<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION STATEMENT NO. 333-38223
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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)
------------------
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
==================================================================================================================
</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 NOVEMBER , 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 November , 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 and unconditionally 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), subject to certain fraudulent conveyance limitations as described
herein. 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
<PAGE> 4
(continued from prior page)
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.
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 approximately 65% of 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.
Since prior to 1992, until the acquisition of Carter, the Company was
primarily a manufacturer of main engine fuel pumps. In September, 1997, the
Company expanded its product lines through the acquisition of the outstanding
capital stock of Carter, a California corporation, for $107 million in cash.
Carter's product lines include airframe pumps and accessories, military aerial
refueling systems and other fuel system components such as valves and ground
fueling components, as well as the production and service of LNG pumps.
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
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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 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
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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.
- 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
and became a wholly owned subsidiary of AT Holdings Corporation ("AT Holdings"
or "Parent"). AT Holdings was formed in 1990 to purchase the Company and does
not have any other assets or operations not related to the Company. The new
owners of AT Holdings Corporation 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,
including the Parent Stock previously owned by
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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.
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."
The table below illustrates the Company's corporate structure as of the
closing of the Acquisition:
LOGO
All corporations shown are wholly owned by their respective parent. AT
Export and AT Insurance are not guarantors of the Notes; both have
inconsequential assets, liabilities and equity, and their only operations are
the result of intercompany activity which is immediately dividended back to the
Company.
The Notes are not collateralized by the capital stock of each of the
Subsidiary Guarantors nor of the Parent.
9
<PAGE> 11
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 and unconditionally
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, subject to certain fraudulent
conveyance limitations as described herein.
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 Company may incur additional
Senior Indebtedness if it meets certain
financial ratio tests set forth in the
Indenture. 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
15
<PAGE> 17
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 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."
16
<PAGE> 18
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.
17
<PAGE> 19
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 nine months ended August 2, 1997, the twelve
months ended August 2, 1997 and the fiscal year ended October 26, 1996, 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>
NINE MONTHS ENDED TWELVE MONTHS ENDED FISCAL YEAR ENDED
AUGUST 2, 1997 AUGUST 2, 1997 OCTOBER 26, 1996
----------------- ------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................................ $ 119,939 $ 156,163 $ 138,003
Gross profit............................................ 53,483 68,997 58,288
Operating expenses...................................... 26,749 35,953 33,050
--------- --------- ---------
Income from operations.................................. 26,734 33,044 25,238
Interest expense........................................ 16,066 21,422 21,422
Other, net.............................................. (52) 49 123
Income tax provision.................................... 5,853 6,341 3,419
--------- --------- ---------
Income before extraordinary loss........................ $ 4,867 $ 5,232 $ 274
========= ========= =========
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............................................ 44.6% 44.2% 42.2%
Adjusted EBITDA(a)...................................... $ 39,015 $ 49,909 $ 41,455
Adjusted EBITDA margin(b)............................... 32.5% 32.0% 30.0%
Depreciation, goodwill and deferred financing fee
amortization.......................................... $ 10,593 $ 14,881 $ 14,709
Capital expenditures(c)................................. 2,137 3,989 3,759
Cash interest expense(d)................................ 15,450 20,601 20,601
Ratio of Adjusted EBITDA to cash interest expense....... 2.5x 2.4x 2.0x
Ratio of earnings to fixed charges(e)................... 1.7x 1.5x 1.2x
</TABLE>
- ---------------
(a) Adjusted EBITDA represents income from operations plus non-cash charges as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED TWELVE MONTHS ENDED FISCAL YEAR ENDED
AUGUST 2, 1997 AUGUST 2, 1997 OCTOBER 26, 1996
----------------- ------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income from operations.................................... $ 26,734 $ 33,044 $ 25,238
Depreciation and goodwill amortization.................... 9,977 14,060 13,888
Compensation expense -- ESOP.............................. 2,304 2,805 2,329
--------- --------- ---------
Adjusted EBITDA........................................... $ 39,015 $ 49,909 $ 41,455
========= ========= =========
</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 $616,000, $821,000 and $821,000 in the nine
months ended August 2, 1997, the twelve months ended August 2, 1997 and the
fiscal year ended October 26, 1996, 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.
18
<PAGE> 20
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 40 weeks ended August 2, 1997 and the 39 weeks ended
July 27, 1996, 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 and (ii) the fiscal years 1994 through 1996, which have been
derived from Argo-Tech's audited consolidated financial statements for those
years. 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>
40 WEEKS 39 WEEKS FISCAL YEAR ENDED
ENDED ENDED -----------------------------------------
AUGUST 2, JULY 27, OCTOBER 26, OCTOBER 28, OCTOBER 29,
1997 1996 1996 1995 1994
--------- -------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 84,892 $ 71,493 $ 96,437 $ 86,671 $ 79,709
Gross profit.............................. 36,195 28,633 38,555 32,449 25,433
Operating expenses........................ 14,135 13,850 19,307 17,390 14,789
--------- --------- --------- -------- ---------
Income from operations.................... 22,060 14,783 19,248 15,059 10,644
Interest expense.......................... 9,222 7,643 10,138 11,924 10,117
Other, net................................ (313) (118) (142) (588) 75
Income tax provision...................... 5,299 3,172 3,608 1,553 279
Extraordinary loss (a).................... 1,529 -- -- -- --
--------- --------- --------- -------- ---------
Net income................................ $ 6,323 $ 4,086 $ 5,644 $ 2,170 $ 173
========= ========= ========= ======== =========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................. $ 161,504 $158,990 $ 167,106 $ 167,057 $ 183,826
Working capital........................... 26,874 23,916 25,531 23,098 34,506
Long-term debt (including current
maturities)............................. 141,107 108,907 107,607 118,607 137,607
Redeemable preferred stock................ -- 25,908 25,908 25,908 25,908
Redeemable common stock................... 3,900 2,200 2,700 1,100 --
Shareholders' deficiency (b).............. (9,515) (15,510) (14,878) (17,639) (16,848)
OTHER DATA:
Gross margin.............................. 42.6% 40.1% 40.0% 37.4% 31.9%
Adjusted EBITDA (c)....................... $ 29,575 $ 21,753 $ 29,039 $ 23,901 $ 20,210
Adjusted EBITDA margin(d)................. 34.8% 30.4% 30.1% 27.6% 25.4%
Net cash flows provided by operating
activities.............................. $ 8,771 $ 6,964 $ 15,942 $ 17,846 $ 17,531
Net cash flows used in investing
activities.............................. (1,775) (1,762) (3,355) (2,918) (1,475)
Net cash flows used in financing
activities.............................. (13,181) (9,700) (11,000) (19,730) (5,855)
Depreciation, goodwill and deferred
financing fee amortization.............. 6,009 6,036 8,653 8,577 10,177
Capital expenditures...................... 1,775 1,762 3,355 2,918 1,475
Cash interest expense (e)................. 8,424 6,749 8,947 10,519 8,666
Ratio of Adjusted EBITDA to cash interest
expense................................. 3.5x 3.2x 3.2x 2.3x 2.3x
Ratio of earnings to fixed charges(f)..... 2.4x 1.9x 1.9x 1.3x 1.0x
</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.
19
<PAGE> 21
(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 $79,650,000, $64,842,000 and $53,683,000, as of
October 26, 1996, October 28, 1995 and October 29, 1994, respectively.
(c) Adjusted EBITDA represents income from operations plus non-cash charges as
follows:
<TABLE>
<CAPTION>
40 WEEKS 39 WEEKS FISCAL YEAR ENDED
ENDED ENDED -----------------------------------------
AUGUST 2, JULY 27, OCTOBER 26, OCTOBER 28, OCTOBER 29,
1997 1996 1996 1995 1994
--------- -------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income from operations...................... $ 22,060 $ 14,783 $ 19,248 $ 15,059 $ 10,644
Depreciation and goodwill amortization...... 5,211 5,142 7,462 7,172 8,726
Compensation expense -- ESOP................ 2,304 1,828 2,329 1,670 840
--------- --------- --------- -------- ---------
Adjusted EBITDA............................. $ 29,575 $ 21,753 $ 29,039 $ 23,901 $ 20,210
========= ========= ========= ======== =========
</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 $798,000 and $894,000 and $1,191,000, $1,405,000
and $1,451,000 in the 40 weeks ended August 2, 1997 and the 39 weeks ended
July 27, 1996 and in the fiscal years ended October 26, 1996, October 28,
1995 and October 29, 1994, 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.
20
<PAGE> 22
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 six months ended June 30, 1997 and 1996, 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 and (ii) the three
years ended December 31, 1996, which have been derived from Carter's audited
financial statements for those years. 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
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $24,008 $22,131 $44,450 $39,986 $38,727
Gross profit.......................................... 11,864 10,079 21,892 19,602 19,744
Office of the President(a)............................ 6,088 4,840 9,339 10,994 7,963
Other operating expenses.............................. 5,704.. 4,354 9,926 8,822 8,460
------- ------- ------- ------- -------
Income (loss) from operations......................... 72 885 2,627 (214) 3,321
Interest expense...................................... 537 489 970 934 859
Other expense, net.................................... 214 54 226 101 396
Income tax provision (benefit)(b)..................... (2,271) 43 105 188 60
------- ------- ------- ------- -------
Net income (loss)..................................... $ 1,592 $ 299 $ 1,326 $(1,437) $ 2,006
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.......................................... $27,705 $23,708 $24,516 $24,117 $20,698
Working capital....................................... 1,625 2,457 2,471 2,674 4,457
Long-term debt (including current maturities)......... 13,550 11,991 11,388 12,552 10,547
Shareholders' equity.................................. 6,999 4,380 5,407 4,081 5,518
OTHER DATA:
Gross margin.......................................... 49.4% 45.5% 49.3% 49.0% 51.0%
Adjusted EBITDA(c).................................... $ 6,519 $ 6,026 $12,553 $11,640 $11,739
Adjusted EBITDA margin(d)............................. 27.2% 27.2% 28.2% 29.1% 30.3%
Net cash flows provided by (used in) operating
activities.......................................... $(1,472) $ 525 $ 1,524 $(1,057) $ 1,005
Net cash flows used in investing activities........... (476) (315) (780) (682) (831)
Net cash flows provided by (used in) financing
activities.......................................... 2,151 (561) (1,164) 2,005 (20)
Depreciation and amortization......................... 359 301 587 860 455
Capital expenditures(e)............................... 69 315 1,136 712 867
</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 six months ended June 30, 1996 and the year
ended December 31, 1996 are net of assets that were acquired and then
immediately sold amounting to $3,855,000.
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<PAGE> 23
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; POTENTIAL INABILITY 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
22
<PAGE> 24
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
23
<PAGE> 25
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.
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts all of its business through
its subsidiaries and has no operations of its own. The Company derives all of
its operating income from its subsidiaries, and is dependent on the cash flow of
its subsidiaries in order to meet its debt service obligations. The Company has
no significant assets other than those related to its subsidiaries.
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,
24
<PAGE> 26
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."
CHANGE OF CONTROL; POTENTIAL INABILITY TO EFFECTUATE A REPURCHASE OF THE NOTES
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.
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<PAGE> 27
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 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
26
<PAGE> 28
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 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."
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<PAGE> 29
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 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,
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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 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 Notes
are not collateralized by the capital stock of each of the Subsidiary Guarantors
nor of the Parent.
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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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, if any of the conditions set forth below
under "-- Certain Conditions to the Exchange Offer" shall have not been
satisfied, 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
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acknowledge in the Letter of Transmittal 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 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.
37
<PAGE> 39
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
38
<PAGE> 40
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
39
<PAGE> 41
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.
40
<PAGE> 42
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.
41
<PAGE> 43
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.
42
<PAGE> 44
The following table summarizes the sources and uses of funds at the closing
of the Transactions:
<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.
43
<PAGE> 45
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.
44
<PAGE> 46
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 40 weeks ended August 2, 1997 and the 39 weeks ended
July 27, 1996, 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 and (ii) the fiscal years 1992 through 1996, which have been
derived from Argo-Tech's audited consolidated financial statements for those
years. 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>
39 FISCAL YEAR ENDED
40 WEEKS ENDED -------------------------------------------------------------------
WEEKS ENDED JULY 27, OCTOBER 26, OCTOBER 28, OCTOBER 29, OCTOBER 30, OCTOBER 31,
AUGUST 2, 1997 1996 1996 1995 1994 1993 1992
-------------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............... $ 84,892 $ 71,493 $ 96,437 $ 86,671 $ 79,709 $ 88,484 $ 118,521
Gross profit............... 36,195 28,633 38,555 32,449 25,433 25,148 33,824
Operating expenses......... 14,135 13,850 19,307 17,390 14,789 14,497 16,077
--------- --------- --------- --------- --------- --------- --------
Income from operations..... 22,060 14,783 19,248 15,059 10,644 10,651 17,747
Interest expense........... 9,222 7,643 10,138 11,924 10,117 10,371 11,677
Other, net................. (313) (118) (142) (588) 75 127 (111)
Income tax provision....... 5,299 3,172 3,608 1,553 279 61 2,583
Extraordinary loss(a)...... 1,529 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------
Net income................. $ 6,323 $ 4,086 $ 5,644 $ 2,170 $ 173 $ 92 $ 3,598
========= ========= ========= ========= ========= ========= ========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............... $161,504 $ 158,990 $ 167,106 $ 167,057 $ 183,826 $ 188,963 $ 204,183
Working capital............ 26,874 23,916 25,531 23,098 34,506 31,289 31,366
Long-term debt (including
current maturities)...... 141,107 108,907 107,607 118,607 137,607 128,000 144,500
Redeemable preferred
stock.................... -- 25,908 25,908 25,908 25,908 24,400 24,400
Redeemable common stock.... 3,900 2,200 2,700 1,100 -- -- --
Shareholder's equity/
(deficiency)(b)(c)....... (9,515) (15,510) (14,878) (17,639) (16,848) 1,245 3,911
OTHER DATA:
Gross margin............... 42.6% 40.1% 40.0% 37.4% 31.9% 28.4% 28.5%
Adjusted EBITDA(d)......... $ 29,575 $ 21,753 $ 29,039 $ 23,901 $ 20,210 $ 21,188 $ 29,534
Adjusted EBITDA
margin(e)................ 34.8% 30.4% 30.1% 27.6% 25.4% 23.9% 24.9%
Net cash flows provided by
operating activities..... $ 8,771 $ 6,964 $ 15,942 $ 17,846 $ 17,531 $ 20,907 $ 21,881
Net cash flows used in
investing activities..... (1,775) (1,762) (3,355) (2,918) (1,475) (2,190) (2,900)
Net cash flows used in
financing activities..... (13,181) (9,700) (11,000) (19,730) (5,855) (16,917) (14,692)
Depreciation, goodwill and
deferred financing fee
amortization............. 6,009 6,036 8,653 8,577 10,177 12,460 13,066
Capital expenditures....... 1,775 1,762 3,355 2,918 1,475 2,076 4,765
Cash interest expense(f)... 8,424 6,749 8,947 10,519 8,666 8,448 10,398
Ratio of Adjusted EBITDA to
cash interest expense.... 3.5x 3.2x 3.2x 2.3x 2.3x 2.5x 2.8x
Ratio of earnings to fixed
charges(g)............... 2.4x 1.9x 1.9x 1.3x 1.0x 1.0x 1.5x
</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
45
<PAGE> 47
amounted to $79,650,000, $64,842,000 and $53,683,000 as of October 26, 1996,
October 28, 1995 and October 29, 1994, 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
$(11,340,000), $(13,020,000), $(12,600,000), $(14,280,000) and $(15,960,000)
as of August 2, 1997, July 27, 1996, October 26, 1996, October 28, 1995 and
October 29, 1994, respectively.
(d) Adjusted EBITDA represents income from operations plus non-cash charges as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
40 39 -------------------------------------------------------------------
WEEKS ENDED WEEKS ENDED OCTOBER 26, OCTOBER 28, OCTOBER 29, OCTOBER 30, OCTOBER 31,
AUGUST 2, 1997 JULY 27, 1996 1996 1995 1994 1993 1992
-------------- -------------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations.... $ 22,060 $ 14,783 $ 19,248 $ 15,059 $ 10,644 $ 10,651 $ 17,747
Depreciation and goodwill
amortization............ 5,211 5,142 7,462 7,172 8,726 10,537 11,787
Compensation expense --
ESOP.................... 2,304 1,828 2,329 1,670 840 -- --
--------- --------- --------- --------- --------- -------- --------
Adjusted EBITDA........... $ 29,575 $ 21,753 $ 29,039 $ 23,901 $ 20,210 $ 21,188 $ 29,534
========= ========= ========= ========= ========= ======== ========
</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 $798,000 and $894,000 and $1,191,000, $1,405,000,
$1,451,000, $1,923,000 and $1,279,000 in the 40 weeks ended August 2, 1997
and the 39 weeks ended July 27, 1996 and in the fiscal years ended October
26, 1996, October 28, 1995, October 29, 1994, October 30, 1993 and October
31, 1992, 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.
