted Securities covered by such prospectus or any amendment or
supplement thereto.
(f) The Company will furnish to each Exchanging Dealer or the
Initial Purchaser, as applicable, that so requests, without charge, at least one
copy of the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules and, if the
Exchanging Dealer or the Initial Purchaser, as applicable, so requests in
writing, all exhibits (including those incorporated by reference).
(g) The Company will, during the Exchange Offer Registration
Period or the Shelf Registration Period, as applicable, promptly deliver to each
Exchanging Dealer or the Initial Purchaser, as applicable, without charge, as
many copies of the prospectus included within the coverage of the Exchange Offer
Registration Statement or the Shelf Registration Statement and any amendment or
supplement thereto as such Exchanging Dealer or the Initial Purchaser, as
applicable, may reasonably request for delivery by (i) such Exchanging Dealer in
connection with a sale of Exchange Securities received by it pursuant to the
Registered Exchange Offer or (ii) the Initial Purchaser in connection with a
sale of Exchange Securities received by it in exchange for Securities
constituting any portion of an unsold allotment; and the Company consents to the
use of such prospectus or any amendment or supplement thereto by any such
Exchanging Dealer or the Initial Purchaser, as applicable, as aforesaid.
<PAGE> 9
9
(h) Prior to any public offering of Securities or Exchange
Securities pursuant to any Registration Statement, the Company will use its
reasonable best efforts to register or qualify, or cooperate with the Holders of
Securities included therein and their respective counsel in connection with the
registration or qualification of, such Securities or Exchange Securities for
offer and sale under the securities or blue sky laws of such jurisdictions as
any such Holder reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the offer and sale in such jurisdictions
of the Securities or Exchange Securities covered by such Registration Statement;
PROVIDED that the Company will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action that would subject it to general service of process or to taxation in any
such jurisdiction where it is not then so subject.
(i) The Company will cooperate with the Holders of Securities
or Exchange Securities to facilitate the timely preparation and delivery of
certificates representing Securities or Exchange Securities to be sold pursuant
to any Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request in writing
prior to sales of Securities or Exchange Securities pursuant to such
Registration Statement.
(j) If any event contemplated by paragraphs (b)(ii) through
(v) above occurs during the period for which the Company is required to maintain
an effective Registration Statement, the Company will promptly prepare a
post-effective amendment to the Registration Statement or a supplement to the
related prospectus or file any other required document so that, as thereafter
delivered to purchasers of the Securities or purchasers of Exchange Securities
from a Holder, the prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for the
Securities or Exchange Securities, as the case may be, and provide the
applicable trustee with printed certificates for the Securities or Exchange
Securities, as the case may be, in a form eligible for deposit with The
Depository Trust Company.
(l) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its security
holders as soon as practicable after the effective date of the applicable
Registration Statement an earning statement satisfying the provisions of Section
11(a) of the Securities Act; PROVIDED that in no event shall such earning
statement be delivered later than 45 days after the end of a 12-month period (or
90 days, if such period is a fiscal year) beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
applicable Registration Statement, which statement shall cover such 12-month
period.
<PAGE> 10
10
(m) The Company will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the Trust
Indenture Act as required by applicable law in a timely manner.
(n) The Company may require each holder of Transfer Restricted
Securities to be sold pursuant to any Shelf Registration Statement to furnish to
the Company such information concerning the Holder and the distribution of such
Transfer Restricted Securities as the Company may from time to time reasonably
require for inclusion in such Registration Statement, and the Company may
exclude from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information within a reasonable time after receiving
such request.
(o) In the case of a Shelf Registration Statement, each holder
of Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice of the Company pursuant to Section 4(b)(ii) through (v) hereof, such
holder will discontinue disposition of such Transfer Restricted Securities until
such holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) hereof or until advised in writing (the "ADVICE")
by the Company that the use of the applicable prospectus may be resumed. If the
Company shall give any notice under Section 4(b)(ii) through (v) during the
period that the Company is required to maintain an effective Registration
Statement (the "EFFECTIVENESS PERIOD"), such Effectiveness Period shall be
extended by the number of days during such period from and including the date of
the giving of such notice to and including the date when each seller of Transfer
Restricted Securities covered by such Registration Statement shall have received
(x) the copies of the supplemental or amended prospectus contemplated by Section
4(j) (if an amended or supplemental prospectus is required) or (y) the Advice
(if no amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Company
shall enter into such customary agreements (including, if requested, an
underwriting agreement in customary form) and take all such other action, if
any, as Holders of a majority in aggregate principal amount of the Securities or
Exchange Securities being sold or the managing underwriters (if any) shall
reasonably request in order to facilitate any disposition of Securities pursuant
to such Shelf Registration Statement.
(q) In the case of a Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities or Exchange Securities being sold
and any underwriter participating in any disposition of Securities or Exchange
Securities pursuant to such Shelf Registration Statement, all relevant financial
and other records, pertinent corporate documents and properties of the Company
and its subsidiaries and (ii) use its reasonable best efforts to have its
officers, directors, employees, accountants and counsel supply all relevant
information reasonably requested by such representative, Special
<PAGE> 11
Counsel or any such underwriter (an "INSPECTOR") in connection with such Shelf
Registration Statement.
(r) In the case of a Shelf Registration Statement, the Company
shall, if requested by Holders of a majority in aggregate principal amount of
the Securities or Exchange Securities being sold, their Special Counsel or the
managing underwriters (if any) in connection with such Shelf Registration
Statement, use its reasonable best efforts to cause (i) its counsel to deliver
an opinion relating to the Shelf Registration Statement and the Securities or
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates requested by
Holders of a majority in aggregate principal amount of the Securities or
Exchange Securities being sold, their Special Counsel or the managing
underwriters (if any) and (iii) its independent public accountants to provide a
comfort letter in customary form, subject to receipt of appropriate
documentation as contemplated, and only if permitted, by Statement of Auditing
Standards No. 72.
5 REGISTRATION EXPENSES. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections 1,
2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders
for the reasonable fees and disbursements of one firm of attorneys (in addition
to any local counsel) chosen by the Holders of a majority in aggregate principal
amount of the Securities and the Exchange Securities to be sold pursuant to each
Registration Statement (the "SPECIAL COUNSEL") acting for the Initial Purchaser
or Holders in connection therewith.
6 INDEMNIFICATION. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Exchanging Dealer or the Initial Purchaser,
as applicable, the Company and the Subsidiary Guarantors shall jointly and
severally indemnify and hold harmless each Holder, its affiliates, their
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls such Holder within the meaning of the Securities
Act or the Exchange Act (collectively referred to for purposes of this Section 6
and Section 7 as a Holder) from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including,
without limitation, any loss, claim, damage, liability or action relating to
purchases and sales of Securities or Exchange Securities), to which that Holder
may become subject, whether commenced or threatened, under the Securities Act,
the Exchange Act, any other federal or state statutory law or regulation, at
common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Holder promptly upon demand for any legal
or other expenses reasonably incurred by that Holder in connection with
investigating or defending or preparing to defend against or appearing
<PAGE> 12
12
as a third party witness in connection with any such loss, claim, damage,
liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of, or is based upon, an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with any Holders'
Information; and PROVIDED, FURTHER, that with respect to any such untrue
statement in or omission from any related preliminary prospectus, the indemnity
agreement contained in this Section 6(a) shall not inure to the benefit of any
Holder from whom the person asserting any such loss, claim, damage, liability or
action received Securities or Exchange Securities to the extent that such loss,
claim, damage, liability or action of or with respect to such Holder results
from the fact that both (A) to the extent required by applicable law, a copy of
the final prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such Securities or Exchange Securities to
such person and (B) the untrue statement in or omission from the related
preliminary prospectus was corrected in the final prospectus unless, in either
case, such failure to deliver the final prospectus was a result of
non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each
Holder shall indemnify and hold harmless the Company, its affiliates, their
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act (collectively referred to for purposes of this Section
6(b) and Section 7 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any such Registration
Statement or any prospectus forming part thereof or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Holders' Information furnished to
the Company by such Holder, and shall reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; PROVIDED, HOWEVER, that no such Holder
shall be liable for any indemnity claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Securities or Exchange
Securities pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 6(a) or 6(b), notify the
<PAGE> 13
13
indemnifying party in writing of the claim or the commencement of that action;
PROVIDED, HOWEVER, that the failure so to notify the indemnifying party shall
not relieve it from any liability that it may have under this Section 6 except
to the extent that it has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; and PROVIDED, FURTHER, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 6.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; PROVIDED, HOWEVER,
that an indemnified party shall have the right to employ its own counsel in any
such action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified party) between the indemnified party and the indemnifying party (in
which case the indemnifying party will not have the right to direct the defense
of such action on behalf of the indemnified party) or (4) the indemnifying party
has not in fact employed counsel reasonably satisfactory to the indemnified
party to assume the defense of such action within a reasonable time after
receiving notice of the commencement of the action, in each of which cases the
reasonable fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 6(a) and 6(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional
<PAGE> 14
14
release of such indemnified party from all liability on claims that are the
subject matter of such proceeding.
7 CONTRIBUTION. If the indemnification provided for in Section
6 is unavailable or insufficient to hold harmless an indemnified party under
Section 6(a) or 6(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, in such proportion as shall be appropriate to reflect
the relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the actions, statements or omissions that
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, has been taken or made by, or relates to information
supplied by, such indemnifying party or indemnified party, and the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 7 were to be determined by pro rata allocation or by any other method of
allocation that does not take into account the equitable considerations referred
to herein. The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof, referred to
above in this Section 7 shall be deemed to include, for purposes of this Section
7, any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 7, an
indemnifying party that is a holder of Transfer Restricted Securities or
Exchange Securities shall not be required to contribute any amount in excess of
the amount by which the total price at which the Transfer Restricted Securities
or Exchange Securities sold by such indemnifying party to any purchaser exceeds
the amount of any damages which such indemnifying party has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8 RULES 144 AND 144A. The Company shall use its reasonable
best efforts to file the reports required to be filed by it under the Securities
Act and the Exchange Act in a timely manner and, if at any time the Company is
not required to file such reports, it will, upon the written request of any
holder of Transfer Restricted Securities, make publicly available other
information so long as necessary to permit sales of their securities pursuant to
Rules 144 and 144A. The Company covenants that it will take such further action
as any holder of Transfer Restricted Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
<PAGE> 15
15
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any holder of Transfer Restricted Securities, the Company shall deliver to such
holder a written statement as to whether it has complied with such requirements.
Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to
require the Company to register any of its securities pursuant to the Exchange
Act.
9 UNDERWRITTEN REGISTRATIONS. If any of the Transfer
Restricted Securities covered by any Shelf Registration Statement are to be sold
in an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering, subject to the consent of the Company
(which shall not be unreasonably withheld or delayed), and such holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10 MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The provisions
of this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities and the Exchange Securities, taken as a
single class. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of the Holders of Securities or Exchange Securities whose Securities or
Exchange Securities are being sold pursuant to a Registration Statement and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of a majority in aggregate principal amount of the Securities or
Exchange Securities being sold by such Holders pursuant to such Registration
Statement.
(b) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section
10(b), which address initially is, with respect to each Holder, the
address of such Holder maintained by the Registrar under the Indenture,
with a copy in like manner to Chase Securities Inc.;
<PAGE> 16
16
(2) if to you, initially at your address set forth in the
Purchase Agreement; and
(3) if to the Company, initially at the address of the Company
set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company, the Subsidiary Guarantors and their respective successors and
assigns.
(d) COUNTERPARTS. This Agreement may be executed in any number
of counterparts (which may be delivered in original form or by telecopier) and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(e) DEFINITION OF TERMS. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange, Inc.
is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule
405 under the Securities Act and (c) except where otherwise expressly provided,
the term "affiliate" has the meaning set forth in Rule 405 under the Securities
Act.
(f) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
<PAGE> 17
17
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) REMEDIES. In the event of a breach by the Company or a
Subsidiary Guarantor, or by any holder of Transfer Restricted Securities, of any
of their obligations under this Agreement, each holder of Transfer Restricted
Securities or the Company or a Subsidiary Guarantor, as the case may be, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages (other than the recovery of damages for a breach by the
Company of its obligations under Sections 1 or 2 hereof for which liquidated
damages have been paid pursuant to Section 3 hereof), will be entitled to
specific performance of its rights under this Agreement. The Company, the
Subsidiary Guarantors and each holder of Transfer Restricted Securities agree
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of any of the provisions of this Agreement and
hereby further agree that, in the event of any action for specific performance
in respect of such breach, it shall waive the defense that a remedy at law would
be adequate.
(i) NO INCONSISTENT AGREEMENTS. The Company and the Subsidiary
Guarantors represent, warrant and agree that (i) they have not entered into and
shall not, on or after the date of this Agreement, enter into any agreement that
is inconsistent with the rights granted to the Holders of Transfer Restricted
Securities in this Agreement or otherwise conflicts with the provisions hereof,
(ii) they have not previously entered into any agreement that remains in effect
granting any registration rights with respect to any of their debt securities to
any person and (iii) without limiting the generality of the foregoing, without
the written consent of the Holders of a majority in aggregate principal amount
of the then outstanding Transfer Restricted Securities, they shall not grant to
any person the right to request the Company to register any debt securities of
the Company under the Securities Act unless the rights so granted are not in
conflict or inconsistent with the provisions of this Agreement.
(j) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any
of its security holders (other than the Holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities of
the Company in any Shelf Registration or Registered Exchange Offer other than
Transfer Restricted Securities.
(k) SEVERABILITY. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that
<PAGE> 18
18
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
<PAGE> 19
19
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Subsidiary Guarantors and you.
Very truly yours,
ARGO-TECH CORPORATION
By /s/ Yoichi Fujiki
------------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
ARGO-TECH CORPORATION (HBP)
By /s/ Yoichi Fujiki
------------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
ARGO-TECH CORPORATION (OEM)
By /s/ Yoichi Fujiki
------------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
ARGO-TECH CORPORATION (Aftermarket)
By /s/ Yoichi Fujiki
------------------------------------
Name: Yoichi Fujiki
Title: Vice President and Treasurer
J.C. CARTER COMPANY, INC.
By /s/ Yoichi Fujiki
------------------------------------
Name: Yoichi Fujiki
<PAGE> 20
20
Title:
Accepted:
CHASE SECURITIES INC.
By /s/ David Fass
--------------------------------
Authorized Signatory
Address for notices pursuant to Section 6(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
<PAGE> 21
ANNEX A
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging 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. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
<PAGE> 22
ANNEX B
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities were acquired by
such 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 such Exchange Securities. See "Plan of Distribution."
<PAGE> 23
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the Expiration Date,
it will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
_______________, 199_, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus. (1)
The Company will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered 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 Securities 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 at 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 or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed to
be an "underwriter" within the meaning of the Securities Act and any profit on
any such resale of Exchange Securities and any commission 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 180 days after the Expiration Date the Company
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. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Securities) other than commissions or concessions of any
- -------------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer
prospectus.
<PAGE> 24
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE> 25
ANNEX D
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of Exchange
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE> 1
EXHIBIT 10.1
FORM OF
STAY PAY and SEVERANCE AGREEMENT
THIS Stay Pay and Severance Agreement ("Agreement") dated as of June
6, 1996 is by and between Argo-Tech Corporation, a Delaware corporation (the
"Company") and [name of executive] (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive is a senior executive of the Company and has
made, and is expected to continue to make, major contributions to the
profitability, growth and financial strength of the Company;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish conditions for the
payment of certain special compensation payments intended to induce the
Executive to remain in the employ of the Company;
WHEREAS, the Executive is willing to continue in the employ of the
Company on the terms and subject to the conditions set forth in this Agreement;
NOW THEREFORE, the Company and the Executive agree as follows:
1. Definitions. The terms defined in this Section 1 shall, for
all purposes of this Agreement, have the meanings herein specified, unless the
context expressly or by necessary implication requires otherwise:
(a) "Cause" shall mean one or more of the following:
(i) the knowing commission in the course of the
Executive's employment of any act of fraud,
embezzlement or theft in connection with Executive's
duties or in the course of Executive's employment;
(ii) conviction of a felony (from which, through lapse of
time or otherwise, no successful appeal shall have
been made), whether or not committed in the course of
the Executive's employment;
(iii) the willful refusal to carry out reasonable
instructions of the Chairman of the Board of
Directors of the Company (or, in the case of the
Chairman of the Board, the reasonable instructions of
the Board) which has a material adverse effect upon
the Company; and
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<PAGE> 2
(iv) the willful disclosure of any trade secrets or
confidential corporate information to persons not
authorized to know same.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause hereunder unless and until there shall
have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the
Board of Directors of the Company (the "Board") then in office at a
meeting of the Board called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive
had committed an act set forth above in this Section 1(a)(i) through
(iv), inclusive, and specifying the particulars thereof in detail.
Nothing herein shall limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
(b) A "Change in Control" shall have occurred if any of the
following events shall occur:
(i) The Company is merged or consolidated or reorganized
into or with another corporation or other legal
person, and as a result of such merger, consolidation
or reorganization less than a majority of the
combined voting power of the then-outstanding
securities of such corporation or person immediately
after such transaction are held in the aggregate by
the holders of "Voting Stock" (as that term is
hereafter defined) of the Company immediately prior
to such transaction;
(ii) A majority of the Company's Voting Stock is
transferred to a corporation or other legal person
other than the current holders of the Company's
Voting Stock;
(iii) The Company sells or otherwise transfers all or
substantially all of its assets to any other
corporation or other legal person and less than a
majority of the combined voting power of the
then-outstanding securities of such corporation or
person immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock
of the Company immediately prior to such sale or
transfer;
(iv) If there is a report filed on Schedule 13D or 14D-1
pursuant to the Securities Exchange Act of 1934 (the
"Act"), disclosing that any person (under Section
13(d)(3) or Section 14(d)(2) of the Act) has become
the beneficial owner (under Rule 13d-3) of securities
representing 20% or more of the then outstanding
Voting Stock of the Company; or
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<PAGE> 3
(v) The Company shall file a report or proxy statement
with the SEC pursuant to the Act disclosing under
Item 1 of Form 8-K thereunder or Item 6(e) of
Schedule 14A thereunder (or any successor schedule,
etc.) that a change in control of the Company has or
may have occurred or will or may occur in the future
pursuant to any then-existing contract or
transaction.
Anything in this subsection 1(b) to the contrary
notwithstanding, a Change in Control shall not be deemed to
occur because (A) an entity in which the Company directly or
indirectly controls a majority of the voting securities, (B)
any Company sponsored employee stock ownership plan or
employee benefit plan (or entity holding voting shares
pursuant to such plan) or (C) former and current employees of
the Company either directly or indirectly or both own a
majority of the Voting Stock of the Company.
For the purpose of this Section 1(b), a corporation controlled
by a corporate holder of Voting Stock shall be deemed to be
the same holder of Voting Stock. A legal person with respect
to which a holder of Voting Stock could make a "Permitted
Disposition" pursuant to Section 3.01 of that certain 1994
Stockholders' Agreement dated May 17, 1994 among certain of
the holders of Voting Stock shall be deemed to be the same
holder of Voting Stock.
(c) "Voting Stock" shall mean the Company's Class A, B and C
Common Stock, par value $0.01.
2. Stay Payment. In the event a Change in Control occurs and the
Executive remains employed by the Company on a full time basis through the
effective date of the Change in Control, the Company shall pay to the
Executive, in a single lump sum within thirty (30) days of such effective date,
an amount (such amount being called the "Stay Payment") equal to twenty-five
percent of the sum of:
(a) an amount equal to the highest annual base salary received by
the Executive during the five (5) year period immediately
preceding such effective date; and
(b) the amount of the highest "bonus" or "incentive payment" paid
to the Executive during the five (5) year period immediately
preceding the date of such Change in Control.
The Stay Payment is initiated to induce the Executive to remain in the
full-time employ of the Company during the pendency of a Change in Control and
is in addition to the "Basic Severance Payment" and the "Additional Severance
Payment" (as such terms are hereinafter defined).
-3-
<PAGE> 4
3. Basic Severance Payment. In the event the Executive's
full-time employment with the Company is terminated by the Company without
Cause, either before or after a Change in Control, the Company will pay the
Executive, in a single lump sum to be paid within thirty (30) days following
termination, an amount (such amount being called the "Basic Severance Payment")
equal to the sum of:
(a) an amount equal to the highest annual base salary received by
the Executive during the five (5) year period immediately
preceding the date of termination; and
(b) the amount of the highest "bonus" or "incentive payment" paid
to the Executive during the five (5) year period immediately
preceding the date of termination.
Anything in this Agreement to the contrary notwithstanding, a
voluntary termination of employment by the Executive following:
(x) a reduction of five percent (5%) or more in the Executive's
base salary which is not the result of a policy or decision of
the Company generally to reduce the level of base salaries of
a substantial number of officers or employees of the Company;
or
(y) the Executive's ceasing to be employed in a position with the
Company which involves at least substantially the same level
of responsibilities or duties as those performed by Executive
on the date hereof,
shall be deemed to be an involuntary termination without Cause.
4. Additional Severance Payment After Change in Control. In the
event a Change in Control occurs and, within the six-month period following the
effective date of such Change in Control, the Executive's full-time employment
with the Company is terminated by the Company without Cause, or the Executive
voluntarily terminates employment under the circumstances set out in the last
paragraph of Section 3 above, the Company will pay to the Executive, in
addition to the Basic Severance Payment and the Stay Payment, amounts equal to
the amounts of base salary Executive would have received had Executive
continued to be employed by the Company at the rate of base salary at which the
Executive had been employed during the month preceding such termination, to be
paid at the same intervals as such amounts had been paid prior to such
termination, such payments to cease upon the sixth month anniversary of the
effective date of such Change in Control (any partial period being paid
pro-rata; such amount to be paid pursuant to this Section 4 being referred to
as the "Additional Severance Payment").
The Additional Severance Payment is to be in addition to the Basic
Severance Payment and the Stay Payment.
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<PAGE> 5
5. Benefits. In the event that Executive's full-time employment
with the Company is terminated by the Company without Cause, or the Executive
voluntarily terminates employment under the circumstances set out in the last
paragraph of Section 3 above, either before or after a Change in Control, the
Company shall arrange to provide Executive, during a period of twelve (12)
months following the termination, with group and/or executive life, health,
medical/hospital, dental and vision insurance benefits (the "Insurance
Benefits") substantially similar to those which Executive was receiving or
entitled to receive immediately prior to the date of termination (and if and to
the extent that such Insurance Benefits shall not or cannot be paid or provided
under any policy, plan, program or arrangement of the Company or any successor
to the business of the Company, then the Company shall itself pay or provide
for the payment to Executive, Executive's dependents and beneficiaries, of such
Insurance Benefits). Without otherwise limiting the purposes or effect of
Section 6 hereof, Insurance Benefits payable to Executive pursuant to this
Section 5 shall be reduced to the extent comparable Insurance Benefits are
actually received by Executive from another employer during the twelve (12)
month period covered by this Section 5.
6. No Set-Off. There shall be no right of set-off or
counterclaim in respect of any claim, debt or obligation against any payment to
or benefit for the Executive provided for in this Agreement.
7. Taxes. The Executive shall be responsible for the payment of
all taxes imposed upon the payments made, or benefits received, hereunder. The
Company may withhold from any amounts payable under this Agreement all federal,
state, city or other taxes as shall be required pursuant to any law or
government regulation or ruling.
8. Interest on Overdue Payments. Without limiting the rights of
the Executive at law or in equity, if the Company fails to make any payment
required to be made hereunder on a timely basis, the Company shall pay interest
equal to eighteen percent (18%) per annum.
9. Termination. In the event the Executive's full-time
employment with the Company terminates without any of the events described in
Sections 2, 3, 4 or 5 having occurred, no amounts shall be due hereunder and
this Agreement shall thereupon terminate.
10. No Mitigation Obligation. The Executive shall not be required
to mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, nor shall any profits, income, earnings or other
benefits from any source whatsoever create any mitigation, offset, reduction or
any other obligation on the part of the Executive hereunder or otherwise,
except as expressly set forth in Section 5 hereof.
11. Deferred Compensation. In the event a portion of the
Executive's compensation has been deferred pursuant to any deferred
compensation plan or arrangement, such deferred portion shall be included in
the Executive's base salary or "bonus" or "incentive payment" for the period
with respect to which the compensation was deferred.
-5-
<PAGE> 6
12. Legal Fees and Expenses. It is the intent of the Company that
the Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or other
legal action because the cost and expense thereof would substantially detract
from the benefits intended to be extended to the Executive hereunder.
Accordingly, if it should appear to the Executive that the Company has failed
to comply with any of its obligations under this Agreement or in the event that
the Company or any other person takes any action to declare this Agreement void
or unenforceable, or institutes any litigation designed to deny, or to recover
from, the Executive the benefits intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time
to retain counsel of Executive's choice, at the expense of the Company as
hereafter provided, to represent the Executive in connection with the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to the Executive's entering into an
attorney-client relationship with such counsel, and in that connection the
Company and the Executive agree that a confidential relationship shall exist
between the Executive and such counsel. The Company shall pay or cause to be
paid and shall be solely responsible for any and all attorneys' and related
fees and expenses incurred by the Executive as a result of the Company's
failure to perform this Agreement or any provision hereof or as a result of the
Company or any person contesting the validity or enforceability of this
Agreement or any provision hereof as aforesaid.
13. Employment Rights. Nothing either expressed or implied in
this Agreement shall create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company either
prior to or after any Change in Control.
14. Successors and Binding Agreement. (a) The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement
shall be binding upon and inure to the benefit of the Company and any successor
to the Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the business and/or assets of the
Company whether by purchase, merger, consolidation, reorganization or otherwise
(and such successor shall thereafter be deemed the "Company" for the purposes
of this Agreement), but shall not otherwise be assignable, transferable or
delegable by the Company.
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<PAGE> 7
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Section 14(a) hereof. Without limiting the generality of
the foregoing, the Executive's right to receive payments hereunder shall not be
assignable, transferable or delegable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by will or by the laws
of descent and distribution and, in the event of any attempted assignment or
transfer contrary to this Section 14(c), the Company shall have no liability to
pay any amount so attempted to be assigned, transferred or delegated.
(d) The Company and the Executive recognize that neither party
will have an adequate remedy at law for breach by the other of any of the
agreements contained herein and, in the event of any such breach, the Company
and the Executive hereby agree and consent that the other shall be entitled to
a decree of specific performance, mandamus or other appropriate remedy to
enforce performance of this Agreement.
15. Notice. For all purposes of this Agreement, all
communications including without limitation notices, consents, requests or
approvals, provided for herein shall be in writing and shall be deemed to have
been duly given when delivered or five business days after having been mailed
by United States registered or certified mail, return receipt requested,
postage prepaid, addressed to the Company (to the attention of the Secretary of
the Company) at its principal executive office and to the Executive at his
principal residence, or to such other address as any party may have furnished
to the other in writing and in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
16. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such
State.
17. Validity. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement
and the application of such provision to any other person or circumstances
shall not be affected, and the provision so held to be invalid, unenforceable
or otherwise illegal shall be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
18. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach
-7-
<PAGE> 8
by the other party hereto or compliance with any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
expressed or implied with respect to the subject matter hereof have been made
by either party which are not set forth expressly in this Agreement.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
[20. Prior Agreement. This Agreement is not intended to supersede
that certain letter agreement dated [date of prior agreement] accepted by
Executive [date of acceptance] (the "Employment Agreement") between the
Executive and the Company. Any payments required hereunder shall be in
addition to those required thereunder.][appears only in Michael S. Lipscomb and
Paul R. Keen's Stay Pay and Severance Agreements]
21. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event that this
Agreement shall become operative and it shall be determined (as hereafter
provided) that any payment or distribution by the Company to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (a "Payment"), would be
subject to the excise tax imposed by Section 4999 (or any successor thereto) of
the Internal Revenue Code, or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment or payments (collectively, a
"Gross-Up Payment"); provided, however, that no Gross-Up Payment shall be made
with respect to the Excise Tax, if any, attributable to (i) any incentive stock
option, as defined by Section 422 of the Code ("ISO") granted prior to the
execution of this Agreement, or (ii) any stock appreciation or similar right,
whether or not limited, granted in tandem with any ISO described in clause (i).
The Gross-Up Payment shall be in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment.
(b) The Company and the Executive shall each cooperate with each
other in connection with the determination of the amount of Gross-Up Payment
provided for in Subsection 21(a) hereof. Such cooperation shall include
without limitation providing the other party access to and copies of any books,
records and documents in the possession of the Company or the Executive, as the
case may be, that are reasonably requested by the other party.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
ARGO-TECH CORPORATION
By: /s/ Paul R. Keen
-------------------------------------
-------------------------------------
[name of executive]
-9-
<PAGE> 1
EXHIBIT 10.2
ARGO-TECH CORPORATION
[Argo-Tech Logo] 23555 Euclid Avenue Cleveland, Ohio 44117
216-592-6000
February 13, 1989
Mr. Paul R. Keen
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117
Dear Mr. Keen:
As Vice President and General Counsel of Argo-Tech Corporation
("Argo-Tech" or the "Company") you have made, and are expected to continue to
make) major contributions to the profitability, growth and financial strength of
the Company. Argo-Tech desires to assure itself of present and future continuity
of management and desires to establish conditions for the payment of certain
minimum severance payments intended to induce you to remain in the employ of the
Company. Accordingly, we are pleased to offer you the terms of employment and
compensation which are outlined herein.
1. EMPLOYMENT. Until terminated as described in this letter, you
will be the Vice President and General Counsel of the Company, with the power
and duties ordinarily associated with and commensurate with such position unless
otherwise directed by the Board of Directors of the Company (the "Board").
During your employment with the Company, we expect that you will devote your
best efforts and abilities to the performance of your duties and will devote
your entire business time and energy to the furtherance of the business and
affairs of the Company.
2. COMPENSATION. For the fiscal year beginning November 1, 1988
and ending October 31, 1989 (the "1989 Fiscal Year"), you will receive an annual
base salary of $97,400, payable monthly or otherwise in accordance with the
Company's payroll policies. The Company will give consideration annually
commencing with November 1, 1989 to appropriate adjustments in your compensation
to reflect your experience and contribution to the Company, and to reflect the
value of your services in the employment market.
In addition to this base salary, you will be eligible for
bonuses to be determined at the discretion of the Board of Directors (with
substantial input from appropriate management), in an amount not to exceed
thirty percent (30%) of your annual base salary. All bonuses will be payable
after the end of each fiscal year (i.e., for the 1989 Fiscal Year, after October
31, 1989) and will be based on the overall performance and success of the
Company and its subsidiaries as of such fiscal year end as well as your
individual contribution to the Company in light of specific set goals.
<PAGE> 2
Page 2
3. EXPENSES. You shall be reimbursed for normal and reasonable
expenses which you incur on behalf of the Company in accordance with the
Company's policies. In addition, the Company shall provide certain fringe
benefits as determined in the discretion of the Board of Directors with due
consideration to then current market conditions and practices.
4. SEVERANCE PAYMENT UPON CERTAIN EVENTS. In the event that your
full-time employment with the Company is terminated without "Cause" (as defined
in the Stockholders' Agreement dated as of October 15, 1986), you will receive
in a single lump sum an amount equal to twenty four (24) months of your base
salary as in effect for the full month immediately preceding the date of
termination (such amount of base salary to be not less than your highest base
salary during your employment with the Company; and such payment being referred
to as the "Severance Payment"). In the event you are terminated for Cause or
voluntarily terminate your full-time employment with Argo-Tech, no Severance
Payment under this paragraph will be made.
Notwithstanding the foregoing, you shall not be deemed to have been terminated
for Cause hereunder unless and until there shall have been delivered to you a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the Board of Directors of the Company (the "Board") then in office
at a meeting of the Board called and held for such purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that, in the good faith opinion of the Board,
you had committed an act constituting Cause, and specifying the particulars
thereof in detail. Nothing herein shall limit your right or that of your
beneficiaries to contest the validity or propriety of any such determination.
Upon written notice given by you to the Company prior to the
date the above Severance Payment is payable, you may, at your sole option, elect
to have all or any of the Severance Payment paid on a quarterly or monthly
basis.
5. NO SET-OFF. There shall be no right of set-off or
counterclaim in respect of any claim, debt or obligation against any payment to
or benefit for you provided for in this Agreement.
6. INTEREST ON OVERDUE PAYMENTS. Without limiting your rights at
law or in equity, if the Company fails to make any payment required to be made
hereunder on a timely basis, the Company shall pay interest on the amount
thereof at an annualized rate of interest equal to eighteen percent (18%) per
annum.
7. NO MITIGATION OBLIGATION. The Company hereby agrees that you
shall not be required to mitigate the amount of any payment provided for in this
Agreement by seeking other employment or otherwise, nor shall any profits,
income, earnings or other benefits from any source whatsoever create any
mitigation, offset, reduction or any other obligation on your part or otherwise.
<PAGE> 3
Page 3
8. COMPETITIVE ACTIVITY. In the event your full time employment
with the Company is voluntarily terminated, during a period ending one (1) year
following the voluntary termination of your employment with Argo-Tech, you shall
not, without the prior written consent of the Company, which consent shall not
be unreasonably withheld, engage in any Competitive Activity. For purposes of
this Agreement, the term "Competitive Activity" shall mean your participation,
without the written consent of an officer of the Company, in the management of
any business enterprise if such enterprise engages in substantial and direct
competition with the Company and such enterprise's sales of any product or
service competitive with any product or service of the Company amounted to 25%
of such enterprise's net sales for its most recently completed fiscal year or if
the Company's net sales of said product or service amounted to 25% of the
Company's net sales for its most recently completed fiscal year. "Competitive
Activity" shall not include (i) the mere ownership of securities in any such
enterprise and the exercise of rights appurtenant thereto or (ii) participation
in the management of any such enterprise other than in connection with the
competitive operations of such enterprise.
9. LEGAL FEES AND EXPENSES. It is the intent of the Company that
you shall not be required to incur the expenses associated with the enforcement
of your rights under this Agreement by litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to you hereunder. Accordingly, if it should appear to
you that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any litigation
designed to deny, or to recover from, you the benefits intended to be provided
to you hereunder, the Company irrevocably authorizes you from time to time to
retain counsel of your choice, at the expense of the Company as hereafter
provided, to represent you in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
Director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to your entering into an attorney-client relationship with such
counsel, and in that connection the Company and you agree that a confidential
relationship shall exist between you and such counsel. The Company shall pay or
cause to be paid and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by you as a result of the Company's failure
to perform this Agreement or any provision hereof or as a result of the Company
or any person contesting the validity or enforceability of this Agreement or any
provision hereof as aforesaid.
10. BENEFITS. In the event of a termination of your full-time
employment with Argo-Tech without Cause, during a period of twelve (12) months
following the termination, the Company shall arrange to provide you with group
and/or executive life, health,
<PAGE> 4
Page 4
medical/hospital, dental and vision insurance benefits (the "Insurance
Benefits") substantially similar to those which you were receiving or entitled
to receive immediately prior to the date of termination (and if and to the
extent that such Insurance Benefits shall not or cannot be paid or provided
under any policy, plan, program or arrangement of the Company solely due to the
fact that you are no longer an officer or employee of the Company, then the
Company shall itself pay or provide for the payment to you, your dependents and
beneficiaries, of such Insurance Benefits). Without otherwise limiting the
purposes or effect of Section 7 hereof, Insurance Benefits payable to you
pursuant to this Section 10 shall be reduced to the extent comparable Insurance
Benefits are actually received by you from another employer during the twelve
(12) month period covered by this Section 10.
11. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or government regulation or ruling.
12. SUCCESSORS AND BINDING AGREEMENT. (a) The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to you, expressly to assume and agree to perform this Agreement in
the same manner and to the same extent the Company would be required to perform
if no such succession had taken place. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company whether by
purchase, merger, consolidation, reorganization or otherwise (and such successor
shall thereafter be deemed the "Company" for the purposes of this Agreement),
but shall not otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Section 12(a) hereof. Without limiting the generality of
the foregoing, your right to receive payments hereunder shall not be assignable,
transferable or delegable, whether by pledge, creation of a security interest or
otherwise, other than by a transfer by your will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this Section 12(c), the Company shall have no liability to pay any amount so
attempted to be assigned, transferred or delegated.
<PAGE> 5
Page 5
(d) The Company and you recognize that neither party will have
an adequate remedy at law for breach by the other of any of the agreements
contained herein and, in the event of any such breach, the Company and you
hereby agree and consent that the other shall be entitled to a decree of
specific performance, mandamus or other appropriate remedy to enforce
performance of this Agreement.
13. NOTICE. For all purposes of this Agreement, all
communications including without limitation notices, consents, requests or
approvals provided for herein shall be in writing and shall be deemed to have
been duly given when delivered or five business days after having been mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to you at your principal
residence, or to such other address as either party may have furnished to the
other in writing and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
14. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such State.
15. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances shall not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.
16. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
18. EMPLOYMENT RIGHTS. Nothing either expressed or implied in
this Agreement shall create any right or duty on the part of the Company or you
to have you remain in the employment of the Company.
<PAGE> 6
Page 6
19. PRIOR AGREEMENT. This Agreement is intended to supersede the
Letter Agreement dated July 30, 1989 between you and the Company.
If you are in agreement with the above, please execute both
copies of this letter, returning one to me and retaining the other for your
files.
ARGO-TECH CORPORATION
by /s/ David H. Mullins
-----------------------------
Chairman of the Board, President
and Chief Executive Officer
Accepted and Agreed:
/s/ Paul R. Keen
- -------------------------------
Paul R. Keen
August 22, 1989
- -------------------------------
Date
<PAGE> 1
EXHIBIT 10.3
ARGO-TECH CORPORATION
23555 Euclid Avenue
Cleveland, Ohio 44117
October 15, 1986
Dear Mr. Lipscomb:
As you are aware, TRW Inc. ("TRW") has entered into an agreement with
Argo-Tech Corporation ("Argo-Tech" or the "Company") pursuant to which TRW will
sell all of the assets of its Power Accessories Division ("PAD") to Argo-Tech.
At the time of the closing of the transaction (the "Closing"), it is anticipated
that the Company will issue shares of its Class A Common Stock to its proposed
management (the "Management Investors"). As one of the Management Investors, you
have subscribed for 800 shares (the "Shares") of Class A Common Stock of the
Company. Assuming that (i) the transaction between TRW and Argo-Tech is fully
consummated, and (ii) you purchase the Shares for which you have subscribed,
we are pleased to offer you a position with the Company, the terms of
compensation for which are outlined herein.
1. Employment.
----------
As of the Closing and until terminated as described in this letter,
you will be the Vice President for Operations of the Company, with the power and
duties ordinarily associated with and commensurate with such position unless
otherwise directed by the Board of Directors. During your employment with the
Company, we expect that you will devote your best efforts and abilities to the
performance of your duties and will devote your entire business time and energy
to the furtherance of the business and affairs of the Company. For the fiscal
year beginning November 1, 1986 and ending October 31, 1987 (the "1987 Fiscal
Year"), you will receive an annual base salary of $73,000, payable semi-monthly
or otherwise in accordance with the Company's payroll policies. The Company will
give consideration annually commencing with January 1, 1987 to appropriate
adjustments in your compensation to reflect your experience and contribution to
the Company, and to reflect the value of your services in the employment market.
<PAGE> 2
In addition to this base salary, you will be eligible for bonuses to be
determined at the discretion of the Board of Directors (with substantial input
from appropriate management), in an amount not to exceed 40% of your annual base
salary. All bonuses will be payable after the end of each fiscal year (I.E., for
the 1987 Fiscal Year, after October 31, 1987) and will be based on the overall
performance and success of the Company as of such fiscal year end as well as
your individual contribution to the Company in light of specific set goals. The
details of such goals will be discussed with you in the near future with respect
to the 1987 Fiscal Year and at the beginning of each subsequent fiscal year.
You shall be reimbursed for normal and reasonable expenses which you
incur on behalf of the Company in accordance with the Company's policies. In
addition, the Company shall provide certain fringe benefits as determined in the
discretion of the Board of Directors with due consideration to then current
market conditions and practices.
Promptly after the Closing, the Board of Directors of the Company will
establish guidelines for a stock incentive plan (the "Incentive Plan") for all
officers of the Company, in which you will be eligible to participate. The
Incentive Plan will be fully established not later than October 31, 1987 and the
details of the Incentive Plan will be made available to you as soon as it is in
place. The Incentive Plan will provide, among other things, that (i) the Company
will issue options to acquire not less than 2,000 shares of its Class A Common
Stock to the Management Investors (the specific amounts determined by the Board
of Directors), all of such options to be issued not later than January 31, 1989;
(ii) the Company shall reserve options to acquire not less than 1,000 shares of
its Class A Common Stock for issuance (at the discretion of the Board of
Directors) to persons other than the Management Investors who are as of the date
of the Closing employed by the Company and who shall, at the time of the
issuance of such options to such persons, become members of the executive
management group of the Company; and (iii) the Company shall reserve options to
acquire not less than 1,000 shares of its Class A Common Stock for issuance (at
the discretion of the Board of Directors) to persons who are not as of the date
of the Closing employed by the Company and who shall, at the time of the
issuance of such options to such persons, become members of the executive
management group of the Company;
-2-
<PAGE> 3
PROVIDED, that to the extent that any of the options described in paragraphs
(ii) and (iii) above are not issued as of the date of an initial public offering
of shares of stock of the Company, such options shall be aggregated with the
options described in paragraph (i) above and shall be distributed to the
Management Investors under conditions similar to those applicable to the options
described in paragraph (i) above, as determined by the Board of Directors.
You will receive an advance bonus equal to 20% of your current annual
base salary, payable on January 31, 1987. The amount of this advance bonus will
be deducted from your aggregate bonus which will be payable for the 1987 Fiscal
Year.
In the event that your employment with the Company is terminated without
Cause (as defined in the Stockholders' Agreement dated as of October 15, 1986)
prior to October 31, 1987, you will be eligible to receive all salary, bonuses
and benefits for 24 months from the date of termination. If your employment with
the Company is terminated without Cause on or after October 31, 1987 but before
October 31, 1988, you will be eligible to receive all salary, bonuses and
benefits until October 31, 1989. If your employment with the Company is
terminated without Cause on or after October 31, 1988, you will be eligible to
receive all salary, bonuses and benefits for 12 months from the date of
termination. In all such cases described above, the amount of the salary,
bonuses and benefits to which you will be entitled will be in amounts equal to
the respective amounts or value you received during the 12-month period
immediately preceding such termination.
2. Purchase of Shares
------------------
In light of the complicated nature of the transaction to be consummated,
the Company will pay the verified legal expenses of Spieth, Bell, McCurdy &
Newell, special counsel to the Management Investors, which are incurred in
connection with your purchase of any of the Common Stock of the Company prior to
or at the time of the Closing.
In addition, in connection with your purchase of the Shares, the Company
has agreed to make available to you a loan (the "Loan") in a principal amount
equal to not more than the aggregate purchase price you will pay for the Shares.
The Loan shall bear interest at a rate of 7% per
-3-
<PAGE> 4
annum, payable annually on each January 31st, and shall be secured by a pledge
of the Shares until all Loan obligations are fully paid. The Loan will be
evidenced by a promissory note in form and substance satisfactory to the Company
and the pledge will be evidenced by a Pledge Agreement in form and substance
satisfactory to the Company. All bonus payable by the Company to you on January
31, 1987 as described above shall be applied against the outstanding principal
amount of the Loan. In addition, on January 31, 1987, after giving effect to the
offset of the bonus payable by the Company on such date, you shall prepay the
Loan in an amount (if any) necessary to reduce the outstanding principal amount
of the Loan to a principal amount not exceeding 50% of the original aggregate
purchase price of the Shares. Furthermore, two-thirds of the aggregate amount
(before taxes) of the bonuses payable by the Company with respect to the
Company's fiscal year ending on October 31, 1988, shall be applied against the
outstanding principal amount of the Loan, PROVIDED that you will receive the
amount (if any) by which such bonuses exceed the outstanding amount of the Loan.
Any remaining principal amount of the Loan shall be due and payable on January
31, 1990. Additionally, if your employment with the Company is terminated for
any reason, you must repay the Loan in full within 30 days.
We trust that the above information meets with your approval and we hope
that the level of your performance with and contribution to the Company will be
as great or even greater than that which we have witnessed in your work with
PAD. Should you have any questions or comments, or if we can provide any further
information, please contact us.
Sincerely,
ARGO-TECH CORPORATION
By: /s/ A. Mendez
-----------------------------------
Title: President
-4-
<PAGE> 1
Exhibit 10.4
ARGO-TECH CORPORATION
TRUST AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
Recitals ............................................................ 1
Definitions ......................................................... 1
Trust Fund .......................................................... 2
Payments to Beneficiary or Successor ................................ 2
Special Tax Distributions ........................................... 4
Trustee Responsibility When Corporation
Is Insolvent ...................................................... 5
No Payments to the Corporation ...................................... 6
Additional Powers, Duties, and Immunities of
the Trustee ....................................................... 6
Accounting by Trustee ............................................... 10
Responsibility of Trustee ........................................... 10
Compensation and Expenses of Trustee ................................ 11
Tenure and Succession of Trustees ................................... 12
Amendment and Termination ........................................... 13
General Provisions .................................................. 13
Exhibits ............................................................ 16
-i-
<PAGE> 3
ARGO-TECH CORPORATION
TRUST AGREEMENT
THIS TRUST AGREEMENT ("Agreement"), made this 28th day of
October 1994, is between ARGO-TECH CORPORATION, a Delaware
corporation (the "Corporation"), and SOCIETY NATIONAL BANK (together with any
successor designated in accordance with Section 11 of this Agreement, the
"Trustee"),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Corporation has entered into a Stay Pay Agreement (the
"Stay Pay Agreement") that provides for the payment of a "Stay Payment" (as
defined in the Stay Pay Agreement) to Michael S. Lipscomb, an executive officer
of the Corporation; and
WHEREAS, with respect to the Stay Pay Agreement, the Corporation desires
to establish a trust (the "Trust") and to transfer to the Trust assets to be
held therein, subject to the claims of the Corporation's creditors in the event
of the Corporation's insolvency, until disposed of in accordance with this
Agreement;
NOW, THEREFORE, the Corporation hereby establishes the Trust, and the
parties agree that the Trust shall be comprised, held, and disposed of as
follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following words and phrases shall have
the following meanings:
(a) "Beneficiary" means Michael S. Lipscomb.
(b) "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto, and any applicable regulations thereunder.
(c) "Exhibit" means an exhibit to this Agreement, which is deemed a part
of this Agreement.
(d) "Insolvent" means the Corporation either is unable to pay its debts
as they become due or is subject to a pending proceeding as a debtor under the
United States Bankruptcy Code, as now in force or hereafter amended.
<PAGE> 4
(e) "Successor" means a successor in interest of the Beneficiary under
the Stay Pay Agreement.
SECTION 2. TRUST FUND
(a) The Corporation has deposited with the Trustee in trust, concurrent
with the execution and delivery of this Agreement, the amount described on
Exhibit 2 (a), which shall become principal of the Trust to be held,
administered, and disposed of by the Trustee in accordance with this Agreement.
(b) The Trust hereby established shall be irrevocable, and the Trust and
this Agreement may be amended or terminated only in accordance with Section 12
of this Agreement.
(c) The Trust is intended to be a grantor trust within the meaning of
subpart E, part I, chapter J, subchapter 1, subtitle A of the Code with the
Corporation as grantor and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
in trust separate and apart from other funds of the Corporation and shall be
used exclusively for the uses and purposes herein set forth. The Beneficiary or
Successor shall not have any preferred claim on, or any beneficial ownership or
interest in, any assets of the Trust prior to the time, if any, that such assets
are paid to him in accordance with this Agreement, and all rights created under
this Agreement shall be mere unsecured contractual rights of the Beneficiary or
Successor.
(e) The Corporation may at any time or from time to time make additional
contributions to the Trust of cash or other property that is acceptable to the
Trustee to augment the principal hereunder to be held, administered, and
disposed of by the Trustee in accordance with this Agreement. The Trustee
promptly shall notify the Beneficiary or Successor in writing of any such
additional contributions.
SECTION 3. PAYMENTS TO BENEFICIARY OR SUCCESSOR
(a) if the Corporation is not then Insolvent, the Trustee, within five
business days after the Trustee receives both (i) a certificate signed by the
Beneficiary or Successor, in the form of Exhibit 3 (a)(1), and (ii) an
affidavit executed by the Beneficiary or
-2-
<PAGE> 5
Successor in the form of Exhibit 3 (a)(2), shall make a payment to the
Beneficiary or Successor from the assets of the Trust in an amount equal to the
amount of assets then held under the Trust. Upon receipt of an affidavit in the
form of Exhibit 3 (a)(2), the Trustee shall forthwith forward a copy of the
affidavit to the Corporation.
(b) If the Corporation is not then Insolvent, the Trustee, within five
business days after the Trustee receives a written direction certified by two
officers of the Corporation other than the Beneficiary, shall make a payment to
the Beneficiary or Successor from the assets of the Trust in an amount equal to
the lesser of the amount specified in such written direction or the amount of
assets then held under the Trust. Such payment shall be by bank check or
cashier's check and shall be transmitted to the Beneficiary or Successor by
United States mail, together with a letter in the form of Exhibit 3(b) signed by
an officer of the Trustee.
(c) The Trustee shall make such provision as it considers necessary or
appropriate for the withholding of any federal, state, and local taxes that may
be required to be withheld in connection with any payment under Section 3(a) or
Section 3(b) of this Agreement. The Trustee may reserve from any payment under
this Section 3 such reasonable amount as it shall deem necessary to provide for
expenses and compensation to which it may be entitled under Section 10 and any
taxes or other sums chargeable against the Trust for which it may be liable, and
in the event that the amount so reserved is more than sufficient for such
purposes, the Trustee shall pay the excess thereof to the Beneficiary or
Successor within a reasonable time.
(d) If the assets of the Trust are not sufficient to provide for full
payment to the Beneficiary or Successor of the amount required under the Stay
Pay Agreement, the Corporation shall make the balance of such payment in
accordance with the Stay Pay Agreement, and the Trustee shall have no obligation
with respect thereto. If any payment to the Beneficiary or Successor referred to
in Section 3(a) or Section 3(b) of this Agreement exceeds the amount to which
the Beneficiary or Successor is entitled in accordance with the Stay Pay
Agreement, no such payment to the Beneficiary or Successor by the Trustee shall
obligate the Beneficiary or Successor to the Trustee or the Corporation with
respect to such excess or obligate the Trustee to the Corporation with respect
to such excess.
-3 -
<PAGE> 6
(e) Notwithstanding any other provision herein to the contrary, in no
circumstances shall the Trustee be liable to the Beneficiary or any Successor
for any insufficiency of the Trust assets to discharge payments under the Stay
Pay Agreement; rather, the liability for all such payments shall be and remain
the ultimate responsibility of the Corporation, and if the assets of the Trust
are insufficient at any time to make payments to such Beneficiary or Successor
in accordance with the provisions of the Stay Pay Agreement, the Corporation
shall make the balance of any such payment as it falls due.
SECTION 4. SPECIAL TAX DISTRIBUTIONS
(a) The Corporation and the Trustee intend that (i) the creation of,
transfer of assets to, and the terms of the Trust and this Agreement will not
cause any Benefits to be other than "unfunded" for purposes of Title I of the
Employee Retirement Income Security Act of 1974, as amended, or any successor
provision thereto; (ii) transfers of assets to the Trust or the terms of the
Trust and this Agreement will not be transfers of property for purposes of
Section 83 of the Code, or any successor provision thereto, nor will such
transfers or terms cause a currently taxable benefit to be realized by a
Beneficiary or Successor under the "economic benefit" doctrine or otherwise; and
(iii) under Section 451 of the Code, or any successor provision thereto, no
amounts hereunder will be includible in the gross income of the Beneficiary or
Successor prior to his taxable year in which such amounts are actually
distributed or made available by the Trustee to the Beneficiary or Successor.
(b) If, based upon a change in federal tax or revenue laws, a published
ruling or similar announcement issued by the Internal Revenue Service, a
regulation issued by the Secretary of the Treasury, a decision by a court of
competent jurisdiction involving the Beneficiary or Successor, or a closing
agreement made under Section 7121 of the Code that is approved by the Internal
Revenue Service and involves the Beneficiary or Successor, the Trustee
determines, in its sole judgment, that any portion of such amounts are
includible in the gross income of the Beneficiary or Successor prior to the
taxable year in which such amounts would, but for this Section 4, otherwise
actually be distributed or made available to the Beneficiary or Successor by the
Trustee, then the Trustee shall, if the Corporation is not then Insolvent and
there are sufficient assets of the Trust, promptly make a distribution to the
Beneficiary or Successor, which, after taking into account any Federal, state,
and local income
-4-
<PAGE> 7
tax consequences of the special distribution itself, is equal to the sum of any
Federal, state, and local income taxes, interest due thereon, and penalties
assessed with respect thereto that are attributable to amounts that are so
includible in the gross income of the Beneficiary or Successor. In order to make
the foregoing determination, the Trustee may, in its sole discretion, consult
with independent legal counsel and in accordance with Section 9(c) shall incur
no liability in acting or refraining from acting in accordance with the advice
of such counsel. In the event there are insufficient assets of the Trust to make
the foregoing distribution, the Trustee shall make a distribution to the extent
of the assets available.
(c) Any special distribution to the Beneficiary or Successor made in
accordance with Section 4 (b) of this Agreement shall be treated as an advance
payment under the Stay Pay Agreement and shall reduce amounts otherwise payable
to the Beneficiary or Successor under the Stay Pay Agreement. Any reduction
shall be determined by the Trustee upon the basis that the amount of reduction
shall have an actuarial present value equal (to the extent practicable) to the
amount of the special distribution. In order to make the foregoing
determination, the Trustee may, in its sole discretion, consult with an
independent actuary and shall incur no liability in connection with any
determination reached in accordance with the advice of such actuary. Prior to
and as a condition to making the special distribution contemplated by Section 4
(b), the Trustee shall secure an appropriate waiver and agreement from the
Beneficiary or Successor with respect to any such reduction and the provisions
of this Section 4 (c).
SECTION 5. TRUSTEE RESPONSIBILITY WHEN CORPORATION
IS INSOLVENT
At all times during the continuance of the Trust and this Agreement, all
principal and income of the Trust shall be subject to claims of general
creditors of the Corporation under Federal and state law as set forth herein.
The Board of Directors and the highest ranking officer of the Corporation each
immediately shall inform the Trustee in writing whenever it or he believes that
the Corporation is Insolvent. If a person claiming to be a creditor of the
Corporation alleges in writing to the Trustee that the Corporation has become
Insolvent, the Trustee shall determine whether the Corporation is Insolvent and,
pending such determination, the Trustee
-5-
<PAGE> 8
shall discontinue all payments to any Beneficiary or Successor under the Trust.
Unless the Trustee has actual knowledge that the Corporation is
Insolvent, or has received notice from the Corporation or a person claiming to
be a creditor alleging that the Corporation is Insolvent, the Trustee shall have
no duty to inquire whether the Corporation is Insolvent. The Trustee may in all
events rely on such evidence concerning the Corporation's solvency as may be
furnished to the Trustee and that provides the Trustee with a reasonable basis
for making a determination concerning the Corporation's solvency.
If at any time the Trustee has determined that the Corporation is
Insolvent, the Trustee shall discontinue all payments to any Beneficiary or
Successor under the Trust and shall hold the assets of the Trust for the benefit
of the Corporation's general creditors. If the Trustee has not made a payment
pursuant to Section 3 or Section 4 of this Agreement by reason of this Section
5, the Trustee shall resume payments in accordance with Section 3 or Section 4
of this Agreement only after it has determined that the Corporation is not
Insolvent (or is no longer Insolvent if the Trustee initially determined the
Corporation to be Insolvent). Nothing in this Agreement shall in any way
diminish any rights of the Beneficiary or any Successor to pursue their rights
as general creditors of the Corporation with respect to the Stay Pay Agreement
or otherwise.
SECTION 6. NO PAYMENTS TO THE CORPORATION
The Corporation shall have no right or power to direct the Trustee to
pay any assets of the Trust to the Corporation, or its affiliates (other than
the Beneficiary or a Successor).
SECTION 7. ADDITIONAL POWERS, DUTIES, AND IMMUNITIES
OF THE TRUSTEE
In the administration of the Trust, the Trustee shall have the following
additional powers, duties, and immunities:
(a) The Trust assets, including any income accumulated and added to
principal, shall be invested by the Trustee with the purpose of the preservation
of principal and liquidity. The rate of return on investment, although
important, shall not take precedence over safety of principal and liquidity. The
Trustee shall periodically
-6-
<PAGE> 9
consult with the Corporation regarding the investment of the Trust assets and
shall give due regard to the Corporation's desires concerning the investment of
the Trust assets. The Trustee shall have the power:
(i) to receive, hold, manage, sell, lease, pledge, mortgage,
exchange, or otherwise dispose of, and otherwise deal in and with, all
or any part of the Trust assets upon such terms, prices, and conditions
as it deems advisable;
(ii) to invest and reinvest the Trust assets in any property
or undivided interest therein, wherever located, including bonds, notes
(secured or unsecured), stock of corporations, time and savings
deposits (including savings deposits and certificates of deposit in the
Trustee or its affiliates if such deposits bear a reasonable rate of
interest), real estate or any other interest therein, shares in
investment trusts and stock in mutual funds and investment companies
(including investment trusts, mutual funds, and investment companies to
which the Trustee or an affiliate thereof may serve as investment
advisor, sponsor, underwriter, manager, administrator, distributor,
custodian, transfer agent, or in any other capacity for which it may
receive a fee), and annuities and other policies of insurance, upon
such terms, prices, and conditions as it deems advisable, without being
restricted by any statute or rule of law governing the investments in
which a trustee may invest funds held by it and without regard to the
proportion that an investment may bear to the entire amount of the
Trust assets;
(iii) with the prior written approval of the Corporation, to
borrow money upon such terms and conditions and for such purposes as it
deems advisable;
(iv) to vote in person or by proxy the stocks, securities, or
other investments that it holds as Trustee; to execute and deliver
proxies, powers of attorney, and other agreements that it deems
advisable; to exchange the securities of any corporation or issuing
authority for other securities upon such terms and conditions as it
deems advisable; to consent to or oppose any corporate action; to pay
all assessments and subscriptions as it deems advisable; to exercise
-7-
<PAGE> 10
options, warrants, or comparable rights and, in general, to
exercise in respect of all stocks, securities, or other investments
that it holds as Trustee all rights, powers, and privileges as might be
exercised by an individual in his own right;
(v) to execute such instruments, deeds, leases, mortgages,
contracts, agreements, assignments, transfers, bills of sale, and other
documents of any kind as it deems advisable in connection with the
powers and duties specified herein; and
(vi) to retain uninvested cash in the Trust either in its
banking department or elsewhere to meet contemplated payments or
transfers from the Trust, or temporarily awaiting investment, without
liability for interest thereon.
(b) The Trustee is empowered to register securities, and to take and
hold title to other property, in the name of the Trustee or in the name of a
nominee without disclosing the Trust. The Trustee also may hold securities in
bearer form and in bulk with securities of the same class and issuer comprising
assets of other fiduciary accounts. The Trustee shall be responsible for any
wrongful acts of any nominee of the Trustee.
(c) The Trustee is empowered to employ such agents, accountants,
actuaries, and attorneys as the Trustee shall deem advisable and to determine
and pay them reasonable compensation without diminution of the compensation of
the Trustee. Such compensation paid by the Trustee shall constitute expenses of
the Trustee and be governed by Section 11 of this Agreement. The Trustee shall
not be liable for any neglect, omission, or wrongdoing of any such agent,
accountant, actuary, or attorney if reasonable care is exercised in the
selection thereof.
(d) The Trustee is empowered to enforce, release, compromise, and settle
any and all claims in favor of or against the Trust or any separate account
under the Trust, whether or not such claims are in litigation, upon such terms
and conditions as the Trustee shall deem advisable.
(e) The Trustee is empowered to pay out of the Trust as a general
charge thereon any and all taxes of
-8-
<PAGE> 11
whatsoever nature assessed against the Trust; provided, however, that, if the
Corporation shall notify the Trustee in writing that in the opinion of its
counsel any such tax is not lawfully assessed, the Trustee, if so requested by
the Corporation, shall contest the validity of such tax in any manner deemed
appropriate by the Corporation or its counsel. The word "taxes", as used herein,
shall be deemed to include any interest or penalties assessed in respect to such
taxes. Unless the Trustee first shall have been indemnified to its satisfaction
by the Corporation, however, the Trustee shall not be required to contest the
validity of any tax, to institute, maintain, or defend against any other action
or proceeding, or to incur any other expense in connection with the Trust,
except to the extent that the Trust is sufficient therefor.
(f) The Trustee is empowered to undertake, maintain, or defend any
litigation or proceeding with respect to the Trust. With respect to any
determination required by the Trustee under this Agreement, the Trustee may rely
upon and shall be fully protected in relying upon any order or determination in
any action or proceeding instituted by the Trustee or to which the Trustee is
made a party.
(g) The Trustee shall have all other powers and duties conferred or
imposed on trustees by law that are consistent with the provisions of this
Agreement and such further powers as may be required to give effect to the
powers and duties of the Trustee expressly set forth in this Agreement.
(h) Notwithstanding any powers granted to the Trustee pursuant to this
Agreement or to applicable law: (i) the Trustee shall have no power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code; and (ii) the
Trustee shall have no power to invest any of the Trust assets in life insurance
or annuity contracts or in securities or obligations of the Corporation or any
affiliate of the Corporation.
(i) The Trustee shall not be required to furnish bond, nor shall the
Trustee be required to obtain leave or confirmation from any court, before
exercising any of the powers or performing any of the duties of the Trustee; but
the Trustee at all times shall be obligated to act in good faith and to exercise
reasonable prudence.
-9-
<PAGE> 12
(j) No person dealing with the Trustee shall be obligated to inquire
into the Trustee's powers with respect to any action the Trustee may propose to
take, and the receipt of the Trustee for any payment made or property
transferred to the Trustee by any person shall constitute a complete acquittance
to such person for such payment or property and its proper application.
SECTION 8. ACCOUNTING BY TRUSTEE
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be done,
including such specific records as shall be agreed upon in writing between the
Corporation and the Trustee. All such accounts, books, and records shall be open
to inspection and audit at all reasonable times by the Corporation and the
Beneficiary or Successor. Within 60 days following the close of each fiscal year
of the Corporation and within 60 days after the resignation or removal of the
Trustee, the Trustee shall deliver to the Corporation a written account of its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such resignation or removal, setting
forth all investments, receipts, disbursements, and other transactions effected
by it, including a description of all securities and investments purchased and
sold with the cost or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately) and showing all cash, securities, and
other property held in the Trust at the end of such year or as of the date of
such resignation or removal, as the case may be. In the absence of the filing in
writing with the Trustee by the Corporation of exceptions or objections to any
such account within 60 days, the Corporation shall be deemed to have approved
such account, and in such case, or upon the written approval by the Corporation
of any such account, the Trustee shall be released, relieved and discharged with
respect to all matters and things set forth in such account as though such
account had been settled by the decree of a court of competent jurisdiction.
SECTION 9. RESPONSIBILITY OF TRUSTEE
(a) The Trustee shall act with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent corporate trustee acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; except that the Trustee shall
incur no liability to anyone for any action taken in accordance with a
-10-
<PAGE> 13
direction, request, or approval given in accordance with this Agreement.
(b) The Trustee shall not be required to undertake or to defend any
litigation arising in connection with the Trust, unless it be first indemnified
by the Corporation against its prospective costs, expenses, and liabilities, and
the Corporation hereby agrees to indemnify the Trustee for such costs, expenses,
and liabilities. If the Corporation does not make payment to the Trustee of an
agreed indemnity for such costs, expenses, and liabilities in a reasonably
timely manner, the Trustee may obtain payment from the Trust to the extent
permitted under applicable law and in accordance with Section 10.
(c) The Trustee may consult with legal counsel (who may also be counsel
generally or specially for the Trustee or the Corporation) with respect to any
of its duties or obligations hereunder and shall be fully protected in acting or
refraining from acting in accordance with the advice of such counsel.
(d) The Trustee may rely and shall be protected in acting or refraining
from acting upon any written notice, instruction, or request furnished to it
hereunder and believed by it to be genuine and to have been signed or presented
in accordance with this Agreement.
SECTION 10. COMPENSATION AND EXPENSES OF TRUSTEE
The Trustee shall be entitled to receive reasonable compensation for its
services in accordance with its published fee schedule as in effect from time to
time. The Trustee shall be entitled to receive reimbursement of its reasonable
expenses incurred with respect to the administration of the Trust, including
fees incurred by the Trustee in accordance with this Agreement. Such
compensation and expenses shall be payable by the Corporation, but in the
absence of timely payment by the Corporation, shall be paid from the assets of
the Trust and charged against the Trust assets, but the Corporation shall remain
liable therefor and the Trustee shall take reasonable action, including, but not
limited to, institution of legal action, to collect such compensation and
expenses and upon such collection shall deposit the amounts collected in the
Trust. The expenses incurred by the Trustee in connection with any reasonable
action required to obtain payment of such compensation or expenses shall
constitute additional expenses for which the Trustee shall be entitled to
reimbursement under this Section.
-11-
<PAGE> 14
SECTION 11. TENURE AND SUCCESSION OF TRUSTEES
(a) Each Trustee from time to time serving under this Agreement shall
have the right to resign by at least 60 days advance written notice to the
Corporation (unless the Corporation shall accept shorter notice), and the
Corporation may remove any Trustee from time to time serving under this
Agreement by at least 60 days advance written notice to the Trustee (unless the
Trustee shall accept shorter notice). No such resignation or removal shall
become effective, however, until the acceptance of that appointment by a
successor Trustee designated in accordance with Section 11(b) of this Agreement.
(b) If the Trustee, or any successor to it designated in accordance with
this Section 11(b), for any reason shall resign, decline, cease, or otherwise
fail to serve as Trustee or be removed by the Corporation, the Corporation shall
appoint as a successor Trustee a bank or trust company (i) that the Corporation
in its discretion considers an appropriate trustee for the Trust, having due
regard for the objectives, magnitude, and expected duration of the Trust; (ii)
whose trust assets under investment would place it among the 500 largest trust
companies in the United States or that is a national banking association or
established under the laws of one of the states of the United States with gross
assets in excess of $500,000,000; (iii) that is independent and not subject to
the control of the Corporation or any affiliate of the Corporation, or the
Beneficiary or Successor or any affiliate of the Beneficiary or Successor; and
(iv) that is reasonably satisfactory to the Beneficiary, if living. The
preceding determinations shall be made as of the time of appointment of the
successor Trustee.
(c) Upon acceptance of the appointment as such, each successor Trustee
shall be vested with the title to the Trust assets possessed by the predecessor
Trustee less any amounts to which the predecessor Trustee may be entitled
pursuant to Section 10 and shall have all the powers, discretions, and duties of
such predecessor Trustee; provided, however, the predecessor Trustee may reserve
such reasonable amount as it shall deem necessary to provide for expenses and
compensation to which it may be entitled under Section 10 and any taxes or other
sums chargeable against the Trust for which it may be liable, and in the event
that the amount so reserved is insufficient for such purposes, the Trustee shall
be entitled to reimbursement from the Corporation or, in the absence thereof,
the successor Trustee. No successor Trustee shall be required to furnish bond.
-12-
<PAGE> 15
(d) Each successor Trustee may accept as complete and correct and may
rely upon any accounting by any predecessor Trustee and upon any statement or
representation by any predecessor Trustee as to the assets comprising or any
other matter pertaining to the administration of the Trust. No successor Trustee
shall be liable for any act or omission of any predecessor Trustee or have any
duty to enforce or seek to enforce any claim of any kind against any predecessor
Trustee on account of any such act or omission.
SECTION 12. AMENDMENT AND TERMINATION
(a) This Agreement may not be amended or modified in any respect, except
in accordance with this Section 12 (a). At any time and from time to time, the
Corporation may amend this Agreement in any respect, but only by delivery to the
Trustee of an amendment authorized by the Board of Directors of the Corporation
and signed by two officers of the Corporation other than the Beneficiary; except
that no such amendment delivered to the Trustee shall be effective unless the
Corporation shall obtain the written consent to such amendment of the
Beneficiary or Successor and provide the Trustee with such evidence of such
consent as the Trustee reasonably shall require. Any amendment shall be
effective only upon the Trustee's written acceptance of such amendment, which
shall not be unreasonably withheld unless such amendment would affect the
powers, duties, liabilities, or compensation of the Trustee.
(b) The Trust shall terminate on the later of the date on which the
Trust no longer contains any assets or the date on which there exists no claim
against the Corporation in accordance with Section 10 of this Agreement, or if
the Trustee's duties and obligations hereunder are the subject of litigation,
the date of final resolution of such litigation.
SECTION 13. GENERAL PROVISIONS
(a) Any provision of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition without invalidating the
remaining provisions hereof.
(b) No right or interest of the Beneficiary or Successor under this
Agreement may (either at law or in equity) be anticipated, assigned, encumbered,
alienated, pledged, or subjected to attachment, garnishment, levy, execution, or
other legal or equitable process or claim.
-13 -
<PAGE> 16
(c) Nothing in this Agreement shall in any way diminish the rights of
the Beneficiary or Successor to pursue his rights as a general creditor of the
Corporation with respect to the Stay Pay Agreement or otherwise, and the rights
or obligations of the Beneficiary or Successor and the Corporation under the
Stay Pay Agreement shall in no way be increased or diminished by any provision
of this Agreement or action taken in accordance with this Agreement, except that
payments actually received by the Beneficiary or Successor hereunder shall
reduce amounts otherwise due to the Beneficiary or Successor in accordance with
the Stay Pay Agreement.
(d) The Corporation shall promptly provide the Trustee a copy of to the
Stay Pay Agreement and any amendment thereto. The Corporation shall at all times
keep the Trustee informed of the identity of each Successor, if any, of the
Beneficiary under the Stay Pay Agreement.
(e) Except as may otherwise be provided hereunder or agreed to in
writing between the Corporation and the Trustee, the Corporation shall have
responsibility for the preparation and delivery to persons and governmental
agencies of all information, descriptions, reports and returns required by law;
the Trustee shall, however, provide such reasonable assistance to the
Corporation as is necessary or appropriate for the Corporation to perform such
obligations. The Trustee shall be entitled, as it may deem appropriate, to
require the. Corporation or any person having any interest under the Trust, to
provide such certifications and proofs of facts as shall permit the Trustee to
perform its duties under applicable law and regulations adopted thereunder as
may be in effect from time to time, or to exercise the powers granted the
Trustee under the Trust.
(f) The creation or maintenance of the Trust shall not entitle any
person to continued employment with the Corporation or any of its affiliates or
otherwise affect any such employment relationship, nor shall it entitle any
person to continued status as a director or officer of the Corporation or any of
its affiliates.
(g) This Agreement may be executed in counterparts, each of which shall
be considered an original agreement.
(h) All notices, requests, consents, and other communications required
hereunder shall be in writing and shall be effective when received:
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<PAGE> 17
If to the Corporation, at: Argo-Tech Corporation
- ------------------------- 23555 Euclid Avenue
Cleveland, Ohio 44117
Attention: The Board of
Directors
If to the Trustee, at: Society National Bank
- --------------------- 127 Public Square
Cleveland, Ohio 44114
Attention: Mr. James McGuire
If to the Beneficiary
- ---------------------
or Successor at: Michael S. Lipscomb
- --------------------- 35985 Brushwood Drive
Solon, Ohio 44139
or if any of the foregoing or its or his successors shall have designated a
different address by written notice, then at the last address so designated.
(i) This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed as of the date first above written, and the Trustee has caused this
Agreement to be executed on October 28, 1994.
ARGO-TECH CORPORATION
By: /s/ Paul R. Keen
--------------------------
Title: Vice President,
General Counsel and Secretary
SOCIETY NATIONAL BANK
By: /s/ Kimberlyn D. Hall
--------------------------
Title: Trust Officer
And: /s/ [Illegible]
--------------------------
Title: Vice President
<PAGE> 18
EXHIBIT 2(a)
------------
Cash in the following amount has been transferred and delivered to the
Trustee, as of the date of this Agreement, to be held and administered in
accordance with the foregoing Trust Agreement:
$344,055.00
<PAGE> 19
EXHIBIT 3(a)(1)
---------------
CERTIFICATE UNDER SECTION 3 (a)(1) OF ARGO-TECH CORPORATION TRUST AGREEMENT
The undersigned hereby certifies to _________________________________
as Trustee (the "Trustee") under the Argo-Tech Corporation Trust Agreement,
dated _________________, 1994 (the "Trust Agreement"), that:
(1) The undersigned is the Beneficiary or a Successor.
(2) The undersigned, or the Beneficiary through whom the undersigned,
as Successor, claims, has complied with all terms of and all conditions have
occurred under the Stay Pay Agreement in order for the undersigned to receive
currently the Stay Payment.
(3) The Trustee is hereby directed to pay the undersigned in accordance
with Section 3 (a) of the Trust Agreement.
(4) The undersigned hereby acknowledges and agrees, on behalf of
himself and his heirs, executor, administrators, successors, and assigns, that
any such payment received by the undersigned shall constitute a payment by the
Corporation under the Stay Pay Agreement and shall satisfy the Corporation's
liability with respect thereto to the extent of such payment and that if and to
the extent that a final, unappealable order of a court of competent jurisdiction
shall determine that the undersigned was not entitled to the Stay Payment, the
undersigned shall be liable therefor to the Corporation.
(5) Accompanying this Certificate is an affidavit certifying that this
Certificate is true, correct, and complete to the best of the undersigned's
knowledge and binding upon the undersigned and the undersigned's heirs,
executors, administrators, successors, and assigns, and that copies of this
Certificate have been delivered to the Corporation in accordance with Section
13(h) of the Trust Agreement.
<PAGE> 20
(6) All capitalized terms used in this Certificate that are not defined
herein have the meanings given to those terms under the Trust Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
____ day of ________________
---------------------------------
(Signature)
---------------------------------
(Printed or typed name)
<PAGE> 21
EXHIBIT 3(a)(2)
----------------
AFFIDAVIT
---------
_____________________________________ being first duly sworn, deposes
and says:
1. That the statements, representations, and acknowledgments made by
the undersigned in the Certificate attached hereto are true, correct, and
complete to the best of the undersigned's knowledge;
2. That the statements, representations, acknowledgments, and
agreements made by the undersigned in the Certificate attached hereto are
binding upon the undersigned and the undersigned's heirs, executors,
administrators, successors, and assigns; and
3. That copies of the Certificate attached hereto have been delivered
to Argo-Tech Corporation, to the attention of its Board of Directors.
---------------------------------
(signature)
STATE OF _________________
COUNTY OF _________________
Before me, a Notary Public in and for said State and County, personally
appeared the above named _______________________________________ who, in my
presence, subscribed and swore to the foregoing instrument and acknowledged that
the same is his or her voluntary act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and seal at
________________________, _____________________, this ____ day of _____________,
19__.
---------------------------------
Notary Public
<PAGE> 22
EXHIBIT 3(b)
------------
LETTER TO BENEFICIARY OR SUCCESSOR UNDER SECTION 3 (b) OF ARGO-TECH
CORPORATION TRUST AGREEMENT
_______________________
_______________________
_______________________
Dear __________________:
Enclosed is a [bank] [cashier's] check in the amount of
$___________________ in payment to you by Argo-Tech Corporation under the Stay
Pay Agreement (as defined in the Trust Agreement). [This payment is net of
applicable tax withholding as follows: ____________ ________.] By cashing the
enclosed check, you acknowledge and agree that $__________________ [pre-tax
withholding amount] has been paid to you by Argo-Tech Corporation under Stay Pay
Agreement.
[Trustee]
By:
---------------------------------
Title:
<PAGE> 1
Exhibit 10.5
ARGO-TECH CORPORATION
SALARIED PENSION PLAN
(November 1, 1995 Restatement)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE PAGE
- ------- ----
I DEFINITIONS
<S> <C> <C>
1.1 Definitions..............................................1
1.2 Pronouns................................................11
1.3 Actuarial Assumptions...................................11
II VESTING SERVICE AND BENEFIT SERVICE
2.1 Vesting Service and Benefit Service.....................11
2.2 Transfers...............................................13
2.3 Loss of Vesting Service and Benefit
Service...............................................13
2.4 Reinstatement of Vesting Service and
Benefit Service.......................................13
2.5 Vesting Service Credit for Former TRW,
Inc. Employees........................................14
2.6 Finality of Determinations..............................15
III NORMAL RETIREMENT BENEFIT
3.1 Eligibility.............................................15
3.2 Amount..................................................15
3.3 Payment.................................................16
IV EARLY RETIREMENT BENEFIT
4.1 Eligibility.............................................16
4.2 Amount..................................................17
4.3 Payment.................................................17
V DEFERRED VESTED RETIREMENT BENEFIT
5.1 Eligibility.............................................17
5.2 Amount..................................................18
5.3 Payment.................................................19
VI DISABILITY
6.1 Retirement Benefits.....................................19
6.2 Benefit Commencement; Recovery from
Disability..........................................20
VII OPTIONAL METHODS OF PAYMENT
7.1 Available Options.......................................21
7.2 Time for Making Election................................22
7.3 Revocation and Change of Option.........................23
</TABLE>
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7.4 Effect of Various Circumstances upon an
Option...............................................23
7.5 Payment under an Option................................25
7.6 Automatic Election.....................................26
7.7 Automatic Election Period..............................27
VIII POST RETIREMENT INCREASES
8.1 Eligibility for Post Retirement Increases..............28
8.2 Amount of Post Retirement Increases....................28
IX SURVIVOR BENEFIT
9.1 Eligibility for Survivor Benefit.......................29
9.2 Survivor Benefit Amount................................29
9.3 Survivor Benefit Payments..............................31
9.4 Surviving Spouse Defined...............................31
X GENERAL PROVISIONS AND LIMITATIONS REGARDING
BENEFITS
10.1 Reemployment...........................................32
10.2 Non-Alienation of Retirement Rights or
Benefits...........................................33
10.3 Payment of Benefits to Others..........................33
10.4 Payment of Small Benefits; Commuted
Benefits...........................................34
10.5 Internal Revenue Requirements..........................35
10.6 Limitations on Commencement............................36
10.7 Election of Former Vesting Schedule....................39
10.8 Rollover Requirements..................................40
10.9 Benefit Accruals While Receiving Benefit
Payments...........................................41
XI MAXIMUM RETIREMENT BENEFITS
11.1 Definitions............................................41
11.2 Maximum Defined Benefit Limitation.....................43
11.3 Exceptions.............................................45
11.4 Manner of Reduction....................................45
11.5 Maximum Defined Benefit and Defined
Contribution Limitation................................46
XII THE COMMITTEE
12.1 Membership.............................................47
12.2 Rules and Regulations..................................47
12.3 Authority of Committee and Company.....................47
12.4 Action of Committee....................................49
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12.5 Claims Review Procedure................................50
12.6 Resignation, Removal, and Designation
of Successors........................................51
12.7 Records................................................51
12.8 Compensation and Expenses..............................52
12.9 Indemnification........................................52
12.10 Qualified Domestic Relations Orders....................53
XIII PENSION FUND
13.1 Pension Fund...........................................53
13.2 Contributions by Employers.............................54
13.3 Condition on Employer Contributions....................54
13.4 Forfeitures Not to Increase Benefits...................55
13.5 Change of Funding Medium...............................55
XIV AMENDMENT AND TERMINATION OF PLAN
14.1 Company's Right of Amendment or
Termination..........................................56
14.2 Effect of Termination..................................56
XV TOP HEAVY PROVISIONS
15.1 Applicability of Top Heavy Plan Provisions.............57
15.2 Top Heavy Plan Definitions.............................58
15.3 Top Heavy Vesting......................................60
15.4 Minimum Top Heavy Benefit..............................60
15.5 Adjustment of Maximum Retirement Benefits..............61
XVI ADOPTION BY SUBSIDIARIES
16.1 Adoption...............................................62
16.2 Withdrawal of an Employer..............................62
16.3 Corporate Reorganization...............................63
XVII MISCELLANEOUS
17.1 Plan Non-contractual...................................64
17.2 Claims of Other Persons................................64
17.3 Governing Law..........................................64
17.4 Nonforfeitability of Benefits..........................64
17.5 Merger, Consolidation, or Transfers of
Plan Assets..........................................65
17.6 Trust Agreement........................................65
17.7 Administrative Expenses................................65
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17.8 Interpretation of Plan References
Upon Funding by Annuity Contracts
or Insurance Contracts...............................66
17.9 Cessation of Benefit Accruals..........................67
XVIII 1992 SPECIAL EARLY RETIREMENT PROVISIONS
18.1 General................................................67
18.2 Eligibility............................................68
18.3 Election and Retirement................................68
18.4 Increased Benefits.....................................68
18.5 Single Sum Payment Option..............................70
18.6 Generally Applicable Provisions........................71
XIX 1993 SPECIAL EARLY RETIREMENT PROVISIONS
19.1 General................................................71
19.2 Eligibility............................................72
19.3 Election and Retirement................................72
19.4 Increased Benefits.....................................72
19.5 Single Sum Payment Option..............................74
19.6 Generally Applicable Provisions........................75
XX SPECIAL PROVISIONS AND EFFECTIVE DATES
20.1 Termination or Retirement Before
November 1, 1995.....................................76
20.2 Effective Dates........................................76
</TABLE>
(iv)
<PAGE> 6
ARGO-TECH CORPORATION
SALARIED PENSION PLAN
(November 1, 1995 Restatement)
WHEREAS, Argo-Tech Corporation deems it desirable to provide
retirement and other benefits for eligible employees; and
WHEREAS, Argo-Tech Corporation established the Argo-Tech
Corporation Salaried Pension Plan effective as of November 1, 1986, as amended
on eight subsequent occasions;
NOW, THEREFORE, Argo-Tech Corporation hereby amends and
restates the Argo-Tech Corporation Salaried Pension Plan effective as provided
herein.
ARTICLE I
DEFINITIONS
-----------
1.1 DEFINITIONS. For the purpose of the Plan, the following
words and phrases shall have the meanings set forth in this Article unless a
different meaning clearly is required by the context.
(a) The "Accrued Portion" of an Employee's monthly normal
retirement benefit determined as of any given date occurring before his Normal
Retirement Date means the amount of his monthly normal retirement benefit in the
Normal Form that would be payable at his Normal Retirement Date based on his
Final Average Compensation, Benefit Service, and (to the extent applicable)
Social
<PAGE> 7
Security Primary Insurance Amount, all as of the date (as of which) the
computation is made.
(b) The "Act" means the Employee Retirement Income Security
Act of 1974, as amended from time to time. Reference to a section of the Act
shall include such section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes such section.
(c) The "Actuary" means an independent actuary, selected by
the Committee, who is an enrolled actuary as defined in Section 7701(a)(35) of
the Code, or a firm or corporation having such a person on its staff, which
person, firm, or corporation is to serve as the actuarial consultant for the
Plan.
(d) An "Affiliated Company" means any corporation, other than
the Company, which is a member of a controlled group of corporations of which
the Company is also a member, as determined under Section 1563(a) of the Code,
without regard to Section 1563(a)(4) and Section 1563(e)(3)(C) of the Code,
while such corporation is a member of such controlled group of corporations.
Moreover, an Affiliated Company also means any trade or business (whether or not
incorporated) which is a member of a group under common control with the
Company, as determined under Section 414(c) of the Code, any organization which
is a member of an affiliated service group of which the Company is also a
member, as determined under Section 414(m) of the
- 2 -
<PAGE> 8
Code, and any other entity which is required to be aggregated with the Company
under Section 414(o) of the Code, while such trade or business, organization, or
entity is a member of such group under common control, affiliated service group,
or aggregated entities.
(e) An Employee's "Benefit Service" means his years of service
for purposes of determining the amount of any retirement benefit for which he is
eligible under the Plan, as computed in accordance with Article II.
(f) The "Code" means the Internal Revenue Code of 1986, as
amended from time to time. Reference to a section of the Code shall include such
section and any comparable section or sections of any future legislation that
amends, supplements, or supersedes such section.
(g) The "Committee," which is the administrator for purposes
of the Act and the plan administrator for purposes of the Code, means such
persons as are acting as the Committee hereunder pursuant to Article XII.
(h) The "Company" means Argo-Tech Corporation, a Delaware
corporation, its corporate successors and the surviving corporation resulting
from any merger of Argo-Tech Corporation with any other corporation or
corporations.
(i) An Employee's "Early Retirement Date" means the first day
of the month coincident with or next following the date on which he attains age
55.
- 3 -
<PAGE> 9
(j) An "Employee" means a salaried employee, as hereinafter
defined, other than any such employee who is covered by a collective bargaining
agreement unless such agreement specifically provides for coverage by the Plan.
For purposes hereof, a "salaried employee" shall include only a regular,
permanent, salaried employee of an Employer who has been designated as such in
accordance with the policy of his Employer, and an "employee" shall mean any
common law employee of an Employer or an Affiliated Company or any person who is
a "leased employee" (as defined in Section 414(n)(2) of the Code) with respect
to an Employer or an Affiliated Company, other than such a leased employee who
is excludable under Section 414(n)(5) of the Code.
(k) An "Employer" means the Company and any subsidiary that
adopts the Plan pursuant to Article XVI.
(l) An Employee's "Final Average Compensation" means the
average monthly compensation (computed before withholdings, deductions for taxes
or other purposes, and salary reduction amounts contributed by an Employer to
the Argo-Tech Employee Savings Plan) paid or payable in cash or by check by an
Employer to an Employee for the five (5) calendar years which produce the
highest such average; provided, however, that the last year of employment as an
Employee shall be included only if the termination of his status as an Employee
occurs on or after June 30 of such year. Overseas and relocation allowances,
- 4 -
<PAGE> 10
payment or reimbursement for expenses or losses, and other forms of extra
compensation shall be excluded from Final Average Compensation. Final Average
Compensation shall include only such compensation as is actually paid prior to
the end of February of the immediately following calendar
year and shall be calculated as follows:
(i) the monthly salary rate in effect at the end
of the last complete pay period of employment within the calendar
year; increased by
(ii) one-twelfth (1/12) of amounts attributable to
that year's overtime, shift premium, commissions, incentive and bonus
awards.
For purposes of the above: an hourly rate shall be converted to a monthly salary
rate by multiplying 4.333 by the product of the hourly rate and the number of
hours in the Participant's regularly scheduled workweek; a weekly rate shall be
converted to a monthly salary rate by multiplying the weekly rate by 4.333; and
incentive and bonus awards and commissions shall be allocated to the calendar
year in which earned. In no event, however, shall the compensation of an
Employee taken into account under the Plan for any calendar year exceed (1)
$200,000 for calendar years beginning prior to December 31, 1993, or (2)
$150,000 for calendar years beginning after December 31, 1993 (subject to
adjustment annually as provided in Section 401(a)(17)(B) and Section 415(d) of
the Code) or such other limitation prescribed under Section 401(a)(17)
- 5 -
<PAGE> 11
of the Code and the regulations thereunder. In determining the compensation, for
purposes of applying the annual compensation limitation described above, of an
Employee who is a five percent owner or among the ten highly compensated
Employees receiving the greatest compensation for the year, the compensation
from an Employer of the Employee's spouse and of his lineal descendants who have
not attained age 19 as of the close of the year shall be included as
compensation of the Employee for the year. If as a result of applying the family
aggregation rule described in the preceding sentence the annual compensation
limitation would be exceeded, the limitation shall be prorated among the
affected family members in proportion to each member's compensation from an
Employer as determined prior to application of the family aggregation rules.
Unless otherwise provided under the Plan, each 1989 Section
401(a)(17) Employee's accrued benefit under the Plan will be the greater of the
accrued benefit determined for such Employee under (1) or (2) below:
(1) The Employee's accrued benefit as of the last day
of the last Plan Year beginning before January 1, 1989, frozen in
accordance with Section 1.401(a)(4)-13 of the Treasury Regulations, or
(2) the Employee's accrued benefit determined under
the benefit formula applicable for the Plan Year beginning on or after
January 1, 1989, as applied to the Employee's years of Benefit Service.
A "1989 Section 401(a)(17) Employee" means an Employee whose current accrued
benefit as of a date on or after the
- 6 -
<PAGE> 12
first day of the first Plan Year beginning on or after January 1, 1989, is based
on compensation for a year beginning prior to the first day of the first Plan
Year beginning on or after January 1, 1989, that exceeded $200,000.
Unless otherwise provided under the Plan, each 1994 Section
401(a)(17) Employee's accrued benefit under the Plan will be the greater of the
accrued benefit determined for such Employee under (1) or (2) below:
(1) The Employee's accrued benefit as of the last day
of the last Plan Year beginning before January 1, 1994, frozen in
accordance with Section 1.401(a)(4)-13 of the Treasury Regulations, or
(2) the Employee's accrued benefit determined under
the benefit formula applicable for the Plan Year beginning on or after
January 1, 1994, as applied to the Employee's years of Benefit Service.
A "1994 Section 401(a)(17) Employee" means an Employee whose current accrued
benefit as of a date on or after the first day of the first Plan Year beginning
on or after January 1, 1994, is based on compensation for a year beginning prior
to the first day of the first Plan Year beginning on or after January 1, 1994,
that exceeded $150,000.
(m) An "Hour of Service" means, with respect to an Employee,
each hour for which he is paid, or entitled to payment, for the performance of
duties for an Employer or an Affiliated Company.
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<PAGE> 13
(n) "Normal Form" means a pension payable monthly for an
Employee's life only.
(o) An Employee's "Normal Retirement Date" means the first day
of the month coincident with or next following the date on which he attains age
65.
(p) An Employee's "Pension Commencement Date" means the first
day of the first period for which an amount is payable under Section 3.1, 4.1,
or 5.1, as an annuity or any other form, irrespective of whether such amount has
been paid on such date.
(q) The "Pension Fund" means the trust fund(s) or annuity
contract(s) or insurance contract(s) maintained by the Trustee under the Trust
Agreement pursuant to which Plan benefits are funded.
(r) The "Plan" means the Argo-Tech Corporation Salaried
Pension Plan as stated in this instrument with all amendments, modifications,
and supplements hereafter made.
(s) A "Plan Year" means the 12-month period ending October 31,
1987 and thereafter each 12-month period beginning on November 1 and ending on
October 31.
(t) The "Social Security Primary Insurance Amount" of an
Employee means the monthly primary insurance amount of the Employee payable at
his attainment of age 65, determined as of the time of his termination of
employment under the provisions of Title II of the Social Security Act as in
effect at such time, without regard to any increase
- 8 -
<PAGE> 14
in the wage base or benefit level that takes effect thereafter, subject to the
following:
(i) If an Employee's employment terminates prior to
attaining his Social Security retirement age, his Social Security
Primary Insurance Amount shall be estimated by assuming continuation of
his Final Average Compensation until his Social Security retirement age
at the same rate in effect at his termination of employment.
(ii) Except as provided below, each Employee's Social
Security Primary Insurance Amount shall be computed based on an
estimate of such Employee's compensation history for periods prior to
his employment with an Employer and any Affiliated Company. Each such
estimate shall be made by applying to such Employee's basic
compensation (as defined in clause (1) of Section 3.03 of Rev. Rul.
71-446) for the first full calendar year of his employment with an
Employer or an Affiliated Company a compensation scale, projected
backwards. Such compensation scale shall be the actual change in
average wages from year to year, as determined by the Social Security
Administration for purposes of determining Social Security Primary
Insurance Amounts. Notwithstanding the foregoing, in the case of an
Employee who furnishes Social Security Administration documentation of
his entire, pre-hire, actual compensation history, in a form reasonably
satisfactory to the Committee, such Employee's Social Security Primary
Insurance Amount shall be computed based on such entire, pre-hire
actual compensation history. Such documentation must be received by the
Committee within six (6) months following the later of (i) the date
such Employee terminated employment with an Employer and all Affiliated
Companies, (ii) in the case of an Employee who is eligible for a
deferred vested retirement benefit, the date such Employee receives the
Committee's standard written notice of such benefit and (iii) in the
case of an Employee who is eligible for a normal or early retirement
benefit, the date such Employee receives the Committee's standard
written benefit commencement notice. Notwithstanding the foregoing, if
the documentation referred to above has not been received one month
before the month in which payment of an Employee's benefit is to
commence,
- 9 -
<PAGE> 15
such benefit shall be paid and determined on the basis of a "primary
insurance amount" which is computed in accordance with the estimated
provisions above; however, if such Employee thereafter furnishes
documentation of his actual compensation history in accordance with the
above provisions and within the time specified, such Employee's monthly
retirement benefit and "primary insurance amount" shall be recomputed
in accordance with such provisions to reflect such actual compensation
history. If such recomputation yields a monthly retirement benefit
which is different than the monthly retirement benefit then being paid
to such Employee, then as soon as administratively practicable such
monthly retirement benefit then being paid shall be adjusted,
retroactively and prospectively, by an amount equal to the difference.
(iii) All calculations of such amounts shall be made
by the Committee, upon the advice of the Actuary, using standards of
uniform and nondiscriminatory application.
(u) The "Trust Agreement" or "Agreement" means the pension
trust agreement entered into between the Company and the Trustee, as provided in
Article XIII, together with all amendments thereto, and shall include or may
mean an annuity contract or insurance contract for the investment of assets of
the Plan if the contract would, except for the fact that it is not a trust,
constitute a qualified trust under Section 401 of the Code.
(v) The "Trustee" means the trustee(s) or any successor
trustee(s) which at the time shall be designated, qualified, and acting under
the Trust Agreement, and shall include or may mean any insurance company that
issues an annuity contract or insurance contract pursuant to the Trust
Agreement.
- 10 -
<PAGE> 16
(w) An Employee's "Vesting Service" means his years of service
for purposes of determining his eligibility for a benefit under the Plan, as
computed in accordance with Article II.
1.2 PRONOUNS. The masculine pronoun, wherever used herein,
includes the feminine in any case so requiring.
1.3 ACTUARIAL ASSUMPTIONS. The phrase "actuarial assumptions
then in use for such purpose under the Plan" shall mean an interest rate of 7%
per annum and mortality in accordance with the 1951 Group Annuity Mortality
Table for Males, projected with Scale C to 1980, and set back one year for
Employees and seven years for contingent annuitants.
ARTICLE II
VESTING SERVICE AND BENEFIT SERVICE
-----------------------------------
2.1 VESTING SERVICE AND BENEFIT SERVICE. Each Employee shall
be credited for the period(s) beginning on his employment commencement date or
reemployment commencement date and ending on his employment severance date that
next follows such employment commencement date or reemployment commencement date
with 1/12th year of Vesting Service and 1/12th year of Benefit Service for each
month or portion thereof of such employment with an Employer; provided, however,
that an Employee who has a reemployment commencement date within 12 months of
an employment
- 11 -
<PAGE> 17
severance date shall, for purposes of Vesting Service only, be credited with
Vesting Service with respect to the employment with an Employer between such
employment severance date and such reemployment commencement date. For purposes
of this Section and Section 2.4, the following definitions shall apply:
(i) A person's "employment commencement date" shall
mean the date on which he is first credited with an Hour of Service,
and a person's "reemployment commencement date" shall mean the first
date following his employment severance date on which he is again
credited with an Hour of Service.
(ii) A person's "employment severance date" means the
earlier of (a) the date on which he retires, dies, or his employment
with an Employer and all Affiliated Companies is otherwise terminated,
or (b) the first anniversary of the first date of a period during which
he is absent from work with an Employer and all Affiliated Companies
for any other reason; provided, however, that if his employment
terminates with or he is absent from work with an Employer and all
Affiliated Companies on account of service with the Armed Forces of the
United States, he shall not incur an employment severance date if he
returns to employment with an Employer or an Affiliated Company within
the period during which he retains reemployment rights pursuant to
federal law; and provided, further, that if his employment terminates
with or he is absent from work with an Employer and all Affiliated
Companies because of injury or disease with respect to which he
receives from an Employer or an Affiliated Company short-term or
long-term disability benefits or receives workers' compensation
benefits or during a period of sick leave approved by an Employer or an
Affiliated Company, his employment severance date shall mean the
earlier of the date of his death, the date he begins to receive any
retirement benefit under the Plan, or the date payment of such
short-term or long-term disability or workers' compensation benefits or
approved sick leave terminates.
- 12 -
<PAGE> 18
2.2 TRANSFERS. Notwithstanding the provisions of Section 2.1
or any other provision of the Plan, Vesting Service and Benefit Service credited
to a person shall be subject to the following:
(a) Any person who transfers to employment with an
Employer as an Employee directly from other employment (i) with an
Employer in a capacity other than as an Employee or (ii) with any
Affiliated Company, shall be credited with Vesting Service, but not
Benefit Service, for such other employment as if such other employment
were employment as an Employee for the entire period of employment.
(b) Any person who transfers from employment with an
Employer as an Employee directly to other employment (i) with an
Employer in a capacity other than as an Employee or (ii) with any
Affiliated Company, shall be deemed by such transfer not to lose his
Vesting Service or Benefit Service, and he shall be deemed not to
retire or otherwise terminate his employment as an Employee until such
time as he is no longer in the employment of an Employer or any
Affiliated Company, at which time he shall become entitled to benefits
if he is otherwise eligible therefor under the provisions of the Plan;
provided, however, that up to such time he shall be credited with
Vesting Service, but not Benefit Service, for such other employment as
if such other employment were employment as an Employee.
2.3 LOSS OF VESTING SERVICE AND BENEFIT SERVICE. Except as
otherwise specifically provided in the Plan, an Employee's Vesting Service and
Benefit Service shall be lost if he retires or if his employment with an
Employer and all Affiliated Companies terminates for any other reason, subject
to applicable Plan provisions for the reinstatement of Vesting Service and
Benefit Service.
2.4 REINSTATEMENT OF VESTING SERVICE AND BENEFIT SERVICE. A
retired or former Employee who returns
- 13 -
<PAGE> 19
to employment with an Employer or any Affiliated Company shall be reinstated
with the Vesting Service and Benefit Service with which he was credited at the
time of his prior retirement or other termination of employment if
(a) he was eligible for any retirement benefit
under the Plan at the time of his previous retirement or other
termination of employment, or
(b) his employment terminated before he satisfied the
conditions of eligibility for a deferred vested retirement benefit, and
(i) if his years of Vesting Service at the time of such termination are
greater than the period, computed to the nearest 1/12th year,
commencing on his employment severance date and ending on his most
recent employment commencement date, or (ii) if the period beginning on
his employment severance date and ending on his most recent employment
commencement date does not exceed five years; provided, however, that
if he should return to employment with an Employer or with any
Affiliated Company, in a capacity other than as an Employee, his period
of employment shall be treated for purposes of the Plan in accordance
with the provisions of Section 2.2. For purposes only of applying this
paragraph (b), in the case of an Employee who incurs an employment
severance date by reason of (i) the birth of a child of the Employee,
(ii) the pregnancy of the Employee, (iii) the placement of a child with
the Employee on account of the adoption of such child by such Employee,
or (iv) the caring for a child of the Employee for a period beginning
following the birth or placement of such child, his employment
severance date shall be advanced by 12 months. Vesting Service and
Benefit Service which are reinstated under this Section shall be
reinstated in accordance with and subject to all applicable provisions
of the Plan with respect to reemployment.
2.5 VESTING SERVICE CREDIT FOR FORMER TRW, INC. EMPLOYEES. Any
Employee who was an employee of TRW, Inc. prior to October 21, 1986 and who was
an Employee on October 21, 1986 shall be credited with Vesting Service,
- 14 -
<PAGE> 20
but not Benefit Service, under the Plan for periods of continuous employment
with TRW, Inc. prior to October 21, 1986.
2.6 FINALITY OF DETERMINATIONS. All determinations with
respect to the crediting of Vesting Service and Benefit Service under the Plan
shall be made on the basis of the records of the Employer(s), and any Affiliated
Company if applicable, and all determinations so made shall be final and
conclusive upon Employees, former Employees, and all other persons claiming a
benefit interest under the Plan. Notwithstanding anything to the contrary
contained in the Plan, there shall be no duplication of Vesting Service and
Benefit Service credited under the Plan with respect to any one period of
employment.
ARTICLE III
NORMAL RETIREMENT BENEFIT
-------------------------
3.1 ELIGIBILITY. Each Employee who retires from the employment
of an Employer and all Affiliated Companies on or after his Normal Retirement
Date shall be eligible for a normal retirement benefit, payable in the Normal
Form.
3.2 AMOUNT. The monthly amount of normal retirement benefit
for an Employee shall be 1.25% of his Final Average Compensation multiplied by
his years of Benefit Service; provided, however, that such monthly
- 15 -
<PAGE> 21
normal retirement benefit shall not be less after October 31, 1989, than either
his monthly normal retirement benefit or the Accrued Portion of his monthly
normal retirement benefit, if any, whichever, if either, applies, determined as
if he had terminated all employment covered under the Plan at the close of
business on October 31, 1989 under the provisions of the Plan then in effect.
3.3 PAYMENT. A monthly normal retirement benefit shall be paid
to an eligible Employee commencing with the month following the later of the
month in which his employment terminates with an Employer and all Affiliated
Companies (except when such termination is not required under Section 10.1), or
the month in which he makes written application for the benefit. Notwithstanding
anything to the contrary contained in the Plan, however, should any Employee or
former Employee die prior to his Pension Commencement Date, neither he nor any
other person claiming under or through him shall be entitled to payment of any
retirement benefit under this Article.
ARTICLE IV
EARLY RETIREMENT BENEFIT
------------------------
4.1 ELIGIBILITY. Each Employee who has at least five years of
Vesting Service and who retires from the employment of an Employer and all
Affiliated Companies on or after his Early Retirement Date but prior to his
- 16 -
<PAGE> 22
Normal Retirement Date, shall be eligible for an early retirement benefit,
payable in the Normal Form.
4.2 AMOUNT. An eligible Employee's monthly early retirement
benefit shall be equal to the Accrued Portion of his monthly normal retirement
benefit on the date of his early retirement reduced by one-third of one percent
(1/3%) for each full calendar month by which the date of commencement of such
benefit precedes the Employee's 62nd birthday.
4.3 PAYMENT. A monthly early retirement benefit shall be paid
to an eligible Employee commencing with the month following the later of the
month in which he retires or the month in which he makes written application for
the benefit. Except as provided in Section 10.4, an early retirement benefit
shall not commence prior to the Employee's Normal Retirement Date without his
written consent. Notwithstanding anything to the contrary contained in the Plan,
however, should any Employee or former Employee die prior to his Pension
Commencement Date, neither he nor any other person claiming under or through him
shall be entitled to payment of any retirement benefit under this Article.
ARTICLE V
DEFERRED VESTED RETIREMENT BENEFIT
----------------------------------
5.1 ELIGIBILITY. Each Employee whose employment with an
Employer and all Affiliated Companies is
- 17 -
<PAGE> 23
terminated for any reason other than death, who has at least five years of
Vesting Service, and who is not eligible for any other retirement benefit under
the Plan, shall be eligible for a deferred vested retirement benefit payable in
the Normal Form; provided, however, that if such Employee is vested pursuant to
Section 15.3 he shall be entitled to receive a percentage of the deferred vested
retirement benefit pursuant to this Article, determined by multiplying the
deferred vested benefit otherwise payable under this Article by his
nonforfeitable percentage determined under Section 15.3.
5.2 AMOUNT. An eligible Employee's monthly deferred vested
retirement benefit shall be equal to the Accrued Portion of his monthly normal
retirement benefit on the date of his termination of employment reduced by one
one-hundred-eightieth (1/180) per month for each full month of the first 60
months and one three-hundred-sixtieth (1/360) per month for each full month of
the next 60 months by which the date that the Employee's benefit payments
commence precedes his 65th birthday; provided, however, that in the case of an
Employee whose age at which Social Security retirement benefits unreduced for
age commence exceeds age 65, the number of months for which the one one-
hundred-eightieth (1/180) per month reduction shall apply shall not exceed 60
minus the number of months (including portions thereof) by which his age at
which Social Security retirement benefits unreduced for age commence exceeds
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<PAGE> 24
age 65, the one three-hundred-sixtieth (1/360) per month reduction shall apply
for the next 60 full months by which the date the Employee's benefit payments
commence precedes his 65th birthday, and with respect to any remainder of the
120 months with respect to which an early commencement reduction is to apply,
the amount of reduction shall be determined actuarially based on the actuarial
assumptions then in use for such purpose under the Plan.
5.3 PAYMENT. A monthly deferred vested retirement benefit
shall be paid to an eligible Employee commencing with the month following the
later of the month in which he attains age 55 or the month in which he makes
application for the benefit. Except as provided in Section 10.4, a deferred
vested retirement benefit shall not commence prior to the Employee's Normal
Retirement Date without his written consent. Notwithstanding anything to the
contrary contained in the Plan, however, should any former Employee die prior to
the date his retirement benefit payments commence, neither he nor any other
person claiming under or through him shall be entitled to payment of any
retirement benefit under this Article.
ARTICLE VI
DISABILITY
----------
6.1 RETIREMENT BENEFITS. Each Employee who receives service
credit under the Plan pursuant to clause (ii) of Section 2.1 by reason of a
period of
- 19 -
<PAGE> 25
approved sick leave, receipt of short-term or long-term disability benefits, or
receipt of workers' compensation benefits shall be eligible for a normal
retirement benefit, an early retirement benefit, or a deferred vested benefit,
whichever applies, if he is eligible therefor based upon his years of Vesting
Service and years of Benefit Service (including service credited pursuant to
clause (ii) of Section 2.1) and upon his Final Average Compensation and Social
Security Primary Insurance Amount determined without regard to clause (ii) of
Section 2.1.