46
<PAGE> 48
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 six months ended June 30, 1997 and 1996, 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 and (ii) the three
years ended December 31, 1996, which have been derived from Carter's audited
financial statements for those years. 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
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......................................... $24,008 $22,131 $44,450 $39,986 $38,727
Gross profit.......................................... 11,864 10,079 21,892 19,602 19,744
Office of the President(a)............................ 6,088 4,840 9,339 10,994 7,963
Other operating expenses.............................. 5,704 4,354 9,926 8,822 8,460
------- ------- ------- ------- -------
Income (loss) from operations......................... 72 885 2,627 (214) 3,321
Interest expense...................................... 537 489 970 934 859
Other expense, net.................................... 214 54 226 101 396
Income tax provision (benefit)(b)..................... (2,271) 43 105 188 60
------- ------- ------- ------- -------
Net income (loss)..................................... $ 1,592 $ 299 $ 1,326 $(1,437) $ 2,006
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.......................................... $27,705 $23,708 $24,516 $24,117 $20,698
Working capital....................................... 1,625 2,457 2,471 2,674 4,457
Long-term debt (including current maturities)......... 13,550 11,991 11,388 12,552 10,547
Shareholders' equity.................................. 6,999 4,380 5,407 4,081 5,518
OTHER DATA:
Gross margin.......................................... 49.4% 45.5% 49.3% 49.0% 51.0%
Adjusted EBITDA(c).................................... $ 6,519 $ 6,026 $12,553 $11,640 $11,739
Adjusted EBITDA margin(d)............................. 27.2% 27.2% 28.2% 29.1% 30.3%
Net cash flows provided by (used in) operating
activities.......................................... $(1,472) $ 525 $ 1,524 $(1,057) $ 1,005
Net cash flows used in investing activities........... (476) (315) (780) (682) (831)
Net cash flows provided by (used in) financing
activities.......................................... 2,151 (561) (1,164) 2,005 (20)
Depreciation and amortization......................... 359 301 587 860 455
Capital expenditures(e)............................... 69 315 1,136 712 867
</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 six months ended June 30, 1996 and the year
ended December 31, 1996 are net of assets that were acquired and then
immediately sold amounting to $3,855,000.
47
<PAGE> 49
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 nine
months ended August 2, 1997, the twelve months ended August 2, 1997 and the
fiscal year ended October 26, 1996 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.
48
<PAGE> 50
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
49
<PAGE> 51
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, which was settled at the closing of the Acquisition.
(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
Repayment 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 due to the application of
purchase price accounting for assets to be acquired in the Acquisition:
</TABLE>
<TABLE>
<CAPTION>
FAIR MARKET ESTIMATED
VALUE ECONOMIC LIFE
----------- -------------
<S> <C> <C>
Workforce............................................................ $ 4,900 8 years
Contracts............................................................ 17,100 10 years
Spare Parts Annuity.................................................. 38,200 10-28 years
Patents.............................................................. 380 14-17 years
-------
$60,580
=======
(h) Represents the net increase in other assets, related to deferred financing costs, as a result of the
sale of the Notes.
</TABLE>
50
<PAGE> 52
<TABLE>
<S> <C> <C> <C>
(i) Represents adjustments to long-term debt as follows:
Current portion:
Delayed Draw Acquisition Loans........................................... $ 750
Repayment 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
========
(j) Represents adjustments to accrued liabilities as follows:
Elimination of accrued interest on the Existing Notes...................... $ (585)
Repayment of accrued interest on Carter indebtedness....................... (99)
---------
$ (684)
========
(k) Represents the elimination of accrued officer/shareholder bonuses of $2,006,
which was settled at the closing of the Acquisition.
(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>
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
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
54
<PAGE> 56
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, 1996 through June 30, 1997, July 1, 1996 through June 30, 1997 and
October 1, 1995 through September 30, 1996.
<TABLE>
<CAPTION>
NINE TWELVE
MONTHS MONTHS FISCAL YEAR
ENDED ENDED ENDED
AUGUST 2, AUGUST 2, OCTOBER 26,
1997 1997 1996
--------- --------- -----------
<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....................................... $ (21) $ 145 $ 18
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.................................................. 489 652 652
--------- ------- ---------
$ 468 $ 797 $ 670
========= ======= =========
(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............................................... $(8,079) $ (10,587) $ (10,148)
(d) Represents the incremental amortization due to:
Goodwill created as a result of the Acquisition which is
being amortized over 40 years............................. $ 800 $ 1,067 $ 1,067
Amortization of identifiable intangible assets resulting
from the Acquisition:
Workforce (8 years)......................................... 459 612 612
Contracts (10 years)........................................ 1,282 1,710 1,710
Spare Parts Annuity (10-28 years)........................... 1,255 1,673 1,673
Patents (14-17 years)....................................... 19 25 25
--------- ------- ---------
$ 3,815 $ 5,087 $ 5,087
========= ======= =========
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
NINE TWELVE
MONTHS MONTHS FISCAL YEAR
ENDED ENDED ENDED
AUGUST 2, AUGUST 2, OCTOBER 26,
1997 1997 1996
--------- ------- ---------
<S> <C> <C> <C> <C>
(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%).......................... $ 9,056 $ 12,075 $ 12,075
Amortization of deferred financing fees associated with the
purchase of the Notes..................................... 413 550 550
Increase resulting from the Delayed Draw Acquisition Loans
incurred to finance the Acquisition (assumed rate of
7.75%).................................................... 872 1,163 1,163
Interest expense related to Amended Credit Facility (assumed
rate of 7.75%)............................................ 5,522 7,363 7,363
Amortization of deferred financing fees associated with the
New Credit Facility....................................... 203 271 271
Eliminate historical interest expense on the Old Credit
Facility.................................................. (5,816) (7,708) (7,825)
Eliminate loan fee amortization and guarantee fees related
to the Old Credit Facility................................ (1,313) (1,813) (1,891)
Elimination of the interest expense incurred on the
refinanced Existing Notes................................. (2,093) (2,196) (422)
Elimination of historical interest expense related to Carter
indebtedness.............................................. (770) (1,018) (995)
--------- ------- ---------
$ 6,074 $ 8,687 $ 10,289
========= ======= =========
A 1/8% change in the variable interest rate on the Delayed
Draw Acquisition Loans and the Amended Credit Facility
would change the pre-tax interest expense by $138.
(f) Eliminate gain on sale of airplane.......................... -- -- $ 124
(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...... $ 2,156 $ 2,373 $ (23)
(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...................................... $26,734 $ 33,044 $ 25,238
Depreciation and goodwill amortization...................... 9,977 14,060 13,888
Compensation expense -- ESOP................................ 2,304 2,805 2,329
--------- ------- ---------
Adjusted EBITDA............................................. $39,015 $ 49,909 $ 41,455
========= ======= =========
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>
56
<PAGE> 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In fiscal 1996 on a pro forma 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 (the "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 with the Workforce Reduction,
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").
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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.
EXPORT SALES
Argo-Tech's export sales are all denominated in U.S. dollars. Export sales
for fiscal years 1996, 1995 and 1994 were $44.1 million, $37.5 million and $37.2
million, respectively. Sales to Europe were $13.2 million, $10.1 million and
$10.3 million and export sales to all other regions, individually less than 10%,
were $30.9 million, $27.4 million and $26.9 million for fiscal years 1996, 1995
and 1994, respectively.
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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>
40 WEEKS
ENDED 39 WEEKS 52 WEEKS ENDED
AUGUST ENDED -------------------------------------------
2, JULY 27, OCTOBER 26, OCTOBER 28, OCTOBER 29,
1997 1996 1996 1995 1994
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................... 42.6% 40.1% 40.0% 37.4% 31.9%
Operating expenses................. 16.6% 19.4% 20.0% 20.0% 18.5%
Income from operations............. 26.0% 20.7% 20.0% 17.4% 13.4%
Interest expense................... 10.9% 10.7% 10.5% 13.8% 12.7%
Other, net......................... (0.4)% (0.1)% (0.1)% (0.7)% 0.1%
Income before income taxes......... 15.5% 10.1% 9.6% 4.3% 0.6%
Income tax provision............... 6.3% 4.4% 3.7% 1.8% 0.4%
Income before extraordinary
items............................ 9.2% 5.7% 5.9% 2.5% 0.2%
Extraordinary loss................. 1.8% -- -- -- --
Net income......................... 7.4% 5.7% 5.9% 2.5% 0.2%
</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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<PAGE> 61
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 of $0.3 million
and increased the level of research and development expenditures by $0.3
million.
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
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<PAGE> 62
net revenues, increased 8.0%, or $1.6 million, to $21.7 million, in each case
driven by increased 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
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<PAGE> 63
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.
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
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------- ---------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.................................. 49.4% 45.5% 49.3% 49.0% 51.0%
Office of the President....................... 25.3% 21.9% 21.0% 27.5% 20.6%
Other operating expenses...................... 23.8% 19.6% 22.3% 22.0% 21.8%
Income (loss) from operations................. 0.3% 4.0% 6.0% (0.5)% 8.6%
Interest expense.............................. 2.2% 2.2% 2.2% 2.3% 2.2%
Other expense, net............................ 0.9% 0.2% 0.5% 0.3% 1.0%
Income (loss) before income taxes............. (2.8)% 1.6% 3.3% (3.1)% 5.4%
Income tax provision (benefit)................ (9.4)% 0.2% 0.3% 0.5% 0.2%
Net income (loss)............................. 6.6% 1.4% 3.0% (3.6)% 5.2%
</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 of $1.3 million and
ground fueling products of $0.8 million offset by a $0.2 million 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 of
$0.5 million, as well as $0.3 million 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 .
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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 of $4.0 million and $1.4 million, respectively, offset by a $0.9
million decline in industrial marine sales.
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.
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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.
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.
The Company has entered into three interest rate swap agreements with a
financial institution which fixes the interest rate on the notional amounts of
$20.0 million at 5.80% and $20.0 million at 5.715% through October 1997, and
$30.0 million at 6.66% through October 2000. The amount of the swap agreements
for fiscal years 1994, 1995, 1996 and the nine month period ended August 2, 1997
were $40.0 million, $40.0 million, $70.0 million and $30.0 million,
respectively. The gains/losses were recognized as interest expense and amounted
to a $0.7 million loss in fiscal year 1994, a $0.1 million gain in fiscal year
1995, a $0.4 million loss in fiscal year 1996, and a $0.3 million loss for the
nine month period ended August 2, 1997. In July 1997, the Company refinanced its
Old Credit Facility and unwound $40.0 million of the swap agreements which were
to terminate in October 1997. The remaining $30.0 million swap was transferred
to another financial institution which fixed the rate at 6.785% through October
2000. The Company has no other derivative financial instruments.
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
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<PAGE> 66
$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 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's capital
expenditures for fiscal 1997 aggregated $3.5 million, which included over 200
projects. Most of these projects related to maintaining existing facilities and
equipment. For fiscal 1998, capital expenditures are estimated to total $4.4
million to support approximately 200 projects. The majority of these projects
will be for continued maintenance of facilities and equipment in support of the
current operating activities of the Company. Capital expenditures are financed
with cash generated from operations. The Company currently has no material
commitments for capital expenditures.
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.
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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.
Since prior to 1992, until the acquisition of Carter, the Company was
primarily a manufacturer of main engine fuel pumps. In September 1997, the
Company expanded its product lines through the acquisition of the outstanding
capital stock of Carter, a California corporation, for $107 million in cash.
Carter's product lines include airframe pumps and accessories, military aerial
refueling systems and other fuel system components such as valves and ground
fueling components, as well as the production and service of LNG pumps.
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.
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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
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 commercial airlines are currently experiencing
historically high passenger capacity ratios of approximately 70%, which 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.
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<PAGE> 70
("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 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
$37 billion while Raytheon, with its pending merger with Hughes Defense, is
expected to have annual revenues of approximately $20 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
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<PAGE> 71
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 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.
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 by the Company are expensed as incurred, and for the fiscal
years 1994, 1995 and 1996, such expenses totaled $2.5 million, $5.7
million, and $6.4 million, respectively. In addition, customer sponsored
research and development expenditures for the fiscal years 1994, 1995 and
1996 totaled $0.8 million, $0.9 million and $1.6 million respectively.
- 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
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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, 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
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<PAGE> 73
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.
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.
This chart sets forth the following information:
- All airframes currently in commercial service, denoting those which are
not currently in production;
- The size of such airframes, categorized by engine thrust expressed in
pounds; and
- The engines in service on such airframes for which the Company and its
three primary competitors supply main engine fuel pumps. Engines that
remain in service, but are no longer in current production, are denoted
as such.
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<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
ENGINE INSTALLED PUMP AND ENGINE TYPE(4)
THRUST ----------------------------------------------------------------------------
(X 1,000 LBS) AIRFRAME ARGO-TECH PUMP SUNDSTRAND PUMP LUCAS PUMP CECO PUMP
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <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.
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,
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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.
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.
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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 a proprietary product available only from Crucible Specialty
Metals. The Company has approximately a six month supply of CPM-10V that has
been produced and is waiting to be released per the Company's manufacturing
schedule. Another material has been identified that would replace CPM-10V, but
that material has not been certified for use by the Company's customers. The
Company believes certification of this material could be obtained before the six
month supply has been depleted. See "Risk Factors -- Risks Associated with the
Company's Workforce and Suppliers."
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.
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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 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, a machine tool
manufacturer. 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, a
chemical and materials fabricator, Chairman of Anderson Columbiana Trading
Corporation, a wholesaler of storage and transportation
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tanks for gas and liquids, and President of Dougherty Development Corp., a
venture capital investment company. Mr. Dougherty is also a principal in
Dougherty Capital Partners, a private equity investment fund.
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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<PAGE> 86
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
85
<PAGE> 87
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 Company makes additional contributions to the ESOP, the ESOP would
use such contribution to "prepay" the loan, and 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.
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<PAGE> 88
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 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
87
<PAGE> 89
thereunder are subject to applicable limitations imposed under the Code. The
ESOP is subject to the 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 $10.00 per share, unless and until such stock is offered
for sale to the public, in which case the price will be not less than fair
market value. The options, which were granted by the Compensation Committee of
Parent upon the recommendation of the Argo-Tech Compensation Committee, expire
on November 9, 2001. The options may be exercised only in quarters over four
successive years, but shall become exercisable in full in the event that the
shares become registered or traded on a national exchange or in the event of a
change in control.
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<PAGE> 90
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISABLE IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END($)
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
89
<PAGE> 91
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> 92
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>
- ---------------
<TABLE>
<C> <S>
* 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.
</TABLE>
91
<PAGE> 93
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
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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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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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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 all material 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 redemption price
(expressed as a percentage of principal amount thereof) of 108.625% plus
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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.
"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
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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, 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
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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 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
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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
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
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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 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.
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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 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
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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 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
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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
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
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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 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
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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.
(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
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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."
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)
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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 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
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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 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
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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 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
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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 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
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(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 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
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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 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
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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 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
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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 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.
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"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.
"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.
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"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.
"Initial Purchaser" means Chase Securities Inc.
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"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 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.
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"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.
"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.
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"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.
"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
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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.
"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
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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 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
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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 is a summary of all material provisions of the
Exchange and Registration Rights Agreement. This summary 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
124
<PAGE> 126
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
125
<PAGE> 127
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.
126
<PAGE> 128
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
127
<PAGE> 129
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).
128
<PAGE> 130
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.
129
<PAGE> 131
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 Amendment No. 1 to the 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.
130
<PAGE> 132
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>
The Notes are not collateralized by the capital stock of each of the
Subsidiary Guarantors nor of the Parent.
Effective August 3, 1997, the Company established itself as a parent,
holding company with 3 wholly-owned operating guarantor subsidiaries, Argo-Tech
Corporation (HBP), Argo-Tech Corporation (OEM) and Argo-Tech Corporation
(Aftermarket). The Company has no outside assets, liabilities or operations
apart from its wholly-owned subsidiaries. The Senior Subordinated Notes are
fully, unconditionally, jointly and severally guaranteed by the guarantor
subsidiaries, and therefore, separate financial statements of the guarantor
subsidiaries will not be presented. Upon acquisition, Carter became a
wholly-owned operating guarantor subsidiary of the Company. Carter fully,
unconditionally, jointly and severally guarantees the Senior Subordinated Notes
with the other guarantor subsidiaries. The Company also has 2 wholly-owned
non-guarantor subsidiaries that have inconsequential assets, liabilities and
equity, and their only operations are the result of intercompany activity which
is immediately dividended back to the Company.
F-1
<PAGE> 133
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> 134
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> 135
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> 136
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.
Effective August 3, 1997, the Company established itself as a parent,
holding company with 3 wholly-owned operating guarantor subsidiaries, Argo-Tech
Corporation (HBP), Argo-Tech Corporation (OEM) and Argo-Tech Corporation
(Aftermarket). The Company has no outside assets, liabilities or operations
apart from its wholly-owned subsidiaries. The Senior Subordinated Notes
(footnote 4) are fully, unconditionally, jointly and severally guaranteed by the
guarantor subsidiaries, and therefore, separate financial statements of the
guarantor subsidiaries will not be presented. The Company also has 2
wholly-owned non-guarantor subsidiaries that have inconsequential assets,
liabilities and equity, and their only operations are the result of intercompany
activity which is immediately dividend back to the Company.
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
F-5
<PAGE> 137
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 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.
Upon acquisition, Carter became a wholly-owned operating guarantor
subsidiary of the Company. Carter fully, unconditionally, jointly and severally
guarantees the Senior Subordinated Notes with the other guarantor subsidiaries.
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>
F-6
<PAGE> 138
ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 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> 139
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 26, 1997
Cleveland, Ohio
F-8
<PAGE> 140
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> 141
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> 142
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> 143
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> 144
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.
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
F-13
<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
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> 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
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> 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
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. In 1994, the ESOP purchased shares of AT Holdings through a $16.8
million loan from the Company. 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> 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
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> 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
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> 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
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> 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
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 YC
International, the majority shareholder of AT Holdings, 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
F-20
<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
Company's 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 of AT Holdings 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 or AT Holdings (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 AT Holdings 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> 153
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 YC International, the
majority shareholder of AT Holdings 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 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Europe........................ $13,158 $10,096 $10,319
All others individually
(less than 10%)............. 30,911 27,437 26,856
------- ------- -------
$44,069 $37,533 $37,175
======= ======= =======
</TABLE>
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.
F-22
<PAGE> 154
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
15. SUBSEQUENT EVENTS
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.
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.
Upon acquisition, Carter became a wholly-owned operating guarantor
subsidary of the Company. Carter fully, unconditionally, jointly, and severally
guarantees the Senior Subordinated Notes with the other guarantor subsidiaries.
CHANGE IN CORPORATE STRUCTURE -- Effective August 3, 1997, the Company
established itself as a parent, holding company with 3 wholly-owned operating
guarantor subsidiaries, Argo-Tech Corporation (HBP), Argo-Tech Corporation (OEM)
and Argo-Tech Corporation (Aftermarket). The Company has no outside assets,
liabilities or operations apart from its wholly-owned subsidiaries. The Senior
Subordinated Notes are fully, unconditionally, jointly and severally guaranteed
by the guarantor subsidiaries, and therefore, separate financial statements of
the guarantor subsidiaries will not be presented. The Company also has 2
wholly-owned non-guarantor subsidiaries that have inconsequential assets,
liabilities and equity, and their only operations are the result of intercompany
activity which is immediately dividend back to the Company.
* * * * * *
F-23
<PAGE> 155
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> 156
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> 157
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> 158
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. Inventory at June 30, 1997
consists of the following (in thousands):
<TABLE>
<S> <C>
Finished goods awaiting shipment............................. $ 496
Work in process.............................................. 1,756
Material and spare parts..................................... 9,156
-------
$11,408
========
</TABLE>
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.
F-27
<PAGE> 159
J. C. CARTER COMPANY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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. 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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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.................................. 22
The Exchange Offer............................ 30
The Transactions.............................. 42
Use of Proceeds............................... 42
Capitalization................................ 44
Selected Historical Financial and Other
Data........................................ 45
Unaudited Pro Forma Condensed Consolidated
Financial Information....................... 48
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 57
Business and Properties....................... 67
Management.................................... 81
Principal Stockholders........................ 91
Description of the Amended Credit Facility.... 94
Description of Notes.......................... 96
Exchange and Registration Rights Agreement.... 124
Book-Entry, Delivery and Form................. 127
Plan of Distribution.......................... 129
Legal Matters................................. 129
Experts....................................... 130
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
------------------------
NOVEMBER , 1997
<PAGE> 171
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> 172
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> 173
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.
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.
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.
</TABLE>
II-3
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<S> <C>
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,
Aerotech World Trade Corporation, Yamada Corporation, Yamada International
Corporation and Vestar Capital Partners, Inc.
10.27 Stock Purchase Agreement, dated August 1, 1997 between the Company, J.C. Carter
Company, Inc., Robert L. Veloz, Individually and as Trustee, Marlene J. Veloz,
Individually and as Trustee, Edith T. Derbyshire, Individually and as Trustee,
Harry S. Derbyshire, Individually and as Trustee, Michael Veloz, Katherine
Canfield and Maureen Partch, as Trustee.
10.28 Prism Prototype Retirement Plan & Trust & 401(k) Profit Sharing Plan Adoption
Agreement, dated November 1, 1994.
10.29 Prism Prototype Retirement Plan and Trust.
10.30 Agreement of Purchase and Sale between Agnem Holdings, Inc. and TRW Inc. dated as
of August 5, 1986.
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>
- ---------------
* Previously filed.
(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> 175
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> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
State of Ohio, on November 26, 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, AMENDMENT NO. 1
TO 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>
* Chairman, President, Chief Executive November 26, 1997
- ------------------------------ Officer and Director
Michael S. Lipscomb (Principal Executive Officer)
* Vice President and Chief Financial November 26, 1997
- ------------------------------ Officer
Frances S. St. Clair (Principal Financial Officer)
* Manager, Financial Accounting November 26, 1997
- ------------------------------ (Principal Accounting Officer)
Paul A. Sklad
* Director November 26, 1997
- ------------------------------
Remi de Chastenet
* Director November 26, 1997
- ------------------------------
Thomas Dougherty
* Director November 26, 1997
- ------------------------------
Yoichi Fujiki
* Director November 26, 1997
- ------------------------------
Prakash A. Melwani
* Director November 26, 1997
- ------------------------------
Robert Y. Nagata
* Director November 26, 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 Amendment No. 1 to Registration Statement on behalf of each of the
persons noted above, in the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Paul R. Keen November 26, 1997
--------------------------------------------
Paul R. Keen, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Argo-Tech
Corporation (After-market) has duly caused this Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio, on November 26, 1997.
ARGO-TECH CORPORATION (AFTER-MARKET)
By: /s/ Paul R. Keen
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO 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>
* Chairman, President, Chief Executive November 26, 1997
- ------------------------------ Officer and Director
Michael S. Lipscomb (Principal Executive Officer)
* Vice President and Chief Financial November 26, 1997
- ------------------------------ Officer
Frances S. St. Clair (Principal Financial Officer)
* Manager, Financial Accounting November 26, 1997
- ------------------------------ (Principal Accounting Officer)
Paul A. Sklad
* Director November 26, 1997
- ------------------------------
Victor Aguilar
/s/ PAUL R. KEEN Director November 26, 1997
- ------------------------------
Paul R. Keen
</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 Amendment No. 1 to Registration Statement on behalf of each of the
persons noted above, in the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Paul R. Keen November 26, 1997
--------------------------------------------
Paul R. Keen, Attorney-in-Fact
</TABLE>
II-7
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Argo-Tech
Corporation (HBP) has duly caused this Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on November 26, 1997.
ARGO-TECH CORPORATION (HBP)
By: /s/ Paul R. Keen
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO 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>
* President and Director November 26, 1997
- ------------------------------ (Principal Executive Officer)
Michael S. Lipscomb
* Vice President and Chief Financial November 26, 1997
- ------------------------------ Officer
Frances S. St. Clair (Principal Financial Officer)
* Manager, Financial Accounting November 26, 1997
- ------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director November 26, 1997
- ------------------------------
Paul R. Keen
</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 Amendment No. 1 to Registration Statement on behalf of each of the
persons noted above, in the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Paul R. Keen November 26, 1997
--------------------------------------------
Paul R. Keen, Attorney-in-Fact
</TABLE>
II-8
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Argo-Tech
Corporation (OEM) has duly caused this Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on November 26, 1997.
ARGO-TECH CORPORATION (OEM)
By: /s/ Paul R. Keen
----------------------------------
Paul R. Keen
Vice President and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO 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>
* President and Director November 26, 1997
- ------------------------------ (Principal Executive Officer)
Michael S. Lipscomb
* Vice President, Chief Financial Officer November 26, 1997
- ------------------------------ and Director
Frances S. St. Clair (Principal Financial Officer)
* Manager, Financial Accounting November 26, 1997
- ------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director November 26, 1997
- ------------------------------
Paul R. Keen
</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 Amendment No. 1 to Registration Statement on behalf of each of the
persons noted above, in the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Paul R. Keen November 26, 1997
--------------------------------------------
Paul R. Keen, Attorney-in-Fact
</TABLE>
II-9
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.C. Carter
Company, Inc. has duly caused this Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on November 26, 1997.
J.C. CARTER COMPANY, INC.
By: /s/ Paul R. Keen
----------------------------------
Paul R. Keen
Vice President and Assistant
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO 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>
* President and Director November 26, 1997
- ------------------------------ (Principal Executive Officer)
Michael S. Lipscomb
* Vice President and Chief Financial November 26, 1997
- ------------------------------ Officer
Frances S. St. Clair (Principal Financial Officer)
* Manager, Financial Accounting November 26, 1997
- ------------------------------ (Principal Accounting Officer)
Paul A. Sklad
/s/ PAUL R. KEEN Director November 26, 1997
- ------------------------------
Paul R. Keen
</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 Amendment No. 1 to Registration Statement on behalf of each of the
persons noted above, in the capacities indicated.
<TABLE>
<S> <C> <C>
By: /s/ Paul R. Keen November 26, 1997
--------------------------------------------
Paul R. Keen, Attorney-in-Fact
</TABLE>
II-10
<PAGE> 181
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.
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.
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.
</TABLE>
<PAGE> 182
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ---------------------------------------------------------------------------------
<S> <C>
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, Yamada Corporation, Yamada International
Corporation and Vestar Capital Partners, Inc.
10.27 Stock Purchase Agreement, dated August 1, 1997, between the Company, J.C. Carter
Company, Inc., Robert L. Veloz, Individually and as Trustee, Marlene J. Veloz,
Individually and as Trustee, Edith T. Derbyshire, Individually and as Trustee,
Harry S. Derbyshire, Individually and as Trustee, Michael Veloz, Katherine
Canfield and Maureen Partch, as Trustee.
10.28 Prism Prototype Retirement Plan & Trust & 401(k) Profit Sharing Plan Adoption
Agreement, dated November 1, 1994.
10.29 Prism Prototype Retirement Plan and Trust.
10.30 Agreement of Purchase and Sale between Agnem Holdings, Inc. and TRW Inc. dated as
of August 5, 1986.
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>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 5
November 26, 1997
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117
Re: 8 5/8% Senior Subordinated Notes due 2007
-----------------------------------------
Ladies and Gentlemen:
We are acting as counsel for Argo-Tech Corporation, a Delaware corporation
(the "Company"), in connection with the proposed issuance of $140,000,000
aggregate principal amount of the Company's 8 5/8% Senior Subordinated Notes Due
2007 (the "Notes") pursuant to an Indenture, dated as of September 26, 1997 (the
"Indenture"), between the Company, Argo-Tech Corporation (Aftermarket),
Argo-Tech Corporation (HBP,) Argo-Tech Corporation (OEM) and the J.C. Carter
Company, Inc. (the "Subsidiary Guarantors") and Harris Trust and Savings Bank,
as Trustee (the "Trustee"), and an Exchange and Registration Rights Agreement,
dated as of September 26, 1997, by and among the Company, the Subsidiary
Guarantors and Chase Securities Inc. (the "Registration Rights Agreement").
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon, we are of
the opinion that the Notes have been duly authorized, and when duly executed by
authorized officers of the Company and the Subsidiary Guarantors, authenticated
by the Trustee, and issued in accordance with the Indenture and the
Registration Rights Agreement, will be binding obligations of the Company and
the Subsidiary Guarantors, entitled to the benefits of the Indenture.
We hereby consent to the filing of this opinion as Exhibit 5 to
Amendment No. 1 of the Registration Statement on Form S-1 filed by the Company
to effect registration of the Notes under the Securities Act of 1933
(Registration No. 333-38223) and to the reference to us under the caption
"Legal Matters" in the Prospectus constituting a part of such Registration
Statement.
Very truly yours,
Jones, Day, Reavis & Pogue
<PAGE> 1
EXHIBIT 10.24
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 18, 1997,
Amended and Restated as of September 26, 1997
Among
ARGO-TECH CORPORATION,
as Borrower,
AT HOLDINGS CORPORATION,
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
---------------------------
CHASE SECURITIES INC.,
as Arranger
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms...................................... 1
SECTION 1.02. Classification of Loans and
Borrowings....................................... 29
SECTION 1.03. Terms Generally ................................... 29
SECTION 1.04. Accounting Terms; GAAP............................. 29
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments; Outstanding Loans..................... 30
SECTION 2.02. Loans and Borrowings............................... 30
SECTION 2.03. Requests for Borrowings............................ 31
SECTION 2.04. Letters of Credit.................................. 32
SECTION 2.05. Funding of Borrowings.............................. 38
SECTION 2.06. Interest Elections................................. 39
SECTION 2.07. Termination and Reduction of
Commitments...................................... 40
SECTION 2.08. Repayment of Loans; Evidence of Debt............... 41
SECTION 2.09. Amortization of Term Loans......................... 42
SECTION 2.10. Prepayment of Loans................................ 45
SECTION 2.11. Fees............................................... 47
SECTION 2.12. Interest........................................... 48
SECTION 2.13. Alternate Rate of Interest......................... 49
SECTION 2.14. Increased Costs.................................... 50
SECTION 2.15. Break Funding Payments............................. 51
SECTION 2.16. Taxes.............................................. 52
SECTION 2.17. Payments Generally; Pro Rata Treatment;
Sharing of Setoffs............................... 53
SECTION 2.18. Mitigation Obligations; Replacement
of Lenders....................................... 55
<PAGE> 3
2
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers............................... 57
SECTION 3.02. Authorization; Enforceability...................... 57
SECTION 3.03. Governmental Approvals; No Conflicts............... 57
SECTION 3.04. Financial Condition; No Material
Adverse Change................................... 58
SECTION 3.05. Properties......................................... 59
SECTION 3.06. Litigation and Environmental Matters............... 59
SECTION 3.07. Compliance with Laws and Agreements................ 60
SECTION 3.08. Investment and Holding Company Status.............. 60
SECTION 3.09. Taxes.............................................. 60
SECTION 3.10. ERISA.............................................. 60
SECTION 3.11. Disclosure......................................... 61
SECTION 3.12. Subsidiaries....................................... 61
SECTION 3.13. Insurance.......................................... 61
SECTION 3.14. Labor Matters...................................... 61
SECTION 3.15. Solvency........................................... 62
SECTION 3.16. Security Documents................................. 62
SECTION 3.17. Federal Reserve Regulations........................ 63
SECTION 3.18. TRW Agreement...................................... 63
SECTION 3.19. Tax Status of ESOP................................. 64
SECTION 3.20. Certain Agreements................................. 64
ARTICLE IV
Conditions
----------
SECTION 4.01. Amendment Effective Date........................... 64
SECTION 4.02. Each Credit Event.................................. 69
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other
Information...................................... 70
SECTION 5.02. Notices of Material Events......................... 72
SECTION 5.03. Information Regarding Collateral................... 72
SECTION 5.04. Existence; Conduct of Business..................... 73
SECTION 5.05. Payment of Obligations............................. 73
SECTION 5.06. Maintenance of Properties.......................... 74
SECTION 5.07. Insurance.......................................... 74
<PAGE> 4
3
SECTION 5.08. Casualty and Condemnation.......................... 75
SECTION 5.09. Books and Records, Inspection and
Audit Rights..................................... 76
SECTION 5.10. Compliance with Laws............................... 76
SECTION 5.11. Use of Proceeds and Letters of Credit.............. 77
SECTION 5.12. Additional Subsidiaries............................ 77
SECTION 5.13 Further Assurances................................. 78
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness; Certain Equity
Securities....................................... 79
SECTION 6.02. Liens.............................................. 81
SECTION 6.03. Fundamental Changes................................ 82
SECTION 6.04. Investments, Loans, Advances,
Guarantees and Acquisitions...................... 83
SECTION 6.05. Asset Sales........................................ 86
SECTION 6.06. Sale and Lease-Back Transactions .................. 86
SECTION 6.07. Hedging Agreements................................. 86
SECTION 6.08. Restricted Payments; Certain Payments
of Indebtedness.................................. 87
SECTION 6.09. Transactions with Affiliates....................... 88
SECTION 6.10. Restrictive Agreements............................. 89
SECTION 6.11. Amendment of Material Documents.................... 89
SECTION 6.12. Capital Expenditures............................... 90
SECTION 6.13. Leverage Ratio..................................... 90
SECTION 6.14 Consolidated Interest Expense Coverage
Ration............................................. 91
SECTION 6.15 Certain Actions under Senior
Subordinated Note Documents........................ 91
ARTICLE VII
Events of Default ................................................... 91
ARTICLE VIII
The Administrative Agent............................................. 95
ARTICLE IX
Miscellaneous
-------------
<PAGE> 5
4
SECTION 9.01. Notices.............................................. 98
SECTION 9.02. Waivers; Amendments.................................. 98
SECTION 9.03. Expenses; Indemnity; Damage Waiver................... 100
SECTION 9.04. Successors and Assigns............................... 102
SECTION 9.05. Survival............................................. 105
SECTION 9.06. Counterparts; Integration;
Effectiveness...................................... 106
SECTION 9.07. Severability......................................... 106
SECTION 9.08. Right of Setoff...................................... 106
SECTION 9.09. Governing Law; Jurisdiction; Consent
to Service of Process.............................. 107
SECTION 9.10. WAIVER OF JURY TRIAL................................. 108
SECTION 9.11. Headings............................................. 108
SECTION 9.12. Confidentiality...................................... 108
SECTION 9.13. Interest Rate Limitation............................. 109
SCHEDULES:
Schedule 1.01(b) -- Immaterial Subsidiaries
Schedule 2.01 -- Commitments
Schedule 3.05 -- Real Property
Schedule 3.06 -- Disclosed Matters
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 6.04 -- Investments
Schedule 6.05 -- Real Estate
Schedule 6.10 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B(i) -- Form of Opinion of Paul R. Keen
Exhibit B(ii)-- Form of Opinion of Jones, Day, Reavis &
Pogue
Exhibit C -- Form of Parent Guarantee Agreement
Exhibit D -- Form of Subsidiary Guarantee Agreement
Exhibit E -- Form of Indemnity, Subrogation and Contribution
Agreement
Exhibit F -- Form of Pledge Agreement
Exhibit G -- Form of Security Agreement
Exhibit H -- Form of Amendment to Security Agreement
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT dated
as of July 18, 1997, as amended and restated as of
September 26, 1997, among ARGO-TECH CORPORATION, AT
HOLDINGS CORPORATION, the LENDERS party hereto, and
THE CHASE MANHATTAN BANK, as Administrative Agent.