6.2 BENEFIT COMMENCEMENT; RECOVERY FROM DISABILITY. If an
Employee who recovers from disability returns to work with an Employer or any
Affiliated Company, pension payments under the Plan (if any) shall cease. If an
Employee elects to commence receipt of retirement benefits under the Plan for
which he is eligible under Article III, Article IV, or Article V, whichever
applies, then notwithstanding any other provision of the Plan to the contrary,
such Employee shall cease receiving credit for years of Vesting Service and
years of Benefit Service under the Plan, unless he shall return to employment
with an Employer or Affiliated Company, in which case the Plan's provisions
governing reemployment shall apply.
- 20 -
<PAGE> 26
ARTICLE VII
OPTIONAL METHODS OF PAYMENT
---------------------------
7.1 AVAILABLE OPTIONS. Under the
conditions set forth in this Article, an Employee who becomes eligible for a
normal, early, or deferred vested retirement benefit under the Plan may elect
payment of benefits, in lieu of all benefits otherwise payable to him under the
Plan, in accordance with any one of the following optional methods of payment:
OPTION A. A reduced monthly benefit payable to such
Employee for his life, with the continuance of a monthly benefit equal
to such reduced amount after his death to his contingent annuitant
during the lifetime of such contingent annuitant, provided that such
contingent annuitant is living at the time of such Employee's
retirement and survives him.
OPTION B. A reduced monthly benefit payable to such
Employee for his life, with the continuance of a monthly benefit equal
to three-quarters of such reduced amount after his death to his
contingent annuitant during the lifetime of such contingent annuitant,
provided that such contingent annuitant is living at the time of such
Employee's retirement and survives him.
OPTION C. A reduced monthly benefit payable to such
Employee for his life, with the continuance of a monthly benefit equal
to one-half of such reduced amount after his death to his contingent
annuitant during the lifetime of such contingent annuitant, provided
that such contingent annuitant is living at the time of such Employee's
retirement and survives him.
The contingent annuitant of a retired Employee under Option A, B, or C may be
any person selected by such Employee. The monthly payments to be made under
Option A, B, or C shall be in amounts the actuarial value of which
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<PAGE> 27
shall be the actuarial equivalent of the retirement benefits otherwise payable
to the Employee under the Plan, in lieu of which the option was elected, taking
into account the age of the Employee and the age of his contingent annuitant.
Notwithstanding the foregoing provisions of this Section or any other provision
of the Plan, no Employee or former Employee shall be permitted to elect Option
A, B, or C or designate a person other than his spouse as his contingent
annuitant unless, based upon such Employee or former Employee's age at the time
he is to begin receiving benefits under such option, the actuarially equivalent
present value of the total payments to be made to such Employee or former
Employee under such option is at least 50% of the actuarially equivalent present
value of the total payments to be made to such Employee or former Employee and
his contingent annuitant combined. For purposes of this Section, joint life and
last survivor expectancy shall be computed as of the date payment of benefits is
to commence by use of the expected return multiples set forth in 26 CFR
Section 1.72-9. For purposes of this Section, actuarially equivalent values and
amounts shall be determined based upon the actuarial assumptions then in use for
such purpose under the Plan.
7.2 TIME FOR MAKING ELECTION. An Employee's or retired or
former Employee's election of an option under Section 7.1 must be made in
writing to the
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<PAGE> 28
Committee, in such form as it shall require, within the 90-day period ending on
his Pension Commencement Date.
7.3 REVOCATION AND CHANGE OF OPTION. An Employee or retired or
former Employee who has elected an option under Section 7.1, by written notice
delivered to the Committee, in such form as it shall require, at any time prior
to his Pension Commencement Date, may revoke or change his election of an
option, or designate a different contingent annuitant, without the consent of
his contingent annuitant, except when spousal consent is required as provided
below. In the event that such Employee or retired or former Employee is married
at the time of such revocation or change, such revocation or change shall be
effective only if his spouse consents in writing in the manner specified in
Section 7.6. Notwithstanding the foregoing, spousal consent is not required if
an Employee or former Employee elects Option A, B, or C with his spouse as the
contingent annuitant.
7.4 EFFECT OF VARIOUS CIRCUMSTANCES UPON AN OPTION. The
election of an option under Section 7.1 or the automatic election of an option
under Section 7.6 shall become effective for all purposes only upon the retired
or former Employee's Pension Commencement Date, as provided in Section 7.5. If
such an Employee or retired or former Employee dies before his Pension
Commencement Date, his election shall become inoperative and ineffective and no
payment shall become due to his contingent annuitant under
- 23 -
<PAGE> 29
the option; provided, however, that if such an Employee or retired or former
Employee with respect to whom no survivor benefit is payable under Article IX
dies after retirement under conditions of eligibility for a normal or early
retirement benefit under Article III or IV but prior to his Pension Commencement
Date, his election shall be given effect without regard to the foregoing, and
payments shall be made to his contingent annuitant as provided in Section 7.5. A
married Employee's or retired or former Employee's election of an option shall
be effective if he dies prior to his Pension Commencement Date only if his
election of an option included a waiver of the survivor benefit, with the
written consent of his spouse. Such a waiver shall be effective only if the
spousal consent designates a contingent annuitant or beneficiary that may not be
changed without spousal consent unless the spousal consent expressly permits
designations by the Employee or retired or former Employee without any
requirement of further consent by the spouse, shall acknowledge the effect of
such waiver, and shall be witnessed by a Plan representative or notary public.
An Employee or retired or former Employee may waive the survivor benefit
otherwise payable under Article IX only during the "applicable election period."
The "applicable election period" means the period within which the Employee or
retired or former Employee may make an election pursuant to Section 7.1. The
Committee shall provide each Employee or retired or former Employee
- 24 -
<PAGE> 30
within the "applicable election period" for such Employee or retired or former
Employee, a written explanation of the survivor benefit in such terms and in
such manner as would be comparable to the explanation provided pursuant to
Section 7.6.
7.5 PAYMENT UNDER AN OPTION. A monthly benefit payment shall
be made to the retired or former Employee who has elected an option under
Section 7.1 or who is deemed to have elected an option under Section 7.6
commencing at the same time as the monthly benefit payment otherwise payable to
him under the Plan would have commenced, the last such monthly payment being for
the month in which his death occurs. Such monthly payment shall be suspended or
terminated, as the case may be, under the same circumstances and in the same
manner as specified with respect to the monthly benefit otherwise payable under
the Plan. Notwithstanding the foregoing, upon recommencement of a benefit
because of subsequent termination or retirement following reemployment as
provided in Section 10.1, payments shall be made as applicable under the option
previously elected by the Employee, unless (i) the option has been revoked or
changed as provided in Section 7.3, or but for the previous option election, the
automatic election provisions of Section 7.6 would apply upon such subsequent
termination or retirement, in which event the benefit shall be paid in the form
required by Section 7.6, provided that the Employee has not filed with
- 25 -
<PAGE> 31
the Committee prior to such subsequent termination or retirement a new option
election or a written waiver of the automatic election as provided in such
Section 7.6. A monthly benefit payment shall be made to a retired or former
Employee's contingent annuitant who survives him, if any, commencing with the
month following the month in which the death of such Employee occurs, the last
such monthly payment being for the month in which the death of the contingent
annuitant occurs.
7.6 AUTOMATIC ELECTION. An Employee or retired or former
Employee who is eligible to receive a normal, early, or deferred vested
retirement benefit shall be deemed to have elected the qualified joint and
survivor annuity described as Option C in Section 7.1 and to have designated his
spouse on his Pension Commencement Date as his contingent annuitant thereunder,
unless within the 90-day period ending on such Employee's or retired or former
Employee's Pension Commencement Date he has filed with the Committee a written
waiver of this automatic election which has not been withdrawn specifying the
contingent annuitant or beneficiary (or a form of benefits), if applicable, and
to which his spouse consents in writing, unless a Plan representative finds that
such consent cannot be obtained because the spouse cannot be located or because
of other circumstances set forth in Section 401(a)(11) of the Code and
regulations thereunder; provided, however, that no monthly benefit shall become
- 26 -
<PAGE> 32
payable under such deemed election to a spouse as contingent annuitant if such
spouse is not the same spouse to whom such retired or former Employee was
married on his Pension Commencement Date. Such spousal consent shall designate a
contingent annuitant or beneficiary (or a form of benefits), if applicable, that
may not be changed without spousal consent unless the spousal consent expressly
permits designations by the Employee or retired or former Employee without any
requirement of further consent by the spouse, shall acknowledge the effect of
such waiver, and shall be witnessed by a Plan representative or notary public.
Notwithstanding the foregoing, spousal consent is not required if an Employee or
retired or former Employee elects Option A or B with his spouse as the
contingent annuitant.
7.7 AUTOMATIC ELECTION PERIOD. The automatic election period
shall be the 90-day period ending on the Employee's or retired or former
Employee's Pension Commencement Date. Within the 60-day period ending 30 days
before the Employee's or retired or former Employee's Pension Commencement Date,
the Committee shall provide to each Employee or retired or former Employee, as
applicable, a written explanation of the qualified joint and survivor annuity
described as Option C in Section 7.1, the Employee's or retired or former
Employee's, as applicable, right to make and the effect of an election to waive
such qualified joint and survivor annuity, the rights of the
- 27 -
<PAGE> 33
Employee's or retired or former Employee's spouse, and the right to make and the
effect of a revocation of a previous election to waive such qualified joint and
survivor annuity.
ARTICLE VIII
POST RETIREMENT INCREASES
-------------------------
8.1 ELIGIBILITY FOR POST RETIREMENT INCREASES. A retired or
former Employee who is receiving benefits in the Normal Form or in the form of
an annuity described as Option A, B or C in Section 7.1 (or his contingent
annuitant if applicable) and who is at least 65 years of age shall have his
retirement benefits adjusted each January 1 by the annual adjustment amount, if
any, as provided in Section 8.2. If the benefits of a retired or former Employee
receiving benefits in the form of an annuity described as Option A, B, or C in
Section 7.1 are so adjusted, benefits received thereafter by his contingent
annuitant, if any, shall be similarly adjusted.
8.2 AMOUNT OF POST RETIREMENT INCREASES. The annual adjustment
amount, if any, for an adjustment year shall be equal to 50% of any increase in
the Consumer Price Index (CPI) that is in excess of 5% for the adjustment year,
but in no event shall the annual adjustment amount exceed 4% for any adjustment
year. The adjustment year shall be the 12-month period beginning September 1 and
ending August 31. Benefits shall be adjusted by the annual
- 28 -
<PAGE> 34
adjustment amount, if any, on the January 1 immediately following the adjustment
year.
ARTICLE IX
SURVIVOR BENEFIT
----------------
9.1 ELIGIBILITY FOR SURVIVOR BENEFIT. If an Employee or
retired or former Employee dies after becoming entitled to a vested retirement
benefit under the Plan and prior to his Pension Commencement Date, his surviving
spouse, as defined in Section 9.4, if any, shall be eligible for a survivor
benefit as provided in this Article.
9.2 SURVIVOR BENEFIT AMOUNT. The monthly survivor benefit
payable to the surviving spouse of such a deceased Employee or retired or former
Employee shall be as follows:
(a) If an Employee dies after the attainment of age
55, the amount of such monthly survivor benefit shall be equal to the
amount of the monthly retirement benefit his contingent annuitant would
have received if such Employee had retired on the day before the date
of his death and elected to receive a monthly retirement benefit under
Option C of Section 7.1, based upon his years of Benefit Service, the
benefit formula in effect on the date of his death, and his surviving
spouse as his contingent annuitant.
(b) If an Employee dies prior to the attainment of
age 55, the amount of such monthly survivor benefit shall be equal to
the amount of the monthly retirement benefit his contingent annuitant
would have received if such Employee had separated from service on the
date of his death, had survived to his 55th birthday, had retired on
such 55th birthday, had elected to receive a monthly retirement benefit
under Option C of Section 7.1, and had died on the day after such 55th
birthday, based upon his years of Benefit Service and the benefit
formula in effect
- 29 -
<PAGE> 35
on the date of his death, and his surviving spouse as his contingent
annuitant.
(c) If a former Employee dies after the attainment of
age 55, the amount of such monthly survivor benefit shall be equal to
the amount of the monthly retirement benefit his contingent annuitant
would have received if such former Employee had elected to receive a
monthly retirement benefit under Option C of Section 7.1 on the day
before the date of his death, based upon his years of Benefit Service
and the benefit formula in effect on the date of his termination of
employment, and his surviving spouse as contingent annuitant.
(d) If a former Employee dies prior to the attainment
of age 55, the amount of such monthly survivor benefit shall be equal
to the amount of the monthly retirement benefit his contingent
annuitant would have received if such Employee had survived to his 55th
birthday, had retired on such 55th birthday, had elected to receive a
monthly retirement benefit under Option C of Section 7.1, and had died
on the day after such 55th birthday, based upon his years of Benefit
Service and the benefit formula in effect on the date of his
termination of employment and his surviving spouse as contingent
annuitant.
(e) If a retired Employee (other than a retired
Employee who has waived the survivor benefit with spousal consent in
accordance with the provisions of Section 7.4) dies prior to his
Pension Commencement Date, the amount of such monthly survivor benefit
shall be determined in the same manner as provided in paragraph (c) of
this Section 9.2.
Notwithstanding the foregoing, if within the 90-day period ending on the date of
his death the Employee or retired or former Employee elected, and did not
revoke, Option A or B of Section 7.1 in accordance with the provisions of
Article VII with his spouse as contingent annuitant, the amount of the monthly
survivor benefit otherwise payable
- 30 -
<PAGE> 36
shall be computed as described above, but shall be based on Option A or B, as
the case may be, rather than on Option C.
9.3 SURVIVOR BENEFIT PAYMENTS. A survivor benefit shall be
paid to the surviving spouse commencing with the later of the month after (i)
the month in which the Employee or retired or former Employee would have
attained age 55, or (ii) the month in which the Employee's or retired or former
Employee's death occurs, and shall be payable monthly thereafter during the life
of the surviving spouse, the last payment being for the month in which the death
of the surviving spouse occurs. Notwithstanding the foregoing, a surviving
spouse may elect to defer commencement of survivor benefits hereunder until a
date no later than the date the Employee or retired or former Employee would
have attained age 65, in which case the actuarial reduction for early
commencement, if any, shall be adjusted accordingly. In the event of the death
of the surviving spouse prior to the commencement of the payment of the survivor
benefit, no survivor benefit shall be payable pursuant to the provisions of this
Article.
9.4 SURVIVING SPOUSE DEFINED. The term surviving spouse means
the deceased Employee's or retired or former Employee's spouse, but only if such
spouse had been married to the deceased Employee or retired or former Employee
for at least one full year preceding the date of the Employee's or retired or
former Employee's death.
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<PAGE> 37
ARTICLE X
GENERAL PROVISIONS AND LIMITATIONS
----------------------------------
REGARDING BENEFITS
------------------
10.1 REEMPLOYMENT. If a retired or former Employee should
return to employment with an Employer or any Affiliated Company, his right to
receive any further retirement benefits based on his prior retirement or
termination of employment shall cease, and he shall be reinstated with his
Vesting Service and Benefit Service at the time of such prior termination in
accordance with the provisions of Section 2.4; provided, however, that any
benefits to which the Employee may become entitled because of his subsequent
retirement or termination of employment shall be reduced actuarially to reflect
the value of (i) any early retirement or deferred vested retirement benefits to
him before he was reemployed and prior to his Normal Retirement Date, and (ii)
any single-sum cash benefit paid to him before he was reemployed, the amount of
such reduction to be determined on the basis of the actuarial assumptions then
in use for such purpose under the Plan. Notwithstanding any other provision of
the Plan to the contrary, an Employee who continues in employment with an
Employer or any Affiliated Company or is reemployed by an Employer or any
Affiliated Company after reaching his Normal Retirement Date shall be eligible
for his benefit payments for any month in which he is employed for less than 40
hours (or such other amount of time that does not
- 32 -
<PAGE> 38
constitute Section 203(a)(3)(B) service under the Act and regulations issued
thereunder). Any monthly payments made to an Employee pursuant to this paragraph
shall be paid in accordance with the provisions of the Plan otherwise applicable
to determining the amount of his benefit payments, the duration of such benefit
payments, and the method of payment.
10.2 NON-ALIENATION OF RETIREMENT RIGHTS OR BENEFITS. Except
as provided in Section 414(p) of the Code relating to qualified domestic
relations orders, no benefit under the Plan at any time shall be subject in any
manner to anticipation, alienation, assignment (either at law or in equity) or
encumbrance, garnishment, levy, execution, or other legal or equitable process,
nor be resorted to, appropriated, or seized in any proceeding at law, in equity,
or otherwise. No person shall have power in any manner to anticipate, transfer,
assign (either at law or in equity), alienate, or subject to attachment,
garnishment, levy, execution, or other legal or equitable process, or in any way
encumber his benefits under the Plan, or any part thereof, and any attempt to do
so shall be void.
10.3 PAYMENT OF BENEFITS TO OTHERS. If any person to whom a
retirement or other benefit is payable is unable to care for his affairs because
of illness or accident or legal incompetence, any payment due (unless prior
claim therefor shall have been made by a duly qualified guardian or other legal
representative) may be
- 33 -
<PAGE> 39
paid to the spouse, parent, brother or sister, or any other individual deemed by
the Committee to be maintaining or responsible for the maintenance of such
person. The monthly payment of a retirement or other benefit to a person for the
month in which he dies, if not paid to such person prior to his death, shall be
paid to his estate. Any payment made in accordance with the provisions of this
Section shall be a complete discharge of any liability of the Plan with respect
to the benefit so paid.
10.4 PAYMENT OF SMALL BENEFITS; COMMUTED BENEFITS. If the
actuarial value of the amount of any benefit payments to be made to any person
hereunder does not exceed $3,500.00 (and did not exceed $3,500 at the time of
any prior distribution), determined as of the Employee's termination of
employment or any subsequent date before commencement of benefit payments on the
basis of the mortality assumption under the actuarial assumptions then in use
for such purpose under the Plan and the Pension Benefit Guaranty Corporation
interest assumption specified below in this Section, such benefit shall be paid
in a single-sum payment as soon as practicable following the Plan Year in which
the Employee's termination of employment or such subsequent date of
determination occurs; provided, however, that such single sum payment shall be
made no later than the date benefits would otherwise commence to him.
Notwithstanding the preceding provisions of this Section, no such single-sum
payment to any retired or
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<PAGE> 40
former Employee, or to his spouse receiving benefits as a contingent annuitant
under Option A, B, or C of Section 7.1, shall be made after the Pension
Commencement Date or if the present value of the future payments to be made to
such retired or former Employee or spouse determined as of the proposed date of
single-sum distribution exceeds $3,500 computed using an interest assumption
equal to the interest assumption used by the Pension Benefit Guaranty
Corporation to value annuities for plans terminating as of the first day of the
Plan Year in which would occur the proposed distribution. The provisions of this
Section 10.4 shall also apply to benefits payable with respect to any retired or
former Employee whose employment terminated prior to November 1, 1995.
10.5 INTERNAL REVENUE REQUIREMENTS. Notwithstanding any other
provision of the Plan to the contrary, to conform to the requirements of U.S.
Treasury Regulations, the benefit payable under the Plan shall be subject to the
limitations set forth in this Section 10.5. The annual payments in any one year
to any of the 25 highly compensated employees or highly compensated former
employees with the greatest compensation (hereinafter referred to as a
"restricted employee") in the current or any prior year shall not exceed an
amount equal to the payments that would be made on behalf of the restricted
employee under (1) a single life annuity that is the actuarial equivalent of the
restricted employee's Accrued Portion and other
- 35 -
<PAGE> 41
benefits to which the restricted employee is entitled under the Plan (other than
a Social Security supplement), and (2) the amount of the payments the restricted
employee is entitled to receive under a Social Security supplement. For purposes
of this Section 10.5, "benefit" includes, among other benefits, loans in excess
of the amounts set forth in Section 72(p)(2)(A) of the Code, any periodic
income, any withdrawal values payable to a living employee, and any death
benefits not provided for by insurance on the restricted employee's life. The
foregoing provisions of this Section 10.5 shall not apply, however, if:
(a) After payment to a restricted employee of all
benefits payable to the restricted employee under the Plan, the value
of Plan assets equals or exceeds 110% of the value of "current
liabilities", as defined in Section 412(b)(7) of the Code (each value
being determined as of the same date in accordance with applicable
Treasury regulations);
(b) The value of the benefits payable under the Plan
to or for a restricted employee is less than one percent of the value
of current liabilities before distribution; or
(c) The value of benefits payable under the Plan to
or for a restricted employee does not exceed the amount described in
Section 411(a)(11)(A) of the Code.
10.6 LIMITATIONS ON COMMENCEMENT. Notwithstanding any other
provision of the Plan to the contrary, payment of an Employee's or former
Employee's retirement benefit shall commence not later than the earlier of:
(a) the 60th day after the end of the
Plan Year in which the Employee's Normal Retire-
- 36 -
<PAGE> 42
ment Date occurs, the tenth anniversary of the date on which he first
became an Employee, or the Employee's retirement or other termination
of employment, whichever is latest; or
(b) the April 1 following the later of
the calendar year in which the Employee
(i) attains age 70-1/2, or
(ii) retires;
provided, however, that clause (ii) shall not be applicable in the case
of an Employee who is a five percent owner (as defined in Section 416
of the Code) with respect to the five-Plan-Year period ending in the
calendar year in which such Employee attains age 70-1/2 or in the case
of an Employee who attains age 70-1/2 on or after January 1, 1988.
Notwithstanding the foregoing, if an Employee or former Employee becomes a five
percent owner (as defined in Section 416 of the Code) after attaining age
70-1/2, the date for required commencement of his retirement benefit shall be
April 1 of the calendar year following the calendar year in which ends the Plan
Year in which he became a five percent owner. In the event the retired or
former Participant dies after distribution of his interest has commenced but
prior to distribution of his entire interest, the remaining portion of such
interest shall be distributed to his beneficiary under a method which is at
least as rapid as the method being used at the date of his death. In the event
the retired or former Participant dies prior to commencement of the
distribution of his interest, the entire interest attributable to such retired
or former Participant shall be distributed no later than the last day
- 37 -
<PAGE> 43
of the Plan Year which contains the fifth anniversary of the date of his death,
unless such interest is payable to a designated beneficiary (as defined in
Section 401(a)(9) of the Code) for a period which does not exceed the life or
life expectancy of such designated beneficiary, in which event distribution of
such interest shall commence no later than the last day of the Plan Year
immediately following the Plan Year in which the retired or former Participant
died, provided that if the designated beneficiary is the surviving spouse or,
under certain circumstances, a child of the retired or former Participant,
distribution shall not be required to begin earlier than the date the deceased
Participant would have attained age 70-1/2. Death and any other nonretirement
benefits payable under the Plan shall be incidental to the primary purpose of
the Plan, which is to provide retirement benefits, and accordingly shall be
limited in accordance with the minimum distribution incidental benefit
requirements under Section 401(a)(9) of the Code. Distributions under the Plan
shall be made in accordance with Section 401(a)(9) of the Code and regulations
issued thereunder, including the minimum distribution incidental benefit
requirements. The provisions of this Section 10.6 reflecting Section 401(a)(9)
of the Code, shall override any distribution options in the Plan inconsistent
with such Section 401(a)(9). In the event that the amount of a monthly benefit
payable to any retired or former Employee cannot be determined for any reason
- 38 -
<PAGE> 44
(including lack of information as to whether the Employee is still living or his
marital status) on the date payment of such benefit is to commence under this
Section, payment shall be made retroactively to such date no later than 60 days
after the date on which the amount of such monthly benefit can be determined.
10.7 ELECTION OF FORMER VESTING SCHEDULE. In the event the
Company adopts an amendment to the Plan that changes the vesting schedule under
the Plan, including any amendment which directly or indirectly affects the
computation of the nonforfeitable interest of Employees' rights to accrued
benefits, any Employee with three or more years of Vesting Service shall have a
right to have his nonforfeitable interest in his accrued benefit continue to be
determined under the vesting schedule in effect prior to such amendment rather
than under the new vesting schedule, unless the nonforfeitable interest of such
Employee in his accrued benefit under the Plan, as amended, at any time is not
less than such interest determined without regard to such amendment. Such
Employee shall exercise such right by giving written notice of his exercise
thereof to the Committee within 60 days after the latest of (i) the date he
receives notice of such amendment from the Committee, (ii) the effective date of
the amendment, or (iii) the date the amendment is adopted. Notwithstanding the
foregoing provisions of this Section, the vested interest of each Employee on
the effective date of such amendment shall not
- 39 -
<PAGE> 45
be less than his vested interest under the Plan as in effect immediately prior
to the effective date thereof.
10.8 ROLLOVER REQUIREMENTS. This Section 10.8 applies to
distributions made on or after January 1, 1993. Notwithstanding any other
provision of the Plan to the contrary that would otherwise limit a
distributee's election under this Section 10.8, a distributee may elect, at the
time and in the manner prescribed by the Plan administrator to have any portion
of an eligible rollover distribution paid directly to an eligible retirement
plan specified by the distributee in a direct rollover. For purposes of this
Section 10.8, the following definitions shall apply:
(a) Eligible rollover distribution: An eligible
rollover distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
(b) Eligible retirement plan: An eligible
retirement plan is an individual retirement account described in
Section 408(a) of the Code, an individual retirement annuity described
in Section 408(b) of the Code, an annuity plan described in Section
403(a) of the Code, or a qualified trust described in Section 401(a) of
- 40 -
<PAGE> 46
the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution
to the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(c) Distributee: A distributee includes an employee
or former employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's spouse or
former spouse who is the alternate payee under a qualified domestic
relations order, as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former
spouse.
(d) Direct rollover: A direct rollover is a payment
by the Plan to the eligible retirement plan specified by the
distributee.
10.9 BENEFIT ACCRUALS WHILE RECEIVING BENEFIT PAYMENTS.
Notwithstanding any other provision of the Plan to the contrary, in the case of
an Employee whose monthly retirement benefits commence in accordance with
subsection (i) of paragraph (b) of Section 10.6 by reason of his having attained
age 70 1/2, any increase in the monthly amount of his normal retirement benefit
with respect to any Plan Year which would otherwise occur shall be reduced (but
not below zero) by the actuarial equivalent of total Plan benefit payments made
to such Employee during such Plan Year.
ARTICLE XI
MAXIMUM RETIREMENT BENEFITS
---------------------------
11.1 DEFINITIONS. For purposes of this Article XI, the
following definitions shall apply in addition to those set forth in Article I:
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<PAGE> 47
(a) The term "employer" shall mean an Employer and
any other Affiliated Company; provided, however, that for this purpose
the meaning of "Affiliated Company" shall be as modified by Section
415(h) of the Code.
(b) A "limitation year" shall mean the Plan Year.
(c) An Employee's "annual retirement benefit" shall
mean the retirement benefit which is payable to him annually under the
Plan, multiplied by the appropriate factor prescribed by the Internal
Revenue Service, if the Employee's retirement benefit is to be paid in
a manner other than to the Employee for life only or under a qualified
joint and survivor annuity, which converts such benefit to a benefit
payable annually in the form of a straight life annuity. Such factor
hereunder shall be determined using an interest rate assumption that is
not less than the greater of five percent or the rate specified in the
Plan, if any, subject to the provisions of the applicable regulations
under the Code.
(d) An Employee's "projected annual retirement
benefit" shall mean the annual retirement benefit which would be
payable to such Employee under the Plan based on the assumptions that
he continues his employment as an Employee until his Normal Retirement
Date and that his compensation for the limitation year continues at the
same rate until his Normal Retirement Date, and on the basis of the
federal Social Security Act as in effect on the last day of the
limitation year. An Employee's "aggregate projected annual retirement
benefit" shall include his projected annual retirement benefit under
the Plan and his projected annual retirement benefit, if any, under any
other defined benefit plan maintained by an employer.
(e) An Employee's "compensation" shall mean his
wages, salaries, fees for professional service, and other amounts
received for personal services actually rendered in the course of
employment with an employer, excluding, however, contributions made by
an employer to a plan of deferred compensation to the extent that,
before the application of the limitations of Section 415 of the Code to
such plan, the contributions are not includible in the gross income of
the Employee for the taxable year in which contributed,
- 42 -
<PAGE> 48
contributions made by an employer on his behalf to a simplified
employee pension described in Section 408(k) of the Code, any
distributions from a plan of deferred compensation (except amounts
received pursuant to an unfunded nonqualified plan in the year such
amounts are includible in the gross income of the Employee), amounts
received from the exercise of a nonqualified stock option or when
restricted stock or other property held by the Employee becomes freely
transferable or is no longer subject to substantial risk of forfeiture,
amounts received from the sale, exchange, or other disposition of stock
acquired under a qualified stock option, and any other amounts which
receive special tax benefits, such as premiums for group term life
insurance (but only to the extent that the premiums are not includible
in gross income of the Employee).
(f) The limitations contained in this Article shall
be applicable only with respect to benefits provided pursuant to
defined contribution plans and defined benefit plans specified in
Section 415(k) of the Code.
11.2 MAXIMUM DEFINED BENEFIT LIMITATION. Subject to Section
11.3, the maximum aggregate annual retirement benefit to which an Employee is
entitled under the Plan and any other defined benefit plan maintained by an
employer may not at any time within a limitation year exceed the lesser of:
(a) 100% of the Employee's average annual
compensation for his highest three consecutive years of Vesting
Service; or
(b) The following dollar limitation, based upon the
age of the Employee at the time he begins receiving benefits under the
Plan:
(i) as to each Employee who begins receiving benefits
at his Social Security retirement age: $90,000; provided, however, that
as of January 1 of each calendar year, such amount shall be adjusted to
equal the maximum permissible dollar limitation for such purpose as
determined by the Commissioner of Internal
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<PAGE> 49
Revenue for that calendar year, which maximum limitation shall apply to
limitation years ending with or within that calendar year;
(ii) as to each Employee who begins receiving
benefits before his Social Security retirement age: the amount that
would be payable to such Employee annually in the form of a straight
life annuity based upon such Employee's age at the time he begins
receiving benefits, which amount is the actuarial equivalent,
determined in such manner as the Secretary of the Treasury shall
prescribe, of $90,000 (as adjusted in the manner provided for in
paragraph (b)(i) of this Section) payable annually in the form of a
straight life annuity; and
(iii) as to each Employee who begins receiving
benefits after his Social Security retirement age: the amount that
would be payable annually to such Employee in the form of a straight
life annuity based upon such Employee's age at the time he begins
receiving benefits, which amount is the actuarial equivalent,
determined in accordance with regulations prescribed by the Secretary
of the Treasury, of $90,000 (as adjusted in the manner described in
paragraph (b)(i) of this Section) payable annually in the form of a
straight life annuity commencing at his Social Security retirement age;
multiplied by the following:
(c) The percentage determined by dividing, with
respect to paragraph (a) above, the number of years of Vesting Service
and, with respect to paragraph (b) above, the number of years of Plan
participation he will have as of the end of the limitation year
(computed to fractional parts of a year) by ten, if the Employee will
have credit for less than ten years of Vesting Service or Plan
participation, as applicable, at that time.
For purposes of computing actuarially equivalent limitation amounts under clause
(b)(ii) above, an interest rate assumption that is not less than the greater of
5% or the rate specified in the Plan, if any, shall be assumed, subject to the
provisions of applicable regulations under
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<PAGE> 50
the Code. For purposes of computing actuarially equivalent limitation amounts
under clause (b)(iii) above, an interest rate assumption that is not greater
than the lesser of 5% or the rate specified in the Plan, if any, shall be
assumed, subject to the provisions of applicable regulations under the Code.
11.3 EXCEPTIONS. If the Employee's annual retirement benefit
in a limitation year or any prior limitation year does not exceed $10,000
(adjusted by the percentage shown in paragraph (c) of Section 11.2, if
applicable, using years of Vesting Service), he may receive the full amount of
such benefit without regard to the limitation specified in paragraph (a) of
Section 11.2, provided that the Employee did not participate at any time in any
defined contribution plan maintained by an employer.
11.4 MANNER OF REDUCTION. If the Employee's aggregate annual
retirement benefit would exceed the limitations specified in Section 11.2 absent
such limitations, the reduction in the amount of his annual retirement benefit
under the Plan shall be equal to the amount by which his aggregate annual
retirement benefit would exceed the limitations of Section 11.2 multiplied by a
fraction, the numerator of which is his annual retirement benefit under the Plan
(determined without regard to the limitations of Section 11.2) and the
denominator of which is his aggregate annual retirement benefit under the Plan
and any other defined benefit plan maintained by an
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<PAGE> 51
employer (determined without regard to the limitations of Section 11.2 or any
corresponding limitation in any other defined benefit plan maintained by an
Employer or an Affiliated Company).
11.5 MAXIMUM DEFINED BENEFIT AND DEFINED CONTRIBUTION
LIMITATION. If an Employee also is covered by one or more defined contribution
plans maintained by an employer, the sum of the defined benefit plan fraction
described in paragraph (a) and the defined contribution plan fraction described
in paragraph (b) of this Section in no event shall exceed 1.0 in any limitation
year.
(a) The defined benefit plan fraction (determined as of the
close of such limitation year) shall be a fraction the numerator of
which is the aggregate projected annual retirement benefit of such
Employee and the denominator of which is the lesser of (i) the product
of the dollar limitation in effect under Section 415(b)(1)(A) of the
Code for such year multiplied by 1.25, or (ii) the product of the
amount which may be taken into account under Section 415(b)(1)(B) of
the Code with respect to such Participant for such year multiplied by
1.4.
(b) The defined contribution plan fraction shall be a fraction
the numerator of which is equal to the sum of:
(i) total employer contributions allocated to the
Employee's account or accounts maintained under all such plans
during each limitation year;
(ii) total forfeitures, if any, allocated to the
Employee's account or accounts maintained under all such plans
during each limitation year; and
(iii) the Employee's own contributions to all such
plans (and any defined benefit plan maintained by an employer)
during each limitation year;
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<PAGE> 52
and the denominator of which is the sum of the lesser of the following
amounts determined for such limitation year and each prior year of
service with an employer: (1) the product of 1.25 multiplied by the
dollar limitation in effect under Section 415(c)(1)(A) of the Code for
such limitation year (determined without regard to Section 415(c)(6) of
the Code), or (2) the product of 1.4 multiplied by the amount which may
be taken into account under Section 415(c)(1)(B) of the Code (or
Sections 415(c)(7) or (8), if applicable) with respect to such Employee
for such limitation year.
In the event that the sum of the defined benefit plan fraction and the defined
contribution plan fraction would exceed the limitation of 1.0, the benefits
otherwise payable to an Employee under the Plan shall be reduced to the extent
necessary to meet such limitation.
ARTICLE XII
THE COMMITTEE
-------------
12.1 MEMBERSHIP. The Company, by action of its Board of
Directors, shall appoint a Committee of at least three persons to administer the
Plan as hereinafter set forth.
12.2 RULES AND REGULATIONS. The Committee may from time to
time formulate such rules and regulations for its organization and the
transaction of its business as it deems suitable and as are consistent with the
provisions of the Plan.
12.3 AUTHORITY OF COMMITTEE AND COMPANY. The Committee shall
have the authority to perform the functions conferred upon it herein, and shall
have all the
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<PAGE> 53
powers and authority which are required in connection therewith, subject,
however, to the limitations hereinafter set forth. The Committee shall have all
the powers and authority expressly conferred upon it herein and further shall
have the discretionary power and authority to interpret and construe the Plan,
and to determine any disputes arising thereunder, subject, however, to the
provisions of Section 12.5. The Committee may employ such attorneys, agents, and
accountants as it may deem necessary or advisable to assist it in carrying out
its duties hereunder. The Committee has the authority to delegate its powers,
authority and responsibilities to one or more subcommittees of the Committee,
but the Committee and any such subcommittees otherwise shall have no authority
to allocate any of their powers, authority, or responsibilities for the
operation and administration of the Plan to any other person. The Company, the
Committee, and the Trustee are hereby designated as "named fiduciaries" of the
Plan as such term is defined in Section 402(a)(2) of the Act. The Company, by
action of its Board of Directors, may
(a) allocate any of the powers, authority, or responsibilities
for the operation and administration of the Plan, which are retained by
it or granted by this Article to the Committee, to itself, to the
Committee, or to the Trustee; and
(b) designate a person other than itself or the Committee to
carry out any of such powers, authority, or responsibilities;
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<PAGE> 54
provided, however, that no powers, authority, or responsibilities of the Trustee
shall be subject to the provisions of paragraph (b) of this Section; and
provided, further, that no allocation or delegation by the Company of any of its
or of the Committee's powers, authority, or responsibilities to the Trustee
shall become effective unless such allocation or delegation shall first be
accepted by the Trustee in a writing signed by it and delivered to the Company.
12.4 ACTION OF COMMITTEE. Any act authorized, permitted, or
required to be taken by the Committee under the Plan may be taken by a majority
of the members of the Committee at the time acting hereunder, either by vote at
a meeting, or in writing without a meeting. All notices, advices, directions,
certifications, approvals, and instructions required or authorized to be given
by the Committee under the Plan shall be in writing and signed by a majority of
the members of the Committee, or by such member or members as may be designated,
by an instrument in writing signed by all the members thereof, as having
authority to execute such documents on its behalf. Subject to the provisions of
Section 12.5, any action taken by the Committee which is authorized, permitted,
or required under the Plan shall be final and binding upon all persons who have
or who claim an interest under the Plan and all third parties dealing with the
Company, the Committee, or the Trustee.
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<PAGE> 55
12.5 CLAIMS REVIEW PROCEDURE. Whenever the Committee decides
for whatever reason to deny, whether in whole or in part, a claim for benefits
filed by any person (hereinafter referred to as the "Claimant"), the Committee
shall transmit a written notice of the Committee's decision to the Claimant,
which shall be written in a manner calculated to be understood by the Claimant
and contain a statement of the specific reasons for the denial of the claim and
a statement advising the Claimant that, within 60 days of the date on which he
receives such notice, he may obtain review of the decision of the Committee in
accordance with the procedures hereinafter set forth. Within such 60-day period,
the Claimant or his authorized representative may request that the claim denial
be reviewed by filing with the Committee a written request therefor, which
request shall contain the following information:
(a) the date on which the Claimant's request was
filed with the Committee; provided, however, that the date on which the
Claimant's request for review was in fact filed with the Committees
shall control in the event that the date of the actual filing is later
than the date stated by the Claimant pursuant to this paragraph (a);
(b) the specific portions of the denial of his
claim which the Claimant requests the Committee to review;
(c) a statement by the Claimant setting forth the
basis upon which he believes the Committee should reverse the
Committee's previous denial of his claim for benefits and accept his
claim as made; and
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<PAGE> 56
(d) any written material (offered as exhibits) which
the Claimant desires the Committee to examine in its consideration of
his position as stated pursuant to paragraph (c) of this Section.
Within 60 days of the date determined pursuant to paragraph (a) of this Section,
the Committee shall conduct a full and fair review of the Committee's decision
denying the Claimant's claim for benefits. Within 60 days of the date of such
review, the Committee shall render its written decision on review, written in a
manner calculated to be understood by the Claimant, specifying the reasons and
Plan provisions upon which its decision was based.
12.6 RESIGNATION, REMOVAL, AND DESIGNATION OF SUCCESSORS. Any
member of the Committee may at any time resign, and any member may be removed by
action of the Board of Directors of the Company. Vacancies for these or other
reasons shall be filled by appointees of the Board of Directors of the Company.
The Committee shall promptly notify the Trustee of any change in its membership.
Nothing herein contained shall be construed to prevent any director, officer,
employee, or shareholder of an Employer or Affiliated Company from serving as a
member of the Committee, but no member of the Committee who is an Employee shall
take any part in any action relating solely to his participation.
12.7 RECORDS. The Committee shall maintain records of all
meetings, proceedings, and actions held, undertaken, or performed by it, and
shall furnish to the
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<PAGE> 57
Company such reports as it may from time to time request. The Committee may
appoint as its Secretary, to keep a record of its meetings, proceedings, and
actions, a person who may, but need not be, a member of the Committee.
12.8 COMPENSATION AND EXPENSES. The members of the Committee
shall receive no compensation for their services performed as such, but any and
all expenses, including, without limitation, compensation to and expenses of
agents and counsel, reasonably incurred by them in carrying out the powers and
duties conferred, shall be paid as provided in Section 17.7; provided, however,
that any reasonable expenses of the members of the Committee that cannot be or
are not paid from the Pension Fund shall be paid by the Company (subject to
allocation by the Company among the Employers, the share of each to be
determined by the Company).
12.9 INDEMNIFICATION. In addition to whatever rights of
indemnification the members of the Committee or of the Board of Directors of the
Company, or any other person or persons (other than the Trustee) to whom any
power, authority, or responsibility of the Company or of the Committee is
delegated pursuant to Section 12.3 may be entitled under the Articles of
Incorporation, regulations, or by-laws of the Company under any provision of
law, or under any other agreement, the Company shall satisfy any liability
actually and reasonably incurred by any such member or such other person or
persons, including
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expenses, attorneys' fees, judgments, fines, and amounts paid in settlement, in
connection with any threatened, pending, or completed action, suit, or
proceeding which is related to the exercise or failure to exercise by such
member or such other person or persons of any of the powers, authority,
responsibilities, or discretion provided under this Agreement, or reasonably
believed by such member or such other person or persons to be provided
hereunder, and any action taken by such member or such other person or persons
in connection therewith.
12.10 QUALIFIED DOMESTIC RELATIONS ORDERS. The Committee shall
establish reasonable procedures to determine the status of domestic relations
orders and to administer distributions under domestic relations orders which are
deemed to be qualified orders. Such procedures shall be in writing and shall
comply with the provisions of Section 414(p) of the Code and regulations issued
thereunder.
ARTICLE XIII
PENSION FUND
------------
13.1 PENSION FUND. The Pension Fund is maintained by the
Trustee for the Plan under a Trust Agreement with the Company. As provided in
the Trust Agreement, the Company, by action of its officers, may in accordance
with Section 402 of the Act, direct the Trustee or appoint an investment manager
to direct the Trustee in
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<PAGE> 59
the investment of the Plan assets. Benefits under the Plan shall be only such as
can be provided by the assets of the Pension Fund, and no liability for payment
of benefits shall be imposed upon any Employer, Affiliated Company, or any
related corporation, person, or business, or any of their officers, employees,
directors, or stockholders.
13.2 CONTRIBUTIONS BY EMPLOYERS. So long as the Plan
continues, contributions will be made by Employers at such times and in such
amounts as the Board of Directors of the Company in its sole discretion from
time to time shall determine, based on the advice of the Actuary and consistent
with the funding policy for the Plan. Subject to the provisions of Section 13.5,
all such contributions shall be delivered to the Trustee for deposit in the
Pension Fund. Employees shall make no contributions under the Plan.
13.3 CONDITION ON EMPLOYER CONTRIBUTIONS. Any obligation of an
Employer to make any contribution hereunder is hereby conditioned upon (i) the
initial and continued qualification of the Plan under Section 401(a) of the Code
and the continued exempt status of the Trust under Section 501(a) of the Code,
provided that such contribution shall be returned to an Employer within one year
after the date of denial of qualification of the Plan or denial of exempt status
of the Trust in connection with an amendment to the Plan or Trust, and (ii) the
deductibility of the contribution under Section 404 of the Code, provided that
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<PAGE> 60
such contribution shall be returned to an Employer (to the extent disallowed)
within one year after the disallowance of the deduction. Furthermore, a
contribution which is made by an Employer under a mistake of fact shall be
returned to an Employer within one year after the payment of the contribution.
Except as otherwise provided in this Section, however, in no event shall any
portion of the Trust property ever revert to or otherwise inure to the benefit
of an Employer or any other related corporation; provided, however, that in the
event of termination of the Plan, after satisfaction of all benefit liabilities
of the Plan as required by law, such remaining portion of the Pension Fund, if
any, shall revert to the Company.
13.4 FORFEITURES NOT TO INCREASE BENEFITS. Any forfeitures
arising from the termination of employment or death of an Employee, or for any
other reason, shall be used to reduce Employer contributions to the Pension
Fund, and shall not be applied to increase the benefits any Employee otherwise
would receive under the Plan at any time prior to the termination of the Plan.
13.5 CHANGE OF FUNDING MEDIUM. The Company shall have the
right to change at any time the means through which benefits under the Plan
shall be provided, including the substitution of a contract or contracts with an
insurance company or companies, and thereupon may make suitable provision for
the use of assets of the Trust to provide for the payment of benefits under such
insurance
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contract or contracts. No such change shall constitute a termination of the
Plan.
ARTICLE XIV
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
14.1 COMPANY'S RIGHT OF AMENDMENT OR TERMINATION. The Company
reserves the right at any time and from time to time, pursuant to authority of
its Board of Directors, to amend, otherwise modify, or terminate the Plan and,
to the extent provided therein, to amend or modify the Trust Agreement or any
contract with any insurance company. The Committee may amend the Plan in any
manner described above in this Section 14.1, provided that any such amendment
does not materially increase or decrease benefits under the Plan or materially
increase the cost to the Company of maintaining the Plan. No such action shall
operate to recapture for an Employer or any Affiliated Company any contributions
previously made to the Pension Fund, except as provided in Section 13.3.
14.2 EFFECT OF TERMINATION. In the event of termination of the
Plan, written notice thereof shall be given by the Company to the Trustee, no
further contributions shall be made by any Employer, and the Pension Fund, after
provision is made for expenses, shall be applied by the Trustee for the benefit
of Employees, retired and former Employees, and persons claiming under or
through them, all in the order, to the extent, and in the
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manner required under the Act; and any amount remaining after such application
shall be disposed of as provided in Section 13.3. Upon any termination, the
Company and the Committee shall continue to participate in the operation and
administration of the Plan and the Pension Fund, with respect to such
termination and with respect to the disposition and liquidation of the Pension
Fund.
ARTICLE XV
TOP HEAVY PROVISIONS
--------------------
15.1 APPLICABILITY OF TOP HEAVY PLAN PROVISIONS.
Notwithstanding any other provision of the Plan to the contrary, in the event
the Plan is deemed to be a top heavy plan for any Plan Year, the provisions
contained in this Article with respect to vesting and benefit accrual shall be
applicable with respect to such Plan Year. In the event that the Plan is
determined to be a top heavy plan and upon a subsequent determination date is
determined to no longer be a top heavy plan, the vesting and benefit accrual
provisions of the Plan shall again become applicable as of such subsequent
determination date; provided, however, that in the event such prior vesting
provisions do again become applicable, (i) the nonforfeitable percentage of the
accrued benefit of any Employee, former Employee, or contingent annuitant shall
not be reduced, and (ii) any Employee with three years of Vesting Service may
elect to
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have his nonforfeitable interest in his accrued benefit determined in accordance
with Section 10.7.
15.2 TOP HEAVY PLAN DEFINITIONS. For purposes of this Article,
the following definitions shall apply in addition to those set forth in Article
I:
(a) The term "annual compensation" shall mean, subject to the
limitation contained in Section 401(a)(17) of the Code, the aggregate
earnings of an Employee paid to him by an Employer during a Plan Year,
and with respect to which the Plan is determined to be a top heavy
plan.
(b) The term "determination date" shall mean the last day of
the immediately preceding Plan Year, except that for the first Plan
Year the term "determination date" shall mean the last day of such Plan
Year.
(c) The term "key employee" shall mean an Employee or former
Employee who is a key employee pursuant to the provisions of Section
416(i)(1) of the Code or a beneficiary of such an Employee.
(d) The term "permissive aggregation group" shall mean the
group of tax-qualified plans maintained by an Employer or an Affiliated
Company consisting of any plans in the required aggregation group and
any other plan or plans selected by an Employer or Affiliated Company;
provided, however, that the entire such group of plans, when considered
as a group, satisfies the requirements of Section 401(a)(4) and Section
410 of the Code.
(e) The term "required aggregation group" shall mean the group
of tax-qualified plans maintained by an Employer or an Affiliated
Company consisting of each such plan in which a key employee
participates and each other such plan which enables such a plan in
which a key employee participates to meet the requirements of Section
401(a)(4) or Section 410 of the Code, including any such plan that
terminated within the five-year period ending on the relevant
determination date.
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<PAGE> 64
(f) The term "super top heavy group" shall mean a
required or permissive aggregation group that, as of the determination
date, would satisfy the definition of top heavy group under paragraph
(i) of this Section with "90 percent" substituted for "60 percent" each
place where "60 percent" appears in such definition.
(g) The term "super top heavy plan" shall mean a plan
that, as of the determination date, would satisfy the definition of top
heavy plan under paragraph (j) of this Section with "90 percent"
substituted for "60 percent" each place where "60 percent" appears in
such definition. A plan is also a super top heavy plan if it is
included in a super top heavy group.
(h) The term "testing period" shall mean the period
of consecutive years of service, not in excess of five, during which an
Employee has the greatest aggregate compensation from an Employer,
excluding, however, any year which begins after the close of the last
year in which the Plan was a top heavy plan.
(i) The term "top heavy group" shall mean a required
or permissive aggregation group if the sum, as of the determination
date of the present value of the cumulative accrued benefits for key
employees under all defined benefit plans included in such group and
the aggregate of the account balances of key employees under all
defined contribution plans included in such group exceeds 60 percent of
a similar sum determined for all employees covered by the plans
included in such group.
(j) The term "top heavy plan" shall mean (i) a
defined benefit plan with respect to which, as of a determination date,
the present value of the cumulative accrued benefits under the plan for
key employees exceeds 60 percent of the present value of the cumulative
accrued benefits under the plan for all employees, or (ii) a defined
contribution plan with respect to which, as of the determination date,
the aggregate of the accounts (within the meaning of Section 416(g) of
the Code and the regulations and rulings thereunder) of key employees
exceeds 60 percent of the aggregate of the accounts of all employees
covered under the Plan, with the accounts valued as of the most recent
valuation date coinciding with or preceding the determina-
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tion date, and (iii) any plan included in a required aggregation group
which is a top heavy group. Notwithstanding the foregoing, if a plan is
included in a required or permissive aggregation group which is not a
top heavy group, such plan shall not be a top heavy plan. For purposes
of this Article, the present value of the cumulative accrued benefits
under the Plan shall be determined as of the date Plan costs for
minimum funding purposes are computed, and shall be calculated using
the actuarial assumptions otherwise employed under the Plan for
actuarial valuations.
15.3 TOP HEAVY VESTING. Except in cases where the applicable
terms of the Plan in effect immediately prior to the effective date of operation
of this Article would be more favorable to the Employee, in the event the Plan
is determined to be a top heavy plan, an Employee's nonforfeitable right to a
percentage of the Accrued Portion of his monthly normal retirement benefit shall
be ascertained in accordance with the vesting schedule hereinafter set forth.
VESTING SCHEDULE
----------------
YEARS OF VESTING SERVICE NONFORFEITABLE PERCENTAGE
- ------------------------ -------------------------
Less than 2 years 0
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years or more 100%
15.4 MINIMUM TOP HEAVY BENEFIT. In the event the Plan is
determined to be a top heavy plan, the annual normal retirement benefit of an
Employee who is a non-key employee and who is eligible therefor, payable in the
form of a single life annuity beginning at his Normal Retirement Date, shall not
be less than such Employee's
- 60 -
<PAGE> 66
average compensation for years in the testing period multiplied by the lesser
of:
(a) Two percent multiplied by his years of
Vesting Service; or
(b) 20 percent.
For purposes of this Article, "years of Vesting Service" shall only include
years of Vesting Service completed in Plan Years beginning on or after November
1, 1986, but shall not include any such year of service if the Plan was not a
top heavy plan with respect to the Plan Year ending within such year of service
and shall not include any period of service with respect to which an Employee
does not meet the definition of "Employee". Notwithstanding the minimum
top-heavy allocation requirements of this Section, in the event that the Plan is
a top-heavy plan, each non-key Employee hereunder who is also covered under any
other top-heavy plan or plans of an Employer shall receive the top-heavy benefit
provided under such other defined contribution plan that provides for a minimum
allocation of 5% of the non-key Employee's compensation in lieu of the minimum
top-heavy benefit under the Plan.
15.5 ADJUSTMENT OF MAXIMUM RETIREMENT BENEFITS. In the event
the Plan is determined to be a top heavy plan, for purposes of Section 11.5 of
the Plan, 1.00 shall be substituted for 1.25, and for purposes of applying
Section 415(e)(6)(B)(i) of the Code to the Plan, $41,500 shall be substituted
for $51,875, except that such sub-
- 61 -
<PAGE> 67
stitutions shall not be applied if (i) the Plan is not a super top heavy plan
and (ii) each non-key employee receives a minimum top heavy benefit not less
than his average compensation for years in the testing period multiplied by the
lesser of three percent multiplied by his years of service or 30 percent.
ARTICLE XVI
ADOPTION BY SUBSIDIARIES
------------------------
16.1 ADOPTION. Any subsidiary of the Company that is not an
Employer may, with the consent of the Board of Directors of the Company, adopt
the Plan and become an Employer hereunder by causing an appropriate written
instrument evidencing such adoption to be executed pursuant to the authority of
its board of directors and filed with the Company and the Trustee.
16.2 WITHDRAWAL OF AN EMPLOYER. An Employer other than the
Company may, with the Company's consent, by action of its Board of Directors,
withdraw from the Plan, such withdrawal to be effective upon notice in writing
to the Committee and the Trustee (the effective date of such withdrawal being
hereinafter referred to as the "withdrawal date"), and shall thereupon cease to
be an Employer for all purposes of the Plan. An Employer shall be deemed
automatically to withdraw from the Plan in the event of its complete
discontinuance of contributions, or (subject to Section 16.3) in the event it
ceases to be a
- 62 -
<PAGE> 68
subsidiary of the Company. The withdrawal of an Employer shall be treated as a
termination of the Plan with respect to such Employer, and with respect to
Participants who at the time are employed by such Employer. In the event of any
such withdrawal of an Employer, the Trustee and the Committee shall, as of the
withdrawal date, take the action specified in Section 14.2, as on a termination
of the Plan, except that there shall be a distribution representing affected
Employees' interests in the Plan only in the case of Employees who are employed
solely by the withdrawing Employer, and who, upon such withdrawal, are neither
transferred to nor continued in employment with any other Employer or Affiliated
Company. The interest in the Plan of any Employee employed by such withdrawing
Employer who is transferred to or continues in employment with any other
Employer or Affiliated Company, and the interest of any Employee employed solely
by an Employer other than the withdrawing Employer or Affiliated Company shall
remain unaffected by such withdrawal and he shall continue as an Employee
hereunder subject to the remaining provisions of the Plan.
16.3 CORPORATE REORGANIZATION. The merger, consolidation, or
liquidation of the Company or any Employer with or into the Company, any other
Employer, or Affiliated Company shall not constitute a termination of the Plan
as to the Company or such Employer.
- 63 -
<PAGE> 69
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 PLAN NON-CONTRACTUAL. Nothing herein contained shall be
construed as a commitment or agreement on the part of any person to continue his
employment with an Employer or Affiliated Company, and nothing herein contained
shall be construed as a commitment on the part of an Employer or Affiliated
Company to continue the employment or the rate of compensation of any such
person for any period, and all employees of any Employer or Affiliated Company
shall remain subject to discharge to the same extent as if the Plan had never
been put into effect.
17.2 CLAIMS OF OTHER PERSONS. The provisions of the Plan shall
in no event be construed as giving any Employee or any other person, firm, or
corporation any legal or equitable right as against an Employer or Affiliated
Company, any of its officers, employees, directors, or shareholders, or as
against the Trustee, except such rights as are specifically provided for in the
Plan or hereafter created in accordance with the terms and provisions of the
Plan.
17.3 GOVERNING LAW. Except as provided under federal law, the
provisions of the Plan shall be governed by and construed in accordance with the
laws of the State of Ohio.
17.4 NONFORFEITABILITY OF BENEFITS. Notwithstanding anything
to the contrary contained in the
- 64 -
<PAGE> 70
Plan, (i) an Employee's right to a normal retirement benefit under the Plan
shall be nonforfeitable upon and after his attaining age 65 while employed by an
Employer or Affiliated Company; and (ii) in the event of the termination or a
partial termination of the Plan, the rights of all Employees who are affected by
such termination to benefits accrued to the date of such termination, to the
extent funded as of such date, shall be nonforfeitable.
17.5 MERGER, CONSOLIDATION, OR TRANSFERS OF PLAN ASSETS. The
Plan shall not be merged or consolidated with any other plan, nor shall any of
its assets or liabilities be transferred to another plan, unless, immediately
after such merger, consolidation, or transfer of assets or liabilities, each
Employee would receive a benefit under the Plan which is at least equal to the
benefit he would have received immediately prior to such merger, consolidation,
or transfer of assets or liabilities (assuming in each instance that the Plan
then had terminated).
17.6 TRUST AGREEMENT. The Trust Agreement and the Pension Fund
maintained thereunder shall be deemed to be a part of the Plan as if fully set
forth herein, and the provisions of the Trust Agreement hereby are incorporated
by reference into the Plan.
17.7 ADMINISTRATIVE EXPENSES. Except as otherwise provided in
the Plan, in the Trust Agreement, or
- 65 -
<PAGE> 71
by applicable law, all expenses of administering the Plan and Pension Fund,
including fees assessed against the Plan, the Pension Fund, the Trustee, the
Committee, the Company and any Employers shall be paid from the Pension Fund as
a general charge thereon, unless the Company (subject to allocation by the
Company among the Employers, the share of each to be determined by the Company),
any Employer or any Affiliated Company elects to make payment thereof; provided,
however, that no person who receives full-time pay from an employer shall
receive compensation in violation of Section 408(c)(2) of the Act.
17.8 INTERPRETATION OF CERTAIN PLAN REFERENCES UPON FUNDING BY
ANNUITY CONTRACTS OR INSURANCE CONTRACTS. With respect to periods (if any)
during which the Plan is funded partially or exclusively by one or more annuity
contracts or insurance contracts not held by a trustee of the Plan, each
reference contained in the Plan to the Trustee, other than the references
contained in paragraphs (q), (u), and (v) of Section 2.1, shall be deemed to be
a reference to the Committee or the insurance company that has issued an annuity
contract or insurance contract providing for investment of the assets of the
Plan, as appropriate or applicable to the provision within which such reference
is contained.
17.9 CESSATION OF BENEFIT ACCRUALS. Notwithstanding any other
provision of the Plan to the contrary, there shall be no further benefit
accruals under
- 66 -
<PAGE> 72
any provision of the Plan for any person after the close of business on June 30,
1994. In this regard, without limitation:
(i) No person shall be credited with Benefit Service with
respect to any period that begins after June 30, 1994;
(ii) Compensation that is paid after June 30, 1994 shall not
be taken into account for purposes of determining Final Average
Compensation, and to the extent consistent therewith, the Final Average
Compensation, and the monthly normal retirement benefit or the Accrued
Portion of the monthly normal retirement benefit, if any, whichever, if
either, applies, of a person who is a participant on June 30, 1994
shall be determined as if his employment with an Employer and all
Affiliated Companies (and his status as an Employee) had terminated on
the earlier of June 30, 1994 or the last date prior to June 30, 1994 on
which his employment with an Employer or all Affiliated Companies (or
his status as an Employee) terminated;
(iii) No person shall become a participant in the Plan after
June 30, 1994; and
(iv) The Accrued Portion as of the close of business on June
30, 1994 of the monthly normal retirement benefit of any person who is
a participant and an Employee on June 30, 1994 shall (to the extent
forfeitable) become nonforfeitable as of the close of business on June
30, 1994.
ARTICLE XVIII
1992 SPECIAL EARLY RETIREMENT PROVISIONS
----------------------------------------
18.1 GENERAL. This Article XVIII provides for certain
increased benefits with respect to certain Employees who satisfy the
requirements specified in this Article XVIII for such increased benefits. Except
as otherwise provided in this Article XVIII, the provisions of
- 67 -
<PAGE> 73
this Article XVIII shall apply notwithstanding any other provision of the Plan
to the contrary and shall control in the case of any conflict with any other
provision of the Plan.
18.2 ELIGIBILITY. In order to be eligible for increased
benefits pursuant to this Article XVIII, an Employee must be listed on Appendix
B to the Plan.
18.3 ELECTION AND RETIREMENT. In order to receive the
increased benefits provided under this Article XVIII, an Employee who meets the
eligibility requirements of Section 18.2 of this Article XVIII must satisfy the
following requirements and conditions:
(a) Such Employee must, on or before July 31, 1992,
submit a properly completed affirmative election of the increased
benefits provided pursuant to this Article XVIII to a representative
designated for such purpose by the Company on the appropriate forms
therefor and in the manner prescribed by the Company.
(b) Such Employee must voluntarily terminate his
employment with the Company (and any other Affiliated Company) on July
31, 1992 (the Employee's "retirement date").
18.4 INCREASED BENEFITS. Benefits under the Plan of an
Employee who both meets the eligibility requirements of Section 18.2 of this
Article XVIII and satisfies the requirements and conditions of Section 18.3 of
this Article XVIII shall be increased in accordance with the following:
(a) For purposes of Section 3.2, Sec-
tion 4.2 or Section 9.2 (whichever applies in the Employee's case), in
determining the amount of such Employee's benefit under this Article
XVIII,
- 68 -
<PAGE> 74
such Employee's years of Benefit Service under the Plan, determined as
of his date of termination of employment in accordance with paragraph
(b) of Section 18.3 of this Article XVIII, shall be increased by three.
(b) For purposes of Section 4.2 or Section 9.2
(whichever, if either, applies in the Employee's case), such Employee's
years of Vesting Service under the Plan, determined as of his date of
termination of employment in accordance with paragraph (b) of Section
18.3 of this Article XVIII, shall be increased by three. For purposes
of determining any reduction to the early retirement benefit under
Section 4.2 or the survivor benefit under Section 9.2, whichever, if
either, applies, for commencement thereof prior to the Employee's
attainment of age 62, the number of months by which such Employee's
benefit commencement date would otherwise precede the first day of the
month following his attainment of age 62 shall be reduced, but not to
less than zero, by 36 months.
(c) If such Employee:
(i) is under age 62 on his benefit commencement date,
he shall receive a supplemental monthly benefit in the amount
specified with respect to him on Appendix B to the Plan
payable through the earlier of the month in which he attains
age 62 or in which his death occurs; or
(ii) is at least age 62 but under age 65 on his
benefit commencement date, he shall receive a supplemental
monthly benefit in the amount specified with respect to him on
Appendix B to the Plan payable through the earliest of: (A)
the month in which his death occurs; (B) the month immediately
preceding the first month with respect to which the Employee
is entitled to old-age insurance benefits, unreduced on
account of age under Title II of the Social Security Act, as
amended, or (C) the month immediately preceding the month in
which his 65th birthday occurs.
- 69 -
<PAGE> 75
Notwithstanding the foregoing, if such Employee receives his benefit in
a single sum payment pursuant to Section 18.5 of this Article XVIII he
shall receive in lieu of such supplemental monthly payment(s) a single
sum payment in an amount which is the actuarial equivalent of such
supplemental monthly payment(s), as determined in accordance with
Section 18.5 of this Article XVIII.
(d) Notwithstanding any other provision of this
Article XVIII, Section 18.5 of this Article XVIII, Article IX (other
than for purposes of determining any reduction for commencement prior
to age 62 as provided in paragraph (b) of this Section 18.4), Article
VII, and Article VIII shall be applied based upon such Employee's
actual age.
18.5 SINGLE SUM PAYMENT OPTION. An Employee who meets the
eligibility requirements of Section 18.2 of this Article XVIII and who satisfies
the election and retirement requirements of Section 18.3 of this Article XVIII
may elect to receive his benefits under the Plan, as increased under Section
18.4 of this Article XVIII, in a single sum payment of actuarially equivalent
present value, in lieu of all benefits otherwise payable to him under the Plan.
Any single sum payment paid pursuant to the provisions of this Section 18.5 of
this Article XVIII shall be payable as of the date such Employee's benefit would
otherwise begin in the absence of an election of such single sum payment option
hereunder. For purposes of determining the actuarially equivalent present value
of an Employee's benefit under the Plan, such actuarially equivalent present
value shall be determined using the following actuarial assumptions:
- 70 -
<PAGE> 76
(a) Mortality in accordance with the 1951 Group
Annuity Mortality Table for Males, projected with Scale C to 1980, set
back one year (for Employees); and
(b) An interest rate of seven and four-tenths percent
(7.4%). Notwithstanding the foregoing, such interest rate shall not
exceed the interest rate described in (i) or (ii) below, whichever
applies:
(i) the "applicable interest rate" (as hereinafter
defined), if the value of the single sum payment determined
using the applicable interest rate does not exceed $25,000; or
(ii) one hundred twenty percent (120%) of the
applicable interest rate, if the value of the single sum
payment determined using one hundred twenty percent (120%) of
the applicable interest rate is not less than $25,000.
For purposes of this Section 18.5 of this Article XVIII, the
"applicable interest rate" shall mean the interest rate that would be
used as of the first day of the Plan Year that includes the date as of
which the single sum payment is payable by the Pension Benefit Guaranty
Corporation for purposes of determining the present value of a lump sum
distribution on plan termination.
18.6 GENERALLY APPLICABLE PROVISIONS. The increased benefits
payable pursuant to this Article XVIII shall be subject to all generally
applicable provisions regarding payment of benefits and conditions and
limitations thereon of the Plan.
ARTICLE XIX
1993 SPECIAL EARLY RETIREMENT PROVISIONS
----------------------------------------
19.1 GENERAL. This Article XIX provides
for certain increased benefits with respect to certain
- 71 -
<PAGE> 77
Employees who satisfy the requirements specified in this Article XIX for such
increased benefits. Except as otherwise provided in this Article XIX, the
provisions of this Article XIX shall apply notwithstanding any other provision
of the Plan to the contrary and shall control in the case of any conflict with
any other provision of the Plan.
19.2 ELIGIBILITY. In order to be eligible for increased
benefits pursuant to this Article XIX, an Employee must be listed on Appendix C
to the Plan.
19.3 ELECTION AND RETIREMENT. In order to receive the
increased benefits provided under this Article XIX, an Employee who meets the
eligibility requirements of Section 19.2 of this Article XIX must satisfy the
following requirements and conditions:
(a) Such Employee must, on or before November 30,
1993, submit a properly completed affirmative election of the increased
benefits provided pursuant to this Article XIX to a representative
designated for such purposes by the Company on the appropriate forms
therefor and in the manner prescribed by the Company.
(b) Such Employee must voluntarily terminate his
employment with the Company (and any other Affiliated Company) on
November 30, 1993 (the Employee's "retirement date").
19.4 INCREASED BENEFITS. Benefits under the Plan of an
Employee who both meets the eligibility requirements of Section 19.2 of this
Article XIX and satisfies the requirements and conditions of Section 19.3
- 72 -
<PAGE> 78
of this Article XIX shall be increased in accordance with the following:
(a) For purposes of Section 3.2, Section 4.2 or Section 9.2
(whichever applies in the Employee's case), in determining the amount
of such Employee's benefits under this Article XIX, such Employee's
years of Benefit Service under the Plan, determined as of his date of
termination of employment in accordance with paragraph (b) of Section
19.3 of this Article XIX, shall be increased by three.
(b) For purposes of Section 4.2 or Section 9.2 (whichever, if
either, applies in the Employee's case), such Employee's years of
Vesting Service under the Plan, determined as of his date of
termination of employment in accordance with paragraph (b) of Section
19.3 of this Article XIX, shall be increased by three. For purposes of
determining any reduction to the early retirement benefit under Section
4.2 or the survivor benefit under Section 9.2, whichever, if either,
applies, for commencement thereof prior to the Employee's attainment of
age 62, the number of months by which such Employee's benefit
commencement date would otherwise precede the first day of the month
following his attainment of age 62 shall be reduced, but not to less
than zero, by 48 months.
(c) If such Employee:
(i) is under age 62 on his benefit commencement date,
he shall receive a supplemental monthly benefit in the amount
specified with respect to him on Appendix C to the Plan
payable through the earlier of the month in which he attains
age 62 or in which his death occurs; or
(ii) is at least age 62 but under age 65 on his
benefit commencement date, he shall receive a supplemental
monthly benefit in the amount specified with respect to him on
Appendix C to the Plan payable through the earliest of: (A)
the month in which his death occurs; (B) the month immediately
preceding the first month with respect to which the Employee
is entitled to
- 73 -
<PAGE> 79
old-age insurance benefits, unreduced on account of age under
Title II of the Social Security Act, as amended, or (C) the
month immediately preceding the month in which his 65th
birthday occurs.
Notwithstanding the foregoing, if such Employee receives his benefit in
a single sum payment pursuant to Section 19.5 of this Article XIX he
shall receive in lieu of such supplemental monthly payment(s) a single
sum payment in an amount which is the actuarial equivalent of such
supplemental monthly payment(s), as determined in accordance with
Section 19.5 of this Article XIX.
(d) Notwithstanding any other provision of this
Article XIX, Section 19.5 of this Article XIX, Article IX (other than
for purposes of determining any reduction for commencement prior to age
62 as provided in paragraph (b) of this Section 19.4), Article VII, and
Article VIII shall be applied based upon such Employee's actual age.
19.5 SINGLE SUM PAYMENT OPTION. An Employee who meets the
eligibility requirements of Section 19.2 of this Article XIX and who satisfies
the election and retirement requirements of Section 19.3 of this Article XIX may
elect to receive his benefits under the Plan, as increased under Section 19.4 of
this Article XIX, in a single sum payment of actuarially equivalent present
value, in lieu of all benefits otherwise payable to him under the Plan. Any
single sum payment paid pursuant to the provisions of this Section 19.5 of this
Article XIX shall be payable as of the date such Employee's benefit would
otherwise begin in the absence of an election of such single sum payment option
hereunder. For purposes of determining the actuarially equivalent present value
of
- 74 -
<PAGE> 80
an Employee's benefit under the Plan, such actuarially equivalent present value
shall be determined using the following actuarial assumptions:
(a) Mortality in accordance with the 1951 Group
Annuity Mortality Table for Males, projected with Scale C to 1980, set
back one year (for Employees); and
(b) An interest rate of five and one-tenth percent
(5.1%). Notwithstanding the foregoing, such interest rate shall not
exceed the interest rate described in (i) or (ii) below, whichever
applies:
(i) the "applicable interest rate" (as hereinafter
defined), if the value of the single sum payment determined
using the applicable interest rate does not exceed $25,000; or
(ii) one hundred twenty percent (120%) of the
applicable interest rate, if the value of the single sum
payment determined using one hundred twenty percent (120%) of
the applicable interest rate is not less than $25,000.
For purposes of this Section 19.5 of this Article XIX, the "applicable
interest rate" shall mean the interest rate that would be used as of
the first day of the Plan Year that includes the date as of which the
single sum payment is payable by the Pension Benefit Guaranty
Corporation for purposes of determining the present value of a lump sum
distribution on plan termination.
19.6 GENERALLY APPLICABLE PROVISIONS. The increased benefits
payable pursuant to this Article XIX shall be subject to all generally
applicable provisions regarding payment of benefits and conditions and
limitations thereon of the Plan.
- 75 -
<PAGE> 81
ARTICLE XX
SPECIAL PROVISIONS AND EFFECTIVE DATES
--------------------------------------
20.1 TERMINATION OR RETIREMENT BEFORE NOVEMBER 1, 1995. Except
as specifically provided under the Plan or as required by law, including
applicable provisions of the Code, a retired or former Employee who is eligible
for a retirement benefit under the Plan whose employment terminated before
November 1, 1995, and who is not credited with one Hour of Service on or after
November 1, 1995, or, if applicable, his contingent annuitant, shall receive or
continue to receive retirement benefits in accordance with the provisions of the
Plan in effect at the date of the Employee's termination of employment.
20.2 EFFECTIVE DATES. Except as provided below or otherwise in
the Plan, this amendment and restatement of the Plan is effective November 1,
1995, but with respect only to employees who are credited with an Hour of
Service on or after that date. Unless otherwise specifically provided in the
Plan, this amendment and restatement is effective with respect to each change
made to the Plan to satisfy the provisions of the Tax Reform Act of 1986 ("TRA
'86"), (ii) any other change in the Code or the Act, or (iii) regulations,
rulings, or other published guidance issued under the Code, the Act, or TRA '86,
on the first day of the first period (which may or may not be the first day of a
Plan Year) with respect to which such change became required because of such
provision (including any
- 76 -
<PAGE> 82
day that became such as a result of an election or waiver by an Employee or a
waiver or exemption or exemption issued under the Code, the Act, or TRA '86),
but, unless otherwise specifically indicated, with respect only to employees who
retire, die, or whose employment otherwise terminates on or after said date.
Notwithstanding the foregoing and subject to applicable law, with respect to
Plan Years beginning before the general effective date of this amendment and
restatement, the Company may elect to operate the Plan in accordance with any
transitional rule published by the Internal Revenue Service or a reasonable,
good faith interpretation of TRA '86 and related applicable law, in which event
such transitional rule or good faith interpretation shall prevail over the
provisions of the Plan with respect to such Plan Year.
* * *
EXECUTED at Cleveland, Ohio, this 25th day of October, 1995.
ARGO-TECH CORPORATION
By: /s/ J. Cunningham
--------------------------
Title: Vice President
Attest:
/s/ Paul R. Keen
- ------------------------
Title: Secretary
<PAGE> 83
APPENDIX A
TO
ARGO-TECH CORPORATION
SALARIED PENSION PLAN
SPECIAL PROVISIONS RELATING TO CERTAIN EMPLOYEES
------------------------------------------------
1. Each person who is an Employee immediately preceding
December 24, 1990 (the "Transfer Date") and transfers to employment with
Technautics Corporation (the "Buyer") or any corporate successor thereto, or any
person or entity which is treated as a single employer with the Buyer within the
meaning of Section 414 of the Code (collectively, the "Buyer's Affiliated
Group") on the Transfer Date shall be subject to the provisions of this Appendix
A and is hereinafter referred to as an "Appendix A Employee."
2. Each Appendix A Employee shall cease to accrue further
Benefit Service and Vesting Service on the last day of the month in which the
Transfer Date occurs.
3. An Appendix A Employee's employment with the Buyer's
Affiliated Group shall be deemed to be employment under the Plan solely for
purposes of (i) determining when commencement of retirement benefits may occur
(but not for purposes of entitlement to receive or the amount of any benefit
under the Plan), and (ii) suspension of benefits upon reemployment pursuant to
the Plan. Such employment with the Buyer's Affiliated Group shall be deemed
terminated only when the Appendix A
<PAGE> 84
Employee has a separation from service with the Buyer's Affiliated Group.
4. An Appendix A Employee shall not be entitled to receive or
begin receiving any benefit from the Plan until such person has both attained
any age required under the Plan for commencement of benefits and separated from
service with the Buyer's Affiliated Group.
5. An Appendix A Employee who is eligible for an early
retirement benefit under Article IV on the Transfer Date shall be eligible for
such benefit upon his separation from service with the Buyer's Affiliated Group.
An Appendix A Employee who did not meet the eligibility requirements for an
early retirement benefit under Article IV on the Transfer Date shall not be
eligible for an early retirement benefit under Article IV but shall be eligible,
regardless of whether he has five or more years of Vesting Service, for a
deferred vested retirement benefit under Article V (following his separation
from service with the Buyer's Affiliated Group and attainment of any age
requirement).
6. The status of any person who is a retired or former
Employee under the Plan prior to the Transfer Date shall not be deemed affected
for any purpose under the Plan by this Appendix A.
- 2 -
<PAGE> 85
APPENDIX B
TO
ARGO-TECH CORPORATION
SALARIED PENSION PLAN
<TABLE>
<CAPTION>
SOCIAL SECURITY MONTHLY
NAME NUMBER SUPPLEMENT
---- ------ ----------
<S> <C> <C>
Abke, Richard F. ###-##-#### NONE
Brower, William M. ###-##-#### $870.40
Burns, Marie ###-##-#### $787.30
Crump, David N. ###-##-#### NONE
Davis, Paul S. ###-##-#### $825.10
Decker, Paul W. ###-##-#### $147.90
Dickerson, Lessie R. ###-##-#### $718.80
Elkins, Sherrill A. ###-##-#### NONE
Jones, Donald W. ###-##-#### $133.10
Kabat, Lawrence D. ###-##-#### $872.40
Keogh, John J. ###-##-#### $ 12.10
Knuth, Edward C. ###-##-#### $862.80
Kovach, Edward M. ###-##-#### $137.80
Krane, Richard W. ###-##-#### $30.30
Laird, Harry W. ###-##-#### NONE
Lee, Edward ###-##-#### $844.00
Mentor, Jerome J. ###-##-#### $862.80
Mihalinec, Matthew H. ###-##-#### $119.00
Newman, Ralph E. ###-##-#### $857.00
Pedonesi, Ralph A. ###-##-#### $ 29.90
Roeder, James W. ###-##-#### $189.20
Weinhold, Horst K. ###-##-#### $ 12.10
Weiss, Louis ###-##-#### NONE
Znidarsic, Charles ###-##-#### $862.80
Mathias, Clifford M. ###-##-#### $177.40
Meins, Terence ###-##-#### $835.10
Faulhaber, Dorothy E. ###-##-#### $154.00
Bezak, Frank ###-##-#### $ 24.20
Maline, James P. ###-##-#### $858.90
Miguet, Peter P. ###-##-#### $ 63.90
Pryatel, Richard D. ###-##-#### $854.00
Winsteard, Randolph ###-##-#### $778.50
</TABLE>
<PAGE> 86
APPENDIX C
TO
ARGO-TECH CORPORATION
SALARIED PENSION PLAN
<TABLE>
<CAPTION>
SOCIAL SECURITY MONTHLY
NAME NUMBER SUPPLEMENT
---- ------ ----------
<S> <C> <C>
Aguilar, E. Victor ###-##-#### $920.70
Bates, John A. ###-##-#### $912.20
Bezak, Frank ###-##-#### NONE
Booth, Eldon L. ###-##-#### $817.70
Brockway, Albert L. ###-##-#### $901.50
Deasy, John P. ###-##-#### $888.80
Engeman, Donald J. ###-##-#### $874.40
Hansen, Lowell D. ###-##-#### $912.20
Kerekes, Sandor ###-##-#### $851.30
Kish, Edward E. ###-##-#### $904.90
Knights, Henry R. ###-##-#### $794.70
Maline, James P. ###-##-#### $188.80
McClurg, John B. ###-##-#### $843.00
Mekker, Elmer S. ###-##-#### $917.20
Miller, Kenneth W. ###-##-#### $760.20
Mueller, Milton W. ###-##-#### $137.00
North, Robert W. ###-##-#### $859.30
Nuzum, William R. ###-##-#### $920.60
Okicki, Frank A. ###-##-#### $872.30
Paydo, Ronald H. ###-##-#### $925.10
Prince, Richard A. ###-##-#### $886.40
Pryatel, Richard D. ###-##-#### $167.10
Reese, Nancy J. ###-##-#### $685.90
Rossman, Carl D. ###-##-#### $911.20
Ryan, John E. ###-##-#### $857.10
Suplicki, Norman J. ###-##-#### $596.10
Tompkins, Harry R. ###-##-#### $846.00
Totedo, Patrick D. ###-##-#### $854.10
Winsteard, Randolph ###-##-#### $173.60
</TABLE>
<PAGE> 1
Exhibit 10.6
FORM OF
FIRST AMENDMENT
TO
ARGO-TECH CORPORATION
SALARIED PENSION PLAN
(November 1, 1995 Restatement)
WHEREAS, the Argo-Tech Corporation Salaried Pension Plan was
established, effective as of November 1, 1986, and subsequently amended and
restated, effective as of November 1, 1995, (the "Plan"); and
WHEREAS, Argo-Tech Corporation deems it desirable further to
amend the Plan;
NOW, THEREFORE, effective as if originally included in the
provisions of the November 1, 1995 Restatement, the Plan is hereby amended in
the respects hereinafter set forth.
1. Paragraph (a) of Section 15.2 of the Plan is amended to
provide as follows:
(a) The term "annual compensation" shall mean compensation as
defined in Section 415(c)(3) of the Code and the regulations issued
thereunder, excluding amounts in excess of the limitations of Section
401(a)(17) of the Code, of an Employee paid to him by an Employer
during a Plan Year, and with respect to which the Plan is determined to
be a top heavy plan.
2. Paragraph (j) of Section 15.2 of the Plan is amended by
adding three new sentences at the end thereof to provide as follows:
The same actuarial assumptions shall be used for all plans within a
required or permissive aggregation group. In determining whether the
Plan is top-heavy, proportional subsidies, if any, shall not be taken
into account and nonproportional subsidies, if any, shall be taken into
account. The accrued benefit of an Employee who is a non-key employee
shall be determined under (a) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans maintained
by the employer, or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest
<PAGE> 2
accrual rate permitted under the fractional rule of Section
411(b)(1)(C) of the Code.
3. The first sentence of Section 15.4 of the Plan is amended
to provide as follows:
In the event the Plan is determined to be a top heavy plan, the annual
normal retirement benefit of an Employee who is a non-key employee
credited with at least 1,000 Hours of Service during a Plan Year in
which the Plan is a top heavy plan and who is eligible therefor,
payable in the form of a single life annuity beginning at his Normal
Retirement Date, shall not be less than such Employee's average
compensation for years in the testing period multiplied by the lesser
of:
(a) Two percent multiplied by his years of
Vesting Service; or
(b) 20 percent.
* * *
EXECUTED at Cleveland, Ohio, this day
of , 199 .
ARGO-TECH CORPORATION
By ___________________________
Title:
Attest:
By ______________________
Title:
<PAGE> 1
EXHIBIT 10.7
ARGO-TECH CORPORATION
EMPLOYEE STOCK
OWNERSHIP PLAN
AND
TRUST AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
PAGE NO.
ARTICLE I DEFINITIONS
1.01 "Account".................................................... 1
1.02 "Accounting Date"............................................ 1
1.03 "Accrued Benefit" ........................................... 2
1.04 "Annual Addition" ........................................... 2
1.05 "Annuity Starting Date" ..................................... 2
1.06 "Beneficiary" ............................................... 2
1.07 "Cash-Out Distribution" ..................................... 3
1.08 "Claimant" .................................................. 3
1.09 "Closing" ................................................... 3
1.10 "Code" ...................................................... 3
1.11 "Compensation" .............................................. 3
1.12 "Continuous Service" ........................................ 5
1.13 "Defined Benefit Plan" ...................................... 5
1.14 "Defined Benefit Plan Fraction" ............................. 5
1.15 "Defined Contribution Plan" ................................. 6
1.16 "Defined Contribution Plan Fraction" ........................ 6
1.17 "Determination Date" ........................................ 7
1.18 "Determination Period" ...................................... 7
1.19 "Direct Rollover" ........................................... 7
1.20 "Disability" ................................................ 7
1.21 "Disqualified Person" ....................................... 8
1.22 "Distributee" ............................................... 8
1.23 "Distribution Date" ......................................... 8
1.24 "Effective Date" ............................................ 8
1.25 "Eligible Accrued Benefit" .................................. 8
1.26 "Eligible Retirement Plan" .................................. 8
1.27 "Eligible Rollover Distribution" ............................ 8
1.28 "Employee" .................................................. 9
1.29 "Employer" .................................................. 9
1.30 "Employer Securities" ....................................... 9
1.31 "Employment Commencement Date" .............................. 9
1.32 "ERISA" ..................................................... 10
1.33 "Excess Amount" ............................................. 10
1.34 "Excluded Employee" ......................................... 10
1.35 "Exempt Loan" ............................................... 10
1.36 "Fair Market Value" ......................................... 10
1.37 "Forfeiture Break in Service" ............................... 10
1.38 "Highly Compensated Employee" ............................... 10
1.39 "Hour of Service" ........................................... 12
1.40 "Key Employee" .............................................. 13
1.41 "Leased Employees" .......................................... 13
1.42 "Leveraged Employer Securities" ............................. 14
1.43 "Limitation Year" ........................................... 14
<PAGE> 3
PAGE NO.
1.44 "Maximum Permissible Amount" ................................ 14
1.45 "Non-Allocation Period" ..................................... 14
1.46 "Non-Directed Shares" ....................................... 14
1.47 "Nonforfeitable" ............................................ 15
1.48 "NonKey Employee" ........................................... 15
1.49 "Notice" .................................................... 15
1.50 "100% Limitation" ........................................... 15
1.51 "Participant" ............................................... 15
1.52 "Permissive Aggregation Group" .............................. 15
1.53 "Plan" ...................................................... 15
1.54 "Plan Administrative Committee" ............................. 15
1.55 "Plan Administrator" ........................................ 15
1.56 "Plan Entry Date" ........................................... 15
1.57 "Plan Year" ................................................. 16
1.58 "Qualified Election Period" ................................. 16
1.59 "Qualified Participant" ..................................... 16
1.60 "Related Employers" ......................................... 16
1.61 "Required Aggregation Group" ................................ 16
1.62 "Required Beginning Date" ................................... 16
1.63 "Restricted Participants" ................................... 16
1.64 "Separation from Service" ................................... 17
1.65 "Severance Date" ............................................ 17
1.66 "Trust" ..................................................... 17
1.67 "Trustee" ................................................... 17
1.68 "Trust Fund" ................................................ 17
1.69 "Unallocated Shares" ........................................ 17
ARTICLE II PARTICIPATION
2.01 Eligibility ..................................................... 18
2.02 Participation Upon ReEmployment ................................. 18
ARTICLE III EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 Amount .......................................................... 19
3.02 Responsibility For Contributions ................................ 20
3.03 Time Of Payment Of Contribution ................................. 20
3.04 Contribution Allocation ......................................... 20
3.05 Forfeiture Allocation ........................................... 23
3.06 Accrual of Benefit .............................................. 23
3.07 Limitations on Allocations to Participants' Accounts ............ 24
3.08 415 Limit Definition Modifications .............................. 26
3.09 1042 Limitations ................................................ 26
ARTICLE IV NO PARTICIPANT CONTRIBUTIONS
4.01 Participant Voluntary Contributions ......................... 27
-ii-
<PAGE> 4
PAGE NO.
4.02 Participant Rollover Contributions .......................... 27
ARTICLE V TERMINATION OF SERVICE PARTICIPANT VESTING
5.01 Normal Retirement Age ....................................... 28
5.02 Participant Disability or Death ............................. 28
5.03 Vesting Schedule ............................................ 28
5.04 Cash-Out Distributions to Participants
Who Are Not Fully Vested/Restoration of
Forfeited Accrued Benefit ................................. 28
5.05 Segregated Account for Repaid Amount ........................ 30
5.06 Forfeiture Break in Service ................................. 30
5.07 Forfeiture Occurs ........................................... 30
ARTICLE VI PARTICIPANT ACCOUNTS
6.01 Individual Accounts ......................................... 31
6.02 Value of Participant's Accrued Benefit ...................... 31
6.03 Allocations to Participants' Accounts ....................... 31
6.04 Individual Statement ........................................ 34
6.05 Account Charged ............................................. 34
6.06 Unclaimed Account Procedure ................................. 34
ARTICLE VII TIME AND METHOD OF PAYMENT OF BENEFITS
7.01 Time of Payment of Accrued Benefit .......................... 35
7.02 Method of Payment of Accrued Benefit ........................ 36
7.03 Benefit Elections ........................................... 36
7.04 Distributions Under Domestic Relations Orders ............... 37
7.05 Put Option .................................................. 38
7.06 Payment of Purchase Price ................................... 38
7.07 Restriction on Employer Securities .......................... 39
7.08 Right of First Refusal ...................................... 39
7.09 Notice ...................................................... 40
7.10 Rollover Requirements ....................................... 40
ARTICLE VIII TRUSTEE PROVISIONS
8.01 Acceptance .................................................. 41
8.02 Receipt of Contributions .................................... 41
8.03 Full Investment Powers ...................................... 41
8.04 Records and Statements ...................................... 46
8.05 Fees and Expenses from Fund ................................. 47
8.06 Parties to Litigation ....................................... 47
8.07 Professional Agents ......................................... 47
8.08 Distribution Directions ..................................... 47
8.09 Third Party/Multiple Trustees ............................... 47
-iii-
<PAGE> 5
PAGE NO.
8.10 Resignation ................................................. 48
8.11 Removal ..................................................... 48
8.12 Interim Duties and Successor Trustee ........................ 48
8.13 Valuations .................................................. 48
8.14 Tender Offers ............................................... 49
8.15 Voting of Shares ............................................ 52
8.16 Confidentiality ............................................. 53
8.17 Trustee's Indemnity ......................................... 54
ARTICLE IX EMPLOYER ADMINISTRATIVE PROVISIONS
9.01 Information to Committee .................................... 54
9.02 Indemnification of Certain Fiduciaries ...................... 54
9.03 Amendment to Vesting Schedule ............................... 55
ARTICLE X PARTICIPANT ADMINISTRATIVE PROVISIONS
10.01 Beneficiary Designation ...................................... 55
10.02 No Beneficiary Designation/Death of Beneficiary .............. 56
10.03 Personal Data to Committee ................................... 57
10.04 Address for Notification ..................................... 57
10.05 Assignment or Alienation ..................................... 57
10.06 Notice of Change in Terms .................................... 57
10.07 Information Available ........................................ 58
10.08 Appeal Procedure for Denial of Benefits ...................... 58
10.09 Diversification .............................................. 59
ARTICLE XI PLAN ADMINISTRATIVE COMMITTEE
11.01 Members' Compensation, Expenses .............................. 59
11.02 Term ......................................................... 60
11.03 Powers ....................................................... 60
11.04 General ...................................................... 60
11.05 Manner of Action ............................................. 61
11.06 Authorized Representative .................................... 61
11.07 Interested Member ............................................ 61
ARTICLE XII MISCELLANEOUS
12.01 Evidence ..................................................... 61
12.02 No Responsibility for Employer Action ........................ 62
12.03 Fiduciaries not Insurers ..................................... 62
12.04 Waiver of Notice ............................................. 62
12.05 Successors ................................................... 62
12.06 Word Usage ................................................... 62
12.07 State Law .................................................... 62
12.08 Employment Not Guaranteed .................................... 63
-iv-
<PAGE> 6
PAGE NO.
ARTICLE XIII EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 Exclusive Benefit............................................. 63
13.02 Amendment by Company ......................................... 63
13.03 Discontinuance ............................................... 64
13.04 Full Vesting on Termination .................................. 64
13.05 Merger/Direct Transfer ....................................... 64
13.06 Termination .................................................. 64
<PAGE> 7
ARGO-TECH CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
AND TRUST AGREEMENT
Argo-Tech Corporation, a corporation organized under the laws of the
State of Delaware (the "Company"), hereby enters into this Agreement with
Society National Bank, a national banking institution with its principal office
located in Cleveland, Ohio, as Trustee.
WITNESSETH:
WHEREAS, the Company intends to establish the Argo-Tech Corporation
Employee Stock Ownership Plan (the "Plan") for the purpose, among other things,
of enabling its participating employees to share in the growth and prosperity of
the Company and to accumulate capital for their future economic security; and
WHEREAS, the Plan is intended to be a stock bonus plan qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended and an employee
stock ownership plan as defined in Section 4975(e)(7) of the Internal Revenue
Code of 1986, as amended; and
WHEREAS, the Company intends to establish the Argo-Tech Corporation
Employee Stock Ownership Trust (the "Trust") to receive and hold any
contributions paid or delivered to the Trustee; and
WHEREAS, it is intended that the Trust shall be tax exempt under Section
501 of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the Company and the Trustee hereby agree, effective immediately prior to
the closing of the transactions contemplated by the Stock Purchase Agreement
among the Trustee, the Company, and the other parties thereto contemplated to be
entered into on or about May 17, 1994, as follows:
ARTICLE I
DEFINITIONS
1.01 "ACCOUNT" means the separate account(s) maintained for a
Participant under the Plan.
1.02 "ACCOUNTING DATE" means the last day of the Plan Year. Unless
otherwise specified in the Plan, all Plan allocations
-1-
<PAGE> 8
for a particular Plan Year shall be made as of the Accounting Date of that Plan
Year.
1.03 "ACCRUED BENEFIT" means the amount standing in a Participant's
Account(s) as of any date derived from Employer contributions.
1.04 "ANNUAL ADDITION" means the sum of the following amounts allocated
on behalf of a Participant for a Limitation Year: (i) all Employer
contributions; (ii) all forfeitures; and (iii) all employee contributions.
Except to the extent provided in Treasury regulations, Annual Additions include
excess contributions described in Code Section 401(k), excess aggregate
contributions described in Code Section 401(m) and excess deferrals described in
Code Section 402(g), irrespective of whether the plan distributes or forfeits
such excess amounts. Annual Additions also include Excess Amounts reapplied to
reduce Employer contributions under Section 3.07. Amounts allocated after March
31, 1984, to an individual medical account (as defined in Code Section
415(1)(2)) included as part of a defined benefit plan maintained by the Employer
are Annual Additions. Furthermore, Annual Additions include contributions paid
or accrued after December 31, 1985, for taxable years ending after December 31,
1985, attributable to post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit fund (as defined in Code Section 419(e)) maintained by the
Employer, but only for purposes of the dollar limitation applicable to the
Maximum Permissible Amount. Annual Additions do not include any Employer
contributions applied by (not later than the due date, including extensions, for
filing the Employer's Federal income tax return for that Plan Year) to pay
interest on an Exempt Loan which is deductible under Code Section 404(a)(9)(B)
and any Leveraged Employer Securities allocated as forfeitures; provided
however, that the provisions of the preceding sentence do not apply in a Plan
Year for which more than one-third (1/3) of the Employer contributions which are
applied to pay principal and interest on an Exempt Loan and which are deductible
under Code Section 404(a)(9) are allocated to Restricted Participants. The Plan
Administrative Committee may reallocate the Employer contributions in accordance
with Section 3.04 to the Accounts of non-Restricted Participants to the extent
necessary in order to satisfy this special limitation.
1.05 "ANNUITY STARTING DATE" means the first day of the first period for
which the Plan pays an amount under the provisions of Article VII.
1.06 "BENEFICIARY" means a person designated by a Participant who is or
may become entitled to a benefit under the Plan and includes the legal
representative of a deceased Participant or Beneficiary; provided, however, that
a married
-2-
<PAGE> 9
Participant's spouse automatically shall be deemed to be the Beneficiary of such
Participant unless the spouse has effectively waived his or her rights to a
benefit hereunder, as set forth in Section 10.01. A Beneficiary who becomes
entitled to a benefit under the Plan remains a Beneficiary under the Plan until
the Trustee has fully distributed his benefit. A Beneficiary's right to (and the
Plan Administrator's, the Plan Administrative Committee's or the Trustee's duty
to provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.07 "CASH-OUT DISTRIBUTION" means a distribution of the entire present
value of the Participant's Nonforfeitable Accrued Benefit.
1.08 "CLAIMANT" means a Participant or a Beneficiary who files with the
Plan Administrative Committee a written claim for benefits in accordance with
the procedures of the Plan Administrative Committee.
1.09 "CLOSING" means the place, date and time ("Closing Date") to which
the seller and the Employer, Company or the Trust may agree for purposes of a
sale and purchase under Article VII, provided that the Closing must take place
not later than 30 days after the exercise of an offer under Section 7.05 or the
exercise of a right of first refusal under Section 7.08.
1.10 "CODE" means the Internal Revenue Code of 1986, as amended.
1.11 "COMPENSATION" means a Participant's wages, salaries, bonuses,
commissions, overtime and other amounts received for personal services rendered
in the course of employment with the Employer to the extent includible in gross
income. Compensation shall, however, include salary reduction amounts under a
Code Section 401(k) arrangement or Code Section 125 arrangement. A Compensation
payment includes Compensation paid by the Employer to an Employee through
another person under the common paymaster provisions of Code Sections 3121(s)
and 3306(p). The term "Compensation" shall not, however, include the following:
(a) Employer contributions to a plan of deferred compensation to
the extent the contributions are not included in the gross income of the
Employee for the taxable year in which contributed, contributions on behalf of
an Employee to a Simplified Employee Pension Plan to the extent such
contributions are excludible from the Employee's gross income, and any
distributions from a plan of deferred compensation, regardless of whether such
amounts are includible in the gross income of the Employee when distributed.
-3-
<PAGE> 10
(b) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture.
(c) Amounts realized from the sale, exchange or other
disposition of stock acquired under a stock option described in Part II,
Subchapter D, Chapter 1 of the Code.
(d) Other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that the premiums
are not includible in the gross income of the Employee), or contributions made
by an Employer (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract described in Code Section 403(b)(whether or not
the contributions are excludible from the gross income of the Employee).
(e) Reimbursements or other expense allowances, fringe benefits
(cash and noncash), moving expenses, deferred compensation, and welfare
benefits.
(f) Except as otherwise provided in Section 3.06(A) with regard
to Section 3.04(B), amounts paid with respect to any period before the Employee
became a Participant or during which the Employee is an Excluded Employee.
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.11, unless the Plan reference specifies a
modification to this definition. The Plan shall take into account only
Compensation actually paid for the relevant period.
(A)Limitations on Compensation.
(1) Compensation dollar limitation. The Plan shall take into account
only the first $150,000 (or such larger amount as the Commissioner of Internal
Revenue may prescribe) of any Participant's Compensation.
(2) Application of Compensation limitation to certain family members.
The $150,000 Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under Section
1.07 who is either (i) the Employee's spouse; or (ii) the Employee's lineal
descendant under the age of 19. If, for a Plan Year, the combined Compensation
of the Employee and such family members who are Participants entitled to an
allocation for that Plan Year exceeds the $150,000 (or adjusted) limitation,
"Compensation" for each such
-4-
<PAGE> 11
Participant, for purposes of the contribution and allocation provisions of
Article III, means his Adjusted Compensation. "Adjusted Compensation" is the
amount which bears the same ratio to the $150,000 (or adjusted) limitation as
the affected Participant's Compensation (without regard to the $150,000
Compensation limitation) bears to the combined Compensation of all the affected
Participants in the family unit.
(B) Nondiscrimination. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.10 except any exclusions from
Compensation, other than the exclusions described in paragraphs (a), (b), (c)
and (d), do not apply. The Employer also may elect to use an alternate
nondiscriminatory definition, in accordance with the requirements of Code
Section 414(s) and the regulations issued under that Code Section. In
determining Compensation under this Section 1.11(B), the Employer may elect to
include all elective contributions made by the Employer on behalf of the
Employees. The Employer's election to include elective contributions must be
consistent and uniform with respect to Employees. The Employer may make this
election to include elective contributions for nondiscrimination testing
purposes, irrespective of whether this Section 1.11 includes elective
contributions in the general Compensation definition applicable to the Plan.
1.12 "CONTINUOUS SERVICE" of an Employee means the period of time
(computed to the nearest 1/12th of a year) between his Employment Commencement
Date and his most recent Severance Date, provided, however, that in the case of
a person who is absent from the service of the Employer on account of maternity
or paternity reasons, as defined in Section 1.65, the person's Continuous
Service shall not include the period of absence between the first and second
anniversaries of the first date of such absence. Notwithstanding any other
provision of the Plan to the contrary, but with respect only to an Employee who
on October 21, 1986 was on the payroll of the Company, periods of continuous
employment with TRW Inc. prior to October 21, 1986 shall be counted as
Continuous Service under the Plan.
1.13 "DEFINED BENEFIT PLAN" means a retirement plan qualified under Code
Section 401(a) that does not provide for individual accounts for Employer
contributions. The Plan shall treat all Defined Benefit Plans (whether or not
terminated) maintained by the Employer as a single plan.
1.14 "DEFINED BENEFIT PLAN FRACTION" means the Projected annual benefit
of the Participant under the Defined Benefit Plan.
-5-
<PAGE> 12
The lesser of (i) 125% (subject to the 100% Limitation) of the dollar
limitation in effect under Code Section 415(b)(1)(A) for the Limitation
Year, or (ii) 140% of the Participant's average Compensation for his high
three (3) consecutive years of service. If the 100% Limitation applies, the
Plan Administrative Committee shall determine the denominator of the
fraction by substituting 100% for 125%.
To determine the denominator of this fraction, the Plan Administrative Committee
shall make any adjustment required under Code Section 415(b) and shall determine
a year of service as a Plan Year in which the Employee completed at least 1,000
Hours of Service. The "projected annual benefit" is the annual retirement
benefit (adjusted to an actuarially equivalent straight life annuity if the plan
expresses such benefit in a form other than a straight life annuity or qualified
joint and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his normal
retirement age (or current age, if later) as stated in the Defined Benefit Plan,
his compensation continues at the same rate as in effect in the Limitation Year
under consideration until the date of his normal retirement age and all other
relevant factors used to determine benefits under the Defined Benefit Plan
remain constant as of the current Limitation Year for all future Limitation
Years.
1.15 "Defined Contribution Plan" means a retirement plan qualified under
Code Section 401(a) that provides for an individual account for each participant
and for benefits based solely on the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any forfeitures of
accounts of other participants which the plan may allocate to such participant's
account. The Plan shall treat all Defined Contribution Plans (whether or not
terminated) maintained by the Employer as a single plan. Solely for purposes of
the limitations of Part 2 of Article III, the Plan shall treat Employee
contributions made to a Defined Benefit Plan maintained by the Employer as a
separate Defined Contribution Plan. The Plan also shall treat as a Defined
Contribution Plan an individual medical account (as defined in Code Section
415(1)(2)) included as part of a Defined Benefit Plan maintained by the Employer
and, for taxable years ending after December 31, 1985, a welfare benefit fund
under Code Section 419(e) maintained by the Employer to the extent there are
post-retirement medical benefits allocated to the separate account of a key
employee (as defined in Code Section 419A(d)(3)).
1.16 "DEFINED CONTRIBUTION PLAN FRACTION" means -
The sum, as of the close of the Limitation Year, of the Annual Additions to
the Participant's Account under the
-6-
<PAGE> 13
Defined Contribution Plan.
The sum of the lesser of the following amounts determined for the
Limitation Year and for each prior Year of Service with the Employer: (i)
125% (subject to the 100% Limitation) of the dollar limitation in effect
under Code Section 415(c)(1)(A) for the Limitation Year (determined
without regard to the special dollar limitations for employee stock
ownership plans), or (ii) 35% of the Participant's Compensation for the
Limitation Year. If the 100% Limitation applies, the Plan Administrative
Committee shall determine the denominator of the fraction by substituting
100% for 125%.
For purposes of determining the Defined Contribution Plan Fraction, the Plan
Administrative Committee shall not recompute Annual Additions in Limitation
Years beginning prior to January 1, 1987, to treat all employee contributions as
Annual Additions. If the Plan satisfied Code Section 415 for Limitation Years
beginning prior to January 1, 1987, the Plan Administrative Committee shall
redetermine the Defined Contribution Plan Fraction and the Defined Benefit Plan
Fraction as of the end of the 1986 Limitation Year, in accordance with this
Section 3.08. If the sum of the redetermined fractions exceeds 1.0, the Plan
Administrative Committee shall subtract permanently from the numerator of the
defined contribution plan fraction an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0, times (2) the denominator of the
defined contribution plan fraction. In making the adjustment, the Plan
Administrative Committee must disregard any accrued benefit under the Defined
Benefit Plan which is in excess of the Current Accrued Benefit. This Plan
continues any transitional rules applicable to the determination of the defined
contribution plan fraction under the Employer's plan as of the end of the 1986
Limitation Year.
1.17 "DETERMINATION DATE" means for any Plan Year the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year, the Accounting
Date of that Plan Year.
1.18 "DETERMINATION PERIOD" means the five-year period ending on the
Determination Date.
1.19 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
1.20 "DISABILITY" means a physical or mental condition of a Participant
resulting from bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment with the Employer.
The disability of a Participant shall be determined by a licensed physician
chosen by the Plan Administrative Committee. The determination shall be
-7-
<PAGE> 14
applied uniformly to all Participants. "Disability" also means a physical or
mental condition of a Participant resulting from bodily injury, disease, or
mental disorder which renders him incapable of continuing any gainful occupation
and which constitutes total disability under the federal Social Security Act.
1.21 "DISQUALIFIED PERSON" means a person or entity described in Code
Section 4975(e)(2).
1.22 "DISTRIBUTEE" means an Employee or former Employee, or the
Employee's or former Employee's surviving spouse and the Employee's or former
Employee's spouse "or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Code Section 414(p), with regard to the
interest of the spouse or former spouse.
1.23 "DISTRIBUTION DATE" means a date as of which distributions are
payable under Article VII, which shall occur as soon as administratively
practicable following the close of the calendar year in which the Participant's
Separation from Service occurred, but in no event later than the 60th day
following the close of the Plan Year in which the Participant attains Normal
Retirement Age. The Plan Administrative Committee shall determine a Distribution
Date for each calendar year.
1.24 "EFFECTIVE DATE" means the date on which occurs the closing of the
transactions contemplated by the Stock Purchase Agreement among the Trustee, the
Company, and the other parties thereto contemplated to be entered into on or
about May 17, 1994.
1.25 "ELIGIBLE ACCRUED BENEFIT" means the value of the Participant's
Accrued Benefit attributable to Employer Securities.
1.26 "ELIGIBLE RETIREMENT PLAN" means an individual retirement account
described in Code Section 408(a), and individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an eligible retirement plan is such an
individual retirement account or individual retirement annuity.
1.27 "ELIGIBLE ROLLOVER DISTRIBUTION" means any distribution of all or
any portion of the balance to the credit of the Distributee, except that an
eligible rollover distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee
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<PAGE> 15
and the Distributee's designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is required
under Code Section 401(a)(9); and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to Employer Securities).
1.28 "EMPLOYEE" means any common-law employee of the Employer and any
Leased Employee.