The Borrower, Holdings, the Lenders and the Administrative
Agent entered into this Agreement as of July 18, 1997 (the "ORIGINAL
AGREEMENT"), pursuant to which the Lenders (a) committed to make Revolving Loans
to the Borrower from time to time during the Revolving Availability Period in an
amount up to $20,000,000, (b) made Tranche A Term Loans to the Borrower in the
amount of $100,000,000 and (c) committed to make Delayed Draw Acquisition Loans
to the Borrower on a single date during the Delayed Draw Acquisition Period in
an amount up to $15,000,000. The Borrower has requested that the Original
Agreement be amended in order to (a) allow the Borrower to make the Acquisition,
(b) allow the Borrower to issue, and the Subsidiary Loan Parties to guarantee,
on a subordinated basis the Senior Subordinated Notes, (c) allow the Borrower
and Holdings to prepay or redeem the Subordinated Notes and (d) effect certain
other changes in connection therewith. The Lenders are willing to amend the
Original Agreement for such purposes and to restate the Original Agreement as so
amended in the form hereof, subject to the terms and conditions hereinafter set
forth.
The parties hereto agree as follows:
ARTICLE I
DEfinitions
-----------
SECTION 1.01. DEFINED TERMS. As used in this
Agreement, the following terms have the meanings specified
below:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
<PAGE> 7
2
"ACQUISITION" means the acquisition by the
Borrower of J.C. Carter pursuant to the Stock Purchase
Agreement.
"ADJUSTED LIBO RATE" means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
"ADMINISTRATIVE AGENT" means The Chase Manhattan Bank, in its
capacity as administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an
Administrative Questionnaire in a form supplied by the
Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another
Person that (a) directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified or (b) owns, directly or indirectly, 10% or more of the voting
securities of the Person specified.
"ALTERNATE BASE RATE" means, for any day, a rate per annum
equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base
CD Rate in effect on such day plus 1% and (c) the Federal Funds Effective Rate
in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due
to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective
Rate shall be effective from and including the effective date of such change in
the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"AMENDMENT" means the amendment to the Original
Agreement effected by this Agreement.
"AMENDMENT EFFECTIVE DATE" means the date on which the
conditions specified in Section 4.01 are satisfied or waived in accordance with
9.02.
"APPLICABLE PERCENTAGE" means, with respect to any Revolving
Lender, the percentage of the total Revolving Commitments represented by such
Lender's Revolving Commitment. If the Revolving Commitments have terminated or
expired, the Applicable Percentages shall be determined
<PAGE> 8
3
based upon the Revolving Commitments most recently in effect, giving effect to
any assignments.
"APPLICABLE RATE" means, for any day with respect to any ABR
Loan or Eurodollar Loan, or with respect to the commitment fees payable
hereunder, as the case may be, the applicable rate per annum set forth below
under the caption "ABR Spread" "Eurodollar Spread" or "Commitment Fee Rate", as
the case may be, based upon the Leverage Ratio as of the most recent
determination date; PROVIDED that until the delivery to the Administrative
Agent, pursuant to Section 5.01(b), of Borrower's consolidated financial
statements for Borrower's first full fiscal quarter commencing after the
Effective Date, the "Applicable Rate" shall be the applicable rate per annum set
forth below in Category 1:
<TABLE>
<CAPTION>
ABR EURODOLLAR COMMITMENT FEE
LEVERAGE RATIO: SPREAD SPREAD RATE
--------------- ------ ------ ----
<S> <C> <C> <C>
CATEGORY 1
----------
Greater than or equal to 5.00 to 1.00 1.00 2.00 0.50
CATEGORY 2
----------
Greater than or equal to 4.50 to
1.00, but less than 5.00 to 1.00 0.75 1.75 0.375
CATEGORY 3
----------
Greater than or equal to 4.00 to
1.00, but less than 4.50 to 1.00 0 .50 1.50 0.375
CATEGORY 4
----------
Greater than or equal to 3.50 to
1.00, but less than 4.00 to 1.00 0.25 1.25 0.250
CATEGORY 5
----------
Less than 3.50 to 1.00 0 1.00 0.20
</TABLE>
For purposes of the foregoing, (i) the Leverage Ratio shall be
determined as of the end of each fiscal quarter of Borrower's fiscal year based
upon Borrower's consolidated financial statements delivered pursuant to Section
5.01(a) or (b) and (ii) each change in the Applicable Rate resulting from a
change in the Leverage Ratio shall be effective during the period commencing on
and including the date of delivery to the Administrative Agent of such
consolidated financial statements indicating such change and ending on the date
immediately preceding the effective date of the next such change; PROVIDED that
the Leverage Ratio shall be deemed to be in Category 1 (A) at any time that an
Event of Default has occurred and is continuing or (B) if the Borrower fails to
deliver the consolidated financial statements required to be delivered by it
pursuant to Section 5.01(a) or (b), during the period
<PAGE> 9
4
from the expiration of the time for delivery thereof until such consolidated
financial statements are delivered.
"ASSESSMENT RATE" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
for insurance by such Corporation of time deposits made in dollars at the
offices of such member in the United States; PROVIDED that if, as a result of
any change in any law, rule or regulation, it is no longer possible to determine
the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual
rate as shall be determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by a Lender and an assignee (with the consent of any party whose
consent is required by Section 9.04), and accepted by the Administrative Agent,
in the form of Exhibit A or any other form approved by the Administrative Agent.
"BASE CD RATE" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"BOARD" means the Board of Governors of the
Federal Reserve System of the United States of America.
"BORROWER" means Argo-Tech Corporation, a Delaware
corporation.
"BORROWING" means Loans of the same Class and Type, made,
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect.
"BORROWING REQUEST" means a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"BORROWER SUBORDINATED NOTES" means the $5,006,700 of floating
rate Subordinated Notes due December 31, 2007, of the Borrower payable to the
order of Robert Nagata, as
<PAGE> 10
5
trustee under the Irrevocable Trust Agreement dated December 16, 1988.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to remain closed; PROVIDED that, when used in connection with a
Eurodollar Loan, the term "BUSINESS DAY" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"CAPITAL EXPENDITURES" means, for any period, (a) the
additions to property, plant and equipment and other capital expenditures of the
Borrower and its consolidated Subsidiaries that are (or would be) set forth in a
consolidated statement of cash flows of the Borrower for such period prepared in
accordance with GAAP and (b) Capital Lease Obligations incurred by the Borrower
and its consolidated Subsidiaries during such period.
"CAPITAL LEASE OBLIGATIONS" of any Person means the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"CHANGE IN CONTROL" means (a) the acquisition of ownership,
directly or indirectly, beneficially or of record, by any Person other than
Holdings of any shares of capital stock of the Borrower; (b) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof), other than Permitted Owners of shares representing more than 20% of the
aggregate ordinary voting power represented by the issued and outstanding
capital stock of Holdings; (c) occupation of a majority of the seats (other than
vacant seats) on the board of directors of Holdings by Persons who were neither
(i) nominated by AT Holdings LLC or the chief executive officer of the Borrower
nor (ii) appointed by directors so nominated; (d) the acquisition of direct or
indirect Control of Holdings by any Person or group other than Permitted Owners;
or (e) any
<PAGE> 11
6
"Change of Control" as defined in the Senior Subordinated Notes Documents.
"CHANGE IN LAW" means (a) the adoption of any law, rule or
regulation after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender or
the Issuing Bank (or, for purposes of Section 2.14(b), by any lending office of
such Lender or by such Lender's or the Issuing Bank's holding company, if any)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"CLASS", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans, Tranche A Term Loans or Delayed Draw Acquisition Loans and,
when used in reference to any Commitment, refers to whether such Commitment is a
Revolving Commitment or Delayed Draw Acquisition Loan Commitment.
"CLASS A STOCK" means shares of Class A Common Stock, par
value $.01 per share, of Holdings.
"CLASS B STOCK" means shares of Class B Common Stock, par
value $.01 per share, of Holdings.
"CLASS C STOCK" means shares of Class C Common Stock, par
value $.01 per share, of Holdings.
"CLASS D STOCK" means shares of Class D Common Stock, par
value $.01 per share, of Holdings.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL" means any and all "Collateral", as
defined in any applicable Security Document.
"COLLATERAL AGENT" means the "Collateral Agent",
as defined in the Security Agreement.
"COMMITMENT" means a Revolving Commitment or
Delayed Draw Acquisition Loan Commitment, or any combination thereof (as the
context requires).
<PAGE> 12
7
"COMMON STOCK" means shares of Class A Stock, Class B Stock,
Class C Stock or Class D Stock.
"CONSOLIDATED EBITDA" means, for any period, 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 Effective Date), plus, without duplication and to the extent deducted from
revenues in determining Consolidated Net Income, the sum of (a) the aggregate
amount of Consolidated Interest Expense for such period, (b) the aggregate
amount of letter of credit fees accrued during such period, (c) the aggregate
amount of income tax expense for such period, (d) all amounts attributable to
depreciation and amortization for such period and (e) all extraordinary charges
during such period and all non-cash charges associated with ESOP compensation
and stock options issued to management, and minus, without duplication and to
the extent added to revenues in determining Consolidated Net Income for such
period, all extraordinary gains during such period, all as determined on a
consolidated basis with respect to the Borrower and its Subsidiaries in
accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
interest expense, both expended and capitalized (including the interest
component in respect of Capital Lease Obligations, but excluding any
amortization of deferred financing costs and prepayment fees), accrued or paid
by the Borrower and its Subsidiaries during such period, determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, net income or
loss of the Borrower and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, provided that there shall be
excluded (a) the income of any Person in which any other Person (other than the
Borrower or any of the Subsidiaries or any director holding qualifying shares in
compliance with applicable law) has a joint interest, except income shall be
included to the extent of the amount of dividends or other distributions
actually paid to the Borrower or any of its Subsidiaries by such Person during
such period and (b) the income (or loss) of any Person accrued prior to the date
it becomes a Subsidiary or is merged into or consolidated with the Borrower or
any of its Subsidiaries or the date that Person's assets are acquired by the
Borrower or any of its
<PAGE> 13
8
Subsidiaries (except, in the case of J.C. Carter, which income (or loss)
(excluding the effect of expenses of the office of the president on such income
or (loss)) shall not be excluded for purposes of determining Consolidated EBITDA
for purposes of the Leverage Ratio and Senior Leverage Ratio only).
"CONTROL" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"CORPORATION'S NOTES" shall have the meaning set forth in
Section 8.03 of the Stockholders' Agreement.
"DEFAULT" means any event or condition which constitutes an
Event of Default or which upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
"DELAYED DRAW ACQUISITION LOAN" means a Loan made pursuant to
clause (a) of Section 2.01.
"DELAYED DRAW ACQUISITION LOAN COMMITMENT" means, with respect
to each Lender, the commitment, if any, of such Lender to make a Delayed Draw
Acquisition Loan hereunder on the Amendment Effective Date, expressed as an
amount representing the maximum principal amount of the Delayed Draw Acquisition
Loan to be made by such Lender hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.07 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
9.04. The initial amount of each Lender's Delayed Draw Acquisition Loan
Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance
pursuant to which such Lender shall have assumed it Delayed Draw Acquisition
Loan Commitment, as applicable. The initial aggregate amount of the Lenders'
Delayed Draw Acquisition Loan Commitments is $15,000,000.
"DELAYED DRAW ACQUISITION LOAN LENDER" means a Lender with a
Delayed Draw Acquisition Loan Commitment or an outstanding Delayed Draw
Acquisition Loan.
"DELAYED DRAW ACQUISITION LOAN MATURITY DATE" means July 18,
2004.
<PAGE> 14
9
"DISCLOSED MATTERS" means the actions, suits and proceedings
and the environmental matters disclosed in Schedule 3.06.
"DISTRIBUTORSHIP AGREEMENTS" means (a) the Distributorship
Agreement dated as of December 24, 1990, among the Borrower, Yamada Corporation
and Vestar Capital Partners, Inc. and (b) the Japan Distributorship Agreement
dated as of December 24, 1990, between the Borrower and Yamada Corporation.
"DOLLARS" or "$" refers to lawful money of the United States
of America.
"EFFECTIVE DATE" means July 18, 1997.
"ENVIRONMENTAL LAWS" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, handling, treatment, storage, disposal, release or
threatened release of any Hazardous Material or to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, natural resource damage, costs
of environmental remediation, administrative oversight costs, fines, penalties
or indemnities), of Holdings, the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of
<PAGE> 15
10
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate
from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Borrower or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from the Borrower or any
ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability
or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
"ESOP" means the employee stock ownership plan created
pursuant to the terms of the ESOP Plan and Trust Document.
"ESOP DOCUMENTATION" means the ESOP Plan and Trust Document,
the ESOP Loan Agreement, the ESOP Term Note and the ESOP Pledge Agreement.
"ESOP LOAN" means the loan made by the Borrower to the ESOP
Trust pursuant to the terms of the ESOP Loan Agreement.
"ESOP LOAN AGREEMENT" means the ESOP Loan Agreement, dated May
17, 1994, between the Borrower and the ESOP Trust.
"ESOP PLAN AND TRUST DOCUMENT" means the Argo-Tech Corporation
Employee Stock Ownership Plan and Trust
<PAGE> 16
11
Agreement, dated May 17, 1994, between the Borrower and Society National Bank in
its capacity as ESOP Trustee.
"ESOP PLEDGE AGREEMENT" means the ESOP Pledge Agreement, dated
May 17, 1994, executed by the ESOP Trust in favor of the Borrower.
"ESOP PUT OPTION" means, collectively, the put option created
pursuant to Section 7.05 of the ESOP Plan and Trust Document and the put option
payments corresponding to such section created by the Argo-Tech Corporation
Employee Stock Ownership Plan Excess Benefit Plan.
"ESOP TERM NOTE" means the Term Note, dated the date of the
ESOP Loan, in the original principal amount of $16,800,000, executed and
delivered by the ESOP Trust to the Borrower pursuant to the ESOP Loan Agreement,
and also means all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"ESOP TRUST" means the Argo-Tech Employee Stock Ownership
Trust created pursuant to the terms of the ESOP Plan and Trust Document.
"ESOP TRUSTEE" means Society National Bank, in its capacity as
trustee of the ESOP, and any successor thereto in such capacity.
"EURODOLLAR", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"EVENT OF DEFAULT" has the meaning assigned to
such term in Article VII.
"EXCESS CASH FLOW" means, for any period, the sum
(without duplication) of:
(a) the consolidated net income (or loss) of the Borrower and
its consolidated Subsidiaries for such period, adjusted to exclude any
gains or losses attributable to Prepayment Events; PLUS
(b) depreciation, amortization and other non-cash charges or
losses deducted in determining such consolidated net income (or loss)
for such period; PLUS
<PAGE> 17
12
(c) the sum of (i) the amount, if any, by which Net Working
Capital decreased during such period plus (ii) the amount, if any, by
which the consolidated deferred revenues of the Borrower and its
consolidated Subsidiaries increased during such period plus (iii) the
aggregate principal amount of Capital Lease Obligations and other
Indebtedness incurred during such period to finance Capital
Expenditures, to the extent that mandatory principal payments in
respect of such Indebtedness would not be excluded from clause (f)
below when made; MINUS
(d) the sum of (i) any non-cash gains included in determining
such consolidated net income (or loss) for such period plus (ii) the
amount, if any, by which Net Working Capital increased during such
period plus (iii) the amount, if any, by which the consolidated
deferred revenues of the Borrower and its Subsidiaries decreased during
such period; MINUS
(e) Capital Expenditures permitted under Section 6.12 and made
during such period; MINUS
(f) the aggregate principal amount of Indebtedness repaid or
prepaid by the Borrower and its consolidated Subsidiaries during such
period, excluding (i) Indebtedness in respect of Revolving Loans and
Letters of Credit, (ii) Term Loans prepaid pursuant to Section 2.10(b)
or (d), (iii) repayments or prepayments of Indebtedness financed by
incurring other Indebtedness, to the extent that mandatory principal
payments in respect of such other Indebtedness would not be excluded
from this clause (f) when made and (iv) Indebtedness referred to in
clauses (v), (vi), (ix) and (x) of Section 6.01(a).
"EXCLUDED TAXES" means, with respect to the Administrative
Agent, any Lender, the Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a
<PAGE> 18
13
Foreign Lender (other than an assignee pursuant to a request by the Borrower
under Section 2.18(b)), any withholding tax that is imposed on amounts payable
to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender's failure to comply with Section 2.16(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.16(a).
"EXISTING CREDIT AGREEMENT" means (a) the Amended and Restated
Loan Agreement dated as of September 21, 1995, as amended, among Holdings, the
Borrower, the Subsidiaries named therein and The Sumitomo Bank, Ltd., and (b)
the Subordinated Loan Agreement dated as of December 24, 1990, as amended,
between Holdings and The Sumitomo Bank, Ltd.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means the chief financial officer or
treasurer of the Borrower.
"FOREIGN LENDER" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is located. For
purposes of this definition, the United States of America, each State thereof
and the District of Columbia shall be deemed to constitute a single
jurisdiction.
"FOREIGN SUBSIDIARY" means any Subsidiary that is organized
under the laws of a jurisdiction other than the United States of America or any
State thereof or the District of Columbia.
<PAGE> 19
14
"GAAP" means generally accepted accounting
principles in the United States of America.
"GOVERNMENTAL AUTHORITY" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"GUARANTEE" of or by any Person (the "GUARANTOR") means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; PROVIDED that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business.
"HAZARDOUS MATERIALS" means all explosive or radioactive
substances or wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or asbestos
containing materials, polychlorinated biphenyls, radon gas, infectious or
medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price hedging
arrangement.
<PAGE> 20
15
"HOLDINGS" means AT Holdings Corporation, a Delaware
corporation.
"HOLDINGS SUBORDINATED NOTES" means the $41,100,000 of 11.25%
Subordinated Notes due December 31, 2007, of Holdings payable to AT Holdings,
LLC.
"INDEBTEDNESS" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT" means the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Borrower, Holdings, the Subsidiary Loan Parties and the
Administrative Agent.
<PAGE> 21
16
"INFORMATION MEMORANDUM" means the Confidential Information
Memorandum dated June 1997 relating to the Borrower, the Loan Documents, the
borrowing of Loans, the use of proceeds thereof and the issuance of Letters of
Credit hereunder.
"INTEREST ELECTION REQUEST" means a request by the Borrower to
convert or continue a Revolving Borrowing or Term Borrowing in accordance with
Section 2.06.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR
Loan, the last day of each March, June, September and December, and (b) with
respect to any Eurodollar Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, each day
prior to the last day of such Interest Period that occurs at intervals of three
months' duration after the first day of such Interest Period.
"INTEREST PERIOD" means, with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect; PROVIDED, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"ISSUING BANK" means The Chase Manhattan Bank, in its capacity
as the issuer of Letters of Credit hereunder, and its successors in such
capacity as provided in Section 2.04(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by Affiliates
of the Issuing Bank, in which case the term
<PAGE> 22
17
"Issuing Bank" shall include any such Affiliate with respect to Letters of
Credit issued by such Affiliate.
"J.C. CARTER" means J.C. Carter Company, Inc., a California
corporation.
"LC DISBURSEMENT" means a payment made by the Issuing Bank
pursuant to a Letter of Credit.
"LC EXPOSURE" means, at any time, the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by or
on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender
at any time shall be its Applicable Percentage of the total LC Exposure at such
time.
"LENDERS" means the Persons listed on Schedule 2.01 and any
other Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance.
"LETTER OF CREDIT" means any letter of credit issued pursuant
to this Agreement.
"LEVERAGE RATIO" means, on any date, the ratio of (a) Total
Debt as of such date to (b) Consolidated EBITDA for the period of four
consecutive fiscal quarters of the Borrower most recently ended as of such date
(including the Consolidated EBITDA (excluding the effect of expenses of the
office of the president on such Consolidated EBITDA) for such four fiscal
quarters of J.C. Carter for the period of four consecutive fiscal quarters of
the Borrower most recently ended) (or, if such date is not the last day of a
fiscal quarter, then most recently ended prior to such date), all determined on
a consolidated basis in accordance with GAAP.
"LIBO RATE" means, with respect to any Eurodollar Borrowing
for any Interest Period, the rate appearing on Page 3750 of the Telerate Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank
<PAGE> 23
18
market) at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO RATE" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"LIEN" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"LOAN DOCUMENTS" means this Agreement, the promissory notes,
if any, executed and delivered pursuant to Section 2.08(e), the Parent Guarantee
Agreement, the Subsidiary Guarantee Agreement, the Indemnity, Subrogation and
Contribution Agreement and the Security Documents.
"LOAN PARTIES" means Holdings, the Borrower and the Subsidiary
Loan Parties.
"LOANS" means the loans made by the Lenders to the Borrower
pursuant to this Agreement.
"MANAGEMENT PUT OPTIONS" means the put option created pursuant
to Article IX of the Stockholders' Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, assets, operations or condition, financial or otherwise, of
Holdings, the Borrower and the Subsidiaries taken as a whole, (b) the ability of
one or more Loan Parties to perform any of their obligations under the Loan
Documents that, taken as a whole, are material or (c) the rights of or benefits
available to the Lenders under
<PAGE> 24
19
one or more Loan Documents that, taken as a whole, are material.
"MATERIAL INDEBTEDNESS" means Indebtedness (other than the
Loans and Letters of Credit), or obligations in respect of one or more Hedging
Agreements, of any one or more of Holdings, the Borrower and its Subsidiaries in
an aggregate principal amount exceeding $2,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of Holdings,
the Borrower or any Subsidiary in respect of any Hedging Agreement at any time
shall be the maximum aggregate amount (giving effect to any netting agreements)
that Holdings, the Borrower or such Subsidiary would be required to pay if such
Hedging Agreement were terminated at such time.
"MOODY'S" means Moody's Investors Service, Inc.
"MORTGAGE" means a mortgage, deed of trust, assignment of
leases and rents, leasehold mortgage or other security document granting a Lien
on any Mortgaged Property to secure the Obligations. Each Mortgage shall be
satisfactory in form and substance to the Collateral Agent.
"MORTGAGED PROPERTY" means each parcel of real property and
improvements thereto with respect to which a Mortgage is granted pursuant to
Section 5.12 or 5.13.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET PROCEEDS" means, with respect to any event (a) the cash
proceeds received in respect of such event including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar payments, net of (b) the sum
of (i) all reasonable fees and out-of-pocket expenses paid by Holdings, the
Borrower and the Subsidiaries to third parties (other than Affiliates) in
connection with such event, (ii) in the case of a sale, transfer or other
disposition of an asset (including pursuant to a sale and leaseback transaction
or a casualty or other insured damage or condemnation or similar proceeding),
the amount of all payments required to be made by Holdings, the Borrower and the
Subsidiaries as a result of such event to repay Indebtedness (other than Loans)
secured by such asset or otherwise subject to mandatory
<PAGE> 25
20
prepayment as a result of such event, and (iii) the amount of all taxes paid (or
reasonably estimated to be payable) by Holdings, the Borrower and the
Subsidiaries, and the amount of any reserves established by Holdings, the
Borrower and the Subsidiaries to fund contingent liabilities reasonably
estimated to be payable, in each case during the year that such event occurred
or the next succeeding year and that are directly attributable to such event (as
determined reasonably and in good faith by the chief financial officer of the
Borrower).
"NET WORKING CAPITAL" means, at any date, (a) the consolidated
current assets of the Borrower and its consolidated Subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the consolidated current
liabilities of the Borrower and its consolidated Subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness). Net Working Capital
at any date may be a positive or negative number. Net Working Capital increases
when it becomes more positive or less negative and decreases when it becomes
less positive or more negative.
"OBLIGATIONS" has the meaning assigned to such term in the
Security Agreement.
"OTHER TAXES" means any and all current or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"PARENT GUARANTEE AGREEMENT" means the Parent Guarantee
Agreement, substantially in the form of Exhibit C, made by Holdings in favor of
the Administrative Agent for the benefit of the Secured Parties.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions.
"PERFECTION CERTIFICATE" means a certificate in the form of
Annex 1 to the Security Agreement or any other form approved by the Collateral
Agent.
"PERMITTED ACQUISITION" means any acquisition by the Borrower
or a Subsidiary Loan Party of all or
<PAGE> 26
21
substantially all the assets of, or all the shares of capital stock of or other
equity interests in, a Person or division or line of business of a Person if,
immediately after giving effect thereto, (i) no Default has occurred and is
continuing or would result therefrom, (ii) all transactions related thereto are
consummated in accordance with applicable laws, (iii) all the capital stock of
any Subsidiary formed for the purpose of or resulting from such acquisition are
owned directly by the Borrower or a Subsidiary Loan Party and all actions
required to be taken, if any, with respect to such acquired or newly formed
Subsidiary under Sections 5.12 and 5.13 have been taken, (iv) the Borrower and
its Subsidiaries are in compliance, on a pro forma basis after giving effect to
such acquisition (and taking into account all appropriate assets, liabilities
and items of income and expense of any acquired entity or acquired assets for
any applicable period prior to the acquisition thereof) with the covenants
contained in Sections 6.01, 6.12, 6.13 and 6.14 recomputed as at the last day of
the most recently ended fiscal quarter of the Borrower, as if such acquisition
had occurred on the first day of each relevant period for testing such
compliance, (v) in the case of an acquisition of assets, such assets are to be
used, and in the case of an acquisition of capital stock or other equity
interests, the Person so acquired is engaged in, the same or a related line of
business as the Borrower and the Subsidiaries and other business activities
incidental thereto, (vi) the Borrower has delivered to the Administrative Agent
an officers' certificate to the effect set forth in clauses (i) and (iv) above,
together with all relevant financial information for the Person or assets to be
acquired, and (vii) neither Holdings, the Borrower nor any Subsidiary, including
any acquired or newly formed Subsidiary, shall be liable for any Indebtedness
other than as permitted by Section 6.01; PROVIDED that the Acquisition shall not
be deemed to constitute a Permitted Acquisition for purposes of this Agreement.
"PERMITTED ENCUMBRANCES" means:
(a) Liens imposed by law for taxes that are not
yet due or are being contested in compliance with
Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not
overdue by more than
<PAGE> 27
22
30 days or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(d) deposits to secure the performance of bids, trade
contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case
in the ordinary course of business;
(e) judgment liens in respect of judgments that do not
constitute an Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do
not materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Borrower or any
Subsidiary; and
(g) rights of the government of the United States of America
or any agency or instrumentality thereof in inventory or equipment,
arising out of any contract between the Borrower or any Subsidiary and
such government, agency or instrumentality or pursuant to any contract
entered into with, or received from, any higher-tier subcontractor or
prime contractor of such government, agency or instrumentality, whether
by operation of law or the terms of such contract, or by virtue of the
receipt by the Borrower or its predecessor or such Subsidiary of
progress or advance payments or reimbursement of costs in connection
therewith.
PROVIDED that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"PERMITTED INVESTMENTS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any
<PAGE> 28
23
agency thereof to the extent such obligations are backed by the full
faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from S&P or from
Moody's;
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, (i) any domestic office
of any commercial bank organized under the laws of the United States of
America or any State thereof that has a combined capital and surplus
and undivided profits of not less than $500,000,000, (ii) any domestic
office of any commercial bank organized under the laws of a foreign
jurisdiction that has a rating of at least AA by S&P or Aa by Moody's
and (iii) any Lender; and
(d) fully collateralized repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above and
entered into with a financial institution satisfying the criteria
described in clause (c) above.
"PERMITTED OWNERS" 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 and
(e) individuals who are members of management of Holdings or the Borrower as of
the Effective Date.
"PERSON" means any natural person, corporation, limited
liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated,
<PAGE> 29
24
would under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGE AGREEMENT" means the Pledge Agreement, substantially
in the form of Exhibit F, among the Borrower, Holdings, the Subsidiaries party
thereto and the Collateral Agent for the benefit of the Secured Parties.
"PREPAYMENT EVENT" means:
(a) any sale, transfer or other disposition (including
pursuant to a sale and leaseback transaction) of any property or asset
(including capital stock) of Holdings, the Borrower or any Subsidiary,
other than (i) dispositions described in clauses (a), (b) and (d) of
Section 6.05 and (ii) other dispositions resulting in aggregate Net
Proceeds not exceeding $2,500,000; or
(b) any casualty or other insured damage to, or any taking
under power of eminent domain or by condemnation or similar proceeding
of, any property or asset of Holdings, the Borrower or any Subsidiary,
but only to the extent that the Net Proceeds therefrom have not been
applied to repair, restore or replace such property or asset within 90
days after such event (or any longer period provided for in Section
5.08(C) with respect to events referred to in such Section); or
(c) the issuance by Holdings, the Borrower or any Subsidiary
of any equity securities, or the receipt by Holdings, the Borrower or
any Subsidiary of any capital contribution, other than any such
issuance of equity securities to, or receipt of any such capital
contribution from, Holdings, the Borrower or a Subsidiary; or
(d) the incurrence by Holdings, the Borrower or any Subsidiary
of any Indebtedness, other than Indebtedness permitted under Section
6.01.
"PRIME RATE" means the rate of interest per annum publicly
announced from time to time by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly announced
as being effective.
<PAGE> 30
25
"PUT OPTIONS" means, collectively, the ESOP Put Option and the
Management Put Options.
"REGISTER" has the meaning set forth in Section 9.04.
"REGULATION G" means Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION U" means Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION X" means Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"RELATED PARTIES" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers, employees,
agents and advisors of such Person and such Person's Affiliates.
"REQUIRED LENDERS" means, at any time, Lenders having
Revolving Exposures, Term Loans and unused Commitments representing more than
50% of the sum of the total Revolving Exposures, outstanding Term Loans and
unused Commitments at such time.
"RESTRICTED PAYMENT" means any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of Holdings, the Borrower or any Subsidiary, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancelation or termination of any such shares of capital stock of
Holdings, the Borrower or any Subsidiary or any option, warrant or other right
to acquire any such shares of capital stock of Holdings, the Borrower or any
Subsidiary.
"REVOLVING AVAILABILITY PERIOD" means the period from and
including the Effective Date to but excluding the earlier of the Revolving
Maturity Date and the date of termination of the Revolving Commitments.
"REVOLVING COMMITMENT" means, with respect to each Lender, the
commitment, if any, of such Lender to make
<PAGE> 31
26
Revolving Loans and to acquire participations in Letters of Credit hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.07 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
9.04. The initial amount of each Lender's Revolving Commitment is set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
shall have assumed its Revolving Commitment, as applicable. The initial
aggregate amount of the Lenders' Revolving Commitments is $20,000,000.
"REVOLVING EXPOSURE" means, with respect to any Lender at any
time, the sum of the outstanding principal amount of such Lender's Revolving
Loans and its LC Exposure at such time.
"REVOLVING LENDER" means a Lender with a Revolving Commitment
or, if the Revolving Commitments have terminated or expired, a Lender with
Revolving Exposure.
"REVOLVING LOAN" means a Loan made pursuant to clause (b) of
Section 2.01.
"REVOLVING MATURITY DATE" means July 18, 2004.
"S&P" means Standard & Poor's.
"SECURED PARTIES" shall have the meaning assigned to such term
in the Security Agreement.
"SECURITY AGREEMENT" means the Security Agreement,
substantially in the form of Exhibit G, among the Borrower, the Subsidiary Loan
Parties and the Collateral Agent for the benefit of the Secured Parties.
"SECURITY DOCUMENTS" means the Security Agreement, the Pledge
Agreement, the Mortgages and each other security agreement or other instrument
or document executed and delivered pursuant to Section 5.12 or 5.13 to secure
any of the Obligations.
"SENIOR DEBT" means, with respect to the Borrower and its
Subsidiaries on a consolidated basis at any time, all Indebtedness of the
Borrower and its Subsidiaries (other than the Subordinated Notes and the Senior
Subordinated Notes) which at such time would be required to be reflected
<PAGE> 32
27
as a liability for borrowed money on a consolidated balance sheet of the
Borrower and its consolidated Subsidiaries prepared in accordance with GAAP.
"SENIOR LEVERAGE RATIO" means, on any date, the ratio of (a)
Senior Debt as of such date to (b) Consolidated EBITDA for the period of four
consecutive fiscal quarters of the Borrower most recently ended as of such date
(including the Consolidated EBITDA (excluding the effect of expenses of the
office of the president on such Consolidated EBITDA) for such four fiscal
quarters of J.C. Carter for the period of four consecutive fiscal quarters of
the Borrower most recently ended) (or, if such date is not the last day of a
fiscal quarter, then most recently ended prior to such date), all determined on
a consolidated basis in accordance with GAAP.
"SENIOR SUBORDINATED NOTES" means the 85/8% Senior
Subordinated Notes due 2007 issued on the Amendment Effective Date in the
aggregate principal amount of $140,000,000 and shall include any substantially
identical notes issued in exchange therefore after the Amendment Effective Date,
pursuant to the Senior Subordinated Notes Documents.
"SENIOR SUBORDINATED NOTES DOCUMENTS" means the indenture
under which the Senior Subordinated Notes are issued and all other instruments,
agreements and documents evidencing, guaranteeing or providing for the terms and
conditions of the Senior Subordinated Notes.
"SPECIFIED REAL ESTATE" means the real estate owned by
Argo-Tech Corporation (HBP) as of the Effective Date identified on Schedule
6.05.
"STATUTORY RESERVE RATE" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
the Board). Such reserve percentages shall include those
<PAGE> 33
28
imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation. The Statutory Reserve Rate shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"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 the
Effective Date, by and among Holdings, the Borrower, YC International Inc.,
Yamada Corporation, Sunhorizon International Inc. and the Persons signing the
Stockholders' Agreement designated on Schedule A thereto.
"STOCK PURCHASE AGREEMENt" means the Stock Purchase Agreement,
dated as of August 1, 1997, by and among J.C. Carter, Robert L. Veloz,
individually and as trustee, Marlene J. Veloz, individually and as trustee,
Harry S. Derbyshire, individually and as trustee, Edith T. Derbyshire,
individually and as trustee, Michael Veloz, Katherine Canfield and Maureen
Partch, as trustee and the Borrower.
"SUBORDINATED NOTES" means the Borrower Subordinated Notes and
Holdings Subordinated Notes.
"SUBSIDIARY" means, with respect to any Person (the "PARENT")
at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
<PAGE> 34
29
"SUBSIDIARY" means any subsidiary of Holdings or
the Borrower, as the context requires.
"SUBSIDIARY GUARANTEE AGREEMENT" means the Subsidiary
Guarantee Agreement, substantially in the form of Exhibit D, made by the
Subsidiary Loan Parties in favor of the Administrative Agent for the benefit of
the Secured Parties.