1.29 "EMPLOYER" means the Company or any other employer who with the
written consent of the Board of Directors of the Company adopts this Plan. If
more than one Employer adopts the Plan, then for purposes of determining
Continuous Service and Hours of Service, the Plan shall treat all Employers as a
single Employer. The Plan shall make all allocations without regard to which
Employer employs the Participant. A Participant's Compensation includes
Compensation from all Employers, irrespective of which Employers are
contributing to the Plan.
1.30 "EMPLOYER SECURITIES" means voting common stock issued by the
Company, or by a corporation which is a member of the same controlled group of
corporations as the Company.
1.31 "EMPLOYMENT COMMENCEMENT DATE" of an Employee means the date on
which he first performed an Hour of Service, subject to the following
provisions:
(i) If more than 12 months after an Employee's Severance Date
occurs, such Employee again performs an Hour of Service, his Employment
Commencement Date shall be advanced by the period of time between such
Severance Date and the date he again performed an Hour of Service unless
(ii) below applies.
(ii) If an Employee who is a nonvested participant (as defined in
Section 411(a)(5) of the Code) again performs an Hour of Service more than
12 months after such Severance Date, his Employment Commencement Date
shall be changed to the date he again performed an Hour of Service, but
only if the period of time between such Severance Date and the date
such employee again performed an Hour of Service equals or exceeds the
greater of five years or the period of time between his Employment
Commencement Date and such Severance Date.
(iii) If an Employee's Severance Date occurs by reason of
entering active military service with the armed forces of the United States
and if he has reemployment rights, his Employment Commencement Date shall
not be advanced if he returns to employment with the Employer within the
time prescribed by federal law.
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<PAGE> 16
1.32 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.33 "EXCESS AMOUNT" means the excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
1.34 "EXCLUDED EMPLOYEE" means an Employee who (i) is not classified in
accordance with the policy of his Employer as a salaried employee, or (ii) is a
Leased Employee, or (iii) is a member of a collective bargaining unit, unless
the collective bargaining agreement provides otherwise. An Employee is a member
of a collective bargaining unit if he is included in a unit of employees covered
by an agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more employers if there is
evidence that retirement benefits were the subject of good faith bargaining
between such employee representatives and such employer or employers. The term
"employee representatives" does not include an organization more than one-half
the members of which are owners, officers or executives of an employer.
1.35 "EXEMPT LOAN" means a loan made to the Plan by a Disqualified
Person, or a loan to the Plan which a Disqualified Person guarantees, provided
the loan satisfies the requirements of Treas. Reg. Section 54.4975-7(b).
1.36 "FAIR MARKET VALUE" with respect to Employer Securities means the
value of Employer Securities (i) determined as of the date of the exercise of an
option if the exercise is by a Disqualified Person, or (ii) in all other cases,
determined as of the most recent Accounting Date.
1.37 "FORFEITURE BREAK IN SERVICE" means the last day of the 60th
calendar month following the month in which a Participant's Severance Date
occurred.
1.38 "HIGHLY COMPENSATED EMPLOYEE" means an Employee who, during the
Plan Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the
constructive ownership rules of Code Section 318, and applying the
principles of Code Section 318, for an unincorporated entity);
(b) has Compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
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<PAGE> 17
(c) has Compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is part of the
top-paid 20% group of employees (based on Compensation for the relevant
year); or
(d) has Compensation in excess of 50% of the dollar amount
prescribed in Code Section 415(b)(1)(A) (relating to defined benefit plans)
and is an officer of the Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Plan Year but does not satisfy clause (b), (c) or (d) during the preceding
12-month period and does not satisfy clause (a) in either period, the Employee
is a Highly Compensated Employee only if he is one of the 100 most highly
compensated Employees for the Plan Year. The number of officers taken into
account under clause (d) shall not exceed the greater of three or 10% of the
total number (after application of the Code Section 414(q) exclusions) of
Employees, but no more than 50 officers. If no Employee satisfies the
Compensation requirement in clause (d) for the relevant year, the Plan
Administrative Committee shall treat the highest paid officer as satisfying
clause (d) for that year.
For purposes of this Section 1.38, "Compensation" means Compensation as
defined in Section 1.11, except no exclusions from Compensation apply other than
the exclusions described in paragraphs (a), (b), (c) and (d) of Section 1.11,
and Compensation shall include "elective contributions" made by the Employer on
the Employee's behalf. "Elective contributions" are amounts excludible from the
Employee's gross income under Code Sections 125, 402(a)(8), 402(h) or 403(b),
and contributed by the Employer, at the Employee's election, to a Code Section
401(k) arrangement, a simplified employee pension, cafeteria plan or
tax-sheltered annuity. The Plan Administrative Committee shall make the
determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of the top paid 20% group, the top 100
paid Employees, the number of officers includible in clause (d) and the relevant
Compensation, consistent with Code Section 414(q) and regulations issued under
that Code section. The Employer may make a calendar year election to determine
the Highly Compensated Employees for the Plan Year, as prescribed by Treasury
regulations. A calendar year election must apply to all plans and arrangements
of the Employer. For purposes of applying any nondiscrimination test required
under the Plan or under the Code, in a manner consistent with applicable
Treasury regulations, a Highly Compensated Employee and all family members (a
spouse, a lineal ascendant or descendant, or a spouse of a lineal ascendant or
descendant) shall be treated as a single Highly Compensated Employee, but only
if the Highly Compensated Employee is a more than 5% owner or is one of the ten
Highly Compensated Employees with the greatest Compensation for the Plan Year.
Such
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<PAGE> 18
aggregation rule shall apply to a family member even if that family member is a
Highly Compensated Employee without family aggregation.
The term "Highly Compensated Employee" also includes any former Employee
who separated from service (or has a deemed separation from service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's Separation from Service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.38 or received Compensation in excess of $50,000
during: (1) the year of his Separation from Service (or the prior year) ; or (2)
any year ending after his 54th birthday.
1.39 "HOUR OF SERVICE" means:
(a) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Plan shall credit hours of
service under this paragraph (a) to the Employee for the computation period
in which the Employee performs the duties, irrespective of when paid;
(b) Each hour of service for back pay, irrespective of mitigation
of damages, to which the Employer has agreed or for which the Employee has
received an award. The Plan shall credit hours of service under this
paragraph (b) to the Employee for the computation period(s) to which the
award or the agreement pertains rather than for the computation period in
which the award, agreement or payment is made; and
(c) Each hour of service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties during a
computation period, such as leave of absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty or
military duty. The Plan shall credit no more than 501 hours of service
under this paragraph (c) to an Employee on account of any single continuous
period during which the Employee does not perform any duties (whether or
not such period occurs during a single computation period). The Plan shall
credit hours of service under this paragraph (c) in accordance with the
rules of paragraphs (b) and (c) of Labor Reg. Section 2530.200b-2, which
the Plan, by this reference, specifically incorporates in full within this
paragraph (c).
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<PAGE> 19
The Plan shall not credit an hour of service under more than one of the
above paragraphs. The Plan Administrative Committee shall resolve any ambiguity
with respect to the crediting of an Hour of Service in favor of the Employee.
1.40 "KEY EMPLOYEE" means, as of any Determination Date, any Employee or
former Employee (or Beneficiary of such Employee) who, for any Plan Year in the
Determination Period: (i) has Compensation in excess of 50% of the dollar amount
prescribed in Code Section 415(b)(1)(A) (relating to defined benefit plans) and
is an officer of the Employer; (ii) has Compensation in excess of the dollar
amount prescribed in Code Section 415(c)(1)(A) (relating to defined contribution
plans) and is one of the Employees owning the ten largest interests in the
Employer; (iii) is a more than 5% owner of the Employer; or (iv) is a more than
1% owner of the Employer and has Compensation of more than $150,000. The
constructive ownership rules of Code Section 318 (or the principles of that
section, in the case of an unincorporated Employer,) shall apply to determine
ownership in the Employer. The number of officers taken into account under
clause (i) shall not exceed the greater of three or 10% of the total number
(after application of the Code Section 414(q) exclusions) of Employees, but no
more than 50 officers. The Plan Administrative Committee shall make the
determination of who is a Key Employee in accordance with Code Section 416(i)(1)
and the regulations under that Code section. "Compensation" for purposes of this
definition means Compensation as determined under Section 1.38 for purposes of
identifying Highly Compensated Employees.
1.41 "Leased Employees" means an individual (who otherwise is not an
Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the Employer and any persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full time basis for at least one year and
who performs services historically performed by employees in the Employer's
business field. If a Leased Employee is treated as an Employee by reason of this
Section 1.41, "Compensation" includes Compensation from the leasing organization
which is attributable to services performed for the Employer.
(A) Safe harbor plan exception. The Plan does not treat a Leased
Employee as an Employee if the leasing organization covers the employee in a
safe harbor plan and, prior to application of this safe harbor plan exception,
20% or less of the Employer's Employees (other than Highly Compensated
Employees) are Leased Employees. A safe harbor plan is a money purchase pension
plan providing immediate participation, full and immediate vesting, and a
nonintegrated contribution formula equal to at least 10% of the employee's
compensation without regard to employment by the leasing
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<PAGE> 20
organization on a specified date. The safe harbor plan must determine the 10%
contribution on the basis of compensation as defined in Code Section 415(c)(3)
plus elective contributions (as defined in Section 1.11).
(B) Other requirements. The Plan Administrative Committee must apply
this Section 1.41 in a manner consistent with Code Sections 414(n) and 414(o)
and the regulations issued under those Code sections. The Plan Administrative
Committee shall reduce a Leased Employee's allocation of Employer contributions
under this Plan by the Leased Employee's allocation under the leasing
organization's plan, but only to the extent that allocation is attributable to
the Leased Employee's service provided to the Employer.
1.42 "LEVERAGED EMPLOYER SECURITIES" means Employer Securities acquired
by the Trust with the proceeds of an Exempt Loan and which satisfy the
definition of "qualifying employer securities" in Code Section 4975(e)(8).
1.43 "LIMITATION YEAR" means the 12-month period beginning November 1
and ending on the succeeding October 31. If the Company amends the Limitation
Year to a different 12 consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year for which the Employer makes the
amendment, creating a short Limitation Year.
1.44 "MAXIMUM PERMISSIBLE AMOUNT" means the lesser of (i) $30,000 (or,
if greater, one-fourth of the defined benefit dollar limitation under Code
Section 415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the
Limitation Year. If there is a short Limitation Year because of a change in
Limitation Year, the $30,000 (or adjusted) limitation shall be multiplied by the
following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
1.45 "NON-ALLOCATION PERIOD" means the period beginning on the date of
the Section 1042 transaction and ending on the later of the date which is ten
years after such transaction or the date of the plan allocation attributable to
the final payment of the acquisition indebtedness occurred in connection
therewith.
1.46 "NON-DIRECTED SHARES" shall mean those shares of Employer
Securities credited to Participants' Employer Securities Accounts for which
instructions are not timely received by the Trustee, as well as shares of
Employer Securities credited to Participants' Employer Securities Accounts after
the Accounting Date used under Section 8.15 for purposes of determining the
number
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<PAGE> 21
of shares of Employer Securities credited to each Participant's Employer
Securities Account.
1.47 "NONFORFEITABLE" means a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.48 "NON-KEY EMPLOYEE" is an employee who does not meet the definition
of Key Employee.
1.49 "NOTICE" means any offer, acceptance of an offer, payment or any
other communication under Article VII.
1.50 "100% LIMITATION" means (i) the Plan's top heavy ratio exceeds 90%;
or (ii) the Plan's top heavy ratio is greater than 60%, and the Employer does
not provide extra minimum benefits which satisfy Code Section 416(h)(2).
1.51 "PARTICIPANT" means an Employee who is eligible to be and becomes a
Participant in accordance with the provisions Of Section 2.01.
1.52 "PERMISSIVE AGGREGATION GROUP" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if such
group would satisfy in the aggregate the requirements of Code Section 401(a)(4)
and of Code Section 410. The Plan Administrative Committee shall determine the
Permissive Aggregation Group.
1.53 "PLAN" means the stock bonus employee stock ownership plan
established by the Company in the form of this Agreement and any amendments
hereto, designated as an employee stock ownership plan within the meaning of
Code Section 4975(e)(7) and designated as the Argo-Tech Corporation Employee
Stock Ownership Plan.
1.54 "PLAN ADMINISTRATIVE COMMITTEE" means the Plan Administrative
Committee hereunder as from time to time constituted.
1.55 "PLAN ADMINISTRATOR" means the Plan Administrative Committee unless
the Board of Directors of the Company designates another person or entity to
hold the position of Plan Administrator.
1.56 "PLAN ENTRY DATE" means the first day of each February, May,
August, and November beginning after October 31, 1993.
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1.57 "PLAN YEAR" means the twelve-month period beginning November 1 and
ending on the succeeding October 31. The first Plan Year shall begin November 1,
1993.
1.58 "QUALIFIED ELECTION PERIOD" means the six Plan Year period
beginning with the Plan Year in which the Participant first becomes a Qualified
Participant.
1.59 "QUALIFIED PARTICIPANT" means a Participant who has attained age 55
and who has completed at least 10 years of participation in the Plan. A "year of
participation" means a Plan Year in which the Participant was eligible for an
allocation of Employer contributions, irrespective of whether the Employer
actually contributed to the Plan for that Plan Year.
1.60 "RELATED EMPLOYERS" means a controlled group of corporations (as
defined in Code Section 414 (b)), trades or businesses (whether or not
incorporated) which are under common control (as defined in Code Section 414(c))
or an affiliated service group (as defined in Code Section 414(m) or in Code
Section 414(o)). If the Employer is a member of a related group, the term
"Employer" includes the related group members for the period during which they
are a related group for purposes of crediting Hours of Service, determining
Continuous Service, applying the limitations on allocations of Article III,
applying the top heavy rules and the minimum allocation requirements of Article
III, the definitions of Employee, Highly Compensated Employee, Compensation and
Leased Employee, determining termination of employment and/or Separation from
Service, and for any other purpose required by an applicable Code section or
expressly by a Plan provision. However, only an Employer described in Section
1.29 may contribute to the Plan and only an Employee employed by an Employer
described in Section 1.29 is eligible to participate in the Plan. For Plan
allocation purposes, "Compensation" shall not include Compensation received from
a Related Employer that is not participating in the Plan.
1.61 "REQUIRED AGGREGATION GROUP" means: (1) each qualified plan of the
Employer in which at least one Key Employee participates at any time during the
Determination Period; and (2) any other qualified plan of the Employer which
enables a plan described in clause (1) to meet the requirements of Code
Section 401(a)(4) or of Code Section 410.
1.62 "REQUIRED BEGINNING DATE" means the March 1 following the close of
the calendar year in which the Participant attains age 70 1/2.
1.63 "RESTRICTED PARTICIPANTS" means Participants who are Highly
Compensated Employees within the meaning of Code Section 414(q).
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1.64 "SEPARATION FROM SERVICE" of an Employee shall mean the termination
of an Employee's employment with the Employer under circumstances that
constitute a separation from service under Section 402 of the Internal Revenue
Code of 1986 as in effect on the Effective Date, and, during the three-year
period after the Plan acquires Employer Securities in a sale to which Code
Section 1042 applies, under circumstances that constitute an event described in
Code Section 4978(d)(1).
1.65 "SEVERANCE DATE" of an Employee means the earliest of (i) the date
on which he retires, dies, quits, or is discharged; or (ii) the date on which he
ceases to accrue continuous service credit in accordance with the uniform policy
adopted by his Employer with respect to leaves of absence or layoffs, but in no
event earlier than the first anniversary of the first day of a period in which
he remains absent (with or without pay) from the service of the Employer.
Notwithstanding the foregoing, the Severance Date of an Employee who is absent
from service for maternity or paternity reasons shall be the second anniversary
of the first date of such absence. For such purposes, an absence from employment
for maternity or paternity reasons means an absence due to (1) the pregnancy of
the Employee, (2) the birth of a child of the Employee, (3) the placement of a
child with the Employee in connection with the adoption of such child by the
Employee, or (4) the provision of parental care for such child for a period
beginning immediately following such birth or placement. An absence from work
shall be treated as an absence for maternity or paternity reasons only if and to
the extent that the Employee furnishes to the Plan Administrative Committee such
timely information as it may reasonably require to establish that the absence is
for one or more of the four maternity or paternity reasons specified herein and
to establish the number of days of absence attributable to such reason or
reasons.
1.66 "TRUST" means the separate Trust created under the Plan, designated
as the Argo-Tech Corporation Employee Stock Ownership Trust.
1.67 "TRUSTEE" means Society National Bank, a national banking
institution, or any successor in office who in writing accepts the position of
Trustee.
1.68 "TRUST FUND" means all property of every kind held or acquired by
the Trustee under the Plan, other than incidental benefit insurance contracts.
1.69 "UNALLOCATED SHARES" shall mean shares of Employer Securities held
in a suspense account described in Section 8.03(B).
* * * * * * * * * * * * * * *
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<PAGE> 24
ARTICLE II
PARTICIPATION
2.01 ELIGIBILITY. Each Employee, other than an Excluded Employee,
becomes a Participant in the Plan on the next Plan Entry Date immediately
following the date on which he completes three months of Continuous Service,
provided he remains an Employee who is not an Excluded Employee on such Plan
Entry Date.
If a Participant has not incurred a Separation from Service but becomes
an Excluded Employee, then during the period such a Participant is an Excluded
Employee, the Plan shall limit that Participant's sharing in the allocation of
Employer contributions and Participant forfeitures (and allocations under
Section 8.03(B)), if any, under the Plan by disregarding his Compensation for
services rendered in his capacity as an Excluded Employee. However, during such
period of exclusion, the Participant, without regard to employment
classification, shall continue to receive credit for vesting under Article V for
each included month of Continuous Service and the Participant's Account shall
continue to share fully in Trust Fund allocations under Section 6.03.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
shall participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Continuous Service. Furthermore, the Plan
shall take into account all of the Participant's included Continuous Service
with the Employer as an Excluded Employee for purposes of vesting credit under
Article V.
2.02 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
with the Employer terminates shall re-enter the Plan as a Participant on the
date of his reemployment. An Employee who satisfies the Plan's eligibility
conditions but whose employment with the Employer terminates prior to his
becoming a Participant shall become a Participant on the later of the Plan Entry
Date on which he would have entered the Plan had he not terminated employment or
the date of his reemployment. Any Employee whose employment terminates prior to
his satisfying the Plan's eligibility conditions shall become a Participant in
accordance with the provisions of Section 2.01.
* * * * * * * * * * * * * * *
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ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
Part 1. Amount of Employer Contributions and Plan Allocations: Sections 3.01
---------------------------------------------------------------------
through 3.06
------------
3.01 AMOUNT. For each Plan Year, the Employer shall contribute to the
Trust the amount which the Employer may from time to time deem advisable.
Although the Employer may contribute to this Plan irrespective of whether it has
net profits, the Employer intends the Plan to be a stock bonus employee stock
ownership plan for all purposes. The Employer may not make a contribution to the
Trust for any Plan Year to the extent the contribution would exceed the
Participants' Maximum Permissible Amounts determined in accordance with Part 2
of this Article III.
The Employer contributes to the Plan on the condition that its
contribution is not due to a mistake of fact and the Internal Revenue Service
shall not disallow the deduction for its contribution. The Trustee, upon written
request from the Employer, shall return to the Employer the amount of the
Employer's contribution made by the Employer by mistake of fact or the amount of
the Employer's contribution disallowed as a deduction under Code Section 404.
The Trustee shall not return any portion of the Employer's contribution under
the provisions of this paragraph more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then,
only to the extent of the disallowance.
In the event the Plan does not initially qualify under Code Section
401(a), any contribution of an Employer made hereunder may be returned to the
Employer within one year of the date of denial of the initial qualification of
the Plan, but only if an application for determination was made within the
period of time prescribed under ERISA Section 403(c)(2)(B).
The Trustee shall not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee shall decrease the Employer contribution
returnable for any losses attributable to it. The Trustee may require the
Emp1oyer to furnish it whatever evidence the Trustee deems necessary to enable
the Trustee to confirm the amount the Employer has requested be returned is
properly returnable under ERISA.
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<PAGE> 26
The Employer may make its contribution in cash or in Employer Securities
as the Employer from time to time may determine. Subject to the consent of the
Trustee, the Employer may make its contribution in property rather than cash
other than Employer Securities, provided the contribution of property is not a
prohibited transaction under the Code or under ERISA.
3.02 RESPONSIBILITY FOR CONTRIBUTIONS. The Employer shall determine the
amount of any contributions to be made by it to the Trust under the terms of the
Plan. Neither the Plan Administrative Committee nor the Trustee shall have
responsibility to determine the amount of or collect any Employer contributions
to the Plan.
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its
contribution for each Plan Year in one or more installments without interest.
The Employer shall make its contribution to the Plan within the time prescribed
by the Code or applicable Treasury regulations.
3.04 CONTRIBUTION ALLOCATION.
(A) Method of Allocation. Subject to any restoration allocation required
under Section 5.04 and to Section 8.03(B), the Plan shall allocate and credit
each annual Employer contribution, other than Employer contributions designated
by the Company to the Trustee as being for the purpose of repaying an Exempt
Loan, and Participant forfeitures, if any, to the Account of each Participant
who satisfies the conditions of Section 3.06. Any such designation by the
Company to the Trustee shall be in writing and made on or before the date the
contribution is paid to the Trustee, except that if an Exempt Loan is
outstanding, all Employer Contributions for a Plan Year shall be treated as
designated as to be applied to the payment of Exempt Loan(s) to the extent of
payments due on such Exempt Loan(s) within such Plan Year. The Plan shall make
this allocation in the same ratio that each Participant's Compensation for the
Plan Year bears to the total Compensation of all Participants for the Plan Year.
For purposes of this Section 3.04(A), "Participant" means, in addition to a
Participant who satisfies the requirements of Section 3.06 for the Plan Year,
any other Participant entitled to a top heavy minimum allocation under Section
3.04(B), but such Participant's allocation shall not exceed 3% of his
Compensation for the Plan Year.
(B) Top Heavy Minimum Allocation.
(1) Minimum Allocation. If the Plan is top heavy in any Plan Year:
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(a) Each Non-Key Employee who is a Participant and is employed by
the Employer on the last day of the Plan Year shall receive a top heavy
minimum allocation for that Plan Year; and
(b) The top heavy minimum allocation is the lesser of 3% of the
Non-Key Employee's Compensation for the Plan Year or the highest
contribution rate for the Plan Year made on behalf of any Key Employee.
However, if a defined benefit plan maintained by the Employer which
benefits a Key Employee depends on this Plan to satisfy the
antidiscrimination rules of Code Section 401(a)(4) or the coverage rules of
Code Section 410 (or another plan benefiting the Key Employee so depends on
such defined benefit plan), the top heavy minimum allocation is 3% of the
Non-Key Employee's Compensation regardless of the contribution rate for the
Key Employees.
(2) Modifications to Definitions. For purposes of clause (b),
"Compensation" means Compensation as defined in Section 1.11, except: (i) any
exclusions from Compensation, other than the exclusion of elective contributions
and the exclusions described in paragraphs (a), (b), and (c) and the first
clause or paragraph (d) of Section 1.11, do not apply; and (ii) any modification
to the definition of Compensation in Section 3.06 does not apply.
(3) Determining Contribution Rates. For purposes of this Section
3.04(B), a Participant's contribution rate is the sum of Employer contributions
(not including Employer contributions to Social Security) and forfeitures
allocated to the Participant's account for the Plan Year divided by his
Compensation for the entire Plan Year. However, for purposes of satisfying a
Participant's top heavy minimum allocation, a Participant's contribution does
not include any elective contributions under a Code Section 401(k) arrangement
nor any Employer matching contributions necessary to satisfy the
nondiscrimination requirements of Code Section 401(k) or of Code Section 401(m).
To determine a Participant's top heavy minimum contribution, the Plan shall
treat all qualified top heavy defined contribution plans maintained by the
Employer (or by any Related Employers described in Section 1.60) as a single
plan.
(4) No Allocations. If, for a Plan Year, there are no allocations of
Employer contributions or forfeitures for any Key Employee, the Plan does not
require any top heavy minimum allocation for the Plan Year, unless a top heavy
minimum allocation applies because of the maintenance by the Employer of more
than one plan.
(5) Method of Compliance. The Plan shall satisfy the top heavy minimum
allocation in accordance with this
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Section 3.04(B)(5). In the event that the Plan is top heavy in any Plan Year,
each Non-Key Employee hereunder who is also covered under a top heavy defined
benefit plan included in the Required Aggregation Group shall receive the top
heavy benefits provided for under this Plan in lieu of the minimum top-heavy
allocation under such defined benefit plan. Also, in any Plan Year in which a
Non-Key Employee is both Participant in this Plan and in another defined
contribution plan maintained by the Employer or a related employer, the top
heavy minimum allocation shall be provided in this Plan and not the other
defined contribution plan(s), and the top heavy minimum allocation shall be 5%
of the Non-Key Employee's Compensation (instead of 3% or a lesser contribution
rate for Key Employees).
(6) Top Heavy Status. If this Plan is the only qualified plan maintained
by the Employer, the Plan is top heavy for a Plan Year if the top heavy ratio as
of the Determination Date exceeds 60%. The top heavy ratio is a fraction, the
numerator of which is the sum of the present value of accrued benefits of all
Key Employees as of the Determination Date and the denominator of which is a
similar sum determined for all Employees. The Plan shall include in the top
heavy ratio, as part of the present value of accrued benefits, any contribution
not made as of the Determination Date but includible under Code Section 416 and
the applicable Treasury regulations, and distributions made within the
Determination Period. The Plan Administrative Committee shall calculate the top
heavy ratio by disregarding the accrued benefit (and distributions, if any, of
the accrued benefit) of any Non-Key Employee who was formerly a Key Employee,
and by disregarding the accrued benefit (including distributions, if any, of the
accrued benefit) of an individual who has not received credit for at least one
Hour of Service with the Employer during the Determination Period. The Plan
Administrative Committee shall calculate the top heavy ratio, including the
extent to which it must take into account distributions, rollovers and
transfers, in accordance with Code Section 416 and the regulations under that
Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is
terminated, this Plan is top heavy only if it is part of the Required
Aggregation Group, and the top heavy ratio for the Required Aggregation Group
and for the Permissive Aggregation Group, if any, each exceeds 60%. The Plan
Administrative Committee shall calculate the top heavy ratio in the same manner
as required by the first paragraph of this Section 3.04(B)(6), taking into
account all plans within the Aggregation Group. To the extent the Plan must take
into account distributions to a Participant, the Plan shall include
distributions from a terminated plan which would have been part of the Required
Aggregation Group if it were in existence on the
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Determination Date. The Plan Administrative Committee shall calculate the
present value of accrued benefits under defined benefit plans or simplified
employee pension plans included within the group in accordance with the terms of
those plans, Code Section 416 and the regulations under that Code section. If a
Participant in a defined benefit plan is a Non-Key Employee, the Plan
Administrative Committee shall determine his Accrued Benefit under the accrual
method, if any, which is applicable uniformly to all defined benefit plans
maintained by the Employer or, if there is no uniform method, in accordance with
the slowest accrual rate permitted under the fractional rule accrual method
described in Code Section 411(b)(1)(C). To calculate the present value of
benefits from a defined benefit plan, the Plan Administrative Committee shall
use the actuarial assumptions (interest and mortality only) prescribed by the
defined benefit plan(s) to value benefits for top heavy purposes. If an
aggregated plan does not have a valuation date coinciding with the Determination
Date, the Plan Administrative Committee shall value the accrued benefits in the
aggregated plan as of the most recent valuation date falling within the
twelve-month period ending on the Determination Date, except as Code Section 416
and applicable Treasury regulations require for the first and second plan year
of a defined benefit plan. The Plan Administrative Committee shall calculate the
top heavy ratio with reference to the Determination Dates that fall within the
same calendar year.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued
Benefit forfeited under the Plan is a Participant forfeiture. Subject to any
restoration allocation required under Sections 5.04, the Plan shall allocate a
Participant forfeiture in accordance with Section 3.04, as an Employer
contribution for the Plan Year in which the forfeiture occurs, as if the
Participant forfeiture were an additional Employer contribution for that Plan
Year. The Plan shall continue to hold the undistributed, non-vested portion of a
terminated Participant's Accrued Benefit in his Account solely for his benefit
until a forfeiture occurs at the time specified in Section 5.07. Except as
provided under Section 5.07, a Participant shall not share in the allocation of
a forfeiture of any portion of his Accrued Benefit. In making a forfeiture
allocation under this Section 3.05, the Plan shall base forfeitures of Employer
Securities upon the fair market value of the Employer Securities as of the
Accounting Date of the forfeitures.
3.06 ACCRUAL OF BENEFIT. The accrual of benefit (Employer contributions
and Participant forfeitures) shall be determined on the basis of the Plan Year.
(A) Compensation Taken Into Account. For purposes of determining the
amount of the Employer contributions and
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Participant forfeitures, if any, to be allocated to the Account of a Participant
who satisfies the employment requirement set forth in Section 3.06(B), but not
for purposes of determining the top heavy minimum contribution under Section
3.04(B), only Compensation earned by an Employee for that portion of the Plan
Year during which he is a Participant hereunder shall be taken into account.
(B) Employment Requirement. A Participant for a particular Plan Year
shall share in the allocation of Employer contributions and Participant
forfeitures, if any, for that Plan Year only if he is actively employed by the
Employer as an Employee (other than an Excluded Employee) on the last day of
such Plan Year.
Part 2. Limitations on Allocations: Sections 3.07, 3.08, and 3.09
----------------------------------------------------------
3.07 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount of
Annual Additions allocated under the Plan on a Participant's behalf for a
Limitation Year shall not exceed the Maximum Permissible Amount. If the amount
the Employer otherwise would contribute to the Participant's Account would cause
the Annual Additions for the Limitation Year to exceed the Maximum Permissible
Amount, the Employer may reduce the amount of its contribution so the Annual
Additions for the Limitation Year shall equal the Maximum Permissible Amount. If
an allocation of Employer contributions, pursuant to Section 3.04, would result
in an Excess Amount (other than an Excess Amount resulting from the
circumstances described in Section 3.07(B)) to a Participant's Account, the Plan
Administrative Committee shall reallocate the Excess Amount to the remaining
Participants who are eligible for an allocation of Employer contributions for
the Plan Year in which the Limitation Year ends. The Plan Administrative
Committee shall make this reallocation on the basis of the allocation method
under the Plan as if the Participant whose Account otherwise would receive the
Excess Amount is not eligible for an allocation of Employer contributions.
(A) Estimation of Compensation. Prior to the determination of the
Participant's actual Compensation for a Limitation Year, the Plan Administrative
Committee may determine the Maximum Permissible Amount on the basis of the
Participant's estimated annual Compensation for such Limitation Year. The Plan
Administrative Committee must make this determination on a reasonable and
uniform basis for all Participants similarly situated. The Plan Administrative
Committee must reduce any Employer contributions (including any allocation of
forfeitures) based on estimated annual Compensation by any Excess Amount carried
over from prior years. As soon as is administratively feasible after the end of
the Limitation Year, the Plan Administrative Committee shall determine the
Maximum Permissible Amount for such
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Limitation Year on the basis of the Participant's actual Compensation for such
Limitation Year.
(B) Disposition of Excess Amount. If, because of (i) a reasonable error
in estimating a Participant's Compensation, (ii) the allocation of forfeitures,
or (iii) such other limited facts and circumstances which, pursuant to Treasury
Regulations at Section 1.415-6(b)(6), the Commissioner of the Internal Revenue
Service believes justify the availability of the rules set forth in this Section
3.07(B), there is an Excess Amount with respect to a Participant for a
Limitation Year, the Plan Administrative Committee shall hold such Excess Amount
unallocated in a suspense account for the Limitation Year and shall allocate and
reallocate such Excess Amount in the next Limitation Year to all of the
Participants in the Plan in the manner described in Treasury regulations at
Section 1.415-6(b)(6)(i). Such Excess Amounts shall be used to reduce Employer
contributions for the next Limitation Year (and succeeding Limitation Years, as
necessary) for all Participants in the Plan.
(C) More Than One Defined Contribution Plan. If the Plan Administrative
Committee allocated an Excess Amount to a Participant's Account on an allocation
date of this Plan which coincides with an allocation date of another Defined
Contribution Plan maintained by the Employer, the Excess Amount attributed to
this Plan shall be the smallest possible amount of the Excess Amount shall be
attributed to this Plan, unless another Defined Contribution Plan provides to
the contrary, in which case the Excess Amount attributed to this Plan shall be
the product of:
(a) The total Excess Amount allocated as of such date (including
any amount which the Plan Administrative Committee would have allocated but
for the limitations of Code Section 415); times
(b) The ratio of (i) the amount allocated to the Participant as of
such date under this Plan divided by (ii) the total amount allocated as of
such date under all Defined Contribution Plans (determined without regard
to the limitations of Code Section 415).
(D) Defined Benefit Plan Limitation. If the Participant
presently participates or has ever participated in a Defined Benefit Plan
maintained by the Employer, then the sum of the defined benefit plan fraction
and the defined contribution plan fraction for the Participant for that
limitation Year must not exceed 1.0. With respect to any Participant who
participated in a Defined Benefit Plan which was previously maintained by the
Employer, but which was terminated prior to the Effective Date of this Plan, the
Employer shall, to the extent necessary to satisfy
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this limitation, reduce its contribution or allocation on behalf of such
Participant in each Defined Contribution Plan in which such Participant
participates and shall not reduce the Participant's projected annual benefit
under such Defined Benefit Plan. With respect to any Defined Benefit Plan
maintained by the Employer either concurrently with or successive to the
Effective Date of this Plan, to the extent necessary to satisfy this limitation,
the Participant's projected annual benefit under the Defined Benefit Plan under
which the Participant participates shall be reduced.
3.08 415 LIMIT DEFINITION MODIFICATIONS. For purposes of Part 2 of this
Article III, the following terms mean:
(a) "Compensation" - "Compensation" means Compensation as defined
in Section 1.11, except Compensation does not include elective (salary
reduction) contributions under Code Section 401(k) or Code Section 125 and
any exclusion from Compensation (other than the exclusion of elective
contributions and the exclusions described in paragraphs (a) and (c) of
Section 1.11 and paragraph (d) of Section 1.11 to the extent amounts
described therein are not includible in gross income) does not apply.
(b) "Employer" - The Employer that adopts this Plan and any Related
Employers described in Section 1.60. Solely for purposes of applying the
limitations of Part 2 of this Article III, the Plan Administrative
Committee shall determine Related Employers described in Section 1.60, by
modifying Code Sections 414(b) and (c) in accordance with Code Section
415(h).
3.09 1042 LIMITATIONS. To the extent the Plan acquires Employer Securities in a
sale to which Code Section 1042 applies, no portion of the assets of the Plan
attributable to (or allocable in lieu of) such Employer Securities may accrue
(or be allocated directly or indirectly) under the Plan or any plan of the
Employer meeting the requirements of Code Section 401(a) during the
Non-Allocation Period for the benefit of:
(i) Any taxpayer who makes an election under Code Section
1042(a) with respect to Employer Securities;
(ii) Any individual who is related to such a taxpayer (within
the meaning of Code Section 267 (b)); or
(iii) Any other person who owns (after application of Code
Section 318(a)) more than 25% of any class of outstanding stock of the
Employer or of any corporation which is a member of the same controlled
group of corporations (within the meaning of Code Section 409(1)(4)), or
the total value of any class of any outstanding stock of any such
corporation.
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Clause (ii) above shall not apply to any individual if - (i)
such individual is a lineal descendant of the taxpayer, and (ii) the
aggregate amount allocated to the benefit of all such lineal descendants
during the Non-Allocation Period does not exceed more than 5 percent of the
Employer Securities (or amounts allocated in lieu thereof) held by the Plan
which are attributable to a sale to the Plan by any person related to such
descendants (within the meaning of Code Section 267(c)(4)) in a transaction
to which Code Section 1042 applied.
For purposes of clause (iii) above, Code Section 318(a) shall be
applied without regard to the employee trust exception in paragraph
(2)(B)(i).
For purposes of this Section 3.09, a person who has notified the Employer in
writing that such person will or intends to make an election under Code Section
1042(a) with respect to Employer Securities shall be treated as a taxpayer who
has made an election under Code Section 1042(a) with respect to Employer
Securities in a sale to which Code Section 1042 applies with respect to all
Employer Securities acquired by the Plan in the same transaction (or related
transactions) in which the Employer Securities with respect to which the
Employer has been notified in writing by such person that such election by such
person will or is intended to be made, without regard to whether such person
actually makes such election or whether Code Section 1042 does or does not apply
to such sale. For purposes of the immediately preceding sentence, a person to
whom the Employer has provided the written statement under Code Section
1042(b)(3)(B) shall be treated as a person who has notified the Employer in
writing that such person will or intends to make an election under Code Section
1042(a) with respect to Employer Securities.
* * * * * * * * * * * * * * *
ARTICLE IV
NO PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT VOLUNTARY CONTRIBUTIONS. The Plan does not permit nor
require Participant voluntary contributions.
4.02 PARTICIPANT ROLLOVER CONTRIBUTIONS. The Plan does not permit
Participant rollover contributions.
* * * * * * * * * * * * * * *
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ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. A Participant's Normal Retirement Age is
the later to occur of (i) the date the Participant attains the age of 65, or
(ii) the fifth anniversary of the first day of the Plan Year in which the
Participant commenced participation in the Plan. A Participant's Accrued Benefit
derived from Employer contributions is 100% Nonforfeitable upon and after his
attaining Normal Retirement Age if the Participant is employed by the Employer
on or after that date.
5.02 PARTICIPANT DISABILITY OR DEATH. If a Participant's employment with
the Employer terminates as a result of death or Disability, the Participant's
Accrued Benefit derived from Employer contributions shall be 100%
Nonforfeitable.
5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02, a
Participant's Nonforfeitable percentage of his Accrued Benefit derived from
Employer contributions shall be determined in accordance with the following
vesting schedule:
Percent of
Years of Nonforfeitable
Continuous Service Accrued Benefit
- ------------------ ---------------
Less than 1 ......................................None
1 but less than 2 ................................20%
2 but less than 3 ................................40%
3 but less than 4 ................................60%
4 but less than 5 ................................80%
5 or more ....................................... 100%
5.04 CASH-OUT DISTRIBUTIONS TO PARTICIPANTS WHO ARE NOT FULLY
VESTED/RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a
Participant who is not fully vested receives a Cash-Out Distribution before he
incurs a Forfeiture Break in Service, the Cash-Out Distribution shall result in
an immediate forfeiture of the nonvested portion of the Participant's Accrued
Benefit derived from Employer contributions. A Participant who is zero percent
vested at the time of his or her Separation from Service shall be treated as
having received a Cash-Out Distribution on the date of the Participant's
Separation from Service.
(A) Restoration and Conditions upon Restoration. A Participant who is
not fully vested and who is re-employed by the Employer after receiving a
Cash-Out Distribution of the Nonforfeitable percentage of his Accrued Benefit
may repay the Trustee the amount of the cash-out distribution attributable to
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Employer contributions, unless the Participant no longer has a right to
restoration by reason of the conditions of this Section 5.04(A) or by reason of
the provisions of Section 13.06. If a Participant who is not fully vested makes
the Cash-Out Distribution repayment, the Plan, subject to the conditions of this
Section 5.04(A), shall restore his Accrued Benefit attributable to Employer
contributions to the same dollar amount as the dollar amount of his Accrued
Benefit on the Accounting Date, or other valuation date, immediately preceding
the date of the Cash-Out Distribution, unadjusted for any gains or losses
occurring subsequent to that Accounting Date, or other valuation date.
Restoration of the Participant's Accrued Benefit includes restoration of all
Code Section 411(d)(6) protected benefits with respect to that restored
Accrued Benefit, in accordance with applicable Treasury regulations. The Plan
shall not, however, restore a re-employed Participant's Accrued Benefit under
this paragraph if:
(1) Five years have elapsed since the Participant's first
re-employment date with the Employer following the Cash-Out Distribution;
or
(2) The Participant incurred a Forfeiture Break in Service. This
condition also applies if the Participant makes repayment within the Plan
Year in which he incurs the Forfeiture Break in Service and that Forfeiture
Break in Service would result in a complete forfeiture of the amount the
Plan otherwise would restore.
For purposes of applying the restoration provisions described herein,
the Plan shall treat a Participant who was zero percent vested at the time of
his or her Separation from Service as having repaid his or her deemed Cash-Out
Distribution on the first date of such Participant's re-employment with the
Employer.
(B) Time and Method of Restoration. If neither of the two conditions
preventing restoration of the Participant's Accrued Benefit applies, the Plan
shall restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Plan, to the extent necessary, shall allocate
to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the Plan
would otherwise allocate under Section 3.05;
(2) Second, the amount, if any, of the Trust Fund net income or
gain for the Plan Year; and
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(3) Third, the Employer contribution for the Plan Year to the
extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Plan to make the required restoration, the Employer
must contribute, without regard to any requirement or condition of Section 3.01,
the additional amount necessary to enable the Plan to make the required
restoration. If, for a particular Plan Year, the Plan must restore the Accrued
Benefit of more than one re-employed Participant, then the Plan shall make the
restoration allocation(s) to each such Participant's Account in the same
proportion that a Participant's restored amount for the Plan Year bears to the
restored amount for the Plan Year of all re-employed Participants. The Plan
shall not take into account the allocation under this Section 5.04 in applying
the limitation on allocations under Part 2 of Article III.
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Plan restores the
Participant's Accrued Benefit, as described in Section 5.04, the Trustee shall
invest the cash-out amount the Participant has repaid in a segregated Account
maintained solely for that Participant. The Trustee shall invest the amount in
the Participant's segregated Account in Federally insured interest bearing
savings account(s) or time deposit(s) (or a combination of both), or in other
fixed income investments. Until commingled with the balance of the Trust Fund on
the date the Plan restores the Participant's Accrued Benefit, the Participant's
segregated Account remains a part of the Trust, but it alone shares in any
income it earns and it alone bears any expense or loss it incurs. The Plan
Administrative Committee shall direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Plan Administrative Committee determines either of the
conditions of Section 5.04(A) prevents restoration as of the applicable
Accounting Date, notwithstanding the Participant's repayment.
5.06 FORFEITURE BREAK IN SERVICE. For the sole purpose of determining a
Participant's Nonforfeitable percentage of his Accrued Benefit derived from
Employer contributions which accrued for his benefit prior to a Forfeiture Break
in Service, the Plan disregards any Continuous Service after the Participant
first incurs a Forfeiture Break in Service.
5.07 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
(a) The last day of the Plan Year in which the Participant first
incurs a Forfeiture Break in Service; or
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(b) The last day of the Plan Year in which occurs the date the
Participant receives a Cash-Out Distribution.
The Plan determines the percentage of a Participant's Accrued Benefit
forfeiture, if any, under this Section 5.07 solely by reference to the vesting
schedule of Section 5.03. A Participant shall not forfeit any portion of his
Accrued Benefit for any other reason or cause except as expressly provided by
this Section 5.07 or as provided under Section 6.06.
* * * * * * * * * * * * * * *
ARTICLE VI
PARTICIPANT ACCOUNTS
6.01 INDIVIDUAL ACCOUNTS. The Trustee shall maintain a separate Account,
or multiple separate Accounts, in the name of each Participant to reflect the
Participant's Accrued Benefit under the Plan: one Account designated as the
Employer Securities Account to reflect a Participant's interest in Employer
Securities held by the Trust and another Account designated as the General
Investments Account to reflect the Participant's interest in the Trust Fund
attributable to assets other than Employer Securities. If a Participant
re-enters the Plan subsequent to his having a Forfeiture Break in Service (as
defined in Section 5.06), the Trustee shall maintain a separate Account for the
Participant's pre-Forfeiture Break in Service Accrued Benefit and a separate
Account for his post-Forfeiture Break in Service Accrued Benefit unless the
Participant's entire Accrued Benefit under the Plan is 100% Nonforfeitable. The
Trustee shall make its allocations to the Accounts of the Participants in
accordance with the provisions of Section 6.03. The Trustee may maintain a
temporary segregated investment Account in the name of a Participant to prevent
a distortion of income, gain or loss allocations under Section 6.03.
6.02 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
Participant's Accrued Benefit consists of that proportion of the net worth (at
fair market value) of the Trust Fund which the net credit balance in his Account
bears to the total net credit balance in the Accounts of all Participants. For
purposes of a distribution under the Plan, a Participant's Accrued Benefit is
the balance of the Participant's Account(s) as of the Accounting Date
immediately preceding the date of the distribution.
6.03 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. A "valuation date" under the
Plan is each Accounting Date. As of each Accounting Date, the Trustee shall
adjust the Accounts as provided in this Section 6.03. The valuation period is
the period
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beginning the day after the last Accounting Date and ending on the
current Accounting Date.
(A) EMPLOYER SECURITIES ACCOUNT. As of each Accounting Date, the Trustee
first shall reduce Employer Securities Accounts for any forfeitures arising
under Section 5.07 and for amounts charged during the period to such Accounts in
accordance with Section 6.05. The Trustee then shall credit the Employer
Securities Account maintained for each Participant with the Participant's
allocable share of Employer Securities (including fractional shares) purchased
and paid for by the Trust or contributed in kind to the Trust, any forfeitures
of Employer Securities, and any stock dividends on Employer Securities allocated
to his Employer Securities Account. Notwithstanding the foregoing: (i) The
Trustee shall allocate Employer Securities acquired with an Exempt Loan under
Section 8.03(B) in accordance with that Section. (ii) If a cash dividend is paid
with respect to Employer Securities allocated to a Participant's Employer
Securities Account, and if such cash dividend is used by the Trustee to pay
principal or interest on an Exempt Loan, then the Trustee shall allocate to the
Employer Securities Account of each such Participant Employer Securities with a
fair market value of not less than the amount of such dividends which are
attributable to the Employer Securities allocated to such Employer Securities
Account. Except as otherwise specifically provided in Section 8.03(B), the
Trustee shall base allocations to the Participants' Accounts on dollar values
expressed as shares of Employer Securities or on the basis of actual shares
where there is a single class of Employer Securities. In making a forfeiture
reduction under this Section 6.03, the Trustee, to the extent possible, shall
first forfeit from a Participant's General Investments Account before making a
forfeiture from his Employer Securities Account.
(B) GENERAL INVESTMENTS ACCOUNT.
(1) GENERAL. The allocation provisions of this paragraph apply to all
Participant General Investment Accounts other than segregated investment
Accounts. The Trustee first shall adjust the Participant General Investment
Accounts by reducing such Accounts for any forfeitures arising under Section
5.07 and for amounts charged during the valuation period to such Accounts in
accordance with Section 6.05. The Trustee then, subject to the restoration
allocation requirements of Section 5.04, shall allocate the net income, gain or
loss pro rata to the adjusted Participant General Investment Accounts. The
allocable net income, gain or loss is the net income (or net loss), including
the increase or decrease in the fair market value of assets in which such
Accounts were invested, since the last Accounting Date. In making its
allocations under this Section 6.03 (B), the Trustee shall exclude Employer
Securities
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<PAGE> 39
allocated to Employer Securities Accounts; Employer Securities held in a
suspense account described in Section 8.03(B); except as otherwise provided
under Additional Rules in this Section 6.03(B) below, any dividends or other
proceeds with respect to Employer Securities held in a suspense account
described in Section 8.03(B); stock dividends on allocated Employer
Securities; and interest paid by the Trust on an Exempt Loan. The Trustee shall
include as income (available for payment on an Exempt Loan) any cash dividends
on Employer Securities allocated to Employer Securities Accounts, except cash
dividends which the Company has directed the Trustee to distribute in accordance
with the immediately following sentence and cash dividends applied by the
Trustee towards the payment of an Exempt Loan. Notwithstanding the preceding
provisions of this Section 6.03, the Trustee, if directed in writing by the
Company shall pay directly to Participants, in cash, any cash dividends on
Employer Securities allocated, or allocable to Participants Employer Securities
Accounts, irrespective of whether a Participant is fully vested in his Employer
Securities Account. The Company's direction shall state whether the Trustee is
to pay the cash dividend distributions currently, or within the 90-day period
following the close of the Plan Year in which the Employer pays the dividends to
the Trust.
(2) DIVIDENDS ON EMPLOYER SECURITIES. The Trustee shall allocate any
cash dividends with respect to Employer Securities allocated to Employer
Securities Accounts to the General Investments Accounts of Participants in the
same ratio, determined on the dividend declaration date, that the Employer
Securities allocated to a Participant's Employer Securities Account bears to the
Employer Securities allocated to all Employer Securities Accounts. The Trustee
shall not allocate to the General Investments Accounts any such cash dividends
the Company directs the Trustee to apply to the payment of an Exempt Loan nor
any such cash dividends the Company directs the Trustee to distribute in
accordance with this Section 6.03(B). If the Company directs the Trustee to
apply cash dividends on Employer Securities to the payment of an Exempt Loan,
the Trustee shall allocate the released Employer Securities as described in
Section 6.03(A) and Section 8.03(B).
(3) SEGREGATED INVESTMENT ACCOUNTS. Any segregated investment Account
receives all income it earns and bears all expense or loss it incurs. As of the
Accounting Date, the Trustee shall reduce a segregated Account for any
forfeiture arising under Section 5.07 after the Trustee has made all other
allocations, changes or adjustments to the Account for the Plan Year.
(4) ADDITIONAL RULES. In the event the Trustee shall sell Employer
Securities held in the Trust, then (i) any income, gain or loss realized with
respect to the Employer Securities
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allocated to Participants' Employer Securities Accounts shall be allocated as
trust income, gain or loss to each Participant pro rata in accordance with such
Participants' Employer Securities Accounts as of the last day of the calendar
month preceding the month in which the sale occurred; and (ii) any income, gain
or loss realized with respect to Employer Securities held in the suspense
account described in Section 8.03(B) shall be treated as trust income, gain or
loss and, after the payment of any Exempt Loans and any expense described in
Section 8.05, shall be allocated among Participants pro rata in the proportion
that each Participant's Account bears to the total of all Participants' Accounts
as of the Accounting Date immediately preceding the date on which the sale or
other disposition occurred.
An Excess Amount or suspense account described in Part 2 of Article III
does not share in the allocation of net income, gain or loss described in this
Section 6.03(B).
6.04 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting
Date of each Plan Year, but within the time prescribed by ERISA and the
regulations under ERISA, the Trustee shall deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accrued Benefit in
the Trust as of that date and such other information ERISA requires be furnished
the Participant or Beneficiary. No Participant, except a member of the Plan
Administrative Committee, has the right to inspect the records reflecting the
Account of any other Participant.
6.05 ACCOUNT CHARGED. The Trustee shall charge a Participant's Account
for all distributions made from that Account to the Participant, or to his
Beneficiary or to an alternate payee. The Trustee also shall charge a
Participant's Account for any administrative expenses incurred by the Plan
specifically related to that Account.
6.06 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require either the
Trustee or the Plan Administrative Committee to search for, or to ascertain the
whereabouts of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VII, the Plan
Administrative Committee, by certified or registered mail addressed to his last
known address of record with the Plan Administrative Committee or the Employer,
must notify any Participant, or Beneficiary, that he is entitled to a
distribution under this Plan. The notice must quote the provisions of this
Section 6.06 and otherwise must comply with the notice requirements of Article
VII. If the Participant, or Beneficiary, fails to claim his distributive share
or make his whereabouts known in writing to the Plan Administrative Committee
within six months from the date of mailing
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of the notice, the Plan Administrative Committee may direct the Trustee to
segregate the Participant's unclaimed Accrued Benefit in a segregated Account in
the name of the Participant or Beneficiary. The Plan Administrative Committee
shall then notify the Social Security Administration of the Participant's (or
Beneficiary's) failure to claim the distribution to which he is entitled and
request the Social Security Administration to notify the Participant (or
Beneficiary) in accordance with the procedures it has established for this
purpose. The segregated Account is entitled to all income it earns and bears all
expense or loss it incurs.
* * * * * * * * * * * * * * *
ARTICLE VII
TIME AND METHOD OF PAYMENT OF BENEFITS
7.01 TIME OF PAYMENT OF ACCRUED BENEFIT. The Plan Administrative
Committee shall direct the Trustee to commence distribution of a Participant's
Nonforfeitable Accrued Benefit in accordance with this Article VII. A
Participant must consent, in writing, to any distribution to the Participant
required under this Article VII other than a distribution as of the
Participant's Required Beginning Date. If a Participant who is required to
consent to distribution as of a particular Distribution Date does not consent,
distribution will be made to him (if living) as of the next succeeding
Distribution Date in advance of and as to which he has consented to
distribution.
(A) Separation From Service for a Reason Other Than Death. If the
Participant's Separation From Service is for any reason other than death, the
Plan Administrative Committee shall direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit on the applicable Distribution Date
following the determination by the Plan Administrative Committee of the
Participant's Separation from Service.
(B) Required Beginning Date. If any Distribution Date described under
Paragraph (A) of this Section 7.01, either by Plan provision or by Participant
election (or nonelection), is later than the Participant's Required Beginning
Date, the Plan Administrative Committee instead shall direct the Trustee to make
distribution on the Participant's Required Beginning Date.
(C) Death of the Participant. The Plan Administrative Committee shall
direct the Trustee, in accordance with this Section 7.01(C), to distribute to
the Participant' Beneficiary the Participant's unpaid Nonforfeitable Accrued
Benefit. The Plan Administrative Committee shall direct the Trustee to
distribute the
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deceased Participant's unpaid Nonforfeitable Accrued Benefit in the absence of
an election by the Beneficiary of a later Distribution Date, no later than the
Distribution Date following the Participant's death, or, if later, the
Distribution Date following the date the Plan Administrative Committee receives
notification of or otherwise confirms the Participant's death. The method of
distribution to the Participant's Beneficiary must satisfy Code Section
401(a)(9) and the applicable Treasury regulations. If the Participant's death
occurs prior to his Required Beginning Date, the method of payment to the
Beneficiary must provide for payment to the Beneficiary no later than the
Distribution Date immediately following the close of the calendar year in which
the Participant's death occurred or, if later, and the Beneficiary is the
Participant's surviving spouse, the Distribution Date occurring in the calendar
year in which the Participant would have attained age 70 1/2. Upon the
Beneficiary's written request, the Plan Administrative Committee shall direct
the Trustee to make payment of the Participant's unpaid Nonforfeitable Accrued
Benefit as of the next Distribution Date following the effective date of that
request.
7.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Payment of a Participant's
Nonforfeitable Accrued Benefit shall be made to the Participant or Beneficiary
in one single-sum distribution. The Trustee shall make all distributions of
benefits under the Plan in Employer Securities. The Trustee may apply any
balance in a Participant's General Investments Account to provide shares of
Employer Securities for distribution at Fair Market Value. If, however, the
applicable charter or bylaws restrict ownership of substantially all shares of
Employer Securities to Employees and the Trust, as described in Code Section
409(h)(2), the Trustee shall make the distribution of a Participant's Accrued
Benefit entirely in cash.
7.03 BENEFIT ELECTIONS. Not earlier than 90 days, but not later than 30
days, before a Participant's or Beneficiary's Annuity Starting Date, the Plan
Administrative Committee must provide a benefit notice to a Participant or
Beneficiary who is eligible to make an election under Section 7.01. The benefit
notice must explain the form of benefit distribution available under the Plan
and the Participant's or Beneficiary's right to defer distribution.
If a Participant or Beneficiary makes a valid election prescribed by
this Section 7.03, the Plan Administrative Committee shall direct the Trustee to
distribute the Participant's Nonforfeitable Accrued Benefit in accordance with
the election. The Participant or Beneficiary must make an election under this
Section 7.03 by filing his election form with the Plan Administrative Committee
before the Trustee otherwise would
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commence to pay a Participant's Accrued Benefit in accordance with the
requirements of this Article VII.
7.04 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
the Plan prevents the Trustee, in accordance with the direction of the Plan
Administrative Committee, from complying with the provisions of a qualified
domestic relations order (as defined in Code Section 414(p)). The Plan does not,
however, permit distribution to an alternate payee under a qualified domestic
relations order irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code Section 414(p)) under the Plan.
The Plan Administrative Committee must establish reasonable procedures
to determine the qualified status of a domestic relations order. Upon receiving
a domestic relations order, the Plan Administrative Committee promptly shall
notify the Participant and any alternate payee named in the order, in writing,
of the receipt of the order and the Plan's procedures for determining the
qualified status of the order. Within a reasonable period of time after
receiving the domestic relations order, the Plan Administrative Committee must
determine the qualified status of the order and must notify the Participant and
each alternate payee, in writing, of its determination. The Plan Administrative
Committee must provide notice under this paragraph by mailing to the
individual's address specified in the domestic relations order, or in a manner
consistent with Department of Labor regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Plan Administrative Committee is making its
determination of the qualified status of the domestic relations order, the Plan
Administrative Committee must make a separate accounting of the amounts payable.
If the Plan Administrative Committee determines the order is a qualified
domestic relations order within 18 months of the date amounts first are payable
following receipt of the order, the Plan Administrative Committee shall direct
the Trustee to distribute the payable amounts in accordance with the order. If
the Plan Administrative Committee does not make its determination of the
qualified status of the order within the 18-month determination period, the Plan
Administrative Committee shall direct the Trustee to distribute the payable
amounts in the manner the Plan would distribute if the order did not exist and
shall apply the order prospectively if the Plan Administrative Committee later
determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the
qualified domestic relations order, the Plan Administrative Committee may direct
the Trustee to invest any partitioned amount in a segregated subaccount or
separate account and to invest the
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account in Federally insured, interest-bearing savings account(s) or time
deposit(s) (or a combination of both), or in other fixed income investments. A
segregated subaccount remains a part of the Trust, but it alone shares in any
income it earns, and it alone bears any expense or loss it incurs. The Trustee
shall make any payments or distributions required under this Section 7.04 by
separate benefit checks or other separate distribution to the alternate
payee(s).
7.05 PUT OPTION. The Employer shall issue a "put option" to each
Participant or Beneficiary receiving a distribution of Employer Securities from
the Trust that are not readily tradable on an established market. The put option
shall be exercisable only by the Participant or Beneficiary, or by a person
(including an estate or its distributee) to whom the Employer Securities pass by
reason of a Participant's death and shall permit a person who may exercise the
put to sell the Employer Securities to the Employer, at the current Fair Market
Value, for a period of at least 60 days following the date of distribution of
such Employer Securities to the Participant or Beneficiary, and if the put
option is not exercised within such 60-day period, for an additional period of
at least 60 days in the following Plan Year; provided, however, that such 60-day
period shall exclude any period during which the Employer is prohibited from
honoring the put option by applicable Federal or State law. If a put option is
exercised, the Employer must purchase the Employer Securities at Fair Market
Value upon the terms provided under Section 7.06. The Employer may grant the
Trust an option to assume the Employer's rights and obligations at the time a
Participant or Beneficiary exercises an option under this Section 7.05.
7.06 PAYMENT OF PURCHASE PRICE. If the Employer or the Trustee purchases
Employer Securities pursuant to Section 7.05, the purchaser(s) must make payment
in a single sum or, if the distribution to the Participant or Beneficiary
constitutes a Total Distribution, the purchaser must make payment in a single
sum or in substantially equal installments, not less frequently than annually,
over a period beginning not later than 30 days after the exercise of the put
option and not exceeding five years. A "Total Distribution" to a Participant or
Beneficiary is a distribution, within one taxable year of the recipient, of the
entire balance to the recipient's credit under the Plan. In the case of a
distribution which is not a Total Distribution or which is a Total Distribution
with respect to which the purchaser(s) shall make payment in a single sum, the
purchaser(s) must pay the Fair Market Value of the Employer Securities
repurchased no later than 30 days after the date the put option is exercised. In
the case of a Total Distribution with respect to which the purchaser(s) shall
make installment payments, the purchaser(s) must make the first installment
payment no later than 30 days after the put option is
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exercised. For installment amounts not paid within 30 days of the exercise of
the put option, the purchaser(s) must evidence the balance of the purchase price
by executing a promissory note, delivered to the seller at the Closing. The note
delivered at Closing must bear a reasonable rate of interest, determined as of
the Closing Date, and the purchaser(s) must provide adequate security. The note
must provide for equal annual installments with interest payable with each
installment, the first installment being due and payable one year after the
Closing Date. The note further must provide for acceleration in the event of 30
days' default in the payment of interest or principal and must grant to the
maker of the note the right to prepay the note in whole or in part at any time
or times without penalty; provided, however, the purchaser(s) may not have the
right to make any prepayment during the calendar year or fiscal year of the
seller in which the Closing Date occurs.
7.07 RESTRICTION ON EMPLOYER SECURITIES. Except upon the prior written
consent of the Company, no Participant or Beneficiary may sell, assign, give,
pledge, encumber, transfer or otherwise dispose of any Employer Securities
distributed from the Plan without complying with the terms of Section 7.08. If a
Participant or Beneficiary pledges or encumbers any Employer Securities with the
required prior written consent, any security holder's rights with respect to
such Employer Securities are subordinate and subject to the rights of the
Company.
7.08 RIGHT OF FIRST REFUSAL. If any Participant or Beneficiary who
receives Employer Securities under the Plan that are not at the time of
distribution to the Participant or Beneficiary readily tradable on an
established market desires to dispose of any such Employer Securities for any
reason during his lifetime (whether by sale, assignment, gift or any other
method of transfer), or upon the death of a Participant or Beneficiary, the
Employer Securities with respect to such Participant or Beneficiary must first
be offered by written notice to the Company and the Plan for sale to the Company
and the Plan.
In a case of an offer by a third party, the offer to the Company and the
Plan is subject to the terms and conditions set forth in Section 7.06 based on
price equal to Fair Market Value per share and payable in accordance with the
terms of Section 7.06 unless the selling price and terms offered by the third
party are more favorable to the seller than the selling price and terms of
Section 7.06, in which event the selling price and terms of the offer of the
third party apply. In the case of any other proposed transfer, the offer to the
Company and the Plan is subject to the terms and conditions set forth in Section
7.06 based on price equal to Fair Market Value per share and payable in
accordance with the terms of Section 7.06.
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The Company or the Plan, as appropriate, must give written notice to the
offering Participant or Beneficiary of its acceptance of the Participant's or
Beneficiary's offer within 14 days after the Participant or Beneficiary has,
given written notice to the Company and the Plan or the Company's and Plan s
rights under this Section 7.08 shall lapse. In the event of the death of a
Participant or Beneficiary, the right of the Employer or the Plan to purchase
the Employer Securities may be exercised by written notice to the
representatives of the Participant's or Beneficiary's estate delivered within 14
days after the Company receives written notice of the Participant's or
Beneficiary's death and the identity and address of the representatives of the
Participant's or Beneficiary's estate.
Whenever both the Company and the Plan desire to purchase Employer
Securities under this Section 7.08, the Company shall have the first right to
purchase the Employer Securities and the Plan shall have the right to purchase
any Employer Securities not purchased by the Company.
The Company may grant the Trust the option to assume the Company's
rights and obligations with respect to all or any part of the Employer
Securities offered to the Company under this Section 7.08.
To the extent directed in writing by the Company to do so, the Trustee
shall require a Participant or Beneficiary entitled to a distribution of
Employer Securities to execute an appropriate stock transfer agreement
(evidencing the right of first refusal) prior to receiving a certificate for
Employer Securities. All Employer Securities shall bear a legend referring to
the restrictions on transfer set forth in this Article.
7.09 NOTICE. A person has given Notice permitted or required under this
Article VII when the person deposits the Notice in the United States mail, first
class, postage prepaid, addressed to the person entitled to the Notice at the
address currently listed for him in the records of the Plan Administrative
Committee. Any person affected by this Article VII has the obligation of
notifying the Plan Administrative Committee of any change of address.
7.10 ROLLOVER REQUIREMENTS. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election under this
Article, a Distributee may elect, at the time and in the manner prescribed by
the Plan Administrative Committee, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover.
* * * * * * * * * * * * * * *
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ARTICLE VIII
TRUSTEE PROVISIONS
8.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan
and agrees to perform the obligations imposed upon it hereunder. The Trustee
shall provide bond for the faithful performance of its duties under the Trust
only to the extent (if any) required by ERISA.
8.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the
Employer for the funds contributed to it by the Employer, but does not have any
duty to see that the contributions received comply with the provisions of the
Plan or any other contract or agreement. The Trustee is not obliged to collect
any contributions from the Employer, nor is the Trustee obliged to see that
funds deposited with it are deposited according to the provisions of the Plan.
8.03 FULL INVESTMENT POWERS.
(A) Trustee Powers. Subject to the investment guidelines in the two
sentences immediately following this sentence, the Trustee has full discretion
and authority with regard to the investment of the Trust Fund, except to the
extent a Plan asset is subject to Participant direction as provided in the Plan.
The Trust Fund shall be invested by the Trustee primarily (or exclusively) in
Employer Securities. The Trustee shall coordinate its investment policy with
Plan financial needs as communicated to it by the Plan Administrative Committee.
Subject to the foregoing, the Trustee is authorized and empowered, but not by
way of limitation, with the following powers, rights and duties:
(a) To acquire and to hold up to 100% of the Trust Fund in Employer
Securities and to invest any part or all of the Trust Fund in any common or
preferred stocks, open-end or closed-end mutual funds, put and call options
traded on a national exchange, United States retirement plan bonds,
corporate bonds, debentures, convertible debentures, commercial paper, U.
S. Treasury bills, U. S. Treasury notes and other direct or indirect
obligations of the United States Government or its agencies, improved or
unimproved real estate situated in the United States, limited partnerships,
insurance contracts of any type, mortgages, notes or other property of any
kind, real or personal, and to buy or sell options of common stock on a
nationally recognized exchange with or without holding the underlying
common stock, and to make any other investments the Trustee deems
appropriate, as a prudent man would do under like circumstances with due
regard for the purposes of this Plan. Any investment made or retained by
the Trustee in good faith is proper but must be of a kind, with
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the exception of Employer Securities, constituting a diversification
considered by law suitable for trust investments.
(b) To retain in cash so much of the Trust Fund as it may deem
advisable to satisfy liquidity needs of the Plan and to deposit any cash
held in the Trust Fund in a bank account at reasonable interest.
(c) To invest, if the Trustee is a bank or similar financial
institution supervised by the United States or by a State, in any type of
deposit of the Trustee (or of a bank related to the Trustee within the
meaning of Code Section 414(b)) at a reasonable rate of interest or in a
common trust fund, as described in Code Section 584, or in a collective
investment fund, including, without limitation, the Society National Bank
Multiple Investment Trust for Employee Benefit Trusts and the Society
National Bank EB Managed Guaranteed Investment Contract Fund, the
provisions of which govern the investment of such assets and which the Plan
incorporates by this reference, which the Trustee (or its affiliate, as
defined in Code Section 1504) maintains exclusively for the collective
investment of money contributed by the bank (or the affiliate) in its
capacity as trustee and which conforms to the rules of the Comptroller of
the Currency.
(d) To purchase, manage, sell, convey, exchange, transfer, contract
to sell, convey, exchange or transfer (whether pursuant to sale, exchange,
merger, reorganization or otherwise), abandon, improve, repair, insure,
lease for any term even though commencing in the future or extending beyond
the term of the Trust, and otherwise deal with all property, real or
personal, in such manner, for such consideration and on such terms and
conditions as the Trustee decides.
(e) To enter into any contract for the sale or other disposition of
property held by the Trust, including Employer Securities, and to enter
into any contract pursuant to which the Employer would be reorganized,
recapitalized, consolidated with or merged with or into another entity, and
to do and perform any and all acts and to execute any necessary documents
associated therewith.
(f) To make distributions of benefits as directed by the Plan
Administrative Committee. The Trustee is not obliged to inquire as to
whether any payee or distributee is entitled to any payment or as to the
manner of making any payment or distribution.
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(g) To borrow money, to assume indebtedness, extend mortgages and
encumber by mortgage or pledge.
(h) To compromise, contest arbitrate or abandon claims and demands,
in its discretion.
(i) Subject to the provisions of Section 8.14 and Section 8.15, to
have with respect to the Trust all of the rights of an individual owner,
including the power to give proxies, to participate in any voting trusts,
mergers, consolidations or liquidations, and to exercise or sell stock
subscriptions or conversion rights.
(j) To lease for oil, gas and other mineral purposes and to create
mineral severances by grant or reservation; to pool or unitize interests in
oil, gas and other minerals; and to enter into operating agreements and to
execute division and transfer orders.
(k) To hold any securities or other property in the name of the
Trustee or its nominee, with depositories or agent depositories or in
another form as it may deem best, with or without disclosing the trust
relationship.
(l) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment and
distribution of the Trust.
(m) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment or
delivery of the funds or property until final adjudication is made by a
court of competent jurisdiction.
(n) To file all tax returns required of the Trustee.
(o) To furnish to the Employer, the Plan Administrator and the Plan
Administrative Committee an annual statement of account showing the
condition of the Trust Fund and all investments, receipts, disbursements
and other transactions effected by the Trustee during the Plan Year covered
by the statement and also stating the assets of the Trust held at the end
of the Plan Year, which accounts are conclusive on all persons, including
the Employer, the Plan Administrator and the Plan Administrative Committee,
except as to any act or transaction concerning which the Employer, the Plan
Administrator or the Plan Administrative Committee files with the Trustee
written exceptions or objections within 90
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days after the receipt of the accounts or for which ERISA authorizes a
longer period within which to object.
(p) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan and Trust, except that the
Trustee is not obliged or required to do so unless indemnified to its
satisfaction.
(q) Subject to the provisions of Section 8.14 and Section 8.15, to
vote all voting stock held by the Trust Fund.
(r) At the direction of the Company, to apply any cash dividends
with respect to Employer Securities toward the payment of an Exempt Loan,
and at the direction of the Company, to distribute cash dividends with
respect to Employer Securities in accordance with Section 6.03.
(B) EXEMPT LOAN. This Section 8.03(B) specifically authorizes the
Trustee to enter into an Exempt Loan transaction. The following terms and
conditions shall apply to any Exempt Loan.
(a) The Trustee shall use the proceeds of the loan within a
reasonable time after receipt only for any or all of the following
purposes: (i) to acquire Employer Securities, (ii) to repay such loan, or
(iii) to repay a prior Exempt Loan. Except as provided under Article VII,
no Employer Security acquired with the proceeds of an Exempt Loan may be
subject to a put, call or other option, or buy-sell or similar arrangement
while held by and when distributed from this Plan, whether or not the Plan
is then an employee stock ownership plan, and except that such Employer
Securities while held by the Plan may be subject to a right of first
refusal that is permissible under Treas. Reg. Section 54.4975-7(b)(9).
(b) The interest rate of the loan may not be more than a reasonable
rate of interest.
(c) Any collateral the Trustee pledges to the creditor must consist
only of the assets purchased by the borrowed funds and those assets the
Trust used as collateral on the prior Exempt Loan repaid with the proceeds
of the current Exempt Loan,
(d) The creditor may have no recourse against the Trust under the
loan except with respect to such collateral given for the loan;
contributions (other than contributions of Employer Securities) that the
Employer makes to the Trust to meet obligations under the loan, and
earnings attributable to such collateral and the investment of such
contributions. The payment made with respect to an Exempt Loan by the Plan
during
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a Plan Year must not exceed an amount equal to the sum of such
contributions and earnings, and cash dividends on Employer Securities that
the Company directs the Trustee to apply to the payment of the loan,
received during or prior to the year less such payments in prior years. The
Trustee shall account separately for such contributions and earnings, and
such cash dividends, in the books of account of the Plan until the Trust
repays the loan.
(e) In the event of default upon the loan, the value of Plan assets
transferred in satisfaction of the loan must not exceed the amount of the
default, and if the lender is a Disqualified Person, the loan must provide
for transfer of Plan assets upon default only upon and to the extent of the
failure of the Plan to meet the payment schedule of the loan.
(f) The Trustee shall add and maintain all assets acquired with the
proceeds of an Exempt Loan in a suspense account. In withdrawing assets
from the suspense account, the Trustee shall apply the provisions of Treas.
Reg. Sections 54.4975-7(b)(8) and (15) as if all securities in the
suspense account were encumbered. Upon the payment of any portion of the
loan, the Trustee shall effect the release of assets in the suspense
account from encumbrance. For each Plan Year during the duration of the
loan, the number of Employer Securities released must equal the number of
encumbered Employer Securities held immediately before release for the
current Plan Year multiplied by a fraction. The numerator of the fraction
is the amount of principal and interest paid for the Plan Year. The
denominator of the fraction is the sum of the numerator plus the principal
and interest to be paid for all future Plan Years. The number of future
Plan Years under the loan must be definitely ascertainable and must be
determined without taking into account any possible extension or renewal
periods. If the interest rate under the loan is variable, the interest to
be paid in future Plan Years must be computed by using the interest rate
applicable as of the end of the Plan Year. If collateral includes more
than one class of Employer Securities, the number of Employer Securities
of each class to be released for a Plan Year must be determined by
applying the same fraction to each such class. Notwithstanding the
foregoing, at the written direction of the Company prior to the first
payment of principal or interest on an exempt Loan, the number of Employer
Securities to be released from encumbrance shall be determined solely with
reference to principal payments. However, if the Company so directs that
release is to be determined with reference to principal payments only, the
following three provisions shall apply: (i) The loan must provide for
annual payments of principal and interest at a cumulative rate that is not
less rapid at any
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time than level annual payments of such amounts for ten years. (ii)
Interest included in any payment shall be disregarded only to the extent
that it would be determined to be interest under standard loan amortization
tables. (iii) The principal only release method shall not apply from the
time that, by reason of a renewal, extension, or refinancing, the sum of
the expired duration of the loan, the renewal period, the extension period,
and the duration of the new exempt loan exceeds ten years. Except as
provided in Section 6.03 hereof, the Trustee shall allocate assets
withdrawn from the suspense account to the Accounts of Participants who are
eligible under Section 3.04 to share in the allocation of the Employer's
contribution for the Plan Year for Which the Trustee has paid the portion
of the loan resulting in the release or the assets. The Trustee
consistently shall make this allocation as of each Accounting Date on the
basis of non-monetary units representing Participant's interests in assets
withdrawn from the suspense account, with each eligible Participant's share
of the allocations being in the same proportion to each other eligible
Participant's share of the allocation that would have resulted had the
assets withdrawn from the suspense account been Employer contributions
under Section 3.04.
(g) The loan must be for a specific term and may not be payable at
the demand of any person except in the case of default.
(h) Notwithstanding the fact the Plan ceases to be an employee
stock ownership plan, Employer Securities acquired with the proceeds of an
exempt loan shall continue after the Trustee repays the loan to be subject
to the provisions of Treas. Reg. Sections 54.4975-7(b)(4), (10), (11) and
(12) relating to put, call or other options and to buy-sell or similar
arrangements, except to the extent these regulations are inconsistent with
Code Section 409(h).
(i) In the event that the Trustee is unable to make payments of
principal and/or interest on an Exempt Loan when due, the Trustee may sell
any Leveraged Employer Securities that have not yet been allocated to
Participants' Employer Securities Accounts or obtain another Exempt Loan in
an amount sufficient to make such payments.
8.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to
the Plan must be open to the inspection of the Plan Administrator, Plan
Administrative Committee and the Employer at all reasonable times and may be
audited from time to time by any person or persons as the Company, Plan
Administrator or Plan Administrative Committee may specify in writing. The
Trustee must furnish the Plan Administrator or Plan Administrative Committee
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with whatever information relating to the Trust Fund the Plan Administrator or
Plan Administrative Committee reasonably considers necessary.
8.05 FEES AND EXPENSES FROM FUND. The Trustee shall receive from the
Employer reasonable annual compensation as may be agreed upon from time to time
between the Company and the Trustee, except that no person who is receiving full
pay from the Employer may receive compensation for services as Trustee. The
Employer shall pay all reasonable expenses of administering the Plan and Trust,
but to the extent the Employer shall fail to pay such compensation and expenses
the same shall be paid by the Trustee from the Trust Fund. Any such compensation
or expense paid, directly or indirectly, by the Employer shall not constitute an
Employer contribution to the Plan.
8.06 PARTIES TO LITIGATION. Except as otherwise provided. by ERISA, no
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan, the Trust Fund or any
fiduciary of the Plan. Any final judgment entered in any proceeding shall be
conclusive upon the Employer, the Plan Administrator, the Plan Administrative
Committee, the Trustee, Participants and Beneficiaries.
8.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the Trust
Fund reasonable compensation to agents, attorneys, accountants and other persons
to advise the Trustee as in its opinion may be necessary. The Trustee may
delegate to any agent, attorney, accountant or other person selected by it any
non-Trustee power or duty vested in it by the Plan, and the Trustee may act or
refrain from acting on the advice or opinion of any agent, attorney, accountant
or other person so selected.
8.08 DISTRIBUTION DIRECTIONS. If no one claims a payment or distribution
made from the Trust, the Trustee must promptly notify the Plan Administrative
Committee and then dispose of the payment in accordance with the subsequent
direction of the Plan Administrative Committee.
8.09 THIRD PARTY/MULTIPLE TRUSTEES. No person dealing with the Trustee
is obligated to see to the proper application of any money paid or property
delivered to the Trustee, or to inquire whether the Trustee has acted pursuant
to any of the terms of the Plan. Each person dealing with the Trustee may act
upon any notice, request or representation in writing by the Trustee, or by the
Trustee's duly authorized agent, and is not liable to any person in so acting.
The certificate of the Trustee that it is acting in accordance with the Plan
shall be conclusive in favor of any person relying on the certificate. If more
than two persons
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act as Trustee, a decision of the majority of such persons controls with respect
to any decision regarding the administration or investment of the Trust Fund or
any portion of the Trust Fund wIth respect to which such persons act as Trustee.
However, the signature of only one Trustee is necessary to effect any
transaction on behalf of the Trust.
8.10 RESIGNATION. The Trustee may resign its position at any time by
giving 30 days' written notice in advance to the company and to the Plan
Administrative Committee. If the Board of Directors of the Company, fails to
appoint a successor Trustee within 60 days of its receipt of the Trustee's
written notice of resignation, the Trustee may treat the Company as having
appointed itself as Trustee and as having filed its acceptance of appointment
with the former Trustee.
8.11 REMOVAL. The Board of Directors of the Company, by giving 30 days'
written notice in advance to the Trustee, may remove any Trustee. In the event
of the resignation or removal of a Trustee, the Board of Directors of the
Company shall appoint a successor Trustee if it intends to continue the Plan. If
two or more persons hold the position of Trustee, in the event of the removal of
one such person, during any period the selection of a replacement is pending, or
during any period such person is unable to serve for any reason, the remaining
person or persons shall act as the Trustee.
8.12 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee
succeeds to the title to the Trust vested in his predecessor by accepting in
writing his appointment as successor Trustee and filing the acceptance with the
former Trustee, the Company, and the Plan Administrative Committee without the
signing or filing of any further statement. The resigning or removed Trustee,
upon receipt of acceptance in writing of the Trust by the successor Trustee,
must execute all documents and do all acts necessary to vest the title of record
in any successor Trustee. Each successor Trustee has and enjoys all of the
powers, both discretionary and ministerial, conferred under this Agreement upon
his predecessor. A successor Trustee is not personally liable for any act or
failure to act of any predecessor Trustee, except as required under ERISA. With
the approval of the Company and the Plan Administrative Committee, a successor
Trustee, with respect to the Plan, may accept the account rendered and the
property delivered to it by a predecessor Trustee without incurring any
liability or responsibility for so doing.
8.13 VALUATIONS. The Trustee must value the Trust Fund as of each
Accounting Date to determine the fair market value of each Participant's
Accrued Benefit in the Trust. Fair Market Value and all valuations of Employer
Securities which are not readily
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tradeable on an established securities market with respect to activities carried
on by the Plan shall be performed by an independent appraiser meeting
requirements similar to those prescribed by Treasury regulations under Code
Section 170 (a)(1) selected by the Trustee.
8.14 TENDER OFFERS. Except as otherwise expressly provided in the Plan,
the Trustee shall not sell, alienate, encumber, pledge, transfer or otherwise
dispose of or tender or withdraw, any Employer Securities held by it under the
Plan. All tender or exchange decisions with respect to Employer Securities shall
be made by the Trustee only as directed by the Participants (and Beneficiaries),
acting in their capacity as named fiduciaries (within the meaning of Section 402
of ERISA), in accordance with the following provisions of this Section 8.14. The
number of shares of Employer Securities credited to a Participant's Employer
Securities Account shall be determined as of the most recent Accounting Date for
which information is readily available. In the event the Trustee holds Employer
Securities under the Plan, but no Employer Securities are then credited to any
Participant's Employer Securities Account, then, solely for purposes of this
Section 8.14, each person who on the date the offer referred to in this Section
8.14 is received by the Trustee is an Employee who, if such Employee remained an
Employee (in the same status) until the immediately following Accounting Date,
would be entitled to an allocation under Section 3.06 shall be deemed to have
one share of Employer Securities allocated to his Participant Employer
Securities Account.
(a) In the event an offer shall be received by the Trustee (including a
tender offer for shares of Employer Securities subject to Section 14(d)(1) of
the Securities Exchange Act of 1934 or subject to Rule 13e-4 promulgated under
such Act, as those provisions may from time to time be amended) to purchase or
exchange any Employer Securities held by the Trustee, the Trustee shall advise
each Participant who has shares of Employer Securities credited to his Employer
Securities Account in writing of the terms of the offer as soon as practicable
after its commencement and shall furnish each Participant with a form by which
he may instruct the Trustee confidentially whether or not to tender or exchange
shares of Employer Securities credited to such Participant's Employer Securities
Account and, separately, based on shares of Employer Securities credited to such
Participant's Employer Securities Account, a proportionate share of any
Non-Directed Shares and any Unallocated Shares held by the Trustee (including
fractional shares to 1/1000th of a share). The materials furnished to the
Participants shall include:
(1) a notice from the Trustee explaining Participants' rights to
instruct the Trustee with respect to
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shares of Employer Securities credited to their Employer Securities
Accounts, and, separately, with respect to Non-Directed Shares and
Unallocated Shares, as provided herein; and
(2) such related documents as are prepared by any person and
provided to the shareholders pursuant to the Securities Exchange Act of
1934.
The Company and the Trustee may also provide Participants with such other
material concerning the tender or exchange offer as the Trustee or the Company
in their discretion determine to be appropriate; provided, however, that prior
to any distribution to Participants of materials by the Company, the Trustee
shall be furnished with complete copies of all such materials. The Company shall
cooperate with the Trustee to insure that Participants receive the requisite
information in a timely manner.
(b) Each Participant who has shares of Employer Securities credited to
his Employer Securities Account, as a named fiduciary (within the meaning of
Section 402 of ERISA), shall be entitled to direct the Trustee whether or not
to tender or exchange shares of Employer Securities credited to his Employer
Securities Account (including fractional shares to 1/1000th of a share). With
respect to shares of Employer Securities credited to the Employer Securities
Account of a deceased Participant, such Participant's Beneficiary shall be
entitled to direct the Trustee whether or not to tender or exchange such shares
as if such Beneficiary were the Participant.
(c) Each Participant who has shares of Employer Securities credited to
his Employer Securities Account and who is entitled to direct the Trustee
whether or not to tender or exchange shares of Employer Securities credited to
his Employer Securities Account, as a named fiduciary (within the meaning of
Section 402 of ERISA), shall be entitled to separately direct the Trustee with
respect to the tender or exchange of a portion of the Non-Directed Shares and
the Unallocated Shares. Such direction shall apply to such number of
Non-Directed Shares and Unallocated Shares equal to the total number of
Non-Directed Shares and Unallocated Shares multiplied by a fraction, the
numerator of which is the number of shares of Employer Securities credited to
the Participant's Employer Securities Account and the denominator of which is
the total number of shares of Employer Securities credited to the Employer
Securities Accounts of all such Participants who have timely provided directions
to the Trustee with respect to Non-Directed Shares and Unallocated Shares under
this subparagraph (c). Fractional shares shall be rounded to the nearest
1/1000th of a share.
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(d) In the event, under the terms of a tender offer or otherwise, any
shares of Employer Securities tendered for sale, exchange or transfer pursuant
to such offer may be withdrawn from such offer, the Trustee shall follow such
instructions respecting the withdrawal of such shares of Employer
Securities from such offer in the same manner and in the same proportion as
shall be timely received by the Trustee from Participants entitled under this
Section 8.14 to give instructions as to the sale, exchange or transfer of shares
pursuant to such offer, acting in their capacity as named fiduciaries (within
the meaning of Section 402 of ERISA).
(e) In the event that an offer for fewer than all of the shares of
Employer Securities held by the Trustee shall be received by the Trustee, the
total number of shares of Employer Securities that the Plan sells, exchanges or
transfers pursuant to such offer shall be allocated among Participants' Employer
Securities Accounts and any suspense account described in Section 8.03(B) on a
pro rata basis in accordance with the directions received from Participants with
respect to shares of Employer Securities credited to their Employer Securities
Accounts and Non-Directed Shares and Unallocated Shares.
(f) In the event an offer shall be received by the Trustee and
instructions shall be solicited from Participants pursuant to subparagraphs
(a)-(e) of this Section 8.14 regarding such offer, and, prior to the termination
of such offer, another offer is received by the Trustee for the shares of
Employer Securities subject to the first offer, the Trustee shall use its best
efforts under the circumstances to solicit instructions from the Participants in
their capacity as named fiduciaries (within the meaning of Section 402 of
ERISA):
(1) with respect to shares of Employer Securities tendered for
sale, exchange or transfer pursuant to the first offer, whether to withdraw
such tender, if possible, and, if withdrawn, whether to tender any shares
of Employer Securities so withdrawn for sale, exchange or transfer pursuant
to the second offer, and
(2) with respect to shares of Employer Securities not tendered
for sale, exchange or transfer pursuant to the first offer, whether to
tender or not to tender such shares of Employer Securities for sale,
exchange or transfer pursuant to the second offer.
The Trustee shall follow all such instructions received in a timely manner in
the same manner and in the same proportion as provided in subparagraphs (a)-(e)
of this Section 8.14. With respect to any further offer for any shares of
Employer Securities received by the Trustee and subject to any earlier offer
(including successive
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offers from one or more existing offerors), the Trustee shall act in the same
manner as described above in this subparagraph (f).
(g) A Participant's instructions to the Trustee to tender or exchange
shares of Employer Securities shall not be deemed a withdrawal or suspension
from the Plan or a forfeiture of any portion of the Participant's Account. Funds
received in exchange for tendered shares of Employer Securities may be used by
the Trustee to purchase other employer securities within the meaning of Section
407(d) of ERISA as soon as practicable. In the interim, the Trustee shall invest
such funds in short-term investments permitted under the Plan.
(h) Subject to any provisions of the Plan to the contrary, in the event
the Company or an affiliate of the Company initiates a tender or exchange offer,
the Trustee may, in its sole discretion, enter into an agreement with the
Company or the affiliate of the Company not to tender or exchange any shares of
Employer Securities in such offer, in which event, the foregoing provisions of
this Section 8.14 shall have no effect with respect to such offer and the
Trustee shall not tender or exchange any shares of Employer Securities in such
offer.
8.15 VOTING OF SHARES. All voting rights on shares of Employer
Securities held by the Trustee shall be exercised by the Trustee only as
directed by the Participants (and Beneficiaries) acting in their capacity as
named fiduciaries (within the meaning of Section 402 of ERISA) in accordance
with the following provisions of this Section 8.15. The number of shares of
Employer Securities credited to a Participant's Employer Securities Account
shall be determined as of the most recent Accounting Date for which information
is readily available. In the event the Trustee holds Employer Securities under
the Plan, but no Employer Securities are then credited to any Participant's
Employers Securities Account, then, solely for purposes of this Section 8.15,
each person who on such date as is determined by the Trustee is an Employee who,
if such Employee remained an Employee (in the same status) until the immediately
following Accounting Date, would be entitled to an allocation under Section 3.06
shall be deemed to have one share of Employer Securities allocated to his
Participant Employer Securities Account.
(a) As soon as practicable before each annual or special shareholders'
meeting of the issuer of the Employer Securities, the Trustee shall furnish to
each Participant a copy of the proxy solicitation material sent generally to
shareholders, together with a form to be returned to the Trustee requesting
confidential instructions from the Participant, acting in his capacity as a
named fiduciary (within the meaning of Section 402 of ERISA), on how the shares
of Employer Securities credited to such
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Participant's Employer Securities Account and, separately, a proportionate share
(based on the amount of any shares of Employer Securities credited to his
Employer Securities Account) of any Non-Directed Shares and Unallocated Shares
held by the Trustee (including fractional shares to 1/1000th of a share) are to
be voted by the Trustee. The Employer shall cooperate with the Trustee to insure
that Participants receive the requisite information in a timely manner. The
materials furnished to the Participants shall include a notice from the Trustee
explaining each Participant's right to instruct the Trustee with respect to the
voting of shares of Employer Securities credited to his Employer Securities
Account, and, separately, with respect to Non-Directed Shares and Unallocated
Shares. Upon timely receipt of such instructions, the Trustee (after combining
votes of fractional shares to give effect to the greatest extent of
Participants' instructions) shall vote the shares as instructed.
(b) With respect to all corporate matters submitted to shareholders,
each Participant who has shares credited to his Employer Securities Account,
acting as a named fiduciary (within the meaning of Section 402 of ERISA), shall
be entitled to direct the voting of shares (including fractional shares to
1/1000th of a share) of Employer Securities credited to his Employer Securities
Account. With respect to shares of Employer Securities credited to the Employer
Securities Account of a deceased Participant, such Participant's Beneficiary
shall be entitled to direct the voting with respect to such shares as if such
Beneficiary were the Participant.
(c) Each Participant who has shares of Employer Securities credited to
his Employer Securities Account and who is entitled to vote on any matter
presented for a vote by the shareholders, as a named fiduciary (within the
meaning of Section 402 of ERISA), shall be entitled to separately direct the
Trustee with respect to the vote of a portion of the Non-Directed Shares and the
Unallocated Shares. Such direction shall apply to such number of votes equal to
the total number of votes attributable to Non-Directed Shares and Unallocated
Shares multiplied by a fraction, the numerator of which is the number of shares
of Employer Securities credited to the Participant's Employer Securities Account
and the denominator of which is the total number of shares credited to the
Employer Securities Accounts of all such Participants who have timely provided
directions to the Trustee with respect to Non-Directed Shares and Unallocated
Shares under this subparagraph (c). Fractional shares shall be rounded to the
nearest 1/1000th of a share.
8.16 CONFIDENTIALITY. Information relating to the purchase, holding,
and sale of Shares and the exercise of voting, tender and similar rights with
respect to shares of Employer
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Securities by Participants and Beneficiaries shall be maintained by the Trustee
in accordance with procedures established by the Trustee that are designed to
safeguard the confidentiality of such information, except to the extent
necessary to comply with federal laws or state laws not preempted by ERISA. It
shall be the responsibility of the Trustee to appoint an independent fiduciary
to carry out activities relating to any situation which the Trustee determines
involves a potential for undue influence upon Participants and Beneficiaries
with respect to the direct or indirect exercise of shareholder rights with
respect to shares of Employer Securities. For purposes of the preceding
sentence, a fiduciary is not independent if the fiduciary is affiliated with or
employed by the Employer or any affiliate of the Employer.
8.17 TRUSTEE'S INDEMNITY. The Employer shall hold harmless and shall
indemnify the Trustee for any and all losses, claims, damages, liabilities or
expenses whatsoever (including, but not limited to attorneys' fees) resulting
from the Trustee's performance of its duties under this Agreement; provided,
however, that the Trustee shall not be entitled to be so indemnified to the
extent it is determined by a final adjudication by a court of competent
jurisdiction that the Trustee has breached its fiduciary duty under ERISA. The
Trustee shall be entitled to collect on the indemnity provided by this Section
8.17 only from the Employer, and shall not be entitled to any direct or indirect
indemnity payment from assets of the Trust Fund.
* * * * * * * * * * * * * * *
ARTICLE IX
EMPLOYER ADMINISTRATIVE PROVISIONS
9.01 INFORMATION TO COMMITTEE. The Employer shall supply current
information to the Plan Administrative Committee as to the name, date of birth,
date of employment, annual compensation, leaves of absence, service and date of
termination of employment of each Employee who is, or who shall be eligible to
become, a Participant under the Plan, together with any other information which
the Plan Administrative Committee considers necessary. The Employer's records as
to the current information the Employer furnishes to the Plan Administrative
Committee are conclusive as to all persons.
9.02 INDEMNIFICATION OF CERTAIN FIDUCIARIES. The Employer indemnifies
and saves harmless the Plan Administrative Committee and each member thereof,
from and against any and all loss resulting from liability to which they may be
subject by reason of any act or conduct (except willful misconduct or gross
negligence) in their official capacities in the administration of
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this Plan and Trust, including all expenses reasonably incurred in their
defense.
9.03 AMENDMENT TO VESTING SCHEDULE. Though the Company reserves the
right to amend the vesting schedule at any time, the amended vesting schedule
shall not apply to reduce the Nonforfeitable percentage of any Participant's
Accrued Benefit derived from Employer contributions (determined as of the later
of the date the Company adopts the amendment, or the date the amendment becomes
effective) to a percentage less than the Nonforfeitable percentage computed
under the Plan without regard to the amendment. An amended vesting schedule
shall apply to a Participant only if the Participant receives credit for at
least one Hour of Service after the new schedule becomes effective.
If the Company makes a permissible amendment to the vesting schedule,
each Participant having at least 3 years of Continuous Service may elect to have
the percentage of his Nonforfeitable Accrued Benefit computed under the Plan
without regard to the amendment. The Participant must file his election with the
Plan Administrative Committee within 60 days of the latest of (a) the Company's
adoption of the amendment; (b) the effective date of the amendment; or (c) his
receipt of a copy of the amendment. The Plan Administrative Committee, as soon
as practicable, must forward a true copy of any amendment to the vesting
schedule to each affected Participant, together with an explanation of the
effect of the amendment, the appropriate form upon which the Participant may
make an election to remain under the vesting schedule provided under the Plan
prior to the amendment and notice of the time within which the Participant must
make an election to remain under the prior vesting schedule. The election
described in this Section 9.03 does not apply to a Participant if the amended
vesting schedule provides for vesting at least as rapid at all times as the
vesting schedule in effect prior to the amendment. For purposes of this Section
9.03, an amendment to the vesting schedule includes any Plan amendment which
directly or indirectly affects the computation of the Nonforfeitable percentage
of a Participant's rights to his Employer derived Accrued Benefit.
* * * * * * * * * * * * * * *
ARTICLE X
PARTICIPANT ADMINISTRATIVE PROVISIONS
10.01 BENEFICIARY DESIGNATION. Each unmarried Participant and each
married Participant with a spouse who so consents (as hereinafter provided) may
from time to time designate, in writing, any person or persons, contingently or
successively, to whom the Trustee shall pay his Nonforfeitable Accrued Benefit
in
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the event of his death. The Plan Administrative Committee shall prescribe the
form for the written designation of Beneficiary and upon the Participant's
filing the form with the Plan Administrative Committee, the form effectively
revokes all designations filed prior to that date by the same Participant;
provided however that a married Participant's cancellation of any Beneficiary
designation shall be interpreted as a redesignation of such married
Participant's spouse as the Participant's Beneficiary, unless the Participant
and the Participant's spouse subsequently designate another Beneficiary to
receive the Participant's Nonforfeitable Accrued Benefit in the event of such
Participant's death.
Anything contained in the Plan to the contrary notwithstanding, the
spouse of a married Participant automatically shall be such married
Participant's Beneficiary and shall be entitled to receive the married
Participant's Nonforfeitable Accrued Benefit if such married Participant should
die before receipt of his Nonforfeitable Accrued Benefit hereunder. No other
Beneficiary designation filed by a married Participant shall be effective unless
such married Participant's spouse consents to the designation of another
Beneficiary in writing, and such consent acknowledges the effect of the spouse's
decision to allow the Participant to name another Beneficiary (other then the
spouse) to receive the Participant's Nonforfeitable Accrued Benefit in the event
of such Participant's death. Such consent may allow the Participant to change
the designated Beneficiary without further consent of the spouse and may be
irrevocable. The spouse's written consent must be witnessed by a notary public.
A married Participant, with or without spousal consent, may at any time
before his death revoke any previous Beneficiary designation of a non-spouse
Beneficiary, thereby effectively redesignating his spouse as his Beneficiary.
Notwithstanding the above spousal consent requirement, if a Participant
establishes to the satisfaction of the Plan Administrative Committee, that a
written consent cannot be obtained because there is no spouse or because such
spouse cannot be located, a Beneficiary designation filed by such Participant
shall be deemed effective under the terms of this Section 10.01.
10.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant
fails to name a Beneficiary in accordance with Section 10.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee shall pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Article VII
in the following order of priority to:
(a) The Participant's surviving spouse;
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(b) The Participant's surviving children, including adopted
children, in equal shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior
to distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee shall pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise. The Plan Administrative Committee shall direct the Trustee as to the
method and to whom the Trustee shall make payment under this Section 10.02.
10.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary
of a deceased Participant shall furnish to the Plan Administrative Committee
such evidence, data or information as the Plan Administrative Committee
considers necessary or desirable for the purpose of administering the Plan. The
provisions of this Plan are effective for the benefit of each Participant upon
the condition precedent that each Participant shall furnish promptly full, true
and complete evidence, data and information when requested by the Plan
Administrative Committee, provided the Plan Administrative Committee advises
each Participant of the effect of his failure to comply with its request.
10.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of
a deceased Participant shall file with the Plan Administrative Committee from
time to time, in writing, his post office address and any change of post office
address. Any communication, statement or notice addressed to a Participant, or
Beneficiary, at his last post office address filed with the Plan Administrative
Committee, or as shown on the records of the Employer, binds the Participant, or
Beneficiary, for all purposes of this Plan.
10.05 ASSIGNMENT OR ALIENATION. Subject to Code 414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee shall not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
10.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the
time prescribed by ERISA and the applicable
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regulations, must furnish all Participants and Beneficiaries a summary
description of any material amendment to the Plan or notice of discontinuance of
the Plan and all other information required by ERISA to be furnished without
charge.
10.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator
shall maintain all of the items listed in this Section 10.07 in his office, or
in such other place or places as he may designate from time to time in order to
comply with the regulations issued under ERISA, for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary the Plan Administrator shall furnish him with a copy of any item
listed in this Section 10.07. The Plan Administrator may make a reasonable
charge to the requesting person for the copy so furnished.
10.08 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Plan Administrative
Committee must render a decision on the claim within 90 days of the Claimant's
written claim for benefits. The Plan Administrative Committee must provide
adequate notice in writing to the Claimant whose claim for benefits under the
Plan the Plan Administrative Committee has denied. The Plan Administrative
Committee notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which
the Plan Administrative Committee based its denial;
(c) A description of any additional material and information
needed for the Claimant to perfect his claim and an explanation of why the
material or information is needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Plan Administrative Committee
within 120 days after receipt of the Plan Administrator's notice of denial
of benefits. The Plan Administrator's notice must further advise the
Claimant that his failure to appeal the action to the Plan Administrative
Committee in writing within the 120 day period shall render the Plan
Administrative Committee's determination final, binding and conclusive.
If the Claimant should appeal to the Plan Administrative Committee, he,
or his duly authorized representative, may submit,
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in writing, whatever issues and comments he, or his duly authorized
representative, feels are pertinent. The Claimant, or his duly authorized
representative, may review pertinent Plan documents. The Plan Administrative
Committee shall re-examine all facts related to the appeal and make a final
determination as to whether the denial of benefits is justified under the
circumstances. The Plan Administrative Committee must advise the Claimant of its
decision within 60 days of the Claimant's written request for review, unless
special circumstances (such as a hearing) would make the rendering of a decision
within the 60-day limit unfeasible, but in no event may the Plan Administrative
Committee render a decision respecting a denial for a claim for benefits later
than 120 days after its receipt of a request for review.
The Plan Administrative Committee's notice of denial of benefits must
identify the name of each member of the Plan Administrative Committee and the
name and address of the Plan Administrative Committee member to whom the
Claimant may forward his appeal.
10.09 DIVERSIFICATION. Each Qualified Participant may direct the Trustee
as to a diversification distribution of 25% of the value of the Participant's
Eligible Accrued Benefit within 90 days after the Accounting Date of each Plan
Year (to the extent a direction amount exceeds the amount to which a prior
direction under this Section 10.09 applies) during the Participant's Qualified
Election Period. For the last Plan Year in the Participant's Qualified Election
Period, the Trustee shall substitute "50%" for "25%" in the immediately
preceding sentence. The Qualified Participant must make his direction to the
Plan Administrative Committee in writing, and the direction may be effective no
later than 180 days after the close of the Plan Year to which the direction
applies. Upon receipt of such direction, the Plan Administrative Committee shall
direct the Trustee to make distribution to the Participant of the portion of his
Eligible Accrued Benefit covered by the election within 90 days after the last
day of the period during which the Qualified Participant may make the election.
The provisions of the Plan applicable to a distribution of Employer Securities,
including the put option requirements of Article XI, shall apply to this
distribution.
* * * * * * * * * * * * * * *
ARTICLE XI
PLAN ADMINISTRATIVE COMMITTEE
11.01 MEMBERS' COMPENSATION, EXPENSES. The Board of Directors of the
Company shall appoint a Plan Administrative Committee. The members of the Plan
Administrative Committee may or
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may not be Participants in the Plan and shall have the powers and duties
described in Section 11.04. In the absence of the appointment of a Plan
Administrative Committee, the Board of Directors of the Company shall assume the
powers, duties and responsibilities of the Plan Administrative Committee. The
members of the Plan Administrative Committee shall serve without compensation
for services as such, but the Employer shall pay all reasonable expenses of the
Plan Administrative Committee, except to the extent the Trust properly pays for
such expenses, pursuant to Article VIII.
11.02 TERM. Each member of the Plan Administrative Committee shall serve
until his or her death, incapacity, resignation or removal.
11.03 POWERS. In case of a vacancy in the membership of the Plan
Administrative Committee, the remaining members of the Plan Administrative
Committee may exercise any and all of the powers, authority, duties and
discretion conferred upon the Plan Administrative Committee pending the filling
of the vacancy.
11.04 GENERAL. In addition to those powers and duties set forth
elsewhere in the Plan, the Plan Administrative Committee shall have the
following powers and duties:
(a) To select a Secretary, who need not be a member of the Plan
Administrative Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit and
the Nonforfeitable percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for
the proper and efficient administration of the Plan provided the rules are
not inconsistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules
and regulations it adopts, including interpretation of the Plan documents
and documents related to the Plan's operation;
(e) To direct the Trustee as respects the identity of
Participants and Beneficiaries;
(f) To review and render decisions respecting a claim for (or
denial of a claim for) a benefit under the Plan;
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<PAGE> 67
(g) To furnish the Employer and the Trustee with information
which they require for purposes of the Plan
(h) To engage the service of agents whom it may deem advisable
to assist it with the performance of its duties;
(i) To prepare or to assist the Trustee with the preparation of
such direction statements, disclosure statements or other materials as may
be necessary or appropriate in connection with the exercise by Participants
of the voting direction rights described in Section 8.15 hereof; and
(j) To comply with the reporting and disclosure requirements of
ERISA as respects the Plan.
The Plan Administrative Committee shall exercise all of its powers,
duties and discretion under the Plan in a uniform and nondiscriminatory manner.
11.05 MANNER OF ACTION. The decision of a majority of the members of the
Plan Administrative Committee shall control. The Plan Administrative Committee
shall maintain appropriate records of its activities.
11.06 AUTHORIZED REPRESENTATIVE. The Plan Administrative Committee may
authorize any one of its members, or its Secretary, to sign on its behalf any
notices, directions, applications, certificates, consents, approvals, waivers,
letters or other documents. The Plan Administrative Committee must evidence this
authority by an instrument signed by all members and filed with the Trustee.
11.07 INTERESTED MEMBER. No member of the Plan Administrative Committee
may decide or determine any matter concerning the distribution, nature or method
of settlement of his own benefits under the Plan, except in exercising an
election available to that member in his capacity as a Participant.
* * * * * * * * * * * * * * *
ARTICLE XII
MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed,
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<PAGE> 68
made or presented by the proper party or parties. Both the Plan Administrative
Committee and the Trustee are fully protected in acting and relying upon any
evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee nor the
Plan Administrative Committee has any obligation or responsibility with respect
to any action required by the Plan to be taken by the Employer, any
Participant or eligible Employee, or for the failure of any of the above persons
to act or make any payment or contribution, or to otherwise provide any benefit
contemplated under this Plan. Furthermore, the Plan does not require the Trustee
or the Plan Administrative Committee to collect any contribution required under
the Plan, or to determine the correctness of the amount of any Employer
contribution. Neither the Trustee nor the Plan Administrative Committee need
inquire into or be responsible for any action or failure to act on the part of
the others, or on the part of any other person who has any responsibility
regarding the management, administration or operation of the Plan, whether by
the express terms of the Plan or by a separate agreement authorized by the Plan
or by the applicable provisions of ERISA. Any action required of a corporate
Employer must be by its Board of Directors or its designate.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Plan Administrative
Committee, the Plan Administrator and the Employer in no way guarantee the Trust
Fund from loss or depreciation. The Employer does not guarantee the payment of
any amount which may be or becomes due to any person from the Trust Fund. The
liability to make any payment from the Trust Fund at any time and all times is
limited to the then available assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice, unless the Code or Treasury regulations prescribe the notice
or ERISA specifically or impliedly prohibits such a waiver.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the Plan
Administrative Committee, the Plan Administrator and their successors.
12.06 WORD USAGE. Words used in the masculine also apply to the feminine
where applicable, and wherever the context of the Plan dictates, the plural
includes the singular and the singular includes the plural.
12.07 STATE LAW. To the extent not superseded by Federal law: Ohio law
shall determine all questions arising with
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respect to the provisions of the Plan, except that the law of the state of
incorporation of the issuer shall apply with respect to corporate matters
pertaining to Employer Securities.