"SUBSIDIARY LOAN PARTY" means any Subsidiary of the Borrower
other than (a) any Foreign Subsidiary that, if it were to Guarantee the
Obligations, would result in adverse tax consequences to Holdings or the
Borrower, and (b) immaterial subsidiaries set forth on Schedule 1.01(b) so long
as such immaterial subsidiaries have no operating assets or earnings other than
operating assets and earnings as of the Effective Date.
"TAXES" means any and all present or future taxes, levies,
imposts, duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"TERM LOAN" means a Tranche A Term Loan or a Delayed Draw
Acquisition Loan.
"THREE-MONTH SECONDARY CD RATE" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day) or, if such rate is not so reported on such
day or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day is not a Business Day, on the next preceding Business
Day) by the Administrative Agent from three negotiable certificate of deposit
dealers of recognized standing selected by it.
"TOTAL DEBT" means, with respect to the Borrower and its
Subsidiaries on a consolidated basis at any time, all Indebtedness of the
Borrower and its Subsidiaries which at such time would be required to be
reflected as a liability for borrowed money on a consolidated balance sheet
<PAGE> 35
30
of the Borrower and its consolidated Subsidiaries prepared in accordance with
GAAP.
"TRANCHE A TERM LOAN" has the meaning set forth in Section
2.01.
"TRANCHE A TERM LOAN LENDER" means a Lender with an
outstanding Tranche A Term Loan.
"TRANCHE A TERM LOAN MATURITY DATE" means July 18, 2004.
"TRANSACTIONS" means (a) the execution, delivery and
performance by each Loan Party of the Loan Documents to which it is to be a
party, (b) the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder, (c) the making of the Acquisition and
(d) the issuance of the Senior Subordinated Notes.
"TRW" means TRW Inc, an Ohio corporation, and its successors
and permitted assigns under the TRW Agreement.
"TRW AGREEMENT" means that certain Agreement of Purchase and
Sale between Agnem Holdings, Inc. and TRW, dated as of August 5, 1986, as
amended by (a) that certain letter agreement dated September 5, 1986, (b) that
certain Agreement dated as of September 16, 1986, (c) that certain Agreement
dated as of September 26, 1986, (d) that certain Agreement dated as of October
1, 1986, (e) that certain letter agreement dated as of October 10, 1986, (f)
that certain letter agreement dated October 15, 1986, and (g) that certain
Amendment No. 6 to Purchase Agreement dated as of October 20, 1986; such term
shall also include any other amendments or modifications thereof entered into in
accordance with Section 6.11.
"TYPE", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan
as a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
<PAGE> 36
31
SECTION 1.02. CLASSIFICATION OF LOANS AND BORROWINGS. For
purposes of this Agreement, Loans may be classified and referred to by Class
(E.G., a "Revolving Loan") or by Type (E.G., a "Eurodollar Loan") or by Class
and Type (E.G., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (E.G., a "Revolving Borrowing") or by Type
(E.G., a "Eurodollar Borrowing") or by Class and Type (E.G., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. TERMS GENERALLY. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.04. ACCOUNTING TERMS; GAAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; PROVIDED
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the
<PAGE> 37
32
Required Lenders request an amendment to any provision hereof for such purpose),
regardless of whether any such notice is given before or after such change in
GAAP or in the application thereof, then such provision shall be interpreted on
the basis of GAAP as in effect and applied immediately before such change shall
have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. COMMITMENTS; OUTSTANDING LOANS. Subject to the
terms and conditions set forth herein, each Lender agrees (a) to make a Delayed
Draw Acquisition Loan to the Borrower on the Amendment Effective Date in a
principal amount not exceeding its Delayed Draw Acquisition Loan Commitment and
(b) to make Revolving Loans to the Borrower from time to time during the
Revolving Availability Period in an aggregate principal amount that will not
result in such Lender's Revolving Exposure exceeding such Lender's Revolving
Commitment. Term loans (the "TRANCHE A TERM LOANS") in an initial aggregate
amount of $100,000,000 were made to the Borrower on the Effective Date, and no
Lender shall have an obligation to make any additional Tranche A Term Loan. The
outstanding principal amount of each Lender's Tranche A Term Loan as of the
Amendment Effective Date is set forth on Schedule 2.01. Within the foregoing
limits and subject to the terms and conditions set forth herein, the Borrower
may borrow, prepay and reborrow Revolving Loans. Amounts repaid in respect of
Term Loans may not be reborrowed.
SECTION 2.02. LOANS AND BORROWINGS. (a) Each Loan shall be
made as part of a Borrowing consisting of Loans of the same Class and Type made
by the Lenders ratably in accordance with their respective Commitments of the
applicable Class. The failure of any Lender to make any Loan required to be made
by it shall not relieve any other Lender of its obligations hereunder; PROVIDED
that the Commitments of the Lenders are several and no Lender shall be
responsible for any other Lender's failure to make Loans as required.
(b) Subject to Section 2.13, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of
<PAGE> 38
33
ABR Loans or Eurodollar Loans as the Borrower may request in accordance
herewith. Notwithstanding anything to the contrary contained herein, all
Borrowings made on the Amendment Effective Date shall be ABR Borrowings. Each
Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any
exercise of such option shall not affect the obligation of the Borrower to repay
such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $100,000 and not less than $2,500,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $100,000 and not less than $1,000,000;
PROVIDED that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Revolving Commitments or that is
required to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.04(e). Borrowings of more than one Type and Class may be outstanding
at the same time; PROVIDED that there shall not at any time be more than a total
of six Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Revolving Maturity Date, Tranche A Term Loan Maturity Date or Delayed
Draw Acquisition Loan Maturity Date, as applicable.
SECTION 2.03. REQUESTS FOR BORROWINGS. To request a Revolving
Borrowing or Term Borrowing, the Borrower shall notify the Administrative Agent
of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing, or (b) in the case of an ABR Borrowing, not later
than 11:00 a.m., New York City time, one Business Day before the date of the
proposed Borrowing; PROVIDED that any such notice of an ABR Revolving Borrowing
to finance the reimbursement of an LC Disbursement as contemplated by Section
2.04(e) may be given not later than 10:00 a.m., New York City time, on the date
of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and
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34
shall be confirmed promptly by hand delivery or telecopy to the Administrative
Agent of a written Borrowing Request in a form approved by the Administrative
Agent and signed by the Borrower. Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.02:
(i) whether the requested Borrowing is to be a
Revolving Borrowing, Tranche A Term Borrowing or
Delayed Draw Acquisition Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business
Day;
(iv) subject to the second sentence of Section 2.02(b),
whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall
be deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. LETTERS OF CREDIT. (a) GENERAL. Subject to the
terms and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the Revolving Availability Period. In the event of any inconsistency
between the terms and conditions of this Agreement and the terms and conditions
of
<PAGE> 40
35
any form of letter of credit application or other agreement submitted by the
Borrower to, or entered into by the Borrower with, the Issuing Bank relating to
any Letter of Credit, the terms and conditions of this Agreement shall control.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN
CONDITIONS. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (reasonably in advance of the requested date
of issuance, amendment, renewal or extension) a notice requesting the issuance
of a Letter of Credit, or identifying the Letter of Credit to be amended,
renewed or extended, and specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day), the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) of this Section), the
amount of such Letter of Credit, the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit. If requested by the Issuing Bank, the Borrower
also shall submit a letter of credit application on the Issuing Bank's standard
form in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed $2,000,000
and (ii) the total Revolving Exposures shall not exceed the total Revolving
Commitments.
(c) EXPIRATION DATE. Each Letter of Credit shall expire at or
prior to the close of business on the earlier of (i) the date one year after the
date of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Revolving Maturity Date.
(d) PARTICIPATIONS. By the issuance of a Letter of Credit (or
an amendment to a Letter of Credit increasing the amount thereof) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank
<PAGE> 41
36
hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to
pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its obligation
to acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) REIMBURSEMENT. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; PROVIDED that
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 that such payment be financed with an
ABR Revolving Borrowing in an equivalent amount and, to the extent so financed,
the Borrower's obligation to make such payment shall be discharged and replaced
by the resulting ABR Revolving Borrowing. If the Borrower fails to make such
payment when due, the Administrative Agent shall notify each Revolving Lender of
the applicable LC Disbursement, the
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37
payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Revolving Lender shall pay to the Administrative Agent its Applicable Percentage
of the payment then due from the Borrower, in the same manner as provided in
Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall
apply, MUTATIS MUTANDIS, to the payment obligations of the Revolving Lenders),
and the Administrative Agent shall promptly pay to the Issuing Bank the amounts
so received by it from the Revolving Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Revolving Lenders have made payments pursuant to
this paragraph to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Revolving
Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans as contemplated
above) shall not constitute a Loan and shall not relieve the Borrower of its
obligation to reimburse such LC Disbursement.
(f) OBLIGATIONS ABSOLUTE. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder. Neither
the Administrative Agent, the Lenders nor the Issuing Bank, nor any of their
Related Parties, shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment
<PAGE> 43
38
thereunder (irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the Issuing Bank; PROVIDED
that the foregoing shall not be construed to excuse the Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence
of gross negligence or wilful misconduct on the part of the Issuing Bank (as
finally determined by a court of competent jurisdiction), the Issuing Bank shall
be deemed to have exercised care in each such determination. In furtherance of
the foregoing and without limiting the generality thereof, the parties agree
that, with respect to documents presented that appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) DISBURSEMENT PROCEDURES. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; PROVIDED that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC
Disbursement.
(h) INTERIM INTEREST. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC
<PAGE> 44
39
Disbursement is made, the unpaid amount thereof shall bear interest, for each
day from and including the date such LC Disbursement is made to but excluding
the date that the Borrower reimburses such LC Disbursement, at the rate per
annum then applicable to ABR Revolving Loans; PROVIDED that, if the Borrower
fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of
this Section, then Section 2.12(c) shall apply. Interest accrued pursuant to
this paragraph shall be for the account of the Issuing Bank, except that
interest accrued on and after the date of payment by any Revolving Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be
for the account of such Lender to the extent of such payment.
(i) REPLACEMENT OF THE ISSUING BANK. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) CASH COLLATERALIZATION. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent or the Required Lenders (or, if the maturity of
the Loans has been accelerated, Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure) demanding the deposit of cash
collateral pursuant to this paragraph, the Borrower shall deposit in an account
with the Administrative Agent, in the name of the Administrative Agent and for
the benefit of the Lenders, an
<PAGE> 45
40
amount in cash equal to 105% of the LC Exposure as of such date plus any accrued
and unpaid interest thereon; PROVIDED that the obligation to deposit such cash
collateral shall become effective immediately, and such deposit shall become
immediately due and payable, without demand or other notice of any kind, upon
the occurrence of any Event of Default with respect to the Borrower described in
clause (h) or (i) of Article VII. Each such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the
obligations of the Borrower under this Agreement. The Administrative Agent shall
have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits, which investments shall be made at the option and sole
discretion of the Administrative Agent and at the Borrower's risk and expense,
such deposits shall not bear interest. Interest or profits, if any, on such
investments shall accumulate in such account. Moneys in such account shall be
applied by the Administrative Agent to reimburse the Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrower for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated (but subject to the consent of Revolving Lenders with LC
Exposure representing greater than 50% of the total LC Exposure), be applied to
satisfy other obligations of the Borrower under this Agreement. If the Borrower
is required to provide an amount of cash collateral hereunder as a result of the
occurrence of an Event of Default, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three Business Days after
all Events of Default have been cured or waived.
SECTION 2.05. FUNDING OF BORROWINGS. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower maintained with the Administrative Agent in
New York City and designated by the Borrower in the applicable Borrowing
Request; PROVIDED that ABR Revolving Loans made to finance the reimbursement
<PAGE> 46
41
of an LC Disbursement as provided in Section 2.04(e) shall be remitted by the
Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice
from a Lender prior to the proposed date of any Borrowing that such Lender will
not make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.06. INTEREST ELECTIONS. (a) Each Revolving Borrowing
and Term Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower
shall notify the Administrative Agent of such election by telephone by the time
that a Borrowing Request would be required under Section 2.03 if the Borrower
were
<PAGE> 47
42
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02 and
paragraph (f) of this Section:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided
<PAGE> 48
43
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
(f) A Borrowing of any Class may not be converted to or
continued as a Eurodollar Borrowing if after giving effect thereto (i) the
Interest Period therefor would commence before and end after a date on which any
principal of the Loans of such Class is scheduled to be repaid and (ii) the sum
of the aggregate principal amount of outstanding Eurodollar Borrowings of such
Class with Interest Periods ending on or prior to such scheduled repayment date
plus the aggregate principal amount of outstanding ABR Borrowings of such Class
would be less than the aggregate principal amount of Loans of such Class
required to be repaid on such scheduled repayment date.
SECTION 2.07. TERMINATION AND REDUCTION OF COMMITMENTS. (a)
Unless previously terminated, (i) the Delayed Draw Acquisition Loan Commitments
shall terminate at 5:00 p.m., New York City time, on the Amendment Effective
Date and (ii) the Revolving Commitments shall terminate on the Revolving
Maturity Date.
(b) The Borrower may at any time terminate, or from time to
time reduce, the Commitments of any Class; PROVIDED that (i) each reduction of
the Commitments of any Class shall be in an amount that is an integral multiple
of $100,000 and not less than $2,500,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.10,
the sum of the Revolving Exposures would exceed the total Revolving Commitments.
(c) In the event that, on the date on which any prepayment
would be required pursuant to Section 2.10(b) or 2.10(c), no Term Borrowings
remain outstanding or the amount of the prepayment required by Section 2.10(b)
or 2.10(c), as the case may be, exceeds the aggregate principal amount of
<PAGE> 49
44
Term Borrowings then outstanding, the Borrower shall reduce the Revolving
Commitments by an amount equal to the excess of the required prepayment over the
principal amount, if any, of Term Borrowings actually prepaid.
(d) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section, or any required reduction of the Revolving Commitments under paragraph
(c) of this Section, at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; PROVIDED that a notice
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
SECTION 2.08. REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan of such Lender on the Revolving Maturity Date and (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Term Loan of such Lender as provided in Section 2.09.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and
<PAGE> 50
45
payable from the Borrower to each Lender hereunder and (iii) the amount of any
sum received by the Administrative Agent hereunder for the account of the
Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be PRIMA FACIE evidence of the
existence and amounts of the obligations recorded therein; PROVIDED that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it
be evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
be represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
SECTION 2.09. AMORTIZATION OF TERM LOANS. (a) Subject to
adjustment pursuant to paragraph (d) of this
<PAGE> 51
46
Section, the Borrower shall repay Tranche A Term Borrowings on each date set
forth below in the aggregate principal amount set forth opposite such date:
Date Amount
---- ------
October 24, 1997 $ 1,250,000
January 30, 1998 1,250,000
May 1, 1998 1,250,000
July 31, 1998 1,250,000
October 30, 1998 1,250,000
January 29, 1999 1,250,000
April 30, 1999 1,250,000
July 30, 1999 1,250,000
October 29, 1999 2,500,000
January 28, 2000 2,500,000
April 28, 2000 2,500,000
July 28, 2000 2,500,000
October 27, 2000 2,500,000
January 26, 2001 2,500,000
April 27, 2001 2,500,000
July 27, 2001 2,500,000
October 26, 2001 5,000,000
January 25, 2002 5,000,000
April 26, 2002 5,000,000
July 26, 2002 5,000,000
October 25, 2002 5,000,000
January 24, 2003 5,000,000
April 25, 2003 5,000,000
July 25, 2003 5,000,000
October 24, 2003 7,500,000
January 30, 2004 7,500,000
April 30, 2004 7,500,000
July 18, 2004 7,500,000
(b) Subject to adjustment pursuant to paragraph (d) of this Section, the
Borrower shall repay Delayed Draw Acquisition
<PAGE> 52
47
Borrowings on each date set forth below in the aggregate principal amount set
forth opposite such date:
Date Amount
- ---- ------
October 24, 1997 $ 187,500
January 30, 1998 187,500
May 1, 1998 187,500
July 31, 1998 187,500
October 30, 1998 187,500
January 29, 1999 187,500
April 30, 1999 187,500
July 30, 1999 187,500
October 29, 1999 375,000
January 28, 2000 375,000
April 28, 2000 375,000
July 28, 2000 375,000
October 27, 2000 375,000
January 26, 2001 375,000
April 27, 2001 375,000
July 27, 2001 375,000
October 26, 2001 750,000
January 25, 2002 750,000
April 26, 2002 750,000
July 26, 2002 750,000
October 25, 2002 750,000
January 24, 2003 750,000
April 25, 2003 750,000
July 25, 2003 750,000
October 24, 2003 1,125,000
January 30, 2004 1,125,000
April 30, 2004 1,125,000
July 18, 2004 1,125,000
(c) To the extent not previously paid, (i) all Tranche A Term
Loans shall be due and payable on the Tranche A Term Loan Maturity Date and (ii)
all Delayed Draw Acquisition Loans shall be due and payable on the Delayed
Draw Acquisition Loan Maturity Date.
(d) If the initial aggregate amount of the Lenders' Delayed
Draw Acquisition Loan Commitments exceeds the aggregate principal amount of the
Delayed Draw Acquisition Loans that are made on the Amendment Effective Date,
then the scheduled repayments of Delayed Draw Acquisition Borrowings to be made
pursuant to this Section shall be reduced ratably by an aggregate amount equal
to such excess. Any prepayment of a Term Borrowing of either
<PAGE> 53
48
Class shall be applied to reduce the subsequent scheduled repayments of the Term
Borrowings of such Class to be made pursuant to this Section ratably.