12.08 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
respect to the establishment of the Trust, or any modification or amendment to
the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, or ERISA
* * * * * * * * * * * * * * *
ARTICLE XIII
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III and this
Article XIII, the Employer has no beneficial interest in any asset of the Trust
and no part of any asset in the Trust may ever revert to or be repaid to an
Employer, either directly or indirectly; nor, prior to the satisfaction of all
liabilities with respect to the Participants and their Beneficiaries under the
Plan, may any part of the corpus or income of the Trust Fund, or any asset of
the Trust, be (at any time) used for, or diverted to, purposes other than the
exclusive benefit of the Participants or their Beneficiaries. However, if the
Commissioner of Internal Revenue, upon the Employer's request for initial
approval of this Plan, determines that the Trust created under the Plan is not a
qualified trust exempt from Federal income tax, then (and only then) the
Trustee, upon written notice from the Employer, shall return the Employer's
contributions (and increment attributable to the contributions) to the Employer.
The Trustee must make the return of the Employer contribution under this Section
13.01 within one year of a final disposition of the Employer's request for
initial approval of the Plan. The Employer's Plan and Trust shall terminate upon
the Trustee's return of the Employer's contributions.
13.02 AMENDMENT BY COMPANY. The Company has the right at any time and
from time to time to amend this Agreement in any manner it deems necessary or
advisable. Except as permitted under Treasury regulations, the Code or ERISA,
however, including but not limited to Treas. Reg. Section l.401(a)-2(b) or Code
Section 4980(d)(2)(B), no amendment may authorize or permit any of the Trust
Fund (other than the part which is required to pay taxes and administration
expenses) to be used for or diverted to purposes other than for the
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<PAGE> 70
exclusive benefit of the Participants or their Beneficiaries or estates and no
amendment may cause or permit any portion of the Trust Fund to revert to or
become a property of the Employer. The Company also may not make any amendment
which affects the rights, duties or responsibilities of the Trustee, the Plan
Administrator or the Plan Administrative Committee without the written consent
of the affected Trustee, the Plan Administrator or the affected member of the
Plan Administrative Committee. The Company shall make all amendments in writing
executed by two officers of the Company authorized by the Company's Board of
Directors to adopt such amendment to the Plan. Each amendment shall state the
date to which it is either retroactively or prospectively effective. An
amendment (including the adoption of this Plan as a restatement of an existing
plan) may not decrease a Participant's Accrued Benefit, except to the extent
permitted under Code Section 412(c)(8), and may not reduce or eliminate Code
Section 411(d)(6) protected benefits determined immediately prior to the
adoption date (or, if later, the effective date) of the amendment. An amendment
reduces or eliminates Code Section 411(d)(6) protected benefits if the amendment
has the effect of either (1) eliminating or reducing an early retirement benefit
or a retirement-type subsidy (as defined in Treasury regulations), or (2)
except as provided by Treasury regulations, eliminating an optional form of
benefit.
13.03 DISCONTINUANCE. The Board of Directors of the Company has the
right, at any time, to suspend or discontinue its contributions under the Plan,
and to terminate, at any time, this Plan and the Trust created under this
Agreement. The Plan shall terminate upon the date determined by action of the
Board of Directors of the Company.
13.04 FULL VESTING ON TERMINATION. Upon either full or partial
termination of the Plan, or, if applicable, upon complete discontinuance of
contributions to the Plan, an affected Participant's right to his Accrued
Benefit is 100% Nonforfeitable, irrespective of the Nonforfeitable percentage
which otherwise would apply under Article V.
13.05 MERGER/DIRECT TRANSFER. The Plan shall not be merged or
consolidated with another plan, or transfer assets or liabilities to another
plan, unless immediately after the merger, consolidation or transfer, the
surviving Plan provides each Participant a benefit equal to or greater than the
benefit each Participant would have received had the Plan terminated immediately
before the merger or consolidation or transfer.
13.06 TERMINATION. Notwithstanding any other provisions of this Plan to
the contrary, upon termination of the Plan pursuant to Section 13.03, the
following provisions shall apply:
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<PAGE> 71
(A) The Trustee shall pay the then outstanding balance of any Exempt
Loan;
(B) Thereafter, the Trustee shall allocate any remaining assets in the
suspense account in the manner described in Section 6.03 hereof;
(C) Terminated Participants who have previously receive cash-out
distributions from the Plan pursuant to Section 5.04 hereof shall forfeit the
right to repay such amounts in the event of their re-employment and to have the
Plan restore their Accrued Benefit attributable to Employer contributions in
accordance with Section 5.04;
(D) The provisions of Sections 10.09 and 8.03(B) shall become
inoperative;
(E) The distribution provisions of Article VII shall remain operative,
except that each Participant or the Beneficiary, in addition to the distribution
events permitted under Article VII, may elect to have the Trustee commence
distribution or his Nonforfeitable Accrued Benefit as soon as administratively
practicable after the Plan terminates;
(F) If a Participant does not elect to receive a distribution pursuant
to Paragraph (E) of this Section 13.06, then the Trustee, at the direction of
the Company or any successor to the Company, shall maintain the Participant's
Account in this Plan (as a frozen plan) or shall transfer such Participant's
Account to another qualified retirement plan maintained by the Company or any
successor to the Company;
(G) If, at the time of termination of the Plan, there is an Excess
Amount (as such term is defined in Section 3.07(B) hereof), then the Trustee
shall be authorized and empowered to transfer to a "qualified replacement plan"
(as such term is defined in Section 4980(d)(2) of the Code) such portion of the
Excess Assets as may be directed by the Company.
The Trust shall continue until the Trustee in accordance with the
direction of the Plan Administrative Committee has distributed or transferred
all of the benefits under the Plan. On each Accounting Date, the Trustee shall
credit any part of a Participant's Accrued Benefit retained in the Trust with
its proportionate share of the Trust's income, expenses, gains and losses, both
realized and unrealized. A resolution or amendment to suspend or discontinue
contributions but otherwise to continue
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<PAGE> 72
maintenance of this Plan is not a termination for purposes of this Section
13.06.
IN WITNESS WHEREOF, the Company and the Trustee have executed this
Plan and Trust Agreement this 17th day of May, 1994.
ARGO-TECH CORPORATION
By: /s/ Michael Lipscomb
------------------------------------
Title: President
------------------------------------
And: /s/ Paul R. Keen
-----------------------------------
Title: Vice President & Secretary
------------------------------------
"COMPANY"
SOCIETY NATIONAL BANK
By: /s/ Illegible
------------------------------------
Title: Vice President
------------------------------
And: /s/ Illegible
-----------------------------------
Title: Vice President
-----------------------------------
"TRUSTEE"
<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT
TO
ARGO-TECH CORPORATION
EMPLOYEE STOCK
OWNERSHIP PLAN
AND
TRUST AGREEMENT
WHEREAS, Argo-Tech Corporation established the Argo-Tech
Corporation Employee Stock Ownership Plan (the "Plan") effective as of May 17,
1994 under the Argo-Tech Corporation Employee Stock Ownership Plan and Trust
Agreement (the "Trust Agreement"); and
WHEREAS, Argo-Tech Corporation deems it desirable further to
amend the Plan;
NOW, THEREFORE, effective as of the Effective Date of the Plan,
the Trust Agreement is amended in the respects hereinafter set forth.
1. Section 1.56 of the Trust Agreement is amended to provide as
follows:
1.56 "PLAN ENTRY DATE" means the date on which an individual
becomes an Employee, other than an Excluded Employee.
2. Section 2.01 of the Trust Agreement is amended to Provide as
follows:
2.01 ELIGIBILITY. Each Employee, other than an Excluded
Employee, becomes a Participant in the Plan on the next Entry Date.
If a Participant has not incurred a Separation from Service
but becomes an Excluded Employee, then during the period such a
Participant is an Excluded Employee the Plan shall limit that
Participant's sharing in the allocation of Employer contributions and
Participant forfeitures (and allocations under Section 8.03(B)), if
any, under the
<PAGE> 2
Plan by disregarding his Compensation for services rendered in his
capacity as an Excluded Employee. However, during such period of
exclusion, the Participant, without regard to employment
classification, shall continue to receive credit for vesting under
Article V for each included month of Continuous Service and the
Participant's Account shall continue to share fully in Trust Fund
allocations under Section 6.03.
If an Excluded Employee who is not a Participant becomes
eligible to participate in the Plan by reason of a change in employment
classification, he shall participate in the Plan immediately if he has
satisfied the eligibility conditions of Section 2.01 and would have
been a Participant had he not been an Excluded Employee during his
period of Continuous Service. Furthermore, the Plan shall take into
account all of the Participant's included Continuous Service with the
Employer as an Excluded Employee for purposes of vesting credit under
Article V.
* * *
IN WITNESS WHEREOF, the Company has executed this First Amendment
this 26th day of October, 1994.
ARGO-TECH CORPORATION
By: /s/ Paul R. Keen
-----------------------------
Title: Vice President,
General Counsel Secretary
And: /s/ J. M. Cunningham
----------------------------
Title: Vice President Human Resources
<PAGE> 1
Exhibit 10.9
SECOND AMENDMENT
TO
ARGO-TECH CORPORATION
EMPLOYEE STOCK
OWNERSHIP PLAN
AND
TRUST AGREEMENT
WHEREAS, Argo-Tech Corporation established the Argo-Tech
Corporation Employee Stock Ownership Plan (the "Plan") effective as of May 17,
1994 under the Argo-Tech Corporation Employee Stock Ownership Plan and Trust
Agreement (the "Trust Agreement"); and
WHEREAS, Argo-Tech Corporation deems it desirable further to
amend the Plan;
NOW, THEREFORE, effective for Plan Years beginning on and
after November 1, 1994, Section 3.06(B) of the Trust Agreement is amended to
provide as follows:
(B) Employment Requirement. A Participant for a particular
Plan Year shall share in the allocation of Employer contributions and
Participant forfeitures, if any, for that Plan Year only if he is actively
employed by the Employer as an Employee (other than an Excluded Employee) on the
last day of such Plan Year or his employment terminates during such Plan Year as
a result of his death, or his Disability, or after he has attained age 55 with
10 or more years of Continuous Service.
* * *
IN WITNESS WHEREOF, the Company has executed this Second
Amendment this 9th day of May, 1996.
ARGO-TECH CORPORATION
By /s/ Paul R. Keen
--------------------------------
Title: Vice President
And /s/ Frances S. St. Clair
--------------------------------
Title: Vice President
<PAGE> 1
Exhibit 10.10
THIRD AMENDMENT
TO
ARGO-TECH CORPORATION
EMPLOYEE STOCK
OWNERSHIP PLAN
AND
TRUST AGREEMENT
WHEREAS, Argo-Tech Corporation (HBP), formerly known as
Argo-Tech Corporation, established the Argo-Tech Corporation Employee Stock
Ownership Plan (the "Plan") effective as of May 17, 1994 under the Argo-Tech
Corporation Employee Stock Ownership Plan and Trust Agreement between Argo-Tech
Corporation (HBP), formerly known as Argo-Tech Corporation, and Society National
Bank (the "Trust Agreement"); and
WHEREAS, Key Trust Company of Ohio, N.A. (the "Trustee") is
the successor of Society National Bank; and
WHEREAS, Argo-Tech Corporation (HBP) deems it desirable
further to amend the Plan and Trust Agreement, and the Trustee desires to
consent to such amendment;
NOW, THEREFORE, effective as of the beginning of business on
the Effective Date under the Credit Agreement dated as of July, 1997, among
Argo-Tech Corporation, as Borrower, AT Holdings Corporation, the Lenders Party
Thereto, and The Chase Manhattan Bank, as Administrative Agent, the Trust
Agreement is amended in the respects hereinafter set forth.
1. For all purposes of the Trust Agreement, the term "Company"
means for all periods commencing on and after the beginning of business on the
Effective Date under
<PAGE> 2
the Credit Agreement dated as of July, 1997, among Argo-Tech Corporation, as
Borrower, AT Holdings Corporation, the Lenders Party Thereto, and The Chase
Manhattan Bank, as Administrative Agent, Argo-Tech Corporation, a Delaware
corporation, its corporate successors and the surviving corporation resulting
from any merger of Argo-Tech Corporation with any corporation or corporations;
and means for all periods prior to the beginning of business on the Effective
Date under the Credit Agreement dated as of July, 1997, among Argo-Tech
Corporation, as Borrower, AT Holdings Corporation, the Lenders Party Thereto,
and The Chase Manhattan Bank, as Administrative Agent, Argo-Tech Corporation
(HBP), a Delaware corporation, formerly known as Argo-Tech Corporation.
2. Section 1.29 of the Trust Agreement is amended to provide
as follows:
1.29 "EMPLOYER" means the Company or any other employer who
adopts this Plan as provided in Article XIV. If more than one
Employer adopts the Plan, then for purposes of determining
Continuous Service and Hours of Service, the Plan shall treat
all Employers as a single Employer. The Plan shall make all
allocations without regard to which Employer employs the
Participant. A Participant's Compensation includes
Compensation from all Employers, irrespective of which
Employers are contributing to the Plan.
3. Section 1.53 of the Trust Agreement is amended to provide
as follows:
1.53 "PLAN" means the stock bonus employee stock ownership
plan established by the Company in the form of this Agreement
and any amendments hereto, designated as an employee
ownership plan within the meaning of Code Section 4975(e)(7)
and designated as the Argo-Tech Employee Stock Ownership Plan
for periods commencing on and after the beginning of business
on the Effective Date under the Credit Agreement dated as of
July, 1997, among Argo-Tech
-2-
<PAGE> 3
Corporation, as Borrower, AT Holdings Corporation, the Lenders Party Thereto,
and The Chase Manhattan Bank, as Administrative Agent, and designated as the
Argo-Tech Corporation Employee Stock Ownership Plan for periods commencing
before the beginning of business on the Effective Date under the Credit
Agreement dated as of July, 1997, among Argo-Tech Corporation, as Borrower, AT
Holdings Corporation, the Lenders Party Thereto, and The Chase Manhattan Bank,
as Administrative Agent.
4. Section 1.66 of the Trust Agreement is amended to provide
as follows:
1.66 "TRUST" means the separate Trust created under
the Plan, designated as the Argo-Tech Employee Stock Ownership Trust
for periods commencing on and after the beginning of business on the
Effective Date under the Credit Agreement dated as of July, 1997, among
Argo-Tech Corporation, as Borrower, AT Holdings Corporation, the
Lenders Party Thereto, and The Chase Manhattan Bank, as Administrative
Agent, and designated as the Argo-Tech Corporation Employee Stock
Ownership Trust for periods commencing before the beginning of business
on the Effective Date under the Credit Agreement dated as of July,
1997, among Argo-Tech Corporation, as Borrower, AT Holdings
Corporation, the Lenders Party Thereto, and The Chase Manhattan Bank,
as Administrative Agent.
5. A new Article XIV is added to the Trust Agreement to
provide as follows:
ARTICLE XIV
ADOPTION BY RELATED EMPLOYERS
14.01 ADOPTION. Any Related Employer that is
not an Employer may, with the written consent of the Board of
Directors of the Company, adopt the Plan and become an
Employer hereunder by causing an appropriate written
instrument evidencing such adoption to be executed pursuant to
the authority of its Board of Directors and filed with the
Company and the Trustee.
14.02 WITHDRAWAL OF AN EMPLOYER. An Employer (other than the
Company) may, with the Company's consent, by action of its Board of Directors,
withdraw from the Plan, such withdrawal to be effective upon notice in writing
to the Committee and the Trustee (the effective date of such withdrawal being
hereinafter referred to as the "withdrawal date"), and shall thereupon cease to
be an Employer for all
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<PAGE> 4
purposes of the Plan. An Employer shall be deemed automatically to withdraw from
the Plan in the event it ceases to be a Related Employer. The withdrawal of an
Employer shall not be treated as a termination of the Plan. The merger,
consolidation, or liquidation of the Company or any Employer with or into the
Company, any other Employer, or Related Employer shall not constitute a
withdrawal from the Plan of such Employer.
* * *
IN WITNESS WHEREOF, Argo-Tech Corporation (HBP), formerly
known as Argo-Tech Corporation, has executed this Third Amendment this
18th day of July, 1997.
ARGO-TECH CORPORATION (HBP)
By /s/ Paul R. Keen
------------------------------------
Title: Vice President
And /s/ Frances S. St. Clair
------------------------------------
Title: Vice President
IN WITNESS WHEREOF, Key Trust Company of Ohio, N.A., as the
Trustee, hereby consents to the foregoing amendment.
EXECUTED this 18th day of July, 1997.
KEY TRUST COMPANY OF OHIO, N.A.
By /s/ Richard Lutts
-------------------------------------
Title: Vice President
And /s/ [Illegible]
------------------------------------
Title: Vice President
IN WITNESS WHEREOF, pursuant to authorization of its Board of
Directors, Argo-Tech Corporation, a Delaware corporation, hereby assumes,
effective as of the beginning
<PAGE> 5
of business on the Effective Date under the Credit Agreement dated as of July,
1997, among Argo-Tech Corporation, as Borrower, AT Holdings Corporation, the
Lenders Party Thereto, and The Chase Manhattan Bank, as Administrative Agent,
the status of the "Company" under the Argo-Tech Employee Stock Ownership Plan
and Trust Agreement, formerly known as the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, as provided hereinabove.
EXECUTED this 18th day of July 1997.
ARGO-TECH CORPORATION
By /s/ Paul R. Keen
------------------------------
Title: Vice President
And /s/ Frances S. St. Clair
------------------------------
Title: Vice President
-4-
<PAGE> 1
Exhibit 10.11
ARGO-TECH CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
EXCESS BENEFIT PLAN
ARTICLE I
---------
PREAMBLE
--------
SECTION 1.01. ESTABLISHMENT. The Argo-Tech Corporation Employee Stock
Ownership Plan Excess Benefit Plan, is hereby established effective as of
May 17, 1994, but with respect only to employees whose employment with the
Company and all Related Employees terminates after May 17, 1994.
SECTION 1.02. PURPOSE. The purpose of the Plan is solely to provide
benefits in excess of the limitations of Section 415 and Section 401(a)(17) of
the Internal Revenue Code of 1986, as amended, or corresponding provisions of
any subsequent federal tax laws (the "Code"), to a select group of management or
highly compensated employees.
SECTION 1.03. FUNDING. The Plan is unfunded, and the rights, if any, of
any person to any benefits hereunder shall be the same as any unsecured general
creditor of the Company. The benefits payable under the Plan shall be paid
solely by the Company from its general assets.
ARTICLE II
----------
DEFINITIONS AND INTERPRETATION
------------------------------
SECTION 2.01. DEFINITIONS. When the initial letter of a word or phrase
is capitalized herein, such word or phrase shall have the meaning hereinafter
set forth:
(a) "Beneficiary" means the beneficiary, if any, designated
by a Participant in accordance with Section 5.06.
(b) "Board" means the Board of Directors of the Company.
(c) "Company" means Argo-Tech Corporation, a Delaware corporation,
its successors and survivors resulting from any merger or
acquisition of Argo-Tech Corporation with or by any other
corporation or other entity or enterprise.
-1-
<PAGE> 2
(d) "ESOP" means the "Argo-Tech Corporation Employee Stock
Ownership Plan" as amended from time to time.
(e) "Excess Benefit Account" means the book reserve established
for each Participant to which shall be credited his benefit,
if any, under Article III of the Plan.
(f) "Participant" means a participant under the ESOP (i) who is
designated by the Board as being eligible to participate in
the Plan, (ii) who agrees to be bound by the provisions of the
Plan on a form provided by the Company and (iii) who is or may
be, or whose Beneficiary is or may be, entitled to benefits
under the Plan.
(g) "Plan" means the "Argo-Tech Corporation Excess Benefit
Plan" as set forth herein and as it may be amended from
time to time hereafter.
When the initial letter of a word or phrase is capitalized herein and the word
or phrase is not defined above, in this Section 2.01, the word or phrase shall
have the meaning provided in the ESOP.
SECTION 2.02. CONSTRUCTION AND GOVERNING LAW.
------------- -------------------------------
(a) The Plan shall be construed, enforced, and administered and
the validity thereof determined in accordance with the laws of
the State of Delaware, to the extent that applicable federal
law does not apply to the Plan.
(b) Words used herein in the masculine gender shall be construed
to include the feminine gender where appropriate and the words
used herein in the singular or plural shall be construed as
being in the plural or singular where appropriate.
ARTICLE III
-----------
BENEFITS
--------
SECTION 3.01. ALLOCATIONS. If, for any Plan Year, the allocation of
Employer Securities, contributions, or forfeitures made to a Participant's
Account under the ESOP is less than the allocation that would have been made to
the Participant's Account but for the application of the limitations under
Section 401(a)(17) of the Code, the Participant's Excess Benefit Account shall
be credited with the amount(s) that would have been credited to the
Participant's Account if the limitations of Section 401(a)(17) of the Code did
not exist, and determined without regard to Section 415 of the Code. Credits to
the Participant's Excess
-2-
<PAGE> 3
Benefit Account shall occur as of the date(s) the allocation(s) of Employer
Securities, contributions and forfeitures to the Participant's Account occur
under the ESOP.
SECTION 3.02. GAIN (LOSS) ADJUSTMENTS. The balance of a Participant's
Excess Benefit Account shall be credited with gain or other earnings (or debited
with loss) equal to the gain or other earnings (or loss) the balance would have
experienced had it been invested in the Trust Fund of the ESOP at the same
time(s) and in the same manner as an Account under the ESOP.
SECTION 3.03. VESTING. A Participant's Excess Benefit Account shall
vest at the same time(s) in the same manner, and to the same extent as the
Participant's Account under the ESOP.
SECTION 3.04. PAYMENT OF EXCESS BENEFIT ACCOUNT. The Excess Benefit
Account of a Participant shall, to the extent vested, be paid to the
Participant, or to the Beneficiary of such Participant in the event of his death
before receipt of all benefits to which he is entitled hereunder in respect of
his Excess Benefit Account, by the Company from its general assets, as follows:
(a) To the extent that the Participant's Excess Benefit
Account consists of credits in respect of cash and/or
property, other than Employer Securities which if
distributed from the ESOP would be subject to
Section 7.05 of the ESOP, the value of such portion of
the Participant's Excess Benefit Account shall be paid in
a single sum payment as of and as soon as practicable
after the first date the Participant's Account (under the
ESOP) becomes distributable, determined without regard to
any requirement of consent to distribution from the ESOP.
(b) To the extent that the Participant's Excess Benefit
Account consists of credits in respect of Employer
Securities which if distributed from the ESOP would be
subject to Section 7.05 of the ESOP, the value of such
portion of the Participant's Excess Benefit Account shall
be paid at the same time, in the same manner, and in the
same amount as if such credits were shares of Employer
Securities credited to his Account under the ESOP and
distributed from the ESOP on the first date a
distribution of such Employer Securities from the
Participant's Account (under the ESOP) occurs; provided,
however, that any exercise of the "put option" under
Section 7.05 (and related provisions) of the ESOP with
respect to any Employer Securities distributed from the
ESOP with respect to the Participant's Account (under the
ESOP) shall be deemed to be an exercise of the put option
as to all such credits.
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<PAGE> 4
ARTICLE IV
----------
ADMINISTRATION
--------------
SECTION 4.01. PLAN ADMINISTRATOR. The Plan Administrator shall be the
Company. The Plan Administrator may retain auditors, accountants, legal counsel
and actuarial counsel selected by it. Any person authorized to act on behalf of
the Plan Administrator may act in any such capacity, and any such auditors,
accountants, legal counsel and actuarial counsel may be persons acting in a
similar capacity for the Company or one or more Related Employers and may be
employees of the Company or one or more Related Employers. The opinion of any
such auditor, accountant, legal counsel or actuarial counsel shall be full and
complete authority and protection in respect to any action taken, suffered or
omitted by any person authorized to act on behalf of the Plan Administrator in
good faith and in accordance with such opinion. Notwithstanding the foregoing,
no person shall vote or take action on a matter solely with respect to his own
Plan benefit.
SECTION 4.02. EXPENSES. The Company shall pay all expenses incurred in
the administration of the Plan.
SECTION 4.03. RECORDS. The Company shall keep such records as shall be
proper, necessary or desirable to effectuate the purposes of the Plan,
including, without in any manner limiting the generality of the foregoing,
records and information with respect to the benefits granted to Participants,
dates of employment and determinations made hereunder.
SECTION 4.04. LEGAL INCOMPETENCY. The Plan Administrator may, in its
discretion, make or cause to be made payment either directly to an incompetent
or disabled person, or to the guardian of such person, or to the person having
custody of such person, without further liability on the part of the Company,
any Related Employer, the Plan Administrator, or any person, for the amounts of
such payment to the person on whose account such payment is made.
SECTION 4.05. CLAIMS PROCEDURE. The claims procedures provisions of the
ESOP are incorporated herein by reference and shall apply to benefits under
Article III of the Plan.
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<PAGE> 5
ARTICLE V
---------
MISCELLANEOUS
-------------
SECTION 5.01. AMENDMENTS. The Board from time to time may amend,
suspend, or terminate, in whole or in part, any or all of the provisions of the
Plan, to the extent that the Company similarly amends, suspends, or terminates
the ESOP; provided, however, that no such action shall affect the rights of any
Participant, or the operation of the Plan with respect to any benefits of a
Participant, which have accrued prior to such action.
SECTION 5.02. NO EMPLOYMENT RIGHTS. Neither the establishment or
maintenance of the Plan nor the status of an employee as a Participant shall
give any Participant any right to be retained in the employ of any person; and
no Participant and no person claiming under or through such Participant shall
have any right or interest in any benefit under the Plan unless and until the
terms, conditions and provisions of the Plan affecting such Participant shall
have been satisfied.
SECTION 5.03. NONALIENATION. The right of any Participant or any person
claiming under or through such Participant to any benefit or any payment
hereunder shall not be subject in any manner to attachment or other legal
process for the debts of such Participant or person; and the same shall not be
subject to anticipation, alienation, sale, transfer, assignment or encumbrance.
SECTION 5.04 LIMITATION OF LIABILITY. No member of the Board and no
director, officer or employee of any Employer or Related Employer shall be
liable to any person for any action taken or omitted in connection with the
Plan, nor shall any Employer or Related Employer be liable to any person for any
such action or omission. No person shall, because of the Plan, acquire any right
to an accounting or to examine the books or the affairs of any Employer or
Related Employer. Nothing in the Plan shall be construed to create any trust or
fiduciary relationship between Employer or Related Employer and any Participant
or any other person.
SECTION 5.05. DELEGATION BY BOARD. The Board may from time to time
designate an individual or committee to carry out any duties or responsibilities
of the Board hereunder.
SECTION 5.06. DESIGNATION OF BENEFICIARY. Each Participant may
designate a beneficiary or beneficiaries to receive any and all payments to
which he may be entitled under Article III of the Plan upon his death. Any such
designation shall be on the form therefor prescribed by the Plan Administrator.
If a Participant fails to
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<PAGE> 6
designate a beneficiary, any benefits remaining unpaid at his death shall be
paid to his surviving spouse and if there is no surviving spouse to the executor
or other personal representative of the Participant to be distributed in
accordance with the Participant's will or applicable law.
SECTION 5.07. REEMPLOYMENT OF A PARTICIPANT. In the event of the
reemployment as an employee in any capacity by the Employer or a Related
Employer of a Participant whose employment covered under the Plan has
terminated, payment of his benefits under the Plan shall be suspended during
his period of reemployment to the same extent (if any) as payment of his
benefits under the ESOP are suspended. The Participant shall accrue
additional benefits under the Plan with respect to his reemployment period only
if he again becomes a Participant as provided in Section 2.01.
IN WITNESS WHEREOF, ARGO-TECH CORPORATION has caused this Plan to be
executed this 17th day of May, 1994.
ARGO-TECH CORPORATION
BY /s/ Michael S. Lipscomb
----------------------------------------
TITLE: President & CEO
------------------------------------
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<PAGE> 1
Exhibit 10.12
AT HOLDINGS CORPORATION
1994 STOCKHOLDERS' AGREEMENT
DATED MAY 17, 1994
================================================================================
This Stockholders' Agreement amends and
restates the Original Stockholders'
Agreement (as hereinafter defined) dated
as of December 24, 1990
================================================================================
<PAGE> 2
AT HOLDINGS CORPORATION
1994 STOCKHOLDERS' AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
Section 1.01. "Acceptable Company Offering"...................3
Section 1.02. "Acceptable Demand Offering" .................. 3
Section 1.03. [Intentionally omitted.] ...................... 4
Section 1.04. "Act" ......................................... 4
Section 1.05. "Aerotech" .................................... 4
Section 1.06. [Intentionally omitted.] ...................... 4
Section 1.07. [Intentionally omitted.] ...................... 4
Section 1.08. "Affiliate" ................................... 4
Section 1.09. "Agreement" ................................... 4
Section 1.10. "Appraiser" ................................... 4
Section 1.11. "Argo-Tech" ................................... 4
Section 1.12. "Argo-Tech Board" ............................. 4
Section 1.12.1 "Argo-Tech ESOP" .............................. 4
Section 1.13. (Intentionally omitted.] ...................... 4
Section 1.14. "Board" ....................................... 5
Section 1.15. "Board Determination Period" .................. 5
Section 1.16. "Blue Sky Laws" ............................... 5
Section 1.17. "Business Day" ................................ 5
Section 1.18. [Intentionally omitted.] ...................... 5
Section 1.19. "Class A Common Stock" ........................ 5
Section 1.20. "Class B Common Stock" ........................ 5
Section 1.21. "Class C Common Stock" ........................ 5
Section 1.21.1 "Class D Common Stock" ........................ 5
Section 1.22. [Intentionally omitted.] ...................... 5
Section 1.23. [Intentionally omitted.] ...................... 5
Section 1.24. "Closing Date" ................................ 5
Section 1.25. "Code" ........................................ 5
Section 1.26. "Commission" .................................. 5
Section 1.27. "Common Stock" ................................ 5
Section 1.28. "Confidential Information" .................... 6
Section 1.29. "Control Event" ............................... 6
Section 1.30. [Intentionally omitted.] ...................... 6
Section 1.31. [Intentionally omitted.] ...................... 6
Section 1.32. "Corporation" ................................. 6
Section 1.33. "Corporation's Note" .......................... 6
Section 1.34. "Corporation's Registration Notice" ........... 6
Section 1.35. [Intentionally omitted.] ...................... 6
Section 1.36. "Default" ..................................... 6
Section 1.37. "Demand Notice" ............................... 6
Section 1.38. "Demand Registration" ......................... 6
Section 1.39. "Demand Registration Notice" .................. 6
Section 1.40. "Demand Registration Right" ................... 6
Section 1.41. "Demand Seller" ............................... 7
Section 1.42. "Determination Notice" ........................ 7
Section 1.43. [Intentionally omitted.] ...................... 7
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<PAGE> 3
Section 1.44. [Intentionally omitted.] ...........................7
Section 1.45. "Disposition" ......................................7
Section 1.46. "Distribution Agreement" ...........................7
Section 1.47. "Drag-Along Offer Terms" ...........................7
Section 1.48. "Drag-Along Sale Notice" ...........................7
Section 1.49. "Drag-Along Right" .................................7
Section 1.50. [Intentionally omitted.] ...........................7
Section 1.51. [Intentionally omitted.] ...........................7
Section 1.51.1 "ERISA" ............................................7
Section 1.52. "Exon-Florio" ......................................8
Section 1.53. [Intentionally omitted.] ...........................8
Section 1.54. [Intentionally omitted.] ...........................8
Section 1.55. [Intentionally omitted.] ...........................8
Section 1.56. "Fair Market Value" ................................8
Section 1.57. [Intentionally omitted.] ...........................8
Section 1.58. [Intentionally omitted.] ...........................8
Section 1.59. "Guaranty Agreement" ...............................8
Section 1.60. "Guaranty Fee Agreement" ...........................9
Section 1.60.1 "Independent Director" .............................9
Section 1.61. "Investor Acceptance" ..............................9
Section 1.62. "Investor Offer" ...................................9
Section 1.63. "Investor Stockholder" .............................9
Section 1.64. "Investor Stock Subscription
Agreements" ......................................9
Section 1.65. [Intentionally omitted.] ...........................9
Section 1.66. "Management Acceptance" ............................9
Section 1.67. [Intentionally omitted.] ...........................9
Section 1.68. [Intentionally omitted.] ...........................9
Section 1.69. [Intentionally omitted.] ...........................9
Section 1.70. [Intentionally omitted.] ...........................9
Section 1.71. [Intentionally omitted.] ...........................9
Section 1.72. "Management Offer" .................................9
Section 1.73. [Intentionally omitted.] ...........................9
Section 1.74. [Intentionally omitted.] ...........................9
Section 1.75. "Management Stockholder" or
"Management Stockholders" ........................10
Section 1.76. "Management Stock Subscription
Agreements" ......................................10
Section 1.77. [Intentionally omitted.] ...........................10
Section 1.78. "Mandatory Company Registration Right" .............10
Section 1.79. "Maximum Number" ...................................10
Section 1.80. "Merger" ...........................................10
Section 1.81. "Merger Agreement" .................................10
Section 1.82. [Intentionally omitted.] ...........................10
Section 1.83. "New Securities" ...................................10
Section 1.84. "Non-Yamada Argo-Tech Nominees" ....................11
Section 1.84.1 [Intentionally omitted.] ...........................11
Section 1.85. "Non-Yamada Stockholders" ..........................11
Section 1.86. [Intentionally omitted.] ...........................11
Section 1.86.1 "Original Stockholders' Agreement" .................11
Section 1.87. "Other Stockholders" ...............................11
Section 1.88. "Outside Director" or "Outside
Directors" ........................................11
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<PAGE> 4
Section 1.89. "Override Commission" .....................................11
Section 1.90. "Permitted Affiliate" .....................................11
Section 1.91. "Permitted Disposition" ...................................11
Section 1.92. "Person" ..................................................14
Section 1.93. [Intentionally omitted.] ..................................14
Section 1.94. "Post-Default Contribution" ...............................14
Section 1.95. "Pre-Control Event Contribution" ..........................14
Section 1.96. "Preemption" ..............................................14
Section 1.97. "Preferred Stock" .........................................14
Section 1.98. "Preferred Stock Payment Default" .........................14
Section 1.99. "Primary Offering" ........................................14
Section 1.100. "Proposed Disposition" ....................................14
Section 1.101. [Intentionally omitted.] ..................................14
Section 1.102. "Proposed Purchaser" ......................................14
Section 1.103. "Pro Rata Share" ..........................................14
Section 1.104. "Public Offering" .........................................15
Section 1.105. "Purchase Price" ..........................................15
Section 1.l05.1 "Put" .....................................................15
Section 1.105.2 "Put Stock Value" .........................................15
Section 1.106. "Registration Notice" .....................................15
Section 1.107. "Registration Statement" ..................................15
Section 1.107.1 "Related Transaction" .....................................15
Section 1.108. "Remaining Offered Securities" ............................15
Section 1.109. "Rule 144" ................................................15
Section 1.110. "Scheduled Put Closing Date" ..............................15
Section 1.111. "Security" or "Securities" ................................15
Section 1.112. "Selling Stockholders" ....................................16
Section 1.113. "Senior Bank Financing" ...................................16
Section 1.114. "Stockholder" .............................................16
Section 1.115. "Subordinated Notes" ......................................16
Section 1.116. "Subscription Agreements" .................................16
Section 1.117. "Subsidiary" or "Subsidiaries" ............................16
Section 1.118. "Successor" ...............................................16
Section 1.119. "Sumitomo Bank" ...........................................16
Section 1.120. [Intentionally omitted.] ..................................16
Section 1.121. "Supplemental Performance Agreement" ......................17
Section l.121.1 "Sunhorizon" ..............................................17
Section 1.122. "Tag-Along Holder" ........................................17
Section 1.123. "Tag-Along Notice" ........................................17
Section 1.124. "Tag-Along Percentage" ....................................17
Section 1.125. "Tag-Along Right" .........................................17
Section 1.126. "Third Appraiser" .........................................17
Section 1.127. "Triggering Event" ........................................17
Section 1.128. "Trust" ...................................................17
Section 1.129. "Trustee" .................................................17
Section 1.130. "Valuation Date" ..........................................17
Section 1.131. "Vestar" ..................................................17
Section 1.132. "Vestar Investment Partnership" ...........................17
Section 1.133. [Intentionally omitted.) ..................................18
Section 1.134. [Intentionally omitted.] ..................................18
Section 1.135. [Intentionally omitted.] ..................................18
Section 1.136. [Intentionally omitted.] ..................................18
Section 1.137. [Intentionally omitted.] ..................................18
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<PAGE> 5
Section 1.138. [Intentionally omitted.] ...............................18
Section 1.139. "Withdrawing Management Stockholder". ..................18
Section 1.140. "Yamada" ...............................................18
Section 1.141. "Yamada Argo-Tech Nominees" ............................18
Section 1.142. "Yamada Corporation" ...................................18
Section 1.143. "Yamada Distributorship Agreement" .....................18
Section 1.144. "Yamada-Japan Distributorship Agreement" ...............18
ARTICLE II - ORGANIZATIONAL MATTERS
Section 2.01. By-Laws ................................................19
Section 2.02. Certificates of Incorporation ..........................19
Section 2.03. Share Capital; Ownership ...............................19
Section 2.04. Board of Directors of the Corporation ..................21
Section 2.05. Board of Directors of Argo-Tech . .....................21
Section 2.06. Change in Composition of Argo-Tech
Board ................................................22
Section 2.07. Control Event, Post-Default
Contribution, Pre-Control-Event
Contribution, Preferred Stock
Payment Default ......................................25
Section 2.08. Other Matters Related to The
Boards of Directors ..................................28
Section 2.09. Chief Executive Officer of Argo-Tech ...................30
Section 2.10. Agreements with the Trustee and
Vestar Investment Partnership ........................30
ARTICLE III - RESTRICTIONS ON DISPOSITIONS OF SECURITIES;
INVESTMENT REPRESENTATIONS
Section 3.01. Prohibited Disposition .................................31
Section 3.02. Other Agreements .......................................31
Section 3.03. Representations and Warranties .........................32
Section 3.04. Legend on Certificate ..................................32
Section 3.05. Transfer of Preferred Stock ............................34
Section 3.06. Transfers Invalid ......................................34
ARTICLE IV - VOTING OF STOCK: CERTAIN CORPORATE
GOVERNANCE MATTERS
Section 4.01. Voting Rights ..........................................35
Section 4.02. Certain Corporate Governance Matters ...................35
ARTICLE V - PREEMPTIVE RIGHTS WITH RESPECT TO NEW SECURITIES
Section 5.01. New Securities .........................................41
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<PAGE> 6
ARTICLE VI - VESTING OF MANAGEMENT STOCK; RIGHT OF
FIRST REFUSAL
Section 6.01. Vesting of Management Stock ..............................42
Section 6.02. ..........................................................42
Section 6.03. Right of First Refusal ...................................42
ARTICLE VII - INDEPENDENT EVALUATION
Section 7.01. [Intentionally omitted.] .................................46
Section 7.02. Independent Evaluation ...................................46
Section 7.03. [Intentionally omitted.] .................................46
ARTICLE VIII - LIMITATIONS AND OTHER MATTERS RELATED
TO PAYMENT OF THE PURCHASE PRICE
Section 8.01. General Limitations ......................................47
Section 8.02. Closing of Purchase of Securities;
Delivery of Certificates .................................47
Section 8.03. Corporation's Note .......................................47
ARTICLE IX - PUT RIGHTS OF CERTAIN STOCKHOLDERS;
CERTAIN OTHER RIGHTS
Section 9.01. Put Rights for Shares Owned by
Certain Stockholders ...................................49
Section 9.02. Put Right Procedures; Other Agreements ...................49
Section 9.03. Put Stock Value ..........................................51
Section 9.04. Continued Stock Ownership by
Management Stockholders and Outside
Directors ...............................................51
Section 9.05. Ordering of Put Rights ...................................52
Section 9.05.1. Limit on Put Rights .....................................52
Section 9.06. Tag-Along Right ..........................................52
Section 9.07. Drag-Along Right .........................................54
Section 9.08. Disposition of Stock on Certain
Default .................................................55
ARTICLE X - SUBSTITUTE AND ADDITIONAL SECURITIES
Section 10.01. Additional Securities ....................................57
ARTICLE XI - ACTIONS RELATED TO A PUBLIC OFFERING;
REGISTRATION RIGHTS
Section 11.01. Acceptable Company Offering During
First Six Years ........................................58
Section 11.02. Mandatory Company Registration ...........................58
Section 11.03. Demand Registration Rights ...............................60
Section 11.04. Incidental Registration Rights ...........................63
Section 11.05. Underwriters; Underwriting Agreement .....................66
Section 11.06. Cooperation; Restrictions on Public
Sale by Holder of Stock ................................67
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<PAGE> 7
Section 11.07. Other Requirements and Obligations
with Respect to Registration . .......................68
Section 11.08. Expenses of Registration ...............................73
Section 11.09. Indemnification; Contribution . .......................73
Section 11.10. Termination of Override Commission .....................76
Section 11.11. Limitation on Registration Rights ......................76
ARTICLE XII - MISCELLANEOUS
Section 12.01. Additional Management or Investor
Stockholders or Additional Outside
Directors ............................................77
Section 12.02. Legal Representatives ..................................77
Section 12.03. [Intentionally omitted.] ...............................77
Section 12.04. [Intentionally omitted.] ...............................77
Section 12.05. Obligations Regarding Continuing
Employment ...........................................77
Section 12.06. Specific Performance: Expenses and
Attorneys' Fees ......................................77
Section 12.07. Severability ...........................................78
Section 12.08. Controlling Law ........................................78
Section 12.09. Notices ................................................78
Section 12.10. Counterparts ...........................................79
Section 12.11. Binding Effect; Assignment .............................79
Section 12.12. Entire Agreement; Amendments ...........................79
Section 12.13. Termination ............................................80
Section 12.14. Know-How and Confidentiality ...........................82
Section 12.15. Yamada Corporation Representatives
to be Employed by Argo-Tech ..........................84
Section 12.16. Submission to Jurisdiction; Service
of Process ...........................................84
Section 12.17. Other Transactions .....................................85
Section 12.18. Public Statements ......................................86
Section 12.19. Other Agreements; Construction .........................87
Section 12.20. Defaults ...............................................87
Section 12.21. Recovery of Attorney Fees ..............................87
Section 12.22. Section and Other Headings .............................87
Section 12.23. Approvals, Ratifications, and Waivers ..................87
Section 12.24. Third Party Beneficiaries ..............................87
Section 12.25. Compliance with ERISA ..................................88
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<PAGE> 8
AT HOLDINGS CORPORATION
1994 STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (the "Agreement") is dated as of May 17,
1994 and is by and among AT Holdings Corporation, a Delaware corporation (the
"Corporation"); Argo-Tech Corporation, a Delaware corporation ("Argo-Tech"); YC
International Inc., a California corporation ("Yamada"), Yamada Corporation, a
Japanese corporation ("Yamada Corporation"), Sunhorizon International, Inc., a
California corporation ("Sunhorizon") (individually, Yamada and Sunhorizon are
sometimes hereinafter referred to as an "Investor Stockholder" and,
collectively, they are sometimes hereinafter referred to as the "Investor
Stockholders"); the persons signing this Agreement designated on Schedule A
hereto as the Management Stockholders (individually, a "Management Stockholder"
and, collectively, the "Management Stockholders"); and the persons signing this
Agreement designated on Schedule A hereto as the Outside Directors
(individually, an "Outside Director" and, collectively, the "Outside
Directors").
Society National Bank, a national banking association in its capacity as
Trustee (the "Trustee") under the Argo-Tech Corporation Employee Stock Ownership
Plan and Trust Agreement (the "Argo-Tech ESOP"), which is the owner of shares
of Class A Common Stock of the Corporation, has entered into a separate
supplemental stockholders' agreement with the Corporation and Argo-Tech in the
form annexed hereto as Exhibit 2.l0A; and Vestar/Argo-Tech Investment Limited
Partnership, a Delaware limited partnership (the "Vestar Investment
Partnership"), has entered into a separate stock subscription agreement with the
Corporation and Argo-Tech in the forms annexed hereto as Exhibits 2.10A and
2.10B, respectively. The Trustee and the Vestar Investment Partnership are third
party beneficiaries of the terms and provisions of this Agreement. As used
herein, the Investor Stockholders, the Management Stockholders, the Outside
Directors, and the Trustee are treated and referred to herein as different
categories of common stockholders of the Corporation.
R E C I T A L S:
WHEREAS, the Corporation, Argo-Tech, certain of the Investor
Stockholders, certain of the Management Stockholders, and certain of the Outside
Directors are currently parties to a Stockholders' Agreement dated as of
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<PAGE> 9
December 24, 1990 (the "Original Stockholders' Agreement"); and
WHEREAS, certain current stockholders of the Corporation intend to sell
all or portions of their shares of Class A Common Stock (as hereinafter defined)
to Sunhorizon and/or to the Trustee; and
WHEREAS, the parties hereto believe that it is in the best interest of
the Corporation, its Subsidiaries, and the Stockholders (as such terms are
hereinafter defined) to continue in effect certain provisions of the Original
Stockholders' Agreement, to continue to impose certain restrictions and
limitations upon the Disposition of the Securities (as such terms are
hereinafter defined), to admit Sunhorizon and the Trustee as common
stockholders of the Corporation, and to grant each other certain rights as
described herein;
NOW THEREFORE, with reference to the foregoing recitals, which are by
this reference incorporated herein and for and in consideration of the premises
and the mutual covenants, terms, and conditions hereinafter set forth, the
parties agree that the Original Stockholders' Agreement shall be hereby amended
and restated in its entirety as follows:
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<PAGE> 10
ARTICLE I
DEFINITIONS
-----------
In this Agreement the following terms have the respective meanings
ascribed thereto:
Section 1.01. "ACCEPTABLE COMPANY OFFERING" shall mean a Public Offering
of Common Stock of the Corporation that is a Primary Offering following which:
(i) Yamada, any Affiliates of Yamada, Sunhorizon, and any transferees to whom
such entities have transferred Common Stock shall own no less than 36% in the
aggregate of the outstanding Common Stock of the Corporation (including shares
sold to satisfy any over-allotment option granted to any underwriters in such
offering); (ii) any underwriters chosen to assist in effecting such offering are
reasonably acceptable to not less than 80% of the members of the Board of the
Corporation then serving; and (iii) the minimum amount raised pursuant to such
offering for the Corporation is no less than $35,000,000 in gross proceeds in
the aggregate.
Section 1.02. "ACCEPTABLE DEMAND OFFERING" shall mean a Public Offering
of Common Stock of the Corporation pursuant to the exercise of a Demand
Registration Right following which: (i) Yamada, any Affiliates of Yamada,
Sunhorizon, and any transferees to whom such entities have transferred Common
Stock shall own no less than 36% in the aggregate of the outstanding Common
Stock of the Corporation (including shares sold to satisfy any over-allotment
option granted to any underwriters in such offering); (ii) any underwriters
chosen to assist in effecting such offering are reasonably acceptable to not
less than 80% of the members of the Board of the Corporation then serving; and
(iii) (a) the minimum amount reasonably anticipated to be received by selling
Stockholders as a result of such offering at the time (x) such Demand
Registration Right is exercised, and (y) the applicable Registration Statement
is declared effective, is no less than $15,000,000 in gross proceeds if there
has not been a Primary Offering prior to the exercise of the Demand Registration
Right, or (b) the minimum amount of Common Stock to be sold pursuant to such
offering if at any time prior to the exercise of such Demand Registration Right
a Primary Offering has occurred shall be no less than the greater of (i) two
percent (2%) of the outstanding Common Stock of the Corporation, and (ii) two
times the average weekly trading volume in such Common Stock on all national
securities exchanges and/or reported through the automated quotation system of a
registered securities association during the four (4) week period immediately
preceding the exercise of such Demand Registration Right.
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<PAGE> 11
Section 1.03. [Intentionally omitted.]
Section 1.04. "ACT" means the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder and any successor federal
statute, rules, or regulations.
Section 1.05. "AEROTECH" means Aerotech World Trade Corp., a Delaware
corporation.
Section 1.06. [Intentionally omitted.]
Section 1.07. [Intentionally omitted.]
Section 1.08. "AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition, the
term "control" (including the correlative meanings of the terms "controlling,"
"controlled by," and "under direct or indirect common control with") 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 policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise. Notwithstanding the foregoing or any other provision of this
Agreement, for purposes of this Agreement, in no event shall the Corporation or
Argo-Tech be or be deemed, construed, considered, or interpreted to be an
Affiliate of Yamada or an Affiliate of any Affiliate or group of Affiliates of
Yamada, nor shall Yamada or any Affiliates thereof be deemed, construed,
considered, or interpreted to be an Affiliate of the Corporation or Argo-Tech.
Section 1.09. "AGREEMENT" shall have the meaning given thereto in the
Preamble of this Agreement.
Section 1.10. "APPRAISER" shall have the meaning given thereto in
Section 7.02.
Section 1.11. "ARGO-TECH" has the meaning given thereto in the Recitals.
Section 1.12. "ARGO-TECH BOARD" means the Board of Directors of
Argo-Tech.
Section 1.12.1 "ARGO-TECH ESOP" means the Argo-Tech Corporation
Employee Stock Ownership Plan and Trust.
Section 1.13. [Intentionally omitted.]
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<PAGE> 12
Section 1.14. "BOARD" means the Board of Directors of the Corporation.
Section 1.15. "BOARD DETERMINATION PERIOD" shall have the meaning given
thereto in Section 6.03(c)(ii).
Section 1.16. "BLUE SKY LAWS" means the securities statutes of the
individual states within the United States and any rules or regulations
promulgated thereunder.
Section 1.17. "BUSINESS DAY" means any day that is not a Saturday or
Sunday or a day on which state, provincial, or national banking institutions are
authorized or obligated by law or executive order to remain closed in the State
of New York.
Section 1.18. [Intentionally omitted.]
Section 1.19. "CLASS A COMMON STOCK" means the Corporation's Class A
Common Stock, par value $0.01 per share.
Section 1.20. "CLASS B COMMON STOCK" means the Corporation's Class B
Common Stock, par value $0.01 per share.
Section 1.21. "CLASS C COMMON STOCK" means the Corporation's Class C
Common Stock, par value $0.01 per share.
Section 1.21.1 "CLASS D COMMON STOCK" means the Corporation's Class D
Common Stock, par value $0.01 per share.
Section 1.22. [Intentionally omitted.]
Section 1.23. [Intentionally omitted.]
Section 1.24. "CLOSING DATE" means December 24, 1990.
Section 1.25. "CODE" means the Internal Revenue Code of 1986, as
amended, and any rules or regulations promulgated thereunder, and any successor
federal statute, rules, or regulations.
Section 1.26. "COMMISSION" means the Securities and Exchange Commission
of the United States.
Section 1.27. "COMMON STOCK" means the Corporation's (i) Class A Common
Stock, (ii) Class B Common
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Stock, (iii) Class C Common Stock, (iv) Class D Common Stock, (v) any other
class of securities comparable in rights to those of one or more of the other
classes of Common Stock, whether voting or non-voting, and designated as a class
of Common Stock, and (vi) shares of common stock or other securities of any
class, whether voting or non-voting, resulting from the reclassification, split,
combination, or other change of such Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class D Common Stock, or such other class of securities
comparable in rights to those of one or more of the other classes of Common
Stock and designated as a class of Common Stock.
Section 1.28. "CONFIDENTIAL INFORMATION" shall have the meaning given
thereto in Section 12.14(b).
Section 1.29. "CONTROL EVENT" shall have the meaning given thereto in
Section 2.07.
Section 1.30. [Intentionally omitted.]
Section 1.31. [Intentionally omitted.]
Section 1.32. "CORPORATION" shall have the meaning given thereto in the
Preamble of this Agreement.
Section 1.33. "CORPORATION'S NOTE" or "CORPORATION'S NOTES" shall have
the meaning given thereto in Section 8.03.
Section 1.34. "CORPORATION'S REGISTRATION NOTICE" shall have the meaning
given thereto in Section 11.04(a).
Section 1.35. [Intentionally omitted.]
Section 1.36. "DEFAULT" shall have the meaning given thereto in
Section 8.01.
Section 1.37. "DEMAND NOTICE" shall have the meaning given thereto in
Section 11.03(c).
Section 1.38. "DEMAND REGISTRATION" shall have the meaning given thereto
in Section 11.03(a).
Section 1.39. "DEMAND REGISTRATION NOTICE" shall have the meaning
given thereto in Section 11.03(c).
Section 1.40. "DEMAND REGISTRATION RIGHT" and "DEMAND REGISTRATION
RIGHTS" shall have the meaning given thereto in Section 11.03(a).
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Section 1.41. "DEMAND SELLERS" shall have the meaning given thereto in
Section 11.04(b).
Section 1.42. "DETERMINATION NOTICE" shall have the meaning given
thereto in Section 6.03(c)(ii).
Section 1.43. [Intentionally omitted.]
Section 1.44. [Intentionally omitted.]
Section 1.45. "DISPOSITION" means any sale, transfer, encumbrance, gift,
donation, assignment, pledge, hypothecation, issuance, or imposition of, or
subjection to, any lien, restriction, or limitation, or other disposition of any
Securities or any interest therein, whether voluntary or involuntary, including,
but not limited to, any Disposition by operation of law, by court order, by
judicial process, or by foreclosure, levy, or attachment.
Section 1.46. "DISTRIBUTION AGREEMENT" means that certain
Distributorship Agreement, dated as of October 29, 1985, by and between TRW,
Inc. ("TRW") and Aerotech, the rights and obligations of TRW under which
agreement were assigned to and accepted by a predecessor of Argo-Tech with the
consent of Aerotech as of September 25, 1986, which agreement, as so assigned
and accepted, was amended by Rider I thereto executed by Argo-Tech on September
24, 1987 and by Aerotech on January 20, 1988, and which agreement as so amended
was further amended by Rider II thereto executed by a predecessor of Argo-Tech
on October 11, 1989 and by Aerotech on October 13, 1989, and which agreement as
so amended was further amended as of December 24, 1990, and as such
Distributorship Agreement as so amended may be amended, modified, and revised by
the parties thereto from time to time and any successor agreement thereto.
Section 1.47. "DRAG-ALONG OFFER TERMS" shall have the meaning given
thereto in Section 9.07.
Section 1.48. "DRAG-ALONG SALE NOTICE" shall have the meaning given
thereto in Section 9.07.
Section 1.49. "DRAG-ALONG RIGHT" shall have the meaning given thereto in
Section 9.07.
Section 1.50. [Intentionally omitted.]
Section 1.51. [Intentionally omitted.]
Section 1.51.1 "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
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Section 1.52. "EXON-FLORIO" means Section 721 of Tittle VII of the
Defense Production Act of 1950, Ch. 932, 64 Stat. 728 (1950), CODIFIED AT 50
U.S.C. App. 2158 ET. SEQ., AS AMENDED BY Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988, Pub. L. 100-418, 102 Stat. 1107, 1425-26 (1988),
and any rules, regulations, or Presidential Orders promulgated thereunder.
Section 1.53. [Intentionally omitted.]
Section 1.54. [Intentionally omitted.]
Section 1.55. [Intentionally omitted.]
Section 1.56. "FAIR MARKET VALUE" of any Securities means the fair
market value of such Securities as most recently determined pursuant to the
Argo-Tech ESOP in the case of the Class A Common Stock or by the Board in the
case of any other Securities; PROVIDED, HOWEVER, that, if the Board determines
that use of the fair market value of such Securities as most recently determined
pursuant to the Argo-Tech ESOP would produce an inequitable result, such fair
market value shall be determined by the Board in good faith as of the Valuation
Date, and, in this event, such valuation shall be reasonably acceptable to the
Stockholder seeking such valuation, or on whose behalf such valuation is made.
If the Fair Market Value of any Securities is determined pursuant to last clause
of the preceding sentence, the Board shall value such Securities as if the
Corporation and Argo-Tech were a "going business" (except to the extent that
market, financial, economic, business, or other conditions shall dictate
different criteria in the Board's reasonable judgment). In the event the
Management Stockholder disagrees with the Fair Market Value determined by the
Board pursuant to the last clause of the first sentence of this Section 1.56,
the Fair Market Value shall be determined in accordance with the procedure
provided in Section 7.02. For all purposes of this Agreement, shares of Class B,
Class C, and Class D Common Stock shall be conclusively deemed to have the same
Fair Market Value as shares of Class A Common Stock.
Section 1.57. [Intentionally omitted.]
Section 1.58. [Intentionally omitted.]
Section 1.59. "GUARANTY AGREEMENT" shall mean that certain Guaranty
Agreement, dated December 24, 1990, by and between Yamada Corporation or an
Affiliate thereof and Sumitomo Bank pursuant to which Yamada Corporation or such
Affiliate has agreed with Sumitomo Bank to guaranty the payment by Argo-Tech of
the Subordinated Notes.
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Section 1.60. "GUARANTY FEE AGREEMENT" shall mean that certain Guaranty
Fee Agreement, dated December 24, 1990, by and between Yamada Corporation and
Argo-Tech, pursuant to which Yamada Corporation shall, pursuant to the terms and
conditions of the Guaranty Fee Agreement, receive a semi-annual fee (payable in
advance) of 1.4% per annum of the outstanding principal amount of the
Subordinated Notes.
Section 1.60.1 "INDEPENDENT DIRECTOR" shall mean a director who is not
an officer or employee of the Corporation, Argo-Tech, Sunhorizon, or Yamada, or
who is not otherwise an Affiliate of Sunhorizon or Yamada (other than solely by
virtue of being a director of the Corporation or Argo-Tech).
Section 1. 61. "INVESTOR ACCEPTANCE" shall have the meaning given
thereto in Section 6.03(c)(v).
Section 1.62. "INVESTOR OFFER" shall have the meaning given thereto in
Section 6.03(c)(v).
Section 1.63. "INVESTOR STOCKHOLDER" and "INVESTOR STOCKHOLDERS" shall
have the meaning given thereto in the Preamble of this Agreement.
Section 1.64. [Intentionally omitted.]
Section 1.65. [Intentionally omitted.]
Section 1.66. "MANAGEMENT ACCEPTANCE" shall have the meaning given
thereto in Section 6.03(c)(iv).
Section 1.67. [Intentionally omitted.]
Section 1.68. [Intentionally omitted.]
Section 1.69. [Intentionally omitted.]
Section 1.70. [Intentionally omitted.]
Section 1.71. [Intentionally omitted.]
Section 1.72. "MANAGEMENT OFFER" shall have the meaning given thereto in
Section 6.03(c)(iv).
Section 1.73. [Intentionally omitted.]
Section 1.74. [Intentionally omitted.]
Section 1.75. "MANAGEMENT STOCKHOLDER" or "MANAGEMENT STOCKHOLDERS"
means those members of the management of Argo-Tech whose names appear under the
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heading Management Stockholders in Schedule A to the Stockholders' Agreement,
those members of the management of Argo-Tech who acquire shares of Class D
Common Stock issued pursuant to the Argo-Tech Corporation 1991 Performance Stock
Option Plan, and/or those Persons who have otherwise executed this Agreement in
the capacity of a Management Stockholder.
Section 1.76. "MANAGEMENT STOCK SUBSCRIPTION AGREEMENTS" shall mean
those stock subscription agreements entered into by the Management Stockholders.
Section 1.77. [Intentionally omitted.]
Section 1.78. "MANDATORY COMPANY REGISTRATION RIGHT" shall have the
meaning given thereto in Section 11.02(a).
Section 1.79. "MAXIMUM NUMBER" shall have the meaning given thereto in
Section 11.04(a).
Section 1.80. "MERGER" means the merger consummated pursuant to the
Merger Agreement.
Section 1.81. "MERGER AGREEMENT" means that certain Agreement and Plan
of Merger, dated as of August 17, 1990, by and among the Corporation, Vestar/AT
Acquisition Corporation, Argo-Tech Corporation, and the shareholders of
Argo-Tech Corporation, as amended.
Section 1.82. [Intentionally omitted.]
Section 1.83. "NEW SECURITIES" means any Security whether currently as
of the date hereof or hereafter authorized, including any Securities previously
repurchased by the Corporation, and all rights, options, or warrants to purchase
Securities, and securities or indebtedness of any type whatsoever that are, or
may become, convertible into or exchangeable for Securities; PROVIDED, HOWEVER,
that the term "New Securities" does not include (i) any securities issued upon
exercise or conversion in accordance with their terms of any other Securities
which, when issued, were the subject of Section 5.01 hereof; (ii) the shares of
Common Stock purchased by Stockholders from the Corporation prior to or
contemporaneously with the execution of this Agreement; (iii) securities issued
in connection with any pro-rata reclassification, split, combination, or other
change of any then outstanding Securities; (iv) securities proposed to be or
that are offered to the public in a transaction or transactions required to be
registered under the Act; (v) options or shares of Common Stock issued pursuant
to
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the Argo-Tech Corporation 1991 Management Incentive Stock Option Plan or the
Argo-Tech Corporation 1991 Performance Option Plan; or (vi) securities
distributed as dividends on any then outstanding securities.
Section 1.84. "NON-YAMADA ARGO-TECH NOMINEES" shall mean those directors
of Argo-Tech who have been selected by the chief executive officer of Argo-Tech,
as provided in Section 2.05 (whether or not another Person has the right to
approve such selection).
Section 1.84.1 [Intentionally omitted.]
Section 1.85. "NON-YAMADA STOCKHOLDERS" means the Management
Stockholders, the Outside Directors, and the Trustee.
Section 1.86. [Intentionally omitted.]
Section 1.86.1 "ORIGINAL STOCKHOLDERS' AGREEMENT" shall have the meaning
given thereto in the Recitals.
Section 1.87. "OTHER STOCKHOLDERS" shall have the meaning given thereto
in Section 11.03(c).
Section 1.88. "OUTSIDE DIRECTOR" or "OUTSIDE DIRECTORS" means those
persons whose names appear under the heading Outside Directors in Schedule A
and/or who have otherwise executed this Agreement in the capacity of an Outside
Director.
Section 1.89. "OVERRIDE COMMISSION" shall have the meaning given thereto
in each of the Yamada Distributorship Agreement and the Yamada-Japan
Distributorship Agreement.
Section 1.90. "PERMITTED AFFILIATE" shall have the meaning given thereto
in Section 1.91(viii).
Section 1.91. "PERMITTED DISPOSITION" means:
(i) a Disposition upon the death of a Management
Stockholder or Outside Director to any of such Management
Stockholder's or Outside Directors' respective executors,
administrators, testamentary trustees, legatees, descendants, or
beneficiaries (an "Estate Member") by will or the laws of
descent; PROVIDED, HOWEVER, that any such Estate Member executes
a written instrument agreeing to be bound by all the terms of
this
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Agreement that are applicable to such Management Stockholder or
Outside Director;
(ii) a Disposition to a spouse of a Management
Stockholder or Outside Director and/or direct lineal descendants
of such Management Stockholder or Outside Director; PROVIDED,
HOWEVER, that such spouse and/or lineal descendants executes a
written instrument agreeing to be bound by all the terms of this
Agreement that are applicable to such transferor;
(iii) a Disposition by a Management Stockholder or
Outside Director to a trust the beneficiaries of which are only
such Management Stockholder's or Outside Director's spouse,
parents, or direct lineal descendants; PROVIDED, HOWEVER, that
the trustee of such trust executes a written instrument
agreeing to be bound by all of the terms of this Agreement that
are applicable to such trust's grantor;
(iv) a Disposition resulting from a Management
Stockholder's BONA FIDE pledge of all or a portion of his
Securities pursuant to a pledge agreement to which Argo-Tech is
a party;
(v) a Disposition to the Corporation, to Argo-Tech, or
to the Trustee, as trustee under the Argo-Tech ESOP;
(vi) a Disposition to any Investor Stockholder by any
other Investor Stockholder, to a Management Stockholder by any
other Management Stockholder, or to an Outside Director by any
other Outside Director; PROVIDED, HOWEVER, that such transferee
shall remain bound by all applicable provisions of this
Agreement;
(vii) a Disposition pursuant to any applicable provision
contained in Article VI, Article IX, and Article XI, or as
otherwise contemplated by the terms of this Agreement;
(viii) a Disposition by an Investor Stockholder, a
Management Stockholder, or an Outside Director to (a) any parent
corporation or any controlling stockholder (a "Controlling
Person") of the corporate parent of such Stockholder, or (b) an
Affiliate of such Stockholder at least fifty percent (50%) (by
vote and value) of the stock of which Affiliate is owned
directly or indirectly through another such
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Affiliate, by such Stockholder (a "Permitted Affiliate"), or a
Disposition by a Permitted Affiliate of such Stockholder to
another Permitted Affiliate of such Stockholder, or a
Disposition by a Controlling Person to any Person in which such
Controlling Person owns in excess of fifty percent (50%) (by
vote and value) of the stock or ownership interest, any of whom
or which, as a condition to the purchase of such Securities, has
agreed to and has, prior to or simultaneously with such
Disposition, executed a written instrument agreeing to be bound
by all the terms hereof applicable to that category of
Stockholder and become a party to the Agreement as such
Stockholder; PROVIDED, HOWEVER, that in the event that, after a
transfer to a Permitted Affiliate, such Permitted Affiliate
ceases to be a Permitted Affiliate, such assignment shall be
void, and all rights, interests, or obligations assigned thereby
shall return to the original Stockholder or its successor or the
transferor Permitted Affiliate if such transfer has been made by
a Permitted Affiliate of such Stockholder; and PROVIDED,
FURTHER, that any such transferee Permitted Affiliate shall have
the right to make any Permitted Disposition that the Stockholder
originally transferring such Securities could make pursuant to
and subject to the terms and conditions of this Agreement;
(ix) [Intentionally omitted.]
(x) a Disposition by an Investor Stockholder, Management
Stockholder, or Outside Director to a trust for the benefit of
the beneficiaries thereof, provided that the trustee of such
trust executes a written instrument agreeing to be bound by all
of the terms of this Agreement that are applicable to such
trust's grantor;
(xi) [Intentionally omitted.]
(xii) a Disposition pursuant to Rule 144 or Rule 144A;
(xiii) a Disposition to any employee benefit plan
qualified under Section 401(a) of the Code established by the
Corporation or Argo-Tech or pursuant to the terms of any such
employee benefit plan;
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(xiv) a Disposition by an Investor Stockholder that is a
partnership or corporation to one or more respective partners or
stockholders of such Investor Stockholder, each of which
transferees, as a condition to such Disposition, has agreed to
become a party to this Agreement as an Investor Stockholder and
executes a written instrument agreeing to be bound by all the
terms hereof applicable to investor Stockholders; and
(xv) any substantially contemporaneous series of
Dispositions that has the actual effect of constituting any of
the Permitted Dispositions described herein.
Section 1.92. "PERSON" means any individual, corporation, partnership,
joint venture, trust, association, joint-stock company, unincorporated
association or organization or government (or any department, agency, or
political subdivision thereof), or any other entity.
Section 1.93. [Intentionally omitted.]
Section 1.94. "POST-DEFAULT CONTRIBUTION" shall have the meaning given
thereto in Section 2.07(a).
Section 1.95. "PRE-CONTROL EVENT CONTRIBUTION" shall have the meaning
given thereto in Section 2.07(a).
Section 1.96. "PREEMPTION" shall have the meaning given thereto in
Section ll.03(e).
Section 1.97. "PREFERRED STOCK" means the Corporation's Series A
Cumulative Redeemable Preferred Stock, par value $1.00 per share.
Section 1.98. "PREFERRED STOCK PAYMENT DEFAULT" shall have the meaning
given thereto in Section 2.07(a).
Section 1.99. "PRIMARY OFFERING" shall mean any Public Offering of
Securities by the Corporation for its own account.
Section 1.100. "PROPOSED DISPOSITION" shall mean any proposed
Disposition of Securities by any Stockholder other than a Permitted Disposition.
Section 1.101. [Intentionally omitted.]
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Section 1.102. "PROPOSED PURCHASER" shall have the meaning given thereto
in Section 9.06(a).
Section 1.103. "PRO RATA SHARE" means the proportion that the amount of
Securities owned by a Management Stockholder, an Outside Director, or an
Investor Stockholder bears to the aggregate amount of Securities owned by all
Management Stockholders, Outside Directors, or Investor Stockholders,
respectively.
Section 1.104. "PUBLIC OFFERING" means a public offering of Common Stock
pursuant to any effective registration statement filed on Form S-1 or any other
form for the general registration of securities with the Commission pursuant to
the Act (other than a registration statement on Form S-4 or Form S-8, or any
other similar form or successor forms thereto).
Section 1.105. [Intentionally omitted.]
Section 1.105.1 "PUT" shall have the meaning given thereto in Section
9.01.
Section 1.1O5.2 "PUT STOCK VALUE" shall have the meaning given thereto
in Section 9.03.
Section 1.106. [Intentionally omitted.]
Section 1.107. "REGISTRATION STATEMENT" shall have the meaning given
thereto in Section 11.02(a).
Section 1.107.1 "RELATED TRANSACTION" has the meaning given thereto in
Section 4.02(a)(i).
Section 1.108. "REMAINING OFFERED SECURITIES" shall have the meaning
given thereto in Section 6.03(c)(v).
Section 1.109. "RULE 144" has the meaning given thereto in Section 3.03
hereof.
Section 1.110. "SCHEDULED PUT CLOSING DATE" shall have the meaning given
thereto in Section 9.02(a).
Section 1.111. "SECURITY" or "SECURITIES" means (a) the Common Stock,
(b) any other securities of the Corporation that entitle the holder thereof to
vote for the election of directors at the annual meeting of stockholders,
whether now or hereafter authorized, and (c) any rights, warrants, options,
convertible securities or indebtedness, exchangeable securities or indebtedness,
or other rights, that are exercisable for or convertible or exchangeable into,
directly or indirectly, Common Stock,
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<PAGE> 23
such other securities and securities convertible into Common Stock or such
other securities. The number of shares of a Security that is represented by a
right, warrant, option, or convertible or exchangeable security or indebtedness
shall be the number of shares of Common Stock or such other securities that the
holder thereof would own upon the immediate exercise of such right, warrant,
option, or convertible or exchangeable securities or indebtedness.
Section 1.112. "SELLING STOCKHOLDERS" shall have the meaning given
thereto in Section 11.04.
Section 1.113. "SENIOR BANK FINANCING" shall mean the revolving credit
loan and the term loan to Argo-Tech provided by Sumitomo Bank pursuant to that
certain Loan Agreement, dated as of December 24, 1990, by and between Argo-Tech
and Sumitomo Bank, among others, as such Loan Agreement may be amended, revised,
and modified by the parties thereto from time to time, and any refundings or
refinancings thereof.
Section 1.114. "STOCKHOLDER" means an Investor Stockholder, a Management
Stockholder, or an Outside Director, and "Stockholders" means the Investor
Stockholders, the Management Stockholders, and the Outside Directors.
Section 1.115. "SUBORDINATED NOTES" shall mean the Subordinated Notes of
Argo-Tech in the aggregate principal amount of $50,000,000 due October 28, 2000,
issued and sold to Sumitomo Bank pursuant to that certain Subordinated Loan
Agreement, dated December 24, 1990, by and between, among others, Argo-Tech and
Sumitomo Bank.
Section 1.116. "SUBSCRIPTION AGREEMENTS" shall mean Stock Subscription
Agreements pursuant to which Securities of the Corporation are, or have been,
purchased by Investor Stockholders, Management Stockholders, and Outside
Directors.
Section 1.117. "SUBSIDIARY" or "SUBSIDIARIES" of a Person shall mean
each entity, whether a corporation, a partnership, limited partnership, joint
venture, or some other unincorporated association, as to which such Person owns
or has the power to vote, or to exercise a controlling influence with respect
to, fifty percent (50%) or more of the voting interests or securities of any
class of such entity the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or Persons
performing similar functions of such entity).
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Section 1.118. "SUCCESSOR" has the meaning given thereto in Section
12.11 hereof.
Section 1.119. "SUMITOMO BANK" means Sumitomo Bank Limited, New York
Branch.
Section 1.120. [Intentionally omitted.]
Section 1.121. "SUPPLEMENTAL PERFORMANCE AGREEMENT" shall have the
meaning given thereto in Section 4.02(a).
Section 1.121.1 "SUNHORIZON" means Sunhorizon International, Inc., a
California corporation.
Section 1.122. "TAG-ALONG HOLDER" shall have the meaning given thereto
in Section 9.06(a).
Section 1.123. "TAG-ALONG NOTICE" shall have the meaning given thereto
in Section 9.06(f).
Section 1.124. "TAG-ALONG PERCENTAGE" with regard to each of the
Non-Yamada Stockholders shall mean the percentage resulting by dividing the
number of shares of Common Stock owned by the Tag-Along Holder by the number of
shares of Common Stock outstanding at the time of such calculation.
Section 1.125. "TAG-ALONG RIGHT" shall have the meaning given thereto in
Section 9.06(a).
Section 1.126. "THIRD APPRAISER" shall have the meaning given thereto in
Section 7.02.
Section 1.127. "TRIGGERING EVENT" means an event necessitating the sale
or purchase of, or giving rise to a right to sell or purchase, Securities under
this Agreement, except that the purchase of any Securities pursuant to any of
the Subscription Agreements shall be deemed not to be a Triggering Event for
purposes of this Agreement.
Section 1.128. "TRUST" shall mean that certain Irrevocable Trust
Agreement dated December 16, 1988, with respect to which Robert Nagata is
currently serving as trustee.
Section 1.129. "TRUSTEE" shall have the meaning given thereto in the
Preamble of this Agreement, as well as any successors thereto.
Section 1.130. "VALUATION DATE" with respect to a Triggering Event means
the last day of the month immediately preceding such Triggering Event.
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Section 1.131. "VESTAR" means Vestar Capital Partners, Inc. a Delaware
corporation.
Section 1.132. "VESTAR INVESTMENT PARTNERSHIP" shall mean
Vestar/Argo-Tech Investment Limited Partnership, a Delaware limited partnership.
Section 1.133. [Intentionally omitted.]
Section 1.134. [Intentionally omitted.]
Section 1.135. [Intentionally omitted.]
Section 1.136. [Intentionally omitted.]
Section 1.137. [Intentionally omitted.]
Section 1.138. [Intentionally omitted.]
Section 1.139. "WITHDRAWING MANAGEMENT STOCKHOLDER" means a Management
Stockholder whose employment with the Corporation is terminated for any reason
other than death or disability.
Section 1.140. "YAMADA" shall have the meaning given thereto in the
Preamble of this Agreement.
Section 1.141. "YAMADA ARGO-TECH NOMINEES" shall mean those directors of
Argo-Tech who are selected by Yamada.
Section 1.142. "YAMADA CORPORATION" shall have the meaning given thereto
in the Preamble of this Agreement.
Section 1.143. "YAMADA DISTRIBUTORSHIP AGREEMENT" means that certain
Distributorship Agreement, dated December 24, 1990, by and among Argo-Tech,
Yamada Corporation, the Vestar Investment Partnership (for certain purposes
only), and Vestar whereby Yamada Corporation will, in November 1994, become a
distributor of certain products manufactured by Argo-Tech.
Section 1.144. "YAMADA-JAPAN DISTRIBUTORSHIP AGREEMENT" means that
certain Japan Distributorship Agreement, dated December 24, 1990, by and between
Argo-Tech and the other party signatory to such agreement.
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ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.01. BY-LAWS. On the date hereof, the Restated By-Laws of the
Corporation shall be as set forth in Exhibit 2.01A to this Agreement, and the
Restated By-Laws of Argo-Tech shall be as set forth in Exhibit 2.01B to this
Agreement, and, to the extent necessary, each shall be conformed to the
applicable provisions of this Agreement. The parties hereto agree that this
Agreement constitutes all corporate, stockholder, and director action necessary
to accomplish the foregoing in accordance with the laws of the State of
Delaware.
Section 2.02. CERTIFICATES OF INCORPORATION. On the date hereof, the
Restated Certificate of Incorporation of the Corporation shall be as set forth
in Exhibit 2.02A to this Agreement, and the Restated Certificate of
Incorporation of Argo-Tech shall be as set forth in Exhibit 2.02B to this
Agreement, and each shall be conformed to the applicable provisions of this
Agreement. The parties hereto agree that this Agreement constitutes all
corporate, stockholder, and director action necessary to accomplish the
foregoing in accordance with the laws of the State of Delaware.
Section 2.03. SHARE CAPITAL; OWNERSHIP. (a) On the date hereof, the
issued and outstanding share capital of the Corporation shall consist of:
(i) Six Hundred Forty-Six Thousand Eight Hundred Eighty Three
(646,883) shares of Class A Common Stock;
(ii) Six Hundred Eighty-Nine Thousand (689,000) shares of Class
B Common Stock;
(iii) Twenty-Seven Thousand, Five Hundred Sixty (27,560) shares
of Class C Common Stock; and
(iv) Two Hundred Fifty-Nine Thousand Eighty-Five (259,085)
shares of Preferred Stock.
The terms of the Class A Common Stock, the Class B Common Stock, the Class C
Common Stock, the Class D Common Stock, and the Preferred Stock are as provided
in the Restated Certificate of Incorporation of the Corporation annexed hereto
in Exhibit 2.02A to this Agreement.
(b) On the date hereof, the issued and outstanding shares of capital
stock of the Corporation are owned as follows:
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(i) the Vestar Investment Partnership owns Fifteen Thousand
Eighty-Five (15,085) shares of Preferred Stock;
(ii) Yamada owns (A) Twenty Thousand (20,000) shares of Class A
Common Stock, (B) Six Hundred Eighty Nine Thousand (689,000) shares of
Class B Common Stock, (C) Twenty-Seven Thousand, Five Hundred Sixty
(27,560) shares of Class C Common Stock, and (D) Two Hundred Forty-Four
Thousand (244,000) shares of Preferred Stock;
(iii) [Intentionally omitted];
(iv) Sunhorizon owns One Hundred Twenty Nine Thousand Four
Hundred Two (129,402) shares of Class A Common Stock;
(v) the Management Stockholders in the aggregate own Seventy
Thousand One Hundred Eleven (70,111) shares of Class A Common Stock;
(vi) the Outside Directors in the aggregate own Three Thousand
Three Hundred Eight (3,308) shares of Class A Common Stock;
(vii) the Trustee owns Four Hundred Twenty Thousand (420,000)
shares of Class A Common Stock; and
(viii) Argo-Tech owns Four Thousand Sixty Two (4,062) shares of
Class A Common Stock.
In addition, Seven Thousand Five Hundred Forty (7,540) shares of Class A Common
Stock in the aggregate shall be reserved for issuance (x) pursuant to the
Argo-Tech Corporation 1991 Management Incentive Stock Option Plan and any future
Argo-Tech employee benefit plans, (y) to new Outside Directors, and (z) to new
members of the management of Argo-Tech. Furthermore, Thirty-Four Thousand Four
Hundred Fifty (34,450) shares of Class D Common Stock in the aggregate have been
reserved for issuance upon the exercise of outstanding stock options granted
pursuant to the Argo-Tech Corporation 1991 Performance Stock Option Plan.
(c) Yamada or any Affiliate thereof shall, upon written request to the
Corporation, have the right to exchange the shares of Class C Common Stock for
an equal number of shares of Class B Common Stock, and the Corporation, upon
receipt of such request, shall take any and all such corporate actions as may be
required to permit Yamada to exchange such shares of Class C Common Stock for an
equal number of shares of Class B Common Stock and shall promptly thereafter
execute such exchange. The Stockholders hereby agree that they each shall take
any and
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all action that may be required at the time in order for the Corporation to
effect its obligations under this Section 2.03(c), including but not limited to
agreeing to amend the Restated Certificate of Incorporation of the Corporation.
Section 2.04. BOARD OF DIRECTORS OF THE CORPORATION. There shall be a
Board of Directors of the Corporation that shall consist of five (5) members,
which directors shall be nominated and elected at each election of directors, so
long as this Agreement remains in effect and except as otherwise provided in
Section 2.08, as follows:
(i) Yamada shall nominate three (3) Persons to be directors of
the Corporation, and Yamada, the other Investor Stockholders, the
Management Stockholders, and the Outside Directors shall vote their
shares in favor of three (3) Persons who have been so nominated by
Yamada; and
(ii) The Management Stockholder who is then serving as the chief
executive officer of Argo-Tech shall nominate two (2) Persons to be
directors of the Corporation, one of whom may be such chief executive
officer and at least one of whom shall be an Independent Director whose
selection shall be subject to the approval of Yamada, whose approval of
such latter Person shall not be unreasonably withheld, and Yamada, the
other Investor Stockholders, the Management Stockholders, and the
Outside Directors shall vote their shares in a manner so that the two
(2) Persons so nominated are elected;
PROVIDED, HOWEVER, that, if the chief executive office of Argo-Tech is not a
Management Stockholder, the Persons to be nominated or otherwise selected by the
chief executive officer in accordance with this paragraph shall be chosen by the
vote of the holders of a majority of the shares of Common Stock held by
Management Stockholders.
Section 2.05. BOARD OF DIRECTORS OF ARGO-TECH. (a) The Argo-Tech Board
shall consist of seven (7) members, and the Corporation shall vote (as provided
in Section 4.02(b) hereof) the shares of Argo-Tech in a manner so that the
directors shall be nominated and elected, so long as this Agreement remains in
effect and except as otherwise provided in Sections 2.06, 2.07, and 2.08, at
each election of directors as follows:
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(i) Four (4) of such directors shall be Persons selected by
Yamada as representatives of Yamada;
(ii) Two (2) of such directors shall be Persons selected by the
chief executive officer of Argo-Tech, one of whom may be such chief
executive officer and at least one of whom shall be an Independent
Director whose selection shall be subject to the approval of Yamada,
whose approval of such latter Person shall not be unreasonably withheld;
and
(iii) One (1) of such directors (A), until December 31, 2000,
shall be a Person selected by the Vestar Investment Partnership or (B),
thereafter, shall be a Person selected jointly by Yamada and the chief
executive officer of Argo-Tech and, if he is not already so serving, may
be such chief executive officer;
PROVIDED, HOWEVER, that, if the chief executive office of Argo-Tech is not a
Management Stockholder, the Persons to be nominated or otherwise selected by the
chief executive officer in accordance with this paragraph shall be chosen by the
vote of the holders of a majority of the shares of Common Stock held by
Management Stockholders.
Section 2.06. CHANGE IN COMPOSITION OF ARGO-TECH BOARD. Notwithstanding
any other provision of this Agreement to the contrary, the composition of the
Argo-Tech Board shall not change unless (i) the Non-Yamada Stockholders at any
time and in any manner consummate the sale of 100% of the Class A Common Stock
owned by them; (ii) an Acceptable Company Offering or an Acceptable Demand
Offering occurs; or (iii) a Control Event occurs and is continuing, or a
Post-Default Contribution or a Pre-Control Event Contribution is made, or a
Preferred Stock Payment Default occurs. Promptly upon the occurrence of any of
the events described in clauses (i), (ii), or (iii) of the immediately
preceding sentence, each of the Non-Yamada Stockholders (other than the Trustee)
shall use his, her, or its respective best efforts to cause the Non-Yamada
Argo-Tech Nominees then serving as directors of Argo-Tech, as specified in
Section 2.05 hereof, to submit to the Argo-Tech Board as promptly as
practicable their resignations as members of the Argo-Tech Board and any
Argo-Tech Board committees on which they may then be serving:
(a) Upon the occurrence of the events described in clauses (i) and (ii)
of Section 2.06, all of the Non-Yamada Argo-Tech Nominees shall no longer be
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entitled to serve on the Argo-Tech Board as a matter of right under Section
2.05;
(b) [Intentionally omitted]; and
(c) Upon the occurrence of the events described in clause (iii) of
Section 2.06, the provisions of Section 2.07 shall apply.
In the event that any Non-Yamada Argo-Tech Nominee is no longer entitled
to serve as a director of Argo-Tech pursuant to this Section 2.06 but has not
resigned, the Stockholders shall have the right to and hereby agree to exercise
the powers conferred pursuant to Section 4.02(b) and the Restated Certificate of
Incorporation of the Corporation to effect the removal (with or without cause)
from office of the Non-Yamada Argo-Tech Nominees as is indicated herein.
(d) The Corporation and Argo-Tech each agrees that, from and after the
date hereof, neither the Corporation nor Argo-Tech shall, and each of the
Stockholders agrees that, from and after the date hereof, he, she, or it shall
use his, her, or its respective best efforts to cause the Corporation and
Argo-Tech not to, take any action that would have the effect of or would change,
amend, or repeal the provisions of the Restated Certificate of Incorporation or
Restated By-laws of the Corporation or Argo-Tech relating to the limitation of
liability of any resigned or removed officer or director or the indemnification
of any resigned or removed officer or director prior to the expiration of all
statutes of limitation applicable to events occurring on or prior to the time of
such resignation or removal in any manner that would adversely affect the rights
thereunder of such resigned or removed officer or director, unless otherwise
required by law or judicial order.
(e) The Corporation, Argo-Tech, and Yamada agree that, for seven (7)
years after any resignation or removal of any officer or director of Argo-Tech
or the Corporation (whether pursuant to the provisions of this Section 2.06,
Section 2.07, any other section of this Agreement, or otherwise), the
Corporation shall maintain at its sole expense for such resigned or removed
officers or directors the comparable insurance coverage provided by the then
existing officers' and directors' liability insurance under which benefits are
being provided to such officer or director of the Corporation or Argo-Tech, as
the case may be, at the time of resignation or removal (which, for the purposes
of this Agreement, shall be deemed to include insurance with respect to any
fiduciary liability with respect to any employee benefit plans pertaining to
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<PAGE> 31
Tech employees); PROVIDED, HOWEVER, that the Corporation shall not be obligated
to pay an aggregate annual premium for such insurance in excess of the lesser of
(x) twice the last base annual premium paid or payable for such insurance prior
to the date on which such officer or director resigns or is removed (the
"Applicable Premium"), and (y) Two Hundred Fifty Thousand Dollars ($250,000),
and any such insurance policy or replacement thereof shall include uniform or
standard provisions that are applicable to officer and director insurance
policies in the industry in which Argo-Tech operates; PROVIDED, FURTHER, that if
at any time the then existing officers' and directors' insurance expires, is
terminated, or is cancelled during such seven (7) year period, the Corporation
and Argo-Tech agree to use their respective best efforts to obtain as much of
the same type of liability insurance covering such officers and directors from a
reputable insurer as can be obtained for the remainder of such period for a
premium on an annualized basis not in excess of the lesser of (x) twice the
Applicable Premium, or (y) Two Hundred Fifty Thousand Dollars ($250,000); and
PROVIDED, FURTHER, that, if the type and coverage amounts of any officers' and
directors' insurance for any such officer or director has been reduced as
contemplated herein, the Corporation and Argo-Tech shall continue to be
obligated and agree to use their respective best efforts at periodic intervals
not to exceed twelve (12) months to increase the amount of liability insurance
coverage for such resigned or removed officer or director within the cost
limitations specified herein so as to obtain as much of the same type of
liability insurance coverage for such officers and directors as is possible at
that time. In the event that neither the Corporation nor Argo-Tech is able to,
or they do not, obtain such liability insurance at the cost specified herein,
the Corporation and Argo-Tech shall be obligated to reserve, deposit in a trust
account, or otherwise make available for the benefit of all officers and
directors who may resign or be removed pursuant to or in accordance with the
terms of this Agreement or otherwise, and shall continue to make available to
all such officers and directors for such seven (7)-year period specified in this
Section 2.06(e), the amount of funds that in the aggregate the Corporation and
Argo-Tech otherwise would be obligated to expend to obtain an officers' and
directors' liability insurance policy pursuant to this Section 2.06(e) (which
funds shall, if such officers or directors or any representative thereof is able
to obtain or otherwise make arrangements for the Corporation or Argo-Tech to
obtain officers' and directors' liability insurance coverage for an amount
within the amounts specified herein, be used to pay the annual premium for such
insurance policy).
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Section 2.07. CONTROL EVENT, POST-DEFAULT CONTRIBUTION,
PRE-CONTROL-EVENT CONTRIBUTION, PREFERRED STOCK PAYMENT DEFAULT. (a)
Notwithstanding any other provision in this Agreement to the contrary, in the
event that:
(i) a payment default shall occur and be continuing for six (6)
months or more on the Senior Bank Financing, the Subordinated Notes, or
any other indebtedness for borrowed money of at least Thirty Million
Dollars ($30,000,000), which event shall not have been waived or cured
within such six (6)-month period (a "Control Event");
(ii) a payment default shall occur and be continuing for thirty
(30) days on the Senior Bank Financing, the Subordinated Notes, or any
other indebtedness for borrowed money of at least Thirty Million Dollars
($30,000,000), which event shall not have been waived or cured within
such thirty (30)-day period, in which event Yamada Corporation or any
affiliate thereof may elect to, and does, make a contribution of funds
to the Corporation or any Subsidiary thereof for the purpose of curing
such default (a "Post-Default Contribution");
(iii) Yamada Corporation or any Affiliate thereof, at the
request of the Argo-Tech Board, makes a contribution of funds to the
Corporation or any Subsidiary thereof for the purpose of preventing such
Control Event or Post-Default Contribution (a "Pre-Control-Event
Contribution"), or
(iv) the Board of the Corporation has declared a dividend on or
a redemption of the Preferred Stock, and such dividend or redemption is
permitted to be paid or made by the Corporation and Argo-Tech pursuant
to the terms of the Senior Bank Financing, and funds are legally
available to the Corporation (and Argo-Tech to the extent it is
necessary for Argo-Tech to transfer funds (by dividend) to the
Corporation in order for the Corporation to pay such dividend on or
redemption of the Preferred Stock) to pay such dividend or redemption,
but the Argo-Tech Board refuses or does not otherwise declare, within a
reasonable period of time, a dividend to the Corporation (or otherwise
provide funds to the Corporation in repayment of advances made by the
Corporation to Argo-Tech) to permit the Corporation to pay the dividend
or redemption
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so approved to be paid on the Preferred Stock (a "Preferred Stock
Payment Default"),
and such event should occur when Yamada is no longer able to select and have
elected a majority of the members of the Argo-Tech Board, the Argo-Tech Board
shall immediately upon the happening of the Control Event, the Post-Default
Contribution, the Pre-Control-Event Contribution, or the Preferred Stock Payment
Default increase in number without any further action from its then-current
number, and Yamada shall have the right to nominate and have elected such number
of additional directors to the Argo-Tech Board as shall be required to permit
Yamada to select a majority of the members of the Argo-Tech Board, which
additional directors shall be entitled to serve as directors only so long as a
Control Event shall be deemed to exist hereunder, or until the Post-Default
Contribution or the Pre-Control-Event Contribution is repaid to Yamada
Corporation or its affiliate, or until the dividend on or redemption of the
Preferred Stock has been paid, as the case may be. Unless mutually agreed to by
the parties hereto, (a) a Control Event shall be deemed hereunder to cease to
exist (x) at the conclusion of one payment period after the curing of the
default that triggered the Control Event, and (y) after repayment in full to
Yamada Corporation or to any Affiliate thereof of any and all funds contributed
by Yamada Corporation or such Affiliate to the Corporation or any Subsidiary
thereof in order to cure the default that triggered such Control Event, together
with interest on such funds at the prime rate of interest in dollars (U.S.) in
effect at the time such contribution is made at Sumitomo Bank plus two percent
(2%); (b) a Post-Default Contribution or a Pre-Control-Event Contribution shall
be deemed to have been repaid to Yamada Corporation or its Affiliate upon
repayment thereto of the full amount advanced thereby to the Corporation or its
Subsidiary receiving such advance, together with interest on such advance at the
prime rate of interest in dollars (U.S.) in effect at Sumitomo Bank at the time
such contribution is made plus two percent (2%); and (c) a Preferred Stock
Payment Default shall be deemed to cease upon the payment of the dividend on or
redemption of the Preferred Stock together with interest on the amount of the
dividend or redemption that had been declared, which interest shall accrue at
the prime rate of interest in dollars (U.S.) in effect at Sumitomo Bank at the
time the dividend or redemption was to have been paid plus two percent (2%).
(b) At such time as a Control Event shall cease to exist, or at such
time as the Post-Default Contribution or the Pre-Control-Event Contribution is
returned to Yamada Corporation or its Affiliate, or at such time as the
Preferred Stock Payment Default has ceased to
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exist, as the case may be, Yamada and Yamada Corporation agree to use their
respective best efforts to cause the additional directors nominated by Yamada
and elected as a result of the Control Event, the Post-Default Contribution, the
Pre-Control-Event Contribution, or the Preferred Stock Payment Default to submit
to Argo-Tech as promptly as practicable their respective resignations as members
of the Argo-Tech Board and any Argo-Tech Board Committees on which such
directors may then be serving so that the Argo-Tech Board shall be reduced in
size and composition to the size and composition of the Argo-Tech Board
immediately prior to the occurrence of the Control Event, the Post-Default
Contribution, the Pre-Control-Event Contribution, or the Preferred Stock Payment
Default. In the event that such additional directors nominated by Yamada and
elected as a result of the Control Event, the Post-Default Contribution, the
Pre-Control-Event Contribution, or the Preferred Stock Payment Default do not
resign promptly upon the cessation of the Control Event or the Preferred Stock
Payment Default, or at such time as the Post-Default Contribution or the
Pre-Control-Event Contribution is returned to Yamada Corporation or its
Affiliate, as the case may be, pursuant to the terms hereof, the Stockholders
shall have the right to exercise the power conferred pursuant to Section 4.02(b)
and the Restated Certificate of Incorporation of the Corporation to effect the
removal (with or without cause) from office of any such directors.
(c) (i) Argo-Tech hereby agrees to use its best efforts to repay Yamada
or any Affiliate thereof that may contribute funds to the Corporation or such
Subsidiary as contemplated in this Section 2.07; (ii) in the event Yamada or any
Affiliate thereof contributes any funds to the Corporation or any Subsidiary
thereof as contemplated by this Section 2.07, Yamada and Yamada Corporation
hereby agree to, and agree to cause any Affiliate thereof to, take such steps as
may be required so as to thereafter permit the Management Stockholders to
organize a recapitalization of the Corporation or such Subsidiaries so that
Yamada or such Affiliate is repaid such funds, provided that any such
recapitalization shall not in any manner dilute the percentage equity interest
of any of the Stockholders and the Trustee in the outstanding stock of the
Corporation; and (iii) Yamada or Yamada Corporation shall not, and shall use
their respective best efforts to cause any Affiliate thereof not to, prevent or
impede the repayment of any such funds by Argo-Tech (out of legally available
funds) to Yamada, Yamada Corporation, or any Affiliate thereof, or such
recapitalization of the Corporation.
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Section 2.08. OTHER MATTERS RELATED TO THE BOARDS OF DIRECTORS.
(a) [Intentionally omitted.]
(b) In the event of the termination of employment of a Management
Stockholder who, at the time of such termination shall also be serving as a
director on the Argo-Tech Board as a Non-Yamada Argo-Tech Nominee, the
Management Stockholders shall use their respective best efforts to cause such
Management Stockholder to submit to Argo-Tech as promptly as practicable his
resignation as a member of the Argo-Tech Board and any Argo-Tech Board
committees on which he may be then serving. In the event that such Management
Stockholder does not resign promptly upon the termination of employment, the
Stockholders shall exercise the powers conferred pursuant to Section 4.02(b) and
the Restated Certificate of Incorporation of the Corporation to effect the
removal (with or without cause) from office of such Management Stockholder then
serving as a director of Argo-Tech. Upon such Management Stockholder's
resignation or removal as a director, the Person who selected that director to
serve on the Argo-Tech Board shall have the right to select and have elected to
the Argo-Tech Board a replacement director, which director shall also be a
Management Stockholder.
(c) If a director of the Corporation or Argo-Tech shall die, resign, or
be removed prior to the expiration of his term as a director, the Person who
selected such director shall promptly designate a replacement director who shall
promptly be elected as a director.
(d) If, prior to his election to the Argo-Tech Board pursuant to
Section 2.05, any Non-Yamada Argo-Tech Nominee or any Yamada Argo-Tech Nominee
shall be unable or unwilling to serve as a director of Argo-Tech, the Person or
Persons who selected any such nominee shall be entitled to select a replacement
for any such director. If, following election to the Argo-Tech Board, any Non-
Yamada Argo-Tech Nominee or any Yamada Argo-Tech Nominee shall die, resign, or
be removed or be unable to serve for any reason (except pursuant to Section
2.06, Section 2.07, and 2.08(a)) prior to the expiration of his term as a
director, the Person or Persons that selected such director initially if a
Non-Yamada Argo-Tech Nominee, or Yamada if a Yamada Argo-Tech Nominee, shall
within ten (10) days of such event, notify the Board of the Corporation, the
Argo-Tech Board, and the other Stockholders in writing of a replacement
nominee, and the Stockholders shall exercise the powers conferred pursuant to
Section 4.02(b) and the Restated Certificate of Incorporation of the Corporation
to
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effect the election to the Argo-Tech Board of such replacement nominee to fill
the unexpired term of the director whom such new nominee is replacing.
(e) The Stockholders hereby agree that, except as otherwise provided
herein, at any regular or special meeting called for the purpose of removing
directors of the Corporation, or in any written consent executed in lieu of such
a meeting of stockholders, any director of the Corporation may be removed with
or without cause, if the removal is approved by the Person who selected that
director. For the purposes of this Section 2.08(e) and Section 2.08(f), "cause"
shall mean the commission by a director of an act of fraud or embezzlement
against the Corporation or any of its Subsidiaries, a conviction of a felony (or
a guilty plea or a plea of NOLO CONTENDERE related thereto), or the willful
disclosure or unauthorized use of material Confidential Information, which
material Confidential Information is used in competition with the Corporation or
Argo-Tech and which disclosure or unauthorized use has a material adverse
effect on the Corporation or Argo-Tech.
(f) The Stockholders agree that, except as otherwise provided herein, at
any regular or special meeting of the stockholders of Argo-Tech called for the
purpose of removing directors of Argo-Tech, or in any written consent executed
in lieu of such a meeting of stockholders, (i) (A) the Non-Yamada Stockholders
who are parties hereto shall vote for or otherwise direct the Corporation to
vote the stock of Argo-Tech owned by the Corporation for the removal of any
Yamada Argo-Tech Nominee then serving on the Argo-Tech Board upon the
recommendation by Yamada that such director be removed, and (B) Yamada shall
vote for or otherwise direct the Corporation to vote the stock of Argo-Tech
owned by the Corporation for the removal of any Non-Yamada Argo-Tech Nominee
then serving on the Argo-Tech Board upon the recommendation by the Person who
selected such director that such director be removed, and (ii) (A) the
Non-Yamada Stockholders (other than Trustee) who are parties hereto shall vote
for or otherwise direct the Corporation to vote the stock of Argo-Tech owned by
the Corporation for the removal of any Non-Yamada Argo-Tech Nominee where such
removal is for cause, and (B) Yamada shall vote for or otherwise direct the
Corporation to vote the stock of Argo-Tech owned by the Corporation for the
removal of any Yamada Argo-Tech Nominee where such removal is for cause. As used
in this Section 2.08(f), the term "cause" shall have the meaning given thereto
in Section 2.08(e).
(g) Notwithstanding the occurrence of any one or more of the events
described in clauses (i) or (iii)
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of the first sentence of Section 2.06, but subject to the implementation of
provisions contained in Sections 2.06(a) and (c), Yamada hereby agrees that it
shall vote its stock so as to cause the election and reelection upon the
expiration of each succeeding term of the Directors of the Corporation, and any
replacement directors, of those Persons recommended to Yamada as provided in
Section 2.04 hereof; and Yamada hereby agrees that it shall cause the
Corporation to vote the stock of Argo-Tech owned by it to elect and reelect upon
the expiration of each succeeding term as directors of Argo-Tech, and any
replacement directors, those Persons as provided in Section 2.05 hereof; and the
Stockholders hereby agree that they shall use their reasonable efforts to cause
the Corporation to vote its stock to elect and reelect upon the expiration of
each succeeding term as directors of Argo-Tech, and any replacement directors,
those Persons as provided in Section 2.05 hereof.
Section 2.09. CHIEF EXECUTIVE OFFICER OF ARGO-TECH. At all times while
this Agreement remains in effect, the chief executive officer of Argo-Tech shall
be the Person who holds the office of President of Argo-Tech. Initially, such
chief executive officer shall be Michael S. Lipscomb.
Section 2.10. AGREEMENTS WITH THE TRUSTEE AND VESTAR INVESTMENT
PARTNERSHIP. On the date hereof, the Corporation and Argo-Tech shall enter into
a supplemental stockholders' agreement with the Trustee and the Corporation
shall enter into a stock subscription agreement with the Vestar Investment
Partnership in the forms of Exhibits 2.10A and 2.10B, respectively, annexed
hereto. The parties hereto expressly agree that the Argo-Tech ESOP and the
Trustee, and any successor Trustee under the Argo-Tech ESOP, shall be intended
third party beneficiaries of, and have the right to enforce, all of the
provisions of this Agreement, and that the Vestar Investment Partnership shall
be an intended third party beneficiary of, and has the right to enforce, certain
provisions of this Agreement, entitled to receive the benefits of and to enforce
such provisions of this Agreement, all as provided in Section 12.24. Each of the
parties to this Agreement further represents and warrants that it or he has
reviewed Exhibits 2.10A and 2.10B and has no objection to any of the terms and
conditions of either of the agreements contained in these Exhibits.
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ARTICLE III
RESTRICTIONS ON DISPOSITIONS OF SECURITIES;
-------------------------------------------
INVESTMENT REPRESENTATIONS
--------------------------
Section 3.01. PROHIBITED DISPOSITION. (a) Each of the Stockholders
agrees that, during the term of this Agreement, such Stockholder shall not make
any Disposition of any Securities except for Permitted Dispositions, and each
such Stockholder shall make such Dispositions only in accordance with and as
provided for or permitted in this Agreement.
(b) Each of the Stockholders agrees that it or he will not give any
proxy with respect to Securities owned by such Stockholder that is inconsistent
with any provision of this Agreement.
(c) Each of the Stockholders agrees that such Stockholder shall not make
any Disposition of all or any of the Securities owned by such Person unless it
or he furnishes the Corporation with the opinion of counsel referred to in
Section 3.04 hereof (unless the Corporation waives the delivery of such
opinion), which opinion shall also provide that such Disposition when and if
consummated is in compliance with the federal and all applicable state
securities laws.
Section 3.02. OTHER AGREEMENTS. Each Stockholder represents to and
covenants with each of the other Stockholders and the Corporation that none of
the Securities that he or it now owns or hereafter acquires, are, or at any time
will be, subject to any restriction or limitation other than those imposed by
law or set forth in or permitted by:
(a) This Agreement;
(b) Certain individual Pledge Agreements executed by certain
Management Stockholders and the Corporation as pledgee in connection
with the purchase by such certain Management Stockholders of Class A
Common Stock (collectively, the "Pledge Agreements"); and
(c) The respective Subscription Agreements entered into by and
between the Corporation and each of the Investor Stockholders, each of
the Management Stockholders, and each of the Outside Directors.
The agreements identified in subparagraphs (b) and (c) of this Section 3.02 do
not, and will not at any time, contain
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any provision inconsistent with the provisions of this Agreement, and, in the
event that such an inconsistency arises, the terms and provisions of this
Agreement shall govern the interpretation of any such inconsistency.
Section 3.03. REPRESENTATIONS AND WARRANTIES. Each Stockholder
acknowledges and represents to each of the other Stockholders and the
Corporation that:
(a) It or he has neither been offered any Common Stock by any
form of general solicitation or advertising nor has it or he received
any public media advertisements or any form of mass mailing solicitation
with respect to the Common Stock and it or he is not aware of any such
advertisements or solicitations;
(b) Its or his acquisition of Common Stock has been or will be
made for its or his own account for investment purposes only and not
with a view toward the distribution thereof;
(c) It or he has been advised that the Common Stock is not
registered under the Act or any applicable Blue Sky Laws;
(d) It or he has been advised that the shares of Common Stock
are "restricted securities" as that term is used in Rule 144 ("Rule
144") promulgated under the Act;
(e) It or he has been furnished with such information about the
Corporation as he or it has requested and has had the opportunity to
communicate with officers and directors of the Corporation in order to
verify the accuracy of or supplement the furnished information; and
(f) It or he, alone or together with any persons the Stockholder
has retained to advise such Stockholder with respect to the acquisition
of Common Stock and all transactions related thereto, has such knowledge
and experience in financial and business matters that such Stockholder
is capable of evaluating the risks and merits of the purchase of Common
Stock.
Section 3.04. LEGEND ON CERTIFICATE. Certificates representing ownership
of Securities shall bear one of the following legends:
"THIS CERTIFICATE IS HELD SUBJECT TO AN AGREEMENT AMONG
VESTAR/AT HOLDINGS CORPORATION
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("THE CORPORATION") AND ITS STOCKHOLDERS DATED AS OF DECEMBER 24, 1990
AND THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE
TRANSFERABLE ONLY IN ACCORDANCE WITH THE TERMS, CONDITIONS AND
RESTRICTIONS OF THAT AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION. ANY ATTEMPTED DISPOSITION OF THIS
CERTIFICATE OR THE SHARES OF STOCK REPRESENTED HEREBY IN VIOLATION OF
SUCH AGREEMENT SHALL BE NULL AND VOID."
-or-
"THIS CERTIFICATE IS HELD SUBJECT TO AN AGREEMENT AMONG AT
HOLDINGS CORPORATION ("THE CORPORATION") AND CERTAIN OF ITS STOCKHOLDERS
DATED AS OF MAY 17, 1994 AND THIS CERTIFICATE AND THE SHARES OF STOCK
REPRESENTED HEREBY ARE TRANSFERABLE ONLY IN ACCORDANCE WITH THE TERMS,
CONDITIONS AND RESTRICTIONS OF THAT AGREEMENT, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION. ANY ATTEMPTED
DISPOSITION OF THIS CERTIFICATE OR THE SHARES OF STOCK REPRESENTED
HEREBY IN VIOLATION OF SUCH AGREEMENT SHALL BE NULL AND VOID."
In addition to the foregoing, certificates issued to the parties to this
Agreement and their successors representing ownership of non-registered
Securities shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933, UNLESS IN THE OPINION
(WHICH OPINION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED."
The parties agree that non-registered Securities shall be subject to the
restrictions set forth in the foregoing legend. To the extent any stock
certificates held by any of the Stockholders and representing ownership of the
Corporation's Securities do not bear the foregoing legends, each such Person
shall, within five (5) days after the date on which he or it executes this
Agreement, surrender to the Corporation such certificates that do not bear such
legends so that such legends, as applicable, may be placed on each such
certificate.
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<PAGE> 41
Section 3.05. TRANSFER OF PREFERRED STOCK. The parties hereto agree that
any holder of Preferred Stock may transfer the Preferred Stock held by it to any
Person, provided (a) such Person or any of its Subsidiaries, Affiliates,
divisions, or business units does not engage in any line of business that
competes in any manner with the Corporation or Argo-Tech, and (b) the proposed
transferor provides written notice of such proposed disposition of the Preferred
Stock to the Corporation not less than five (5) Business Days prior to any such
disposition. The Corporation hereby agrees to provide copies of such notice to
the other holders of Preferred Stock and to the holders of Common Stock.
Section 3.06. TRANSFERS INVALID. The parties hereto agree that any
attempted Disposition of Securities made in violation of this Agreement shall be
null and void. The intended transferee of such Securities shall not be entitled
to have such Securities transferred upon the books of the Corporation, and no
Person shall be entitled to vote such Securities or receive dividends thereon
until such transfer is rescinded.
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<PAGE> 42
ARTICLE IV
VOTING OF STOCK: CERTAIN CORPORATE
----------------------------------
GOVERNANCE MATTERS
------------------
Section 4.01. VOTING RIGHTS. On all matters subject to stockholder
action (except as otherwise provided in the Restated Certificate of
Incorporation of the Corporation), the Class A Common Stock and the Class B
Common Stock will vote share for share.
Section 4.02. CERTAIN CORPORATE GOVERNANCE MATTERS. (a) Until the
consummation of an Acceptable Company Offering or an Acceptable Demand Offering,
each of the Stockholders agrees to vote its or his stock in the Corporation so
as to assure that, at all times after the date hereof, the Restated Certificate
of Incorporation of the Corporation shall provide that none of the following
actions shall be approved or be deemed approved or authorized by the Board, nor
shall any officer or any other Person purporting to act on behalf of the
Corporation take any such actions, unless such actions shall have been approved
by not less than 80% of the members of the Board then serving (namely, with
respect to the current Board, four of the five directors):
(i) any transaction between the Corporation and Yamada or an
Affiliate of Yamada, or any other transaction or series of transactions
between the Corporation and another Person, unless the terms and
conditions thereof are at least as favorable to the Corporation as terms
and conditions reasonably obtainable at the time for a comparable
transaction or series of similar transactions in arms' length dealings
with an independent and unrelated third party (the latter, a "Related
Transaction"); PROVIDED, HOWEVER, that this clause (i) of Section
4.02(a) shall not apply to (x) the payment of any investment banking,
financing, or consulting fees to Vestar on or after the date hereof, or
(y) the transactions contemplated by and the payment of fees after the
Closing Date pursuant to and in accordance with the terms and conditions
of the Guaranty Agreement or the Guaranty Fee Agreement, the
Distribution Agreement, the Yamada Distributorship Agreement, the
Yamada-Japan Distributorship Agreement, and the Supplemental
Distribution Performance Agreement, which Supplemental Distribution
Performance Agreement was dated the Closing Date, and was by and among
Yamada Corporation, Yamada International, Argo-
<PAGE> 43
Tech, Aerotech, and Vestar (the "Supplemental Performance Agreement").
(ii) a merger, consolidation, liquidation, or dissolution of the
Corporation, or a sale, lease, exchange, transfer, or other disposition,
including without limitation a mortgage or any other security device, by
the Corporation of all or any part of or interest in the stock of
Argo-Tech, or the voting of the stock of Argo-Tech in favor of a merger,
consolidation, liquidation, or dissolution of Argo-Tech, or the sale,
lease, exchange, transfer, or other disposition, including without
limitation a mortgage or any other security device, by Argo-Tech of all
or substantially all of its assets, except that such approval shall not
be required if (w) the net per share amount of proceeds realized as a
result of such transaction by all the holders of the Common Stock is the
same, and is paid upon the same terms and condition as that realized by
all other holders of the Common Stock; (x) in the event of a merger,
consolidation, liquidation, or dissolution of Argo-Tech, or the sale,
lease, exchange, transfer, or other disposition, including without
limitation a mortgage or any other security device, by Argo-Tech of all
or substantially all of its assets, or the sale, lease, exchange,
transfer, or other disposition, including without limitation a mortgage
or any other security device, by the Corporation of all or any part of
the stock of Argo-Tech, the portion of the net proceeds thereof that
holders of the Common Stock are eligible to receive after taking into
account any distributions required pursuant to the terms of the
Preferred Stock shall be distributed ratably to all the holders of the
Common Stock; and (y) an independent investment banking firm mutually
acceptable to Yamada and the representatives of the Management
Stockholders then serving on the Board, or such other representative as
the Management Stockholders may designate (or, in the event that Yamada
and such representatives of the Management Stockholders shall fail to
agree on the selection of an independent investment banking firm, then
each such party shall choose an independent investment banking firm,
which two independent investment banking firms shall select a third
independent investment banking firm whose selection and decision shall
be binding) shall have determined that the price to be realized
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<PAGE> 44
from such transaction is fair from a financial point of view to all the
Stockholders and the Trustee, which investment banking firm(s) shall
have all of their fees and expenses related to such determination paid
for by the Corporation;
(iii) (a) any dilution of the percentage ownership interest of
any of the Non-Yamada Stockholders in the outstanding Common Stock
pursuant to the issuance of any capital stock of the Corporation or
securities convertible into any capital stock of the Corporation (other
than pursuant to an Acceptable Company Offering, an Acceptable Demand
Offering, the issuance of any shares or options therefor pursuant to the
Argo-Tech Corporation 1991 Management Incentive Stock Option Plan and
the 1991 Argo-Tech Corporation Performance Option Plan, or the issuance
of any shares pursuant to an employee benefit plan for the benefit of
employees of Argo-Tech, or to new members of the management of Argo-Tech
or new Outside Directors as contemplated by Section 2.03(b)), (b) the
issuance of any capital stock of Argo-Tech to any Person, (c) amending
the Restated Certificate of Incorporation of the Corporation or
otherwise altering, changing, or modifying the terms of the Preferred
Stock, (d) the issuance of, or amending the Restated Certificate of
Incorporation to provide for the issuance of, any additional preferred
stock, (e) the issuance of any debt securities, (f) a change in the
capital structure of the Corporation, including but not limited to
changing the capital structure pursuant to a reverse stock split, in any
manner that would have a material adverse effect on the Non-Yamada
Stockholders that is different in kind from the effect on Yamada and its
affiliates, or (g) the declaration or payment of any dividend to any
Person (other than any dividends paid pursuant to or in accordance with
the terms of the Preferred Stock);
(iv) any change in the distribution arrangements related to
Argo-Tech's products, other than pursuant to any written agreements or
understandings that have been or shall hereafter be entered into between
Yamada or an Affiliate thereof and the two directors then serving on the
Board who were selected by the chief executive officer of Argo-Tech;
PROVIDED, HOWEVER, that any change in the distribution arrangements
related to Argo-Tech's products reflected in the
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<PAGE> 45
Distribution Agreement and the Supplemental Performance Agreement must
be approved by Yamada or an Affiliate thereof and Argo-Tech; PROVIDED,
FURTHER, that any change in the distribution arrangements related to
Argo-Tech products reflected in the Yamada Distribution Agreement and
the Yamada-Japan Distribution Agreement shall be approved by each of the
parties thereto; and PROVIDED, FURTHER, that the parties hereto
acknowledge that the Distribution Term, as that term is defined in the
Yamada Distributorship Agreement will commence on November 1, 1994, that
Vestar's right to defer the commencement of the Distribution Term has
lapsed due to the Vestar Investment Partnership ceasing to be a holder
of five percent of the Common Stock of Argo-Tech, and that no party
hereto has any right to defer the commencement of such Distribution Term
or to object to the succession of Yamada Sales to Aerotech, under the
terms of the Yamada Distribution Agreement, that certain Supplemental
Distributor Performance Agreement among Argo-Tech Corporation, Aerotech,
Yamada Corporation, Yamada, and Vestar, dated as of December 24, 1990,
or otherwise.
(v) any change in the Restated Certificate of Incorporation of
the Corporation that relates to the election or removal of directors,
the requirement contained herein and therein that certain actions or
types of transactions specified herein and therein must be approved by
not less than 80% of the directors then serving, or the voting of the
stock of Argo-Tech to approve any change in the Restated Certificate of
Incorporation of Argo-Tech relating to the election and removal of
directors or the requirement for stockholder approval of certain actions
or transactions specified in the Restated Certificate of Incorporation
of Argo-Tech;
(vi) the voting of the stock of Argo-Tech by the Corporation as
sole stockholder or the taking of any action by the Board or any Person
purporting to act on behalf of the Corporation on any action or
transaction as to which the sole stockholder has exclusive voting power
pursuant to Section 4.02(d) and the Restated Certificate of
Incorporation of Argo-Tech; or
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<PAGE> 46
(vii) until December 24, 1996, a Public Offering; PROVIDED,
HOWEVER, that any such Public Offering approved prior to that date must
be an Acceptable Company Offering or an Acceptable Demand Offering.
(b) The Restated Certificate of Incorporation of the Corporation shall
provide that, from the date hereof until the consummation of an Acceptable
Company Offering or an Acceptable Demand Offering, the power of the Corporation,
as sole stockholder of Argo-Tech, to elect and remove members of the board of
directors of Argo-Tech shall be vested exclusively in the stockholders of the
Corporation. The Stockholders agree to take all such actions and exercise such
powers during such period to elect the nominees selected to be members of the
Argo-Tech Board pursuant to the provisions of Section 2.05 or any other
provisions of this Agreement and to remove such members of the board of
directors of Argo-Tech as provided in Section 2.06, Section 2.07, and Section
2.08.
(c) Argo-Tech agrees that, unless such actions shall have been approved
by not less than 80% of the members of the Board then serving, until the
consummation of an Acceptable Company Offering or an Acceptable Demand Offering,
Argo-Tech shall not (A) enter into any transaction or series of transactions
with Yamada or an Affiliate of Yamada, or enter into a Related Transaction; (B)
sell, lease, exchange, transfer, or otherwise dispose of, including without
limitation a mortgage or any other security device, all or substantially all of
its assets, unless the conditions set forth in Section 4.02(a)(ii) shall have
been met; (C) authorize the issuance of or issue any debt securities, equity
securities, or securities convertible into or exchangeable for equity
securities, or declare or pay any dividend to any Person (other than any
dividends paid in connection with the payment by the Corporation of any
dividends pursuant to or in accordance with the terms of the Preferred Stock),
or (D) take any action violative of clause (iv) of Section 4.02(a).
(d) The Restated Certificate of Incorporation of Argo-Tech shall
provide that, from and after the date hereof until the consummation of an
Acceptable Company Offering or an Acceptable Demand Offering, the authority to
approve or authorize any action or transaction described in clauses (A) through
(D) of Section 4.02(c) shall be vested exclusively in the sole stockholder of
Argo-Tech.
(e) The Corporation shall not, at any time, issue any additional equity
securities for a consideration
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<PAGE> 47
per share (computed as provided in the next sentence of this Section 4.02(e))
less than the fair market value of such securities on the date the Board
determines to issue such securities (or to grant rights, options, or securities
convertible or exchangeable therefor), except that, in the case of Common Stock
issuable under a stock option plan approved prior to the date hereof by the
Board, options may be granted, and shares of Common Stock may be issued, at
purchase prices less than such fair market value; PROVIDED, HOWEVER, that the
number of shares issuable under such plans may not be increased. To the extent
that any additional equity securities, or any securities that are exercisable
for or convertible or exchanged into, directly or indirectly, equity securities,
shall be issued or granted for a cash consideration (excluding any securities
issued pursuant to commitments outstanding prior to the date hereof), the
consideration received by the Corporation therefor shall be deemed to be the
amount of cash received, excluding amounts paid or payable for accrued interest
or accrued dividends, but without deducting commissions and expenses paid or
incurred by the Corporation for any underwriting of, or otherwise in connection
with, the issue or sale thereof; and, to the extent that such issue or grant
shall be for a consideration other than cash, then, for purposes of this Section
and except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be such amount as shall be determined by the
Corporation as the fair value of such consideration at the time of such issue
or grant. For the purposes of this Section, the fair market value of any
securities that are exercisable for or convertible or changeable into, directly
or indirectly, other securities, shall be equal to the fair market value of the
underlying securities on the date of issuance of the convertible or changeable
securities. The consideration for any securities that are exercisable for or
convertible or changeable into, directly or indirectly, other securities, shall
(i) in the case of additional shares issued or issuable pursuant to rights or
options, be the consideration received by the Corporation for granting such
rights or options plus the additional consideration paid or payable to the
Corporation upon the exercise of such rights or options, and (ii) in the case of
additional shares issued or issuable pursuant to the terms of a conversion or
exchange of such securities, be the consideration received by the Corporation
for granting any rights or options to subscribe for or purchase such securities,
plus the additional consideration paid or payable to the Corporation upon the
exercise of the right of conversion or exchange of such securities, in each case
after deducting the aggregate amount, if any, paid by the Corporation in cash,
upon such exercise, for fractional shares pursuant to the terms of such
securities.
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<PAGE> 48
ARTICLE V
PREEMPTIVE RIGHTS WITH RESPECT TO NEW SECURITIES
------------------------------------------------
Section 5.01. NEW SECURITIES.
In the event that the Corporation shall issue any New Securities, then
the Corporation shall first give thirty (30) days' prior written notice of such
proposed issuance to all Stockholders and the Trustee, whereupon each
Stockholder and the Trustee shall have the right, exercisable upon the delivery
of a notice to the Corporation not more than fifteen (15) days after their
receipt of the aforesaid notice from the Corporation, to purchase in ratable
portions for the same price and on the same terms and conditions, such further
amounts of New Securities as are being issued by the Corporation as shall be
required to maintain that percentage of all outstanding Securities owned by such
Person equal to the percentage of all issued and outstanding Common Stock owned
by such Person immediately prior to the issuance of any New Securities (taking
into account for such purpose the number of shares of Common Stock issuable
pursuant to options, warrants, convertible securities, or other rights held in
the aggregate by all Stockholders and the Trustee).
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<PAGE> 49
ARTICLE VI
VESTING OF MANAGEMENT STOCK;
----------------------------
RIGHT OF FIRST REFUSAL
----------------------
Section 6.01. VESTING OF MANAGEMENT STOCK. Management Stockholders who
purchase, or who have purchased, shares of Class A or Class D Common Stock shall
be deemed immediately vested in such shares of Class A Common Stock upon payment
therefor.
Section 6.02.
(a) [Intentionally omitted.]
(b) [Intentionally omitted.]
(c) [Intentionally omitted.]
(d) [Intentionally omitted.]
(e) [Moved; has become new Section 8.03]
Section 6.03. RIGHT OF FIRST REFUSAL.
(a) [Intentionally omitted.]
(b) [Intentionally omitted.]
(c) After the date hereof, the Stockholders shall have the right to make
a Disposition of Class A and Class D Common Stock owned by them to any third
party or to any other Stockholder or the Trustee; PROVIDED, HOWEVER, that any
such Disposition, other than a Permitted Disposition, is made in accordance
with the procedures set forth in this Section 6.03(c).
(i) In the event a Stockholder seeks to make a Disposition pursuant to
this Section 6.03(c) to a third party or any other Stockholder, the Person
proposing to make the Disposition shall notify the Board and Argo-Tech in
writing of the terms of such proposed Disposition, which terms shall include,
but not be limited to, the proposed purchase price of such Securities.
(ii) After receiving such notice, the Board shall send copies of the
notice to the other Stockholders and to the Trustee, and the Board or the
Executive Committee of the Board shall have ten (10) Business Days (the "Board
Determination Period") to determine either (A) that all, but not less than all,
of such Securities shall be purchased by the Corporation or Argo-Tech, or (B)
that the Management Stockholders (other than any
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<PAGE> 50
Management Stockholder seeking to make a Disposition) shall have the right to
purchase all, but not less than all, of such Securities that are sought to be
disposed of by the Person proposing to make the Disposition. Within one (1)
Business Day after the expiration of the Board Determination Period, the
Corporation shall notify the Stockholders and the Trustee in writing as to its
decision (the "Determination Notice").
(iii) If the Board or Executive Committee of the Board
determines that the Corporation or Argo-Tech shall purchase all, but not less
than all, of such Securities, the Corporation shall have ten (10) Business Days
after providing its Determination Notice within which to reach a written
agreement with the selling Stockholder for the purchase of such Securities at a
price equal to the price offered by such third party or by such other
Stockholder and upon such other terms as such Stockholder and the Corporation
may agree.
(iv) In the event that (A) the Board or the Executive Committee of the
Board determines that none of such Securities shall be purchased by the
Corporation or Argo-Tech, or (B) no written agreement is reached with such
selling Stockholder with respect to the purchase of such Securities within ten
(10) Business Days as provided for in Section 6.03(c)(iii), the Board shall
grant the Management Stockholders (other than any Management Stockholder seeking
to make the Disposition) the right to purchase all, but not less than all, of
such Securities that are being offered by such Person. Within two (2) Business
Days of the Board rendering its Determination Notice or failing to reach written
agreement with the selling Stockholder as to the purchase of such Securities,
the Board shall give written notice to the Management Stockholders (other than
any Management Stockholder seeking to make the Disposition) specifying the
number of shares each Management Stockholder shall have the right to purchase,
which number shall not be less than such Management Stockholder's Pro Rata Share
of Securities so offered (the "Management Offer"). Such Securities shall, for a
period of ten (10) Business Days, be offered to all Management Stockholders
(other than any Management Stockholder seeking to make the Disposition) on the
same proposed terms as such Securities were initially offered to the
Corporation, and the Management Stockholders (other than any Management
Stockholder seeking to make the Disposition) shall be entitled to purchase their
respective Pro Rata Share of Securities so offered at a price equal to the price
offered by the third party or such other Stockholder and upon such other terms
as the selling Stockholder and the purchaser(s) shall agree. Within such ten
(10)-Business Day period, any Management Stockholder electing to purchase such
Securities that are being offered
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<PAGE> 51
by such other Stockholder shall provide the Corporation a written notice stating
the amount of Securities he elects to purchase (a "Management Acceptance"). If
the Corporation does not receive a Management Acceptance from any Management
Stockholder to whom a Management Offer was made, then such Management
Stockholder shall be deemed to have rejected the Management Offer. Any
Management Acceptance shall constitute an irrevocable commitment of such
Management Stockholder to purchase the amount of Securities specified therein.
(v) If a Management Offer has been made pursuant to this Section
6.03(c), and the Management Stockholders do not purchase all such stock that is
sought to be disposed of by the selling Stockholder, then none of the Management
Stockholders shall have the right to purchase any such stock, and, no later than
two (2) Business Days after the date on which Management Acceptances are due,
the Corporation shall give each Investor Stockholder a written notice offering
such Investor Stockholders an opportunity for a period of five (5) Business days
to purchase all, but not less than all, the Securities the selling Stockholder
is seeking to dispose of that are not subject to purchase pursuant to Management
Acceptances (the "Remaining Offered Securities"). Such Remaining Offered
Securities shall be offered to the Investor Stockholders on the same proposed
terms as such Securities were initially offered to the Corporation (an "Investor
Offer"). Within such five (5) Business Day period, any Investor Stockholder
electing to purchase such Securities shall give the Corporation written notice
stating the amount of Securities the Investor Stockholder elects to purchase (an
"Investor Acceptance"). If the Corporation does not receive an Investor
Acceptance from an Investor Stockholder within such five (5) Business Day
period, then such Investor Stockholder shall be deemed to have rejected the
Investor Offer. Any Investor Acceptance shall constitute an irrevocable
commitment of such Investor Stockholder to purchase the amount of Securities
specified therein. If one or more of the Investor Stockholders elects to
purchase amounts of Remaining Offered Securities that in the aggregate exceed
the total amount of Remaining Offered Securities, then the Remaining Offered
Securities shall be allocated among the Investor Stockholders accepting an
Investor Offer so that each such Investor Stockholder shall be entitled to
purchase his or its Pro Rata Share of the Remaining Offered Securities;
PROVIDED, HOWEVER, that no such Investor Stockholder shall be required to
purchase an amount of Remaining Offered Securities greater than the number set
forth in the Investor Acceptance.
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<PAGE> 52
(vi) In the event that the Corporation, Argo-Tech, the Management
Stockholders (other than any Management Stockholder seeking to dispose of his
Securities), or the Investor Stockholders do not exercise their respective
rights of first refusal for all the Securities that are being offered by the
selling Stockholder in accordance with this Section 6.03(c), then (A) the
Corporation shall give written notice of that result to Argo-Tech, the
Stockholders, and the Trustee and (B) the Stockholder seeking to dispose of such
Securities shall have the right to sell all such Securities originally offered
for sale to the third party or the other Stockholder on the terms originally
offered.
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<PAGE> 53
ARTICLE VII
INDEPENDENT EVALUATION
----------------------
Section 7.01. [Intentionally omitted.]
Section 7.02. INDEPENDENT EVALUATION. In the event that the Board has
determined the Fair Market Value as described in Section 1.56, and if the
Stockholder whose shares are being purchased by the Corporation pursuant to the
terms of this Agreement disagrees with the Fair Market Value of such Securities
as so determined by the Board, the selling Stockholder shall, within five (5)
days of receiving notice of such Fair Market Value determined by the Board
notify the Board in writing if he or it disagrees with the Fair Market Value of
the Securities as so determined. Within fifteen (15) days of receiving such
notice, the Board and the Stockholder shall together select a mutually agreeable
independent third party experienced in valuation matters (the "Appraiser") to
render an opinion as to the fair market value of the Securities. In the event
that the Stockholder and the Board cannot mutually agree on the selection of an
Appraiser, the Stockholder and the Board shall each select an Appraiser, which
two Appraisers shall together select a third independent third party experienced
in valuation matters (the "Third Appraiser") who shall render a opinion as to
the Fair Market Value of the Securities. The opinion of the Appraiser or the
Third Appraiser, as the case may be, as to the Fair Market Value of the
Securities shall be final and binding on the parties. In the event the
Appraiser's or the Third Appraiser's determination of the Fair Market Value of
such Securities is not greater than 110% of the Fair Market Value of such
Securities as determined by the Board, the Stockholder challenging such
determination shall share the expenses incurred by the Corporation in retaining
such Appraiser or Third Appraiser in an amount equal to the lesser of (i) Ten
Thousand Dollars ($10,000), or (ii) twenty-five percent (25%) of the after tax
profit realized by the Stockholder on the Disposition of the Securities that
necessitated the Fair Market Value determination. If the Appraiser's or Third
Appraiser's determination of the Fair Market Value of such Securities is more
than 110% of the Fair Market Value of such Securities as determined by the
Board, the Corporation shall bear all such expenses incurred in retaining such
Appraiser or Third Appraiser.
Section 7.03. [Intentionally omitted.]
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<PAGE> 54
ARTICLE VIII
LIMITATIONS AND OTHER MATTERS RELATED
-------------------------------------
TO PAYMENT OF THE PURCHASE PRICE
--------------------------------
Section 8.01. GENERAL LIMITATIONS. Notwithstanding any other provision
in this Agreement, the obligation of the Corporation or Argo-Tech to purchase
Securities hereunder and pay the Purchase Price for such Securities in
accordance with Section 6.03 or Article IX is subject to any restrictions and
limitations imposed on the Corporation or any of its Subsidiaries by (i)
applicable law, including without limitation, the existence of funds legally
available under the General Corporation law of the State of Delaware to effect
such purpose; (ii) any agreement to which the Corporation or any Subsidiary or
Affiliate thereof may become a party at or after the Closing Date that gives
rise to actual or contingent indebtedness, whether as principal or as guarantor
for a parent or Subsidiary of the Corporation; and (iii) any default on funded
debt that exists and is continuing or any event which, with the lapse of time or
the giving of notice, or both, would constitute an Event of Default as such term
may be defined in any agreement to which the Corporation or its Subsidiaries may
be a party related to funded debt (collectively, all of the foregoing events
described in phrase (iii) of this Section 8.01 are hereinafter referred to as a
"Default").
Section 8.02. CLOSING OF PURCHASE OF SECURITIES; DELIVERY OF
CERTIFICATES. The closing of a purchase of Securities pursuant to Section 6.03
shall take place in accordance with the timetable set forth in Section 6.03. At
such closing (i) the selling Stockholder shall deliver to the purchaser(s) of
such Securities the certificates reflecting his ownership of the Securities
being purchased properly endorsed in blank for transfer upon the books and
records of the Corporation, together with such other documents as the
purchaser(s) may reasonably request, and (ii) the purchaser(s) shall deliver to
the selling Stockholder the purchase price for such shares in immediately
available funds.
Section 8.03. CORPORATION'S NOTE. With respect to any shares of Class A
or Class D Common Stock the purchase of which under Article IX would result in
the occurrence of a Default or the breach of any limitation on the payment of
the Purchase Price as provided for in Section 8.01, the Corporation shall give
the Stockholder (or his successor or representative, as the case may be), the
other Stockholders, and the Trustee prompt written notice of the occurrence or
existence of such a Default or breach, setting forth in reasonable detail the
specifics
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<PAGE> 55
thereof and indicating the number of shares of Class A Common Stock, if any,
that the Corporation or Argo-Tech is permitted to purchase in cash without such
purchase resulting in such a Default or breach of such provisions, and the
Corporation or Argo-Tech shall purchase such number of shares in cash on the
Scheduled Put Closing Date. With respect to any remaining shares of Class A or
Class D Common Stock that the Corporation is unable to purchase in cash on the
Scheduled Put Closing Date, the Corporation shall, subject to any limitation as
provided in Section 8.01, pay for such Securities on the Scheduled Put Closing
Date with a subordinated promissory note in substantially the form of Exhibit
8.03 (the "Corporation's Note" or, if there be more than one, the "Corporation's
Notes"), which Corporation's Note shall bear interest at the prime rate of
interest in dollars (U.S.) in effect at that time by Sumitomo Bank, and which
interest shall not be payable in cash at the time (unless the Corporation
determines in its sole discretion to pay such interest in cash currently), but
such interest shall accrue during such period of suspension of payment by the
Corporation to the extent permitted by applicable law and by any such agreements
giving rise to actual or contingent indebtedness to which the Corporation or any
of its Subsidiaries is a party, and such interest shall be payable in full at
maturity of such Corporation's Note if then permitted to be so paid and if not
then permitted to be so paid, then at the earliest time such interest may be
paid. The Corporation shall promptly notify the Stockholder, the other
Stockholders, and the Trustee in writing as soon as the Corporation is no longer
prevented from making a cash payment to satisfy the Corporation's Note issued
for any shares purchased from Stockholders or the Trustee. The Corporation shall
make such cash payment to the Stockholder within five (5) days of providing such
notice and to the full extent possible without exceeding the limits established
by Section 8.01. Such resumed payment shall be applied first to accrued and
unpaid interest on the principal amount of such Corporation's Note. In the event
that full payment under such Corporation's Note cannot be made without exceeding
such limitations, payments will be made PRO RATA with all other outstanding
obligations to former Stockholders, if any, for payment of the Purchase Price
for Securities purchased hereunder.
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ARTICLE IX
PUT RIGHTS OF CERTAIN
---------------------
STOCKHOLDERS; CERTAIN OTHER RIGHTS
----------------------------------
Section 9.01. PUT RIGHTS FOR SHARES OWNED BY CERTAIN STOCKHOLDERS. (a)
Subject to the limitations contained in Section 9.05.1 hereof, the Management
Stockholders and the Outside Directors shall have a right, exercisable by any
Person no more than once in any calendar year, to put to the Corporation or
Argo-Tech the shares of Class A and Class D Common Stock beneficially owned by
such Stockholders (the "Put") in accordance with this Section 9.01 and the
procedures set forth in Section 9.02; PROVIDED, HOWEVER that such Put right must
be exercised by the Stockholders having the Put rights on or before April 30,
2004, after which the Put rights shall terminate and be of no further force and
effect; and PROVIDED, FURTHER, that no Person may exercise Put rights with
respect to more than one-third of his shares prior to April 30, 1995, or more
than two-thirds of his or its shares prior to April 30, 1996, so that Put rights
with respect to no more than one-third of the total shares subject to Put rights
may be exercised prior to April 30, 1995, and no more than two-thirds of such
total shares may be exercised prior to April 30, 1996. The exercise of Put
rights hereunder shall be effected during a four week period, to be selected
annually by the chief executive officer of Argo-Tech, during the second fiscal
quarter of Argo-Tech, and such chief executive officer shall be responsible for
establishing and implementing appropriate procedures for the exercise of such
Put rights in accordance with this Article IX.
(b) [Intentionally omitted.]
(c) Upon the consummation of an Acceptable Company Offering or an
Acceptable Demand Offering involving the stock of the Corporation, the Put
rights provided by this Section 9.01 shall cease to exist.
Section 9.02. PUT RIGHT PROCEDURES; OTHER AGREEMENTS. (a) The Put
right provided for in Section 9.01 shall be exercisable in accordance with the
following procedures:
(i) Within the time periods provided for in Section 9.01(a), the
Persons desiring to exercise the Put shall notify the Corporation and
Argo-Tech in writing whether the particular Person is exercising the Put
right pursuant to Section 9.01 and specifying the number of shares of
the Class A and/or Class D Common Stock that is being put to the
Corporation and Argo-Tech by the Person.
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(ii) Within ten (10) Business Days after such notification, the
Corporation shall calculate the Put Stock Value for the Class A and
Class D Common Stock subject to the Put, as such value shall be
determined in accordance with Section 9.03.
(iii) [Intentionally omitted.]
(iv) The Corporation shall first be obligated to purchase and
shall purchase any Class A and Class D Common Stock put to it pursuant
to the exercise of the Put no later than the thirtieth (30th) Business
Day following the notification of the exercise of the Put.
(v) In the event that the Corporation does not consummate the
purchase of the Class A and Class D Common Stock put to it within the
timetable provided by Section 9.02 (a)(iv), the Persons desiring to
exercise the Put shall have the right to place such Put to Argo-Tech,
and Argo-Tech shall be obligated to purchase and shall purchase such
Class A and Class D Common Stock put to it no later than the fortieth
(40th) Business Day following the notification of the exercise of the
Put.
(vi) In the event that neither the Corporation nor Argo-Tech
consummates the purchase for cash of all of the Class A and Class D
Common Stock put to them pursuant to the Put within the timetable
provided by Sections 9.02(a)(iv) and 9.02(a)(v), the Corporation shall
deliver to the Person or Persons desiring to exercise the Put, if and
to the extent permitted by Section 8.01, a Corporation's Note containing
the provisions described in Section 8.03 and representing the purchase
price for the shares subject to the Put (or the balance thereof if a
portion of the purchase price is capable of being paid in cash). Any
Person who would otherwise receive a Corporation's Note in full or
partial payment for his or her shares may withdraw all or any portion of
the Put within five (5) days of being advised in writing of that fact by
the Corporation or Argo-Tech as provided in Section 8.03.
(vii) [Intentionally omitted.]
(viii) The closing of the purchase of any Class A Common Stock
purchased by the Corporation or Argo-Tech pursuant to Sections 9.02(a)
(iv), 9.02 (a)(v) , or 9.02(a)(vi) (the "Scheduled Put Closing Date")
shall take place promptly but in no event later than the dates referred
to in such Sections, and the purchase price for such shares shall be
paid to the Persons participating in the Put (x) in dollars (U.S.) by
wire transfer of immediately available funds upon the closing of such
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purchase and/or (y) by delivery of the Corporation's Note, as the case may be.
Notwithstanding any other provision in this Agreement to the contrary,
in the event that the Corporation or Argo-Tech at any time does not fulfill any
of their respective obligations hereunder in connection with purchasing the
shares put to the Corporation or Argo-Tech pursuant to a Put, the Persons
exercising the Put rights shall have all the legal rights and remedies available
to them under applicable law. In the event that the Persons exercising the Put
rights at any time make any claim or initiate any action, suit, or proceeding
with respect to the enforcement of any of their rights granted pursuant to a
Put, the Corporation and Argo-Tech, jointly and severally, shall be liable for
all expenses incurred by such Persons in prosecuting such action, suit, or
proceeding, including, but not limited to, all reasonable attorney and
accountant fees and expenses related thereto if such Persons prevail in a final
judgment in a court of competent jurisdiction (subject to the venue requirements
contained in Section 12.16) on such a claim.
(b) [Intentionally omitted.]
Section 9.03. PUT STOCK VALUE. The value of each share of Class A and
Class D Common Stock owned by a Person that may be put to the Corporation or
Argo-Tech pursuant to the exercise of the Put right (the "Put Stock Value")
shall be equal to the Fair Market Value of the share; PROVIDED, HOWEVER, that in
no event shall the Fair Market Value, for the purposes of calculating the Put
Stock Value, be less than $40.00 per share; and PROVIDED FURTHER that such
$40.00 per share price shall be proportionately and equitably adjusted with
respect to the affected class of Common Stock in the event of any of the
following events: (a) any recapitalization of the Corporation through a stock
split or combination of outstanding shares of Class A or Class D Common Stock,
(b) any declaration of a dividend on the Class A or Class D Common Stock that is
payable in shares of Class A or Class D Common Stock or Securities convertible
into shares of Class A or Class D Common Stock, or any other event that has an
effect comparable to those described in clauses (a) or (b) hereof.
Section 9.04. CONTINUED STOCK OWNERSHIP BY MANAGEMENT STOCKHOLDERS AND
OUTSIDE DIRECTORS.
(a) [Intentionally omitted.]
(b) In the event of the purchase of less than all the Securities
owned by the Person exercising Put rights provided by Section 9.01, then such
Securities not
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purchased, in addition to any Securities not so put, shall continue to be
subject to the covenants, limitations, obligations, and restrictions set forth
herein applicable to the Securities held by such Person.
Section 9.05. ORDERING OF PUT RIGHTS. In the event that any Persons
exercise their Put rights pursuant to Section 9.01, they shall first put their
stock of the Corporation to the Corporation before putting such stock to
Argo-Tech; PROVIDED, HOWEVER, that, notwithstanding the procedures of Section
9.02, such Persons shall have no obligation to first put their stock to the
Corporation before putting such stock to Argo-Tech if in the reasonable
judgment of such Persons they would be prejudiced or harmed thereby.
Section 9.05.1. LIMIT ON PUT RIGHTS. Anything in this Agreement to
the contrary notwithstanding, and subject to the limitations of Section 8.01,
(a) the Put Rights provided for in Section 9.01 shall apply only to the
aggregate of Seventy Thousand One Hundred Eleven (70,111) shares of Class A
Common Stock owned by the Management Stockholders on the date hereof, and to
the aggregate of Seven Thousand Five Hundred Forty (7,540) shares of Class A
Common Stock and the aggregate of Thirty-Four Thousand Four Hundred Fifty
(34,450) shares of Class D Common Stock issued or issuable pursuant to the
Argo-Tech Corporation 1991 Management Incentive Stock Option Plan and the
Argo-Tech Corporation 1991 Performance Stock Option Plan, respectively, as
such Plans have been previously approved by the Board and are in effect on the
date hereof; and (b) the Corporation and Argo-Tech, collectively, shall not
purchase for cash more than 40,000 shares of Class A Common Stock and Class D
Common Stock upon exercise of the Put Rights provided for in Section 9.01
during any one fiscal year of the Corporation (but in such event, the
Corporation shall purchase any shares put to it that it cannot purchase for
cash by utilizing the Corporation's Notes in full or partial payment therefor).
In the event Put rights are attempted to be exercised with respect to more
than the number of shares permitted to be purchased for cash under this
Section 9.05.1, the number of shares actually purchased for cash by the
Corporation or Argo-Tech, shall be determined pro rata among the Management
Stockholders and the Outside Directors, based upon the number of shares as to
which each has exercised his Put rights (and not withdrawn the same).
Section 9.06. TAG-ALONG RIGHT. (a) In the event that any of Yamada,
any Permitted Affiliate thereof, or Sunhorizon (i) proposes to sell or dispose
of, directly or indirectly, all or any part of the shares of Class A Common
Stock, Class B Common Stock, or Class C Common Stock
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owned by it or under its control in a single transaction or in a series of
related transactions that is or are permitted by this Agreement to any Person
(such Person being hereafter referred to as the "Proposed Purchaser") that is
not (w) a Permitted Affiliate of Yamada (x) a trust established by Yamada or
by Mr. Masashi Yamada, the beneficiaries of which are only Mr. Yamada's
spouse, parents, or direct lineal descendants, (y) receiving such shares
pursuant to a Public Offering or a transaction under Rule 144, or (z) an
employee stock ownership plan; (ii) seeks to cause the Corporation to redeem
any Class A Common Stock, Class B Common Stock, or Class C Common Stock owned
by it or under its control, or (iii) enters into any other arrangement with a
singular purpose as that in (i) or (ii), then Yamada, any Permitted Affiliate
thereof, or Sunhorizon shall refrain from effecting any such transaction
unless and until the Trustee and all Stockholders other than Yamada, any
Affiliate thereof, and Sunhorizon (the Trustee and all such other Stockholders
being referred to herein as the "Tag-Along Holders") shall have been granted
the opportunity to exercise the right (the "Tag-Along Right") pursuant to
which the Proposed Purchaser shall be required to purchase shares of Class A
and Class D Common Stock held by the Tag-Along Holders in the amount and on
the terms and conditions set forth herein and in any Supplemental
Stockholders' Agreement to which the Trustee may be a party.
(b) In the event of a Proposed Disposition by Yamada, a Permitted
Affiliate thereof, or Sunhorizon of the type described in Section 9.06(a),
then Yamada, such Affiliate, or such Sunhorizon shall not sell any shares of
stock in the Corporation to any Proposed Purchaser unless and until such
Proposed Purchaser agrees to purchase that number of shares of Class A and
Class D Common Stock from the Tag-Along Holders that is equal to the product
of (x) the sum of Tag-Along Percentages of the Non-Yamada Stockholders, and
(y) the total number of shares proposed to be purchased by the Proposed
Purchaser in the Proposed Disposition (the "Disposition Amount"). Each
Tag-Along Holder shall be entitled to have purchased by the Proposed Purchaser
the lesser of (x) its Tag-Along Percentage of the Disposition Amount, and (y)
that amount of shares which such Tag-Along Holder proposes to sell in the
Proposed Disposition. In the event that any Tag-Along Holder shall elect not
to sell to the Proposed Purchaser the full amount of stock that such Tag-Along
Holder is entitled to sell pursuant to the immediately preceding sentence,
such amount of stock that the Tag-Along Holders in the aggregate did not seek
to sell shall be allocated and reallocated pro rata (based upon percentage
ownership of the class of stock to be sold) among all of the other Tag-Along
Holders desiring to sell shares in the Proposed Disposition until
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the entire amount available to be sold by all Tag-Along Holders has been
allocated among those Tag-Along Holders.
(c) Any shares of Common Stock purchased from the Tag-Along Holders
pursuant to this Section 9.06 shall be paid for at the same price per share
and upon terms and conditions no less favorable as those afforded to Yamada,
any Affiliate thereof, or Sunhorizon in connection with such Proposed
Disposition.
(d) The Corporation agrees not to effect any transfer of shares of
Common Stock by Yamada, any Affiliate thereof, or Sunhorizon until it has
received evidence reasonably satisfactory to it that the Tag-Along Right
provided for herein, if applicable to such transfer, has been complied with.
(e) Yamada shall, no less than sixty (60) days prior to any Proposed
Disposition, notify, or cause to be notified, the Tag-Along Holder in writing
of such proposed transfer by Yamada, any Affiliate thereof, or Sunhorizon.
Such notice shall set forth: (i) the number of shares of Common Stock proposed
to be transferred, (ii) the name and address of the Proposed Purchaser, (iii)
the proposed amount and form of consideration and terms and conditions of
payment offered by such Proposed Purchaser, (iv) the proposed location and
date of such Proposed Disposition, and (v) that the Proposed Purchaser has
been informed of the Tag-Along Right provided in this Section 9.06, and has
agreed to purchase shares in accordance with the terms hereof.
(f) The Tag-Along Right provided for herein may be exercised by a
Tag-Along Holder by delivery of a written notice to Yamada and the Corporation
(the "Tag-Along Notice") within ten (10) Business days following its receipt
of the notice specified in the last sentence of the preceding paragraph. The
Tag-Along Notice shall state the amount of shares of Common Stock that the
Tag-Along Holder proposes to include in such transfer to the Proposed
Purchaser. In the event that the Proposed Purchaser does not purchase the
shares of Common Stock from the Tag-Along Holder specified in the Tag-Along
Notice on the same terms and conditions as specified in the notice referred to
in the last sentence of the preceding paragraph, then Yamada, any Affiliate
thereof, or Sunhorizon shall not be permitted to sell any shares of Common
Stock to the Proposed Purchaser in the Proposed Disposition.
Section 9.07. DRAG-ALONG RIGHT. In the event that at any time after
the date hereof, the Board of the Corporation or the Argo-Tech Board approves
the merger, consolidation, or reorganization of the Corporation or
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Argo-Tech, the sale, exchange, or conversion of all or substantially all of
the capital stock of the Corporation or Argo-Tech (whether by merger,
consolidation, or otherwise, and whether or not the Corporation or Argo-Tech
is the surviving entity), or any transaction similar in purpose to the
foregoing, then all of the Stockholders shall be obligated, and the Trustee
shall be permitted, to sell, convert, or exchange a comparable proportion of
their Securities to the same third party on terms and conditions no less
favorable than those obtained by Yamada (the "Drag-Along Right"); PROVIDED,
HOWEVER, that the purchase price for any Securities to be disposed of pursuant
to such Drag-Along Right is fair from a financial point of view as determined
by an Appraiser chosen in accordance with the procedures of Section 7.02;
PROVIDED, FURTHER, that the Stockholders shall not be required to sell any
stock pursuant to a Drag-Along Right in any transaction whereby stock of the
Corporation or Argo-Tech or the assets of Argo-Tech are being sold,
transferred, or conneyed to an Affiliate of Yamada (and for purposes of this
Section 9.07 only, the term Affiliate shall include the Corporation,
Argo-Tech, and the Trustee notwithstanding Section 1.08). In connection with
any transaction contemplated by the immediately preceding sentence, the Board
of the Corporation or the Argo-Tech Board, as the case may be, and Yamada
shall promptly notify all other Stockholders and the Trustee in writing (the
"Drag-Along Sale Notice") of its intention to enter into any such transaction
and to require that such Stockholders and the Trustee (to the extent it is
legally permitted to do so) to sell their Securities to the third party. As
soon as practicable thereafter, the Board of the Corporation or the Argo-Tech
Board, as the case may be, and Yamada shall provide a written notice (the
"Drag-Along Offer Terms") to the Stockholders and the Trustee setting forth
the material terms and conditions of such sale and containing copies of any
pertinent documentation with respect thereto.
Section 9.08. DISPOSITION OF STOCK ON CERTAIN DEFAULT. In the event
that any default occurs pursuant to Section 7.01(k) of the Senior Bank
Financing, (a) Yamada, or any Affiliates or Controlling Persons thereof to
whom it shall have transferred any of their respective shares of stock in the
Corporation, and (b) the Trustee shall have the right to dispose of their
respective shares of stock in the Corporation, at their election, as follows:
(a) They shall have the right to put to the Corporation
their respective shares of stock in the Corporation at a purchase
price equal in each case: (i) with respect to the Preferred Stock,
the sum of One Hundred Dollars
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($100.00) per share, plus an amount equal to all accrued (whether or
not declared) and unpaid dividends on such Preferred Stock; and (ii)
with respect to the Class A Common Stock, the Class B Common Stock
and the Class C Common Stock, the Fair Market Value determined
pursuant to the provisions of Section 1.56; or
(b) They shall have the right to sell their respective
shares of stock in the Corporation to any party, in connection with
which sale the Non-Yamada Stockholders shall have Tag Along Rights
pursuant to the provisions of Section 9.06 of this Agreement;
PROVIDED, HOWEVER, that in the event the prospective purchaser of the
shares of the Corporation owned by Yamada declines to purchase the
shares of stock owned by such Non-Yamada Stockholders pursuant to
the exercise of such Tag Along Rights, the Corporation shall then be
sold in a transaction the terms of which shall be agreed upon by
eighty per cent (80%) of the members of the Board.
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ARTICLE X
SUBSTITUTE AND ADDITIONAL SECURITIES
------------------------------------
Section 10.01. ADDITIONAL SECURITIES. In addition to the Securities
owned by each Stockholder and the Trustee as of the date it or he becomes a
party to this Agreement, this Agreement shall apply to any additional
Securities that such Person may acquire from time to time, other than any
Securities purchased on a national or regional stock exchange or
over-the-counter market by such Person after a registration of Securities
under the Act, PROVIDED, HOWEVER, that this Section 10.01 shall not apply to
Securities acquired by a Stockholder pursuant to the Argo-Tech ESOP.
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ARTICLE XI
ACTIONS RELATED TO A PUBLIC OFFERING;
-------------------------------------
REGISTRATION RIGHTS
-------------------
Section 11.01. ACCEPTABLE COMPANY OFFERING DURING FIRST SIX YEARS.
During the first six years after the Closing Date, the affirmative vote of a
majority of the directors of the Corporation shall be required in order to
approve a Public Offering involving the Securities for the account of the
Corporation; PROVIDED, HOWEVER, that any such approved offering shall be an
Acceptable Company Offering. In the event that the directors of the
Corporation approve a Public Offering in accordance with the terms of this
Section 11.01, the Corporation shall promptly, but in no event later than five
(5) days after taking such board action, provide written notice to the
Stockholders and the Trustee advising them of such action, and all the
Stockholders and the Trustee shall have the right to require the Corporation
to include in such offering shares of Common Stock owned by them subject to
the conditions and limitations of Section 11.04(a).
Section 11.02. MANDATORY COMPANY REGISTRATION. (a) After the sixth
anniversary of the Closing Date, each of Yamada, on the one hand, and the
Management Stockholders and the Trustee (acting by the vote or consent of a
majority of the aggregate number of shares held by them), on the other, shall
have the right to demand (the "Mandatory Company Registration Right") that an
initial public offering of Securities be made by the Corporation in a Primary
Offering and that the Corporation file a registration statement (a
"Registration Statement") with the Commission under the Act on Form S-l or any
other appropriate form for the general registration of securities (other than
on Form S-4 or Form S-8 or any similar or successor forms thereto), and the
Corporation hereby agrees that, upon such demand, it shall comply with the
provisions contained in Section 11.07 and any other applicable provisions of
this Article and use its best efforts to register such Securities pursuant to
and otherwise in accordance with the terms of this Agreement; PROVIDED,
HOWEVER, that any public offering that either Yamada or the Management
Stockholders and the Trustee causes to occur pursuant to the exercise of a
Mandatory Company Registration Right must be an Acceptable Company Offering.
Unless otherwise agreed to, and subject to any restrictions contained in any
written agreements to which the Corporation or Argo-Tech may be subject, any
proceeds received by the Corporation pursuant to any public offering resulting
from the exercise of a Mandatory Company Registration Right shall be used first
to retire any existing indebtedness of Argo-Tech in the following order:
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(i) first, under the Senior Bank Financing, (ii) if no indebtedness shall then
be outstanding under the Senior Bank Financing, then under the Subordinated
Notes, (iii) if no indebtedness shall then be outstanding under either the
Senior Bank Financing or the Subordinated Notes, then under any indebtedness of
the Corporation to the Trust; (iv) if no indebtedness shall then be outstanding
under the indebtedness of the Corporation to the Trust, then to redeem any
outstanding Preferred Stock, and (v) if no Preferred Stock shall then be
outstanding or if the terms and conditions related to the redemption or
repurchase of such Preferred Stock do not allow for or otherwise permit such
redemption or repurchase as contemplated herein, then as the Corporation shall
determine in its discretion. The number of shares of stock of the Corporation
to be offered to the public pursuant to a public offering resulting from the
exercise of a Mandatory Company Registration Right shall be determined by the
managing underwriter or underwriters engaged to assist in effecting such
offering after consultation with the party exercising the Mandatory Company
Registration Right so as to make possible the sale of the shares to be sold at
the highest reasonably obtainable price per share and to provide for a stable
trading market for the stock of the Corporation after the consummation of such
offering.
(b) Any party wishing to exercise its Mandatory Company Registration
Right shall provide written notice to the Corporation of the exercise of such
right. The Corporation shall promptly, but in no event later then five (5) days
following the receipt of such notice, provide written notice of the exercise of
such right by either Yamada or the Management Stockholders and the Trustee to
all the other Stockholders and the Trustee, and all the other Stockholders and
the Trustee shall have the right to include in such offering shares of Common
Stock then owned by such Stockholders or the Trustee pursuant to and subject to
the limitations of Section 11.04(a). The registration of any Securities
pursuant to the exercise of a Mandatory Company Registration Right shall also
be subject to the provisions of Sections 11.04 through 11.09.
(c) If the managing underwriter or underwriters for any Public
Offering occurring pursuant to Sections 11.01, 11.02, or 11.03 request that the
participants in such offering grant the underwriters a over-allotment or "green
shoe" option for the purpose of covering over-allotments that may be made by
the underwriters in connection with any such offering, then, if the Corporation
is selling shares of the Corporation in such Public offering, the Corporation
shall contribute to such over-allotment option an amount of shares that is no
greater than fifteen percent (15%) of the aggregate number
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of shares proposed to be sold by the Corporation pursuant to such offering.
Section 11.03. DEMAND REGISTRATION RIGHTS. (a) In addition to any
rights provided to Yamada and the Management Stockholders and the Trustee
pursuant to Section 11.02(a), and subject to the provisions of Sections
11.03(b), 11.03(c), 11.03(d), and 11.03(e), at any time after the sixth
anniversary of the Closing Date, Yamada and the Non-Yamada Stockholders shall
each have the right (individually, a "Demand Registration Right" and
collectively, the "Demand Registration Rights") to require the Corporation to
file a Registration statement with the Commission under the Act on Form S-1 or
any other appropriate form for the general registration of securities (other
then on Form S-4 or Form S-8 or any similar or successor forms thereto) for
sale to the public of all or any portion of their Securities (a "Demand
Registration"), and the Corporation hereby agrees that, upon such demand, it
shall comply with the provisions contained in Section 11.07 and any other
applicable provisions of this Article XI and use its best efforts to register
such Securities pursuant to and in accordance with the terms of this Agreement.
(b) In addition to the provisions contained in Section 11.03(c),
11.03(d), and 11.03(e), the Demand Registration Rights granted to Yamada and
the Non-Yamada Stockholders pursuant to Section 11.03(a) shall be subject to
the following restrictions and limitations: (i) the Corporation shall not be
obligated to file any Registration Statement pursuant to the exercise of a
Demand Registration Right if the Public Offering of Securities resulting
therefrom would not be an Acceptable Demand Offering; (ii) the Corporation
shall not be obligated to file more than two Registration Statements for each
of Yamada and the Non-Yamada Stockholders pursuant to the exercise of the
Demand Registration Rights provided in Section 11.03(a); (iii) the Corporation
shall not be obligated to file any Registration Statement pursuant to a Demand
Registration Right within one (1) year of the effective date of any other
Registration Statement filed pursuant to the exercise of a Demand Registration
Right by any other party; (iv) the Corporation shall not be obligated to file a
Registration Statement pursuant to a Demand Registration Right within six (6)
months of the effective date of any Registration Statement filed in connection
with an Acceptable Company Offering; (v) the Corporation shall not be obligated
to file a Registration Statement pursuant to the exercise of a Demand
Registration Right by either the Non-Yamada Stockholders or Yamada if the
Corporation has received the written opinion of counsel to the party seeking to
exercise the Demand Registration Right, which counsel shall be
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reasonably acceptable to the Corporation, that such party is legally permitted
to dispose of at least eighty percent (80%) of the amount of Securities such
party is seeking to dispose of pursuant to the Demand Registration within
ninety five (95) days from the date of the exercise of the Demand Registration
Right by means other than pursuant to a Demand Registration; (vi) the
Non-Yamada Stockholders shall have the right to exercise the first Demand
Registration Right at any time after the sixth anniversary of the Closing Date
and after the exercise of such initial Demand Registration Right by the
Non-Yamada Stockholders, the right of either the Non-Yamada Stockholders or
Yamada to exercise a Demand Registration Right otherwise in accordance with the
terms and conditions of this Section 11.03 shall alternate between Yamada and
the Non-Yamada Stockholders so that the party not exercising the immediately
preceding Demand Registration Right that was exercised shall have the right to
exercise the next Demand Registration Right that may be exercised (such right
being hereinafter referred to as the "Priority Right"); PROVIDED, HOWEVER,
that any party that has a Demand Registration Right may notify the party that
has the next Priority Right that such party desires to exercise such Demand
Registration Right (provided such party may otherwise exercise such Demand
Registration Right in accordance with the provisions of this Article XI)
whereupon the party that has the next Priority Right shall have twenty (20)
Business days to determine, which determination shall be required to be in
writing, whether it desires to exercise its Priority Right and in the event
that the party that has the next Priority Right determines not to exercise such
right, or makes no determination within such time period, the party initially
notifying the party with the next Priority Right shall have the right to
exercise a Demand Registration Right and the party that has the next Priority
Right but has chosen not to exercise such right shall have no right to preclude
the other party having a Demand Registration Right from exercising one of its
two Demand Registration Rights otherwise in accordance with the terms of this
Section 11.03; and (vii) the managing underwriter or underwriters, if any, of
any such offering shall be a recognized investment banking firm selected by the
party exercising the Demand Registration Right, and approved by the other party
having such a Demand Registration Right (which approval shall not be
unreasonably withheld).
(c) If either Yamada or the Non-Yamada Stockholders desires to
exercise a Demand Registration Right pursuant to Section 11.03(a), then either
Yamada or the Non-Yamada Stockholders, as applicable, shall provide written
notice (the "Demand Notice") to the Corporation of such demand, which Demand
Notice shall state the number of shares of Common Stock Yamada or the
Non-Yamada
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Stockholders, respectively, is or are demanding the Corporation register on its
or their behalf. Upon receipt of a Demand Notice, the Corporation in each such
case shall promptly, but in no event later than five (5) days after receipt
thereof, provide written notice (the "Demand Registration Notice") of the
receipt of such Demand Notice to all the other Stockholders of record other
than the party exercising such Demand Registration Right (individually, an
"Other Stockholder and collectively, the "Other Stockholders"), and the
Corporation and the Other Stockholders shall then have the right to include in
any such offering resulting from the exercise of the Demand Registration Right
shares of Common Stock owned by them, subject to the limitations of Section
11.04(b) hereof.
(d) The Corporation shall be entitled to postpone compliance with any
request for registration pursuant to this Section 11.03 once for a reasonable
period of time, which period of time shall in no event exceed ninety (90) days,
if the Corporation, in its reasonable business judgment, determines that such
postponement is necessary to defer public disclosure of impending material
corporate developments. In the event of such postponement, the Corporation
shall immediately notify the party exercising the Demand Registration Right and
all other Stockholders of its decision to postpone compliance and the period
of, and reasons for, such postponement unless otherwise precluded by law from
disclosing such information. In the event of such postponement to this Section
11.03(d), the party exercising the Demand Registration Right shall have the
right to withdraw its request for registration of its Securities pursuant to
the exercise of its Demand Registration Right in a writing delivered to the
Corporation. Any request for the registration of Securities pursuant to the
exercise of a Demand Registration Right that is postponed by the Corporation
and subsequently withdrawn by the party exercising the Demand Registration
Right shall not be counted for the purpose of determining the number of
registrations to which such party is entitled pursuant to Section 11.03(b)
(ii). In the event the Corporation postpones the registration of Securities
pursuant to this Section 11.03(d) and the party seeking to exercise a Demand
Registration Right subsequently withdraws the exercise of its Demand
Registration Right, such party shall not be precluded from exercising a
subsequent Demand Registration Right for any length of time except as otherwise
required by Section 11.03(b).
(e) In the event that a Primary Offering has not occurred and the
Corporation proposes to include newly issued Securities in any offering of
Securities to be made to this Section 11.03, and whether or not such shares
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would be excluded from such offering by operation of the priority rights set
forth in Section 11.04(b), the Corporation shall have the right to elect in its
sole discretion to cause such Registration Statement initially proposed to be
filed pursuant to this Section 11.03 to be filed pursuant to Section 11.02 (the
"Preemption"). In the event that the Corporation makes such election, all of
the provisions of Section 11.02 shall apply to such registration, such
registration shall be deemed not to be an exercise of one of the Demand
Registration Rights under Section 11.03(b) (ii) by the party initially
exercising the Demand Registration Right subject to the Preemption, and each of
the Stockholders shall have the incidental registration rights provided for in
Section 11.04(a).
(f) Any party exercising a Demand Registration Right and demanding the
registration of Securities may withdraw the exercise of such Demand
Registration Right as a result of a material adverse change in the earnings,
condition, or otherwise, or prospects of the Corporation, or a change in the
market for equity securities generally by giving written notice to the
Corporation prior to the effective date of such Registration Statement;
PROVIDED, HOWEVER, that (i) if the expenses incurred by the Corporation related
to the exercise of such Demand Registration Right exceed $125,000 on the date
such withdrawal occurs, the party initially exercising the Demand Registration
Right and subsequently withdrawing its exercise may not demand any registration
of Securities pursuant to this Section 11.03 for a period of one (1) year after
the withdrawal of the Demand Registration Right unless such party pays all the
expenses by the Corporation in connection with such registration that are in
excess of $125,000, but (ii) if such expenses do not exceed $125,000 there
shall be no waiting period that shall be required to expire before which such
party may demand the registration of Securities pursuant to this Section 11.03
(other than such time periods as may be otherwise required by Section
11.03(b)); and PROVIDED, FURTHER, that any such withdrawn Demand Registration
Right shall not be deemed to be one of such party's two demand rights provided
under clause (ii) of Section 11.03(b).
Section 11.04. INCIDENTAL REGISTRATION RIGHTS. (a) Notwithstanding the
foregoing, if at any time the Corporation, whether pursuant to Section 11.01
or Section 11.02, registers any of its Securities pursuant to a Registration
Statement under the Act (other than a registration by the Corporation on Form
S-4 or Form S-8 or any similar or successor forms thereto), then the
Corporation in each such case shall give each Stockholder of record and the
Trustee written notice Of such intention to file a Registration Statement not
less than forty-five
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(45) days prior to the earlier of the anticipated effective date or the actual
effective date of such Registration Statement and at least ten (10) days before
the initial filing of such Registration Statement (the "Corporation's
Registration Notice"), and such notice shall offer to such Stockholder and the
Trustee the opportunity to include in such public offering any and all shares
any Stockholder and the Trustee (individually a "Selling Stockholder" and,
collectively, the "Selling Stockholders") may request. Each Person to which the
Corporation's Registration Notice has been given shall have seven (7) days
after the giving of such notice to notify the Corporation in writing as to
whether he or it desires to have included in such Registration Statement any
Securities owned by such Stockholder and specifying the amount (the "Requested
Amount") of Securities (whether or not Securities of the same class are being
registered by the Corporation) requested to be registered. The Corporation
shall permit, or shall cause the managing underwriter or underwriters of a
proposed offering to permit, Selling Stockholders to have included in such
proposed offering their respective Requested Amount on the same terms and
conditions as are applicable to any other Securities of the same class that are
being registered and sold by the Corporation and other Selling Stockholder in
such offering; PROVIDED, HOWEVER, that if the managing underwriter or
underwriters advises that the number of shares to be sold by the Corporation
for its own account together with the shares proposed to be sold by all the
Selling Stockholders exceeds the maximum number (the "Maximum Number") of
shares that in the good faith judgment of such underwriters can be sold without
adversely affecting the marketing (including pricing) of the offering, then the
amount of Securities sought to be sold by each Selling Stockholder shall be
reduced as follows: First, each Selling Stockholder shall be entitled to sell
the lesser of (x) its or his pro-rata share (based upon the percentage
ownership of the class of stock to be sold) of the amount that the managing
underwriter determines can be sold by the Selling Stockholders in the aggregate
(the "Recommended Amount"), and (y) such Selling Stockholder's Requested
Amount. Second, any remaining Recommended Amount shall be allocated and then
reallocated among the Selling Stockholders with additional Requested Amounts in
proportion to their ownership of the class of stock sought to be sold until the
entire Recommended Amount has been allocated among the Selling Stockholders,
but in no event shall a Selling Stockholder be allocated an amount in excess
of its or his respective Requested Amount. Any Selling Stockholder shall have
the right to withdraw its request for inclusion of its shares in any
Registration Statement filed by the Corporation pursuant to this Section
11.04(a) by giving written notice to the Corporation of its request to withdraw
prior to the
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effective date of such Registration Statement. At any time prior to the
effective date of any Registration Statement filed by the Corporation pursuant
to this Section 11.04, the Corporation shall have the right to discontinue and
withdraw such registration, but no such discontinuation shall preclude an
immediate or subsequent demand for registration by Yamada or the Non-Yamada
Stockholders that is otherwise in accordance with and subject to the provisions
of Section 11.02 or 11.03. No public offering effected pursuant to this Section
11.04(a) shall be deemed to have been effected pursuant to Section 11.02 or
11.03.
(b) In the event that either Yamada or the Non-Yamada Stockholders
exercises a Demand Registration Right, and the Corporation is required pursuant
to Section 11.03 to register Securities of either Yamada or any of the
Non-Yamada Stockholders pursuant to a Registration Statement under the Act,
then, in addition to the Corporation being required to register such number of
shares of the party exercising the Demand Registration Right (the "Demand
Sellers"), the Corporation shall have the right to include in any public
offering registered pursuant to Section 11.03 authorized but unissued shares of
Common Stock of the Corporation, and each of the other Stockholders to which
the Demand Registration Notice has been given shall have twenty (20) days after
the giving of such notice to notify the Corporation in writing whether he or it
desires to have included in such a statement a Requested Amount of Securities
(whether or not Securities of the same class are being registered by the
Corporation). The Demand Seller shall permit, and shall cause the underwriter
or underwriters, if any, of the proposed offering to permit, the Other
Stockholders to have included in such proposed offering the Requested Amount of
shares for each other Stockholder on the same terms and conditions as are
applicable to any other Securities that are being registered, and sold by the
Demand Seller, the Corporation, or any other Stockholder; PROVIDED, HOWEVER,
that if the managing underwriter or underwriters, if any, advises that the
number of shares proposed to be sold by the Demand Sellers and the Corporation
for its own account together with the shares proposed to be sold by all the
Other Stockholders exceeds the Maximum Number, the amount of Securities sought
to be sold for each other Stockholder shall be reduced as follows: First, each
other Stockholder shall be entitled to sell the lesser of (x) its or his pro
rata share (based upon percentage ownership of the class of stock to be sold)
of the Recommended Amount that is to be sold by the other Stockholder in the
aggregate, and (y) such other Stockholder's Requested Amount. Second, any
Recommended Amount shall be allocated and then reallocated among the other
Stockholders with additional Requested Amounts in proportion to their ownership
of the class of
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stock sought to be sold until the entire Recommended Amount has been allocated
among the other Stockholders, but in no event shall another Stockholder be
allocated an amount in excess of its or his respective Requested Amount;
PROVIDED, FURTHER, that if, after any exclusion of the shares of Common Stock
proposed to be included in the Registration Statement by the other Stockholders
as provided herein, the managing underwriter or underwriters, if any, advises
that the number of shares to be registered by the Demand Sellers together with
the shares proposed to be registered by the Corporation for its own account
still exceeds the Minimum Number, the amount of Securities sought to be sold by
the Corporation shall be reduced as the Demand Seller, in consultation with the
managing underwriter or underwriters, if any, shall determine; and that if,
after the exclusion of those shares of Common Stock proposed to be included in
the Registration Statement by the Corporation, the underwriter or underwriters,
if any, advises that the number of shares to be registered by the Demand
Sellers together with the shares proposed to be registered by the Corporation
for its own account, if any, still exceeds the Maximum Number, the amount of
Securities sought to be sold by the Demand Sellers shall be reduced as follows:
First, each of the Demand Sellers shall be entitled to sell the lesser of (x)
its or his pro rata share (based upon percentage ownership of the class of
stock to be sold) of the Recommended Amount that is to be sold by the Demand
Sellers in the aggregate, and (y) the amount of stock such Demand Sellers has
initially requested to be sold. Second, any Recommended Amount shall be
allocated and then reallocated among the Demand Sellers who have had excluded
from such offering any shares, and such allocations shall be in proportion to
their ownership of the class of stock sought to be sold until the entire
Recommended Amount has been allocated among the Demand Sellers, but in no event
shall any Demand Seller be allocated amount in excess of the amount it or he
initially requested be included in such sale.
Section 11.05. UNDERWRITERS; UNDERWRITING AGREEMENT. Any proposed
registration of Securities that is an Acceptable Company Offering pursuant to
the exercise of a Mandatory Company Registration Right, or, pursuant to the
exercise of a Demand Registration Right prior to the time a Primary Offering
occurs, shall be underwritten by an underwriter or underwriters on a "firm
commitment" basis. Any proposed registration of Securities that occurs after an
underwritten offering has occurred shall not be required to be an underwritten
offering; PROVIDED HOWEVER, that any offering proposed where an underwriter is
not required to be engaged shall be pursuant to a reasonable plan of
distribution for the Securities to be sold in such offer which plan of
distribution shall be mutually acceptable to
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Yamada and the Non-Yamada Stockholders. In connection with any underwritten
offering of Securities registered pursuant to the terms of this Agreement, the
Corporation shall enter into an underwriting agreement with the underwriters
for such offer, such agreement to be reasonably satisfactory in form and
substance to the Corporation, Yamada, each Selling Stockholder, and the
underwriters, and such agreement shall contain such representations,
warranties, and covenants by the Corporation, the Selling Stockholders, and the
underwriters and such other terms and conditions as are customarily contained
in such agreement. The Selling Stockholders shall be parties to any
underwriting agreement relating to an underwritten sale of their Securities and
may, at their option, require that any or all of the representations,
warranties, and covenants of the Corporation to or for the benefit of such
underwriters, shall also be made to and for the benefit of such Stockholders.
Section 11.06. COOPERATION; RESTRICTIONS ON PUBLIC SALE BY HOLDER OF
STOCK. As a condition to the Corporation's obligations and requirements under
Section 11.01, Section 11.02, Section 11.03, and Section 11.04 to register the
Securities of any Stockholder, each Stockholder and the Trustee (if legally
permitted to do so) shall provide all such information with respect to such
Stockholder and execute an underwriting agreement, power of attorney, and all
such other documents as may be reasonably required in connection with any such
registration. Each holder of Securities covered by a Registration Statement
filed pursuant to Section 11.01, Section 11.02, Section 11.03, or Section 11.04
hereof and the Corporation agrees that, if so requested by the managing
underwriter or underwriters, if any, or a majority of Selling Stockholders of
any offering of Securities, he or it shall not effect any public sale or
distribution of Securities of the same class as any Securities included in such
underwritten offering, including without limitation, a sale pursuant to Rule
144, during the period fourteen (14) days prior to and up to one hundred twenty
(120) days after the effective date of the Registration Statement filed with
respect to such offering. In the event that either Yamada or the Non-Yamada
Stockholders exercises a Demand Registration Right, each of the Selling
Stockholders here by covenants and agrees with each other Selling Stockholder
that it or he shall provide all such information with respect to such
Stockholder and execute all such other documents as may be reasonably required
in connection with any registration resulting therefrom, and shall otherwise
take or perform any and all such other actions as reasonably required in order
to effect such offering. Each of the Corporation, Yamada or any Affiliate
thereof, and any other seller of the Securities being
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registered shall cooperate with each other and any underwriters engaged to
assist in effecting a public offering, shall use their best efforts to take any
and all actions necessary to effect a public offering, and shall not take any
action to frustrate the consummation of any public offering, it being
understood that prevailing market conditions and the performance of the
Corporation and Argo-Tech may affect the commencement of a public offering. In
furtherance of the foregoing and not in limitation thereof, the Selling
Stockholders, as applicable, shall take or perform any and all such other
actions as may be reasonably required to carry out and enforce the rights of
the Selling Stockholders in order to effect a public equity offering, including
if necessary causing the Corporation or Argo-Tech to amend their respective
certificates of incorporation or by-laws.
Section 11.07. OTHER REQUIREMENTS AND OBLIGATIONS WITH RESPECT TO
REGISTRATION. If and whenever the Corporation is required by the provisions of
this Agreement to register any Securities under the Act, the Corporation shall,
and hereby covenants to, was expeditiously as possible:
(a) (i) Subject to Section 11.03(d), prepare and cause to be filed
with the Commission as soon as reasonably practicable, but in no event later
than ninety (90) days after receiving the Demand Notice or notice of the
exercise of a Mandatory Company Registration Right, the Registration Statement
to which such notice relates, and (ii) use its best efforts to have such
Registration Statement declared effective within such ninety (90)-day period or
as soon thereafter as reasonably practicable; PROVIDED, HOWEVER, that before
filing a Registration Statement or prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial filing
of any Registration Statement, the Corporation will furnish to the Stockholders
covered by such Registration Statement copies of all such documents proposed to
be filed.
(b) The Corporation shall notify all Stockholders when any
Registration Statement is filed and becomes effective and when any
post-effective amendment is filed and becomes effective. Except as otherwise
provided in Section 11.04, after becoming effective, the Corporation agrees to
use its best efforts to cause such Registration Statement filed pursuant to the
exercise of a Demand Registration Right or a Mandatory Company Registration
Right, and any amendments and supplements to such Registration Statement and
the prospectus used in connection therewith as may be necessary to keep the
Registration Statement current, to remain continuously
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effective for a period of one hundred twenty (120) days from the date on which
the Commission declares such Registration Statement effective, or such
shorter period that will terminate when all Securities to which the
Registration Statement filed pursuant to the exercise of the Demand
Registration Right or the Mandatory Company Registration Right relate have been
sold, and to comply with the provisions of the Act with respect to the
disposition of all Securities covered by the Registration Statement required to
effect the distribution of such shares; PROVIDED, HOWEVER, that the Corporation
shall have no obligation to use its best efforts to cause such Registration
Statement and the prospectus used in connection therewith to remain
continuously effective for a period of more than ninety (90) days if any
post-effective amendments are required to be made in connection with such
Registration Statement. The Corporation shall not be deemed to have effected a
registration of Securities for any purpose under this Article XI unless and
until such Registration Statement is declared effective by the Commission and
shall have remained effective for the period set forth in this Section 11.07.
(c) Furnish at the Corporation's expense to the Selling Stockholders
and each underwriter such number of copies of the Registration Statement and
each amendment and supplement thereto (in each case including all exhibits) and
such number of copies of the prospectus included therein (including each
amended or supplemented prospectus), in conformity with the requirements of the
Act, and such other documents incorporated by reference in the Registration
Statement, and other documents such Stockholders and underwriters shall
reasonably request in order to facilitate the disposition of the Securities,
but only while the Company is under the provisions hereof to keep the
Registration Statement current and effective.
(d) Immediately notify each Selling Stockholder and the managing
underwriter or underwriters of the happening of any event as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances then existing, not misleading and subject to
subparagraph (b) above, if it is necessary to amend or supplement such
prospectus to comply with law, prepare a supplement to or an amendment of such
prospectus so that such prospectus, as amended or supplemented, will comply
with law, and use its best efforts to file and cause to be declared effective
any post-effective amendment to such Registration Statement as may be required
in connection therewith; and immediately notify each
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Stockholder of the issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement or initiating any proceedings for
that purpose, or any notification with respect to the suspension of the
qualification of any Securities for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose.
(e) Make every reasonable effort to obtain at the earliest possible
time the withdrawal of any order suspending the effectiveness of a Registration
Statement or suspending the qualification of any Securities for sale in any
jurisdiction.
(f) Prior to any Public Offering, take such action as may be necessary
to qualify or register the shares to be sold under the securities or Blue Sky
laws of such jurisdiction as may be reasonably requested by Yamada, the
Non-Yamada Stockholders, or a Demand Seller or the managing underwriter or
underwriters and keep each such registration or qualification effective during
the period such Registration Statement is required to be kept effective and do
any and all other acts or things necessary or advisable to make the disposition
in such jurisdiction of the Securities covered by the Registration Statement;
PROVIDED, HOWEVER, the Corporation shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(g) Enter into agreements that are customary for offerings of the type
contemplated by this Agreement and take all such other actions in connection
therewith in order to expedite or facilitate the disposition of such Securities
covered by a Registration Statement and in such connection, whether or not a
underwriting agreement is entered into and whether or not the registration is a
underwritten registration (i) make such representations and warranties to the
holders of such Securities covered by the Registration Statement with respect
to the Registration Statement, prospectus, and documents incorporated by
reference, if any, in form, substance, and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested as is customary; (ii) use its best efforts to obtain opinions of
counsel to the Corporation and updates thereof with respect to the Registration
Statement and the prospectus addressed to each selling holder of Securities
covered by the Registration Statement covering the matters customarily covered
in opinions requested in underwritten or non-underwritten offerings as the case
may be and such other matters as may be reasonably
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requested by such holders; (iii) in the case of a underwritten offering, enter
into an underwriting agreement in form, scope, and substance as is customary in
underwritten offerings; (iv) use its best efforts to obtain "cold comfort"
letters and updates thereof from the Corporation's independent certified public
accountants addressed to each selling holder of Securities, such letter to be
in customary form and covering matters of the type customarily covered in "cold
comfort" letters by underwriters in connection with underwritten offerings; and
(v) the Corporation shall deliver such documents and certificates as may be
reasonably requested by the holders of Securities being sold to evidence
compliance with clause (i) above and with any customary conditions contained in
any underwriting agreement or other agreement entered into by the Corporation.
The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent required thereunder.
(h) Make available for inspection by the holders of Securities being
sold, and any attorney, accountant, or other agent thereof, all financial and
other records, pertinent corporate documents, and properties of the
Corporation.
(i) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission and promulgated under the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and timely
make all filings required to be made by the Corporation pursuant to the
Exchange Act after it has filed a Registration Statement pursuant to the
requirements of the Act related to the equity securities of the Corporation.
For so long as any of the Non-Yamada Stockholders continue to own any
outstanding Securities and may sell such Securities without registration under
the Act within the limitations of the exemption provided by (a) Rule 144 under
the Act, as such Rule may be amended from time to time, or (b) any similar rule
or regulation hereafter adopted by the Commission, the Corporation shall file
with the Commission the information, documents and other reports specified in
Sections 13 or 15(d) of the Act as being required of issuers subject to such
reporting requirements (whether or not the Corporation would be required to
file such reports with the Commission in the absence of the requirements of
this Section), and shall comply with such other informational requirements of
the Commission, and, upon the request of a Stockholder, furnish such
Stockholder with such information as may be necessary to enable such
Stockholder to effect routine sales pursuant to Rule 144.
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(j) Use its best efforts to cause the Securities being offered in the
offering to be listed on a national securities exchange in the United States or
quoted on the over-the-counter market.
(k) Provide for or designate a transfer agent and registrar (which may
be the same entity) for the Securities.
(1) Issue to any underwriters to which any Selling Stockholder may
sell Securities in such offering certificates evidencing shares of the
Securities not bearing any restrictive legends.
(m) Deliver promptly to each Selling Stockholder and the underwriter
or underwriters copies of all correspondence between the Corporation or any
other governmental agency or self-regulating body and the Corporation, its
counsel, or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the Registration Statement or proposed
sale of shares of the Corporation and permit each Selling Stockholder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the Registration Statement
as it deems reasonably necessary. Such investigation shall include access to
book records and properties and opportunities to discuss the business of the
Corporation with its officers, independent auditors, and counsel.
(n) Take or perform any and all such other corporate or other actions
as are reasonably suggested or recommended by the managing underwriter or
underwriters or that may be reasonably necessary or appropriate to carry out
and enforce the rights of the Stockholders hereunder in order to effect a
successful public offering, including but not limited to, if necessary,
amending the certificate of incorporation of the Corporation or Argo-Tech and
appointing independent directors to the Board of the Corporation or the
Argo-Tech Board.
Each holder of Securities at any time covered by a Registration
Statement agrees by acquisition of such Securities that, upon receipt of any
notice from the Corporation of the happening of any event of the kind described
in Section 11.07(d) hereof, such Stockholder shall forthwith discontinue
disposition of such Securities covered by such Registration Statement or
prospectus until such holder's receipt of the copies of a supplemented or
amended prospectus or until it is advised in writing (the "Advice") by the
Corporation that the use of the applicable prospectus may be resumed, and has
received copies of any additional or supplemental filing that is incorporated
by
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reference in such prospectus and, if so directed by the Corporation, such
Stockholder shall deliver to the Corporation (at the Corporation's expense) all
copies, other than permanent file copies then in such holder's possession, of
the prospectus covering such Securities current at the time of receipt of such
notice. If the Corporation shall give any such notice, the time period during
which the Registration Statement affected by such notice shall be required to
be kept continuously effective as provided herein shall be extended by the
number of days during the period from and including the date when each seller
of Securities covered by such Registration Statement shall have received copies
of the supplemented or amended prospectus contemplated herein or a copy of the
Advice, as the case may be.
Section 11.08. EXPENSES OF REGISTRATION. The Corporation shall pay all
fees and expenses associated with effecting any registration and sale of
Securities under this Article XI to the extent permissible under applicable law
(including Blue Sky Laws) including, but not limited to registration and filing
fees, printing expenses, fees and disbursements of legal counsel and
accountants of the Corporation and each group of Selling Stockholders,
transfer agents' and registrars' fees, fees and disbursements of experts used
by the Corporation in connection with such registration, expenses of special
audits of the Corporation incidental to or required by the registration,
expenses, incidental to any post-effective amendment to the Registration
Statement, and all underwriting discounts and commissions allocable to the
Securities offered by the Stockholders participating in the offering, which
underwriting discounts and commissions shall be paid for by such Stockholders;
PROVIDED, HOWEVER, that, in connection with each such registration, the
Corporation shall not pay fees and expenses to more than one outside legal
counsel retained to represent Stockholders in connection with the offering. In
the event and to the extent the Corporation is not permitted by applicable law
to pay any of such expenses, each Stockholder participating in the registration
and sale shall pay the same proportion of the registration fee and expenses
incurred in connection with the registration as the shares of Securities being
registered by him bear to the total amount of Securities included in the
registration.
Section 11.09. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE CORPORATION. The Corporation agrees to
indemnify and hold harmless, to the full extent permitted by law, each holder
of Securities
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registered pursuant to any Registration Statement required to be filed pursuant
to this Agreement, its officers, directors, and agents and each Person who
controls such holder or agents (within the meaning of the Act) against all
losses, claims, damages, liabilities, and expenses caused by any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, prospectus or preprospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading except insofar as the same are
caused by or contained in any information furnished in writing to the
Corporation by such holder expressly for use therein.
(b) INDEMNIFICATION BY SELLING STOCKHOLDERS. In connection with any
Registration Statement in which a Stockholder is participating, each such
Selling Stockholder shall furnish to the Corporation in writing, in addition to
any other information required to be provided hereby, such information and
affidavits as the Corporation reasonably requests for use in connection with
any Registration Statement or prospectus and agrees severally and not jointly
to indemnify, to the full extent permitted by law, the Corporation, its
directors and officers, and each Person who controls the Corporation (within
the meaning of the Act) against any losses, claims, damages, liabilities, and
expenses caused by any untrue or alleged untrue statement of a material fact or
any omission or alleged omission of a material fact required to be stated in
any Registration Statement or prospectus or preliminary prospectus or necessary
to make the statements therein (in the case of a prospectus, in the light of
the circumstances under which they were made) not misleading, to the extent,
but only to the extent, that such untrue statement or omission is contained in
any information or affidavit so furnished in writing by such holder to the
Corporation specifically for inclusion in such Registration Statement or
prospectus; PROVIDED, HOWEVER, that under no circumstances shall any Selling
Stockholder be liable for or be required to indemnify any underwriter or
controlling person thereof or to contribute to the amounts paid by any
underwriter or controlling person hereof any amount in excess of the product of
the number of shares, if any, sold by such Selling Stockholder times the price
per share paid to him pursuant to such offering, net of all costs and expenses
(including underwriting commissions and disbursements) paid or incurred by such
Selling Stockholder in connection with the registration and sale.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and
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(ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such Person
unless (a) the indemnifying party has agreed to pay for the reasonable fees or
expenses of such counsel or (b) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably satisfactory to
such Person, or (c) in the reasonable judgment of any such Person and the
indemnifying party, based upon advice of their respective counsel, a conflict
of interest may exist between such Person and the indemnifying party, with
respect to such claims (in which case, if the Person notifies the indemnifying
party in writing that such Person elects to employ separate counsel at the
expense of the indemnifying party the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such Person). If such
defense is not assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld). No indemnifying party
will consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party, a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated to pay
the fees and expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If the indemnification provided for in the preceding
paragraphs of this Section 11.09 from the indemnifying party is unavailable to
an indemnified party hereunder in respect of any losses, claims, damages,
liabilities, or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities, or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and the indemnified
parties in connection with the actions that
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resulted in such losses, claims, damages, liabilities, or expenses, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnified party or indemnified parties, and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
(e) Limitation. Anything to the contrary contained in this Section
11.09 notwithstanding, no holder of Securities shall be liable for any
indemnification or contribution in excess of the maximum amount received by
such holder in connection with any sale of Securities hereunder.
Section 11.10. TERMINATION OF OVERRIDE COMMISSION. Upon the
consummation of a Acceptable Company Offering or a Acceptable Demand Offering,
the Distributor (as such term is defined in each the Yamada Distributorship
Agreement and the Yamada-Japan Distributorship Agreement) shall no longer have
any right to receive the Override Commission as provided in each of the Yamada
Distributorship Agreement and the Yamada-Japan Distributorship Agreement.
Section 11.11. LIMITATION ON REGISTRATION RIGHTS. Each of the
Stockholders acknowledges and agrees that the Corporation has not granted any
Stockholder any rights to require the Corporation or Argo-Tech to register any
of the Securities under the Act except as provided herein in this Article.
Yamada acknowledges and agrees that, until the Non-Yamada Stockholders have
exercised the two Demand Registration Rights provided to them pursuant to
Section 11.03(b)(ii), Yamada or any Affiliate of Yamada shall not take any
action, or cause the Corporation to take any action and the Corporation agrees
that it shall not take any action, to register any Securities or file any
Registration Statement with the Commission unless such registration is
otherwise pursuant to and in accordance with the provisions of this Article XI.
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ARTICLE XII
MISCELLANEOUS
-------------
Section 12.01. ADDITIONAL MANAGEMENT OR INVESTOR STOCKHOLDERS OR
ADDITIONAL OUTSIDE DIRECTORS. Except as provided in Article X, prior to the
issuance by the Corporation of certificates evidencing Securities to any Person
who is (i) an employee of the Corporation or any of its Subsidiaries, or (ii)
an employee of an Investor Stockholder or an Affiliate of Investor Stockholder
or an employee or Affiliate thereof, or (iii) to a new Outside Director, such
Person shall be required to become a party to this Agreement as (x) a
Management Stockholder (if an employee of the Corporation or any of its
Subsidiaries), or (y) an Investor Stockholder (if an employee of an Affiliate
of an Investor Stockholder or an employee or Affiliate thereof), or (z) an
Outside Director by executing, with the Corporation, a Joinder Agreement in the
form attached hereto as Exhibit 1.
Section 12.02. LEGAL REPRESENTATIVES. The administrator, executor, or
legal representatives of any deceased Stockholder shall be required to execute
and deliver all documents and perform all acts necessary to carry out the
obligations of such deceased Stockholder under the terms of this Agreement.
Section 12.03. [Intentionally omitted.]
Section 12.04. [Intentionally omitted.]
Section 12.05. OBLIGATIONS REGARDING CONTINUING EMPLOYMENT. Nothing in
this Agreement shall constitute an agreement by, or shall impose any obligation
upon, the Corporation or any of its Affiliates or Subsidiaries to employ, or to
continue to employ, any party or shall constitute an agreement by, or shall
impose any obligation upon, the Corporation or any of its Affiliates or
Subsidiaries with respect to the terms and conditions of employment of any
party who is or becomes an employee of the Corporation or any of its Affiliates
or Subsidiaries; PROVIDED, HOWEVER, that nothing in this Agreement shall
constitute a termination, waiver, or modification of any existing employment
agreement entered into by and between Argo-Tech or any predecessor entity and
any Management Stockholder.
Section 12.06. SPECIFIC PERFORMANCE: EXPENSES AND ATTORNEYS' FEES. The
parties agree that the subject matter of Sections 2.04-2.10, 3.01, 3.05, 4.01,
4.02, 5.01, 6.01-6.03, 7.02, 9.01-9.07, 11.01-11.10, 12.14, 12.24, and 12.25
hereof is unique and, in the event of the
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breach by any party of any of those provisions, the party injured thereby would
not be made whole by money damages and shall be entitled to specific
performance in addition to any other remedy to which it may be entitled at law
and in equity. The parties hereto agree to waive the defense in any such action
for specific performance that a remedy at law would be adequate. In addition,
any party that breaches this Agreement shall be obligated to pay the costs,
including reasonable attorneys' fees, incurred by any non-breaching parties in
enforcing their respective rights hereunder against such breaching party. In
the event that it is determined that no breach has occurred, the party accused
of the breach shall be entitled to recover from the complaining party the
non-breaching party's costs, including but not limited to reasonable attorney
fees incurred in defending against such breach.
Section 12.07. SEVERABILITY. The parties agree that (i) the provisions
of this Agreement shall be severable in the event that any of the provisions
hereof are held by a court of competent jurisdiction to be invalid, void, or
otherwise unenforceable, (ii) such invalid, void, or otherwise unenforceable
provisions shall be replaced by other provisions that are as similar as
possible in terms to such invalid, void, or otherwise unenforceable provisions
but are valid and enforceable, and (iii) the remaining provisions hereof shall
remain enforceable to the fullest extent permitted by law.
Section 12.08. CONTROLLING LAW. This Agreement shall be governed by,
and construed and enforced in accordance with, the substantive law of the State
of Delaware without giving effect to the conflicts of laws principles thereof.
Section 12.09. NOTICES. All notices, consents, directions, approvals,
instructions, and other communications by any party hereto to any other party
hereto as provided for herein shall be in writing and shall be deemed to have
been duly given if delivered by hand (whether by express mail, overnight
courier, or otherwise) or sent by registered mail, return receipt requested,
postage prepaid, or by telegram, or facsimile transmission to the party to whom
it is directed at the address or number set forth on Schedule A hereto or to
such other addresses as the party to whom such notice is given may have
theretofore designated by notice to all other parties in accordance herewith.
Any notice given in accordance with the requirements of this paragraph shall be
deemed to have been received when delivered in person or, if mailed, three days
following the date upon which such notice shall have been deposited in the
mails.
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Section 12.10. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which,
when taken together, shall constitute one and the same instrument.
Section 12.11. BINDING EFFECT; ASSIGNMENT. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, permitted assigns, personal representatives,
guardians, custodians, and successors-in-interest and upon the trustees and
beneficiaries of any trust to which shares of Securities have been or may be
transferred (collectively, a "Successor") and upon the successors and assigns
of the Corporation and of Argo-Tech. Notwithstanding the foregoing, neither
this Agreement nor any right, remedy, obligation, or liability arising
hereunder or by reason hereof shall be assignable by any party hereto accept as
otherwise permitted by the terms of this Agreement. Nothing in this Agreement,
express or implied, is intended or shall be construed to give any person other
than the parties hereto or their successors in interest any legal or equitable
right, remedy, or claim under or in respect of any agreement or any provision
contained herein, except as otherwise provided in Sections 2.10 and 12.24
hereof.
Section 12.12. ENTIRE AGREEMENT; AMENDMENTS. Except for (i) certain
agreements described in Section 3 hereof; (ii) certain agreements by
Sunhorizon, the Trustee, Vestar, and other Stockholders pursuant to which they
have acquired equity securities of the Corporation; (iii) the Distribution
Agreement, the Supplemental Performance Agreement, the Merger Agreement, the
Yamada-Japan Distributorship Agreement, the Yamada Distributorship Agreement,
the Guaranty Agreement, the Guaranty Fee Agreement, that certain letter, dated
December 24, 1990, by Vestar to Yamada Corporation, wherein Vestar has agreed,
subject to the terms of such letter, not to waive conditions to closing the
transactions contemplated by the Merger, that certain agreement, dated December
24, 1990, by and between Yamada and Sumitomo Capital regarding the disposition
of the Class C Common Stock owned by Sumitomo Capital, and that certain letter,
dated September 18, 1990, from Vestar to Yamada and Yamada Corporation related
to distribution arrangements (which agreements or letters listed in clause (ii)
of this Section 12.12 each stand alone, and are not dependant upon this
Agreement or any other agreement for any interpretation thereof, or otherwise);
(iv) the Restated Certificate of Incorporation of the Corporation and the
Restated Certificate of Incorporation of Argo-Tech; (v) the Amendment,
Termination and Release, dated the date hereof,
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under the Original Stockholders' Agreement; and (vi) the Termination of Voting
Trust Agreement, dated the date hereof, among certain of the Stockholders, all
prior agreements, whether. oral or written, among some or all of the parties
with respect to Securities and the subject matter of this Agreement (which, for
purposes of this clause, shall be deemed not to include the subject matter of
any such other agreements) are hereby terminated, and this Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements relating thereto (except as
otherwise provided herein) and is not dependent upon any other agreement, and
cannot be supplemented, amended, modified, or altered, and no consents to
departures therefrom may be granted, except by the written agreement of the
parties hereto (including, in the case of the Management Stockholders and the
Outside Directors, the holders of a majority of the shares of Class A Common
Stock held by the Management Stockholders and the Outside Directors,
respectively) and of the Trustee. Notwithstanding the foregoing, no
supplements, amendments, modifications, alterations, waivers of, or consents to
departures from the provisions hereof may be given or made unless to in writing
by the party or parties whose rights are being waived or diminished thereby.
Section 12.13. TERMINATION. (a) This Agreement and all restrictions,
limitations, rights, and obligations set forth herein with respect to the
Securities shall terminate upon the occurrence of any of the following events:
(i) the bankruptcy or dissolution of the Corporation or Argo-Tech (PROVIDED,
HOWEVER, (A) that the restrictions, limitations, rights, and obligations set
forth in Article I (to the extent applicable) and Sections 2.04-2.08, 2.10,
3.05, 4.01, 4.02, 5.01, 6.01-6.03, 7.02, 8.01, 8.02, 9.01-9.07, 11.01-11.10,
12.24, 12.25, and this Article XII shall not terminate upon, but shall survive,
the occurrence of an event contemplated by this clause (i) of Section 12.13,
and (B) that, during any such bankruptcy proceeding, any time period within
which any action may or shall be taken as specified in any provision contained
in this Agreement that survives such an event shall be tolled for an equal
number of days that such bankruptcy proceeding continues); (ii) a single
Stockholder or a group consisting of such Stockholder and Affiliates thereof
becoming the owner of all of the Securities that are then subject to this
Agreement (in which event the rights and obligations set forth in Article I (to
the extent applicable) and in Sections 2.06(d) and 2.06(e) shall not terminate
but shall survive); (iii) the execution of a written instrument by (A) the
holders of at least 50.1% of shares of Class A Common Stock held by the
Investor Stockholders, (B) the holders of at least 50.1% of
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the shares of Class A Common Stock held by Management Stockholders and the
Outside Directors, (C) the holders of at least 50.1% of the Class B Common
Stock, and (D) the Trustee; or (iv) an Acceptable Company Offering or an
Acceptable Demand Offering occurs pursuant to which the Corporation's Common
Stock is listed on a national securities exchange or publicly traded in the
over-the-counter market; PROVIDED, HOWEVER, that the provisions of Sections
2.06(d) and (e) shall not terminate upon, but shall survive, an event
contemplated by the foregoing clauses (ii) and (iii) of this Section 12.13, and
PROVIDED, FURTHER, that the restrictions, limitations, rights, and obligations
set forth in Article I (to the extent applicable) and Sections 2.04-2.08, 2.10,
3.05, 4.01, 6.01-6.03, 7.02, 8.01, 8.02, 9.06, 11.01-11.10, 12.24, 12.25, and
this Article XII shall not terminate upon, but shall survive, the occurrence of
an event contemplated by the foregoing clause (iv) of this Section 12.13. This
Agreement shall also terminate with respect to any Securities (w) upon the
Disposition of such Securities by any Stockholder to any Person not a party to
this Agreement pursuant to an effective registration statement under the
Securities Act of 1933, as amended, (x) that have been transferred to a third
party pursuant to Section 6.03 (c)(vi), (y) transferred to a Person not a
party to this Agreement in a transaction to which the provisions of Section 5
of the Act do not apply by reason of compliance by such Stockholder with the
provisions of Rule 144, or (z) to the extent requested by the Board in the
event the Corporation is requested to do so by any underwriter in connection
with the registration and sale of any of the Corporation's or Argo-Tech's
securities in a Public Offering; PROVIDED, HOWEVER, that if in the good faith
judgment of such underwriter, any of the substantive provisions of this
Agreement may be included in another written agreement among the parties hereto
without materially adversely affecting the sale of the Corporation's Securities
or the trading market for such Securities thereafter, then the parties hereto
agree to use their best efforts to negotiate such subsequent agreement in good
faith whose terms shall be as similar to those contained herein so as to fairly
and equitably preserve to the extent possible the original substantive rights,
obligations, and benefits of such provisions for the respective parties. The
termination of this Agreement shall have no effect upon any obligation of any
party to make payment for any Securities purchased pursuant to the terms of
this Agreement prior to its termination.
(b) Each of the Stockholders hereby agrees that, in the event that at
any time in the future it is required or recommended that the Corporation's
capital structure be modified so as to exchange the Class A Common
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Stock, the Class B Common Stock, the Class C Common Stock, and the Class D
Common Stock for other capital stock of the Corporation, such Stockholders
shall, subject to all the provisions of this Agreement that would otherwise
apply had such Class A Common Stock, Class B Common Stock, Class C Common
Stock, and the Class D Common Stock not been so exchanged, nevertheless vote
the successor stock of the Corporation held by them so as to elect a slate of
directors as if such Class A Common Stock and Class B Common Stock continued to
exist and upon such event, the holders of the capital stock of the Corporation
succeeding to the Class A Common Stock and the Class B Common Stock,
respectively, shall be entitled to nominate to the Board such nominees as would
otherwise be permitted if such Class A Common Stock and Class the Class B
Common Stock then existed; PROVIDED, HOWEVER, that the Stockholders shall not
have any obligation to so vote stock owned by them in accordance with this
Section 12.13(b) if at the time the holders of any such stock would have no
right to nominate any director to the Board if such Class A Common Stock and
Class B Common Stock then existed.
Section 12.14. KNOW-HOW AND CONFIDENTIALITY. (a) All know-how and
expertise and commercial good-will that is owned or developed by Argo-Tech or
on behalf of Argo-Tech shall be the property of Argo-Tech in the absence of a
specific arrangement to the contrary.
(b) Each Stockholder agrees on behalf of itself and its employees,
agents, Affiliates, and assigns that any and all non-public technical
information, trade secrets, and any other confidential information regarding
the business affairs of the Corporation or any of its Subsidiaries or of the
Stockholders or any of their respective Affiliates, employees, agents, or
assigns that is treated as confidential by it or by any of them (including but
not limited to methods or business operations, the names of customers or
potential customers, and any other confidential information concerning the
business affairs of the Corporation or any of its Subsidiaries or of the
Stockholders or their respective Affiliates) that such Stockholder may have
obtained from the Corporation or any of its Subsidiaries or from any other
party hereto or any Affiliate of any such other party (collectively referred to
as the "Confidential Information") as a result of the purchase of the
Corporation's Securities or the performance of this Agreement, constitute trade
secrets, is confidential, and is the valuable property of the Corporation or
any of its Subsidiaries or such Stockholder or Affiliate thereof, as the case
may be. Such Confidential Information shall be held in confidence both during
the term of this Agreement
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and thereafter for so long as such Stockholder remains a stockholder and for a
period of two years thereafter, and during such period such Confidential
Information shall neither be disclosed to any third party nor used by the
receiving party at any time for any purpose unrelated to the performance of
this Agreement without the prior written consent of the party to which such
Confidential Information relates. Notwithstanding the foregoing, these
obligations of confidential treatment shall not apply to information which:
(i) is known to the Stockholder or to any Affiliate thereof
obtaining the information at the time such information is obtained
from the Corporation or any of its Subsidiaries or any other party or
Affiliate of any of the foregoing, as the case may be (other than as a
result of the improper appropriation of any Confidential Information
by any Person), and can be documented as such and has not previously
been received from Argo-Tech, its Affiliates, or any other party, as
the case may be, in connection with the purchase of the Corporation's
Securities or the performance of this Agreement;
(ii) is in the public domain at the time such information is
obtained from Argo-Tech, the Corporation or its Subsidiaries, or any
other party, or from an Affiliate of any of the foregoing, as the case
may be;
(iii) after being obtained from the Corporation or any of its
Subsidiaries, Argo-Tech, or any other party, or from an Affiliate of
any of the foregoing, as the case may be, such Confidential
Information enters the public domain through no positive action or
omission on the part of a Stockholder or an Affiliate thereof;
(iv) lawfully comes into the possession of the Stockholder or
an Affiliate thereof from a source other than the Corporation or any
of its Subsidiaries and can be so documented; or
(v) upon written advice of independent legal counsel is
required to be disclosed by any applicable law, rule, or regulation;
PROVIDED, HOWEVER, that Yamada Corporation, the Corporation, and
Argo-Tech (x) shall have received written notice of such intended
disclosure twenty (20) days prior to the date the such disclosure is
to be made, and (y) shall have
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the right to seek any relief it deems appropriate to prevent such
disclosure, including, without limitation, injunctive relief.
(c) Upon the termination of this Agreement, each of the Stockholders
agrees to use its respective best efforts to destroy all Confidential
Information in its possession that is embodied or recorded in tangible form.
(d) The obligations of confidentiality hereunder shall survive
termination of this Agreement.
Section 12.15. YAMADA CORPORATION REPRESENTATIVES TO BE EMPLOYED BY
ARGO-TECH. Yamada Corporation shall have the right to have up to four (4)
representatives become employees of Argo-Tech with responsibilities in the
general management, sales, marketing, and distribution area of Argo-Tech (and
in the area of production but only to the extent permitted in connection with
any required National Security Clearances (as such term is hereinafter defined)
and with job descriptions, responsibilities, and benefits commensurate with the
level of compensation described below and contributions to Argo-Tech. Two of
such representatives shall have become entitled to become employees of
Argo-Tech as of the Closing Date, and one each shall have become entitled to
become employees of Argo-Tech on the first and second anniversaries of the
Closing Date. Each Yamada Corporation representative employed by Argo-Tech
shall receive from Argo-Tech aggregate annual compensation of Fifty Thousand
Dollars ($50,000), payable and provided in accordance with the practices and
procedures of Argo-Tech then prevailing for employees of similar compensation
and responsibilities. Each representative so becoming a Argo-Tech employee
shall be terminated only in accordance with the practices and procedures of
Argo-Tech for the termination of employees of similar compensation and
responsibilities. Any representative so terminated shall be succeeded by
another representative designated by Yamada Corporation. For purposes of this
Section 12.15, the term National Security Clearances shall mean any filing
and/or clearance with one or more of the Committee on Foreign Investment in the
United States under Exon-Florio, the United States Department of Defense under
the Industrial Security Regulations, the United States Department of State
under the International Traffic in Arms Regulations, and the United States
Department of Energy under Department of Energy Action Regulations.
Section 12.16. SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. Each
Stockholder hereby agrees and irrevocably consents and submits to the personal
jurisdiction of any court of the State of New York or any
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federal court of the United States of America located in the City and State of
New York, United States of America, with respect to any dispute, controversy,
action, or proceeding arising out of or relating to this Agreement, and hereby
irrevocably agrees that all claims in respect of such action or proceeding
shall be instituted, heard, and determined in such court. Each Stockholder
agrees that such courts are convenient forums, and hereby irrevocably waives,
to the fullest extent they may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding. Each
Stockholder agrees that process issued out of any such court or in accordance
with the rules of practice of such court may be served by registered mail,
return receipt requested, or by any other form of substituted service permitted
by the rules of such court (a) as to Yamada or Yamada Corporation, to Yamada,
(b) as to Sunhorizon, to Sunhorizon, (c) as to the Management Stockholders or
the Outside Directors, to Argo-Tech, and (d) as to the Trustee, to the Trustee,
in each and every case with mandatory copies to Yamada Corporation, to the
Persons who are also Management Stockholders serving on the Board (or such
other Person as they may designate), and to the Trustee. Yamada and Yamada
Corporation hereby irrevocably designate and appoint Yamada; and the Management
Stockholders and the Outside Directors hereby irrevocably designates and
appoints Argo-Tech as their respective authorized agent upon whom process may
be served in any such suit or proceeding (it being understood that the
designation of and acceptance by such agent shall become effective immediately
upon the execution of this Agreement, and without any further action on the
part of the Stockholder or such agent). Each Stockholder further agrees to
take any and all actions, including without limitation, the execution and
filing of all such instruments and documents, as may be necessary to continue
such designation and appointment in full force and effect until this Agreement
shall have been terminated in each and every respect. The parties agree that a
final judgment in any such action or proceeding may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Section shall affect the right of any party hereto to serve
legal process in any other manner permitted by law or affect the right of any
party hereto to bring any action or proceeding against the other party or its
property.
Section 12.17. OTHER TRANSACTIONS. Yamada and Yamada Corporation
hereby agree that, in the event that the Board or any successor board of the
Corporation on which Yamada, Yamada Corporation, or any Affiliate or
representative of either of them is represented approves or authorizes the
Corporation or Argo-Tech or any successor thereto to enter into a going-private
transaction
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subsequent to the consummation of a Public Offering pursuant to which the
Securities of the Corporation or securities of Argo-Tech are no longer traded
on a national or regional stock exchange or reported through the automated
quotation system of a registered securities association, (a) the Non-Yamada
Stockholders shall not, without their respective prior written consent, be
offered or be forced or required to receive any form of consideration other
than cash for the Securities of the Corporation or such successor entity or the
securities of Argo-Tech then held by them, (b) any shares purchased from the
Non-Yamada Stockholders shall be paid for at the same price per share and upon
terms and conditions no less favorable than those afforded to Yamada or any
Affiliate of Yamada or any other public stockholders, and (c) the Non-Yamada
Stockholders shall not be required to sell or dispose of less than all, or be
prohibited from selling all, of the Securities of the Corporation or such
successor entity or the securities of Argo-Tech then held by them pursuant to
such transaction. Notwithstanding the foregoing, each of Yamada and Yamada
Corporation agrees that it will not, and that it will use its respective best
efforts to cause its respective representatives not to approve or otherwise
take any action to effect a going-private transaction subsequent to the
consummation of a Public Offering or otherwise change the capital structure of
the Corporation in any other kind of transaction pursuant to a reverse stock
split or any other transaction that has an effect on the Non-Yamada
Stockholders that is different in kind from the effect such transaction has on
Yamada, Yamada Corporation, or any Person to whom such entities have
transferred Common Stock.
Section 12.18. Public Statements. The parties shall consult with one
another prior to issuing any press release or public statement with respect to
the transaction contemplated by this Agreement. The parties further agree that
they shall use their best efforts, to the extent permitted by law, to ensure
that Yamada or any Affiliate thereof is not mentioned in any press release or
public statement made in connection with the transactions contemplated by this
Agreement or in response to any inquiries that are made by any Person, without
the prior consent of Yamada; PROVIDED, FURTHER, that representatives of
Argo-Tech shall have the right to respond to the extent that they reasonably
deem necessary to inquiries from customers of Argo-Tech or potential customers;
and PROVIDED, FURTHER, that, in so responding, representatives of Argo-Tech
shall request that its customers and potential customers keep confidential the
information that is given, unless such representatives conclude that the making
of such request would not be appropriate in light of its relationship with the
customer or potential customer.
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Section 12.19. OTHER AGREEMENTS; CONSTRUCTION. Nothing contained in
this Agreement shall be deemed to be a waiver of, or release from, any
obligations any party hereto may have under any other agreement.
Notwithstanding any other provisions in this Agreement, in the event of any
inconsistency between the terms of this Agreement and the terms of any other
agreement or document defining the rights or obligations of Stockholders, the
provisions of this Agreement shall govern. All parties acknowledge that they
have participated substantially in the negotiation and preparation of this
Agreement, and each party hereby disclaims any defense or assertion in any
litigation that any ambiguity herein should be construed against the draftsman
solely as a result of acting as draftsman.
Section 12.20. DEFAULTS. A default by any party to this Agreement in
such party's compliance with any of the conditions or covenants hereof or
performance of any of the obligations of such party hereunder shall not
constitute a default by any other party.