(e) Prior to any repayment of any Term Borrowings of either
Class hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later than 11:00 a.m.,
New York City time, three Business Days before the scheduled date of such
repayment; PROVIDED that each repayment of Term Borrowings of either Class shall
be applied to repay any outstanding ABR Term Borrowings of such Class before any
Eurodollar Term Borrowings of such Class. Each repayment of a Borrowing shall be
applied ratably to the Loans included in the repaid Borrowing. Repayments of
Term Borrowings shall be accompanied by accrued interest on the amount repaid.
SECTION 2.10. PREPAYMENT OF LOANS. (a) The Borrower shall have
the right at any time and from time to time to prepay any Borrowing in whole or
in part, subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds
are received by or on behalf of Holdings, the Borrower or any Subsidiary in
respect of any Prepayment Event, the Borrower shall, immediately after such Net
Proceeds are received apply an aggregate amount equal to such Net Proceeds (i)
first, to the prepayment in full of all outstanding Term Borrowings and (ii)
second, to the reduction of the Revolving Commitments. The Borrower will, in any
event, prepay Term Borrowings at such times and in such amounts as shall be
necessary in order to avoid any requirement under the Senior Subordinated Notes
Documents to offer to purchase any Senior Subordinated Notes.
(c) In the event of any partial reduction of the Revolving
Commitments, then (i) at or prior to the date of such reduction, the
Administrative Agent shall notify the Borrower and the Lenders of the Revolving
Exposure after giving effect thereto and (ii) if such Revolving Exposure would
exceed the Revolving Commitments after giving effect to such reduction, then the
Borrower shall, on the date of such reduction, repay or prepay Revolving
Borrowings in an amount sufficient to eliminate such excess.
<PAGE> 54
49
(d) Following the end of each fiscal year of the Borrower,
commencing with the fiscal year ending October 25, 1997, the Borrower shall
prepay Term Borrowings in an aggregate amount equal to 50% (or, in the case of
the fiscal year ending October 25, 1997, 12.5%) of Excess Cash Flow for such
fiscal year; PROVIDED that if the Senior Leverage Ratio as of the end of such
fiscal year is less than 2.10 to 1.00, no prepayment shall be required pursuant
to this paragraph in respect of such fiscal year. Each prepayment pursuant to
this paragraph shall be made on or before the date on which financial statements
are delivered pursuant to Section 5.01 with respect to the fiscal year for which
Excess Cash Flow is being calculated (and in any event within 90 days after the
end of such fiscal year).
(e) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings to
be prepaid and shall specify such selection in the notice of such prepayment
pursuant to paragraph (f) of this Section; PROVIDED that each prepayment of
Borrowings of any Class shall be applied to prepay ABR Borrowings of such Class
before any other Borrowings of such Class. In the event of any optional or
mandatory prepayment of Term Borrowings made at a time when Term Borrowings of
both Classes remain outstanding, the Borrower shall select Term Borrowings to be
prepaid so that the aggregate amount of such prepayment is allocated between the
Tranche A Term Borrowings and Delayed Draw Acquisition Borrowings pro rata based
on the aggregate principal amount of outstanding Borrowings of each such Class.
(f) The Borrower shall notify the Administrative Agent by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date, the principal amount of each
Borrowing or portion thereof to be prepaid and, in the case of a mandatory
prepayment, a reasonably detailed calculation of the amount of such prepayment;
PROVIDED that, if a notice of optional prepayment is given in connection with a
conditional notice of termination of the Revolving Commitments as contemplated
by Section 2.07, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.07.
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Promptly following receipt of any such notice, the Administrative Agent shall
advise the Lenders of the contents thereof. Each partial prepayment of any
Borrowing shall be in an amount that would be permitted in the case of an
advance of a Borrowing of the same Type as provided in Section 2.02, except as
necessary to apply fully the required amount of a mandatory prepayment. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.12.
SECTION 2.11. FEES. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Revolving Lender and Delayed Draw
Acquisition Loan Lender a commitment fee, which shall accrue at the Applicable
Rate on the average daily unused amount of the Revolving Commitment or Delayed
Draw Acquisition Loan Commitment, as applicable, of such Lender during the
period from and including the Effective Date to but excluding the date on which
such Revolving Commitment or Delayed Draw Acquisition Loan Commitment, as
applicable, terminates. Accrued commitment fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the date
on which the Revolving Commitments or Delayed Draw Acquisition Loan Commitments,
as applicable, terminate, commencing on the first such date to occur after the
Effective Date. All commitment fees shall be computed on the basis of a year of
360 days and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). For purposes of computing commitment
fees, a Revolving Commitment of a Lender shall be deemed to be used to the
extent of the outstanding Revolving Loans and LC Exposure of such Lender.
(b) The Borrower agrees to pay (i) to the Administrative Agent
for the account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Revolving Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to have
any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at 1/4 of 1% per annum on the
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51
average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date of
termination of the Revolving Commitments and the date on which there ceases to
be any LC Exposure, as well as the Issuing Bank's standard fees (other than
fronting fees, which shall be payable as specified above) with respect to the
issuance, amendment, renewal or extension of any Letter of Credit or processing
of drawings thereunder. Participation fees and fronting fees accrued through and
including the last day of March, June, September and December of each year shall
be payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; PROVIDED that all such fees
shall be payable on the date on which the Revolving Commitments terminate and
any such fees accruing after the date on which the Revolving Commitments
terminate shall be payable on demand. Any other fees payable to the Issuing Bank
pursuant to this paragraph shall be payable within 10 days after demand. All
participation fees and fronting fees shall be computed on the basis of a year of
360 days and shall be payable for the actual number of days elapsed (including
the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due,
in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.12. INTEREST. (a) The Loans comprising each ABR
Borrowing shall bear interest at the Alternate Base Rate plus the Applicable
Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
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52
(c) Notwithstanding the foregoing, if any principal of or
interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration or
otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus the rate applicable to ABR Revolving Loans as provided in paragraph (a) of
this Section.
(d) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and, in the case of Revolving Loans,
upon termination of the Revolving Commitments; PROVIDED that (i) interest
accrued pursuant to paragraph (c) of this Section shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan (other than a
prepayment of an ABR Revolving Loan prior to the end of the Revolving
Availability Period), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment and (iii) in the
event of any conversion of any Eurodollar Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a
year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall
be computed on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.13. ALTERNATE RATE OF INTEREST. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable
means do not exist
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53
for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders (or Lender) of
making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. INCREASED COSTS. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing
Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit
or to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing
Bank, as the case may
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54
be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or on
the capital of such Lender's or the Issuing Bank's holding company, if any, as a
consequence of this Agreement or the Loans made by, or participations in Letters
of Credit held by, such Lender, or the Letters of Credit issued by the Issuing
Bank, to a level below that which such Lender or the Issuing Bank or such
Lender's or the Issuing Bank's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's or the Issuing Bank's
policies and the policies of such Lender's or the Issuing Bank's holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender's
or the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such compensation;
PROVIDED that the Borrower shall not be required to compensate a Lender or the
Issuing Bank pursuant to this Section for any increased costs or reductions
incurred more than 180 days prior to the date that such Lender or the Issuing
Bank, as the case may be, notifies the Borrower of the Change in Law giving rise
to such increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; PROVIDED FURTHER that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period
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referred to above shall be extended to include the period of retroactive effect
thereof.
SECTION 2.15. BREAK FUNDING PAYMENTS. In the event of (a) the
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.10(f) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.18, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender the amount shown as due on any such certificate within 10
days after receipt thereof.
SECTION 2.16. TAXES. (a) Any and all payments by or on account
of any obligation of the Borrower hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any Indemnified Taxes
or Other Taxes; PROVIDED that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as
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necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
each Lender and the Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability delivered
to the Borrower by a Lender or the Issuing Bank, or by the Administrative Agent
on its own behalf or on behalf of a Lender or the Issuing Bank, shall be
conclusive absent manifest error. If the Administrative Agent, any Lender or the
Issuing Bank (as the case may be) receives a refund of any Indemnified Taxes or
Other Taxes for which the Borrower has made a payment hereunder, it shall
promptly notify the Borrower thereof and shall promptly upon receipt repay such
refund to the Borrower, without interest and net of any expenses incurred;
PROVIDED that the Borrower, upon the request of the Administrative Agent, such
Lender or the Issuing Bank (as the case may be), agrees to return the amount of
such refund (plus any penalties, interest or other charges required to be paid)
to the Administrative Agent, such Lender or the Issuing Bank (as the case may
be) in the event the Administrative Agent, such Lender or the Issuing Bank (as
the case may be) is required to repay such refund to the relevant Governmental
Authority.
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(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable
law or reasonably requested by the Borrower as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.17. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING
OF SETOFFS. (a) The Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.14,
2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank as
expressly provided herein and except that payments pursuant to Sections 2.14,
2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto and
payments pursuant to other Loan Documents shall be made to the Persons specified
therein. The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment under any Loan Document shall be due
on a day that is not a Business Day, the date for payment shall be extended to
the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such
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extension. All payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Revolving Loans, Term Loans and participations in
LC Disbursements and accrued interest thereon than the proportion received by
any other Lender, then the Lender receiving such greater proportion shall
purchase (for cash at face value) participations in the Revolving Loans, Term
Loans and participations in LC Disbursements of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans, Term Loans and
participations in LC Disbursements; PROVIDED that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any
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59
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of setoff and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative Agent
may assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrower has not in fact made such payment, then each of the Lenders or the
Issuing Bank, as the case may be, severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender or Issuing Bank with interest thereon, for each day from and including
the date such amount is distributed to it to but excluding the date of payment
to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.04(d) or (e), 2.05(b), 2.17(d) or 9.03(c),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.18. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.
(a) If any Lender requests compensation under Section 2.14, or if the Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.16, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in the
future and (ii) would not subject such
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Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If any Lender requests compensation under Section 2.14, or
if the Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.16,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Commitment is being assigned, the Issuing Bank), which consent
shall not unreasonably be withheld, (ii) such Lender shall have received payment
of an amount equal to the outstanding principal of its Loans and participations
in LC Disbursements, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the Borrower (in the
case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.14 or payments required
to be made pursuant to Section 2.16, such assignment will result in a reduction
in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.
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ARTICLE III
Representations and Warranties
------------------------------
Each of Holdings and the Borrower represents and warrants to
the Lenders that:
SECTION 3.01. ORGANIZATION; POWERS. Each of Holdings, the
Borrower and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 3.02. AUTHORIZATION; ENFORCEABILITY. The Transactions
to be entered into by each Loan Party are within such Loan Party's corporate
powers and have been duly authorized by all necessary corporate and, if
required, stockholder action. This Agreement has been duly executed and
delivered by each of Holdings and the Borrower and constitutes, and each other
Loan Document to which any Loan Party is to be a party, when executed and
delivered by such Loan Party, will constitute, a legal, valid and binding
obligation of Holdings, the Borrower or such Loan Party (as the case may be),
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
SECTION 3.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The
Transactions (a) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as
have been obtained or made and are in full force and effect and except filings
necessary to perfect Liens created under the Loan Documents, (b) will not
violate any applicable law or regulation or the charter, by-laws or other
organizational documents of Holdings, the Borrower or any of its Subsidiaries or
any order of any Governmental Authority, (c) will not violate or result in a
default under any indenture, agreement or other instrument binding upon
Holdings, the Borrower or any of its Subsidiaries or its
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assets, or give rise to a right thereunder to require any payment to be made by
Holdings, the Borrower or any of its Subsidiaries, and (d) will not result in
the creation or imposition of any Lien on any asset of Holdings, the Borrower or
any of its Subsidiaries, except Liens created under the Loan Documents.
SECTION 3.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) Holdings has heretofore furnished to the Lenders its consolidated balance
sheet and statements of income, stockholders equity and cash flows (i) as of and
for the fiscal year ended October 26, 1996, reported on by Deloitte & Touche
LLP, independent public accountants, and (ii) as of and for the fiscal quarter
and the portion of the fiscal year ended August 2, 1997, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of
Holdings and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
(b) The Borrower has heretofore furnished to the Lenders its
pro forma consolidated balance sheet as of August 2, 1997, prepared giving
effect to the Transactions as if the Transactions had occurred on such date.
Such pro forma consolidated balance sheet (i) has been prepared in good faith
based on the same assumptions used to prepare the pro forma financial statements
included in the information package distributed to the Lenders in August 1997
(which assumptions are believed by the Borrower to be reasonable), (ii) is based
on the best information available to the Borrower after due inquiry, (iii)
accurately reflects all adjustments necessary to give effect to the Transactions
and (iv) presents fairly, in all material respects, the pro forma financial
position of the Borrower and its consolidated Subsidiaries as of August 2, 1997
as if the Transactions had occurred on such date.
(c) Except as disclosed in the financial statements referred
to above or the notes thereto or in the Information Memorandum and except for
the Disclosed Matters, after giving effect to the Transactions, none of
Holdings, the Borrower or its Subsidiaries has, as of the Amendment Effective
Date, any material contingent liabilities, unusual long-term commitments or
unrealized losses.
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(d) Since October 26, 1996, there has been no material adverse
change in the business, assets, operations, prospects or condition, financial or
otherwise, of Holdings, the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. PROPERTIES. (a) Each of Holdings, the Borrower
and its Subsidiaries has good title to, or valid leasehold interests in, all its
real and personal property material to its business, except for minor defects in
title that do not interfere with its ability to conduct its business as
currently conducted or to utilize such properties for their intended purposes.
(b) Each of Holdings, the Borrower and its Subsidiaries owns,
or is licensed to use, all trademarks, tradenames, copyrights, patents and other
intellectual property material to its business, and the use thereof by Holdings,
the Borrower and its Subsidiaries does not infringe upon the rights of any other
Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
(c) Schedule 3.05 sets forth the address of each real property
that is owned or leased by the Borrower or any of its Subsidiaries as of the
Amendment Effective Date after giving effect to the Transactions. As of the
Amendment Effective Date, after giving effect to the Transactions, neither
Holdings, the Borrower nor any of its Subsidiaries owns any real property other
than the real property set forth in Schedule 3.05.
SECTION 3.06. LITIGATION AND ENVIRONMENTAL MATTERS. (a) There
are no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of Holdings or the Borrower,
threatened against or affecting Holdings, the Borrower, any of its Subsidiaries
or the ESOP (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect, (ii)
that involve any of the Loan Documents or the Transactions or (iii) in the case
of the ESOP, as which there is a reasonable possibility of an adverse decision
that could adversely effect the status of the ESOP.
(b) Except for the Disclosed Matters and except with respect
to any other matters that, individually or in
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the aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither Holdings, the Borrower nor any of its Subsidiaries (i) has
failed to comply with any Environmental Law or to obtain, maintain or comply
with any permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has received
notice of any claim with respect to any Environmental Liability or (iv) knows of
any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change
in the status of the Disclosed Matters that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Each of
Holdings, the Borrower and its Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing.
SECTION 3.08. INVESTMENT AND HOLDING COMPANY STATUS. Neither
Holdings, the Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.09. TAXES. Each of Holdings, the Borrower and its
Subsidiaries has timely filed or caused to be filed all income, franchise and
other material Tax returns and reports required to have been filed and has paid
or caused to be paid all Taxes required to have been paid by it, except Taxes
that are being contested in good faith by appropriate proceedings and for which
Holdings, the Borrower or such Subsidiary, as applicable, has set aside on its
books adequate reserves; PROVIDED, that no representation or warranty can be
made with respect to J.C. Carter prior to the Acquisition, other than that the
sellers of J.C. Carter have indemnified the Borrower for any such failure to
file or pay taxes prior to the Acquisition.
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SECTION 3.10. ERISA. No ERISA Event has occurred or is
reasonably expected to occur that, when taken together with all other such ERISA
Events for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did not, as
of the date of the most recent financial statements reflecting such amounts,
exceed the fair market value of all the assets of such Plan by an amount that
could reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect. Each Plan is in compliance in all material respects
with the requirements under ERISA and the Code.
SECTION 3.11. DISCLOSURE. The Borrower has disclosed to the
Lenders all agreements, instruments and corporate or other restrictions to which
Holdings, the Borrower or any of its Subsidiaries is subject, and all other
matters known to any of them, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Neither the
Information Memorandum nor any of the other reports, financial statements,
certificates or other information furnished by or on behalf of any Loan Party to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or any other Loan Document or delivered hereunder or thereunder
(as modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED that, with respect to projected financial
information, Holdings and the Borrower represent only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the
time.
SECTION 3.12. SUBSIDIARIES. Holdings does not have any
Subsidiaries other than the Borrower and the Borrower's Subsidiaries. Schedule
3.12 sets forth the name of, and the ownership interest of the Borrower in, each
Subsidiary of the Borrower and identifies each Subsidiary that is a Subsidiary
Loan Party, in each case as of the Amendment Effective Date.
SECTION 3.13. INSURANCE. Schedule 3.13 sets forth a
description of all insurance maintained by or on behalf of the Borrower and its
Subsidiaries as of the
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Amendment Effective Date. As of the Amendment Effective Date, all premiums in
respect of such insurance have been paid.
SECTION 3.14. LABOR MATTERS. As of the Amendment Effective
Date, there are no strikes, lockouts or slowdowns against Holdings, the Borrower
or any Subsidiary pending or, to the knowledge of Holdings or the Borrower,
threatened. The hours worked by and payments made to employees of Holdings, the
Borrower and the Subsidiaries have not been in violation of the Fair Labor
Standards Act or any other applicable Federal, state, local or foreign law
dealing with such matters, except where such violations, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. All material payments due from Holdings, the Borrower or any Subsidiary,
or for which any material claim may be made against Holdings, the Borrower or
any Subsidiary, on account of wages and employee health and welfare insurance
and other benefits, have been paid or accrued as a liability on the books of
Holdings, the Borrower or such Subsidiary. The consummation of the Transactions
will not give rise to any right of termination or right of renegotiation on the
part of any union under any collective bargaining agreement to which Holdings,
the Borrower or any Subsidiary is bound.