Section 12.21. RECOVERY OF ATTORNEY FEES. In any action or brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party shall be entitled to
recover reasonable attorneys' fees and expenses in addition to any other
available remedy.
Section 12.22. SECTION AND OTHER HEADINGS. The Section and other
headings contained in this Agreement are for reference only and shall not
affect the meaning or interpretation of this Agreement.
Section 12.23. APPROVALS, RATIFICATIONS, AND WAIVERS. The parties to
this Agreement do hereby approve and ratify all actions taken prior to the date
hereof by the parties to the Original Stockholders' Agreement with respect to
the subject matter of the Original Stockholders' Agreement and, by their
execution of this Agreement, shall be deemed to have waived any and all
instances of any lack of full compliance with the Original Stockholders'
Agreement.
Section 12.24. THIRD PARTY BENEFICIARIES. The parties hereto
expressly acknowledge and agree that (i) the Argo-Tech ESOP and the Trustee,
and any successor Trustee under the Argo-Tech ESOP, are intended third party
beneficiaries of, and have the right to enforce, all of the provisions of this
Agreement; (ii) any Person having served or serving on the board of Argo-Tech
or the Corporation, or as an officer of either corporation, at any time since
December 24, 1990 is an intended third party beneficiary
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<PAGE> 95
of, and has the right to enforce, the provisions of Sections 2.06(d), 2.06(e),
12.06, 12.07, 12.08, 12.11, 12.12, 12.13, 12.16, 12.21, and 12.24 of this
Agreement; and (iii) the Vestar Investment Partnership is expressly an intended
third party beneficiary of, and has the right to enforce, the provisions of
Sections 2.05, 2.06(d), 2.06(e), 2.08(d), 2.08(f), 2.08(g), 4.02(a)(iv),
4.02(a)(vi), 4.02(b), 4.02(c), 4.02(e), 12.06, 12.07, 12.08, 12.11, 12.13,
12.16, 12.21, and 12.24 of this Agreement; PROVIDED, HOWEVER, that if this
Agreement is terminated pursuant to Section 12.13(a)(ii) or 12.13(a)(iii),
Article I (definitions) and the provisions listed in clauses (ii) and (iii) of
this Section 12.24 (other than Section 12.13) shall survive for so long as the
Vestar Investment Partnership is a holder of Preferred Stock. The parties
further agree that any such third party beneficiary shall be entitled to all of
the rights and benefits afforded by the provisions listed in clause (i) or
(ii) of this Section 12.24, as the case may be, in each case as the same
is in effect on the date hereof and as if such third party beneficiary were a
signatory to this Agreement.
Section 12.25. COMPLIANCE WITH ERISA. Any other provision of this
Agreement to the contrary notwithstanding, including other clauses similar to
the foregoing clause, each and every provision of this Agreement applicable to
the Argo-Tech ESOP or to the Trustee which imposes any limitation, liability,
right, duty, or obligation on the Argo-Tech ESOP or the Trustee is expressly
subject to the provisions of ERISA and, to the extent not consistent therewith,
shall not be considered a provision of this Agreement binding upon the
Argo-Tech ESOP or the Trustee, and each of the parties hereto expressly
acknowledges and agrees that the Trustee may act or refrain from acting under
each and every provision of this Agreement without liability hereunder to any
other party hereto or to any other Person if the Trustee determines, in its
reasonable discretion based upon advice of independent legal counsel to the
Trustee, that any such act or refraining from any such act is required by any
provision of ERISA, the Code, or the Argo-Tech ESOP.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and delivered in its name by officers duly authorized thereunto, and
the other parties hereto have caused this Agreement to be duly
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<PAGE> 96
executed and delivered, all of the foregoing as of the day and year first above
written.
AT HOLDINGS CORPORATION
By: /s/ M.S. Lipscomb
-----------------------------
Name: Michael S. Lipscomb
Title: President
<PAGE> 97
ARGO-TECH CORPORATION
By: /s/ Michael S. Lipscomb
-------------------------------
Michael S. Lipscomb
President
YC INTERNATIONAL INC.
By: /s/ Osamu Akiyama
-------------------------------
Name: Osamu Akiyama
Title: Vice President & General Manager
YAMADA CORPORATION
By: /s/ Osamu Akiyama
-------------------------------
Name: Osamu Akiyama
Title: Vice President
YAMADA CORPORATION
By: /s/ Motonobu Miyazaki
-------------------------------
Name: Motonobu Miyazaki
Title:
SUNHORIZON INTERNATIONAL, INC.
By: /s/ Wilford Solt
-------------------------------
Name: Wilford Solt,
Title: President
MANAGEMENT STOCKHOLDERS:
By: /s/ M. S. Lipscomb
-------------------------------
M. S. Lipscomb
By: /s/ V. Aguilar 5-13-94
-------------------------------
V. Aguilar
By: /s/ R. C. Barlow
-------------------------------
R. C. Barlow
By: /s/ J. A. Bates
-------------------------------
J. A. Bates
By: /s/ D. J. Caschera
-------------------------------
D. J. Caschera
By: /s/ D. L. Chrencik
-------------------------------
D. L. Chrencik
By: /s/ W. C. Cottrell
-------------------------------
W. C. Cottrell
-89-
<PAGE> 98
By: /s/ J. M. Cunningham
-------------------------------
J. M. Cunningham
By: /s/ R. E. Eichhorn
-------------------------------
R. E. Eichhorn
By: /s/ R. D. Entler
-------------------------------
R. D. Entler
By: /s/ Stephen J. Graettinger
-------------------------------
S. J. Graettinger
By: /s/ Kenneth L. Hicks
-------------------------------
K. L. Hicks
By: /s/ P. R. Keen
-------------------------------
P. R. Keen
By: /s/ P. C. Lexow
-------------------------------
P. C. Lexow
By: /s/ R. J. Mastrangelo
-------------------------------
R. J. Mastrangelo
By: /s/ M. W. Mueller
-------------------------------
M. W. Mueller
By: /s/ J. B. Nolish
-------------------------------
J. B. Nolish
By: /s/ D. M. Prelee
-------------------------------
D. M. Prelee
By: /s/ D. N. Ramacciato
-------------------------------
D. N. Ramacciato
By: /s/ F. M. Robel
-------------------------------
F. M. Robel
By: /s/ M. A. Ruby
-------------------------------
M. A. Ruby
By: /s/ D. M. Scaife
-------------------------------
D. M. Scaife
By: /s/ P. A. Sklad
-------------------------------
P. A. Sklad
-90-
<PAGE> 99
By: /s/ F. S. St. Clair
-------------------------------
F. S. St. Clair
By: /s/ P. D. Totedo
-------------------------------
P. D. Totedo
By: /s/ G. M. Zavoda
-------------------------------
G. M. Zavoda
OUTSIDE DIRECTORS
By: /s/ John E. Carbaugh, Jr.
-------------------------------
J. Carbaugh
By: /s/ Y. Fujiki
-------------------------------
Y. Fujiki
-91-
<PAGE> 100
LIST OF EXHIBITS
----------------
Schedule A - - Addresses of Parties
Exhibit 1 - - Joinder in Stockholders' Agreement
Exhibit 2.01A -- Restated By-Laws of the Corporation
Exhibit 2.01B -- Restated By-Laws of Argo-Tech
Exhibit 2.02A -- Restated Certificate of Incorporation of
the Corporation
Exhibit 2.02B -- Restated Certificate of Incorporation of
Argo-Tech
Exhibit 2.10A -- Agreement with the Trustee
Exhibit 2.10B -- Agreement with Vestar Investment
Partnership
Exhibit 8.03 -- Corporation's Note
-92-
<PAGE> 101
SCHEDULE A
TO
AT HOLDINGS CORPORATION
-----------------------
1994 STOCKHOLDERS' AGREEMENT
----------------------------
1. INDIVIDUAL STOCKHOLDERS:
a. MANAGEMENT STOCKHOLDERS. The following is a list of the
Management Stockholders. Unless otherwise indicated, the address for each
Management Stockholder shall be the address shown for the Management
Stockholders below.
M.S. Lipscomb R.J. Mastrangelo
V. Aguilar M.W. Mueller
J.A. Bates J.B. Nolish
D.J. Caschera D.M. Prelee
D.L. Chrencik D.N. Ramacciato
J.M. Cunningham F.M. Robel
R.E. Eichhorn D.M. Scaife
R.D. Entler P.A. Sklad
S.J. Graettinger F.S. St. Clair
K.L. Hicks P.D. Totedo
P.R. Keen G.M. Zavoda
P.C. Lexow
2. OUTSIDE DIRECTORS. The following is a list of the Outside
Directors. Unless otherwise indicated, the address for each Outside Director
shall be the address shown for the Outside Directors below.
Y. Fujiki
J. Carbaugh
R. Taylor
K. Storrie
3. ADDRESSES. The address for each of the Stockholders is as
indicated below:
(a) Notice to the Corporation to be given at:
AT Holdings Corporation
c/o Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Attention: Secretary
Tel. (216) 692-6000
Fax (216) 692-5541
<PAGE> 102
with a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
Cleveland, Ohio 44114-3070
Attn: Donald H. Messinger, Esq.
Tel. (216) 566-5571
Fax (216) 566-5583
(b) Notice to Argo-Tech Corporation
to be given at:
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Attn: Secretary
Tel. (216) 692-6000
Fax (216) 692-5541
with a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
Cleveland, Ohio 44114-3070
Attn: Donald H. Messinger, Esq.
Tel. (216) 566-5571
Fax (216) 566-5583
(c) Notice to the Investor Stockholders
to be given at:
(i) For YC International Inc.
Yamada International Corporation
New York Head Office
399 Park Avenue
New York, New York 10022
Attention: Stacey O. Akiyama
Tel. (212) 303-6900
Fax (212) 355-1082
with a copy to:
Howard, Rice, Nemerovski, Canady,
Robertson, Falk & Rabkin
Three Embarcadero Center
Suite 700
San Francisco, California 94111-4065
Attn: Richard W. Canady, Esq.
Tel. (415) 434-1600
Fax (415) 399-3041
-2-
<PAGE> 103
(ii) For Yamada Corporation
Yamada Corporation (Japan)
Shin Aoyama Building, East
1-11 1-chome Minamiaoyama
Minato-ku, Tokyo 107 Japan
Attn: Motonubu Miyazaki
Tel. 03-011-813-475-1121
Fax 03-011-813-475-1789
with a copy to:
Howard, Rice, Nemerovski, Canady,
Robertson & Falk
Three Embarcadero Center
Suite 700
San Francisco, California 94111
Attn: Richard W. Canady, Esq.
Tel. (415) 434-1600
Fax (415) 399-3041
(iii) For Sunhorizon
13221 Ranchwood Road
Tustin, CA 92680
Attn: Wilford Solt
Tel. (714) 642-5735
Fax (714) 642-9884
(d) Notice to the Management Stockholders
to be given at:
Management Stockholders
c/o Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117
Attn: Secretary
Tel. (216) 692-6000
Fax (216) 692-5541
with a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
Cleveland, Ohio 44114-3070
Attn: Donald H. Messinger, Esq.
Tel. (216) 566-5571
Fax (216) 566-5583
-3-
<PAGE> 104
(e) Notice to the Outside Directors to be given
at:
Outside Directors
c/o Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Attn: Secretary
Tel. (216) 692-6000
Fax (216) 692-5541
with a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
Cleveland, Ohio 44114-3070
Attn: Donald H. Messinger, Esq.
Tel. (216) 566-5571
Fax (216) 566-5583
(f) Notice to the Trustee to be given at:
Society National Bank
127 Public Square
Cleveland, Ohio 44114
Attn: Investment Management and Trust
Services
Tel. (216) 689-3216
Fax (216) 689-3545
with a copy to:
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: Leslie D. Dunn, Esq.
Tel. (216) 586-7271
Fax (216) 579-0212
-4-
<PAGE> 105
EXHIBIT 1
JOINDER IN
STOCKHOLDERS' AGREEMENT
-----------------------
In consideration of the transfer to _________ of __________
shares of [Class A) [Class B] [Class C] [Class D] Common Stock, par value $.0l
per share, of Vestar/AT Holdings Corporation (the "Corporation") and the
registration of such transfer on the books of the Corporation, ___________ (the
"Additional [Management Stockholder" or Investor Stockholder"] ["Outside
Director"]), and the Corporation agree that, as of the date written below, the
Additional [Management Stockholder or Investor Stockholder or Outside Director]
shall become a party as a [Management Stockholder or Investor Stockholder or
Outside Director] to the Vestar/AT Holdings Corporation Stockholders' Agreement
dated as of April __, 1994 (the "Stockholders' Agreement"), and shall be bound
by all of the terms and provisions of the Stockholders' Agreement, as though
the Additional [Management Stockholder or Investor Stockholder or Outside
Director) was an original party thereto and was included in the definition of
"[Management Stockholder or Investor Stockholder or Outside Director]" as
used therein.
_____________________________________
Additional [Management or
Investor Stockholder or Outside
Director]
Executed as of the ____ day of _______________, 19__.
[ ]
By:___________________________________
(President)
______________________________________
Additional [Management or
Investor Stockholder or Outside
Director]
<PAGE> 106
EXHIBIT 8.03
PROMISSORY NOTE
---------------
Cleveland, Ohio
$________________ _______________
FOR VALUE RECEIVED, ARGO-TECH CORPORATION and VESTAR/AT HOLDINGS
CORPORATION jointly and severally promise to pay to the order of
__________________ ("Payee") the principal amount of___________________________
Dollars ($_______________) on April 28, 2004 or sooner as hereinafter provided
together with interest thereon at a per annum interest rate that at all times
shall be equal to the Sumitomo Prime Rate from time to time in effect, with each
change in the Sumitomo Prime Rate automatically and immediately changing the
interest rate on this Note. "Sumitomo Prime Rate" means the Prime Rate
announced from time to time by Sumitomo Bank at its New York Branch. Interest
shall be calculated on the basis of a 365 day year for the actual number of days
elapsed.
This Promissory Note is being issued pursuant to Section 8.03 of
that certain AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17,
1994 (the "Agreement"). Amounts outstanding hereunder and interest thereon
shall be paid in accordance with the terms of the Agreement and the rights of
Payee with respect to this Note are subject to the terms of the Agreement.
The construction, validity, and enforceability of this Note shall
be governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
ARGO-TECH CORPORATION
By:_____________________________
Title: _________________________
VESTAR/AT HOLDINGS CORPORATION
By:_____________________________
Title: _________________________
<PAGE> 107
EXHIBIT 8.03
PROMISSORY NOTE
---------------
Cleveland, Ohio
$_______________________ ______________
FOR VALUE RECEIVED, ARGO-TECH CORPORATION and VESTAR/AT HOLDINGS
CORPORATION jointly and severally promise to pay to the order of
_________________ ("Payee") the principal amount of___________________________
Dollars ($_______________) on April 28, 2004 or sooner as hereinafter provided
together with interest thereon at a per annum interest rate that at all times
shall be equal to the Sumitomo Prime Rate from time to time in effect, with each
change in the Sumitomo Prime Rate automatically and immediately changing the
interest rate on this Note. "Sumitomo Prime Rate" means the Prime Rate announced
from time to time by Sumitomo Bank at its New York Branch. Interest shall be
calculated on the basis of a 365 day year for the actual riumber of days
elapsed.
This Promissory Note is being issued pursuant to Section 8.03 of
that certain AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17,
1994 (the "Agreement"). Amounts outstanding hereunder and interest thereon
shall be paid in accordance with the terms of the Agreement and the rights of
Payee with respect to this Note are subject to the terms of the Agreement.
The construction, validity, and enforceability of this Note shall
be governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
ARGO-TECH CORPORATION
By:______________________________
Title: __________________________
VESTAR/AT HOLDINGS CORPORATION
By:_______________________________
Title: ___________________________
<PAGE> 108
EXHIBIT 8.03
PROMISSORY NOTE
---------------
Cleveland, Ohio
$________________ ________________
FOR VALUE RECEIVED, ARGO-TECH CORPORATION and VESTAR/AT HOLDINGS
CORPORATION jointly and severally promise to pay to the order of
_________________ ("Payee") the principal amount of____________________________
Dollars ($_______________) on April 28, 2004 or sooner as hereinafter provided
together with interest thereon at a per annum interest rate that at all times
shall be equal to the Sumitomo Prime Rate from time to time in effect, with each
change in the Sumitomo Prime Rate automatically and immediately changing the
interest rate on this Note. "Sumitomo Prime Rate" means the Prime Rate announced
from time to time by Sumitomo Bank at its New York Branch. Interest shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.
This Promissory Note is being issued pursuant to Section 8.03 of that
certain AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17 1994
(the "Agreement"). Amounts outstanding hereunder and interest thereon shall be
paid in accordance with the terms of the Agreement and the rights of Payee with
respect to this Note are subject to the terms of the Agreement.
The construction, validity, and enforceability of this Note shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
ARGO-TECH CORPORATION
By:___________________________
Title: _______________________
VESTAR/AT HOLDINGS CORPORATION
By:__________________________
Title: _______________________
<PAGE> 109
EXHIBIT 8.03
PROMISSORY NOTE
---------------
Cleveland, Ohio
$______________________ _________________
FOR VALUE RECEIVED, ARGO-TECH CORPORATION and VESTAR/AT HOLDINGS
CORPORATION jointly and severally promise to pay to the order of
_________________ ("Payee") the principal amount of_____________________________
Dollars ($_______________) on April 28, 2004 or sooner as hereinafter provided
together with interest thereon at a per annum interest rate that at all times
shall be equal to the Sumitomo Prime Rate from time to time in effect, with each
change in the Sumitomo Prime Rate automatically and immediately changing the
interest rate on this Note. "Sumitomo Prime Rate" means the Prime Rate announced
from time to time by Sumitomo Bank at its New York Branch. Interest shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.
This Promissory Note is being issued pursuant to Section 8.03 of that
certain AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17, 1994
(the "Agreement"). Amounts outstanding hereunder and interest thereon shall be
paid in accordance with the terms of the Agreement and the rights of Payee with
respect to this Note are subject to the terms of the Agreement.
The construction, validity, and enforceability of this Note shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
ARGO-TECH CORPORATION
By:______________________________
Title: ___________________________
VESTAR/AT HOLDINGS CORPORATION
By:______________________________
Title: ___________________________
<PAGE> 110
EXHIBIT 8.03
PROMISSORY NOTE
---------------
Cleveland, Ohio
$_____________________ _________________
FOR VALUE RECEIVED, ARGO-TECH CORPORATION and VESTAR/AT HOLDINGS
CORPORATION jointly and severally promise to pay to the order of
__________________ ("Payee") the principal amount of____________________________
Dollars ($_______________) on April 28, 2004 or sooner as hereinafter provided
together with interest thereon at a per annum interest rate that at all times
shall be equal to the Sumitomo Prime Rate from time to time in effect, with each
change in the Sumitomo Prime Rate automatically and immediately changing the
interest rate on this Note. "Sumitomo Prime Rate" means the Prime Rate announced
from time to time by Sumitomo Bank at its New York Branch. Interest shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.
This Promissory Note is being issued pursuant to Section 8.03 of that
certain AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17, 1994
(the "Agreement"). Amounts outstanding hereunder and interest thereon shall be
paid in accordance with the terms of the Agreement and the rights of Payee with
respect to this Note are subject to the terms of the Agreement.
The construction, validity, and enforceability of this Note shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
ARGO-TECH CORPORATION
By:_______________________________
Title: ___________________________
VESTAR/AT HOLDINGS CORPORATION
By: ______________________________
Title: ___________________________
<PAGE> 111
EXHIBIT 8.03
PROMISSORY NOTE
---------------
Cleveland, Ohio
$______________________ _________________
FOR VALUE RECEIVED, ARGO-TECH CORPORATION and VESTAR/AT HOLDINGS
CORPORATION jointly and severally promise to pay to the order of
__________________ ("Payee") the principal amount of ___________________________
Dollars ($_______________) on April 28, 2004 or sooner as hereinafter provided
together with interest thereon at a per annum interest rate that at all times
shall be equal to the Sumitomo Prime Rate from time to time in effect, with each
change in the Sumitomo Prime Rate automatically and immediately changing the
interest rate on this Note. "Sumitomo Prime Rate" means the Prime Rate announced
from time to time by Sumitomo Bank at its New York Branch. Interest shall be
calculated on the basis of a 365 day year for the actual number of days elapsed.
This Promissory Note is being issued pursuant to Section 8.03 of that
certain AT Holdings Corporation 1994 Stockholders' Agreement, dated May 17, 1994
(the "Agreement"). Amounts outstanding hereunder and interest thereon shall be
paid in accordance with the terms of the Agreement and the rights of Payee with
respect to this Note are subject to the terms of the Agreement.
The construction, validity, and enforceability of this Note shall be
governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
ARGO-TECH CORPORATION
By:_______________________________
Title: ___________________________
VESTAR/AT HOLDINGS CORPORATION
By:_______________________________
Title: ___________________________
<PAGE> 1
Exhibit 10.13
FIRST AMENDMENT TO
AT HOLDINGS CORPORATION
1994 STOCKHOLDERS' AGREEMENT
THIS FIRST AMENDMENT TO AT HOLDINGS CORPORATION 1994 STOCKHOLDERS'
AGREEMENT (this "First Amendment"), dated as of May 1, 1997, is made by and
among AT Holdings Corporation, a Delaware corporation (the "Corporation"),
Argo-Tech Corporation, a Delaware corporation ("Argo-Tech"), YC International,
Inc., a California corporation ("Yamada"), Yamada Corporation, a Japanese
corporation ("Yamada Corporation"), AT Holdings LLC, a Nevada limited liability
company ("ATLLC"), Sunhorizon International, Inc., a California corporation
("Sunhorizon") (individually, ATLLC, Yamada and Sunhorizon are sometimes
hereinafter referred to as an "Investor Stockholder" and, collectively, they are
sometimes hereinafter referred to as the "Investor Stockholders"); the persons
signing this First Amendment designated on Schedule A hereto as the Management
Stockholders (individually, a "Management Stockholder" and, collectively, the
"Management Stockholders"); and the persons signing this First Amendment
designated on Schedule A hereto as the Outside Directors (individually, an
"Outside Director" and, collectively, the "Outside Directors").
Key Trust Company of Ohio, N.A. (which was substituted for Society
National Bank, a national banking association pursuant to Ohio Revised Code
1109.02) in its capacity as Trustee (the "Trustee") under the Argo-Tech
Corporation Employee Stock Ownership Plan and Trust Agreement (the "Argo-Tech
ESOP"), which is the owner of shares of Class A Common Stock of the Corporation,
has entered into a separate supplemental stockholders' agreement, as amended,
with the Corporation and Argo-Tech in the form annexed hereto as Exhibit 2.10A.
The Trustee is third party beneficiary of the terms and provisions of this First
Amendment. As used herein, the Investor Stockholders, the Management
Stockholders, the Outside Directors, and the Trustee are treated and referred to
herein as different categories of common stockholders of the Corporation.
RECITALS
--------
A. The Corporation, Argo-Tech, Yamada Corporation, the Investor
Stockholders (excluding ATLLC), the Management Stockholders and the Outside
Directors (collectively, the "Stockholders") entered into that certain AT
Holdings Corporation 1994 Stockholders' Agreement, dated as of May 17, 1994 (the
"Stockholders' Agreement");
<PAGE> 2
2
B. ATLLC became a party to the Stockholders' Agreement pursuant to the
Joinder in Stockholders' Agreement executed by ATLLC on December 30, 1996; and
C. The Stockholders have agreed to amend the Stockholders' Agreement
to (i) reflect ATLLC's acquisition from Yamada of certain shares of common stock
of the Corporation and ATLLC's assumption of certain rights of Yamada under the
Stockholders' Agreement, and (ii) facilitate the corporate restructuring of the
Corporation's subsidiaries.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions herein contained, the parties hereto hereby agree as follows:
AGREEMENT
---------
SECTION 1
DEFINITIONS
-----------
1.1 CERTAIN DEFINITIONS. Unless otherwise defined herein, all
capitalized terms used herein have the meanings given to them in the
Stockholders' Agreement.
SECTION 2
AMENDMENTS TO STOCKHOLDERS' AGREEMENT
-------------------------------------
2.1 DEFINITIONS. Article I of the Stockholders' Agreement is hereby
amended and supplemented by the addition of the following definitions in proper
alphabetical order, which read as follows:
"ATLLC Notes" means (i) the Promissory Note dated March 14, 1997 in
the principal amount of $32,400,000 executed by the Corporation in favor of
ATLLC and (ii) the Promissory Note dated March 14, 1997 in the principal
amount of $8,700,000 executed by the Corporation in favor of ATLLC.
2.2 AMENDED PROVISIONS. The following sections of the Stockholders'
Agreement are hereby amended as follows:
(a) Section 1.01 is amended by the insertion of "ATLLC," after
"Yamada" in line four thereof and the insertion of "or ATLLC" after
"Affiliates of Yamada" in line four thereof.
(b) Section 1.02 is amended by insertion of "ATLLC," after "Yamada" in
line four thereof and the insertion of "or ATLLC" after "Affiliates of
Yamada" in line five thereof.
<PAGE> 3
3
(c) Section 1.08 is amended by the insertion of "or ATLLC" after
"Yamada" in lines sixteen and eighteen (twice) thereof.
(d) Section 1.60.1 is amended by the insertion of "ATLLC" after
"Sunhorizon," in line four thereof.
(e) Section 1.91 is amended by the insertion of new clause (xvi) as
follows:
"(xvi) a pledge of Securities or the ATLLC Notes by ATLLC to Sumitomo
Bank (or any financial institution providing for the refinancing or
refunding of the Senior Bank Financing) provided that in connection
with such pledge ATLLC shall be obligated to provide Argo- Tech and
the Corporation with written notice of any default related to such
pledge (or the obligations secured by such pledge) and reasonable
opportunity to remedy any such default."
(f) Sections 1.97 and 1.98 are hereby deleted.
(g) Section 1.117 is amended by the insertion of ", directly or
indirectly" after "Person" in line five thereof.
(h) Section 2.03 is amended by the deletion of such section in its
entirety and the substitution of the following in its place:
"Section 2.03. SHARE CAPITAL; OWNERSHIP.
(a) On the date of the First Amendment, the issued and outstanding
share capital of the Corporation shall consist of:
(i) Six Hundred Forty-Six Thousand Nine Hundred Thirty-Three
(646,933) shares of Class A Common Stock;
(ii) Six Hundred Eighty-Nine Thousand (689,000) shares of
Class B Common Stock;
(iii) Twenty-Seven Thousand Five Hundred Sixty (27,560)
shares of Class C Common Stock; and
(iv) [intentionally omitted]
The terms of the Class A Common Stock, the Class B Common Stock, the
Class C Common Stock, and Class D Common Stock are as provided in the
Restated Certificate of Incorporation of the Corporation annexed
hereto in Exhibit 2.02A to this Agreement.
<PAGE> 4
4
(b) On the date of the First Amendment, the issued and
outstanding shares of capital stock of the Corporation are owned as
follows:
(i) [intentionally omitted]
(ii) ATLLC owns (A) Twenty Thousand (20,000) shares of Class
A Common Stock, (B) Six Hundred Fourteen Thousand (614,000)
shares of Class B Common Stock, and (C) Twenty-Seven Thousand
Five Hundred Sixty (27,560) shares of Class C Common Stock;
(iii) Yamada owns Seventy-Five Thousand (75,000) shares of
Class B Common Stock;
(iv) Sunhorizon owns One Hundred Twenty-Nine Thousand Four
Hundred Two (129,402) shares of Class A Common Stock;
(v) the Management Stockholders in the aggregate own
Sixty-Five Thousand Fifty-Nine (65,059) shares of Class A Common
Stock;
(vi) the Outside Directors in the aggregate own Six Thousand
Sixty-Two (6,062) shares of Class A Common Stock;
(vii) the Trustee owns Four Hundred Sixteen Thousand One
Hundred Sixty-Three (416,163) shares of Class A Common Stock; and
(viii) Argo-Tech owns Ten Thousand Two Hundred Forty-Seven
(10,247) shares of Class A Common Stock.
In addition, Six Thousand Six Hundred Fifteen (6,615) shares of Class
A Common Stock in the aggregate shall be reserved for issuance (x)
pursuant to the Argo-Tech Corporation 1991 Management Incentive Stock
Option Plan and any future Argo-Tech employee benefit plans, (y) to
new Outside Directors, and (z) to new members of the management of
Argo-Tech or the Operating Subsidiaries and Twenty-Eight Thousand
(28,000) shares of Class A Common Stock shall have been reserved for
issuance pursuant to the Argo-Tech Corporation 1997 Management Stock
Option Plan. Furthermore, Thirty-Four Thousand Four Hundred Fifty
(34,450) shares of Class D Common Stock in the aggregate have been
reserved for issuance upon the exercise of outstanding stock options
granted
<PAGE> 5
5
pursuant to the Argo-Tech Corporation 1991 Performance Stock Option
Plan.
(c) ATLLC or any Affiliate thereof shall, upon written request to
the Corporation, have the right to exchange the shares of Class C
Common Stock for an equal number of shares of Class B Common Stock,
and the Corporation, upon receipt of such request, shall take any and
all such corporate actions as may be required to permit ATLLC to
exchange such shares of Class C Common Stock for an equal number of
shares of Class B Common Stock and shall promptly thereafter execute
such exchange. The Stockholders hereby agree that they each shall take
any and all action that may be required at the time in order for the
Corporation to effect its obligations under this Section 2.03(c),
including but not limited to agreeing to amend the Restated
Certificate of Incorporation of the Corporation."
(i) Section 2.04 is amended by the deletion of "Yamada" in lines one,
three and seven of clause (i) thereof and lines eight and nine of clause
(ii) thereof and the substitution of "ATLLC" in its place.
(j) Section 2.05 is amended by the deletion of "Yamada" in lines two
and three of clause (i) thereof and line six of clause (ii) thereof and the
substitution therefor of "ATLLC".
(k) Section 2.06 is amended by the deletion of ", or a Preferred Stock
Payment Default occurs" in lines ten and eleven of the introductory
paragraph thereof.
(l) Section 2.06(e) is amended by (i) deletion of "and" before
"Yamada" in line one thereof and (ii) insertion of "and ATLLC" after
"Yamada" in line one thereof.
(m) Section 2.07(a) is amended by (i) the deletion of clause (iv)
thereof, (ii) the insertion of ", ATLLC" after "Corporation" in line eight
of clause (ii) thereof and line one of clause (iii) thereof, (iii) the
deletion of "Yamada" in lines one, seven and ten of the paragraph following
the numbered clauses thereof, (iv) the deletion of "or the Preferred Stock
Payment Default" in lines five and six thereof, (v) the insertion of
"ATLLC" after "Yamada Corporation" in lines fifteen, twenty-two,
twenty-four and thirty-one thereof, and (vi) the deletion of clause (c) of
such paragraph.
(n) Section 2.07(b) is amended by the (i) deletion of "its Affiliate"
in line four thereof and the substitution
<PAGE> 6
6
therefor of ", ATLLC or their respective Affiliates", (ii) the deletion of
"or at such time as the Preferred Stock Payment Default has ceased to
exist" in lines five and six thereof, (iii) the deletion of "Yamada" in
lines six, eight and twenty thereof and the substitution therefor of
"ATLLC", (iv) the deletion of "or the Preferred Stock Payment Default" in
lines ten, twenty-two and twenty-four thereof, and (v) the insertion of ",
ATLLC" after "Yamada Corporation" in line twenty-seven thereof.
(o) Section 2.07(c) is amended by the deletion of "Yamada" in lines
two, five, seven, eleven, sixteen and twenty and the substitution therefor
of "ATLLC".
(p) Section 2.08(f) is amended by the insertion of "and ATLLC" after
"Yamada" in lines eleven and twenty-two thereof and the deletion of
"Yamada" in line eleven thereof and the substitution therefor of "ATLLC".
(q) Section 2.08(g) is amended by the insertion of "and ATLLC" after
"Yamada" in lines five and ten thereof and the deletion of "Yamada" in line
nine thereof and the substitution therefor of "ATLLC".
(r) Section 2.10 is amended by the deletion of such section in its
entirety and the substitution therefor of the following:
"Section 2.10. AGREEMENTS WITH THE TRUSTEE. On the date hereof,
the Corporation and Argo-Tech shall enter into a supplemental
stockholders' agreement with the Trustee, in the form of Exhibit 2.10A
annexed hereto. The parties hereto expressly agree that the Argo-Tech
ESOP and the Trustee, and any successor Trustee under the Argo-Tech
ESOP, shall be intended third party beneficiaries of, and have the
right to enforce, all of the provisions of this Agreement, and be
entitled to receive the benefits of and to enforce such provisions of
this Agreement, all as provided in Section 12.24. Each of the parties
to this Agreement further represents and warrants that it or he has
reviewed Exhibit 2.10A and has no objection to any of the terms and
conditions of the agreement contained in this Exhibit."
(s) Section 3.02 is amended by the insertion of "or Argo-Tech" after
"Corporation" in line three of clause (b) thereof and the deletion of "in
connection with the purchase by such certain Management Stockholders of
Class A Common Stock" in lines three through five of clause (b) thereof.
<PAGE> 7
7
(t) Section 3.04 is amended by the insertion of ", AS AMENDED," after
"MAY 17, 1994" in line four of the second legend thereunder.
(u) Section 3.05 is deleted.
(v) Section 4.02(a)(i) is amended by the insertion of ", ATLLC" after
"Yamada" in line two thereof and "or ATLLC after "Affiliate of Yamada" in
line two thereof.
(w) Section 4.02(a)(ii) is amended by (i) deletion of "after taking
into account any distribution required pursuant to the terms of the
Preferred Stock" in lines thirty-two through thirty-four thereof, and (ii)
deletion of "Yamada" in lines thirty-eight and forty-two and the
substitution therefor of "ATLLC".
(x) Section 4.02(a)(iii) is amended by (i) insertion of "the 1997
Management Stock Option Plan," after the "1991 Argo-Tech Corporation
Performance Option Plan," (ii) deletion of "or otherwise altering,
changing, or modifying the terms of the Preferred Stock" in clause (c)
thereof, "additional" in line twenty-four thereof and "(other than any
dividends paid pursuant to or in accordance with the terms of the Preferred
Stock)" in lines thirty-four through thirty-six thereof, and (iii) deletion
of "Yamada" in line thirty-two thereof and the substitution therefor of
"ATLLC".
(y) Section 4.02(c) is amended by insertion of (i) "ATLLC" after
"Yamada" in line six thereof and "or ATLLC" after "Yamada" in line seven
thereof, (ii) deletion of "any dividends pursuant to or in accordance with
the terms of the Preferred Stock" in lines seventeen through nineteen
thereof and the substitution therefor of "the ATLLC Notes" and (iii)
deletion of "payment" in line seventeen thereof and the substitution
therefor of "repayment".
(z) Section 9.05.1 is amended by the insertion of "and Outside
Directors" after "Stockholders" in line seven thereof and the deletion of
"the date hereof" and the substitution therefor of "May 17, 1994".
(aa) Section 9.06(a) is amended by insertion of "ATLLC" after "Yamada"
in lines two, twenty and twenty-three thereof and "or ATLLC" after "Yamada"
in lines ten and eleven thereof.
(bb) Section 9.06(b) is amended by insertion of ", ATLLC" after
"Yamada" in lines two and three thereof.
<PAGE> 8
8
(cc) Section 9.06(c) is amended by insertion of "ATLLC," after
"Yamada" in line five thereof.
(dd) Section 9.06(d) is amended by insertion of "ATLLC," after
"Yamada" in line two thereof.
(ee) Section 9.06(e) is amended by insertion of "or ATLLC, as the case
may be," after "Yamada" in line one thereof and ""ATLLC, " after "Yamada"
in line four thereof.
(ff) Section 9.06(f) is amended by insertion of "ATLLC," after
"Yamada" in lines three and thirteen thereof.
(gg) Section 9.07 is amended by insertion of "or ATLLC" after "Yamada"
in lines fourteen and twenty-four thereof and insertion of "or ATLLC, as
the case may be," after "Yamada" in line thirty.
(hh) Section 9.08 is amended by (i) insertion of "ATLLC," after
"Yamada" in line four of clause (a) of the introductory paragraph thereof,
(ii) insertion of "or ATLLC" after "Yamada" in line nine of clause (b)
thereof, and (iii) clause (a) thereof shall be amended and restated in its
entirety as follows:
"(a) They shall have the right to put to the Corporation their
respective shares of stock in the Corporation at a purchase price
equal to the Fair Market Value determined pursuant to the provisions
of Section 1.56; or"
(ii) Section 11.02(a) is amended by (i) deletion of "Yamada" in lines
three and twenty thereof and the substitution therefor of "ATLLC", and (ii)
deletion of "to redeem any outstanding Preferred Stock" in clause (iv)
thereof and the substitution therefor of "under the ATLLC Notes" and
deletion of "Preferred Stock" in clause (v) thereof and the substitution
therefor of "indebtedness" and deletion of "or if the terms and conditions
related to the redemption or repurchase of such Preferred Stock do not
allow for or otherwise permit such redemption or repurchase contemplated
herein" in clause (v) thereof.
(jj) Section 11.02(b) is amended by deletion of "Yamada" in line seven
thereof and the substitution therefor of "ATLLC".
(kk) Section 11.03 is amended by deletion of "Yamada" in lines two and
seven of clause (a), lines three, eleven, twenty-six, forty and forty-three
of clause (b) and lines
<PAGE> 9
9
one, three and seven of clause (c) thereof and the substitution therefor of
"ATLLC".
(ll) Section 11.04 is amended by deletion of "Yamada" in line
sixty-nine of clause (a) thereof and lines one and four of clause (b)
thereof and the substitution therefor of "ATLLC".
(mm) Section 11.05 is amended by deletion of "Yamada" in lines fifteen
and twenty thereof and the substitution therefor of "ATLLC".
(nn) Section 11.06 is amended by deletion of "Yamada" in lines
twenty-four and thirty-three thereof and the substitution therefor of
"ATLLC".
(oo) Section 11.07(f) is amended by deletion of "Yamada" in line four
thereof and the substitution therefor of "ATLLC".
(pp) Section 11.11 is amended by deletion of "Yamada" in lines six and
nine (twice) thereof and the substitution therefor of "ATLLC".
(qq) Section 12.16 is amended by insertion of "and (e) as to ATLLC, to
ATLLC," after "Trustee" in line twenty-three thereof, by insertion of
"ATLLC, " after "Yamada" in line twenty-seven thereof and by deletion of
"Yamada" in line twenty-nine thereof and the substitution therefor of
"ATLLC".
(rr) Section 12.17 is amended by insertion of "ATLLC," before "Yamada"
in lines one, four, twenty-one, twenty-two, twenty-eight and thirty-eight
thereof and the substitution therefor of "ATLLC".
SECTION 3
MISCELLANEOUS
-------------
3.1 EFFECT OF FIRST AMENDMENT. Except as specifically provided herein,
this First Amendment does not in any way waive, amend, modify, affect or impair
the terms and conditions of the Stockholders' Agreement and all terms and
conditions of the Stockholders' Agreement are to remain in full force and effect
unless otherwise specifically amended, waived or changed pursuant to this First
Amendment.
On and after the date hereof, each reference in the Stockholders'
Agreement to "this Agreement", "hereunder," "hereof," "herein" or words of like
import referring to the
<PAGE> 10
10
Stockholders' Agreement shall mean and be a reference to the Stockholders'
Agreement as amended by the First Amendment.
This First Amendment constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, representations or other
arrangements, whether express or implied, written or oral, of the parties in
connection therewith except to the extent expressly incorporated or specifically
referred to herein.
3.2 COUNTERPARTS. This First Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
3.3 GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
3.4 AMENDMENT REGARDING RESTRUCTURING.
(a) Each of the Stockholders acknowledge that Argo-Tech intends to effect a
restructuring of its operations through (i) the organization of Argo-Tech
Corporation (Aftermarket), Argo-Tech Corporation (OEM) and Argo-Holdings, Inc.,
(ii) the transfer of substantially all of its non-real estate operating assets
to Argo-Tech Corporation (Aftermarket) and (iii) the transfer by Argo-Tech
Corporation (Aftermarket) to Argo-Tech Corporation (OEM) of substantially all of
its assets related to the business of designing and manufacturing pumps and
other fluid-handling devices for sale to original equipment manufacturers. Each
of the Stockholders agree that upon the effective date of the Restructuring, the
Shareholders Agreement will, subject to Section 3.4(b) below, be deemed amended
as provided in Exhibit A attached hereto, without further action on the part of
the Stockholders.
(b) In the event of a refinancing or refunding of the Senior Bank Financing
and/or the Subordinated Notes, Exhibit A to this First Amendment may be amended
from time to time by Argo-Tech, after written notice to, but without consent
of, any of the Stockholders, (i) to reflect the new credit arrangements of the
Corporation and Argo-Tech, including the deletion, as appropriate, of references
to Sumitomo and Sumitomo's agreements with the Corporation and Argo-Tech and the
insertion, as appropriate, of references to the lender or lenders providing the
new credit arrangements, and (ii) to cure any ambiguity, to
<PAGE> 11
11
correct or supplement any provision hereof which may be inconsistent with any
other provision hereof, or to make any other provision with respect to matters
or questions arising under the Shareholders Agreement, this First Amendment or
Exhibit A not inconsistent with the intent of the Shareholders Agreement, this
First Amendment or Exhibit A, in each case as a result of or in connection with
Argo-Tech's new credit arrangements, provided that no amendment shall be adopted
pursuant hereto unless the adoption thereof is not adverse to the interests of
the Stockholders.
[Remainder Left Intentionally Blank]
<PAGE> 12
12
IN WITNESS WHEREOF, the Corporation has caused this First Amendment to
be executed and delivered in its name by officers duly authorized thereunto, and
the other parties hereto have caused this Agreement to be duly executed and
delivered, all of the foregoing as of the day and year first above written.
AT HOLDINGS CORPORATION
By: /s/ Paul R. Keen
-------------------------------------
Name: Paul R. Keen
Title: Vice President
ARGO-TECH CORPORATION
By: /s/ Yoichi Fujiki
-------------------------------------
Name: Yoichi Fujiki
Title: Vice President & Treasurer
YC INTERNATIONAL INC.
By: /s/ O. Akiyama
-------------------------------------
Name: O. Akiyama
Title:
YAMADA CORPORATION
By: /s/ M. Yamada
-------------------------------------
Name: M. Yamada
Title:
SUNHORIZON INTERNATIONAL, INC.
By: /s/ Wilford Solt
-------------------------------------
Name: Wilford Solt
Title:
AT HOLDINGS LLC
By: /s/ M. Yamada
-------------------------------------
Name: M. Yamada
Title:
<PAGE> 13
13
MANAGEMENT STOCKHOLDERS:
/s/ M. S. Lipscomb
By:_________________________
M. S. Lipscomb
/s/ V. Aguilar
By:_________________________
V. Aguilar
/s/ J. A. Bates
By:_________________________
J. A. Bates
/s/ D. J. Caschera
By:_________________________
D. J. Caschera
/s/ D. L. Chrencik
By:_________________________
D. L. Chrencik
/s/ J. M. Cunningham
By:_________________________
J. M. Cunningham
/s/ R. E. Eichhorn
By:_________________________
R. E. Eichhorn
/s/ S. J. Graettinger
By:_________________________
S. J. Graettinger
/s/ K. L. Hicks
By:_________________________
K. L. Hicks
/s/ P. R. Keen
By:_________________________
P. R. Keen
/s/ M. W. Mueller
By:_________________________
M. W. Mueller
/s/ J. B. Nolish
By:_________________________
J. B. Nolish
/s/ D. M. Prelee
By:_________________________
D. M. Prelee
/s/ D. N. Ramacciato
By:_________________________
D. N. Ramacciato
/s/ F. M. Robel
By:_________________________
F. M. Robel
/s/ D. M. Scaife
By:_________________________
D. M. Scaife
<PAGE> 14
14
/s/ P. A. Sklad
By:_________________________
P. A. Sklad
/s/ F. S. St. Clair
By:_________________________
F. S. St. Clair
/s/ G. M. Zavoda
By:_________________________
G. M. Zavoda
/s/ Y. Fujiki
By:_________________________
Y. Fujiki
OUTSIDE DIRECTORS
/s/ J. Carbaugh
By:_________________________
J. Carbaugh
/s/ Y. Fujiki
By:_________________________
Y. Fujiki
/s/ R. Taylor
By:_________________________
R. Taylor
/s/ K. Storrie
By:_________________________
K. Storrie
/s/ T. Dougherty
By:_________________________
T. Dougherty
<PAGE> 1
Exhibit 10.14
SECOND AMENDMENT TO
AT HOLDINGS CORPORATION
1994 STOCKHOLDERS' AGREEMENT
THIS SECOND AMENDMENT TO AT HOLDINGS CORPORATION 1994 STOCKHOLDERS'
AGREEMENT (this "Second Amendment"), dated as of July 18, 1997, is made by and
among AT Holdings Corporation, a Delaware corporation (the "Corporation"),
Argo-Tech Corporation (HBP), a Delaware corporation and formerly known as
Argo-Tech Corporation ("Old Argo-Tech"), Argo-Tech Corporation, a Delaware
corporation formerly known as Argo-Holdings, Inc. ("Argo-Tech"), YC
International, Inc., a California corporation ("Yamada"), Yamada Corporation, a
Japanese corporation ("Yamada Corporation"), AT Holdings LLC, a Nevada limited
liability company ("ATLLC"), Sunhorizon International, Inc., a California
corporation ("Sunhorizon") (individually, ATLLC, Yamada and Sunhorizon are
sometimes hereinafter referred to as an "Investor Stockholder" and,
collectively, they are sometimes hereinafter referred to as the "Investor
Stockholders"); the persons signing this Second Amendment designated on Schedule
A hereto as the Management Stockholders (individually, a "Management
Stockholder" and, collectively, the "Management Stockholders"); and the persons
signing this Second Amendment designated on Schedule A hereto as the Outside
Directors (individually, an "Outside Director" and, collectively, the "Outside
Directors").
Key Trust Company of Ohio, N.A. (which was substituted for Society
National Bank, a national banking association pursuant to Ohio Revised Code
1109.02) in its capacity as Trustee (the "Trustee") under the Argo-Tech
Corporation Employee Stock Ownership Plan and Trust Agreement (the "Argo-Tech
ESOP"), which is the owner of shares of Class A Common Stock of the Corporation,
has entered into a separate supplemental stockholders' agreement, as amended,
with the Corporation and Argo-Tech in the form annexed hereto as Exhibit 2.10A.
The Trustee is third party beneficiary of the terms and provisions of this
Second Amendment. As used herein, the Investor Stockholders, the Management
Stockholders, the Outside Directors, and the Trustee are treated and referred to
herein as different categories of common stockholders of the Corporation.
RECITALS
--------
A. The Corporation, Old Argo-Tech, Yamada Corporation, the Investor
Stockholders (excluding ATLLC), the Management Stockholders and the Outside
Directors (collectively, the "Stockholders") entered into that certain AT
Holdings Corporation 1994 Stockholders' Agreement, dated as of May 17, 1994 (the
"Stockholders' Agreement");
<PAGE> 2
2
B. The Stockholders' Agreement was amended effective May 1, 1997 to,
among other things, reflect ATLLC's acquisition from Yamada of certain shares of
common stock of the Corporation and ATLLC's assumption of certain rights of
Yamada under the Stockholders' Agreement (the "First Amendment"); and
C. The Stockholders have agreed to amend the Stockholders' Agreement
to reflect Argo-Tech's restructuring of its subsidiaries.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions herein contained, the parties hereto hereby agree as follows:
AGREEMENT
---------
SECTION 1
DEFINITIONS
-----------
1.1 CERTAIN DEFINITIONS. Unless otherwise defined herein, all
capitalized terms used herein have the meanings given
to them in the Stockholders' Agreement.
SECTION 2
AMENDMENTS TO STOCKHOLDERS' AGREEMENT
-------------------------------------
2.1 DEFINITIONS. Article I of the Stockholders' Agreement is hereby
amended and supplemented by the addition of the following definitions in proper
alphabetical order, which read as follows:
"Argo-Tech Corporation (Aftermarket)" means Argo-Tech Corporation
(Aftermarket), a Delaware corporation and a wholly-owned subsidiary of
Argo-Tech.
"Argo-Tech Corporation (OEM)" means Argo-Tech Corporation (OEM), a
Delaware corporation and a wholly-owned subsidiary of Argo-Tech.
"Old Argo-Tech" means Argo-Tech Corporation (HBP), a Delaware
corporation formerly known as Argo-Tech Corporation.
"Operating Subsidiaries" means, collectively, Old Argo-Tech,
Argo-Tech Corporation (Aftermarket) and Argo-Tech Corporation (OEM).
2.2 AMENDED PROVISIONS. The following sections of the Stockholders'
Agreement are hereby amended as follows:
<PAGE> 3
3
(a) Section 1.08 is amended by the insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in lines fifteen and twenty
thereof.
(b) Section 1.11 is amended and restated in its entirety to read as
follows:
"Section 1.11. "Argo-Tech" means Argo-Tech Corporation, a
Delaware corporation formerly known as Argo-Holdings, Inc."
(c) Section 1.46 is amended by insertion of "Old" before "Argo-Tech"
in lines six, eight and eleven thereof.
(d) Section 1.56 is amended by the insertion of ", together with the
Operating Subsidiaries," after "Argo-Tech" in line sixteen thereof.
(e) Section 1.59 is amended by insertion of "Old" before "Argo-Tech"
in line six thereof.
(f) Section 1.60 is amended by the insertion of "Old" before
"Argo-Tech" in line four thereof and by adding the following sentence at
the end thereof: "Old Argo-Tech's obligations hereunder were assumed by
Argo-Tech effective July 18, 1997."
(g) Section 1.60.1 is amended by the insertion of "any Operating
Subsidiary" after "Corporation," in line three thereof.
(h) Section 1.75 is amended by the insertion of "or the Operating
Subsidiaries" after "Argo-Tech" in lines three and six thereof.
(i) Section 1.81 is amended by the deletion of "Argo-Tech
Corporation" from the fourth and fifth lines thereof and the substitution
of "Old Argo-Tech" in its place.
(j) Section 1.91 (xiii) is amended by the insertion of "or any
Operating Subsidiary" after "Argo-Tech" in line four thereof.
(k) Section 1.113 is amended by the insertion of "Old" before
"Argo-Tech" in lines three and five thereof.
(l) Section 1.115 is amended by the insertion of "Old" before
"Argo-Tech" in lines two and six thereof.
(m) Section 1.143 is amended by insertion of "Old" before "Argo-Tech"
in lines three and seven thereof.
<PAGE> 4
4
(n) Section 1.144 is amended by insertion of "Old" before "Argo-Tech"
in line four thereof.
(o) Section 2.01 is amended by the deletion of the "Restated" from the
third line thereof and the insertion after "Agreement" in line five thereof
of the following: "and the by-laws of each Operating Subsidiary shall be as
set forth in Exhibits 2.01C, 2.01D and 2.01E, respectively, to this
Agreement".
(p) Section 2.02 is amended by the insertion after "Agreement" in line
six thereof of the following: "and the Certificate of Incorporation of each
Operating Subsidiary shall be as set forth in Exhibits 2.02C, 2.02D and
2.02E, respectively, to this Agreement".
(q) Section 2.06(d) is amended by the insertion of "or any of its
Operating Subsidiaries" after "Argo-Tech" in lines four and ten thereof.
(r) Section 2.06(e) is amended by (i) insertion of "or any Operating
Subsidiary" after "Argo-Tech" in line eleven thereof, (ii) deletion of
"Argo-Tech employees" from lines fifteen and sixteen thereof and the
substitution of "employees of Argo-Tech or the Operating Subsidiaries" in
its place, and (iii) insertion of "and its Operating Subsidiaries" after
"Argo-Tech" in line twenty-six thereof.
(s) Section 2.08(e) is amended by insertion of "or any of the
Operation Subsidiaries" after "Argo-Tech" in lines sixteen and eighteen
thereof.
(t) Section 4.02(a)(i) is amended by the insertion of "Old" before
"Argo-Tech" in line twenty-six thereof.
(u) Section 4.02(a)(ii) is amended by (i) insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in lines seven, eight, ten,
twenty-two, twenty-five and thirty thereof, and (ii) insertion of "of
Argo-Tech and its Operating Subsidiaries, taken as a whole," after "assets"
in line fourteen thereof.
(v) Section 4.02(a)(iii) is amended by insertion of "or any of its
Operating Subsidiaries" after "Argo-Tech" in lines fifteen, sixteen and
eighteen thereof and after "Corporation" in line twenty thereof.
(w) Section 4.02(a)(iv) is amended by insertion of (i) "or any of the
Operating Subsidiaries'" after "Argo-Tech's" in lines two and ten thereof,
(ii) "or Operating
<PAGE> 5
5
Subsidiaries" after "Argo-Tech" in line fifteen thereof, and (iii) "Old"
before "Argo-Tech" in line thirty-two thereof.
(x) Section 4.02(c) is amended by insertion of "of Argo-Tech and the
Operating Subsidiaries, taken as a whole" after "assets" in line eleven
thereof.
(y) Section 9.07 is amended by insertion of "or any of the Operating
Subsidiaries" after "Argo-Tech" in lines seven, twenty-two and twenty-three
thereof.
(z) Section 11.02(a) is amended by insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in line thirty thereof.
(aa) Section 12.13 is amended by the insertion of "and the Operating
Subsidiaries" after "Argo-Tech" in line six thereof.
(bb) Section 12.14(a) is amended by the insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in lines four (twice) and five
thereof.
(cc) Section 12.14(b) is amended by the insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in line two of clause (ii) and
line three of clause (iii) thereof.
(dd) Section 12.18 is amended by the insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in line fourteen thereof.
(ee) Section 12.24 is amended by (i) the insertion of", Old Argo-Tech"
after "Argo-Tech" in line seven thereof and (ii) the deletion of "either"
from the eighth line thereof and the substitution of "any such" in its
place.
2.3 AMENDED EXHIBITS.
(a) The Restated By-Laws of Argo-Tech Corporation (now known as
Argo-Tech Corporation (HBP)) attached to the Stockholders' Agreement as
Exhibit 2.01A are hereby deleted and replaced by the By-Laws of Argo-Tech
Corporation (formerly known as Argo-Holdings, Inc.) attached hereto as
Exhibit A and the By-laws of Argo-Tech Corporation (Aftermarket), Argo-Tech
Corporation (OEM) and Argo-Tech Corporation (HBP) are attached hereto as
Exhibits B, C and D, respectively.
(b) The Restated Certificate of Incorporation of Argo-Tech
Corporation (now known as Argo-Tech Corporation (HBP))
<PAGE> 6
6
attached to the Stockholders' Agreement as Exhibit 2.02A is hereby deleted
and replaced by the Certificate of Incorporation of Argo-Tech Corporation
(formerly known as Argo-Holdings, Inc.) attached hereto as Exhibit E and
the Certificates of Incorporation of Argo-Tech Corporation (Aftermarket),
Argo-Tech Corporation (OEM) and Argo-Tech Corporation (HBP) are attached
hereto as Exhibits F, G and H, respectively.
SECTION 3
MISCELLANEOUS
-------------
3.1 EFFECT OF SECOND AMENDMENT. Except as specifically provided
herein, this Second Amendment does not in any way waive, amend, modify, affect
or impair the terms and conditions of the Stockholders' Agreement and all terms
and conditions of the Stockholders' Agreement are to remain in full force and
effect unless otherwise specifically amended, waived or changed pursuant to this
Second Amendment.
On and after the date hereof, each reference in the Stockholders'
Agreement to "this Agreement", "hereunder," "hereof," "herein" or words of like
import referring to the Stockholders' Agreement shall mean and be a reference to
the Stockholders' Agreement as amended by the First Amendment and the Second
Amendment.
This Second Amendment constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, representations or other
arrangements, whether express or implied, written or oral, of the parties in
connection therewith except to the extent expressly incorporated or specifically
referred to herein.
3.2 COUNTERPARTS. This Second Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
3.3 GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
IN WITNESS WHEREOF, the Corporation has caused this Second Amendment
to be executed and delivered in its name by
<PAGE> 7
7
officers duly authorized thereunto, and the other parties hereto have caused
this Agreement to be duly executed and delivered, all of the foregoing as of the
day and year first above written.
AT HOLDINGS CORPORATION
By: /s/ Paul R. Keen
-------------------------------------
Name: Paul R. Keen
Title: Vice President
ARGO-TECH CORPORATION (HBP)
(formerly known as Argo-Tech
Corporation)
By: /s/ Paul R. Keen
-------------------------------------
Name: Paul R. Keen
Title: Vice President
ARGO-TECH CORPORATION
(formerly known as
Argo-Holdings, Inc.)
By: /s/ Yoichi Fujiki
-------------------------------------
Name: Yoichi Fujiki
Title: Vice President & Treasurer
YC INTERNATIONAL INC.
By: /s/ O. Akiyama
-------------------------------------
Name: O. Akiyama
Title:
YAMADA CORPORATION
By: /s/ M. Yamada
-------------------------------------
Name: M. Yamada
Title:
AT HOLDINGS LLC
By: /s/ M. Yamada
-------------------------------------
Name: M. Yamada
Title:
SUNHORIZON INTERNATIONAL, INC.
By: /s/ Wilford Solt
-------------------------------------
Name: Wilford Solt
Title:
<PAGE> 8
8
MANAGEMENT STOCKHOLDERS:
/s/ M. S. Lipscomb
By:_________________________
M. S. Lipscomb
/s/ V. Aguilar
By:_________________________
V. Aguilar
/s/ J. A. Bates
By:_________________________
J. A. Bates
/s/ D. J. Caschera
By:_________________________
D. J. Caschera
/s/ B. L. Chrencik
By:_________________________
B. L. Chrencik
/s/ J. M. Cunningham
By:_________________________
J. M. Cunningham
/s/ R. E. Eichhorn
By:_________________________
R. E. Eichhorn
/s/ S. J. Graettinger
By:_________________________
S. J. Graettinger
/s/ K. L. Hicks
By:_________________________
K. L. Hicks
/s/ P. R. Keen
By:_________________________
P. R. Keen
/s/ M. W. Mueller
By:_________________________
M. W. Mueller
/s/ J. B. Nolish
By:_________________________
J. B. Nolish
/s/ D. M. Prelee
By:_________________________
D. M. Prelee
/s/ D. N. Ramacciato
By:_________________________
D. N. Ramacciato
/s/ F. M. Robel
By:_________________________
F. M. Robel
/s/ D. M. Scaife
By:_________________________
D. M. Scaife
<PAGE> 9
9
/s/ P. A. Sklad
By:_________________________
P. A. Sklad
/s/ F. S. St. Clair
By:_________________________
F. S. St. Clair
/s/ G. M. Zavoda
By:_________________________
G. M. Zavoda
/s/ Y. Fujiki
By:_________________________
Y. Fujiki
OUTSIDE DIRECTORS
/s/ J. Carbaugh
By:_________________________
J. Carbaugh
/s/ Y. Fujiki
By:_________________________
Y. Fujiki
/s/ R. Taylor
By:_________________________
R. Taylor
/s/ K. Storrie
By:_________________________
K. Storrie
/s/ T. Dougherty
By:_________________________
T. Dougherty
<PAGE> 1
EXHIBIT 10.15
AT HOLDINGS CORPORATION
SUPPLEMENTAL STOCKHOLDERS AGREEMENT
AMONG
AT HOLDINGS CORPORATION, ARGO-TECH CORPORATION,
AND SOCIETY NATIONAL BANK, AS TRUSTEE
This Supplemental Stockholders Agreement is dated as of May 17, 1994,
and is by and among AT Holdings Corporation, a Delaware corporation (the
"Corporation"); Argo-Tech Corporation, a Delaware corporation ("Argo-Tech");
and Society National Bank, a national banking association in its capacity as
Trustee (the "Trustee") under the Argo-Tech Corporation Employee Stock Ownership
Plan and Trust Agreement (the "Argo-Tech ESOP").
R E C I T A L S:
- - - - - - - -
WHEREAS, the Trustee desires to purchase, simultaneously with and upon
the execution of this Agreement, shares of the Corporation for the Argo-Tech
ESOP; and
WHEREAS, the parties hereto believe that it is in the best interest of
the Corporation, Argo-Tech, and the Corporation's stockholders for the Trustee
to join in certain provisions of that certain Stockholders' Agreement, dated the
date hereof (the "Stockholders' Agreement"), to which certain other stockholders
of the Corporation are parties and to receive the benefits of that Stockholders'
Agreement, to continue to impose certain restrictions and limitations upon the
Disposition of the Securities (as such terms are hereinafter defined), and to
grant each other certain rights as described herein;
NOW THEREFORE, with reference to the foregoing recitals, which are by
this reference incorporated herein and for and in consideration of the premises
and the mutual covenants, terms, and conditions hereinafter set forth, the
parties agree as follows:
1
<PAGE> 2
ARTICLE I
DEFINITIONS
-----------
In this Agreement, capitalized terms not otherwise defined shall have
the same meanings therefor set forth in the Stockholders' Agreement. In
addition, the following terms have the respective meanings ascribed thereto:
Section 1.01. "ACCEPTABLE COMPANY OFFERING" shall mean a Public
Offering of Common Stock of the Corporation that is a Primary Offering following
which: (i) Yamada, any Affiliates of Yamada, the Trust, the Non-Yamada Entity,
and any transferees to whom such entities have transferred Common Stock shall
own no less than 36% in the aggregate of the outstanding Common Stock of the
Corporation (including shares sold to satisfy any over-allotment option granted
to any underwriters in such offering); (ii) any underwriters chosen to assist
in effecting such offering are reasonably acceptable to not less than 80% of the
members of the Board then serving; and (iii) the minimum amount raised pursuant
to such offering for the Corporation is no less than $35,000,000 in gross
proceeds in the aggregate.
Section 1.02. "ACCEPTABLE DEMAND OFFERING" shall mean a Public Offering
of Common Stock of the Corporation pursuant to the exercise of a Demand
Registration Right following which: (i) Yamada, any Affiliates of Yamada, the
Trust, the Non-Yamada Entity, and any transferees to whom such entities have
transferred Common Stock shall own no less than 36% in the aggregate of the
outstanding Common Stock of the Corporation (including shares sold to satisfy
any over-allotment option granted to any underwriters in such offering); (ii)
any underwriters chosen to assist in effecting such offering are reasonably
acceptable to not less than 80% of the members of the Board then serving; and
(iii)(a) the minimum amount reasonably anticipated to be received by selling
Stockholders as a result of such offering at the time (x) such Demand
Registration Right is exercised, and (y) the applicable Registration Statement
is declared effective, is no less than $15,000,000 in gross proceeds if there
has not been a Primary Offering prior to the exercise of the Demand Registration
Right, or (b) the minimum amount of Common Stock to be sold pursuant to such
offering if at any time prior to the exercise of such Demand Registration Right
a Primary Offering has occurred shall be no less than the greater of (i) two
percent (2%) of the outstanding Common Stock of the Corporation, and (ii) two
times the average weekly trading volume in such Common Stock on all national
2
<PAGE> 3
securities exchanges and/or reported through the automated quotation system of a
registered securities association during the four (4) week period immediately
preceding the exercise of such Demand Registration Right.
Section 1.03. "ACT" means the Securities Act of 1933, as amended, and
any rules and regulations promulgated thereunder and any successor federal
statute, rules, or regulations.
Section 1.04. "AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes or this definition, the
term "control" (including the correlative meanings of the terms "controlling,"
"controlled by," and "under direct or indirect common control with") 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 policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise. Notwithstanding the foregoing or any other provision of this
Agreement, for purposes of this Agreement, in no event shall the Corporation or
Argo-Tech be or be deemed, construed, considered, or interpreted to be an
Affiliate of Yamada or an Affiliate of any Affiliate or group of Affiliates of
Yamada, nor shall Yamada or any Affiliates thereof be deemed, construed,
considered, or interpreted to be an Affiliate of the Corporation or Argo-Tech.
Section 1.05. "BUSINESS DAY" means any day that is not a Saturday or
Sunday or a day on which state, provincial, or national banking institutions are
authorized or obligated by law or executive order to remain closed in the State
of New York.
Section 1.06. "CLASS A COMMON STOCK" means the Corporation's Class A
Common Stock, par value $0.01 per share.
Section 1.07. "CLASS B COMMON STOCK" means the Corporation's Class B
Common Stock, par value $0.01 per share.
Section 1.08. "CLASS C COMMON STOCK" means the Corporation's Class C
Common Stock, par value $0.01 per share.
Section 1.09. "CLASS D COMMON STOCK" means the Corporation's Class D
Common Stock, par value $0.01 per share.
3
<PAGE> 4
Section 1.10. "COMMON STOCK" means the Corporation's (i) Class A Common
Stock, (ii) Class B Common Stock, (iii) Class C Common Stock, (iv) Class D
Common Stock, (v) any other class of securities comparable in rights to those of
one or more of the other classes of Common Stock, whether voting or non-voting
and designated as a class of Common Stock, and (vi) shares of common stock or
other securities of any class, whether voting or non-voting, resulting from the
reclassification, split, combination, or other change of such Class A Common
Stock, Class B Common Stock, Class C Common Stock, Class D Common Stock, or such
other class of securities comparable in rights to those of one or more of the
other classes of Common Stock and designated as a class of Common Stock.
Section 1.11. [Intentionally omitted].
Section 1.12. "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Section 1.13. "INVESTOR STOCKHOLDER" means Yamada and Sunhorizon.
Section 1.14. "MANAGEMENT STOCKHOLDER" OR "MANAGEMENT STOCKHOLDERS"
means those members of the management of Argo-Tech whose names appear under the
heading Management Stockholders in Schedule A, to the Stockholders Agreement;
those members of management of Argo-Tech who acquire shares of Class D Common
Stock issued pursuant to the Argo-Tech Corporation 1991 Performance Stock Option
Plan, and/or who have otherwise executed this Agreement in the capacity of a
Management Stockholder.
Section 1.15. "NEW SECURITIES" means any Security whether currently as
of the date hereof or hereafter authorized, including any Securities previously
repurchased by the Corporation, and all rights, options, or warrants to purchase
Securities, and securities or indebtedness of any type whatsoever that are, or
may become, convertible into or exchangeable for Securities; provided, however,
that the term "New Securities" does not include (i) any securities issued upon
exercise or conversion in accordance with their terms of any other Securities
which, when issued, were the subject of Section 5.01 of the Stockholders
Agreement; (ii) the shares of Common Stock purchased by Stockholders prior to or
contemporaneously with the execution of this Agreement; (iii) securities issued
in connection with any pro-rata reclassification, split, combination, or other
change of any then outstanding Securities; (iv) securities proposed to be or
that are offered to the public in a transaction or transactions required to be
registered under the Act;
4
<PAGE> 5
(v) options or shares of Common Stock issued pursuant to the Corporation's
Performance Option Plan; or (vi) securities distributed as dividends on any then
outstanding securities.
Section 1.16. "NON-YAMADA STOCKHOLDERS" means the Management
Stockholders, the Outside Directors, and the Trustee.
Section 1.17. "OUTSIDE DIRECTOR" OR "OUTSIDE DIRECTORS" means those
persons whose names appear under the heading Outside Directors in Schedule A of
the Stockholders' Agreement and or who have otherwise executed the Stockholders'
Agreement in the capacity of an Outside Director.
Section 1.18. "PERMITTED AFFILIATE" means an Affiliate of any
Stockholder at least fifty percent (50%) (by vote and value) of the stock of
which Affiliate is owned directly, or indirectly through another such
Affiliate, by such Stockholder.
Section 1.19. "PERSON" means any individual, corporation, partnership,
joint venture, trust, association, joint-stock company, unincorporated
association or organization or government (or any department, agency, or
political subdivision thereof), or any other entity.
Section 1.20. "PREFERRED STOCK" means the Corporation's Series A
Cumulative Redeemable Preferred Stock, par value $1.00 per share.
Section 1.21. "PRIMARY OFFERING" means any Public Offering of
Securities by the Corporation for its own account.
Section 1.22. "SECURITY" OR "SECURITIES" means (a) the Common Stock,
(b) any other equity securities of the Corporation, and (c) any rights,
warrants, options, convertible securities or indebtedness, exchangeable
securities or indebtedness, or other rights, that are exercisable for or
convertible or exchangeable into, directly or indirectly, other equity
securities of the Corporation. The number of shares of a Security that is
represented by a right, warrant, option, or convertible or exchangeable security
or indebtedness shall be the number of shares of Common Stock or such other
securities that the holder thereof would own upon the immediate exercise of such
right, warrant, option, or convertible or exchangeable securities or
indebtedness.
5
<PAGE> 6
Section 1.23. "STOCKHOLDER" means an Investor Stockholder, a Management
Stockholder, or an Outside Director, and "Stockholders" means the Investor
Stockholders, the Management Stockholders, and the Outside Directors.
Section 1.24. "SELLING STOCKHOLDER" shall have the meaning set forth in
Section 6.04 hereof.
Section 1.25. "STOCKHOLDERS' AGREEMENT" means the 1994 Stockholders
Agreement, dated the date hereof, to which reference is made in the Recitals.
Section 1.26. "SUNHORIZON" means Sunhorizon International, Inc., a
California corporation.
Section 1.27. "VESTAR" means Vestar Capital Partners, Inc. a Delaware
corporation.
Section 1.28. "YAMADA" shall mean YC International Corporation.
Section 1.29. "YAMADA CORPORATION" shall mean Yamada Corporation.
6
<PAGE> 7
ARTICLE II
ORGANIZATIONAL MATTERS
----------------------
Section 2.01. BY-LAWS. On the date hereof, the Restated By-Laws of
the Corporation shall be as set forth in Exhibit 2.01A to this Agreement, and
the Restated By-Laws of Argo-Tech shall be as set forth in Exhibit 2.01B to this
Agreement, and, to the extent necessary, each shall be conformed to the
applicable provisions of this Agreement. The parties hereto agree that this
Agreement constitutes all corporate, stockholder, and director action necessary
to accomplish the foregoing in accordance with the laws of the State of
Delaware.
Section 2.02. CERTIFICATES OF INCORPORATION. On the date hereof, the
Restated Certificate of Incorporation of the Corporation shall be as set forth
in Exhibit 2.02A to this Agreement, and the Restated Certificate of
Incorporation of Argo-Tech shall be as set forth in Exhibit 2.02B to this
Agreement, and each shall be conformed to the applicable provisions of this
Agreement. The parties hereto agree that this Agreement constitutes all
corporate, stockholder, and director action necessary to accomplish the
foregoing in accordance with the laws of the State of Delaware.
Section 2.03. SHARE CAPITAL; OWNERSHIP. (a) On the date hereof, the
issued and outstanding share capital of the Corporation shall consist of:
(i) Six Hundred Forty-Six Thousand Eight Hundred Eighty Three
(646,883) shares of Class A Common Stock;
(ii) Six Hundred Eighty-Nine Thousand (689,000) shares of
Class B Common Stock;
(iii) Twenty-Seven Thousand, Five Hundred Sixty (27,560)
shares of Class C Common Stock; and
(iv) Two Hundred Fifty-Nine Thousand Eighty-Five (259,085)
shares of Preferred Stock.
The terms of the Class A Common Stock, the Class B Common Stock, the Class C
Common Stock, the Class D Common Stock, and the Preferred Stock are as provided
in the Restated Certificate of Incorporation of the Corporation annexed hereto
in Exhibit 2.02A to this Agreement.
7
<PAGE> 8
(b) On the date hereof, the issued and outstanding shares of capital
stock of the Corporation are owned as follows:
(i) the Vestar Investment Partnership owns Fifteen Thousand
Eighty-Five (15,085) shares of Preferred Stock;
(ii) Yamada owns (A) Twenty Thousand (20,000) shares of Class
A Common Stock, (B) Six Hundred Eighty-Nine Thousand (689,000) shares
of Class B Common Stock, (C) Twenty-Seven Thousand, Five Hundred Sixty
(27,560) shares of Class C Common Stock, and (D) Two Hundred Forty-Four
Thousand (244,000) shares of Preferred Stock;
(iii) Sunhorizon owns One Hundred Twenty-Nine Thousand Four
Hundred Two (129,402) shares of Class A Common Stock;
(iv) the Management Stockholders in the aggregate own Seventy
Thousand One Hundred Eleven (70,111) shares of Class A Common Stock;
(v) the Outside Directors own Three Thousand Three Hundred
Eight (3,308) shares of Class A Common Stock;
(vi) the Trustee owns Four Hundred Twenty Thousand (420,000)
shares of Class A Common Stock; and
(vii) Argo-Tech owns Four Thousand Sixty-Two (4,602) shares of
Class A Common Stock.
In addition, Seven Thousand Five Hundred Forty (7,540) shares of Class A Common
Stock in the aggregate shall be reserved for issuance (x) pursuant to the
Argo-Tech Corporation 1991 Management Incentive Stock Option Plan, (y) to new
Outside Directors, and (z) to new members of the management of Argo-Tech.
Furthermore, Thirty-Four Thousand Four Hundred Fifty (34,450) shares of Class D
Common Stock in the aggregate have been reserved for issuance upon the exercise
of outstanding stock options granted pursuant to the Argo-Tech Corporation 1991
Performance Stock Option Plan.
Section 2.04. AMENDMENT OF STOCKHOLDERS' AGREEMENT. The Corporation
agrees that it will not agree or consent to any amendment, supplement,
modification, alteration, waiver of rights under, or termination of the
Stockholders' Agreement without the written consent of the Trustee, which
consent will not be unreasonably denied or withheld. If the Trustee has not
acted upon the Corporation's written request for such consent and so
8
<PAGE> 9
advised the Corporation written ten (10) Business Days of its actual receipt of
such a request, the consent of the Trustee shall not be required as to the
individual action as to which such consent was requested.
Section 2.05. ISSUANCE OF ADDITIONAL EQUITY SECURITIES. The Corporation
shall not, at any time, issue any additional equity securities for a
consideration per share (computed as provided in the next sentence of this
Section 2.05, less than the fair market value of such securities on the date the
Board determines to issue such securities (or to grant rights, options, or
securities convertible or exchangeable therefor), except that, in the case of
Common Stock issuable under a stock option plan approved prior to the date
hereof by the Board, options may be granted, and shares of Common Stock may be
issued, at purchase prices less than such fair market value; PROVIDED, HOWEVER,
that the number of shares issuable under such plans may not be increased. To the
extent that any additional equity securities, or any securities that are
exercisable for or convertible or exchanged into, directly or indirectly, equity
securities shall be issued or granted for a cash consideration (excluding any
securities issued pursuant to commitments outstanding prior to the date hereof),
the consideration received by the Corporation therefor shall be deemed to be the
amount of cash received, excluding amounts paid or payable for accrued interest
or accrued dividends, but without deducting commissions and expenses paid or
incurred by the Corporation for any underwriting of, or otherwise in connection
with, the issue or sale thereof; and, to the extent that such issue or grant
shall be for a consideration other than cash, then, for purposes of this Section
and except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be such amount as shall be determined by the
Corporation as the fair value of such consideration at the time of such issue or
grant. For the purposes of this Section, the fair market value of any securities
that are exercisable for or convertible or changeable into, directly or
indirectly, other securities, shall be equal to the fair market value of the
underlying securities. The consideration for any securities that are exercisable
for or convertible or changeable into, directly or indirectly, other securities,
shall (i) in the case of additional shares issued or issuable pursuant to rights
or options, be the consideration received by the Corporation for granting such
rights or options plus the additional consideration paid or payable to the
Corporation upon the exercise of such rights or options, and (ii) in the case of
additional shares issued or issuable pursuant to the terms of a conversion or
exchange of such securities, be the consideration received by the Corporation
for granting any
9
<PAGE> 10
rights or options to subscribe for or purchase such securities, plus the
additional consideration paid or payable to the Corporation upon the exercise of
the right of conversion or exchange of such securities, in each case after
deducting the aggregate amount, if any, paid by the Corporation in cash, upon
such exercise, for fractional shares pursuant to the terms of such securities.
Section 2.06. NEW SECURITIES. In the event that the Corporation shall
issue any New Securities, then the Corporation shall first give thirty (30)
days' prior written notice of such proposed issuance to all Stockholders and the
Trustee, whereupon each Stockholder and the Trustee shall have the right,
exercisable upon the delivery of a notice to the Corporation not more than
fifteen (15) days after their receipt of the aforesaid notice from the
Corporation, to purchase in ratable portions for the same price and on the same
terms and conditions, such further amounts of New Securities as are being issued
by the Corporation as shall be required to maintain that percentage of all
outstanding Securities owned by such Person equal to the percentage of all
issued and outstanding Common Stock owned by such Person immediately prior to
the issuance of any New Securities (taking into account for such purpose the
number of shares of Common Stock issuable pursuant to options, warrants,
convertible securities, or other rights held in the aggregate by all
Stockholders and the Trustee).
Section 2.07. NOTICE OF MEETINGS. Each of the Corporation and Argo-Tech
shall provide to the Trustee written notice of any meetings of their respective
boards of directors, committees of boards of directors, and stockholders, as
well as copies of all materials mailed to directors of either corporation by
either the Corporation or Argo-Tech. The Trustee shall be afforded the
opportunity to attend any meetings of the stockholders, boards of directors, and
committees of the boards of directors of the Corporation and Argo-Tech,
respectively. The Trustee shall also receive copies of all minutes of meetings
of stockholders, directors, and board committees of the Corporation and
Argo-Tech.
10
<PAGE> 11
ARTICLE III
RESTRICTIONS ON DISPOSITIONS OF SECURITIES;
-------------------------------------------
INVESTMENT REPRESENTATIONS
--------------------------
Section 3.01. REPRESENTATIONS AND WARRANTIES. The Trustee acknowledges
and represents to the Corporation that:
(a) It has full authority to act as trustee of the Argo-Tech
ESOP and exercise trust powers under the laws of the State of Ohio and
has full power, authority, and legal right under the Argo-Tech ESOP to
execute and deliver this Agreement and to perform its obligations
hereunder. Assuming due execution and delivery by the other parties
hereto, upon execution and delivery by the Trustee on behalf of the
Argo-Tech ESOP, this Agreement will constitute a binding and valid
obligation of the Trustee enforceable against the Argo-Tech ESOP in
accordance with its terms.
(b) None of the execution, delivery, or performance of this
Agreement by the Trustee on behalf of the Argo-Tech ESOP, nor the
performance by the Trustee of its obligations in such capacity under
this Agreement, will (i) conflict with the charter or by-laws of the
Trustee as in effect on the date hereof; (ii) result in a violation of
ERISA or the Code; (iii) conflict with the terms of the Argo-Tech ESOP;
or (iv) result in a breach of, or constitute default under, any
agreement or instrument to which the Trustee or the Argo-Tech ESOP is a
party or by which either of them is bound.
Section 3.02. LEGEND ON CERTIFICATE. Certificates representing
ownership of Securities shall bear the following legends:
"THIS CERTIFICATE IS HELD SUBJECT TO A SUPPLEMENTAL
STOCKHOLDERS' AGREEMENT AMONG AT HOLDINGS CORPORATION (THE
"CORPORATION") AND SOCIETY NATIONAL BANK, AS TRUSTEE; DATED AS OF MAY
17, 1994, IN WHICH REFERENCE IS MADE TO AN AGREEMENT AMONG THE
CORPORATION AND CERTAIN OF ITS STOCKHOLDERS DATED AS OF MAY 17, 1994.
THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE
TRANSFERABLE ONLY IN ACCORDANCE WITH THE TERMS, CONDITIONS, AND
RESTRICTIONS OF THESE
11
<PAGE> 12
AGREEMENTS, A COPY OF EACH OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE
OF THE CORPORATION."
In addition to the foregoing, certificates representing ownership of
non-registered Securities shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933, UNLESS, IN THE OPINION
(WHICH OPINION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE
CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION, SUCH
REGISTRATION IS NOT REQUIRED; PROVIDED, HOWEVER, THAT THE CORPORATION
IN ITS DISCRETION WAIVE THE REQUIREMENT TO DELIVER SUCH AN OPINION IF
IT IS OTHERWISE SATISFIED THAT SUCH REGISTRATION IS NOT REQUIRED."
To the extent any stock certificates held by the Trustee and representing
ownership of the Corporation's Securities do not bear the foregoing legends, the
Trustee shall, within five (5) days after the date on which it executes this
Agreement, surrender to the Corporation such certificates that do not bear such
legends so that such legends, as applicable, may be placed on each such
certificate.
Section 3.03. OPINION ON TRANSFER. The parties agree that
non-registered Securities shall be subject to the restrictions set forth in the
legend contained in Section 3.02. The Corporation agrees, however, that no
opinion of counsel shall be required of the Trustee in connection with the
disposition of Securities to participants in the Argo-Tech ESOP in accordance
with the terms of the Argo-Tech ESOP.
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<PAGE> 13
ARTICLE IV
CERTAIN OTHER RIGHTS
--------------------
Section 4.01. TAG-ALONG RIGHT. (a) In the event that any of Yamada, any
Permitted Affiliate thereof, or Sunhorizon (i) proposes to sell or dispose of,
directly or indirectly, all or any part of the shares of Class A Common Stock,
Class B Common Stock, or Class C Common Stock owned by it or under its control
in a single transaction or in a series of related transactions that is or are
permitted by this Agreement to any Person (such Person being hereafter referred
to as the "Proposed Purchaser") that is not (w) a Permitted Affiliate of Yamada
(x) a trust established by Yamada or by Mr. Masashi Yamada, the beneficiaries of
which are only Mr. Yamada's spouse, parents, or direct lineal descendants, (y)
receiving such shares pursuant to a Public Offering or a transaction under Rule
144, or (z) an employee stock ownership plan; (ii) seeks to cause the
Corporation to redeem any Class A Common Stock, Class B Common Stock, or Class C
Common Stock owned by it or under its control, or (iii) enters into any other
arrangement with a singular purpose as that in (i) or (ii), then Yamada, any
Permitted Affiliate thereof, or Sunhorizon shall refrain from effecting any such
transaction unless and until the Trustee shall have been granted the opportunity
to exercise the right (the "Tag-Along Right") pursuant to which the Proposed
Purchaser shall be required to purchase shares of Class A Common Stock held by
the Trustee in the amount and on the terms and conditions set forth in Section
9.06 of the Stockholders' Agreement as though the Trustee was named as, and it
shall be treated for all purposes as though it is, a "Tag-Along Holder" as
defined in that Section.
Section 4.02. ADDITIONAL RIGHT. In the event that at any time after the
date hereof, the Board of the Corporation or the Argo-Tech Board approves the
merger, consolidation, or reorganization of the Corporation or Argo-Tech, the
sale, exchange, or conversion of all or substantially all of the capital stock
of the Corporation or Argo-Tech (whether by merger, consolidation, or
otherwise, and whether or not the Corporation or Argo-Tech is the surviving
entity), or any transaction similar in purpose to the foregoing, then all of
the Stockholders shall be obligated as provided in Section 9.02 of the
Stockholders' Agreement, and the Trustee shall be permitted, to sell, convert,
or exchange a comparable proportion of their Securities to the same third party
on terms and conditions no less favorable than those obtained by Yamada (the
"Additional Right"); PROVIDED, HOWEVER, that the purchase price for any
Securities to be disposed of
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pursuant to such Additional Right is fair from a financial point of view as
determined by an Appraiser chosen in accordance with the procedures of Section
7.02 of the Stockholders' Agreement. The Additional Right for which provision is
made in this Section 4.02 shall be exercised (if at all) by the Trustee in
concert with the Drag-Along Right with respect to the Stockholders for which
provision is made in Section 7.02 of the Stockholders' Agreement. In connection
with any transaction contemplated by the immediately preceding sentence, the
Board of the Corporation or the Argo-Tech Board, as the case may be, shall
promptly notify the Trustee in writing (the "Drag-Along Sale Notice") of its
intention to enter into any such transaction and to permit the Trustee (to the
extent it is legally permitted to do so) to sell its Securities to the third
party. As soon as practicable thereafter, the Board of the Corporation or the
Argo-Tech Board, as the case may be, shall provide a written notice (the
"Drag-Along Offer Terms") to the Trustee setting forth the material terms and
conditions of such sale and containing copies of any pertinent documentation
with respect thereto.
Section 4.03. DISPOSITION OF STOCK ON CERTAIN DEFAULT. In the event
that any default occurs pursuant to Section 7.01(k) of the Senior Bank
Financing, the Trustee shall have the right to dispose of the shares held by the
Argo-Tech ESOP, at its election, as follows:
(a) It shall have the right to put to the Corporation its
shares of stock in the Corporation at a purchase price equal to the
value determined pursuant to the provisions of Section 1.56 of the
Stockholders' Agreement; or
(b) It shall have the right to sell its shares of stock in
the Corporation to any party, in connection with which sale the
Non-Yamada Stockholders shall have Tag Along Rights pursuant to
the provisions of Section 9.06 of the Stockholders' Agreement;
PROVIDED, HOWEVER, that in the event the prospective purchaser of the
shares of the Corporation owned by Yamada declines to purchase the
shares of stock owned by such Non-Yamada Stockholders pursuant to the
exercise of such Tag Along Rights, the Corporation shall then be sold
in a transaction the terms of which shall to be agreed upon by eighty
per cent (80%) of the members of the Board.
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ARTICLE V
SUBSTITUTE AND ADDITIONAL SECURITIES
------------------------------------
Section 5.01. ADDITIONAL SECURITIES. In addition to the Securities
owned by the Trustee as of the date hereof, this Agreement shall apply to any
additional Securities that the Trustee may acquire from time to time.
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ARTICLE VI
ACTIONS RELATED TO A PUBLIC OFFERING;
-------------------------------------
REGISTRATION RIGHTS
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Section 6.01. ACCEPTABLE COMPANY OFFERING DURING FIRST SIX YEARS.
During the first six years after the Closing Date, the affirmative vote of a
majority of the directors of the Corporation shall be required in order to
approve a Public Offering involving the Securities for the account of the
Corporation; provided, however, that any such approved offering shall be an
Acceptable Company Offering. In the event that the directors of the Corporation
approve a Public Offering in accordance with the terms of this Section 6.01, the
Corporation shall promptly, but in no event later than five (5) days after
taking such board action, provide written notice to the Trustee advising of
such action, and the Trustee shall have the right to require the Corporation to
include in such offering shares of Common Stock owned by it subject to the
conditions and limitations of Section 11.04(a) of the Stockholders' Agreement.
Section 6.02. MANDATORY COMPANY REGISTRATION. (a) After the sixth
anniversary of the Closing Date, each of Yamada, on the one hand, and the
Management Stockholders and the Trustee (acting by the vote or consent of a
majority of the aggregate number of shares held by it), on the other, shall have
the right to demand (the "Mandatory Company Registration Right") that an initial
public offering of Securities be made by the Corporation in a Primary Offering
and that the Corporation file a registration statement (a "Registration
Statement") with the Commission under the Act on Form S-1 or any other
appropriate form for the general registration of securities (other than on Form
S-4 or Form S-8 or any similar or successor forms thereto), and the Corporation
hereby agrees that, upon such demand, it shall comply with the provisions
contained in Section 11.07 of the Stockholders' Agreement and any other
applicable provisions of Article XI of the Stockholders' Agreement and use its
best efforts to register such Securities pursuant to and otherwise in accordance
with the terms of this Agreement and the Stockholders' Agreement; PROVIDED,
HOWEVER, that any public offering that either Yamada or the Management
Stockholders and the Trustee causes to occur pursuant to the exercise of a
Mandatory Company Registration Right must be an Acceptable Company Offering.
Unless otherwise agreed to, and subject to any restrictions contained in any
written agreements to which the Corporation or Argo-Tech may be subject, any
proceeds received by the Corporation pursuant to any public offering resulting
from the exercise of a
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Mandatory Company Registration Right shall be used first to retire any existing
indebtedness of Argo-Tech in the order set forth in Section 11.02(a) of the
Stockholders' Agreement. The number of shares of stock of the Corporation to be
offered to the public pursuant to a public offering resulting from the exercise
of a Mandatory Company Registration Right shall be determined by the managing
underwriter or underwriters engaged to assist in effecting such offering after
consultation with the party exercising the Mandatory Company Registration Right
so as to make possible the sale of the shares to be sold at the highest
reasonably obtainable price per share and to provide for a stable trading market
for the stock of the Corporation after the consummation of such offering.
(b) Any party wishing to exercise its Mandatory Company Registration
Right shall provide written notice to the Corporation of the exercise of such
right. The Corporation shall promptly, but in no event later then five (5) days
following the receipt of such notice, provide written notice of the exercise of
such right by either Yamada or the Management Stockholders and the Trustee to
all the other Stockholders and the Trustee, and all the other Stockholders and
the Trustee shall have the right to include in such offering shares of Common
Stock then owned by such Stockholders and the Trustee pursuant to and subject
to the limitations of Section 6.04(a). The registration of any Securities
pursuant to the exercise of a Mandatory Company Registration Right shall also be
subject to the provisions of Sections 11.04 through 11.09 of the Stockholders'
Agreement.
Section 6.03. DEMAND REGISTRATION RIGHTS. (a) In addition to any rights
provided to Yamada and the Management Stockholders and the Trustee pursuant to
this Agreement or Section 11.02(a) of the Stockholders' Agreement, and subject
to the provisions of Sections 11.03(b), 11.03(c), 11.03(d), and 11.03(e) of the
Stockholders' Agreement, at any time after the sixth anniversary of the Closing
Date, the Trustee, as a Non-Yamada Stockholder under the Stockholders'
Agreement, shall have the right (individually, a "Demand Registration Right" and
collectively, the "Demand Registration Rights") to require the Corporation to
file a Registration statement with the Commission under the Act on Form S-1 or
any other appropriate form for the general registration of securities (other
then on Form S-4 or Form S-8 or any similar or successor forms thereto) for sale
to the public of all or any portion of their Securities (a "Demand
Registration"), and the Corporation hereby agrees that, upon such demand, it
shall comply with the provisions contained in Section 11.07 of the Stockholders'
Agreement and any other
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applicable provisions of Article XI thereof and use its best efforts to register
such Securities pursuant to and in accordance with the terms of this Agreement.
(b) The Demand Registration Rights granted to the Trustee pursuant to
Section 6.03(a) shall be subject to the terms, restrictions, and limitations
contained in Sections 11.03(b), (c), (d), (e), and (f) of the Stockholders'
Agreement.
Section 6.04. INCIDENTAL REGISTRATION RIGHTS. (a) Notwithstanding the
foregoing, if at any time the Corporation, whether pursuant to the Stockholders'
Agreement or Section 6.01 or Section 6.02 hereof, registers any of its
Securities pursuant to a Registration Statement under the Act (other than a
registration by the Corporation on Form S-4 or Form S-8 or any similar or
successor forms thereto), then the Corporation in each such case shall give the
Trustee written notice of such intention to file a Registration Statement not
less than forty-five (45) days prior to the earlier of the anticipated effective
date or the actual effective date of such Registration Statement and at least
ten (10) days before the initial filing of such Registration Statement (the
"Corporation's Registration Notice"), and such notice shall offer to the Trustee
the opportunity to include in such public offering any and all shares the
Trustee (individually a "Selling Stockholder and, collectively with the Selling
Stockholders, the "Selling Stockholders") may request. The Trustee shall have
seven (7) days after the giving of such notice to notify the Corporation in
writing as to whether it desires to have included in such Registration Statement
any Securities owned by it and specifying the amount (the "Requested Amount") of
Securities (whether or not Securities of the same class are being registered by
the Corporation) requested to be registered. The Corporation shall permit, or
shall cause the managing underwriter or underwriters of a proposed offering to
permit, Selling Stockholders to have included in such proposed offering their
respective Requested Amount on the same terms and conditions as are applicable
to any other Securities of the same class that are being registered and sold by
the Corporation and other Selling Stockholder in such offering (the "Incidental
Registration Rights"). The exercise of Incidental Registration Rights pursuant
to this Section 6.04 by the Trustee shall be conducted in accordance with and be
subject to the provisions and limitations set forth in Section 11.04 of the
Stockholders' Agreement.
Section 6.05. UNDERWRITERS; UNDERWRITING AGREEMENT. Any proposed
registration of Securities that is
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an Acceptable Company Offering pursuant to the exercise of a Mandatory Company
Registration Right, or, pursuant to the exercise of a Demand Registration Right
prior to the time a Primary Offering occurs, shall be underwritten by a
underwriter or underwriters on a "firm commitment" basis. Any proposed
registration of Securities that occurs after an underwritten offering has
occurred shall not be required to be an underwritten offering; PROVIDED HOWEVER,
that any offering proposed where a underwriter is not required to be engaged
shall be pursuant to a reasonable plan of distribution for the Securities to be
sold in such offer which plan of distribution shall be mutually acceptable to
Yamada and the Non-Yamada Stockholders. In connection with any underwritten
offering of Securities registered pursuant to the terms of this Agreement, the
Corporation shall enter into an underwriting agreement with the underwriters for
such offer, such agreement to be reasonably satisfactory in form and substance
to the Corporation, Yamada, each Selling Stockholder, and the underwriters, and
such agreement shall contain such representations, warranties, and covenants by
the Corporation, the Selling Stockholders, and the underwriters and such other
terms and conditions as are customarily contained in such agreement. The Selling
Stockholders shall be parties to any underwriting agreement relating to an
underwritten sale of their Securities and may, at their option, require that any
or all of the representations, warranties, and covenants of the Corporation to
or for the benefit of such underwriters, shall also be made to and for the
benefit of such Stockholders.
Section 6.06. COOPERATION; RESTRICTIONS ON PUBLIC SALE BY HOLDER OF
STOCK. As a condition to the Corporation's obligations and requirements under
Section 6.0l, Section 6.02, Section 6.03, and Section 6.04 to register the
Securities of the Trustee, the Trustee (if legally permitted to do so) shall
provide all such information with respect to the Trustee and execute an
underwriting agreement, power of attorney, and all such other documents as may
be reasonably required in connection with any such registration. The Trustee if
the holder of Securities covered by a Registration Statement filed pursuant to
Section 6.01, Section 6.02, Section 6.03, or Section 6.04 hereof or pursuant to
the Stockholders' Agreement and the Corporation agrees that, if so requested by
the managing underwriter or underwriters, if any, or a majority of Selling
Stockholders of any offering of Securities, it shall not effect any public sale
or distribution of Securities of the same class as any Securities included in
such underwritten offering, including without limitation, a sale pursuant to
Rule 144, during the period fourteen (14) days prior to and up to one
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hundred twenty (120) days after the effective date of the Registration Statement
filed with respect to such offering. In the event that either Yamada or the
Non-Yamada Stockholders exercises a Demand Registration Right, the Trustee
hereby covenants and agrees for the benefit of each other Selling Stockholder
that it shall provide all such information with respect to itself and execute
all such other documents as may be reasonably required in connection with any
registration resulting therefrom, and shall otherwise take or perform any and
all such other actions as reasonably required in order to effect such offering.
Subject to the provisions and limitations of any laws and regulations applicable
to it (including ERISA), the Trustee shall cooperate with the Corporation and
each other Selling Stockholder and any underwriters engaged to assist in
effecting a public offering, shall use its best efforts to take any and all
actions necessary to effect a public offering, and shall not take any action to
frustrate the consummation of any public offering, it being understood that
prevailing market conditions and the performance of the Corporation and
Argo-Tech may affect the commencement of a public offering. In furtherance of
the foregoing and not in limitation thereof, the Trustee, together with the
other Selling Stockholders, as applicable, shall take or perform any and all
such other actions as may be reasonably required, to the extent permitted by
law, to carry out and enforce the rights of the Selling Stockholders in order to
effect a public equity offering, including if necessary causing the Corporation
or Argo-Tech to amend their respective certificates of incorporation or by-laws.
Section 6.07. OTHER REQUIREMENTS AND OBLIGATIONS WITH RESPECT TO
REGISTRATION. If and whenever the Corporation is required by the provisions of
this Agreement to register any Securities under the Act, the Corporation shall,
and hereby covenants to, as expeditiously as possible:
(a) (i) Subject to Section 6.03(d), prepare and cause to be filed with
the Commission as soon as reasonably practicable, but in no event later than
ninety (90) days after receiving the Demand Notice or notice of the exercise of
a Mandatory Company Registration Right, the Registration Statement to which such
notice relates, and (ii) use its best efforts to have such Registration
Statement declared effective within such ninety (90) day period or as soon
thereafter as reasonably practicable; PROVIDED, HOWEVER, that before filing a
Registration Statement or prospectus or any amendments or supplements thereto,
including documents incorporated by reference after the initial filing of any
Registration Statement, the Corporation will furnish to the Stockholders covered
by
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such Registration Statement copies of all such documents proposed to be filed.
(b) The Corporation shall notify all Stockholders when any Registration
Statement is filed and becomes effective and when any post-effective amendment
is filed and becomes effective. Except as otherwise provided in Section 6.04,
after becoming effective, the Corporation agrees to use its best efforts to
cause such Registration Statement filed pursuant to the exercise of a Demand
Registration Right or a Mandatory Company Registration Right, and any amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep the Registration Statement
current, to remain continuously effective for a period of one hundred twenty
(120) days from the date on which the Commission declares such Registration
Statement effective, or such shorter period that will terminate when all
Securities to which the Registration Statement filed pursuant to the exercise
of the Demand Registration Right or the Mandatory Company Registration Right
relate have been sold, and to comply with the provisions of the Act with respect
to the disposition of all Securities covered by the Registration Statement
required to effect the distribution of such shares; PROVIDED, HOWEVER, that the
Corporation shall have no obligation to use its best efforts to cause such
Registration Statement and the prospectus used in connection therewith to remain
continuously effective for a period of more than ninety (90) days if any
post-effective amendments are required to be made in connection with such
Registration Statement. The Corporation shall not be deemed to have effected a
registration of Securities for any purpose under this Article VI unless and
until such Registration Statement is declared effective by the Commission and
shall have remained effective for the period set forth in this Section 6.07.
(c) Furnish at the Corporation's expense to the Selling Stockholders
and each underwriter such number of copies of the Registration Statement and
each amendment and supplement thereto (in each case including all exhibits) and
such number of copies of the prospectus included therein (including each amended
or supplemented prospectus), in conformity with the requirements of the Act,
and such other documents incorporated by reference in the Registration
Statement, and other documents such Stockholders and underwriters shall
reasonably request in order to facilitate the disposition of the Securities, but
only while the Company is under the provisions hereof to keep the Registration
Statement current and effective.
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(d) Immediately notify each Selling Stockholder and the managing
underwriter or underwriters of the happening of any event as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances then existing, not misleading and subject to
subparagraph (b) above, if it is necessary to amend or supplement such
prospectus to comply with law, prepare a supplement to or an amendment of such
prospectus so that such prospectus, as amended or supplemented, will comply with
law, and use its best efforts to file and cause to be declared effective any
post-effective amendment to such Registration Statement as may be required in
connection therewith; and immediately notify each Stockholder of the issuance
by the Commission of any stop order suspending the effectiveness of a
Registration Statement or initiating any proceedings for that purpose, or any
notification with respect to the suspension of the qualification of any
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose.
(e) Make every reasonable effort to obtain at the earliest possible
time the withdrawal of any order suspending the effectiveness of a Registration
Statement or suspending the qualification of any Securities for sale in any
jurisdiction.
(f) Prior to any Public Offering, take such action as may be necessary
to qualify or register the shares to be sold under the securities or Blue Sky
laws of such jurisdiction as may be reasonably requested by Yamada, the
Non-Yamada Stockholders, or a Demand Seller or the managing underwriter or
underwriters and keep each such registration or qualification effective during
the period such Registration Statement is required to be kept effective and do
any and all other acts or things necessary or advisable to make the disposition
in such jurisdiction of the Securities covered by the Registration Statement;
PROVIDED, HOWEVER, the Corporation shall not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(g) Enter into agreements that are customary for offerings of the type
contemplated by this Agreement and take all such other actions in connection
therewith in order to expedite or facilitate the disposition of such Securities
covered by a Registration
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Statement and in such connection, whether or not a underwriting agreement is
entered into and whether or not the registration is a underwritten registration
(i) make such representations and warranties to the holders of such Securities
covered by the Registration Statement with respect to the Registration
Statement, prospectus, and documents incorporated by reference, if any, in form,
substance, and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested as is
customary; (ii) use its best efforts to obtain opinions of counsel to the
Corporation and updates thereof with respect to the Registration Statement and
the prospectus addressed to each selling holder of Securities covered by the
Registration Statement covering the matters customarily covered in opinions
requested in underwritten or non-underwritten offerings as the case may be and
such other matters as may be reasonably requested by such holders; (iii) in the
case of a underwritten offering, enter into a underwriting agreement in form,
scope, and substance as is customary in underwritten offerings; (iv) use its
best efforts to obtain "cold comfort" letters and updates thereof from the
Corporation's independent certified public accountants addressed to each selling
holder of Securities, such letter to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters by underwriters in
connection with underwritten offerings; and (v) the Corporation shall deliver
such documents and certificates as may be reasonably requested by the holders of
Securities being sold to evidence compliance with clause (i) above and with any
customary conditions contained in any underwriting agreement or other agreement
entered into by the Corporation. The above shall be done at each closing under
such underwriting or similar agreement or as and to the extent required
thereunder.
(h) Make available for inspection by the holders of Securities being
sold, and any attorney, accountant, or other agent thereof, all financial and
other records, pertinent corporate documents, and properties of the Corporation.
(i) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission and promulgated under the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and timely
make all filings required to be made by the Corporation pursuant to the Exchange
Act after it has filed a Registration Statement pursuant to the requirements of
the Act related to the equity securities of the Corporation. For so long as any
of the Non-Yamada Stockholders continue to own any outstanding Securities and
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may sell such Securities without registration under the Act within the
limitations of the exemption provided by (a) Rule 144 under the Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission, the Corporation shall file with the
Commission the information, documents and other reports specified in Sections
13 or 15(d) of the Act as being required of issuers subject to such reporting
requirements (whether or not the Corporation would be required to file such
reports with the Commission in the absence of the requirements of this Section),
and shall comply with such other informational requirements of the Commission,
and, upon the request of a Stockholder, furnish such Stockholder with such
information as may be necessary to enable such Stockholder to effect routine
sales pursuant to Rule 144.
(j) Use its best efforts to cause the Securities being offered in the
offering to be listed on a national securities exchange in the United States or
quoted on the over-the-counter market.
(k) Provide for or designate a transfer agent and registrar (which may
be the same entity) for the Securities.
(1) Issue to any underwriters to which any Selling Stockholder may
sell Securities in such offering certificates evidencing shares of the
Securities not bearing any restrictive legends.
(m) Deliver promptly to each Selling Stockholder and the underwriter
or underwriters copies of all correspondence between the Corporation or any
other governmental agency or self-regulating body and the Corporation, its
counsel, or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the Registration Statement or proposed
sale of shares of the Corporation and permit each Selling Stockholder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the Registration Statement
as it deems reasonably necessary. Such investigation shall include access to
book records and properties and opportunities to discuss the business of the
Corporation with its officers, independent auditors, and counsel.
(n) Take or perform any and all such other corporate or other actions
as are reasonably suggested or recommended by the managing underwriter or
underwriters or that may be reasonably necessary or appropriate to carry out and
enforce the rights of the Stockholders hereunder in
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order to effect a successful public offering, including but not limited to, if
necessary, amending the certificate of incorporation of the Corporation or
Argo-Tech and appointing independent directors to the Board of the Corporation
or the Argo-Tech Board.
The Trustee, at any time its Securities are covered by a Registration
Statement, agrees that, upon receipt of any notice from the Corporation of the
happening of any event of the kind described in Section 6.07(d) hereof, such
Stockholder shall forthwith discontinue disposition of such Securities covered
by such Registration Statement or prospectus until such holder's receipt of the
copies of a supplemented or amended prospectus or until it is advised in
writing (the "Advice") by the Corporation that the use of the applicable
prospectus may be resumed, and has received copies of any additional or
supplemental filing that is incorporated by reference in such prospectus and,
if so directed by the Corporation, such Stockholder shall deliver to the
Corporation (at the Corporation's expense) all copies, other than permanent
file copies then in such holder's possession, of the prospectus covering such
Securities current at the time of receipt of such notice. If the Corporation
shall give any such notice, the time period during which the Registration
Statement affected by such notice shall be required to be kept continuously
effective as provided herein shall be extended by the number of days during the
period from and including the date when each seller of Securities covered by
such Registration Statement shall have received copies of the supplemented or
amended prospectus contemplated herein or a copy of the Advice, as the case may
be.
Section 6.08. EXPENSES OF REGISTRATION. The Corporation shall pay all
fees and expenses associated with effecting any registration and sale of
Securities under this Article VI to the extent permissible under applicable law
(including Blue Sky Laws) including, but not limited to registration and filing
fees, printing expenses, fees and disbursements of legal counsel and accountants
of the Corporation, the Trustee, and each group of Selling Stockholders,
transfer agents' and registrars' fees, fees and disbursements of experts used by
the Corporation in connection with such registration, expenses of special audits
of the Corporation incidental to or required by the registration, expenses,
incidental to any post-effective amendment to the Registration Statement, and
all underwriting discounts and commissions allocable to the Securities offered
by the Stockholders participating in the offering, which underwriting discounts
and commissions shall be paid for by such Stockholders; PROVIDED, HOWEVER, that,
in connection with each such registration, the
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Corporation shall not pay fees and expenses to more than one outside legal
counsel retained to represent Stockholders in connection with the offering. In
the event and to the extent the Corporation is not permitted by applicable law
to pay any of such expenses, each Stockholder participating in the registration
and sale shall pay the same proportion of the registration fee and expenses
incurred in connection with the registration as the shares of Securities being
registered by him bear to the total amount of Securities included in the
registration.
Section 6.09. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE CORPORATION. The Corporation agrees to
indemnify and hold harmless, to the full extent permitted by law, each holder of
Securities registered pursuant to any Registration Statement required to be
filed pursuant to this Agreement, its officers, directors, and agents and each
Person who controls such holder or agents (within the meaning of the Act)
against all losses, claims, damages, liabilities, and expenses caused by any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, prospectus or preprospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Corporation by such holder expressly for use therein.
(b) INDEMNIFICATION BY SELLING STOCKHOLDERS. In connection with any
Registration Statement in which a Stockholder is participating, each such
Selling Stockholder shall furnish to the Corporation in writing, in addition to
any other information required to be provided hereby, such information and
affidavits as the Corporation reasonably requests for use in connection with any
Registration Statement or prospectus and agrees severally and not jointly to
indemnify, to the full extent permitted by law, the Corporation, its directors
and officers, and each Person who controls the Corporation (within the meaning
of the Act) against any losses, claims, damages, liabilities, and expenses
caused by any untrue or alleged untrue statement of a material fact or any
omission or alleged omission of a material fact required to be stated in any
Registration Statement or prospectus or preliminary prospectus or necessary to
make the statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that such untrue
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statement or omission is contained in any information or affidavit so furnished
in writing by such holder to the Corporation specifically for inclusion in such
Registration Statement or prospectus; PROVIDED, HOWEVER, that under no
circumstances shall any Selling Stockholder be liable for or be required to
indemnify any underwriter or controlling person thereof or to contribute to the
amounts paid by any underwriter or controlling person hereof any amount in
excess of the product of the number of shares, if any, sold by such Selling
Stockholder times the price per share paid to him pursuant to such offering, net
of all costs and expenses (including underwriting commissions and disbursements)
paid or incurred by such Selling Stockholder in connection with the registration
and sale.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification, and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (a)
the indemnifying party has agreed to pay for the reasonable fees or expenses of
such counsel or (b) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such Person,
or (c) in the reasonable judgment of any such Person and the indemnifying party,
based upon advice of their respective counsel, a conflict of interest may exist
between such Person and the indemnifying party, with respect to such claims (in
which case, if the Person notifies the indemnifying party to writing that such
Person elects to employ separate counsel at the expense of the indemnifying
party the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Person). If such defense is not assumed by the
indemnifying party, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying
27
<PAGE> 28
party with respect to such claim, unless in the reasonable judgment of any
indemnified party, a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If the indemnification provided for in the preceding
paragraphs of this Section 6.09 from the indemnifying party is unavailable to
an indemnified party hereunder in respect of any losses, claims, damages,
liabilities, or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities, or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and the indemnified
parties in connection with the actions that resulted in such losses, claims,
damages, liabilities, or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indeed
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnified party or
indemnified parties, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities,
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
(e) LIMITATION. Anything to the contrary contained in this Section
6.09 notwithstanding, no holder of Securities shall be liable for any
indemnification or contribution in excess of the maximum amount received by
such holder in connection with any sale of Securities hereunder.
Section 6.10. LIMITATION ON REGISTRATION RIGHTS. The Trustee
acknowledges and agrees that the Corporation has not granted the Trustee any
rights to require the Corporation or Argo-Tech to register any of the Securities
under the Act except as provided herein in this Article.
28
<PAGE> 29
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.01. SPECIFIC PERFORMANCE; EXPENSES AND ATTORNEYS' FEES. The
parties agree that the subject matter hereof is unique and, in the event of the
breach by any party of any of the provisions of this Agreement, the party
injured thereby would not be made whole by money damages and shall be entitled
to specific performance in addition to any other remedy to which it may be
entitled at law and in equity. The parties hereto agree to waive the defense in
any such action for specific performance that a remedy at law would be adequate.
In addition, any party that breaches this Agreement shall be obligated to pay
the costs, including reasonable attorneys' fees, incurred by any non-breaching
parties in enforcing their respective rights hereunder against such breaching
party.
Section 7.02. SEVERABILITY. The parties agree that (i) the provisions
of this Agreement shall be severable in the event that any of the provisions
hereof are held by a court of competent jurisdiction to be invalid, void, or
otherwise unenforceable, (ii) such invalid, void, or otherwise unenforceable
provisions shall be replaced by other provisions that are as similar as possible
in terms to such invalid, void, or otherwise unenforceable provisions but are
valid and enforceable, and (iii) the remaining provisions hereof shall remain
enforceable to the fullest extent permitted by law.
Section 7.03. CONTROLLING LAW. This Agreement shall be governed by,
and construed and enforced in accordance with, the substantive law of the
State of Delaware without giving effect to the conflicts of laws principles
thereof.
Section 7.04. NOTICES. All notices, consents, directions, approvals,
instructions, and other communications by any party hereto to any other party
hereto a provided for herein shall be in writing and shall be deemed to have
been duly given if delivered by hand (whether by express mail, overnight
courier, or otherwise) or sent by registered mail, return receipt requested,
postage prepaid, or by telegram, or facsimile transmission to the party to whom
it is directed as follows:
(a) If to the Corporation or Argo-Tech, to it at the following address:
29
<PAGE> 30
c/o Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Attn: Michael S. Lipscomb
Tel. (216) 692-6000
Fax (216) 692-5541
with a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
629 Euclid Avenue
Cleveland, Ohio 44114
Attn: Donald H. Messinger, Esquire
Tel. (216) 566-5500
Fax (216) 566-5583
(b) If to the Trustee, to it at the
following address:
Society National Bank
127 Public Square
Cleveland, Ohio 44114
Attn: Management and Trust Services
Tel. (216) 689-3216
Fax (216) 689-3545
with a copy to:
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: Leslie D. Dunn, Esq.
Tel. (216) 586-7271
Fax (216) 579-0212
or to such other addresses as the party to whom such notice is given may have
theretofore designated by notice to all other parties in accordance herewith.
Any notice given in accordance with the requirements of this paragraph shall be
deemed to have been received when delivered in person or, if mailed, three days
following the date upon which such notice shall have been deposited in the
mails.
Section 7.05. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which,
when taken together, shall constitute one and the same instrument.
Section 7.06. BINDING EFFECT; ASSIGNMENT. The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their
30
<PAGE> 31
respective heirs, permitted assigns, personal representatives, guardians,
custodians, and successors-in-interest and upon the trustees and beneficiaries
of any trust to which shares of Securities have been or may be transferred
(collectively, a "Successor") and upon the successors and assigns of the
Corporation and of Argo-Tech. Notwithstanding foregoing, neither this Agreement
nor any right, remedy, obligation, or liability arising hereunder or by reason
hereof shall be assignable by any party hereto accept as otherwise permitted by
the terms of this Agreement. Nothing in this Agreement, express or implied, is
intended or shall be construed to give any person other than the parties hereto
or their successors in interest any legal or equitable right, remedy, or claim
under or in respect of any agreement or any provision contained herein.
Section 7.07. TERMINATION. This Agreement and all restrictions,
limitations, rights, and obligations set forth herein with respect to the
Securities shall terminate upon the occurrence of any of the following events:
(i) the bankruptcy or dissolution of the Corporation or Argo-Tech (PROVIDED,
HOWEVER, (A) that the restrictions, limitations, rights, and obligations set
forth in Article I (to the extent applicable) and Section 2.04 and this Article
VII shall not terminate upon, but shall survive the occurrence of a event
contemplated by this clause (i) of Section 7.07, and (B) that, during any such
bankruptcy proceeding, any time period within which any action may or shall be
taken as specified in any provision contained in this Agreement that survives
such an event shall be tolled for an equal number of days that such bankruptcy
proceeding continues); (ii) a single Stockholder or a group consisting of such
Stockholder and Affiliates thereof becoming the owner of all of the Securities
that are then subject to this Agreement; (iii) the execution of a written
instrument by all of the parties hereto or (iv) an Acceptable Company Offering
or an Acceptable Demand Offering occurs pursuant to which the Corporation's
Common Stock is listed on a national securities exchange or publicly traded in
the over-the-counter market; PROVIDED, HOWEVER, that the restrictions,
limitations, rights, and obligations set forth in Article I (to the extent
applicable) and Section 2.04 and this Article VII shall not terminate upon, but
shall survive, the occurrence of an event contemplated by this clause (iv) of
this Section 7.07. This Agreement shall also terminate with respect to any
Securities upon the Disposition of such Securities by any Stockholder to any
Person not a party to this Agreement pursuant to an effective registration
statement under the Securities Act of 1933, as amended. The termination of this
Agreement shall have no effect upon any obligation of any party to make payment
for any
31
<PAGE> 32
Securities purchased pursuant to the terms of this Agreement prior to its
termination.
Section 7.08. KNOW-HOW AND CONFIDENTIALITY. (a) All know-how and
expertise and commercial good-will that is owned or developed by Argo-Tech or on
behalf of Argo-Tech shall be the property of Argo-Tech in the absence of a
specific arrangement to the contrary.
(b) The Trustee agrees on behalf of itself and its employees, agents,
Affiliates, and assigns that any and all non-public technical information, trade
secrets, and any other confidential information regarding the business affairs
of the Corporation or any of its Subsidiaries or of the Stockholders or any of
their respective Affiliates, employees, agents, or assigns that is treated
as confidential by it or by any of them (including but not limited to methods or
business operations, the names of customers or potential customers, and any
other confidential information concerning the business affairs of the
Corporation or any of its Subsidiaries or of the Stockholders or their
respective Affiliates) that such Stockholder may have obtained from the
Corporation or any of its Subsidiaries or from any other party hereto or any
Affiliate of any such other party (collectively referred to as the "Confidential
Information") as a result of the purchase of the Corporation's Securities or the
performance of this Agreement, constitute trade secrets, is confidential, and is
the valuable property of the Corporation or any of its Subsidiaries or such
Stockholder or Affiliate thereof, as the case may be. Such Confidential
Information shall be held in confidence both during the term of this Agreement
and thereafter for so long as the Trustee remains a stockholder and for a period
of two years thereafter, and during such period such Confidential Information
shall neither be disclosed to any third party nor used by the receiving party at
any time for any purpose unrelated to the performance of this Agreement without
the prior written consent of the party to which such Confidential Information
relates. Notwithstanding the foregoing, these obligations of confidential
treatment shall not apply to information which:
(i) is known to the Trustee or to any Affiliate thereof
obtaining the information at the time such information is obtained from
the Corporation or any of its Subsidiaries or any other party or
Affiliate of any of the foregoing, as the case may be (other than as a
result of the improper appropriation of any Confidential Information by
any Person), and can be documented
32
<PAGE> 33
as such and has not previously been received from Argo-Tech, its
Affiliates, or any other party, as the case may be, in connection with
the purchase of the Corporation's Securities or the performance of this
Agreement;
(ii) is in the public domain at the time such information is
obtained from Argo-Tech, the Corporation or its Subsidiaries, or any
other party, or from an Affiliate of any of the foregoing, as the case
may be;
(iii) after being obtained from the Corporation or any of its
Subsidiaries, Argo-Tech, or any other party, or from an Affiliate of
any of the foregoing, as the case may be, such Confidential Information
enters the public domain through no positive action or omission on the
part of a Stockholder or an Affiliate thereof;
(iv) lawfully comes into the possession of the Trustee or an
Affiliate thereof from a source other than the Corporation or any of
its Subsidiaries and can be so documented; or
(v) upon written advice of independent legal counsel is
required to be disclosed by any applicable law, rule, or regulation;
PROVIDED, HOWEVER, that either Yamada Corporation or the Vestar
Investment Partnership, as the case may be, (x) shall have received
written notice of such intended disclosure twenty (20) days prior to
the date the such disclosure is to be made, and (y) shall have the
right to seek any relief it deems appropriate to prevent such
disclosure, including, without limitation, injunctive relief; or
(vi) is otherwise required to be disclosed pursuant to ERISA
or the provisions of the Argo-Tech ESOP.
(c) Upon the termination of this Agreement, each of the Stockholders
agrees to use its respective best efforts to destroy all Confidential
Information in its possession that is embodied or recorded in tangible form.
(d) The obligations of confidentiality hereunder shall survive
termination of this Agreement.
Section 7.9. PUBLIC STATEMENTS. The parties shall consult with one
another prior to issuing any
33
<PAGE> 34
press release or public statement respect to the transaction contemplated by
this Agreement. The parties further agree that they shall use their best
efforts, to the extent permitted by law, to ensure (a) that Yamada or any
Affiliate thereof is not mentioned in any press release or public statement made
in connection with the transactions contemplated by this Agreement or the
Stockholders' Agreement; PROVIDED, FURTHER, that representatives of Argo-Tech
shall have the right to respond to the extent that they reasonably deem
necessary to inquiries from customers of Argo-Tech or potential customers; and
PROVIDED, FURTHER, that, in so responding, representatives of Argo-Tech shall
request that its customers and potential customers keep confidential the
information that is given, unless such representatives conclude that the making
of such request would not be appropriate in light of its relationship with the
customer or potential customer.
Section 7.10. OTHER AGREEMENTS; CONSTRUCTION. Nothing contained in
this Agreement shall be deemed to be a waiver of, or release from, any
obligations any party hereto may have under any other agreement. Notwithstanding
any other provisions in this Agreement, in the event of any inconsistency
between the terms of this Agreement and the terms of any other agreement or
document defining the rights or obligations of Stockholders, the provisions of
this Agreement shall govern. All parties acknowledge that they have participated
substantially in the negotiation and of this Agreement, and each party hereby
disclaims any defense or assertion in any litigation that any ambiguity herein
should be construed against the draftsman solely as a result of acting as
draftsman.
Section 7.11. SECTION AND OTHER HEADINGS. The Section and other
headings contained in this Agreement are for reference only and shall not affect
the meaning or interpretation of this Agreement.
Section 7.12. COMPLIANCE WITH ERISA. Any other provision of this
Agreement to the contrary notwithstanding, including other clauses similar to
the foregoing clause, each and every provision of this Agreement applicable to
the Argo-Tech ESOP or to the Trustee which imposes any limitation, liability,
right, duty, or obligation on the Argo-Tech ESOP or the Trustee is expressly
subject to the provisions of ERISA and, to the extent not consistent therewith,
shall not be considered a provision of this Agreement binding upon the Argo-Tech
ESOP or the Trustee, and each of the parties hereto expressly acknowledges and
agrees that the Trustee may act or refrain from acting under each and every
provision of this
34
<PAGE> 35
Agreement without liability hereunder to any other party hereto or to any other
Person if the Trustee determines, in its reasonable discretion based upon advice
of independent legal counsel to the Trustee, that any such act or refraining
from any such act is required by any provision of ERISA, the Code, or the
Argo-Tech ESOP.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed and delivered in its name by officers duly authorized thereunto, and
the other parties hereto have caused this Agreement to be duly executed and
delivered, all of the foregoing as of the day and year first above written.
AT HOLDINGS CORPORATION
By: Michael S. Lipscomb
-----------------------------
Name: Michael S. Lipscomb
Title: President
ARGO-TECH CORPORATION
By: /s/ Michael S. Lipscomb
-----------------------------
Michael S. Lipscomb
President
SOCIETY NATIONAL BANK, IN ITS
CAPACITY AS TRUSTEE UNDER THE
ARGO-TECH CORPORATION EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST
By /s/ Glenn A. Hamilton
--------------------------------
Name: Glenn A. Hamilton
Title: Vice President
35
<PAGE> 1
Exhibit 10.16
FIRST AMENDMENT TO
AT HOLDINGS CORPORATION
SUPPLEMENTAL STOCKHOLDERS AGREEMENT
THIS FIRST AMENDMENT TO AT HOLDINGS CORPORATION SUPPLEMENTAL
STOCKHOLDERS AGREEMENT (this "First Amendment"), dated as of July 18, 1997, is
made by and among AT Holdings Corporation, a Delaware corporation (the
"Corporation"), Argo- Tech Corporation, a Delaware corporation ("Argo-Tech"),
and Key Trust Company of Ohio, N.A. (which was substituted for Society National
Bank, a national banking association pursuant to Ohio Revised Code 1109.021) in
its capacity as Trustee (the "Trustee") under the Argo-Tech Corporation Employee
Stock Ownership Plan and Trust Agreement (the "Argo-Tech ESOP").
RECITALS
--------
A. The Corporation, Argo-Tech and the Trustee, on behalf of the
Argo-Tech ESOP, entered into that certain AT Holdings Corporation Supplemental
Stockholders Agreement, dated as of May 17, 1994 (the "Stockholders Agreement");
B. The Corporation, Argo-Tech and the Trustee have agreed to amend the
Stockholders Agreement to (i) reflect AT Holdings LLC's ("ATLLC") acquisition
from YC International, Inc. ("Yamada") of certain shares of common stock of the
Corporation and ATLLC's assumption of certain rights of Yamada under the
Corporation's 1994 Stockholders Agreement and the Supplemental Stockholders
Agreement, and (ii) facilitate the corporate restructuring of the Corporation's
subsidiaries.
NOW, THEREFORE, in consideration of the premises and the terms and
conditions herein contained, the parties hereto hereby agree as follows:
AGREEMENT
---------
SECTION 1
DEFINITIONS
-----------
1.1 CERTAIN DEFINITIONS. Unless otherwise defined herein, all
capitalized terms used herein have the meanings given to them in the
Stockholders Agreement.
SECTION 2
AMENDMENTS TO STOCKHOLDERS AGREEMENT
------------------------------------
2.1 DEFINITIONS. Article I of the Stockholders Agreement is hereby
amended and supplemented by the addition of
<PAGE> 2
2
the following definitions in proper alphabetical order, which read as follows:
"Argo-Tech Corporation (Aftermarket)" means Argo-Tech Corporation
(Aftermarket), a Delaware corporation and a wholly-owned subsidiary of
Argo-Tech.
"Argo-Tech Corporation (OEM)" means Argo-Tech Corporation (OEM), a
Delaware corporation and a wholly-owned subsidiary of Argo-Tech.
"Old Argo-Tech" means Argo-Tech Corporation (HBP), a Delaware
corporation formerly known as Argo-Tech Corporation.
"Operating Subsidiaries" means, collectively, Old Argo-Tech,
Argo-Tech Corporation (Aftermarket) and Argo-Tech Corporation (OEM).
2.2 AMENDED PROVISIONS. The following sections of the Stockholders
Agreement are hereby amended as follows:
(a) Section 1.01 is amended by the insertion of "ATLLC," after
"Yamada" in line four thereof and the insertion of "or ATLLC" after
"Affiliates of Yamada" in line four thereof.
(b) Section 1.02 is amended by insertion of "ATLLC," after "Yamada" in
line four thereof and the insertion of "or ATLLC" after "Affiliates of
Yamada" in line five thereof.
(c) Section 1.04 is amended by the insertion of (i) "or ATLLC" after
"Yamada" in lines sixteen and eighteen (twice) thereof, and (ii) "or any of
the Operating Subsidiaries" after "Argo-Tech" in lines fifteen and twenty
thereof.
(d) Section 1.20 is hereby deleted.
(e) Section 2.01 is amended by the deletion of the "Restated" from the
third line thereof and the insertion after "Agreement" in line five thereof
of the following: "and the by-laws of each Operating Subsidiary shall be as
set forth in Exhibits 2.01C, 2.01D and 2.01E, respectively, to this
Agreement".
(f) Section 2.02 is amended by the insertion after "Agreement" in line
six thereof of the following: "and the Certificate of Incorporation of each
Operating Subsidiary shall be as set forth in Exhibits 2.02C, 2.02D and
2.02E, respectively, to this Agreement".
<PAGE> 3
3
(g) Section 2.03 is amended by the deletion of such section in its
entirety and the substitution of the following in its place:
"Section 2.03. SHARE CAPITAL; OWNERSHIP. (a) On the date of
the First Amendment, the issued and outstanding share capital of the
Corporation shall consist of:
(i) Six Hundred Forty-Six Thousand Nine Hundred Thirty-Three
(646,933) shares of Class A Common Stock;
(ii) Six Hundred Eighty-Nine Thousand (689,000) shares of
Class B Common Stock;
(iii) Twenty-Seven Thousand Five Hundred Sixty (27,560)
shares of Class C Common Stock; and
(iv) [intentionally omitted]
The terms of the Class A Common Stock, the Class B Common Stock, the
Class C Common Stock, and Class D Common Stock are as provided in the
Restated Certificate of Incorporation of the Corporation annexed
hereto in Exhibit 2.02A to this Agreement.
(b) On the date of the First Amendment, the issued and
outstanding shares of capital stock of the Corporation are owned as
follows:
(i) [intentionally omitted]
(ii) ATLLC owns (A) Twenty Thousand (20,000) shares of Class
A Common Stock, (B) Six Hundred Fourteen Thousand (614,000)
shares of Class B Common Stock, and (C) Twenty-Seven Thousand
Five Hundred Sixty (27,560) shares of Class C Common Stock;
(iii) Yamada owns Seventy-Five Thousand (75,000) shares of
Class B Common Stock;
(iv) Sunhorizon owns One Hundred Twenty-Nine Thousand Four
Hundred Two (129,402) shares of Class A Common Stock;
(v) the Management Stockholders in the aggregate own
Sixty-Five Thousand Fifty-Nine (65,059) shares of Class A Common
Stock;
<PAGE> 4
4
(vi) the Outside Directors in the aggregate own Six Thousand
Sixty-Two (6,062) shares of Class A Common Stock;
(vii) the Trustee owns Four Hundred Sixteen Thousand One
Hundred Sixty-Three (416,163) shares of Class A Common Stock; and
(viii) Argo-Tech owns Ten Thousand Two Hundred Forty-Seven
(10,247) shares of Class A Common Stock.
In addition, Six Thousand Six Hundred Fifteen (6,615) shares of Class
A Common Stock in the aggregate shall be reserved for issuance (x)
pursuant to the Argo-Tech Corporation 1991 Management Incentive Stock
Option Plan and any future Argo-Tech employee benefit plans, (y) to
new Outside Directors, and (z) to new members of the management of
Argo-Tech or the Operating Subsidiaries and Twenty-Eight Thousand
(28,000) shares of Class A Common Stock shall have been reserved for
issuance pursuant to the Argo-Tech Corporation 1997 Management Stock
Option Plan. Furthermore, Thirty-Four Thousand Four Hundred Fifty
(34,450) shares of Class D Common Stock in the aggregate have been
reserved for issuance upon the exercise of outstanding stock options
granted pursuant to the Argo-Tech Corporation 1991 Performance Stock
Option Plan.
(c) ATLLC or any Affiliate thereof shall, upon written request to
the Corporation, have the right to exchange the shares of Class C
Common Stock for an equal number of shares of Class B Common Stock,
and the Corporation, upon receipt of such request, shall take any and
all such corporate actions as may be required to permit ATLLC to
exchange such shares of Class C Common Stock for an equal number of
shares of Class B Common Stock and shall promptly thereafter execute
such exchange. The Stockholders hereby agree that they each shall take
any and all action that may be required at the time in order for the
Corporation to effect its obligations under this Section 2.03(c),
including but not limited to agreeing to amend the Restated
Certificate of Incorporation of the Corporation."
(h) Section 3.02 is amended by the insertion of ", AS AMENDED," after
"MAY 17, 1994" in lines five and seven thereof.
<PAGE> 5
5
(i) Section 4.01 is amended by the insertion of "ATLLC," after
"Yamada" in lines two and twenty thereof and "or ATLLC" after "Yamada" in
lines ten and eleven thereof.
(j) Section 4.02 is amended by insertion of "or ATLLC" after "Yamada"
in line sixteen thereof.
(k) Section 4.03(b) is amended by insertion of "or ATLLC" after
"Yamada" in line eight thereof.
(l) Section 6.02(a) is amended by (i) deletion of "Yamada" in lines
three and twenty-two thereof and the substitution therefor of "ATLLC", and
(ii) the insertion of "or any of the Operating Subsidiaries" after
"Argo-Tech" in line thirty-one thereof.
(m) Section 6.02(b) is amended by deletion of "Yamada" in line seven
thereof and the substitution therefor of "ATLLC".
(n) Section 6.03 is amended by deletion of "Yamada" in line two
thereof and the substitution therefor of "ATLLC".
(o) Section 6.05 is amended by deletion of "Yamada" in lines fifteen
and twenty thereof and the substitution therefor of "ATLLC".
(p) Section 6.06 is amended by deletion of "Yamada" in line
twenty-four thereof and the substitution therefor of "ATLLC".
(q) Section 7.07 is amended by the insertion of "and the Operating
Subsidiaries" after "Argo-Tech" in line six thereof.
(r) Section 7.08(a) is amended by the insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in line three and line four
(twice) thereof.
(s) Section 7.08(b) is amended by the insertion of "or any of the
Operating Subsidiaries" after "Argo-Tech" in line two of clause (ii) and
line three of clause (iii) thereof.
2.3 AMENDED EXHIBITS.
(a) The Restated By-Laws of Argo-Tech Corporation (now known as
Argo-Tech Corporation (HBP)) attached to the Stockholders Agreement as
Exhibit 2.01A are hereby deleted and replaced by the By-Laws of Argo-Tech
Corporation (formerly known as Argo-Holdings, Inc.) attached hereto as
Exhibit A and the By-laws of Argo-Tech Corporation
<PAGE> 6
6
(Aftermarket), Argo-Tech Corporation (OEM) and Argo-Tech Corporation (HBP)
are attached hereto as Exhibits B, C and D, respectively.
(b) The Restated Certificate of Incorporation of Argo- Tech
Corporation (now known as Argo-Tech Corporation (HBP)) attached to the
Stockholders Agreement as Exhibit 2.02A is hereby deleted and replaced by
the Certificate of Incorporation of Argo-Tech Corporation (formerly known
as Argo-Holdings, Inc.) attached hereto as Exhibit E and the Certificates
of Incorporation of Argo-Tech Corporation (Aftermarket), Argo-Tech
Corporation (OEM) and Argo-Tech Corporation (HBP) are attached hereto as
Exhibits F, G and H, respectively.
SECTION 3
MISCELLANEOUS
-------------
3.1 EFFECT OF FIRST AMENDMENT. Except as specifically provided herein,
this First Amendment does not in any way waive, amend, modify, affect or impair
the terms and conditions of the Stockholders Agreement and all terms and
conditions of the Stockholders Agreement are to remain in full force and effect
unless otherwise specifically amended, waived or changed pursuant to this First
Amendment.
On and after the date hereof, each reference in the Stockholders
Agreement to "this Agreement", "hereunder," "hereof," "herein" or words of like
import referring to the Stockholders Agreement shall mean and be a reference to
the Stockholders Agreement as amended by the First Amendment.
This First Amendment constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings, representations or other
arrangements, whether express or implied, written or oral, of the parties in
connection therewith except to the extent expressly incorporated or specifically
referred to herein.
3.2 COUNTERPARTS. This First Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
<PAGE> 7
7
3.3 GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
[Remainder Left Intentionally Blank]
<PAGE> 8
8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
AT HOLDINGS CORPORATION
/s/ Paul R. Keen
By:_________________________
Name: Paul R. Keen
Title: Vice President
ARGO-TECH CORPORATION
/s/ Yoichi Fujiki
By:_________________________
Name: Yoichi Fujiki
Title: Vice President
KEY TRUST COMPANY OF OHIO, N.A., IN
ITS CAPACITY AS TRUSTEE UNDER THE
ARGO-TECH CORPORATION EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST
/s/ M. A. Meyer
By:_________________________
Name: M. A. Meyer
Title: Vice President
/s/ Judith A. Pesta
By:_________________________
Name: Judith A. Pesta
Title: Asst. Vice President
<PAGE> 1
EXHIBIT 10.17
AMENDMENT, TERMINATION AND RELEASE UNDER
VESTAR/AT HOLDINGS CORPORATION
STOCKHOLDERS' AGREEMENT
THIS AMENDMENT, TERMINATION AND RELEASE UNDER VESTAR/AT HOLDINGS
CORPORATION STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of May 17,
1994 by and among Vestar/AT Holdings Corporation, a Delaware corporation (the
"Corporation"), Argo-Tech Corporation, a Delaware corporation ("Argo-Tech"),
Vestar/Argo- Tech Investment Limited Partnership, a Delaware limited partnership
(the 'Vestar Investment Partnership"), YC International Inc., a California
corporation ("Yamada"), Yamada Corporation, a Japanese corporation, Robert
Nagata, as Trustee under that certain Irrevocable Trust Agreement dated December
16, 1988 (the "Trust"), Aerotech/AT Investment Limited Partnership, a Delaware
limited partnership (the "Aerotech Investment Partnership"). the persons signing
this Agreement designated on the signature pages hereto as the Management
Stockholders (collectively, the "Management $tockholders"), Gerard Seelig, an
individual ("Seelig"), Gilbert Yanuck, an individual ("Yanuck"), Y. Fujiki, an
individual ("Fujiki"). J. Carbaugh, an individual ("Carbaugh", and together with
Seelig, Yanuck and Fujiki, the "Outside Directors"), and the Trustees (as such
term is hereinafter defined) on behalf of the voting trust (the 'Voting Trust")
created pursuant to that certain Voting Trust Agreement, dated as of December
24, 1990, by and among the Vestar Investment Partnership. the Trust, the
Aerotech Investment Partnership, the Management Stockholders, the Outside
Directors. and the trustees named therein (the "Trustees").
RECITALS:
________
WHEREAS, the parties to this Agreement are parties to that certain
Vestar/AT Holdings Corporation Stockholders' Agreement dated as of December 24,
1990 (the "Original Stockholders' Agreement"). Capitalized terms used but not
otherwise defined in this Agreement shall have the meanings assigned to such
terms in the Original Stockholders' Agreement;
WHEREAS, in connection with the sales (the "Sales") of certain shares of
the Corporation's Class A Common Stock to each of Society National Bank, as
Trustee under the Argo-Tech Employee Stock Ownership Plan and Trust Agreement
(the "ESOP"), and Sunhorizon International, Inc. ("Sun"), the Voting Trust is
being terminated, and the Vestar Investment Partnership and its partners, the
Aerotech Investment Partnership and its partners, the Trust, Seelig, Yanuck, and
each of R.L. Schroeder, R.C. Cottrell, P.D. Totedo, R.C. Bariow and M.A. Ruby
(each of which is a Management Stockholder and all of which are referred to
herein collectively as the "Management Sellers") shall cease to hold any shares
of Class A Common Stock;
WHEREAS, certain of the parties to the Original Stockholders' Agreement
desire to amend and restate the Original Stockholders' Agreement to, among other
things, exclude each of the Vestar Investment Partnership, the Aerotech
Investment Partnership, the Trust, Seelig, Yanuck, the Management Sellers and
the Trustees from such amendment and restatement and give effect to certain
other transactions;
<PAGE> 2
WHEREAS, the parties hereto wish to amend the Original Stockholders'
Agreement to more fully express the parties original intent with respect to the
Corporation's obligations in respect of its officers and directors; and
WHEREAS, the parties hereto wish to terminate the Original Stockholders'
Agreement and to release each other, and in the case of the Vestar Investment
Partnership and the Aerotech Investment Partnership, their respective partners,
from any obligations thereunder (except as set forth in this Agreement) upon the
closing of the Sales to the ESOP, as more particularly set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Section 2.06(d) of the Original Stockholders' Agreement is hereby
amended and restated to read in its entirety as follows:
"(d) The Corporation and New Argo-Tech each agrees that, from and
after the date hereof, neither the Corporation nor New Argo-Tech shall,
and each of the Stockholders agrees that, from and after the date
hereof, he, she, or it shall use his, her, or its respective best
efforts to cause the Corporation and New Argo-Tech not to, take any
action that would have the effect of or would change, amend, or repeal
the provisions of the Restated Certificate of Incorporation or Restated
By-laws of the Corporation or New Argo-Tech relating to the limitation
of liability of any resigned or removed director or the indemnification
of any resigned or removed officer or director prior to the expiration
of all statutes of limitation applicable to events occurring on or prior
to the time of such resignation or removal in any manner that would
adversely affect the rights thereunder of such resigned or removed
officer or director, unless otherwise required by law or judicial
order."
2. Section 2.06(e) of the Original Stockholders' Agreement is hereby
amended and restated to read in its entirety as follows:
"(e) The Corporation, New Argo-Tech, and Yamada agree that, for seven
(7) years after the resignation or removal of any officer or director of
New Argo-Tech or the Corporation (whether pursuant to the provisions of
this Section 2.06, Section 2.07, any other section of this Agreement or
otherwise), the Corporation shall maintain at its sole expense for such
resigned or removed officers or directors the comparable insurance
coverage provided by the then existing officers' and directors'
liability insurance under which benefits are being provided to such
officer or director of New Argo-Tech or the Corporation, as the case may
be, at the time of such resignation or removal; PROVIDED, HOWEVER, the
Corporation shall not be obligated to pay an aggregate annual premium
for such insurance in excess of the lesser of (x) twice the last
-2-
<PAGE> 3
base annual premium paid or payable for such insurance prior to the date
on which such officer or director resigns or is removed (the "Applicable
Premium"), and (y) Two Hundred Fifty Thousand Dollars ($250,000), and
any such insurance policy or replacement thereof shall include uniform
or standard provisions that are applicable to officer and director
insurance policies in the industry in which New Argo-Tech operates;
PROVIDED, FURTHER, that if at any time the then existing officers' and
directors' insurance expires, is terminated or cancelled during such
seven (7) year period, the Corporation and New Argo-Tech agree to use
their best efforts to obtain as much of the same type of liabiIity
insurance covering such officers and directors from a reputable insurer
as can be obtained for the remainder of such period for a premium on an
annualized basis not in excess of the lesser of (x) twice the Applicable
Premium, or (y) Two Hundred Fifty Thousand Dollars ($250,000); PROVIDED,
FURTHER, that, if the type and coverage amounts of any officers' and
directors insurance for any such officer or director has been reduced
as contemplated herein, the Corporation and New Argo-Tech shall continue
to be obligated and shall use their best efforts at periodic intervals
not to exceed twelve (12) months to increase the amount of liability
insurance coverage for such resigned or removed officer or director
within the cost limitations specified herein so as to obtain as much of
the same type of liability insurance coverage for such officers and
directors as is possible at that time. In the event that neither the
Corporation nor New Argo-Tech is able to, or they do not, obtain such
liability insurance at the cost specified herein, the Corporation and
New Argo-Tech shall be obligated to reserve, deposit in a trust account,
or otherwise make available for the benefit of all officers and
directors who may resign or be removed pursuant to or in accordance with
the terms of this Agreement or otherwise, and shall continue to make
available to all such officers and directors for such seven (7) year
period specified in this Section 2.06(e), the amount of funds that in
the aggregate the Corporation and New Argo-Tech otherwise would be
obligated to expend to obtain an officers' and directors' liabiIity
insurance policy pursuant to this Section 2.06(e) (which funds shall, if
such officers or directors or any representative thereof is able to
obtain or otherwise make arrangements for the Corporation or New
Argo-Tech to obtain officers' and directors' liability insurance
coverage for an amount within the amounts specified herein, be used to
pay the annual premium for such insurance policy). The failure of the
Corporation and New Argo-Tech to obtain the officers' and directors'
liability insurance required to be provided pursuant to this Section
2.06(e) shall not preclude Yamada from removing such directors who are
Non-Yamada Argo-Tech Nominees and gaining control of the New Argo-Tech
Board in accordance with the provisions of this Section 2.06."
3. On and as of the date of the closing of the Sales to the ESOP (the
"Effective Date"), the Original Stockholders' Agreement shall terminate and be
of no further force and effect; PROVIDED, HOWEVER, that the provisions of
Article I (definitions), Sections 2.06(d) and 2.06(e) (as such Sections are
amended by this Agreement), and Sections 12.06,
-3-
<PAGE> 4
12.07, 12.08, 12.09, 12.14, 12.16 and 12.21 shall survive such termination in
all respects until the seventh anniversary of the date of this Agreement.
4. Each of the parties to the Original Stockholders' Agreement hereby
irrevocably and unconditionally releases and forever discharges the other
parties, and in the case of the Vestar Investment Partnership and the Aerotech
Investment Partnership, their respective partners, as of the Effective Date,
from any and all manner of claims, complaints, promises, agreements, demands,
damages, causes of action or suits, controversies, rights. costs, losses, debts,
obligations or liabilities of any nature whatsoever that such party may now have
or that may subsequently accrue to such party by reason of any matter or thing
whatsoever arising out of or otherwise connected with, directly or indirectly,
the Original Stockholders' Agreement including, without limitation, purchases by
Argo-Tech of Class A Common Stock from each of Robert Schroeder, Romas Bublys,
Clay Wright and Daniel Moon upon termination of their employment with Argo-Tech
and each of the parties hereto specifically waives all rights arising under the
operation of the provisions of Article III of the Original Stockholders'
Agreement with respect to such purchases and agrees that, notwithstanding the
provisions of Section 3.06, of the Original Stockholders' Agreement, such
purchases are valid for all purposes and are hereby ratified and approved;
PROVIDED, HOWEVER, that this release and discharge shall not apply to claims,
complaints, promises, agreements, demands, damages, causes of action or suits,
controversies, rights, costs, losses, debts, obligations or liabilities of any
nature whatsoever with respect to Article I, Sections 2.06(d) and 2.06(e) (as
such Sections are amended by this Agreement), and Sections 12.06, 12.07,12.08,
12.09, 12.14, 12.16 and 12.21 of the Originat Stockholders' Agreement which
Sections survive.
5. The Vestar Investment Partnership hereby acknowledges that it has
reviewed the 1994 Stockholders' Agreement of even date herewith among the
Corporation, Argo-Tech, Yamada, Yamada Corporation, Sun and the other parties
thereto (which amends and restates the Original Stockholders' Agreement) and
that the Vestar Investment Partnership does not object to any of the terms or
conditions contained therein. Vestar Investment Partnership further acknowledges
that (i) such 1994 Stockholders' Agreement contains provisions relating to that
certain Distributorship Agreement among Argo-Tech, Yamada Corporation and Vestar
Capital Partners, Inc., dated as of December 24, 1990 (the "Distributorship
Agreement"), and that certain Supplemental Distributorship Agreement among
Argo-Tech, Aerotech World Trade Corporation, Yamada Corporation, Yamada
International Corp. and Vestar Capital Partners, Inc., dated as of December 24,
1990 (the "Supplemental Distributorship Agreement"), including an
acknowledgement that the "Distribution Term" (as defined in the Distributorship
Agreement) will commence on November 1, 1994 and (ii) Vestar Investment
Partnership has no right to defer the commencement of such Distribution Term,
whether under the Distributorship Agreement, the Supplemental Distributor
Agreement or otherwise.
6. This Agreement shall be construed and enforced in accordance with the
laws of New York (excluding the choice of law provisions thereof) and shall
inure to the
-4-
<PAGE> 5
benefit of, and be binding upon, the parties hereto and their representatives,
successors and assigns.
7. This Agreement may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original and all of which shall
constitute the same instrument.
8. The provisions of this Agreement are severable and, in the event that
any of the provisions hereof are held by a court of competent jurisdiction to be
invalid, void or unenforceable, such provisions shall be replaced by provisions
as similar as possible but which are valid and enforceable and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment,
Termination and Release under Vestar/AT Holdings Corporation Stockholders'
Agreement to be duly executed and delivered as of the day and year first above
written.
VESTAR/AT HOLDINGS CORPORATION
By: /s/ M.S. Lipscomb
----------------------------------
Name: M. S. Lipscomb
Title: President
ARGO-TECH CORPORATION
By: /s/ M.S. Lipscomb
----------------------------------
Name: M.S. Lipscomb
Title: President
VESTAR/ARGO-TECH INVESTMENT LIMITED
PARTNERSHIP
By: /s/ Daniel S. O'Connell
----------------------------------
Name: Daniel S. O'Connell
Title: General Partner
YC INTERNATIONAL INC.
By: /s/ Osamu Akiyama
----------------------------------
Name: Osamu Akiyama
Title: Vice President and General
Manager
YAMADA CORPORATION
By: /s/ Osamu Akiyama
----------------------------------
Name: Osamu Akiyama
Title: Vice President
ROBERT NAGATA, AS TRUSTEE UNDER THAT
CERTAIN IRREVOCABLE TRUST
AGREEMENT DATED DECEMBER 16, 1988
By: /s/ Robert Y. Nagata
----------------------------------
Name: Robert Y. Nagata
<PAGE> 7
AEROTECH/AT INVESTMENT LIMITED
PARTNERSHIP
By: AEROTECH WORLD TRADE CORP.
It General Partner
By: /s/ Jan R. Endresen
----------------------------------
Name: Jan R. Endresen
Title: President
THE OUTSIDE DIRECTORS:
By: /s/ Gerard Seeling
---------------------------------
Gerard Seeling
By: /s/ Gilbert Yanuck
---------------------------------
Gilbert Yanuck
By: /s/ Y. Fujiki
----------------------------------
Y. Fujiki
By: /s/ J. Carbaugh
---------------------------------
J. Carbaugh
VOTING TRUST TRUSTEES:
By: /s/ Arthur J. Nagle
----------------------------------
Arthur J. Nagle, Trustee
By: /s/ Daniel S. O'Connell
----------------------------------
Daniel S. O'Connell, Trustee
By: /s/ Prakash A. Melwani
----------------------------------
Prakash A. Melwani, Trustee
By: /s/ Jan R. Endresen
----------------------------------
Jan R. Endresen, Trustee
By: /s/ Michael S. Lipscomb
----------------------------------
Michael S. Lipscomb, Trustee
<PAGE> 8
MANAGEMENT STOCKHOLDERS:
By: /s/ M. S. Lipscomb
----------------------------------
M. S. Lipscomb
By: R. L. Schroeder
----------------------------------
R. L. Schroeder
By: /s/ J. M. Cunningham
----------------------------------
J. M. Cunningham
By: /s/ R. C. Cottrell
----------------------------------
R. C. Cottrell
By: /s/ P. R. Keen
----------------------------------
P. R. Keen
By: /s/ D. L. Chrencik
----------------------------------
D. L. Chrencik
By: /s/ D. J. Caschera
----------------------------------
D. J. Caschera
By: /s/ S. J. Graettinger
----------------------------------
S. J. Graettinger
By: /s/ P. D. Totedo
----------------------------------
P. D. Totedo
By: /s/ R. C. Barlow
----------------------------------
R. C. Barlow
By: /s/ K. L. Hicks
----------------------------------
K. L. Hicks
By: /s/ R. J. Mastrangelo
----------------------------------
R. J. Mastrangelo
<PAGE> 9
By: /s/ J. B. Nolish
----------------------------------
J. Nolish
By: /s/ D. M. Prelee
----------------------------------
D. M. Prelee
By: /s/ P. C. Lexow
----------------------------------
P. C. Lexow
By: /s/ M. W. Mueller
----------------------------------
M. W. Mueller
By: /s/ R. D. Entler
----------------------------------
R. D. Entler
By: /s/ V. Agullar
----------------------------------
V. Agullar
By: /s/ J. A. Bates
----------------------------------
J. A. Bates
By: /s/ D. M. Scaite
----------------------------------
D. M. Scaite
By: /s/ D. N. Ramacciato
----------------------------------
D. N. Ramacciato
By: /s/ G. M. Zavoda
----------------------------------
G. M. Zavoda
By: /s/ R. E. Eichhom
----------------------------------
R. E. Eichhom
By: /s/ M. A. Ruby
----------------------------------
M. A. Ruby
By: /s/ P. A. Skiad
----------------------------------
P. A. Skiad
<PAGE> 10
By: /s/ F. M. Robel
----------------------------------
F. M. Robel
By: /s/ F. St. Clair
----------------------------------
F. St. Clair
By: /s/ Daniel Moon
----------------------------------
Daniel Moon
By: /s/ Clay Wright
----------------------------------
Clay Wright
<PAGE> 1
Exhibit 10.18
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (the "Agreement") is made as of this 17th day
of May, 1994, by and between Argo-Tech Corporation, a Delaware corporation (the
"Company") and Vestar Capital Partners, Inc., a Delaware corporation
("Vestar").
WHEREAS, Vestar, by and through its officers and employees, has expertise
in the area of financial and corporate consulting and other matters relating
to the ongoing business of the Company; and
WHEREAS, the Company desires to avail itself, for the term of this
Agreement, of the expertise of Vestar in the aforesaid areas, in which the
Company acknowledges the expertise of Vestar;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions herein set forth, the parties hereto agree as follows:
1. CONSULTING SERVICES. Vestar hereby agrees that, during the term of
this Agreement, it shall render to the Company, by and through such of its
officers or employees as Vestar, in its sole discretion, shall designate from
time to time, financial and corporate consulting services in relation to the
day-to-day affairs of the Company as reasonably requested by the Company;
provided, however, that the reasonableness of the amount of time and the nature
of the consulting services requested by the Company shall be determined with a
view to the nature of Vestar's expertise and the compensation provided to
Vestar hereunder.
2. FEES. In consideration of the consulting services to be provided to
the Company hereunder, Vestar will receive (i) an initial fee of $250,000
payable on July 1,1994 and (ii) thereafter, a consulting fee of $87,250 per
annum payable semi-annually in advance beginning January 1, 1995 and increasing
proportionately with fuel pump sales increases over the immediately preceding
fiscal year, with such increases not to exceed $12,500 per annum.
3. REIMBURSEMENTS. In addition to the fees to be paid to Vestar
hereunder, the Company shall, at the direction of Vestar, pay directly or
reimburse Vestar for any of its reasonable out-of-pocket expenses incurred in
connection with the services provided hereunder.
4. INDEMNIFICATION. The Company will indemnify and hold harmless Vestar
and its partners, employees, agents, representatives and affiliates (each being
and "Indemnified Party") from and against any and all losses, claims, damages
and liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, any claim made by any third
party or otherwise, relating to or arising out of the consulting services
contemplated by this Agreement or the engagement of Vestar pursuant to, and the
performance by Vestar of the consulting services contemplated by, this
Agreement, and the Company will reimburse any Indemnified Party for all
reasonable costs
<PAGE> 2
and expenses (including reasonable attorneys' fees and expenses) as they are
incurred in connection with the investigation of, preparation for or defense of
any pending or threatening claim, or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party thereto. The
Company will not be liable under the foregoing indemnification provision to the
extent that any loss, claim, damage, liability, cost or expense is determined
by a court in a final judgment from which no further appeal may be taken, to
have resulted primarily from the gross negligence or willful misconduct of
Vestar.
5. TERM. The term of this Agreement shall begin on July 1, 1994 and
continue until December 31, 2000 (the "Initial Term"). Such term shall be
renewed automatically for additional one-year terms thereafter unless Vestar or
the Company shall give notice in writing within 90 days, but not later than 30
days, prior to the expiration of the Initial Term or of any one-year renewal
thereof of its desire to terminate this Agreement. The provisions of Paragraphs
2 (to the extent any fee has not been paid prior to the termination hereof), 3,
4, 6 and 7 shall survive the termination of this Agreement.
6. PERMISSIBLE ACTIVITIES. Subject to all applicable provisions of
Delaware law that impose fiduciary duties upon Vestar or its partners or
affiliates, nothing herein shall in any way preclude Vestar, its partners or
affiliates from engaging in any business activities or from performing services
for its or their own account or for the account of others, including companies
that may be in competition with the business conducted by the Company.
7. GENERAL.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party from any such provision, shall in any
event be effective unless the same shall be in writing and signed by the
parties to this Agreement and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to Vestar:
Vestar Capital Partners, Inc.
245 Park Avenue, 40th Floor
New York, New York 10167
ATTENTION: Daniel S. O'Connell
-2-
<PAGE> 3
With a copy to:
Kirkland & Ellis
655 15th Street, N.W.
Washington, D.C. 20005
ATTENTION: Jack M. Feder, Esquire
If to the Company:
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
ATTENTION: Secretary
With a copy to:
Thompson, Hine and Flory
1100 National City Bank Building
629 Euclid Avenue
Cleveland, Ohio 44114
ATTENTION: Donald H. Messinger, Esquire
(c) This Agreement shall constitute the entire Agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.
(d) This Agreement shall be construed and enforced in accordance with
the laws of New York (excluding the choice of law provisions thereof) and
shall inure to the benefit of, and be binding upon, Vestar and the Company and
their representatives, successors and assigns.
(e) The waiver of any party of any breach of this Agreement shall not
operate or be construed to be a waiver of any subsequent breach.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Consulting Agreement to
be executed and delivered by their duly authorized officers or agents of the
date first written above.
VESTAR CAPITAL PARTNERS, INC.
By: /s/ Prakash A. Melwani
-------------------------------
Prakash A. Melwani
Managing Director
ARGO-TECH CORPORATION
By: /s/ Paul R. Keen
-------------------------------
<PAGE> 1
Exhibit 10.19
FORM OF
ARGO-TECH CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
[ DATES OF FISCAL YEAR]
- --------------------------------------------------------------------------------
OBJECTIVE
---------
The Management Incentive Compensation Plan is for those Argo-Tech individuals
who formulate and/or implement the policies chiefly responsible for the
long-term profitable success of their functional areas.
Attaimnent of incentive earnings is based on achieving a minimum of 85% of
Operating or Free Cash Flow projections shown in the base case operating model
or its successor in future years. No incentive earnings will be paid if ATC
fails to achieve the minimum on at least one of these criteria.
ADMINISTRATION
--------------
The funding and overview of the Plan is vested in the Compensation Committee of
the Board of Directors. The documentation and record keeping will be maintained
jointly by the Chief Financial Officer (CFO) and the VP of Human Resources.
New membership, changes, modifications or exceptions to the Plan should be made
by the Chief Executive Officer (CEO), with written notification to the
Compensation Committee and the Chairman of the Board. In no instance is the CEO
authorized to exceed the funding amount or modify the plan set by the
Compensation Committee. The decisions of the Committee will be considered
final.
ELIGIBILITY
-----------
In determining eligibility for membership in the Plan, the individual must have
been an Argo-Tech employee or a retired ATC employee formerly active in the plan
and with an approved consulting agreement for at least a three-month period
immediately preceding entry to the Plan.
TERMINATION
-----------
An executive who is terminated from the payroll will receive or be denied
immediate payments as follows:
<PAGE> 2
A. An executive terminating due to normal retirement, (except as covered under
the above eligibility paragraph), early retirement with the consent of the
Company, death, partial or total disability retains shares granted for the
period of the Plan and earns incentive compensation pro rata to the year's
reflecting the period of active employment.
B. An executive who terminates for any other reason, whether initiated by
the Company or the executive, shall forfeit all share participation.
CALCULATION OF MANAGEMENT INCENTIVE COMPENSATION POOL
A. For the 10 month period beginning [date] and ending [date] the amount of
incentive compensation pool (Pool) available for distribution to members
of the Plan shall be $[ ] (Base Bonus Amount). Base Bonus Amount shall
be determined by the Compensation Committee in the subsequent fiscal
years.
B. For year 1, one-half of the Pool is based on comparing actual Operating
Cash Flow (in the ordinary course) for the fiscal year to the base case
operating model. One-half of the Pool is based on comparing actual Free
Cash Flow (in the ordinary course) for the fiscal year to the base case
operating model.
C. For the 1992 fiscal year and all subsequent years (October 27, 1991 -
October 25, 1992 period), the amount of incentive compensation available
for distribution to the members of the Plan shall be determined according
to the following schedule using the October 1992 year-end financial
statements.
1) One-half of at the pool is based on Operating Cash Flow level (in the
ordinary course).
- One-half of the Operating Cash Flow portion of the pool is
based on comparing current year actual Operating Cash
Flow to the base case Model Operating Cash Flow for the
corresponding fiscal year.
- One-half of the Operating Cash Flow portion of the pool is
based on comparing current year actual Operating Cash Flow
to the management generated forecast for Operating Cash
Flow for the fiscal year.
<PAGE> 3
2) One-half of the pool is based on Free Cash Flow level (in the ordinary
course).
- One-half of the Free Cash Flow portion of the pool is based on
comparing current year actual Free Cash Flow to the base case
Model Free Cash Flow for the corresponding fiscal year.
- One-half of the Free Cash Flow portion of the pool is based on
comparing current year actual Free Cash Flow to the management
generated forecast for Free Cash Flow for the fiscal year.
For categories B and C, the amount of MICP will be calculated as follows:
a) If both actual operating and Free Cash Flow are less than 85%
of the targeted level, the amount of MICP will be zero.
b) If either actual operating or Free Cash Flow is equal to or
greater than 85% of targeted level then Incentive Compensation
will be calculated as follows:
The amount of MICP will be 50% of the Base Bonus Amount at 85%
of target and rising evenly to 100%, if 100% of target is
achieved.
c) If actual operating and/or Free Cash Flow is greater than 100%
of target, the amount of MICP will be the Base Bonus Amount
plus 7.5% of the weighted average excess above the target
level.
BONUS POOL GUIDELINE FOR [YEAR]
-------------------------------
The CEO will determine each participant's bonus percentage of base compensation
in consultation with the Compensation Committee.
Tier #1 [ ]% 1/4 personal 3/4 company
Tier #2 [ ]% 1/3 personal 2/3 company
Tier #3 [ ]% 1/2 personal 1/2 company
<PAGE> 4
EXAMPLE:
- --------
Achieve both Free Cash Flow and Operating Cash Flow at 105% for Tier
#l.
1991 annual salary x 100% x 36% = individual bonus eligibility amount.
a) Bonus eligibility x .75 = company portion
b) Bonus eligibility x .25 x % goal attainment = personal portion
c) The sum of individual bonus amount divided by the amount of
the incentive compensation pool x total excess bonus amount =
individual share of excess
d) Individuals total is equal to the summation of a + b + C. All
other tiers would be calculated the same way using their
respective percentages
The CFO shall include an estimated MICP as an administrative expense item in
determining the Operating and Free Cash Flow for the year.
DISTRIBUTION OF MANAGEMENT INCENTIVE COMPENSATION POOL
------------------------------------------------------
Distribution of the Earnings Pool shall be based on the individual bonus amount,
multiplied by the number of months of employment divided by 12.
Distribution of the entire Incentive Compensation Pool shall be made as soon as
is practicable after the results for the fiscal year have been certified by the
Board. It is anticipated that this will be completed by December 31 each year.
In the event of the death of a participant during the period of the Plan, all
amounts due from the Incentive Pool shall be paid to his or her estate.
SPECIAL PROVISIONS
------------------
At the request of the CEO and CFO, the Compensation Committee has the right to
adjust Operating and Free Cash Flow for those major circumstances over which the
personnel plan participants do not have control. It is not anticipated that the
exercise of such authority will be frequent.
PAYMENT OF BONUSES
------------------
The Compensation Committee must review and approve details of the payout prior
to payment.
<PAGE> 1
Exhibit 10.20
AT HOLDINGS CORPORATION
ARGO-TECH CORPORATION
1991 MANAGEMENT INCENTIVE STOCK OPTION PLAN
-------------------------------------------
AMENDED EFFECTIVE MAY 16, 1994
------------------------------
1. The total number of shares which may be issued and sold under
options granted pursuant to this Management Incentive Stock Option Plan shall
not exceed in the aggregate seven thousand five hundred forty (7,540) shares of
the Class A Common Stock, par value $0.01 per share (the "Shares") of AT
Holdings Corporation ("Holdings"), except to the extent of adjustments
authorized by Paragraph 5 of this Management Incentive Stock Option Plan. The
Shares may be treasury shares or shares of original issue or a combination of
the foregoing. Any Shares subject to options that are not exercised, in whole or
in part, upon termination of the options to which they were subject may be made
subject to other options which may be granted under this Management Incentive
Stock Option Plan.
2. Pursuant to authority delegated by the full Board of Directors of
Holdings, the Compensation Committee (the "Committee") of the Board of Directors
of Holdings may, from time-to-time and upon such terms and conditions as they
may determine, authorize the granting to full-time employees and Directors of
Argo-Tech Corporation ("Argo-Tech"), a wholly owned subsidiary of Holdings, of
options to buy Shares from Holdings. The number of Shares to be covered by each
such option may be fixed by the Committee in its sole discretion, taking into
consideration, however, any recommendations made to the Holdings Board of
Directors by the Compensation Committee of the Argo-Tech Board of Directors.
<PAGE> 2
Successive options may be granted to the same person whether or not the option
or options first granted to such person remain unexercised.
3. Options granted under this Management Incentive Stock Option Plan
may be (i) options which are intended to qualify under particular provisions of
the Internal Revenue Code, as in effect from time-to-time, (ii) options which
are not intended so to qualify under the Internal Revenue Code, or (iii)
combinations of the foregoing. No option shall be exercised after November 9,
2001, and options not exercised by November 9, 2001 shall be automatically
forfeited. No option shall be transferable by the optionee other than by will or
the laws of descent and distribution. Options shall be exercisable during the
optionee's lifetime only by the optionee.
4. Until such time as there exists a public market for the Shares, the
option price shall be Ten Dollars ($10.00) per Share. If there exists a public
market for the Shares, then their fair market value shall be the closing price
per share of Class A Common Stock on the New York Stock Exchange, as reported on
the Composite Tape (or other national securities exchange if Holdings Class A
Common Stock is not then traded on the New York Stock Exchange), for such day of
the granting of the option (or if there is no trading of the Class A Common
Stock on that date, then the last preceding date on which there was trading), or
if the Class A Common Stock is not then listed on a national exchange, then the
average of the per share closing bid and asked prices in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if not so reported by NASDAQ, as reported by the
National Quotation Bureau, Inc. or any successor organization. The option price
shall be payable (a) in cash or by certified check, (b) at the discretion of the
Committee, by the transfer to Holdings by
-2-
<PAGE> 3
the optionee of shares of Class A Common Stock having a fair market value at the
time of exercise equal to the total option price, or (c) at the discretion of
the Committee, by a combination of such methods of payment.
5. The Holdings Board of Directors may make or provide for such
adjustments in the option price and in the number or kind of shares of Holdings
Class A Common Stock or other securities covered by outstanding options as the
Holdings Board of Directors, in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or enlargement of the
rights of optionees that would otherwise result from (a) any stock dividend,
stock split, combination of shares, recapitalization or other change in the
capital structure of Holdings, (b) any merger, consolidation, separation,
reorganization, partial or complete liquidation or issuance of rights or
warrants to purchase stock, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any merger,
consolidation, separation, reorganization, partial or complete liquidation or
any similar event and in connection therewith Class A Common Stock or other
securities theretofore substituted shall be changed, coverted, reclassified or
extinguished, the option shall become ipso facto, without any action or consent
by the optionee, an option to acquire upon exercise, in accordance with its
terms, whatever the optionee would have been entitled to receive if the option
had been exercised at the last permissible date prior to such merger,
consolidation, separation, reorganization, partial or complete liquidation or
similar event and the option price shall be changed to the extent necessary to
correspond appropriately to the change, conversion or reorganization in the
Class A Common Stock or other securities therefore substituted. The Holdings
Board of
-3-
<PAGE> 4
Directors may also make or provide for such adjustments in the number of shares
specified in Paragraph 1 of this Plan as such Board in its sole discretion,
exercised in good faith, may determine is appropriate to reflect any transaction
or event described in this Paragraph.
6. The number of shares, price and other terms and conditions of the
option shall be set forth in a Stock Option Agreement. The form of each Stock
Option Agreement shall be prescribed by the Holdings and Argo-Tech Boards of
Directors, and any Stock Option Agreement evidencing an outstanding option may,
with the concurrence of the affected optionee, be amended, provided that the
terms and conditions of each such Stock Option Agreement and amendment are not
inconsistent with this Management Incentive Stock Option Plan. The form of Stock
Option Agreement shall include and incorporate by reference any stockholders'
agreement and voting trust agreement which may be in force at the time an option
is granted.
7. The Holdings Board of Directors may, with the concurrence of the
affected optionee, cancel any option granted under this Management Incentive
Stock Option Plan. In the event of any such cancellation, the Holdings Board of
Directors may authorize the granting of new options (which may or may not cover
the same number of shares which had been the subject of any prior option) in
such manner, at such option price and subject to the same terms, conditions and
discretions as, under this Management Incentive Stock Option Plan, would have
been applicable had the cancelled options not been granted.
8. Pursuant to authority granted by the Board of Directors of Holdings,
the Committee shall administer this Management Incentive Stock Option Plan.
9. This Management Incentive Stock Option Plan may be amended from
time-to-
-4-
<PAGE> 5
time with the approval of both the Holdings and Argo-Tech Boards of Directors,
but without further approval by the stockholders of Holdings, no such amendment
shall increase the aggregate number of shares of Class A Common Stock that may
be issued and sold under this Management Incentive Stock Option Plan (except
that adjustments authorized by Paragraph 5 shall not be limited by this
provision).
-5-
<PAGE> 1
EXHIBIT 10.21
FORM OF
AT HOLDINGS CORPORATION
AND
ITS WHOLLY-OWNED SUBSIDIARY
ARGO-TECH CORPORATION
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT evidences that [name of optionee]
("Optionee") who is [title] of Argo-Tech Corporation ("Argo-Tech"), has been
granted as of the 20th day of December, 1995, an option ("Option") to purchase
[number of shares] shares of Class A Common Stock, par value $0.01 per share of
AT Holdings Corporation ("Shares") at the price of Ten Dollars ($10.00) per
Share ("Purchase Price") pursuant to the 1991 Management Incentive Stock Option
Plan, as amended, of AT Holdings Corporation ("Holdings") and Argo-Tech
Corporation. This Stock Option Agreement and the terms and conditions on which
this Option has been granted, as hereinafter set forth, have been approved in
resolutions adopted by the Boards of Directors of AT Holdings Corporation and
Argo-Tech Corporation.
1. Holdings shall cause certificates for any Shares purchased
hereunder to be delivered to the Optionee upon payment to Holdings of the
Purchase Price in full.
2. This Option (until termination as hereinafter provided)
shall be exercisable, except as provided otherwise in Paragraph 3 hereof, only
to the extent of one-fourth of the number of Shares covered hereby after the
Optionee shall have been in the continuous employ of Argo-Tech for one full year
after the date set forth hereinabove and to the extent
<PAGE> 2
of an additional one-fourth of such Shares after each of the next three
successive years thereafter during which the Optionee shall have been in the
continuous employ of Argo-Tech. For the purposes of this paragraph, leaves of
absence approved by the Board of Directors of Argo-Tech for illness, military or
governmental service, or other cause, shall be considered as employment. To the
extent exercisable, this Option may be exercised in whole or in part from
time-to-time.
3. If Holdings Class A Common Stock (i) shall become registered under
the Securities Exchange Act of 1934 or (ii) shall become otherwise eligible for
trading on the New York Stock Exchange or other national exchange, or shall be
quoted in the over-the-counter market on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or through the National Quotation
Bureau, Inc. or any successor organization, then this Option shall become
immediately exercisable in full. Upon the signing of any agreement for the
merger or consolidation of Holdings with another corporation or for the sale of
all or substantially all of the assets of Holdings to another corporation or
upon adoption of any resolution of reorganization or dissolution of Holdings by
the stockholders, or upon the occurrence of any other event or series of events,
in the opinion of the Board of Directors of Holdings, will or is likely to, if
consummated, result in a change in control of Holdings or Argo-Tech, this Option
shall become immediately exercisable in full. In the event that any such merger,
consolidation, sale, reorganization, liquidation or other event or series of
events shall be abandoned, this Option shall be exercisable thereafter only as
provided otherwise in Paragraph 1, unless the Board of Directors of Holdings
shall determine and notify the Optionee to the contrary. Any exercise
-2-
<PAGE> 3
of this Option that may have occurred prior to such determination shall be valid
and effective in all respects.
In the event: (i) an Optionee ceases to be an employee of Argo-Tech by
reason of an "Event I Termination" (as such term is defined as set out in that
certain Vestar/AT Holdings Corporation Stockholders' Agreement dated December
24, 1990 (the "Original Stockholders' Agreement"); (ii) "Tag-Along Rights"
become effective pursuant to Section 9.06 of that certain AT Holdings
Stockholders' Agreement dated May 17, 1994 (the "Current Stockholders'
Agreement"); or (iii) "Drag-Along" rights are exercised pursuant to Section 9.07
of the Current Stockholders' Agreement, this Option shall become immediately
exercisable in full. In the event "Drag-Along" rights are exercised and
"Non-Yamada Stockholders" sell stock pursuant to Section 9.07 of the Current
Stockholders' Agreement, to the extent the purchase price for "Securities"
disposed of pursuant to such "Drag-Along" rights exceeds the Purchase Price,
this option shall be, without any further action on the part of the Optionee,
deemed exercised and, in such event the Purchase Price shall be paid to Holdings
and the remainder shall be paid to Optionee (less appropriate withholdings).
4. This Option shall terminate on the earliest of the
following dates:
(A) Thirty (30) days after the date on which the Optionee
ceases to be an employee of Argo-Tech by reason of an "Event II
Termination" or an "Event III Termination" (as such terms are defined
in subsection 6.02(a) of the Original Stockholders' Agreement);
-3-
<PAGE> 4
(B) Ninety (90) days after the date on which the Optionee
ceases to be an employee of Argo-Tech by reason of an "Event I
Termination" (as such term is defined in subsection 6.02(a) of the
Original Stockholders' Agreement); or
(C) November 9, 2001.
Nothing contained in this Option shall limit whatever right Argo-Tech might
otherwise have to terminate the employment of an Optionee.
5. The Optionee may exercise this Option in whole or in part to the
extent such Option is exercisable by delivering to Holdings a notice in writing
indicating such Optionee's intent to exercise the Option, together with (in all
events except for the exercise of the Option pursuant to the last sentence of
Paragraph 3 hereof) the Purchase Price to the extent required to purchase the
number of Shares being exercised plus provision for any required withholding.
The Purchase Price shall be payable (a) in cash or by certified check, (b) at
the discretion of the Compensation Committee (the "Committee") of the Holdings
Board of Directors, by the transfer to Holdings by the Optionee of shares of
Class A Common Stock having a value at the time of exercise equal to the total
Purchase Price, or (c) at the discretion of the Committee, by a combination of
such methods of payment. The Committee, in its discretion, may permit an
Optionee to satisfy any minimum federal, state or local withholding tax
assessments in connection with the exercise of the Option by electing (a) to
have a portion of the Shares to be issued under the Option withheld by Holdings,
(b) to deliver to Holdings a portion of the Shares issued pursuant to the
exercise of the Option and/or (c) to deliver to Holdings shares of Class A
Common Stock owned by the Optionee.
-4-
<PAGE> 5
6. This Option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by the Optionee or the legal representative of
the Optionee.
7. This Option shall not be exercisable if such exercise would involve
a violation of any applicable federal or state securities law. If the Ohio
Securities Act shall be applicable to this Option, it shall not be exercisable
unless at the time of exercise the Shares or other securities purchasable
hereunder are exempt, are the subject matter of an exempt transaction, are
registered by description or by qualification or at such time are the subject
matter of a transaction which has been registered by description.
8. The Holdings Board of Directors shall make such adjustments in the
option price and in the number or kind of shares of Class A Common Stock or
other securities covered by this Option as the Holdings Board of Directors, in
its sole discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of the rights of the Optionee that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of Holdings
or Argo-Tech, (b) any merger, consolidation, separation, reorganization,
partial or complete liquidation or issuance of rights or warrants to purchase
stock, or (c) any other corporate transaction or event having an effect similar
to any of the foregoing. In the event of any merger, consolidation,
separation, reorganization, partial or complete liquidation or any similar
event and in connection therewith Holdings Class A Common Stock or other
securities theretofore substituted shall be changed, converted, reclassified or
extinguished, this Option shall become ipso facto without any action or consent
by the Optionee an option
-5-
<PAGE> 6
to acquire upon exercise, in accordance with its terms, whatever the Optionee
would have been entitled to receive if this Option had been exercised at the
last permissible date prior to such merger, consolidation, separation,
reorganization, partial or complete liquidation or similar event, and the
Purchase Price shall be changed to the extent necessary to correspond
appropriately to the change, conversion or reorganization in Holdings Class A
Common Stock or other securities therefore substituted.
9. The term "Subsidiary" as used in the Stock Option Agreement means
any corporation (other than AT Holdings Corporation) in an unbroken chain of
corporations beginning with AT Holdings Corporation if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. For purposes of this Stock
Option Agreement, the continuous employ of the Optionee with Argo-Tech shall not
be deemed interrupted, and the Optionee shall not be deemed to have ceased to be
an employee of Argo-Tech, by reason of the transfer of his employment among
Argo-Tech and its Subsidiaries.
10. This Stock Option Agreement shall become effective only upon the
Optionee's execution of the Acknowledgement which follows the execution of AT
Holdings Corporation and Argo-Tech Corporation hereof.
11. This Stock Option Agreement may be amended by a writing executed
on behalf of each of Holdings, Argo-Tech and the Optionee.
-6-
<PAGE> 7
EXECUTED at Cleveland, Ohio this 22nd day of December, 1995.
AT HOLDINGS CORPORATION
By:__________________________________
Title: President
ARGO-TECH CORPORATION
By:__________________________________
Title: Vice President, General
Counsel and Secretary
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Stock Option Agreement and accepts the option granted
thereunder.
The undersigned Optionee further acknowledges that the shares of Class
A Common Stock covered by said Agreement shall be issued or transferred to
Optionee only if the Optionee has executed an appropriate amendment or joinder
to the Current Stockholders' Agreement pursuant to which Optionee shall be bound
by and entitled to the benefits of the Current Stockholders' Agreement as if he
were an original party thereto. In addition, the Optionee further acknowledges
that he has been advised that the shares of Class A Common Stock covered by said
Agreement have not been registered under the Securities Act of 1933 and agrees
that he will not make any disposition of such shares unless either (a) such
shares have been registered under said Act, or (b) an exemption from the
registration provisions of said Act is applicable to the Optionee's proposed
disposition of
-7-
<PAGE> 8
such shares. The Optionee understands that the certificates for such shares may
bear a legend substantially as follows:
"THIS CERTIFICATE IS HELD SUBJECT TO AN AGREEMENT AMONG AT HOLDINGS
CORPORATION ("THE CORPORATION") AND CERTAIN OF ITS STOCKHOLDERS DATED AS OF MAY
17, 1994, AS AMENDED, AND THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED
HEREBY ARE TRANSFERABLE ONLY IN ACCORDANCE WITH THE TERMS, CONDITIONS AND
RESTRICTIONS OF THAT AGREEMENT, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE
SECRETARY OF AT HOLDINGS CORPORATION. ANY ATTEMPTED DISPOSITION OF THIS
CERTIFICATE OR THE SHARES OF STOCK REPRESENTED HEREBY IN VIOLATION OF SUCH
AGREEMENT SHALL BE NULL AND VOID."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES HAVE BEEN ACQUIRED BY INVESTMENT
AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT OF
1933, UNLESS IN THE OPINION (WHICH OPINION SHALL BE IN THE FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL
-8-
<PAGE> 9
SATISFACTORY TO THE CORPORATION, SUCH REGISTRATION IS NOT REQUIRED."
Date:____________________ Optionee:______________________
-9-
<PAGE> 1
Exhibit 10.22
AT HOLDINGS CORPORATION
ARGO-TECH CORPORATION
1991 PERFORMANCE STOCK OPTION PLAN
----------------------------------
AMENDED EFFECTIVE MAY 16, 1997
------------------------------
1. The total number of shares which may be issued and sold under
options granted pursuant to this Performance Stock Option Plan shall not exceed
in the aggregate thirty-four thousand four hundred fifty (34,450) shares of the
Class D Common Stock, par value $0.01 per share (the "Shares") of AT Holdings
Corporation ("Holdings"), except to the extent of adjustments authorized by
Paragraph 5 of this Performance Stock Option Plan. The Shares shall be
non-voting. The Shares may be treasury shares or shares of original issue or a
combination of the foregoing. Any Shares subject to options that are not
exercised, in whole or in part, upon termination of the options to which they
were subject may be made subject to other options which may be granted under
this Performance Stock Option Plan.
2. Pursuant to authority delegated by the full Board of Directors of
Holdings, the Compensation Committee (the "Committee") of the Board of Directors
of Holdings shall, upon such terms and conditions as they may determine,
authorize the granting to full-time employees and Directors of Argo-Tech
Corporation ("Argo-Tech"), a wholly owned subsidiary of Holdings, of options to
buy Shares from Holdings. The number of Shares to be covered by each such option
may be fixed by the Committee in its sole discretion, taking into consideration,
however, any recommendations made to the Holdings Board of Directors by the
Compensation Committee of the Argo-Tech Board of Directors. Successive options
<PAGE> 2
may be granted to the same person whether or not the option or options first
granted to such person remain unexercised.
3. Options granted under this Performance Stock Option Plan may be (i)
options which are intended to qualify under particular provisions of the
Internal Revenue Code, as in effect from time-to-time, (ii) options which are
not intended so to qualify under the Internal Revenue Code, or (iii)
combinations of the foregoing. No option shall be exercised after November 9,
2001, and options not exercised by November 9, 2001 shall be automatically
forfeited. No option shall be transferable by the optionee other than by will or
the laws of descent and distribution. Options shall be exercisable during the
optionee's lifetime only by the optionee.
4. Until such time as there exists a public market for the Shares, the
option price shall be Ten Dollars ($10.00) per Share. If there exists a public
market for the Shares, then their fair market value shall be the closing price
per share of Class D Common Stock on the New York Stock Exchange, as reported on
the Composite Tape (or other national securities exchange if Holdings Class D
Common Stock is not then traded on the New York Stock Exchange), for such day of
the granting of the option (or if there is no trading of the Class D Common
Stock on that date, then the last preceding date on which there was trading), or
if the Class D Common Stock is not then listed on a national exchange, then the
average of the per share closing bid and asked prices in the over-the-counter
market as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if not so reported by NASDAQ, as reported by the
National Quotation Bureau, Inc. or any successor organization. The option price
shall be payable (a) in cash or by certified check, (b) at the discretion of the
Committee, by the transfer to Holdings by the optionee
-2-
<PAGE> 3
of shares of Class D Common Stock having a fair market value at the time of
exercise equal to the total option price, or (c) at the discretion of the
Committee, by a combination of such methods of payment.
5. The Holdings Board of Directors may make or provide for such
adjustments in the option price and in the number or kind of shares of Holdings
Class D Common Stock or other securities covered by outstanding options as the
Holdings Board of Directors, in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or enlargement of the
rights of optionees that would otherwise result from (a) any stock dividend,
stock split, combination of shares, recapitalization or other change in the
capital structure of Holdings, (b) any merger, consolidation, separation,
reorganization, partial or complete liquidation or issuance of rights or
warrants to purchase stock, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any merger,
consolidation, separation, reorganization, partial or complete liquidation or
any similar event and in connection therewith Class D Common Stock or other
securities therefore substituted shall be changed, coverted, reclassified or
extinguished, the option shall become ipso facto, without any action or consent
by the optionee, an option to acquire upon exercise, in accordance with its
terms, whatever the optionee would have been entitled to receive if the option
had been exercised at the last permissible date prior to such merger,
consolidation, separation, reorganization, partial or complete liquidation or
similar event and the option price shall be changed to the extent necessary to
correspond appropriately to the change, conversion or reorganization in the
Class D Common Stock or other securities therefore substituted. The Holdings
Board of Directors may also make or
-3-
<PAGE> 4
provide for such adjustments in the number of shares specified in Paragraph 1 of
this Plan as such Board in its sole discretion, exercised in good faith, may
determine is appropriate to reflect any transaction or event described in this
Paragraph.
6. The number of shares, price and other terms and conditions of the
option shall be set forth in a Stock Option Agreement. The form of each Stock
Option Agreement shall be prescribed by the Holdings and Argo-Tech Boards of
Directors, and any Stock Option Agreement evidencing an outstanding option may,
with the concurrence of the affected optionee, be amended, provided that the
terms and conditions of each such Stock Option Agreement and amendment are not
inconsistent with this Performance Stock Option Plan. The form of Stock Option
Agreement shall include and incorporate by reference any stockholders' agreement
and voting trust agreement which may be in force at the time an option is
granted.
7. The Holdings Board of Directors may, with the concurrence of the
affected optionee, cancel any option granted under this Performance Stock Option
Plan. In the event of any such cancellation, the Holdings Board of Directors may
authorize the granting of new options (which may or may not cover the same
number of shares which had been the subject of any prior option) in such manner,
at such option price and subject to the same terms, conditions and discretions
as, under this Performance Stock Option Plan, would have been applicable had the
cancelled options not been granted.
8. Pursuant to authority granted by the Board of Directors of Holdings,
the Committee shall administer this Performance Stock Option Plan.
9. This Performance Stock Option Plan may be amended from time-to-time
with
-4-
<PAGE> 5
the approval of both the Holdings and Argo-Tech Boards of Directors, but without
further approval by the stockholders of Holdings, no such amendment shall
increase the aggregate number of shares of Class D Common Stock that may be
issued and sold under this Performance Stock Option Plan (except that
adjustments authorized by Paragraph 5 shall not be limited by this provision).
-5-
<PAGE> 1
Exhibit 10.23
FORM OF
AT HOLDINGS CORPORATION
AND
ITS WHOLLY-OWNED SUBSIDIARY
ARGO-TECH CORPORATION
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT evidences that [name of optionee]
("Optionee") who is [title] of Argo-Tech Corporation ("Argo-Tech"), has been
granted as of the 20th day of December, 1995, an option ("Option") to purchase
[number of shares] non-voting shares of Class D Common Stock, par value $0.01
per share of AT Holdings Corporation ("Shares") at the price of Ten Dollars
($10.00) per Share ("Purchase Price") pursuant to the 1991 Performance Stock
Option Plan, as amended, of AT Holdings Corporation ("Holdings") and Argo-Tech
Corporation. This Stock Option Agreement and the terms and conditions on which
this Option has been granted, as hereinafter set forth, have been approved in
resolutions adopted by the Boards of Directors of AT Holdings Corporation and
Argo-Tech Corporation, respectively.
1. Holdings shall cause certificates for any Shares purchased hereunder
to be delivered to the Optionee upon payment to Holdings of the Purchase Price
in full.
2. This Option (until termination as hereinafter provided) shall be
exercisable, except as provided otherwise in Paragraph 3 hereof, only to the
extent of one-fourth of the number of Shares covered hereby after the Optionee
shall have been in the continuous employ of Argo-Tech for one full year after
the date set forth hereinabove and to the extent of an additional one-fourth of
such Shares after each of the next three successive years
<PAGE> 2
thereafter during which the Optionee shall have been in the continuous employ of
Argo-Tech. For the purposes of this paragraph, leaves of absence approved by
the Board of Directors of Argo-Tech for illness, military or governmental
service, or other cause, shall be considered as employment. To the extent
exercisable, this Option may be exercised in whole or in part from time-to-time.
3. If Holdings Class D Common Stock (i) shall become registered under
the Securities Exchange Act of 1934 or (ii) shall become otherwise eligible for
trading on the New York Stock Exchange or other national exchange, or shall be
quoted in the over-the-counter market on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or through the National Quotation
Bureau, Inc. or any successor organization, then this Option shall become
immediately exercisable in full. Upon the signing of any agreement for the
merger or consolidation of Holdings with another corporation or for the sale of
all or substantially all of the assets of Holdings to another corporation or
upon adoption of any resolution of reorganization or dissolution of Holdings by
the stockholders, or upon the occurrence of any other event or series of events,
in the opinion of the Board of Directors of Holdings, will or is likely to, if
consummated, result in a change in control of Holdings or Argo-Tech, this Option
shall become immediately exercisable in full. In the event that any such merger,
consolidation, sale, reorganization, liquidation or other event or series of
events shall be abandoned, this Option shall be exercisable thereafter only as
provided otherwise in Paragraph 1, unless the Board of Directors of Holdings
shall determine and notify the Optionee to the contrary. Any exercise of this
Option that may have occurred prior to such determination shall be valid and
-2-
<PAGE> 3
effective in all respects.
In the event: (i) an Optionee (who is an employee of Argo-Tech) ceases
to be an employee of Argo-Tech by reason of an "Event I Termination" (as such
term is defined in that certain Vestar/AT Holdings Corporation Stockholders'
Agreement dated December 24, 1990 (the "Original Stockholders' Agreement"); (ii)
"Tag-Along Rights" become effective pursuant to Section 9.06 of that certain AT
Holdings Stockholders' Agreement dated May 17, 1994 (the "Current Stockholders
Agreement"); or (iii) "Drag-Along" rights are exercised pursuant to Section 9.07
of the Current Stockholders' Agreement, this Option shall become immediately
exercisable in full. In the event "Drag-Along" rights are exercised and
"Non-Yamada Stockholders" sell stock pursuant to Section 9.07 of the Current
Stockholders' Agreement, to the extent the purchase price for "Securities"
disposed of pursuant to such "Drag-Along" rights exceeds the Purchase Price,
this option shall be, without any further action on the part of the Optionee,
deemed exercised and, in such event the Purchase Price shall be paid to Holdings
and the remainder shall be paid to Optionee (less appropriate withholdings).
4. This Option shall terminate on the earliest of the
following dates:
(A) Thirty (30) days after the date on which the Optionee
ceases to be an employee of Argo-Tech by reason of an "Event II
Termination" or an "Event III Termination" (as such terms are defined
in subsection 6.02(a) of the Original Stockholders' Agreement);
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<PAGE> 4
(B) Ninety (90) days after the date on which the Optionee
ceases to be an employee of Argo-Tech by reason of an "Event I
Termination" (as such term is defined in subsection 6.02(a) of the
Original Stockholders' Agreement); or
(C) November 9, 2001.
Nothing contained in this Option shall limit whatever right Argo-Tech might
otherwise have to terminate the employment of an Optionee.
5. The Optionee may exercise this Option in whole or in part to the
extent such Option is exercisable by delivering to Holdings a notice in writing
indicating such Optionee's intent to exercise the Option, together with (in all
events except for the exercise of the Option pursuant to the last sentence of
Paragraph 3 hereof) the Purchase Price to the extent required to purchase the
number of Shares being exercised plus provision for any required withholding.
The Purchase Price shall be payable (a) in cash or by certified check, (b) at
the discretion of the Compensation Committee (the "Committee") of the Holdings
Board of Directors, by the transfer to Holdings by the Optionee of shares of
Class D Common Stock having a value at the time of exercise equal to the total
Purchase Price, or (c) at the discretion of the Committee, by a combination of
such methods of payment. The Committee, in its discretion, may permit an
Optionee to satisfy any minimum federal, state or local withholding tax
assessments in connection with the exercise of the Option by electing (a) to
have a portion of the Shares to be issued under the Option withheld by Holdings,
(b) to deliver to Holdings a portion of the Shares issued pursuant to the
exercise of the Option and/or (c) to deliver to Holdings shares of Class A or D
Common Stock owned by the Optionee.
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<PAGE> 5
6. This Option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by the Optionee or the legal representative of
the Optionee.
7. This Option shall not be exercisable if such exercise would involve
a violation of any applicable federal or state securities law. If the Ohio
Securities Act shall be applicable to this Option, it shall not be exercisable
unless at the time of exercise the Shares or other securities purchasable
hereunder are exempt, are the subject matter of an exempt transaction, are
registered by description or by qualification or at such time are the subject
matter of a transaction which has been registered by description.
8. The Holdings Board of Directors shall make such adjustments in the
option price and in the number or kind of shares of Class D Common Stock or
other securities covered by this Option as the Holdings Board of Directors, in
its sole discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of the rights of the Optionee that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of Holdings or
Argo-Tech, (b) any merger, consolidation, separation, reorganization, partial or
complete liquidation or issuance of rights or warrants to purchase stock, or (c)
any other corporate transaction or event having an effect similar to any of the
foregoing. In the event of any merger, consolidation, separation,
reorganization, partial or complete liquidation or any similar event and in
connection therewith Holdings Class D Common Stock or other securities
theretofore substituted shall be changed, converted, reclassified or
extinguished, this Option shall become ipso facto without any action or consent
by the Optionee an option
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<PAGE> 6
to acquire upon exercise, in accordance with its terms, whatever the Optionee
would have been entitled to receive if this Option had been exercised at the
last permissible date prior to such merger, consolidation, separation,
reorganization, partial or complete liquidation or similar event, and the
Purchase Price shall be changed to the extent necessary to correspond
appropriately to the change, conversion or reorganization in Holdings Class D
Common Stock or other securities therefore substituted.
9. The term "Subsidiary" as used in the Stock Option Agreement means
any corporation (other than AT Holdings Corporation) in an unbroken chain of
corporations beginning with AT Holdings Corporation if each of the corporations
other than the last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. For purposes of this Stock
Option Agreement, the continuous employ of the Optionee with Argo-Tech shall not
be deemed interrupted, and the Optionee shall not be deemed to have ceased to be
an employee of Argo-Tech, by reason of the transfer of his employment among
Argo-Tech and its Subsidiaries.
10. This Stock Option Agreement shall become effective only upon the
Optionee's execution of the Acknowledgement which follows the execution of AT
Holdings Corporation and Argo-Tech Corporation hereof.
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<PAGE> 7
11. This Stock Option Agreement may be amended by a writing
executed on behalf of each of Holdings, Argo-Tech and the Optionee.
EXECUTED at Cleveland, Ohio this 22nd day of December, 1995.
AT HOLDINGS CORPORATION
By:__________________________________
Title: President
ARGO-TECH CORPORATION
By:__________________________________
Title: Vice President, General Counsel
and Secretary
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Stock Option Agreement and accepts the option granted
thereunder.
The undersigned Optionee further acknowledges that the shares of Class
D Common Stock covered by said Agreement shall be issued or transferred to
Optionee only if the Optionee has executed an appropriate amendment or joinder
to the Current Stockholders' Agreement pursuant to which Optionee shall be bound
by and entitled to the benefits of the Current Stockholders' Agreement as if he
were an original party thereto. The Optionee acknowledges that the shares of
Class D Common Stock covered by this Agreement are non-voting shares. In
addition, the Optionee further acknowledges that he has been advised that
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<PAGE> 8
the shares of Class D Common Stock covered by said Agreement have not been
registered under the Securities Act of 1933 and agrees that he will not make any
disposition of such shares unless either (a) such shares have been registered
under said Act, or (b) an exemption from the registration provisions of said Act
is applicable to the Optionee's proposed disposition of such shares. The
Optionee understands that the certificates for such shares may bear a legend
substantially as follows:
"THIS CERTIFICATE IS HELD SUBJECT TO AN AGREEMENT AMONG AT
HOLDINGS CORPORATION ("THE CORPORATION") AND CERTAIN OF ITS STOCKHOLDERS DATED
AS OF MAY 17, 1994, AND THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED
HEREBY ARE TRANSFERABLE ONLY IN ACCORDANCE WITH THE TERMS, CONDITIONS AND
RESTRICTIONS OF THAT AGREEMENT, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE
SECRETARY OF AT HOLDINGS CORPORATION. ANY ATTEMPTED DISPOSITION OF THIS
CERTIFICATE OR THE SHARES OF STOCK REPRESENTED HEREBY IN VIOLATION OF SUCH
AGREEMENT SHALL BE NULL AND VOID."
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES HAVE BEEN ACQUIRED BY
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT
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<PAGE> 9
OF 1933, UNLESS IN THE OPINION (WHICH OPINION SHALL BE IN THE FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE CORPORATION,
SUCH REGISTRATION IS NOT REQUIRED."
Date:____________________ Optionee:______________________
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<PAGE> 1
EXHIBIT 10.25
Distributorship Agreement
Among
Argo-Tech Corporation, a Delaware Corporation
Yamada Corporation, a Japanese Corporation
and
Vestar Capital Partners, Inc., a Delaware Corporation
December 24, 1990
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
DISTRIBUTORSHIP AGREEMENT ......................................................... 1
1. Appointment and Acceptance ........................................ 2
2. Distribution Term ................................................. 3
3. Terms of Purchase and Sale ........................................ 10
4. Distributor's Compensation ........................................ 12
5. Distributor's Duties .............................................. 18
6. Distributor's Representations and Warranties ...................... 20
7. Limitation of Territory ........................................... 20
8. Exclusive Dealings ................................................ 21
9. Argo-Tech's Duties ................................................ 22
10. Changes ........................................................... 22
11. Direct Call Customers ............................................. 23
12. Cancellation ...................................................... 24
13. Trademarks ........................................................ 25
14. Repurchase of Inventory ........................................... 26
15. Status ............................................................ 27
16. Assignment ........................................................ 27
17. Third Parties ..................................................... 28
18. Modifications ..................................................... 29
19. Export ............................................................ 29
20. No Waiver ......................................................... 29
21. Governing Law ..................................................... 30
22. Notices ........................................................... 30
23. Exhibits .......................................................... 31
24. Complete Agreement ................................................ 31
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
25. Limitation of Liability ........................................... 31
26. Confidentiality ................................................... 31
27. Future Off-Shore Manufacturing Facilities ......................... 32
28. Other Agreement ................................................... 32
</TABLE>
Exhibit A - Products, Territory and Notices
Exhibit B - Prices
Exhibit C - Direct Call Customers
Exhibit D - Qualification Criteria
Terms and Conditions of Sale
<PAGE> 4
DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT (this "Agreement") dated as of the 24th
day of December, 1990, is by and among Argo-Tech Corporation, ("Argo-Tech"), a
Delaware corporation, Yamada Corporation ("Distributor"), a Japanese
corporation, and Vestar Capital Partners, Inc. ("Vestar"), a Delaware
corporation.
WITNESSETH:
WHEREAS, Argo-Tech manufactures and sells and proposes to manufacture
and sell the products identified at Items 1A and lB of Exhibit A hereto (the
"Products") and desires to appoint Distributor as its distributor of the
Products within the geographical territory described in Item 2 of Exhibit A
hereto (the "Territory") on and subject to the terms and conditions hereinafter
provided;
WHEREAS, Distributor desires to accept such appointment and dedicate
such portion of its present warehousing facilities, sales organization, and
other resources as may be required for the performance of its obligations
hereunder; and
<PAGE> 5
WHEREAS, the distribution rights provided for in this Agreement were
an important aspect in the decision of Distributor or its affiliate to invest
with Vestar in Argo-Tech;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration had and received, the parties hereby agree as follows:
1. Appointment and Acceptance: Argo-Tech hereby appoints
Distributor, and Distributor hereby accepts appointment, as Argo-Tech's
exclusive distributor of Products identified in Item lA of Exhibit A hereto
within the Territory as set forth in said Exhibit A at Item 2A for the
Distribution Term (as hereinafter defined), on and subject to the terms and
conditions herein set forth and as Argo-Tech's non-exclusive distributor of
Products identified in Item 1B of Exhibit A hereto within the Territory as set
forth in said Exhibit A at Item 2B for the Distribution Term, on and subject to
the terms and conditions herein set forth. Argo-Tech covenants and Distributor
acknowledges that the only other distributor for the Product listed as Item 3
in Item 1B will be Pratt and Whitney.
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<PAGE> 6
2. Distribution Term:
a. Except as stated below in this Section 2, the term during
which Distributor shall distribute Products hereunder (the "Distribution Term")
will begin on November 1, 1994. Unless earlier cancelled or terminated as
herein provided, this Agreement and the Distribution Term will expire on the
fifteenth anniversary date of the beginning of the Distribution Term. This
Agreement and the Distribution Term automatically will be renewed for
successive one-year periods thereafter unless either Argo-Tech or Distributor
shall have delivered to the other written notice of its intention not to renew
this Agreement and the Distribution Term. A notice of non-renewal by
Distributor must be given at least one (1) year prior to the date on which the
Distribution Term otherwise would be renewed. A notice of non-renewal by
Argo-Tech may be given at any time prior to the beginning of a one-year renewal
term. As explained in more detail below in this Section 2.a., however, the
parties hereby agree that until the fiftieth anniversary date of the beginning
of the Distribution Term, Argo-Tech shall renew the Distribution Term as to
Japan so long as Distributor and its affiliates retain five percent (5%)
ownership of Argo-Tech, and that even if Distributor and its affiliates do not
retain that ownership, Argo-Tech's right to give a notice of non-renewal will
be subject to limitations. Specifically:
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<PAGE> 7
I. Argo-Tech may not give a notice of non-renewal for any
one-year renewal period prior to the fiftieth anniversary date of the beginning
of the Distribution Term unless, at the time the notice of non-renewal is given
by Argo-Tech, each of conditions 1 and 2 below has been met and either
condition 3 or condition 4 below has also been met:
1. Distributor is in material breach of its
obligations under this Agreement.
2. Argo-Tech has notified Distributor of that breach
and suggested commercially reasonable means of
curing the breach.
3. Distributor fails to commence commercially
reasonable efforts to cure the breach within sixty
(60) days after Argo-Tech gives notice of the
breach.
4. Distributor fails to cure the breach in all
material respects within one hundred twenty (120)
days after Argo-Tech gives notice of the breach.
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<PAGE> 8
II. Argo-Tech will not have the right to give a notice of
non-renewal for any one-year renewal period prior to the fiftieth anniversary
date of the beginning of the Distribution Term at any time when the "Yamada
Ownership Condition" is met, which means that Yamada Corporation and all
persons and entities directly or indirectly controlling or controlled by Yamada
Corporation own in the aggregate five percent (5%) or more of the common stock
of Argo-Tech or of any entity which directly or indirectly controls Argo-Tech
provided that the calculation of percentage ownership of Argo-Tech and of
entities directly or indirectly controlling Argo-Tech shall be made as if all
outstanding convertible securities of Argo-Tech and those entities had been
converted to the extent that they are then eligible for conversion without
paying additional consideration. However, even while the Yamada Ownership
Condition is met, Argo-Tech will have the right to reduce the Territory for a
renewal period and all later renewal periods so that it includes only the
country of Japan, which right may be exercised by giving notice to Distributor
at any time prior to the beginning of a renewal term, provided that at the time
such a notice is given by Argo-Tech, each of conditions 1 and 2 above has been
met and either condition 3 or condition 4 above has also been met.
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<PAGE> 9
b. Vestar shall have the right to defer the
beginning of the Distribution Term for a period of one (1) year (and, if it
exercises that right, to defer it for additional periods of one (1) year each
pursuant to Section 2.c) if all of the following conditions are met:
1. On or before May 31 of the calendar year
during which the Distribution Term otherwise would begin, Vestar shall have
determined in good faith that Distributor has not complied in all material
respects with the criteria set forth in Exhibit D hereto; and, on or before May
31 of the calendar year during which the Distribution Term otherwise would
begin and at least sixty (60) days before Vestar gives the notice required in
condition 4 below, Vestar shall have notified Distributor of the criteria which
Vestar believes Distributor has not met. If Vestar determines that Distributor
has complied in all material respects with the criteria, or if Vestar does not
timely give the notice required in this condition 1, the Distribution Term will
begin without being deferred, it being the intention and desire of the parties
that the Distribution Term is to begin on November 1, 1994.
2. Prior to or simultaneously with giving
the notice required in condition 4 below, Vestar shall have obtained the
written agreement of Aerotech World Trade
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<PAGE> 10
Corporation ("Aerotech") to extend the term of that certain Aerotech
Distributorship Agreement, as defined below, for one year on the same terms as
are presently contained therein, to change the definition "Final Expiration
Date" in the Aerotech Distributorship Agreement to a date one year later than
its then-current date (or confirm that change if it occurs automatically
pursuant to the terms of the Aerotech Distributorship Agreement), and that such
extension and change are contingent upon the outcome of any arbitration
initiated pursuant to Section 2(d) below (that is, if the arbitrators decide
(or are deemed to have decided as provided in Section 2(d) below) that
Distributor has met in all material respects the criteria set forth in Exhibit
D hereto, the term will not be extended and the definition will not be
changed). As used herein, "Aerotech Distributorship Agreement" shall mean that
certain Distributorship Agreement, dated as of October 29, 1985, by and between
TRW, Inc. ("TRW") and Aerotech, the rights and obligations of TRW under which
agreement were assigned to and accepted by Argo-Tech with the consent of
Aerotech as of September 25, 1986, which agreement, as so assigned and
accepted, was amended by Rider I thereto executed by Argo-Tech on September 24,
1987 and by Aerotech by Rider II thereto executed by Argo-Tech on October 11,
1989 and by Aerotech on October 13, 1989, and is being amended by an Amendment
to Distributorship Agreement between Argo-Tech and Aerotech of even date
herewith.
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<PAGE> 11
3. At all times from the date hereof until
Vestar gives the notice required in condition 4 below, Vestar shall own five
percent (5%) or more of the common stock of Argo-Tech or of any entity which
directly or indirectly controls Argo-Tech.
4. Vestar shall have determined in good
faith that, at least sixty (60) days after Vestar gives the notice required by
condition 1 above, Distributor still does not comply in all material respects
with the criteria set forth in Exhibit D hereto; and, thereafter but no earlier
than May 31 and no later than July 31 of the calendar year during which the
Distribution Term otherwise would begin, Vestar shall have notified Distributor
that Distributor does not so comply. If Vestar determines that Distributor has
complied in all material respects with the criteria, if Vestar does not timely
give the notice required by this condition 4, if Vestar does not comply with
condition 2 above, or if Vestar does not comply with condition 3 above, then
the Distribution Term will begin without being deferred.
c. If Vestar defers the beginning of the
Distribution Term for a period of one (1) year one or more times pursuant to
Section 2.b. above, then each time Vestar defers the beginning of the
Distribution Term Section 2.b.
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<PAGE> 12
shall remain in force and Vestar shall have the right to defer the beginning of
the Distribution Term for another period of one (1) year if all conditions set
forth herein with respect thereto are met.
d. If Distributor disagrees with the
determination of Vestar that Distributor has not met in all material respects
the criteria set forth in Exhibit D hereto, Distributor may require that the
matter be arbitrated, provided that Distributor must require such arbitration
no later than five (5) business days after Vestar notifies Distributor as
required by condition 4 in Section 2(b) above. The arbitration shall be
conducted by three arbitrators in New York in accordance with the rules of the
American Arbitration Association. Argo-Tech and Distributor each will select
one arbitrator and notify the other of the arbitrator so selected within five
(5) business days after Distributor requests arbitration. The two arbitrators
so named shall select the third arbitrator within ten (10) business days after
Distributor requests arbitration. The parties agree to use their respective
best efforts to ensure that the arbitration shall begin within twenty (20)
business days after Distributor requests arbitration. If the third arbitrator
has not been selected within ten (10) business days after Distributor requests
arbitration, then the third arbitrator will be a partner in the New York City
office of
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<PAGE> 13
Price Waterhouse selected by the managing partner of that office. The parties
shall use their best efforts to cause and permit the arbitrators to make a
decision within five (5) business day after the beginning of the arbitration.
If the arbitrators have not been appointed or do not reach their final decision
on or before October 31 of the calendar year during which Vestar gives the
notice required by condition 4 in Section 2.b. above, then the Distribution
Term will begin on November 1 of that calendar year, and the arbitrators shall
be conclusively deemed to have decided that Distributor has met in all material
respects the criteria set forth in Exhibit D hereto. The decision of the
arbitrators shall be binding on all parties and may be enforced in any court
having jurisdiction. Argo-Tech will pay the fees and expenses of the
arbitrators and the American Arbitration Association and also the fees and
expenses incurred by Vestar and Distributor in preparing for and participating
in the arbitration.
3. Terms of Purchase and Sale:
a. During the Distribution Term, Argo-Tech will sell to
Distributor, and Distributor will purchase from Argo-Tech, Products for resale
by Distributor. The prices for such Products will be determined and will be
subject to change in accordance with the provisions in Exhibit B hereto.
Payment will be due thirty (30) days after Distributor's
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<PAGE> 14
receipt of Product or Argo-Tech's invoice, whichever is later. Simultaneously
with or prior to the Execution and delivery of this Agreement, Argo-Tech has
delivered to Distributor (and Distributor hereby acknowledges receipt of)
Argo-Tech's terms and conditions of sale and product warranty. Such terms and
conditions constitute a part of this Agreement and apply to all sales
hereunder. However, all warranties shall extend at least one (1) year after
delivery to Distributor's customer. Argo-Tech will, to the extent required,
provide special warranties required in order to obtain government and military
orders, provided that Argo-Tech will have no obligation to accept any such
orders if Argo-Tech considers such special warranty requirements unreasonable.
Failure by Argo-Tech to make deliveries in quantities and at times specified by
Distributor will not constitute a breach or default by Argo-Tech unless (i) an
officer of Argo-Tech shall have expressly guaranteed to do so in writing
(acknowledgments of purchase orders or correspondence concerning standard
delivery terms shall not be deemed to be guarantees unless they are signed by
an officer and expressly state guarantees) or (ii) Argo-Tech does not use
reasonable efforts to do so. Acceptance for purposes of Clause 7 of the
attached Terms and Conditions of Sale and the right to reject non-conforming
Products for purposes of Clause 4 of the attached Terms and Conditions of Sale
will expire sixty (60) days after delivery of such
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<PAGE> 15
Products by Distributor to its customer or one hundred twenty (120) days after
delivery by Argo-Tech to Distributor, whichever occurs later. In addition, if
Distributor or its customer reject Product as permitted by such terms and
conditions, Argo-Tech will pay the costs of shipping the rejected Product to
Argo-Tech and shipping replacement Product to Distributor or its customer if
the Product was rightfully rejected, and Argo-Tech shall have no obligation to
pay such costs of shipping if the Product was wrongfully rejected.
b. Pursuant to paragraph I.B.8. of that certain Supplemental
Distributor Performance Agreement among Argo-Tech, Distributor, Vestar and
certain other parties of even date herewith, Argo-Tech and Distributor have
agreed that, subject to certain conditions, certain Products to be purchased by
Distributor from Aerotech World Trade Corporation shall be treated for all
purposes as if those products were purchased from Argo-Tech. Said paragraph
I.B.8. hereby is incorporated in this Agreement as if set forth in full herein.
4. Distributor's Compensation:
a. As used in this Section 4, the term "Override Commission"
shall mean any commission payable pursuant to subparagraphs c., d. or e. below,
and the term
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<PAGE> 16
"Other Incentive Compensation" shall mean any compensation payable pursuant to
subparagraphs f., g. or h. below. Except for Override Commission and Other
Incentive Compensation, Distributor's compensation under this Agreement for the
performance of its obligations hereunder or otherwise with respect hereto will
be the profits received by Distributor upon resale of Products purchased by the
Distributor under the pricing terms set forth in Exhibit B hereto. In no event
will Distributor be entitled to any payment for goodwill inuring to Argo-Tech's
benefit which results from Distributor's performance hereunder; and neither
Distributor nor Argo-Tech will be liable for damages on account of any loss of
prospective profits, or any expenditure, investment, or obligations made or
incurred by the other.
b. In consideration for the investment Distributor will make
in creating good will for Argo-Tech and the Products in the Territory,
Argo-Tech will pay Distributor the Override Commission (subject to Section
4.1.) and Other Incentive Compensation.
c. Argo-Tech will pay a commission of twelve percent (12%)
of the purchase price of any Product(s) (as that term is defined either in Item
1A(b) or in Item 1B of Exhibit A) sold by Argo-Tech in or for use in Japan.
Whenever the phrase "for use in Japan" is used in this
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<PAGE> 17
Agreement, such phrase shall include the manufacture in Japan of aircraft,
aircraft engines and aircraft equipment incorporating Products, but otherwise
shall not be construed or interpreted so as to include the use of such Products
in Japan by non-Japanese airlines arriving or departing Japan on a routine
basis.
d. Argo-Tech will pay a commission of twelve percent (12%) of
the purchase price of any Product(s) (as that term is defined either in Item
1A(b) or in Item 1B of Exhibit A) sold by Argo-Tech in or for use in the United
States and its possessions and territories to any Japanese governmental
organization or body, to any company incorporated in Japan, to any Japanese
individual, unincorporated business or the like, or to any entity owned or
controlled by any of the foregoing (collectively, "Japanese Purchasers").
e. Argo-Tech will pay a commission of twelve percent (12%) of
the purchase price of any Products (as that term is defined either in Item
1A(b) or in Item 1B of Exhibit A) sold by Argo-Tech anywhere in the world
except Japan, the United States and its possessions and territories to Japanese
Purchasers which are original aircraft, aircraft engine or aircraft equipment
manufacturers.
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<PAGE> 18
f. If (i) Argo-Tech directly or indirectly sells Product(s) (as
that term is defined either in Item 1A(b) or in Item 1B of Exhibit A) to an
original aircraft, aircraft engine or aircraft equipment manufacturer, (ii) no
Override Commission is payable with respect to that sale and (iii) Distributor
is directly responsible for that sale (provided that this condition (iii) shall
not apply to any sale to a Japanese Purchaser), then Argo-Tech will compensate
Distributor commensurate with Distributor's contribution. Argo-Tech and
Distributor will negotiate in good faith to determine that compensation.
g. If Argo-Tech directly or indirectly sells Product(s) (as
that term is defined either in Item 1A(b) or in Item 1B of Exhibit A) to any
agency of the United States government, which Products have been identified to
Argo-Tech for resale to Japanese Purchasers or for use in Japan, and
Distributor is directly responsible for any portion of those sales, Argo-Tech
will compensate Distributor commensurate with Distributor's contribution.
Argo-Tech and Distributor will negotiate in good faith to determine that
compensation.
h. If (i) Argo-Tech directly or indirectly sells Product(s) (as
that term is defined either in Item 1A(b) or in Item 1B of Exhibit A) to any
governmental organization or body for use anywhere in the world except for
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<PAGE> 19
the United States and its possessions and territories, (ii) Argo-Tech knows
that the governmental organization or body is purchasing such products for use
outside of the United States and its possessions and territories, (iii) no
Override Commission is payable with respect to that sale, (iv) the governmental
organization or body is unwilling to purchase from Distributor, and (v)
Distributor is directly responsible for the sale (provided that conditions
(ii), (iv) and (V) shall not apply to any sale if Argo-Tech knows that the
governmental organization or body is purchasing such Products for use in
Japan), Argo-Tech will compensate Distributor commensurate with Distributor's
contribution. Argo-Tech and Distributor will negotiate in good faith to
determine that compensation.
i. If Argo-Tech directly or indirectly sells Product(s) to any
third party other than an agency of the United States government and Argo-Tech
knows that the third party is purchasing for resale in or for use in Japan or
to Japanese purchasers, then for purposes of determining whether Override
Commission or Other Incentive Compensation shall be paid to Distributor and the
amount thereof, the sale to the third party shall be ignored and Argo-Tech will
be treated as if Argo-Tech had sold the Product(s) to the party to whom, and at
the price for which, the third party resold the Product(s). If Argo-Tech has
reason to believe (but does not
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<PAGE> 20
know) that a third party is purchasing for such a resale, Argo-Tech will inform
Distributor and Argo-Tech and Distributor will cooperate in trying to determine
whether such resales actually occur. If such resales are determined to have
occurred, Override Commission and Other Incentive Compensation will be paid as
provided in the first sentence of this Section 4.i.
j. Override Commission with respect to receipts during each
calendar month shall be paid to Distributor within thirty (30) days after the
end of such calendar month to the extent that necessary data is then available
to Argo-Tech and otherwise within sixty (60) days after the end of such
calendar month. Each payment shall be accompanied by a detailed report of sales
in or for use in Japan and sales to Japanese Purchasers, identifying each
Product sold, the purchaser of each Product and the receipts with respect to
each Product. Argo-Tech will retain complete records of each sale in or for use
in Japan and each sale to a Japanese Purchaser by Argo-Tech and by any third
party for at least three years after each such sale, and Distributor will have
the right to audit Argo-Tech's books and records regarding those sales.
k. Argo-Tech will use reasonable efforts to keep Distributor
informed, in advance wherever possible, of
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<PAGE> 21
Argo-Tech's plans to sell Product(s) in or for use in Japan and to Japanese
Purchasers. Distributor will not contact Argo-Tech's customers without
Argo-Tech's consent, which consent shall not be unreasonably withheld where
Argo-Tech has informed Distributor of its intention to contact such customers
as contemplated by this Section 4.k.
l. Pursuant to Section 11.10 of that certain Stockholders'
Agreement among Argo-Tech, Distributor, Vestar and certain other parties of
even date herewith, under certain conditions the Override Commission may
terminate before or during the Distribution Term. Said Section 11.10 hereby is
incorporated in this Agreement as if set forth in full herein.
m. Upon request from either Argo-Tech or Distributor regarding
one or more specifically identified proposed sales of Products where
Distributor is not entitled to an Override Commission, Argo-Tech and
Distributor will engage in good faith discussions regarding whether or not
Distributor is likely to be entitled to Other Incentive Compensation and, if
so, in what amounts.
5. Distributor's Duties: During the Distribution Term, Distributor
will give the Products commercially
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<PAGE> 22
reasonable sales and service priority within the Territory. In addition,
Distributor, at its sole expense, will:
a. Use its reasonable efforts to maximize sales of Products
within the Territory by all usual and ethical means, includinq, without
limitation, personal solicitations of customers and prospective customers,
demonstrations, prompt and efficient processing of customer orders and
complaints, distribution of technical and promotional literature concerning
Products, and advertising in trade publications, directories, and the like;
b. Cooperate with Argo-Tech in identifying customers and
providing customers with sales and service assistance;
c. Maintain at all times inventories of Products in sufficient
quantities to meet Distributor's reasonably anticipated demand for Products and
continue to maintain adequate warehousing and other facilities for storage of
the same;
d. Continue to maintain a well-trained staff for sales of
Products to support Distributor's marketing efforts and fulfill its customer
needs;
-19-
<PAGE> 23
e. Prepare and maintain for a period of at least two (2) years
after the preparation thereof detailed records of Distributor's sales of
Product and allow Argo-Tech to inspect and copy such records upon request; and
f. Subject to pressing business requirements and other
commercially reasonable reasons for not attending, cause a reasonable number of
Distributor's employees who regularly call on Product customers to attend
annual meetings conducted by Argo-Tech in Cleveland, Ohio, provided always that
the subject matter of such meetings is relevant for such employees.
6. Distributor's Representations and Warranties: Distributor
hereby represents and warrants to Argo-Tech that Distributor currently has or
will develop plans to establish adequate warehousing and other facilities and
adequate sales staffs to perform its obligations under this Agreement, to
exploit reasonably fully opportunities for sales of Products within the
Territory, and to provide adequate servicing thereof.
7. Limitation of Territory: Distributor has not been appointed as
Argo-Tech's distributor in any geographical territory other than the Territory.
Accordingly, Distributor will not make sales calls or otherwise solicit sales
of
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<PAGE> 24
Products outside of the Territory; provided, however, that Distributor shall
be entitled to make sales calls upon, and solicit and accept sales orders from,
foreign purchasinq missions, agents, customers and employees having offices
located outside the Territory of customers located within the Territory
provided that all such Products so sold shall be sold for delivery into the
Territory. If Distributor has sales branches outside of the Territory, then
personnel associated with such sales branches will not, except as authorized in
the aforestated proviso, solicit sales of Products outside of the Territory.
8. Exclusive Dealings: During the Distribution Term, Distributor
will not, within the Territory, sell, distribute, or in any manner promote the
sale of products manufactured by persons other than Argo-Tech which are
competitive with the Products identified in Items lA and 1B of Exhibit A.
Distributor, however, may from time to time upon request from potential
customers supply products which are competitive with the products identified in
Items IA and 1B of Exhibit A, provided that Argo-Tech is first informed of any
such request and, provided further, that Argo-Tech indicates in writing to
Distributor that Argo-Tech is unable to furnish products meeting the required
specifications and that Argo-Tech does not deem any such sale as promotional or
-21-
<PAGE> 25
an attempt on the part of the Distributor to enter into any long term
commitment with Argo-Tech's competition.
9. Argo-Tech's Duties: During the Distribution Term, Argo-Tech will,
from time to time, make available to Distributor such assistance as Argo-Tech
customarily makes available to its distributors of Products. Without limiting
the generality of the foregoing, at its expense Argo-Tech will use its best
efforts to provide Distributor and its personnel with supplies of Products and
Technical and promotional literature concerning Products.
10. Changes: Argo-Tech reserves the right to make such changes in
Products or to discontinue Products from time to time as it deems appropriate,
and Argo-Tech may make changes in or discontinue a Product without notice to
Distributor if Argo-Tech reasonably believes that its action is required by
safety problems. In all other cases, however, Argo-Tech shall give Distributor
at least thirty (30) days notice before changing or discontinuing a Product and
shall use its best efforts to satisfy any orders for prompt delivery of the
unchanged Product placed by Distributor during that thirty (30) day period,
including, if necessary, manufacturing more of the unchanged Product.
Otherwise, Argo-Tech will be under no obligation to Distributor, Distributor's
customers, or otherwise (a) to continue the
-22-
<PAGE> 26
manufacture of any particular Product, (b) to introduce new Products, (c) to
change the specifications, designs, or other characteristics of any particular
Product, or (d) to maintain any inventory of discontinued Products past the
date manufacture thereof shall have ceased. Distributor may return to Argo-Tech
for credit and at Argo-Tech's expense Products which are declared obsolete,
discontinued or overaged by Argo-Tech. Credit for any Product returned to
Argo-Tech pursuant to this article shall be at the price last paid by
Distributor to Argo-Tech for that Product, and Argo-Tech will pay shipping
costs for Product that is so returned.
11. Direct Call Customers: Distributor acknowledges that it
understands that Argo-Tech currently has and intends to maintain a direct sales
force which services the customers listed on Exhibit C. Nothing in this
Agreement shall prevent Argo-Tech from selling Products within the Territory
to such direct call customers. However, Section 2 and the override commissions
provided for therein shall apply to sales to such direct call customers if such
sales are in or for use in Japan or to Japanese customers. Argo-Tech will
cooperate with Distributor in attempting to persuade direct call customers to
purchase all Products through Distributor, provided that this obligation will
not apply to direct call customers listed in category 1 in Exhibit C.
-23-
<PAGE> 27
12. Cancellation:
a. Either Argo-Tech or Distributor may at any time during
the Distribution Term cancel this Agreement by giving at least ninety (90) days
notice thereof if, before the notice of termination is given, the other shall
materially breach any of its obligations hereunder, the party wishing to
terminate has given notice of the breach to the breaching party, and at least
one of the following conditions has occurred:
i. The breach consists of Distributor's failure to
pay for Products in timely fashion and Distributor fails to cure within thirty
(30) days after Argo-Tech gives notice of the breach;
ii. The breaching party does not commence
commercially reasonable efforts to cure the breach within thirty (30) days
after the non-breaching party gives notice of the breach to the breaching
party; or
iii. The breaching party, having commenced making
commercially reasonable efforts to cure the breach within thirty (30) days
after the non-breaching party gives notice of the breach to the breaching
party, discontinues those efforts while it is commercially reasonable to
continue them.
-24-
<PAGE> 28
b. Distributor may at any time before or during the
Distribution Term cancel this Agreement without cause by giving at least one
(1) year notice thereof.
13. Trademarks: During the course of its performance of this
Agreement, Distributor shall be entitled to identify itself as a distributor of
Argo-Tech's Products and to use the trademarks of Argo-Tech only in connection
with the promotion and sale of Products. Distributor acknowledges that
"Argo-Tech" identifies Argo-Tech Corporation and its divisions and subsidiaries
and that Argo-Tech is the exclusive owner of such name and mark and of
copyrights in the promotional materials furnished to Distributor. Distributor
further acknowledges that Distributor has no other license or similar right
with respect to such marks and names and covenants that it will neither claim
nor assert any such right by reason of this Agreement. Upon termination of this
Agreement, Distributor will return to Argo-Tech free of charge all materials,
including signs, advertising matter and catalogs, then in Distributor's or its
employees' or agents' possession which contain property (including trademarks
and trade names) in which Argo-Tech has property rights and will cease
immediately use of the same. Upon request from Distributor and at Distributor's
expense, Argo-Tech will cooperate in registering Distributor as a licensed user
of Argo-Tech's
-25-
<PAGE> 29
trademarks in countries in the Territory specified by Distributor. Argo-Tech
agrees that, in the event that Argo-Tech becomes aware of any alleged or actual
trademark infringement related to the Products, it shall notify Distributor
immediately of such allegation or actual infringement. In the event that
Argo-Tech or Distributor is determined by a court or tribunal of competent
jurisdiction to be infringing on any trademark of another party or Argo-Tech
believes that such a holding is more likely than not, Argo-Tech will use
reasonable efforts to change the then-current trademarks to which such actual
infringement relates to eliminate such trademark infringement.
14. Repurchase of Inventory:
a. If the World Airline & Suppliers Guide (or any successor to
that Guide) published by the Air Transport Association of America (or any
successor to that Association) recommends or requires that Distributor
repurchase Products from customers, Argo-Tech will repurchase those same
Products from Distributor at the same price and on the same terms and
conditions as Distributor repurchases from its customers.
b. Upon termination or cancellation of this Agreement,
Argo-Tech will repurchase all or any portion of Distributor's inventory which
Distributor identifies.
-26-
<PAGE> 30
Commercially reasonable prices, terms and conditions for any such repurchase
shall be negotiated by Argo-Tech and Distributor at the time of any such
termination or cancellation.
15. Status: This Agreement shall not in any respect constitute an
appointment of any party as the agent or legal representative of any other
party for any purpose whatsoever. Distributor will not transact any business or
make any promises or representations in respect of Products or any other
matters in Argo-Tech's name or on its behalf. This Agreement shall not be
deemed to constitute a grant of a franchise to Distributor, nor shall
Distributor be deemed to be a franchisee of Argo-Tech.
16. Assignment: This Agreement is binding upon and will inure to the
benefit of the successors of each of the parties hereto, but neither this
Agreement nor any interest herein may be assigned, and no duty or obligation of
any party may be delegated, by any party without the prior written consent of
Argo-Tech and Distributor except that: (i) Distributor may assign this
Agreement or any interest herein and delegate any obligations hereunder to any
other corporation whose stock is controlled by or under common control with
Yamada Corporation, the controlling shareholder of Yamada Corporation, any
parent corporation or parent
-27-
<PAGE> 31
corporations of Yamada Corporation, or any controlling shareholder of a parent
corporation of Yamada Corporation, (ii) without receiving the consent of the
other, either Argo-Tech or Distributor shall have the right to assign this
Agreement or any interest herein and to delegate any obligations hereunder to
any successor of such party by way of merger or consolidation or the
acquisition of substantially all of the business and assets of the assigning
party relating to the subject matter of this Agreement, and (iii) Distributor
may assign this Agreement or any interest herein and delegate any obligations
herein to any person or entity reasonably acceptable to Argo-Tech, provided
that Distributor guarantees the performance of such person or entity, and
provided further that Distributor shall not make an assignment pursuant to this
clause (iii) without first obtaining the written approval of Argo-Tech.
17. Third Parties: This Agreement is not intended to, and shall not,
create any rights in or confer any benefits upon anyone other than the parties
hereto except as expressly provided herein.
18. Modifications: No change in, addition to or modification of this
Agreement (or the Exhibits and Terms and Conditions of Sale attached hereto)
which has the effect of modifying the terms of Section 2.b. hereof will be
effective
-28-
<PAGE> 32
or binding upon any party hereto unless embodied in a writing signed by an
authorized representative of each party hereto; provided, however, that this
sentence shall be of no force or effect as to changes, additions or
modifications made (i) after the beginning of the Distribution Term or (ii) at a
time when Vestar does not own five percent (5%) or more of the common stock of
Argo-Tech or of any entity which directly or indirectly controls Argo-Tech. No
other change in, addition to or other modification of this Agreement (or the
Exhibits and Terms and Conditions of Sale attached hereto) will be effective or
binding upon Argo-Tech or Distributor unless embodied in a writing signed by an
authorized representative of Argo-Tech and of Distributor. Argo-Tech and
Distributor both agree to use reasonable efforts to satisfy customer
requirements.
19. Export: Distributor will not export from the United States any
Product purchased from Argo-Tech hereunder in any manner which is not in
accordance with U.S. laws and regulations. Upon request from Distributor,
Argo-Tech will use reasonable efforts to assist Distributor in interpreting and
complying with same.
20. No Waiver: The failure by any party to enforce any of the terms
or conditions of this Agreement will not constitute or be deemed to be a waiver
of that party's
-29-
<PAGE> 33
right thereafter to enforce that particular term or condition or each and every
other term and condition of this Agreement.
21. Governing Law: This Agreement will be governed and construed in
accordance with the internal substantive laws of the State of Ohio, except
where the laws of some other jurisdiction mandatorily apply.
22. Notices: All notices, requests and other communications hereunder
shall be in writing and will be deemed to have been duly given at the time of
receipt if delivered by hand, by overnight courier, or by facsimile or mailed,
registered or certified mail, return receipt requested, with postage prepaid:
(a) if to Argo-Tech, then to Argo-Tech Corporation, 23555 Euclid Avenue,
Cleveland, Ohio 44117 or facsimile telephone number 216/692-5293, Attn:
Manager, Contract Administration; (b) if to Distributor, then to the addresses
and facsimile telephone numbers indicated on Item 3 of Exhibit A hereto; or if
to Vestar, then to Vestar Capital Partners, Inc., 245 Park Avenue, 40th Floor,
New York, New York 10167 or facsimile telephone number 212/983-0140; provided,
however, that if any party shall have designated a different address by notice
to the other given as provided above, then to the last address so designated.
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<PAGE> 34
23. Exhibits: Exhibits A, B, C and D hereto, and also the attached
Terms and Conditions of Sale, as the same may from time to time be modified or
amended as herein provided, constitute an integral part of this Agreement and
are hereby incorporated into this Agreement by this reference .
24. Complete Agreement: This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior letters of intent, agreements, covenants,
arrangements, communications, representations, or warranties, whether oral or
written, by any officer, employee, or representative of any party relating
thereto.
25. Limitation of Liability: In the event that Argo-Tech's liability
is in any way limited pursuant to the provisions of Clause 7 of the attached
Terms and Conditions of Sale, Argo-Tech and Distributor agree that, as between
Argo-Tech and Distributor only, Distributor's liability shall be limited to the
same extent.
26. Confidentiality: Distributor and Argo-Tech each agrees that all
non-public technical information, trade secrets and any other confidential
information regarding the business affairs of the other, including the methods
or
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<PAGE> 35
business operations, the names of customers or potential customers, and any
other confidential information concerning the business affairs of the other
that it may obtain as a result of this Agreement, constitutes trade secrets, is
confidential, and is the valuable property of the party from which it was
obtained, and that all such information shall be held confidential and not
disclosed to any third party except as reasonably required to distribute
Products pursuant to this Agreement.
27. Future Off-Shore Manufacturing Facilities: In the event that
Vestar/AT Holdings Corporation, Argo-Tech, or any subsidiary thereof has the
opportunity to construct, own, lease, operate, or otherwise possess or acquire
any right, title, or interest in or to any facility or facilities (or the use
thereof) outside the United States for the conduct of or in connection with the
business of manufacturing Products, Yamada Corporation or any of its
majority-owned subsidiaries shall have a right of first refusal to participate
in the ownership of such facility or facilities on terms mutually agreeable to
Argo-Tech and Yamada Corporation.
28. Other Agreement: Argo-Tech is concurrently entering into an
agreement entitled "Japan Distributorship Agreement" with ___________.
Argo-Tech agrees not to amend
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<PAGE> 36
that Japan Distributorship Agreement without first obtaining the consent of
Distributor.
IN WITNESS WHEREOF, the parties have caused this Distributorship
Agreement to be executed by their respective duly authorized representatives,
all as of the date first above written.
ARGO-TECH CORPORATION YAMADA CORPORATION
By: /s/ MICHAEL S. LIPSCOMB By: /s/ OSAMA AKIYAMA
-------------------------------- ----------------------------
Michael S. Lipscomb Osama Akiyama
-------------------------------- ----------------------------
PRESIDENT
-------------------------------- ----------------------------
WITNESS: [ILLEGIBLE] WITNESS: [ILLEGIBLE]
--------------------------- -----------------------
VESTAR CAPITAL PARTNERS, INC.
By: /s/ PRAKASH A. MELWANI
--------------------------------
Prakash A. Melwani
--------------------------------
--------------------------------
WITNESS: [ILLEGIBLE]
---------------------------
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<PAGE> 37
Exhibit A
to
Distributorship Agreement
-------------------------
Name of Distributor: Yamada Corporation
Date of Agreement: December 24, 1990
Item 1: Products
- ------
For purposes hereof, the term "Products" means:
Item IA.
- -------
(a) Spare end assemblies and components thereof of (i) all fuel pumps,
(ii) all products designed for use in connection with fuel pumps, and (iii) all
new products, whether or not related to fuel pumps, but excluding spare end
assemblies and components for the fuel pumps listed in Item 1B.
For example, spare end assemblies and components thereof of:
1. Engine Driven Fuel Pumps
2. Fuel Booster Pumps
3. Selector Valves
4. Quick Disconnect Couplings
5. Transfer Pumps and Air Driven Pumps.
<PAGE> 38
In addition, tools used for overhaul of all Products otherwise included in this
Item 1A(a).
(b) All fuel pumps, all products designed for use in connection with
fuel pumps, and all components and assemblies for the foregoing, except those
listed in Item 1B.
For example:
1. Engine Driven Fuel Pumps.
2. Fuel Booster Pumps.
3. Selector Valves.
4. Quick Disconnect Couplings.
5. Transfer Pumps and Air Driven Pumps.
Also, all new products, whether or not related to fuel pumps, and all tools
used for overhaul of all Products otherwise included in this Item 1A(b) .
Item 1B.
- -------
1. Engine Drive Fuel Pumps designed for Allison 250 Series Engines.
2. P&W Canada PW 901A, PT6, PT7, and JT15 Series Engines.
3. F100 Main Engine Fuel Pumps.
2
<PAGE> 39
Item 2: Territory
- ------
Item 2A: With respect to Products in Item lA(a) above, the term "Territory"
- -------
shall mean:
Worldwide except for (i) Japan and (ii) the United States and its
possessions and territories.
With respect to Products in Item 1A(b) above, the term "Territory" shall mean:
Japan.
Item 2B: With respect to Products in Item 1B above, the term "Territory"
- -------
shall mean:
Worldwide. (This Territory is non-exclusive, but for F100 main
engine fuel pumps the only other distributor will be Pratt and
Whitney.)
Note: Sections 4 and 11 of the Distributorship Agreement, Item 1A, Item 1B,
Item 2A and Item 2B of this Exhibit A, and also Exhibit C, are
explained graphically in the chart attached as Exhibit A-1.
-3-
<PAGE> 40
Item 3: Notices
- ------
Notices to Distributor shall be addressed as follows:
Yamada Corporation
Shin-Aoyama Buildinq, East
1-1, 1-Chome Minamiaoyama Minato-Ku
Tokyo 107, Japan
Attention: Senior Vice President and
General Manager
Facsimile: 011-81-3-479-1789
with a copy to
Yamada International Corp.
Pan Am Building, Suite 5110
200 Park Avenue
New York, New York 10166
Attention: President
Facsimile: 212/370-1935
<PAGE> 41
Exhibit A-1
OEM'S Airlines Government/
----- -------- Military
----------
Japan Y (1) (5) Y (1) Y (1) (4)
(FMS)
U.S. AT (2) AT (2) AT (2)
Rest of AT (2)(5) Y (6) Y (3) (4)
the world
(1) Direct call customers described in Exhibit C may continue to be served by
AT. However, Y shall receive override commission for such sales. AT will
cooperate with Y in persuading customers to purchase from Y. In addition,
Y may receive compensation for FMS (foreign military sales) to Japan as
described in Section 4(g) of the Distributorship Agreement.
(2) For sales to Japanese customers making purchases outside Japan, Y shall
receive override commission.
(3) If a government/military purchaser is unwilling to purchase from Y, AT will
sell directly to that purchaser without paying an override commission. AT
will cooperate with Y in attempting to persuade government/military
purchasers to purchase from Y.
(4) Y may receive compensation for sales as described in Section 4(h) of the
Distributorship Agreement.
(5) Y may receive compensation for sales as described in Section 4(f) of the
Distributorship Agreement.
(6) If an airline is unwilling to purchase from Y, AT will sell directly to
that airline without paying an override commission. AT will cooperate with
Y in attempting to persuade airlines to purchase from Y. Airlines
currently unwilling to purchase from a distributor are Qantas and Ansett.
Y - Yamada Corporation, or its designee
AT - Argo-Tech Corporation
<PAGE> 42
EXHIBIT B
to Distributorship Agreement
PRICES
------
Argo-Tech will annually provide Distributor with one (1) copy of
Argo-Tech's current "Commercial Spare Parts Prices" catalog and one (1) copy of
any other catalog, letter, or publication used for general distribution to
Argo-Tech's U.S. Customers containing prices applicable to Products.
Prices for Distributor's purchases of Products listed in such catalogs,
Letters, or publications shall be the prices in such documents current at the
time of order placement less fifteen percent (15%) of those prices.
Argo-Tech reserves the right to revise prices in such catalogs, letter,
and publications annually or at any time by giving written notice thereof ninety
(90) days in advance of the effective date of such change. Net prices for each
Product which has been ordered by Distributor but not shipped as of the
effective date of such changed pricing:
(i) will not be changed if the revised price for that Product is
higher and Distributor states and
4
<PAGE> 43
verifies that Distributor has received an order from its customer for that
Product,
(ii) will be changed to the revised price less fifteen percent
(15%) if the revised price for that Product is higher and Distributor does not
state and verify that Distributor has received an order from a customer for
that Product, and
(iii) will be changed to the revised price less fifteen percent
(15%) if the revised price for that Product is lower.
In the event Distributor desires to purchase Products not listed in any
current Argo-Tech catalog or other general Argo-Tech publication of prices,
Argo-Tech will determine net prices for those Products and sell said Products
to Distributor at those net prices.
<PAGE> 44
EXHIBIT C
to Distributorship Agreement
DIRECT CALL CUSTOMERS
---------------------
1. All original aircraft, aircraft engine and aircraft equipment
manufacturers except Japanese Purchasers (as defined in Section
4(d) of the Distributorship Agreement).
2. Ansett
3. Qantas
4. Japan Air Lines
5. All Nippon Air Lines
6. Any other customers who are unwilling to purchase from
Distributor
7. Argo-Tech will cooperate with Distributor in persuading
customers in categories 2-6 above that they should be willing to
purchase from Distributor.
<PAGE> 45
EXHIBIT D
to Distributorship Agreement
(Copy of letter from Pat Totedo
to Prakash A. Melwani dated November 26, 1990]
As used in the attached letter, the requirement of an "office" in a location
will be fulfilled if Distributor has one full-time employee at that location.
-1-
<PAGE> 46
[LETTERHEAD OF ARGO-TECH CORPORATION]
November 26, 1990
Vestar Capital Partners, Inc.
245 Park Avenue - 40th Floor
New York, N.Y. 10167
Attention: Prakash A. Melwani
Vice President
Dear Prakash:
With reference to your request to submit my estimate of a yardstick to be used
as criteria to measure the performance and effectiveness of a distributor
allocating Argo-Tech parts, the distribution network must be able to perform
the following functions:
o Handle all export clearance and documentation required. This includes
Department of State and Commerce Licenses, as well as being responsible for
all shipping and customs.
o As a distributor, the policy must be a stocking distribution center
maintaining on-shelf inventory Of at least 3 months of supply, or a
recommended level of less than 3 months as may be recommended by Argo-Tech,
which inventory can be instantly accessed, and which 3 month level of
inventory is currently valued at $4.2 million.
o Distributor must be able to hire technically qualified people (B.S. in
Engineering with minimum of three years aerospace experience) to work with
Argo-Tech customers to respond to technical questions related to products
manufactured by Argo-Tech.
o Reasonable preparation (hiring of personnel with a minimum of three years
experience working with ATA supplier guide) to establish a policy of
compliance with Air Transportation Association's supplier's guide.
Distributors are expected to deliver:
-- AOG material within four hours,
-- Critical shortage within 24 hours, and
-- Line stoppage within five days.
o Reasonable preparation (from a personnel standpoint, hiring of people with
a minimum of three years experience dealing with Spec 2000) to establish a
policy of compliance with Air Transportation Association's Spec 2000.
<PAGE> 47
-2-
Vestar Capital Partners, Inc.
November 26, 1990
o The Distributor must be in a position to establish offices (at least one
full time employee) or representatives in agreed upon locations (5 offices
in Europe, 3 offices in Asia, representatives in each of Africa, Australia
and South America, and representatives in Eastern Bloc countries).
Argo-Tech agrees that it will work with Yamada to determine where Yamada
should establish sales distribution offices worldwide so as to provide
appropriate sales coverage.
I hope the above snapshot has given you some thoughts for distributor
evaluation.
Regards,
/s/ PAT TOTEDO
Pat Totedo
Manager Customer Support
<PAGE> 48
Terms and Conditions of Sale
The following are the terms and conditions of sale under the Distributorship
Agreement described below:
CLAUSE 1. - APPLICATION: The terms and conditions set forth herein apply to all
sales made by Argo-Tech Corporation ("Argo-Tech"), a Delaware Corporation,
pursuant to the Distributorship Agreement between Argo-Tech and Distributor.
Any additions to, changes in, modifications to, or revisions of this order
proposed by Distributor are hereby rejected by Argo-Tech unless otherwise
expressly agreed to in writing by Argo-Tech. Without limiting the generality of
the foregoing, Distributor may for its own convenience make use of its own
preprinted forms in connection with correspondence concerning purchases
hereunder, but terms stated on such forms shall not affect the terms hereof
unless expressly so agreed in writing by Argo-Tech.
CLAUSE 2. - DISTRIBUTORSHIP AGREEMENT: The terms and conditions herein
contained are in all events subject to the terms and conditions of the
Distributorship Agreement. In the event of a difference in meaning between
these terms and conditions and the terms and conditions of the Distributorship
Agreement those of the Distributorship Agreement will govern. Terms defined in
the Distributorship
<PAGE> 49
Agreement shall have the meanings ascribed thereto in such agreement where used
herein and identified with initial capital letters.
CLAUSE 3. - SHIPMENT AND DELIVERY: Argo-Tech will use reasonable efforts to
effect delivery of the Products both in quantities and at times specified by
Distributor; provided, however, that failure by Argo-Tech to make deliveries as
so provided will not constitute a breach or default by Argo-Tech unless
Argo-Tech shall have otherwise expressly guaranteed delivery in writing. All
deliveries hereunder will be F.O.B. Argo-Tech's plant in Cleveland, Ohio.
Unless otherwise requested by Distributor, Argo-Tech will arrange for shipment
of Products hereunder at Distributor's cost and expense. Expedited means of
shipment will be used only if Distributor requests such routing in writing and
agrees in advance to pay any additional cost resulting therefrom. In all cases,
the carrier will be deemed to be an agent of Distributor and Distributor will
bear the entire risk of loss or damage to Products in transit. Distributor may
return, at Argo-Tech's expense, Products delivered by Argo-Tech more than
thirty (30) days in advance of the mutually agreed to delivery schedule.
CLAUSE 4. - ACCEPTANCE OR REJECTION OF GOODS: If upon delivery any of the goods
do not conform with the
<PAGE> 50
requirements of Distributor's order, Distributor will have the right to reject
such goods, provided, however, that such right to reject will expire sixty (60)
days after delivery of such goods by Distributor to its customer or after one
hundred twenty (120) days after delivery by Argo-Tech to Distributor, whichever
occurs first. Distributor shall promptly, upon discovery of such
non-conformity, advise Argo-Tech in writing of the nature of the
non-conformity. Argo-Tech will then have the right to inspect the goods
Distributor believes are nonconforming. If the goods are in fact nonconforminq,
Argo-Tech will promptly send Distributor instructions for disposition,
replacement, and/or correction as Argo-Tech, in its sole discretion, may
determine is appropriate.
CLAUSE 5. - EXCUSABLE DELAYS: Neither party will be liable for damages for
delay in delivery without its fault or negligence arising out of acts of God,
acts of the public enemy, acts of the Government in either its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions,
strikes, freight embargoes, and unusually severe weather.
CLAUSE 6. - TAXES: Argo-Tech's prices will be exclusive of any federal, state,
provincial, local sales, use, or excise taxes levied upon, or measured by, the
sale, the sales price,
<PAGE> 51
or use of Products. Argo-Tech will list separately on its invoice any such tax
lawfully applicable to any such Products, and payable by Distributor, with
respect to which Distributor does not furnish to Argo-Tech satisfactory
evidence of exemption.
CLAUSE 7. - PRODUCT WARRANTY:
(a) Argo-Tech warrants to Distributor and Purchasers of Distributor's products
and services (Purchasers), that all items when delivered hereunder, will be
free from defects in material and workmanship and design (if of Argo-Tech's
design), and will conform to the applicable specifications and drawings. The
liability of Argo-Tech and remedies of Distributor and Purchasers, in respect
of any item delivered hereunder, shall be limited to the repair or replacement
of any such item which does not conform to the foregoing warranties.
Acceptance shall be deemed to have occurred within sixty (60) days
following receipt of the products or repaired articles by the
Distributor's customer or one hundred twenty (120) days after
delivery to Distributor by Argo-Tech, whichever occurs first.
<PAGE> 52
(b) THE FOREGOING WARRANTIES AND THE FOREGOING REMEDIES OF DISTRIBUTOR AND
PURCHASERS ARE: (1) SOLE AND EXCLUSIVE, ARE LIMITED TO THOSE PROVIDED
HEREIN TO THE EXCLUSION OF ANY AND ALL OTHER REMEDIES AND WARRANTIES
EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND REMEDIES FOR
BREACH THEREOF, AND (2) ARE GIVEN AND ACCEPTED IN LIEU OF ANY OTHER
WARRANTIES, REMEDIES, RIGHTS OR CLAIMS RESPECTING CONSEQUENTIAL,
SPECIAL, INDIRECT, CONTRACT, TORT, OR ANY OTHER DAMAGES, WHETHER OR NOT
ARISING FROM ANY CAUSE OF ACTION OF ANY TYPE INCLUDING, WITHOUT
LIMITATION, ANY DAMAGES ARISING FROM ARGO-TECH'S NEGLIGENCE, ACTUAL OR
IMPLIED, OR VIOLATION OF U.S. GOVERNMENT LAWS OR REGULATIONS.
(c) THE FOREGOING WARRANTIES AND THE FOREGOING REMEDIES WITH RESPECT TO AN ITEM
SHALL BEGIN WHEN THE ITEM IS DELIVERED HEREUNDER AND TERMINATE UPON THE
EXPIRATION OF THE PERIOD SPECIFIED IN ANY APPLICABLE PERFORMANCE WARRANTY,
OR SERVICE POLICY, OR IF NONE, ONE YEAR AFTER ACCEPTANCE OF SAID ITEM BY
DISTRIBUTOR. THE ABOVE NOTWITHSTANDING, THE FOREGOING WARRANTIES AND
FOREGOING REMEDIES SHALL TERMINATE UPON ALTERATION, REPAIR AND/OR OVERHAUL
OF SAID ITEM BY ANYONE OTHER THAN ARGO-TECH, UNLESS THE CONTRARY IS
PROVIDED IN ANY APPLICABLE
<PAGE> 53
PERFORMANCE WARRANTY OR SERVICE POLICY. FURTHER, THE FOREGOING WARRANTIES
AND FOREGOING REMEDIES SHALL TERMINATE UPON FAILURE BY DISTRIBUTOR OR
PURCHASERS TO PRESERVE, INSTALL, OPERATE, MAINTAIN, REPAIR, REPLACE OR
ALTER THE SAME IN ACCORDANCE WITH APPLICABLE RECOMMENDATIONS BY ARGO-TECH
OR THE AIRFRAME OR ENGINE MANUFACTURER, OR MISUSE, NEGLECT, OR ACCIDENT
INCLUDING FOREIGN OBJECT DAMAGE WHETHER IN OPERATION, IN TRANSIT, OR IN
STORAGE.
(d) It is aqreed that Argo-Tech is not an insurer of goods delivered hereunder
for repair; that Argo-Tech's obligation is to use ordinary care in
receiving, handling, repairing and shipping said goods or products to be
sold or sold by Argo-Tech; and that the ceiling limit of damages for which
Argo-Tech may be liable, under the Warranty or otherwise (includinq but
not limited to BREACH OF ANY TERM OF THE AGREEMENT BETWEEN DISTRIBUTOR AND
ARGO-TECH WHETHER OR NOT IT RELATES TO THIS WARRANTY PROVISION, loss of
goods, including any loss, damage, or destruction occurring while the
goods are being repaired), shall be the amount on the purchase order or
delivery order which is allocable to the product or service which caused
loss or damage to the Distributor.
<PAGE> 54
(e) A notice in writing of a warranty claim must be given to Argo-Tech not
later than 60 days after the claimed failure, malfunction, defect or
nonconformity is discovered and the item(s) must be returned to Argo-Tech
not later than 120 days after such notification is made.
(f) In the event of a resale of any of the Products sold hereunder, Distributor
will include the foregoing language in its contract with its purchasers.
CLAUSE 8. - PATENT INDEMNIFICATION: Argo-Tech will indemnify, defend, and hold
harmless Distributor from and against any and all losses, liabilities, and
damages, including attorney fees and other costs and expenses incident thereto,
resulting from any claims that the manufacture, use, sale, or resale, of the
Products infringe any patent or patent right; provided, however, that such
indemnification will not apply to any such infringement arising out of
Distributor's use of the Product as a component part of another product or
Argo-Tech's compliance with Distributor's designs or specifications.
CLAUSE 9. - NONASSIGNMENT: Neither any order hereunder nor any interest herein
(including any claims for monies due or to become due) may be assigned, and no
performance, duty or other obligation may be delegated, by either party to any
<PAGE> 55
other person without the prior written consent of the other, provided, however,
that without receiving such consent:
(i) either party shall have the right to assign any order hereunder or any
interest herein and to delegate any obligations hereunder to any successor of
such party by way of merger or consolidation or the acquisition of
substantially all of the business and assets of the assigning party relating to
the subject matter of this Agreement,
(ii) Distributor shall have the right to assign any order hereunder or any
interest herein and to delegate any obligations hereunder to any other
corporation whose stock is controlled by or under common control with Yamada
Corporation, the controlling shareholder of Yamada Corporation, any parent
corporation or parent corporations of Yamada Corporation, or any controlling
shareholder of a parent corporation of Yamada Corporation, and
(iii) Distributor shall have the right to assign any order hereunder or any
interest herein and to delegate any obligations hereunder to any person or
entity reasonably acceptable to Argo-Tech provided that Distributor guarantees
the performance or such person or entity.
CLAUSE 10. - SEVERABILITY: In the event any provision hereof shall be finally
determined to be unlawful, such provision shall be deemed to be severed and
every other lawful provision hereof shall remain in full force and effect.
<PAGE> 1
EXHIBIT 10.26
Japan Distributorship Agreement
Between
Argo-Tech Corporation, a Delaware Corporation
and
Aerotech World Trade Corporation, Yamada Corporation, Yamada
International Corporation and Vestar Capital Partners, Inc.
December 24, 1990
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Appointment and Acceptance ................................. 2
2. Distribution Term .......................................... 2
3. Terms of Purchase and Sale ................................. 4
4. Distributor's Compensation ................................. 6
5. Distributor's Duties ....................................... 12
6. Distributor's Representations and Warranties ............... 13
7. Limitation of Territory .................................... 14
8. Exclusive Dealings ......................................... 14
9. Argo-Tech's Duties ......................................... 15
10. Changes .................................................... 15
11. Direct Call Customers ...................................... 16
12. Cancellation ............................................... 17
13. Trademarks ................................................. 18
14. Repurchase of Inventory .................................... 19
15. Status ..................................................... 20
16. Assignment ................................................. 20
17. Third Parties .............................................. 21
18. Modifications .............................................. 22
19. Export ..................................................... 22
20. No Waiver .................................................. 22
21. Governing Law .............................................. 22
22. Notices .................................................... 23
23. Exhibits ................................................... 23
24. Complete Agreement ......................................... 23
<PAGE> 3
Page
----
25. Limitation of Liability .................................... 24
26. Confidentiality ............................................ 24
Exhibit A - Products, Territory and Notices
Exhibit B - Prices
Exhibit C - Direct Call Customers
Terms and Conditions or Sale
-ii-
<PAGE> 4
JAPAN DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT (this "Agreement") dated as of the 24th day
of December, 1990, is between Argo-Tech Corporation, ("Argo-Tech") , a Delaware
corporation, and Aerotech World Trade Corporation, Yamada Corporation, Yamada
International Corporation and Vestar Capital Partners, Inc.
WITNESSETH:
----------
WHEREAS, Argo-Tech manufactures and sells and proposes to manufacture and
sell the products identified at Items IA and 1B of Exhibit A hereto (the
"Products") and desires to appoint Distributor as its distributor of the
Products within the geographical territory described in Item 2 of Exhibit A
hereto (the "Territory") on and subject to the terms and conditions hereinafter
provided; and
WHEREAS, Distributor desires to accept such appointment and dedicate such
portion of its present warehousing facilities, sales organization, and other
resources as may be required for the performance of its obligations hereunder;
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<PAGE> 5
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration had and received, the parties hereby agree as follows:
1. Appointment and Acceptance: Argo-Tech hereby appoints Distributor, and
Distributor hereby accepts appointment, as Argo-Tech's exclusive distributor of
Products identified in Item 1A of Exhibit A hereto within the Territory as set
forth in said Exhibit A at Item 2 for the Distribution Term (as hereinafter
defined), on and subject to the terms and conditions herein set forth and as
Argo-Tech's non-exclusive distributor of Products identified in Item 1B of
Exhibit A hereto within the Territory as set forth in said Exhibit A at Item 2
for the Distribution Term, on and subject to the terms and conditions herein
set forth. Argo-Tech covenants and Distributor acknowledges that the only other
distributor for the Product listed as Item 3 in Item 1B will be Pratt and
Whitney.
2. Distribution Term:
a. Except as stated below in this Section 2, the term during which
Distributor shall distribute Products hereunder (the "Distribution Term") will
begin on the date hereof. Unless earlier cancelled or terminated as herein
provided, this Agreement and the Distribution Term will expire on October 31,
1994. This Agreement and the
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<PAGE> 6
Distribution Term automatically will be renewed for successive one-year periods
thereafter unless either Argo-Tech or Distributor shall have delivered to the
other written notice of its intention not to renew this Agreement and the
Distribution Term. A notice of non-renewal must be given at least one (1) year
prior to the date on which the Distribution Term otherwise would be renewed.
b. The parties hereby agree that, subject to Section 2.c. below, until
October 31, 2044, Argo-Tech shall renew the Distribution Term so long as Yamada
Corporation and its affiliates retain five percent (5%) ownership of Argo-Tech.
Specifically, Argo-Tech will not have the right to give a notice of non-renewal
for any one-year renewal period prior to October 31, 2044, at any time when the
"Yamada Ownership Condition" is met, which means that Yamada Corporation and
all persons and entities directly or indirectly controlling or controlled by
Yamada Corporation own in the aggregate five percent (5%) or more of the common
stock of Argo-Tech or of any entity which directly or indirectly controls
Argo-Tech, provided that the calculation of percentage ownership of Argo-Tech
and or entities directly or indirectly controlling Argo-Tech shall be made as
if all outstanding convertible securities of Argo-Tech and those entities had
been converted to the extent that they are then
-3-
<PAGE> 7
eligible for conversion without paying additional consideration.
c. Despite anything else in this Agreement, if Argo-Tech and Yamada
Corporation (or its designee) have agreed that Yamada Corporation (or its
designee) will become a distributor of Products in the Territory promptly or
immediately after the end of the Distribution Term or any one-year renewal
thereof, and that agreement is still in effect on the last day of the
Distribution Term, then regardless of whether or not either party has given a
notice of non-renewal, the Distribution Term shall not be renewed and Yamada
Corporation (or its designee) shall become a distributor of Products.
3. Terms of Purchase and Sale: During the Distribution Term, Argo-Tech
will sell to Distributor, and Distributor will purchase from Argo-Tech,
Products for resale by Distributor. The prices for such Products will be
determined and will be subject to change in accordance with the provisions in
Exhibit B hereto. Payment will be due thirty (30) days after Distributor's
receipt of Product or Argo-Tech's invoice, whichever is later. Simultaneously
with or prior to the execution and delivery of this Agreement, Argo-Tech has
delivered to Distributor (and Distributor hereby acknowledges receipt of)
Argo-Tech's terms and
-4-
<PAGE> 8
conditions of sale and product warranty. Such terms and conditions constitute a
part of this Agreement and apply to all sales hereunder. However, all
warranties shall extend at least one (1) year after delivery to Distributor's
customer. Argo-Tech will, to the extent required, provide special warranties
required in order to obtain government and military orders, provided that
Argo-Tech will have no obligation to accept any such orders if Argo-Tech
considers such special warranty requirements unreasonable. Failure by Argo-Tech
to make deliveries in quantities and at times specified by Distributor will not
constitute a breach or default by Argo-Tech unless (i) an officer of Argo-Tech
shall hive expressly guaranteed to do so in writing (acknowledgments of
purchase orders or correspondence concerning standard delivery items shall not
be deemed to be guarantees unless they are signed by an officer and expressly
state guarantees) or (ii) Argo-Tech does not use reasonable efforts to do so.
Acceptance for purposes of Clause 7 of the attached Terms and Conditions of
Sale and the right to reject non-conforming Products for purposes of Clause 4
of the attached Terms and Conditions of Sale will expire sixty (60) days after
delivery of such Products by Distributor to its customer or one hundred twenty
(120) days after delivery by Argo-Tech to Distributor, whichever occurs later.
In addition, if Distributor or its customer reject Product as permitted by such
terms and conditions, Argo-Tech will pay
-5-
<PAGE> 9
the costs of shipping the rejected Product to Argo-Tech and shipping
replacement product to Distributor or its customer if the Product was
rightfully rejected, and Argo-Tech shall have no obligation to pay such costs
of shipping if the Product was wrongfully rejected.
4. Distributor's Compensation:
a. As used in this Section 4, the term "Override Commission" shall mean
any commission payable pursuant to subparaqraphs c., d. or e. below, and the
term "Other Incentive Compensation" shall mean any compensation payable
pursuant to subparagraphs f., g. or h. below. Except for Override Commission
and Other Incentive Compensation, Distributor's compensation under this
Agreement for the performance of its obligations hereunder or otherwise with
respect hereto will be the profits received by Distributor upon resale of
Products purchased by the Distributor under the pricing terms set forth in
Exhibit B hereto. In no event will Distributor be entitled to any payment for
goodwill inuring to Argo-Tech's benefit which results from Distributor's
performance hereunder; and neither Distributor nor Argo-Tech will be liable for
damages on account of any loss of prospective profits, or any expenditure,
investment, or obligations made or incurred by the other.
-6-
<PAGE> 10
b. In consideration for the investment Distributor will make in
creating good will for Argo-Tech and the Products in the Territory, Argo-Tech
will pay Distributor the Override Commission and Other Incentive Compensation.
c. Argo-Tech will pay a commission of twelve percent (12%) of the
purchase price of any Product(s) (as that term is defined either in Item 1A or
in Item 1B of Exhibit A) 801d by Argo-Tech in or for use in Japan. Whenever the
phrase "for use in Japan" is used in this Agreement, such phrase shall include
the manufacture in Japan of aircraft, aircraft engines and aircraft equipment
incorporating Products, but otherwise shall not be construed or interpreted so
as to include the use of such Products in Japan by non-Japanese airlines
arriving or departing Japan on a routine basis.
d. Argo-Tech will pay a commission of twelve percent (12%) of the
purchase price of any Product(s) (as that term is defined either in Item 1A or
in Item 1B of Exhibit A) sold by Argo-Tech in or for use in the United States
and its possessions and territories to any Japanese governmental organization
or body, to any company incorporated in Japan, to any Japanese individual,
unincorporated business or the like, or to any entity owned
-7-
<PAGE> 11
or controlled by any of the foregoing (collectively, "Japanese Purchasers").
e. Argo-Tech will pay a commission of twelve percent (12%) of the
purchase price of any Products (as that term is defined either in Item 1A or in
Item 1B of Exhibit A) sold by Argo-Tech anywhere in the world except Japan, the
United States and its possessions and territories to Japanese Purchasers which
are original aircraft, aircraft engine or aircraft equipment manufacturers.
f. If (i) Argo-Tech directly or indirectly sells Product(s) (as that
term is defined either in Item 1A(b) or in Item 1B of Exhibit) to an original
aircraft, aircraft engine or aircraft equipment manufacturer which is a
Japanese Purchaser and (ii) no Override Commission is payable with respect to
that sale, then Argo-Tech will compensate Distributor commensurate with
Distributor's contribution. Argo-Tech and Distributor will negotiate in good
faith to determine that compensation.
g. If Argo-Tech directly or indirectly sells Product(s) (as that term
is defined either in Item 1A or in Item 1B of Exhibit A) to any agency of the
United States government, which Products have bean identified to Argo-Tech for
resale to Japanese Purchasers or for use in Japan, and
-8-
<PAGE> 12
Distributor is directly responsible for any portion of those sales, Argo-Tech
will compensate Distributor commensurate with Distributor's contribution.
Argo-Tech and Distributor will negotiate in good faith to determine that
compensation.
h. If (i) Argo-Tech directly or indirectly sells Product(s) (as that
term is defined either in Item 1A(b) or in Item 1B of Exhibit A) to any
governmental organization or body for use in Japan, (ii) Argo-Tech knows that
the governmental organization or body is purchasing such products for use in
Japan and (iii) no Override Commission is payable with respect to that sale,
Argo-Tech will compensate Distributor commensurate with Distributor's
contribution. Argo-Tech and Distributor will negotiate in good faith to
determine that compensation.
i. If Argo-Tech directly or indirectly sells Product(s) to any third
party other than an agency of the United States government and Argo-Tech knows
that the third party is purchasing for resale in or for use in Japan or to
Japanese purchasers, then for purposes of determining whether Override
Commission or Other Incentive Compensation shall be paid to Distributor and the
amount thereof, the sale to the third party shall be ignored and Argo-Tech will
be treated as if Argo-Tech had sold the Product(s) to the party to whom, and at
the price for which, the third party resold the
-9-
<PAGE> 13
Product(s). If Argo-Tech ham reason to believe (but does not know) that a third
party is purchasing for such a resale, Argo-Tech will inform Distributor and
Argo-Tech and Distributor will cooperate in trying to determine whether such
resales actually occur. If such resales are determined to have occurred,
Override Commission and Other Incentive Compensation will be paid as provided
in the first sentence of this Section 4.i.
j. Override Commission with respect to receipts during each calendar
month shall be paid to Distributor within thirty (30) days after the end of
such calendar month to the extent that necessary data is then reasonably
available to Argo-Tech and otherwise within sixty (60) days after the end of
such calendar month. Each payment shall be accompanied by a detailed report of
sales in or for use in Japan and sales to Japanese Purchasers, identifying each
Product sold, the purchaser of each Product and the receipts with respect to
each Product. Argo-Tech will retain complete records of each Sale in or for use
in Japan and each sale to a Japanese Purchaser by Argo-Tech and by any third
party for at least three years after each such sale, and Distributor will have
the right to audit Argo-Tech's books and records regarding those sales.
-10-
<PAGE> 14
k. Argo-Tech will use reasonable efforts to keep Distributor informed,
in advance wherever possible, of Argo-Tech's plans to sell Product(s) in or for
use in Japan and to Japanese Purchasers. Distributor will not contact
Argo-Tech's customers without Argo-Tech's consent, which consent shall not be
unreasonably withheld where Argo-Tech has informed Distributor of its intention
to contact such customers as contemplated by this Section 4.k.
l. Pursuant to Section 11.10 of that certain Stockholders' Agreement
among Argo-Tech, Yamada Corporation and certain other parties of even date
herewith, under certain conditions the Override Commission may terminate during
the Distribution Term. Said Section 11.10 hereby is incorporated in this
Agreement as if set forth in full herein and shall be binding upon Distributor
as if Distributor were Yamada Corporation.
m. Upon request from either Argo-Tech or Distributor regarding one or
more specifically identified proposed sales of Products where Distributor is
not entitled to an Override Commission, Argo-Tech and Distributor will engage
in good faith discussions regarding whether or not Distributor is likely to be
entitled to Other Incentive Compensation and, if so, in what amounts.
-11-
<PAGE> 15
5. Distributor's Duties: During the Distribution Term, Distributor will
give the Products commercially reasonable sales and service priority within the
Territory. In addition, Distributor, at its sole expense, will:
a. Use its reasonable efforts to maximize sales of Products within the
Territory by all usual and ethical means, including, without limitation,
personal solicitations of customers and prospective customers, demonstrations,
prompt and efficient processing of customer orders and complaints, distribution
of technical and promotional literature concerning Products, and advertising in
trade publications, directories, and the like;
b. Cooperate with Argo-Tech in identifying customers and providing
customers with sales and service assistance;
c. Maintain at all times inventories of Products in sufficient
quantities to meet Distributor's reasonably anticipated demand for Products and
continue to maintain adequate warehousing and other facilities for storage of
the same;
-12-
<PAGE> 16
d. Continue to maintain a well-trained staff for sales of Products to
support Distributor's marketing efforts and fulfill its customer needs;
e. Prepare and maintain for a period of at least two (2) years after
the preparation thereof detailed records of Distributor's sales of Products and
allow Argo-Tech to inspect and copy such records upon request; and
f. Subject to pressing business requirements and other commercially
reasonable reasons for not attending, cause Distributor's employees who
regularly call on Product customers to attend annual meetings conducted by
Argo-Tech in Cleveland, Ohio, provided always that the subject matter of such
meetings is relevant for such employees.
6. Distributor's Representations and Warranties: Distributor hereby
represents and warrants to Argo-Tech that Distributor currently has or will
develop plans to establish adequate warehousing and other facilities and
adequate sales staffs to perform its obligations under this Agreement, to
exploit reasonably fully opportunities for sales of Products within the
Territory, and to provide adequate servicing thereof.
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<PAGE> 17
7. Limitation of Territory: Distributor has not been appointed as
Argo-Tech's distributor in any geographical territory other than the Territory.
Accordingly, Distributor will not make sales calls or otherwise solicit sales
of Products outside of the Territory; provided, however, that Distributor shall
be entitled to make sales calls upon, and solicit and accept sales orders from,
foreign purchasing missions, agents, customers and employees having offices
located outside the Territory of customers located within the Territory
provided that all such Products so sold shall be sold for delivery into the
Territory. If Distributor has sales branches outside of the Territory, then
personnel associated with such sales branches will not, except as authorized in
the aforestated proviso, solicit sales of Products outside of the Territory.
8. Exclusive Dealings: During the Distribution Term, Distributor will not,
within the Territory, sell, distribute, or in any manner promote the sale of
products manufactured by persons other than Argo-Tech which are competitive
with the Products identified in Items 1A and 1B of Exhibit A. Distributor,
however, may from time to time upon request from potential customers supply
products which are competitive with the products identified in Items 1A and 1B
of Exhibit A, provided that Argo-Tech is first informed of any such request
and, provided further, that Argo-Tech
-14-
<PAGE> 18
indicates in writing to Distributor that Argo-Tech is unable to furnish
products meeting the required specifications and that Argo-Tech does not deem
any such sale as promotional or an attempt on the part of the Distributor to
enter into any long term commitment with Argo-Tech's competition. This Section
8 will not, however, prevent Distributor or its affiliates from continuing to
engage in any line of business in which Distributor or its affiliates were
engaged prior to the date of this Agreement.
9. Argo-Tech's Duties: During the Distribution Term, Argo-Tech will,
from time to time, make available to Distributor such assistance as Argo-Tech
customarily makes available to its distributors of Products. Without limiting
the generality of the foregoing, at its expense Argo-Tech will use its best
efforts to provide Distributor and its personnel with supplies of Products and
technical and promotional literature concerning Products.
10. Changes: Argo-Tech reserves the right to make such changes in
Products or to discontinue Products from time to time as it deems appropriate,
and Argo-Tech may make changes in or discontinue a Product without notice to
Distributor if Argo-Tech reasonably believes that its action is required by
safety problems. In all other cases, however, Argo-Tech shall give Distributor
at least thirty (30) days
-15-
<PAGE> 19
notice before changing or discontinuing a Product and shall use its best
efforts to satisfy any orders for prompt delivery of the unchanged Product
placed by Distributor during that thirty (30) day period, including, if
necessary, manufacturing more of the unchanged Product. Otherwise, Argo-Tech
will be under no obligation to Distributor, Distributor's customers, or
otherwise (a) to continue the manufacture of any particular Product, (b) to
introduce new Products, (c) to change the specifications, designs, or other
characteristics of any particular Product, or (d) to maintain any inventory of
discontinued Products past the date manufacture thereof shall have ceased.
Distributor may return to Argo-Tech for credit and at Argo-Tech's expense
Products which are declared obsolete, discontinued or overaged by Argo-Tech.
Credit for any Product returned to Argo-Tech pursuant to this article shall be
at the price last paid by Distributor to Argo-Tech for that Product, and
Argo-Tech will pay shipping costs for Product that is so returned.
11. Direct Call Customers: Distributor acknowledges that it understands
that Argo-Tech currently has and intends to maintain a direct sales force which
services the customers listed on Exhibit C. Nothing in this Agreement shall
prevent Argo-Tech from selling Products within the Territory to such direct
call customers. However, Section 2 and the override commissions provided for
therein shall apply
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<PAGE> 20
to sales to such direct call customers if such sales are in or for use in Japan
or to Japanese customers. Argo-Tech will cooperate with Distributor in
attempting to persuade direct call customers to purchase all Products through
Distributor, provided that this obligation will not apply to direct call
customers listed in category 1 in Exhibit C.
12. Cancellation: Either Argo-Tech or Distributor may at any time during
the Distribution Term cancel this Agreement by giving at least ninety (90) days
notice thereof if, before the notice of termination is given, the other shall
materially breach any of its obligations hereunder, the party wishing to
terminate has given notice of the breach to the breaching party, and at least
one of the following conditions has occurred:
i. The breach consists of Distributor's failure to pay for
Products in timely fashion and Distributor fails to cure within thirty (30)
days after Argo-Tech gives notice of the breach;
ii. The breaching party does not commence commercially reasonable
efforts to cure the breach within thirty (30) days after the non-breaching
party gives notice of the breach to the breaching party; or
iii. The breaching party, having commenced making commercially
reasonable efforts to cure the breach within thirty (30) days after the
non-breaching party
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<PAGE> 21
gives notice of the breach to the breaching party, discontinues those efforts
while it is commercially reasonable to continue them.
13. Trademarks: During the course of its performance of this Agreement,
Distributor shall be entitled to identify itself as a distributor of
Argo-Tech's Products and to use the trademarks of Argo-Tech only in connection
with the promotion and sale of Products. Distributor acknowledges that
"Argo-Tech" identifies Argo-Tech Corporation and its divisions and subsidiaries
and that Argo-Tech is the exclusive owner of such name and mark and of
copyrights in the promotional materials furnished to Distributor. Distributor
further acknowledges that Distributor has no other license or similar right
with respect to such marks and names and covenants that it will neither claim
nor assert any such right by reason of this Agreement. Upon termination of this
Agreement, Distributor will return to Argo-Tech free of charge all materials,
including signs, advertising matter and catalogs, then in Distributor's or its
employees' or agents' possession which contain property (including trademarks
and trade names) in which Argo-Tech has property rights and will cease
immediately use of the same. Upon request from Distributor and at Distributor's
expense, Argo-Tech will cooperate in registering Distributor as a licensed user
of Argo-Tech's
-18-
<PAGE> 22
trademarks in countries in the Territory specified by Distributor. Argo-Tech
agrees that, in the event that Argo-Tech becomes aware of any alleged or actual
trademark infringement related to the Products, it shall notify Distributor
immediately of such allegation or actual infringement. In the event that
Argo-Tech or Distributor is determined by a court or tribunal of competent
jurisdiction to be infringing on any trademark of another party or Argo-Tech
believes that such a holding is more likely than not, Argo-Tech will use
reasonable efforts to change the then-current trademarks to which such actual
infringement relates to eliminate such trademark infringement.
14. Repurchase of Inventory:
a. If the World Airline & Suppliers Guide (or any successor to that
Guide) published by the Air Transport Association of America (or any successor
to that Association) recommends or requires that Distributor repurchase
Products from customers, Argo-Tech will repurchase those same Products from
Distributor at the same price and on the same terms and conditions as
Distributor repurchases from its customers.
b. Upon termination or cancellation of this Agreement, Argo-Tech will
repurchase all or any portion of
-19-
<PAGE> 23
Distributor's inventory which Distributor identifies. Commercially reasonable
prices, terms and conditions for any such repurchase shall be negotiated by
Argo-Tech and Distributor at the time of any such termination or cancellation.
15. Status: This Agreement shall not in any respect constitute an
appointment of any party as the agent or legal representative of any other
party for any purpose whatsoever. Distributor will not transact any business or
make any promises or representations in respect of Products or any other
matters in Argo-Tech's name or on its behalf. This Agreement shall not be
deemed to constitute a grant of a franchise to Distributor, nor shall
Distributor be deemed to be a franchisee of Argo-Tech.
16. Assignment: This Agreement is binding upon and will inure to the
benefit of the successors of each of the parties hereto, but neither this
Agreement nor any interest herein may be assigned, and no duty or obligation of
any party may be delegated, by any party without the prior written consent of
Argo-Tech and Distributor except that: (i) Distributor may assign this
Agreement or any interest herein and delegate any obligations hereunder to any
other corporation whose stock is controlled by or under common control with
Distributor, Yamada Corporation, the controlling
-20-
<PAGE> 24
shareholder of Yamada Corporation, any parent corporation or parent
corporations of Yamada Corporation, or any controlling shareholder of a parent
corporation of Yamada Corporation, (ii) without receiving the consent of the
other, either Argo-Tech or Distributor shall have the right to assign this
Agreement or any interest herein and to delegate any obligations hereunder to
any successor of such party by way or merger or consolidation or the
acquisition of substantially all of the business and assets of the assigning
party relating to the subject matter of this Agreement, and (iii) Distributor
may assign this Agreement or any interest herein and delegate any obligations
herein to any person or entity reasonably acceptable to Argo-Tech, provided
that Distributor guarantees the performance of such person or entity, and
provided further that Distributor shall not make an assignment pursuant to this
clause (iii) without first obtaining the written approval of Argo-Tech.
17. Third Parties: Yamada Corporation is a third party beneficiary of
Sections 2.c. and 18 hereof and can enforce them directly against the parties
hereto. Each party acknowledges the receipt of adequate consideration to
support this covenant. Otherwise, this Agreement is not intended to, and shall
not, create any rights in or confer any benefits upon anyone other than the
parties hereto except as expressly provided herein.
-21-
<PAGE> 25
18. Modifications: No change in, addition to or other modification of this
Agreement (or the Exhibits and Terms and Conditions of Sale attached hereto)
will be effective or binding upon Argo-Tech or Distributor unless embodied in a
writing signed by an authorized representative of Argo-Tech, of Distributor,
and of Yamada Corporation. Argo-Tech and Distributor both agree to use
reasonable efforts to satisfy customer requirements.
19. Export: Distributor will not export from the United States any Product
purchased from Argo-Tech hereunder in any manner which is not in accordance
with U.S. laws and regulations. Upon request from Distributor, Argo-Tech will
use reasonable efforts to assist Distributor in interpreting and complying with
same.
20. No Waiver: The failure by any party to enforce any of the terms or
conditions of this Agreement will not constitute or be deemed to be a waiver of
that party's right thereafter to enforce that particular term or condition or
each and every other term and condition of this Agreement.
21. Governing Law: This Agreement will be governed and construed in
accordance with the internal
-22-
<PAGE> 26
substantive laws of the State of Ohio, except where the laws of some other
jurisdiction mandatorily apply.
22. Notices: All notices, requests and other communications hereunder
shall be in writing and will be deemed to have been duly given at the time of
receipt if delivered by hand, by overnight courier, or by facsimile, or mailed,
registered or certified mail, return receipt requested, with postage prepaid:
(a) if to Argo-Tech, then to Argo-Tech Corporation, 23555 Euclid Avenue,
Cleveland, Ohio 44117 or facsimile telephone number 216/692-5293, Attn:
Manager, Contract Administration; and (b) if to Distributor, then to the
addresses and facsimile telephone numbers indicated on Item 3 of Exhibit A
hereto.
23. Exhibits: Exhibits A, B and C hereto, and also the attached Terms and
Conditions of Sale, as the same may from time to time be modified or amended as
herein provided, constitute an integral part of this Agreement and are hereby
incorporated into this Agreement by this reference.
24. Complete Agreement: This Agreement sets forth the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
all prior letters of intent, agreements, covenants, arrangements,
-23-
<PAGE> 27
communications, representations, or warranties, whether oral or written, by any
officer, employee, or representative of any party relating thereto.
25. Limitation of Liability: In the event that Argo-Tech's liability is in
any way limited pursuant to the provisions of Clause 7 of the attached Terms
and Conditions of Sale, Argo-Tech and Distributor agree that, as between
Argo-Tech and Distributor only, Distributor's liability shall be limited to the
same extent.
26. Confidentiality: Distributor and Argo-Tech each agrees that all
non-public technical information, trade secrets and any other confidential
information regarding the business affairs of the other, including the methods
or business operations, the names of customers or potential customers, and any
other confidential information concerning the business affairs of the other
that it may obtain as a result of this Agreement, constitutes trade secrets, is
confidential, and is the valuable property of the party from which it was
obtained, and that all such information shall be held confidential and not
disclosed to any third party except
-24-
<PAGE> 28
as reasonably required to distribute Products pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Distributorship Agreement
to be executed by their respective duly authorized representatives, all as of
the date first above written.
ARGO-TECH CORPORATION
-------------------------------
By: /S/ MICHAEL S. LIPSCOMB By: /S/ OSAMU AKIYAMA
-------------------------- --------------------------------
Michael S. Lipscomb Osamu Akiyama
-------------------------- --------------------------------
President
-------------------------- --------------------------------
WITNESS: /s/ Paul R. Keen WITNESS: [ILLEGIBLE]
------------------------- ----------------------------
-25-
<PAGE> 29
Exhibit A
to
Distributorship Agreement
Name of Distributor: _____________________________________
Date of Agreement: December 24, 1990
Item 1: Products
For purposes hereof, the term "Products" means:
Item 1A:
All fuel pumps, all products designed for use in connection with fuel
pumps, and all components and assemblies for the foregoing, except those listed
in Item 1B. For example:
1. Engine Driven Fuel Pumps.
2. Fuel Booster Pumps.
3. Selector Valves.
4. Quick Disconnect Couplings.
5. Transfer Pumps and Air Driven Pumps.
Also, all new products, whether or not related to fuel pumps, and all tools
used for overhaul of all Products otherwise included in this Item 1A.
<PAGE> 30
Item 1B :
1. Engine Drive Fuel Pump designed for Allison 250 Series
Engines.
2. P&W Canada PW 901A, PT6, PT7, and JT15 Series Engines .
3. F100 Main Engine Fuel Pumps.
Item 2: Territory
For purposes hereof, the term "Territory" shall mean:
Japan.
Note: Sections 4 and 11 of the Distributorship Agreement, Item 1A, Item 1B,
Item 2A and Item 2B of this Exhibit A, and also Exhibit C, are
explained graphically in the chart attached as Exhibit A-l.
Item 3: Notices
Notices to Distributor shall be addressed as follows:
<PAGE> 31
------------------------------
------------------------------
------------------------------
Attention:
--------------------
with a copy to
Yamada Corporation
Shin-Aoyama Building, East
1-1, 1-Chome Minamiaoyama Minato-Ku
Tokyo 107, Japan
Attention: Senior Vice President and
General Manager
Facsimile: 011-81-3-479-1789
and another copy to
Yamada International Corp.
Pan Am Building, Suit. 5110
200 Park Avenue
New York, New York 10166
Attention: President
Facsimile: 212/370-1935
-3-
<PAGE> 32
Exhibit A-l
<TABLE>
<CAPTION>
Government/
OEM's Airlines Military
----- -------- -----------
<S> <C> <C> <C>
Japan D(1)(4) D(1) D(1)(3)
(FMS)
U.S. N(2) N(2) N(2)
Rest of the world N(2) N(2) N(2)
</TABLE>
(1) Direct call customers described in Exhibit C may continue to be served by
AT. However, D shall receive override commission for such sales. AT will
cooperate with D in persuading customers to purchase from D. In addition,
D may receive compensation for FMS (foreign military sales) to Japan as
described in Section 4(g) of the Distributorship Agreement.
(2) For sales to Japanese customers making purchases outside Japan, D shall
receive override commission.
(3) D may receive compensation for sales as described in Section 4(h) of the
Distributorship Agreement.
(4) D may receive compensation for sales as described in Section 4(f) of the
Distributorship Agreement.
D - Distributor
N - Not Distributor
AT - Argo-Tech
<PAGE> 33
EXHIBIT B
to Distributorship Agreement
PRICES
Argo-Tech will annually provide Distributor with one (1) copy of
Argo-Tech's current "Commercial Spare Parts Prices" catalog and one (1) copy of
any other catalog, letter, or publication used for general distribution to
Argo-Tech's U.S. Customers containing prices applicable to Products.
Prices for Distributor's purchases of Products listed in such catalogs,
Letters, or publications shall be the prices in such documents current at the
time of order placement less fifteen percent (15%) or those prices.
Argo-Tech reserves the right to revise prices in such catalogs, letter,
and publications annually or at any time by giving written notice thereof
ninety (90) days in advance of the effective date or such change. Net prices
for each Product which has been ordered by Distributor but not shipped as of
the effective date of such changed pricing
(i) will not be changed if the revised price for that Product is
higher and Distributor states and
<PAGE> 34
verifies that Distributor has received an order from its customer for that
Product,
(ii) will be changed to the revised price less fifteen percent
(15%) if the revised price for that Product is higher and Distributor does not
state and verify that Distributor has received an order from a customer for
that Product, and
(iii) will be changed to the revised price less fifteen percent
(15%) if the revised price for that Product is lower.
In the event Distributor desires to purchase Products not listed in any
current Argo-Tech catalog or other general Argo-Tech publication of prices,
Argo-Tech will determine net prices for those Products and sell said Products
to Distributor at those net prices.
<PAGE> 35
EXHIBIT C
to Distributorship Agreement
DIRECT CALL CUSTOMERS
1. All original aircraft, aircraft engine and aircraft equipment
manufacturers except Japanese Purchasers (as defined in Section 4(d)
of the Distributorship Agreement).
2. Ansett
3. Qantas
4. Japan Air Lines
5. All Nippon Air Lines
6. Any other customers who are unwilling to purchase from Distributor
7. Argo-Tech will cooperate with Distributor in persuading customers in
categories 2-6 above that they should be willing to purchase from
Distributor.
<PAGE> 36
Terms and Conditions of Sale
The following are the terms and conditions of sale under the Distributorship
Agreement described below:
CLAUSE 1. - APPLICATION: The terms and conditions set forth herein apply to all
sales made by Argo-Tech Corporation ("Argo-Tech"), a Delaware corporation,
pursuant to the Distributorship Agreement between Argo-Tech and Distributor.
Any additions to, changes in, modifications to, or revisions of this order
proposed by Distributor are hereby rejected by Argo-Tech unless otherwise
expressly agreed to in writing by Argo-Tech. Without limiting the generality of
the foregoing, Distributor may for its own convenience make use of its own
preprinted forms in connection with correspondence concerning purchases
hereunder, but terms stated on such forms shall not affect the terms hereof
unless expressly so agreed in writing by Argo-Tech.
CLAUSE 2. - DISTRIBUTORSHIP AGREEMENT: The terms and conditions herein
contained are in all events subject to the terms and conditions of the
Distributorship Agreement. In the event of a difference in meaning between
these terms and conditions and the terms and conditions of the Distributorship
Agreement those of the Distributorship Agreement will govern. Terms defined in
the Distributorship
<PAGE> 37
Agreement shall have the meanings ascribed thereto in such agreement where used
herein and identified with initial capital letters.
CLAUSE 3. - SHIPMENT AND DELIVERY: Argo-Tech will use reasonable efforts to
effect delivery of the Products both in quantities and at times specified by
Distributor; provided, however, that failure by Argo-Tech to make deliveries as
so provided will not constitute a breach or default by Argo-Tech unless
Argo-Tech shall have otherwise expressly guaranteed delivery in writing. All
deliveries hereunder will be F.O.B. Argo-Tech's plant in Cleveland, Ohio.
Unless otherwise requested by Distributor, Argo-Tech will arrange for shipment
of Products hereunder at Distributor's cost and expense. Expedited means of
shipment will be used only if Distributor requests such routing in writing and
agrees in advance to pay any additional cost resulting therefrom. In all cases,
the carrier will be deemed to be an agent of Distributor and Distributor will
bear the entire risk of loss or damage to Products in transit. Distributor may
return, at Argo-Tech's expense, Products delivered by Argo-Tech more than
thirty (30) days in advance of the mutually agreed to delivery schedule.
CLAUSE 4. - ACCEPTANCE OR REJECTION OF GOODS: If upon delivery any of the goods
do not conform with the
<PAGE> 38
requirements of Distributor's order, Distributor will have the right to reject
such goods, provided, however, that such right to reject will expire sixty (60)
days after delivery of such goods by Distributor to its customer or after one
hundred twenty (120) days after delivery by Argo-Tech to Distributor, whichever
occurs first. Distributor shall promptly, upon discovery of such
non-conformity, advise Argo-Tech in writing of the nature of the
non-conformity. Argo-Tech will then have the right to inspect the goods
Distributor believes are nonconforming. If the goods are in fact nonconforming,
Argo-Tech will promptly send Distributor instructions for disposition,
replacement, and/or correction as Argo-Tech, in its sole discretion, may
determine is appropriate.
CLAUSE 5. - EXCUSABLE DELAYS: Neither party will be liable for damages for
delay in delivery without its fault or negligence arising out of acts of God,
acts of the public enemy, acts of the Government in either its sovereign or
contractual capacity, fires, floods, epidemics, quarantine restrictions,
strikes, freight embargoes, and unusually severe weather.
CLAUSE 6. - TAXES: Argo-Tech's prices will be exclusive of any federal, state,
provincial, local sales, use, or excise taxes levied upon, or measured by, the
sale, the sales price,
<PAGE> 39
or use of Products. Argo-Tech will list separately on its invoice any such tax
lawfully applicable to any such Products, and payable by Distributor, with
respect to which Distributor does not furnish to Argo-Tech satisfactory
evidence of exemption.
CLAUSE 7. - PRODUCT WARRANTY:
(a) Argo-Tech warrants to Distributor and Purchasers of Distributor's products
and services (Purchasers), that all items when delivered hereunder, will be
free from defects in material and workmanship and design (if of Argo-Tech's
design), and will conform to the applicable specifications and drawings. The
liability of Argo-Tech and remedies of Distributor and Purchasers, in respect
of any item delivered hereunder, shall be limited to the repair or replacement
of any such item which does not conform to the foregoing warranties.
Acceptance shall be deemed to have occurred within sixty (60) days
following receipt of the products or repaired articles by the
Distributor's customer or one hundred twenty (120) days after delivery to
Distributor by Argo-Tech, whichever occurs first.
<PAGE> 40
PERFORMANCE WARRANTY OR SERVICE POLICY. FURTHER, THE FOREGOING WARRANTIES
AND FOREGOING REMEDIES SHALL TERMINATE UPON FAILURE BY DISTRIBUTOR OR
PURCHASERS TO PRESERVE, INSTALL, OPERATE, MAINTAIN, REPAIR, REPLACE OR
ALTER THE SAME IN ACCORDANCE WITH APPLICABLE RECOMMENDATIONS BY Argo-Tech
OR THE AIRFRAME OR ENGINE MANUFACTURER, OR MISUSE, NEGLECT, OR ACCIDENT
INCLUDING FOREIGN OBJECT DAMAGE WHETHER IN OPERATION, IN TRANSIT, OR IN
STORAGE.
(d) It is agreed that Argo-Tech is not an insurer of goods delivered hereunder
for repair; that Argo-Tech's obligation is to use ordinary care in
receiving, handling, repairing and shipping said goods or products to be
sold or sold by Argo-Tech; and that the ceiling limit of damages for which
Argo-Tech may be liable, under the Warranty or otherwise (including but
not limited to BREACH OF ANY TERM OF THE AGREEMENT BETWEEN DISTRIBUTOR AND
Argo-Tech WHETHER OR NOT IT RELATES TO THIS WARRANTY PROVISION, loss of
goods, including any loss, damage, or destruction occurring while the
goods are being repaired), shall be the amount on the purchase order or
delivery order which is allocable to the product or service which caused
loss or damage to the Distributor.
<PAGE> 41
(e) A notice in writing of a warranty claim must be given to Argo-Tech not
later than 60 days after the claimed failure, malfunction, defect or
nonconformity is discovered and the item(s) must be returned to Argo-Tech
not later than 120 days after such notification is made.
(f) In the event of a resale of any of the Products sold hereunder,
Distributor will include the foregoing language in its contract with its
purchasers.
CLAUSE 8. - PATENT INDEMNIFICATION: Argo-Tech will indemnify, defend, and hold
harmless Distributor from and against any and all losses, liabilities, and
damages, including attorney fees and other costs and expenses incident thereto,
resulting from any claims that the manufacture, use, sale, or resale, of the
Products infringe any patent or patent right; PROVIDED, HOWEVER, that such
indemnification will not apply to any such infringement arising out of
Distributor's use of the Product as a component part of another product or
Argo-Tech's compliance with Distributor's designs or specifications.
CLAUSE 9. - NONASSIGNMENT: Neither any order hereunder nor any interest herein
(including any claims for monies due or to become due) may be assigned, and no
performance, duty or
<PAGE> 42
other obligation may be delegated, by either party to any other person without
the prior written consent of the other, provided, however, that without
receiving such consent: (i) either party shall have the right to assign any
order hereunder or any interest herein and to delegate any obligations
hereunder to any successor of such party by way of merger or consolidation or
the acquisition of substantially all of the business and assets of the
assigning party relating to the subject matter of this Agreement, (ii)
Distributor shall have the right to assign any order hereunder or any interest
herein and to delegate any obligations hereunder to any other corporation whose
stock is controlled by or under common control with Yamada Corporation, the
controlling shareholder of Yamada Corporation, any parent corporation or parent
corporations of Yamada Corporation, or any controlling shareholder of a parent
corporation of Yamada Corporation, and (iii) Distributor shall have the right
to assign any order hereunder or any interest herein and to delegate any
obligations hereunder to any person or entity reasonably acceptable to
Argo-Tech provided that Distributor guarantees the performance of such person
or entity.
CLAUSE 10. - SEVERABILITY: In the event any provision hereof shall be finally
determined to be unlawful, such provision
<PAGE> 43
shall be deemed to be severed and every other lawful provision hereof shall
remain in full force and effect.
<PAGE> 1
Exhibit 12
<TABLE>
<CAPTION>
ARGO-TECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Fiscal Year Ended
--------------------------------------------------------------- 39 40
October 31, October 30, October 29, October 28, October 26, Weeks Ended Weeks Ended
1992 1993 1994 1995 1996 July 27, 1996 August 2, 1997
--------- ---------- ---------- ---------- ---------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical:
Income from operations $ 17,747 $ 10,651 $ 10,644 $ 15,059 $ 19,248 $ 14,783 $ 22,060
Other, net (111) 127 75 (588) (142) (118) (313)
--------- ---------- ---------- ---------- ---------- --------- ----------
Earnings as Adjusted $ 17,858 $ 10,524 $ 10,569 $ 15,647 $ 19,390 $ 14,901 $ 22,373
========= ========== ========== ========== ========== ========= ==========
Fixed charges:
Interest expense $ 11,677 $ 10,371 $ 10,117 $ 11,924 $ 10,138 $ 7,643 $ 9,222
========= ========== ========== ========== ========== ========= ==========
Ratio of Earnings to Fixed Charges 1.5 X 1.0 X 1.0 X 1.3 X 1.9 X 1.9 X 2.4 X
--- --- --- --- --- --- ---
<CAPTION>
Fiscal Year Nine Months Twelve Months
Ended Ended Ended
October 26, August 2, August 2,
1996 1997 1997
--------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C>
Pro forma ratio of earnings to fixed
charges as if the Transactions
occurred at the beginning of the
period indicated:
Income from operations $ 25,238 $ 26,734 $ 33,044
Other, net 123 (52) 49
--------- ---------- ----------
Earnings as Adjusted $ 25,115 $ 26,786 $ 32,995
========= ========== ==========
Fixed charges:
Interest expense $ 21,422 $ 16,066 $ 21,422
========= ========== ==========
Ratio of Earnings to Fixed Charges 1.2 X 1.7 X 1.5 X
--- --- ---
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF ARGO-TECH CORPORATION
1. Argo-Tech Corporation (Aftermarket), a Delaware corporation.
2. Argo-Tech Corporation (HBP), a Delaware corporation.
3. Argo-Tech Corporation (OEM), a Delaware corporation.
4. The J.C. Carter Company, Inc., a California corporation.
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Argo-Tech Corporation
on Form S-1 of our report dated November 27, 1996, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
October 16, 1997
<PAGE> 1
Exhibit 23.3
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 21, 1997, in the Registration Statement (Form
S-1 No. 333-00000) and related Prospectus of Argo-Tech Corporation for the
registration of $140,000,000 Senior Subordinated Notes.
/s/ ERNST & YOUNG LLP
Long Beach, California
October 16, 1997
<PAGE> 1
EXHIBIT 24
ARGO-TECH CORPORATION
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
Argo-Tech Corporation, a Delaware corporation (the
"Corporation"), hereby constitutes and appoints, Paul R. Keen, Vice President,
General Counsel and Secretary of the Corporation, and Frances S. St. Clair,
Vice President and Chief Financial Officer of the Corporation, and each of
them, with full power of substitution and resubstitution, as attorneys-in-fact
or attorney-in-fact of the Corporation, for it and in its name, place and
stead, to execute and file with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933 one or more Registration
Statement(s) on Form S-1 relating to the registration for sale of one or more
series of debt securities (the "Securities") of the Corporation, with any and
all amendments, supplements and exhibits thereto (including pre-effective and
post-effective amendments or supplements), to execute and file any and all
other applications or other documents to be filed with the Commission and all
documents required to be filed with any state securities regulating board or
commission pertaining to such Securities registered pursuant to the
Registration Statement(s) on Form S-1, with any and all amendments, supplements
and exhibits thereto each such attorney to have full power to act with or
without the others, and to have full power and authority to do and perform, in
the name and on behalf of the Corporation, every act whatsoever necessary,
advisable or appropriate to be done in the premises, hereby ratifying and
approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of October 16, 1997.
ARGO-TECH CORPORATION
By: /s/ Yoichi Fujiki
---------------------------------------
Name: Yoichi Fujiki
Title: Vice President, Treasurer and
Director
<PAGE> 2
DIRECTORS AND OFFICERS OF
ARGO-TECH CORPORATION
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned directors and officers of Argo-Tech
Corporation, a Delaware corporation (the "Corporation"), do hereby constitute
and appoint, Paul R. Keen, Vice President, General Counsel and Secretary of the
Corporation, and Frances S. St. Clair, Vice President and Chief Financial
Officer of the Corporation, and each of them, with full power of substitution
and resubstitution, as attorneys-in-fact or attorney-in-fact of the
undersigned, for him/her and in his/her name, place and stead, to execute and
file with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933 one or more Registration Statement(s) on Form S-1
relating to the registration for sale of one or more series of debt securities
(the "Securities") of the Corporation, with any and all amendments, supplements
and exhibits thereto (including pre-effective and post-effective amendments or
supplements), to execute and file any and all other applications or other
documents to be filed with the Commission and all documents required to be
filed with any state securities regulating board or commission pertaining to
such Securities registered pursuant to the Registration Statement(s) on Form
S-1, with any and all amendments, supplements and exhibits thereto each such
attorney to have full power to act with or without the others, and to have full
power and authority to do and perform, in the name and on behalf of the
undersigned, every act whatsoever necessary, advisable or appropriate to be
done in the premises as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and approving the act
of said attorneys and any of them and any such substitute.
EXECUTED as of October 16, 1997.
/s/ MICHAEL S. LIPSCOMB /s/ REMI DE CHASTENET
- ------------------------------------ ---------------------------------------
Michael S. Lipscomb, Chairman, Remi de Chastenet, Director
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ FRANCES S. ST. CLAIR /s/ THOMAS F. DOUGHERTY
- ------------------------------------ ---------------------------------------
Frances S. St. Clair, Vice President Thomas F. Dougherty
and Chief Financial Officer
(Principal Financial Officer)
/s/ PAUL A. SKLAD /s/ YOICHI FUJIKI
- ------------------------------------ ---------------------------------------
Paul A. Sklad, Manager, Financial Yoichi Fujiki, Vice President,
Accounting Treasurer and Director
(Principal Accounting Officer)
<PAGE> 3
/s/ PRAKASH A. MELWANI
---------------------------------------
Prakash A. Melwani, Director
/s/ ROBERT Y. NAGATA
---------------------------------------
Robert Y. Nagata, Director
/s/ KARL F. STORRIE
---------------------------------------
Karl F. Storrie, Director
2
<PAGE> 1
EXHIBIT 25
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
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) ______
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 36-1194448
(State of Incorporation) (I.R.S. Employer Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Judith Bartolini, Harris Trust and Savings Bank,
311 West Monroe Street, Chicago, Illinois, 60606
312-461-2527 phone 312-461-3525 facsimile
(Name, address and telephone number for agent for service)
ARGO-TECH CORPORATION
(Name of obligor)
Delaware 06-1100916
(State of Incorporation) (I.R.S. Employer Identification No.)
23555 Euclid Avenue
Cleveland Ohio 44117
(Address of principal executive offices)
8 5/8% Senior Subordinated Notes due 2007
(Title of indenture securities)
<PAGE> 2
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.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System,Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee is now in effect
which includes the authority of the trustee to commence business and
to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in
effect and includes the authority of the Trustee to commence business
and to exercise corporate trust powers was filed in connection with
the Registration Statement of Louisville Gas and Electric Company,
File No. 2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation,
File No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
1
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 8th day of October, 1997.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
--------------------
J. Bartolini
Vice President
<PAGE> 4
EXHIBIT A
The consents of the trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ J. Bartolini
---------------------
J. Bartolini
Vice President
2
<PAGE> 5
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of June 30, 1997, as published in accordance with a
call made by the State Banking Authority and by the Federal Reserve Bank of the
Seventh Reserve District.
[LOGO HARRIS BANK]
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on June 30, 1997, a state banking institution organized and operating
under the banking laws of this State and a member of the Federal Reserve System.
Published in accordance with a call made by the Commissioner of Banks and Trust
Companies of the State of Illinois and by the Federal Reserve Bank of this
District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin ........... $ 1,707,824
Interest bearing balances ..................................... $ 628,916
Securities: .......................................................
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 3,766,727
Federal funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold ........................................... $ 275,425
Securities purchased under agreements to resell .............. $ 0
Loans and lease financing receivables:
Loans and leases, net of unearned income ..................... $ 8,346,198
LESS: Allowance for loan and lease losses ................... $ 110,230
___________
Loans and leases, net of unearned income, allowance,
and reserve (item 4.a minus 4.b) ........................... $ 8,235,968
Assets held in trading accounts ................................... $ 164,281
Premises and fixed assets (including capitalized leases) .......... $ 199,292
Other real estate owned ........................................... $ 524
Investments in unconsolidated subsidiaries and associated companies $ 69
Customer's liability to this bank on acceptances outstanding ...... $ 46,107
Intangible assets ................................................. $ 287,575
Other assets ...................................................... $ 670,230
___________
TOTAL ASSETS ...................................................... $15,982,938
___________
___________
</TABLE>
3
<PAGE> 1
EXHIBIT 99.1
ARGO-TECH CORPORATION
LETTER OF TRANSMITTAL
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
CUSIP 040146 AC 6
TO: HARRIS TRUST AND SAVINGS BANK
THE EXCHANGE AGENT
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. [12:00 A.M.], NEW YORK CITY TIME, ON
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF ORIGINAL
NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE.
By Registered or Certified Mail, Overnight Courier, or By Hand:
Harris Trust and Savings Bank
Corporate Trust Department
311 West Monroe
12th Floor
Chicago, IL 60606
By Facsimile:
Harris Trust and Savings Bank
Corporate Trust Department
(312) 461-3525
Confirm by telephone:
(312) 461-2527
------------------------
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR ORIGINAL NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION
DATE.
The undersigned acknowledges receipt of the Prospectus dated October ,
1997 (the "Prospectus") of Argo-Tech Corporation (the "Company") and this Letter
of Transmittal (the "Letter of Transmittal"), which together constitute the
Company's offer (the "Exchange Offer") to exchange $1,000 principal amount of
its 8 5/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for each $1,000 principal amount of its outstanding 8 5/8% Senior Subordinated
Notes due 2007 (the "Original Notes"), of which $140,000,000 principal amount is
outstanding, upon the terms and conditions set forth in the Prospectus. Other
capitalized terms used but not defined herein have the meaning given to them in
the Prospectus.
For each Original Note accepted for exchange, the holder of such Original
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Original Note. Interest on the Exchange Notes will accrue from
the last interest payment date on which interest was paid on the Original Notes
surrendered in exchange therefor or, if no interest has been paid on the
Original Notes, from the date of original issue of the Original Notes. Holders
of Original Notes accepted for
<PAGE> 2
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Original Notes. The Company reserves the right, at
any time or from time to time, to extend the Exchange Offer at its discretion,
in which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company shall notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 A.M., New York
City time, on the next business day after the previously scheduled Expiration
Date.
This Letter of Transmittal is to be used by Holders if: (i) certificates
representing Original Notes are to be physically delivered to the Exchange Agent
herewith by Holders; (ii) tender of Original Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company
("DTC"), pursuant to the procedures set forth in the Prospectus under "The
Exchange Offer -- Procedures for Tendering" by any financial institution that is
a participant in DTC and whose name appears on a security position listing as
the owner of Original Notes; or (iii) tender of Original Notes is to be made
according to the guaranteed delivery procedures set forth in the prospectus
under "The Exchange Offer -- Guaranteed Delivery Procedures." DELIVERY OF
DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" with respect to the Exchange Offer means any person: (i)
in whose name Original Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder, or (ii) whose Original Notes are held of record by DTC who
desires to deliver such Original Notes by book-entry transfer at DTC. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer.
The instructions included with this Letter of Transmittal must be followed.
Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 11 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR ORIGINAL
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DESCRIPTION OF 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007 (ORIGINAL NOTES)
- ---------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT
AMOUNT TENDERED
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED (IF LESS
(PLEASE FILL IN, IF BLANK) NUMBER(S)* BY CERTIFICATE(S) THAN ALL)**
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by Holders tendering by book-entry transfer.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Original Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount Represented by Certificate(s)," If the space
provided above is inadequate, list the certificate numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
The minimum permitted tender is $1,000 in principal amount of Original
Notes. All other tenders must be integral multiples of $1,000.
<PAGE> 3
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal
amount not tendered or not accepted for exchange, or Exchange Notes issued in
exchange for Original Notes accepted for exchange, are to be issued in the name
of someone other than the undersigned, or if the Original Notes tendered by
book-entry transfer that are not accepted for exchange are to be credited to an
account maintained by DTC.
Issue certificate(s) to:
Name: ..........................................................................
(Please Print)
Address: .......................................................................
................................................................................
(Include Zip Code)
................................................................................
(Tax Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Original Notes in a principal
amount not tendered or not accepted for exchange, or Exchange Notes issued in
exchange for Original Notes accepted for exchange, are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown above.
Mail to:
Name: ..........................................................................
(Please Print)
Address: .......................................................................
................................................................................
(Include Zip Code)
................................................................................
(Tax Identification or Social Security No.)
<PAGE> 4
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
- ------------------------------------------------------------------------------
DTC Book-Entry Account Number:
- -------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):
- -------------------------------------------------------------------------
Window Ticket Number (if any):
- ----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
- -----------------------------------------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
<PAGE> 5
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Original Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Original Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Original Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee under the
Indenture for the Original Notes and Exchange Notes) with respect to the
tendered Original Notes with full power of substitution to (i) deliver
certificates for such Original Notes to the Company, or transfer ownership of
such Original Notes on the account books maintained by DTC and deliver all
accompanying evidence of transfer and authenticity to, or upon the order of, the
Company and (ii) present such Original Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Original Notes, all in accordance with the terms and subject
to the conditions of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Original Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any Exchange Notes acquired in
exchange for Original Notes tendered hereby will have been acquired in the
ordinary course of business of the Holder receiving such Exchange Notes, whether
or not such person is the Holder, that neither the Holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and that neither the Holder nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company or any of its subsidiaries.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the Exchange Notes issued in exchange for the
Original Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangements with any person to participate in the distribution of such
Exchange Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Original Notes that
were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned hereby acknowledges and agrees that any broker-dealer and
any Holder using the Exchange Offer to participate in a distribution of Exchange
Notes could not rely on the SEC staff position set forth in certain no-action
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
if the resales are of Exchange Notes obtained by such Holder in exchange for
Original Notes acquired by such Holder directly from the Company or an affiliate
of the Company.
<PAGE> 6
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment, transfer and purchase of the Original
Notes tendered hereby. All authority conferred or agreed to be conferred by this
Letter of Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in "The Exchange Offer -- Withdrawal of
Tenders" section of the Prospectus.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Original Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
If any tendered Original Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Original
Notes will be returned (except as noted below with respect to tenders through
DTC), without expense, to the undersigned at the address shown below or at a
different address as may be indicated under "Special Delivery Instructions" as
promptly as practicable after the Expiration Date.
The undersigned understands that tenders of Original Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment and Delivery
Instructions," please issue the certificates representing the Exchange Notes
issued in exchange for the Original Notes accepted for exchange and return any
Original Notes not tendered or not exchanged in the name(s) of the undersigned
(or in either such event in the case of the Original Notes tendered by DTC, by
credit to the undersigned's account, at DTC). Similarly, unless otherwise
indicated under "Special Payment and Delivery Instructions," please send the
certificates representing the Exchange Notes issued in exchange for the Original
Notes accepted for exchange and any certificates for Original Notes not tendered
or not exchanged (and accompanying documents, as appropriate) to the undersigned
at the address shown below the undersigned's signature(s), unless, in either
event, tender is being made through DTC. In the event that both "Special Payment
Instructions" and "Special Payment and Delivery Instructions" are completed,
please issue the certificates representing the Exchange Notes issued in exchange
for the Original Notes accepted for exchange and return any Original Notes not
tendered or not exchanged in the name(s) of, and send said certificates to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Payment Instructions" and "Special Delivery
Instructions" to transfer any Original Notes from the name of the registered
Holder(s) thereof if the Company does not accept for exchange any of the
Original Notes so tendered.
Holders of Original Notes who wish to tender their Original Notes and (i)
whose Original Notes are not immediately available or (ii) who cannot deliver
their Original Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent, or cannot complete the procedure for book-entry
transfer, prior to the Expiration Date, may tender their Original Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 1 regarding the completion of the Letter of Transmittal printed
below.
<PAGE> 7
PLEASE SIGN HERE WHETHER OR NOT
ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C>
X ............................................................... .........................
Date
X ............................................................... .........................
Signature(s) of Registered Holder(s) or Authorized Signatory Date
</TABLE>
Area Code and Telephone Number: ................................................
The above lines must be signed by the registered Holder(s) of Original Notes as
their name(s) appear(s) on the Original Notes or, if the Original Notes are
tendered by a participant in DTC, as such participant's name appears on a
security position listing as the owner of Original Notes, or by person(s)
authorized to become registered Holder(s) by a properly completed bond power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If Original Notes to which this Letter of Transmittal
relates are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must (i)
set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to act.
See Instruction 4 regarding the completion of this Letter of Transmittal printed
below.
Name(s): .......................................................................
................................................................................
(Please Print)
Capacity: ......................................................................
Address: .......................................................................
(Include Zip Code)
SIGNATURE GUARANTEE BY AN ELIGIBLE INSTITUTION
(If Required by Instruction 4)
Certain signatures must be Guaranteed by an Eligible Institution.
................................................................................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name of Firm)
Dated: ..................................................................., 1997
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures. This
Letter is to be completed by noteholders, either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer -- Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Original Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Original Notes tendered hereby must be in
denominations of principal amount of maturity of $1,000 and any integral
multiple thereof.
Noteholders whose certificates for Original Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Original Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined in Instruction 4 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter (or facsimile thereof) and Notice
of Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Original Notes and the amount of Original Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Original Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter will be deposited by the Eligible Institution
with the Exchange Agent, and (iii) the certificates for all physically tendered
Original Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter, are received by
the Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Original Notes and all other
required documents is at the election and risk of the tendering holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Original Notes are sent by mail, it is suggested that the
mailing be made sufficiently in advance of the Expiration Date to permit the
delivery to the Exchange Agent prior to 5:00 p.m. [12:00 a.m.], New York City
time, on the Expiration Date.
See "The Exchange Offer" section in the Prospectus.
2. Tender by Holder. Only a holder of Original Notes may tender such
Original Notes in the Exchange Offer. Any beneficial holder of Original Notes
who is not the registered holder and who wishes to tender should arrange with
the registered holder to execute and deliver this Letter on his or her behalf or
must, prior to completing and executing this Letter and delivering his or her
Original Notes, either make appropriate arrangements to register ownership of
the Original Notes in such holder's name or obtain a properly completed bond
power from the registered holder.
3. Partial Tenders. Tenders of Original Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Original Notes is tendered, the tendering holder should fill in the principal
amount tendered in the fourth column of the box entitled "Description of 8 5/8%
Senior Subordinated Notes due 2007 (Original Notes)" above. The entire principal
amount of Original Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated. If the entire principal amount of all
Original Notes is not
<PAGE> 9
tendered, then Original Notes for the principal amount of Original Notes not
tendered and a certificate or certificates representing Exchange Notes issued in
exchange for any Original Notes accepted will be sent to the Holder at his or
her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, promptly after the Original Notes
are accepted for exchange.
4. Signatures on This Letter; Powers of Attorney and Endorsements;
Guarantee of Signatures. If this Letter is signed by the registered holder of
the Original Notes tendered hereby, the signature must correspond exactly with
the name as written on the face of the certificates without any change
whatsoever.
If any tendered Original Notes are owned of record by two or more joint
owners, all such owners must sign this Letter.
If any tendered Original Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the
Original Notes specified herein and tendered hereby, no endorsements of
certificates or separate powers of attorney are required. If, however, the
Exchange Notes are to be issued, or any untendered Original Notes are to be
reissued, to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate powers of attorney are required.
Signatures on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names on the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Original Notes or signatures on powers of
attorney required by this Instruction 4 must be guaranteed by a firm which is a
participant in a recognized signature guarantee medallion program ("Eligible
Institutions").
Signatures on this Letter must be guaranteed by an Eligible Institution
unless the Original Notes are tendered (i) by a registered holder of Original
Notes (which term, for purposes of the Exchange Offer, includes any participant
in the Book-Entry Transfer Facility system whose name appears on a security
position listing as the holder of such Original Notes) who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on this Letter, or (ii) for account of an Eligible Institution.
5. Special Payment and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address to which Exchange
Notes or substitute Original Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person signing this Letter of Transmittal (or in the case of
tender of Original Notes through DTC, if different from DTC). In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated. Noteholders tendering
Original Notes by book-entry transfer may request that Original Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Original Notes not exchanged will be returned to the name and
address of the person signing this Letter.
<PAGE> 10
6. Tax Identification Number. Federal income tax law requires that a holder
whose offered Original Notes are accepted for exchange must provide the Company
(as payer) with his, her or its correct taxpayer identification number ("TIN"),
which, in the case of an exchanging holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN or
an adequate basis for exemption, such holder may be subject to a $50 penalty
imposed by the Internal Revenue Service (the "IRS"), and payments made with
respect to Original Notes purchased pursuant to the Exchange Offer may be
subject to backup withholding at a 31% rate. If withholding results in an
overpayment of taxes, a refund may be obtained. Exempt holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9."
To prevent backup withholding, each exchanging holder must provide his, her
or its correct TIN by completing the Substitute Form W-9 enclosed herewith,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has been notified by the IRS that he, she or it is subject to backup withholding
as a result of a failure to report all interest or dividends, or (iii) the IRS
has notified the holder that he, she or it is no longer subject to backup
withholding. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder must submit a statement signed
under penalty of perjury attesting to such exempt status. Such statements may be
obtained from the Exchange Agent. If the Original Notes are in more than one
name or are not in the name of the actual owner, consult the Substitute Form W-9
for information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Original Notes pursuant to the Exchange Offer. If,
however, certificates representing Exchange Notes or Original Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Original Notes tendered hereby, or if tendered Original
Notes are registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Original Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
on any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
herewith, the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Original Notes listed in this Letter of
Transmittal.
8. Waiver of Conditions. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Original Notes tendered.
9. No Conditional Transfers. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Original Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Original Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Original Notes nor shall any of them incur any liability for failure to give any
such notice.
10. Mutilated, Lost, Stolen or Destroyed Original Notes. Any tendering
holder whose Original Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated herein for further
instructions.
11. Requests for Assistance or Additional Copies. Questions and requests
for assistance for additional copies of the Prospectus, this Letter of
Transmittal and the Notice of Guaranteed Delivery may be directed to the
Exchange Agent at the address specified in the Prospectus.
<PAGE> 11
(DO NOT WRITE IN THE SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE ORIGINAL NOTES ORIGINAL NOTES
SURRENDERED TENDERED ACCEPTED
- ------------------- ------------------- -------------------
<S> <C> <C>
- ------------------ ------------------ ------------------
- ------------------ ------------------ ------------------
================== ================== ==================
</TABLE>
Delivery Prepared by____________ Checked By_________ Date___________
<PAGE> 12
PAYER'S NAME: ARGO-TECH CORPORATION
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity whose number you enter in
Part I below. See instructions if your name has changed.)
- ---------------------------------------------------------------------------------------------------------
Address
- ---------------------------------------------------------------------------------------------------------
City, state and ZIP Code
- ---------------------------------------------------------------------------------------------------------
List account number(s) here (optional)
- ---------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I -- Please provide your Tax-
FORM W-9 payer Identification Number -----------------------------------
("TIN") in the box at right and Social Security Number
DEPARTMENT OF THE TREASURY certify by signing and dating
INTERNAL REVENUE SERVICE below. OR
---------------------------------
TIN
----------------------------------------------------------------------
PART II -- Check the box if you are NOT subject to backup withholding
under the provisions of section 3408(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that you are subject to
backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified you that
you are no longer subject to backup withholding. [ ]
----------------------------------------------------------------------
PART III -- AWAITING TIN
- ---------------------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER
- ---------------------------------------------------------------------------------------------------------
CERTIFICATION -- Under the penalties of perjury, I certify that the information provided on this form is
true, correct and complete.
- ---------------------------------------------------------------------------------------------------------
SIGNATURE DATE , 1997
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
-------------------------------------------------------
GIVE THE
FOR THIS TYPE SOCIAL SECURITY
OF ACCOUNT: NUMBER OF --
-------------------------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner of the
account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor
or incompetent person
7. a. The usual revocable The grantor trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal and valid trust
under State law
8. Sole proprietorship The owner(4)
account
<CAPTION>
-------------------------------------------------------
GIVE THE
FOR THIS TYPE SOCIAL SECURITY
OF ACCOUNT: NUMBER OF --
-------------------------------------------------------
<S> <C> <C>
9. A valid trust, estate or The legal entity (do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State
or local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE
CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
<PAGE> 14
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(l).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give tax-payer identification numbers to payers
who must report for payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1994, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail
to include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
8 5/8% SENIOR SUBORDINATED NOTES DUE 2007
OF
ARGO-TECH CORPORATION
CUSIP 040146 AC 6
As set forth in the Prospectus dated October , 1997 (the "Prospectus"),
of Argo-Tech Corporation (the "Company") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's
Exchange Offer (the "Exchange Offer") to exchange all of its outstanding 8 5/8%
Senior Subordinated Notes due 2007 (the "Original Notes") for its 8 5/8% Senior
Subordinated Notes due 2007, which have been registered under the Securities Act
of 1933, as amended, if certificates for the Original Notes are not immediately
available or if the Original Notes, the Letter of Transmittal or any other
documents required thereby cannot be delivered to the Exchange Agent, or the
procedure for book-entry transfer cannot be completed, prior to 5:00 P.M., New
York City time, on the Expiration Date (as defined in the Prospectus). This form
may be delivered by an Eligible Institution by hand or transmitted by facsimile
transmission, overnight courier or mail to the Exchange Agent as set forth
below. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [THE 21ST
BUSINESS DAY FOLLOWING THE EXCHANGE OFFER] 1997, UNLESS THE OFFER IS EXTENDED
(THE "EXPIRATION DATE"). TENDERS OF ORIGINAL NOTES MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M. ON THE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
To: Harris Trust and Savings Bank, The Exchange Agent
By Registered or Certified Mail, Overnight Courier, or By Hand:
Harris Trust and Savings Bank
Corporate Trust Department
311 West Monroe
12th Floor
Chicago, IL 60606
By Facsimile:
Harris Trust and Savings Bank
Corporate Trust Department
(312) 461-3525
Confirm by telephone:
(312) 461-2527
------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Original Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Argo-Tech Corporation, a Delaware
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus and the Letter of Transmittal (which together constitute
the "Exchange Offer"), receipt of which is hereby acknowledged, Original Notes
pursuant to the guaranteed delivery procedures set forth in Instruction I of the
Letter of Transmittal.
The undersigned understands that tenders of Original Notes will be accepted
only in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Original Notes pursuant to the Exchange
Offer may be withdrawn only in accordance with the procedures set forth in "The
Exchange Offer -- Withdrawal of Tenders" section of the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
<TABLE>
<S> <C>
Certificate No(s). for Original Notes (if
available) Address
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
Principal Amount of Original Notes Area Code and Tel. No.
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
Name(s) of Record Holder(s) Signature(s)
- --------------------------------------------- ---------------------------------------------
- --------------------------------------------- ---------------------------------------------
Dated:
---------------------------------------------
If Original Notes will be delivered by
book-entry transfer at the Depository Trust
Company,
Depository Account No:
---------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Original Notes exactly as its (their) name(s) appear on
certificates for Original Notes or on a security position listing as the owner
of Original Notes, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
<PAGE> 3
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
NAME(S):
......................................................................................
......................................................................................
......................................................................................
CAPACITY:
......................................................................................
ADDRESS(ES):
......................................................................................
......................................................................................
</TABLE>
<PAGE> 4
GUARANTEE
(Not To Be Used for Signature Guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the above named person(s) "own(s)" the Original Notes tendered
hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents
that such tender of Original Notes complies with Rule 14e-4 under the Exchange
Act and (c) guarantees that delivery to the Exchange Agent of certificates for
the Original Notes tendered hereby, in proper form for transfer (or confirmation
of the book-entry transfer of such Original Notes into the Exchange Agent's
Account at the Depository Trust Company, pursuant to the procedures for
book-entry transfer set forth in the Prospectus), with delivery of a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signatures and any other required documents, will be
received by the Exchange Agent at one of its addresses set forth above within
five business days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
AND ORIGINAL NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD
SET FORTH AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE
UNDERSIGNED.
Name of Firm:__________________________________________________________________
Address:_______________________________________________________________________
(Zip Code)
Area Code and Tel. No.:________________________________________________________
Authorized Signature:__________________________________________________________
Name:__________________________________________________________________________
(Please Type or Print)
Title:_________________________________________________________________________
Date: __________________________________
NOTE: DO NOT SEND ORIGINAL NOTES WITH THIS FORM; ORIGINAL NOTES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE
AGENT WITHIN FIVE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE
EXPIRATION DATE.