SECTION 3.15. SOLVENCY. Immediately after the consummation of
the transactions to occur on the Effective Date and immediately following the
making of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans (and taking into consideration the
rights and obligations of the Loan Parties under the Indemnity, Subrogation and
Contribution Agreement), (a) the fair value of the assets of each Loan Party, at
a fair valuation, will exceed its debts and liabilities, subordinated,
contingent or otherwise; (b) the present fair saleable value of the property of
each Loan Party will be greater than the amount that will be required to pay the
probable liability of its debts and other liabilities, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(c) each Loan Party will be able to pay its debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and
matured; and (d) each Loan Party will not have unreasonably small capital with
which to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted following the Effective Date.
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SECTION 3.16. SECURITY DOCUMENTS. (a) The Pledge Agreement is
effective to create in favor of the Collateral Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of each pledgor thereunder in such Collateral, in each case prior and
superior in right to any other Person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
(other than the Intellectual Property (as defined in the Security Agreement), in
each case prior and superior in right to any other Person, other than with
respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the Intellectual Property
(as defined in the Security Agreement) in which a security interest may be
perfected by filing, recording or registering a security agreement, financing
statement or analogous document in the United States Patent and Trademark Office
or the United States Copyright Office, as applicable, in each case prior and
superior in right to any other Person other than Liens expressly permitted by
Section 6.02 (it being understood that subsequent recordings in the United
States Patent and Trademark Office and the United States Copyright Office may be
necessary to perfect a Lien on registered trademarks, trademark applications and
copyrights acquired by the Loan Parties after the date hereof).
SECTION 3.17. FEDERAL RESERVE REGULATIONS. (a) Neither
Holdings, the Borrower nor any of its
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Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of buying or carrying Margin
Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including Regulation G, U
or X.
SECTION 3.18. TRW AGREEMENT. The provisions of the TRW
Agreement pursuant to which TRW is obligated to perform any "Environmental
Remediation" and/or indemnify, defend and hold harmless the Borrower, with
respect to "Excluded Environmental Obligations", TRW's share of "Shared
Environmental Obligations", or otherwise with respect to "Environmental
Activities", are in full force and effect in accordance with the terms of the
TRW Agreement and no party has waived any material rights thereunder. Terms
contained in quotation marks in this Section 3.18 shall have the respective
meanings ascribed to such terms in the TRW Agreement.
SECTION 3.19. TAX STATUS OF ESOP. The ESOP, together with the
ESOP Plan and Trust Document, complies with all the requirements necessary to be
an "employee stock ownership plan" within the meaning of Section 4975(e)(7) of
the Code. The ESOP is a qualified plan and trust under Section 401(a) of the
Code, exempt from the tax under Section 501 of the Code and in compliance with
all applicable requirements of the Code and ERISA.
SECTION 3.20. CERTAIN AGREEMENTS. The Stockholders' Agreement
and the Distributorship Agreements are in full force and effect.
ARTICLE IV
Conditions
----------
SECTION 4.01. AMENDMENT EFFECTIVE DATE. The effectiveness of
the Amendment and this Agreement as amended thereby and obligations of the
Delayed Draw Acquisition Loan Lenders to make Delayed Draw Acquisition Loans
hereunder shall not become effective until the date on which each of
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the following conditions is satisfied (or waived in accordance with Section
9.02):
(a) The Administrative Agent (or its counsel) shall have
received from Holdings, the Borrower and sufficient Lenders to
constitute the Required Lenders either (i) a counterpart of this
Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Amendment Effective Date) of Paul R. Keen, counsel for
the Borrower, substantially in the form of Exhibit B(i), and Jones,
Day, Reavis & Pogue, counsel for the Borrower, substantially in the
form of Exhibit B(ii), and covering such matters relating to the Loan
Parties, the Loan Documents or the Transactions as the Required Lenders
shall reasonably request. The Borrower hereby requests such counsel to
deliver such opinion.
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and good
standing of each Loan Party, the authorization of the Transactions,
including a complete copy of the resolutions duly adopted by the board
of directors of the Loan Parties authorizing the execution, delivery
and performance of the Loan Documents to which such Person is a party
and the borrowings hereunder, and any other legal matters relating to
the Loan Parties, the Loan Documents or the Transactions, all in form
and substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a
certificate, dated the Amendment Effective Date and signed by the
President or a Financial Officer of the Borrower, confirming compliance
with the conditions set forth in paragraphs (a) and (b) of Section
4.02.
(e) The Administrative Agent shall have received all fees and
other amounts due and payable on or prior
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to the Amendment Effective Date, including, to the extent invoiced,
reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by any Loan Party hereunder or under any other Loan
Document.
(f) The Administrative Agent shall have received a supplement
to the Pledge Agreement, in the form of Annex 1 to the Pledge
Agreement, signed on behalf of J.C. Carter and its subsidiaries,
together with schedules thereto and stock certificates representing all
the outstanding shares of capital stock of J.C. Carter and its
subsidiaries as of the Amendment Effective Date after giving effect to
the Transactions (except that stock certificates representing shares of
common stock of a Foreign Subsidiary that is not a Subsidiary Loan
Party may be limited to 65% of the outstanding shares of common stock
of such Foreign Subsidiary), promissory notes evidencing all
intercompany Indebtedness, if any, owed to any Loan Party by Holdings,
the Borrower or any Subsidiary as of the Amendment Effective Date after
giving effect to the Transactions and stock powers and instruments of
transfer, endorsed in blank, with respect to such stock certificates
and promissory notes.
(g) The Administrative Agent shall have received counterparts
of the Amendment to the Security Agreement, substantially in the form
of Exhibit H hereto, signed on behalf of Holdings, the Borrower and
each Subsidiary Loan Party.
(h) The Administrative Agent shall have received a supplement
to the Security Agreement, in the form of Annex 2 to the Security
Agreement, signed on behalf of J.C. Carter and each of its
subsidiaries, together with the following:
(i) all documents and instruments, including Uniform
Commercial Code financing statements required by law or
reasonably requested by the Administrative Agent to be filed,
registered or recorded to create or perfect the Liens intended
to be created under the Security Agreement, as supplemented;
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(ii) schedules of copyrights, trademarks, licenses
and patents; and
(iii) a completed Perfection Certificate with respect
to J.C. Carter and each of its subsidiaries dated the
Amendment Effective Date and signed by an executive officer or
Financial Officer of the Borrower, together with all
attachments contemplated thereby, including the results of a
search of the Uniform Commercial Code (or equivalent) filings
made with respect to J.C. Carter and its subsidiaries in the
jurisdictions contemplated by the Perfection Certificate and
copies of the financing statements (or similar documents)
disclosed by such search and evidence reasonably satisfactory
to the Administrative Agent that the Liens indicated by such
financing statements (or similar documents) are permitted by
Section 6.02 or have been released.
(i) The Administrative Agent shall have received (i) a
supplement to the Subsidiary Guarantee Agreement, in the form of Annex
1 to the Subsidiary Guarantee Agreement, signed on behalf of J.C.
Carter and its subsidiaries and (ii) a supplement to the Indemnity,
Subrogation and Contribution Agreement, in the form of Annex 1 to the
Indemnity, Subrogation and Contribution Agreement, signed on behalf of
J.C. Carter and its subsidiaries.
(j) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in
effect.
(k) The Lenders shall be reasonably satisfied as to the amount
and nature of any environmental and employee health and safety
exposures to which Holdings and its subsidiaries may be subject after
giving effect to the Transactions, and with the plans of Holdings and
the Borrower with respect thereto.
(l) The Lenders shall be satisfied with the capitalization,
structure and equity ownership of Holdings and its subsidiaries after
giving effect to the Transactions.
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(m) The Lenders shall have received (i) audited consolidated
balance sheets and related statements of income, stockholders' equity
and cash flows of J.C. Carter for the 1995 and 1996 fiscal years ended
prior to the Amendment Effective Date and (ii) unaudited consolidated
balance sheets and related statements of income, stockholders' equity
and cash flows of J.C. Carter for (A) the latest 1997 fiscal quarter
preceding the Amendment Effective Date and (B) each fiscal month after
the most recent 1997 fiscal quarter for which financial statements were
received by the Lenders as described above and ended 30 days before the
Amendment Effective Date, which financial statements shall not be
materially inconsistent with the financial statements or forecasts
previously provided to the Lenders.
(n) The Lenders shall have received a pro forma consolidated
balance sheet of the Borrower as of August 2, 1997, reflecting all pro
forma adjustments as if the Transactions had been consummated on such
date, and such pro forma consolidated balance sheet shall be consistent
in all material respects with the forecasts and other information
previously provided to the Lenders.
(o) After giving effect to the Transactions, neither Holdings,
the Borrower nor any of its Subsidiaries shall have outstanding any
shares of preferred stock or any Indebtedness, other than (i)
Indebtedness incurred under the Loan Documents, (ii) the Senior
Subordinated Notes and (iii) other Indebtedness permitted under Section
6.01. The terms and conditions of all Indebtedness to remain
outstanding after the Amendment Effective Date shall be satisfactory in
all respects to the Lenders.
(p) The Administrative Agent shall be reasonably satisfied
with the sufficiency of amounts available under the Revolving Facility
to meet the ongoing working capital requirements of the Borrower and
its Subsidiaries following the consummation of the Transactions and the
other transactions contemplated hereby.
(q) The Lenders shall have received a certificate from an
officer of the Borrower satisfactory to the Administrative Agent,
confirming the solvency of the
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Borrower and its Subsidiaries on a consolidated basis after giving
effect to the Transactions and the consummation of the other
transactions contemplated hereby.
(r) The Subordinated Notes shall have been paid in full and
all obligations of Holdings and Borrower in respect thereof shall have
been terminated and released and the Administrative Agent shall have
received evidence, satisfactory in form and substance to it,
demonstrating such payment, termination and release.
(s) The Acquisition shall have been consummated or shall be
consummated on the Amendment Effective Date in compliance with (i) the
Stock Purchase Agreement and related documentation, (ii) applicable law
and (iii) 6.04(a), and the Required Lenders shall otherwise be
satisfied with the structure and terms of the Acquisition and all
related documentation.
(t) The Borrower shall have received not less than
$140,000,000 in gross cash proceeds from the issuance of the Senior
Subordinated Notes, copies of the Senior Subordinated Notes Documents
shall have been delivered to the Lenders in form and substance
satisfactory to the Required Lenders and the terms and conditions of
the Senior Subordinated Notes shall otherwise be satisfactory to the
Required Lenders.
(u) The Lenders shall be reasonably satisfied in all respects
(i) with the tax and ERISA positions and the contingent tax and other
liabilities of J.C. Carter for prior operating periods and with the
plans of Holdings and the Borrower with respect thereto and (ii) with
any tax sharing agreements involving Holdings, the Borrower and J.C.
Carter or their respective subsidiaries after giving effect to the
Transactions.
The Administrative Agent shall notify the Borrower and the Lenders of the
Amendment Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Delayed Draw Acquisition
Loan Lenders to make Delayed Draw Acquisition Loans hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on
October 15, 1997 (and, in the event such conditions are not so satisfied or
waived, the Original Agreement shall
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74
continue in full force and effect and none of the amendments contemplated hereby
shall become effective). Notwithstand ing the effectiveness of the Amendment,
the Borrowers's obligation in respect of interest and fees accrued under the
Original Agreement prior to the Amendment Effective Date shall continue in full
force and effect.
SECTION 4.02. EACH CREDIT EVENT. The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set
forth in the Loan Documents shall be true and correct on and as of the
date of such Borrowing or the date of issuance, amendment, renewal or
extension of such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, no Default shall have occurred and be
continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by Holdings
and the Borrower on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, each of
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Holdings and the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. The
Borrower will furnish to the Administrative Agent and each Lender (directly or
through the Administrative Agent):
(a) within 90 days after the end of each fiscal year of the
Borrower, the Borrower's audited consolidated balance sheet and related
statements of operations, stockholders' equity and cash flows as of the
end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by
Deloitte & Touche LLP or other independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception
as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently (except as noted therein) applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Borrower, the Borrower's
consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by one
of the Borrower's Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently (except as noted therein) applied,
subject to normal year-end audit adjustments and the absence of
footnotes;
(c) concurrently with any delivery of financial statements
under clause (a) or (b) above, a certificate of a Financial Officer of
the Borrower (i) certifying as to whether a Default has occurred and,
if a Default
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76
has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth
reasonably detailed calculations demonstrating compliance with Sections
6.12, 6.13 and 6.14 and (iii) stating whether any change in GAAP or in
the application thereof has occurred since the date of the Borrower's
audited financial statements referred to in Section 3.04 and, if any
such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(d) concurrently with any delivery of financial statements
under clause (a) above, a certificate of the accounting firm that
reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the
extent required by accounting rules or guidelines);
(e) within 30 days after the commencement of each fiscal year
of the Borrower, a detailed consolidated budget for such fiscal year
(including a projected consolidated balance sheet and related
statements of projected operations and cash flow as of the end of and
for such fiscal year) and, promptly when available, any significant
revisions of such budget;
(f) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by Holdings, the Borrower or any Subsidiary with the Securities
and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national
securities exchange, or distributed by Holdings to its shareholders
generally, as the case may be; and
(g) promptly following any request therefor, such other
information regarding the operations, business affairs and financial
condition of Holdings, the Borrower or any Subsidiary, or compliance
with the terms of any Loan Document, as the Administrative Agent or any
Lender may reasonably request.
Delivery to the Administrative Agent and each Lender (directly
or through the Administrative Agent) of a
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copy of the Borrower's Form 10-K or 10-Q, as the case may be, filed with the
Securities and Exchange Commission will satisfy the requirements set forth in
clause (a) and (b) above, as the case may be, PROVIDED that the contents thereof
satisfy such requirements.
SECTION 5.02. NOTICES OF MATERIAL EVENTS. Holdings and the
Borrower will furnish to the Administrative Agent and each Lender (directly or
through the Administrative Agent) prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority
against or affecting Holdings, the Borrower or any Affiliate thereof
that could reasonably be expected to result in either (i) liability in
excess of $1,500,000 or (ii) a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together
with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of Holdings, the Borrower and its
Subsidiaries in an aggregate amount exceeding $750,000; and
(d) any other development that results in, or could reasonably
be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. INFORMATION REGARDING COLLATERAL. (a) The
Borrower will furnish to the Administrative Agent prompt written notice of any
change (i) in any Loan Party's corporate name or in any tradename used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of any Loan Party's chief executive office, its
principal place of business, any office in which it maintains books or records
relating to Collateral owned by it or, subject to Section 2.03, of the
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Security Agreement, any office or facility at which Collateral owned by it is
located (including the establishment of any such new office or facility), (iii)
in any Loan Party's identity or corporate structure or (iv) in any Loan Party's
Federal Taxpayer Identification Number. The Borrower agrees not to effect or
permit any change referred to in the preceding sentence unless all filings have
been made under the Uniform Commercial Code or otherwise that are required in
order for the Administrative Agent to continue at all times following such
change to have a valid, legal and perfected security interest in all the
Collateral. The Borrower also agrees promptly to notify the Administrative Agent
if any material portion of the Collateral is damaged or destroyed.
(b) Each year, at the time of delivery of annual financial
statements with respect to the preceding fiscal year pursuant to clause (a) of
Section 5.01, the Borrower shall deliver to the Administrative Agent a
certificate of a Financial Officer of the Borrower (i) setting forth the
information required pursuant to Section 2 of the Perfection Certificate or
confirming that there has been no change in such information since the date of
the Perfection Certificate delivered on the Effective Date or the date of the
most recent certificate delivered pursuant to this Section and (ii) certifying
that all Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (i) above to the extent necessary to protect and
perfect the security interests under the Security Agreement for a period of not
less than 18 months after the date of such certificate (except as noted therein
with respect to any continuation statements to be filed within such period).
SECTION 5.04. EXISTENCE; CONDUCT OF BUSINESS. Each of Holdings
and the Borrower will, and will cause each of its Subsidiaries to, do or cause
to be done all things necessary to preserve, renew and keep in full force and
effect its legal existence and the rights, licenses, permits, privileges,
franchises, patents, copyrights, trademarks and tradenames material to the
conduct of its business; PROVIDED that the foregoing shall not prohibit any
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merger, consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. PAYMENT OF OBLIGATIONS. Each of Holdings and the
Borrower will, and will cause each of its Subsidiaries to, pay its Indebtedness
and other obligations, including material Tax liabilities, before the same shall
become delinquent or in default, except where (a) the validity or amount thereof
is being contested in good faith by appropriate proceedings, (b) Holdings, the
Borrower or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP, (c) such contest effectively suspends
collection of the contested obligation and the enforcement of any Lien securing
such obligation and (d) the failure to make payment pending such contest could
not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.06. MAINTENANCE OF PROPERTIES. Each of Holdings and
the Borrower will, and will cause each of its Subsidiaries to, keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
SECTION 5.07. INSURANCE. (a) Each of Holdings
and the Borrower will, and will cause each of its
Subsidiaries to, maintain, with financially sound and
reputable insurance companies:
(i) fire and extended coverage insurance, on a replacement
cost basis, with respect to all personal property and improvements to
real property, in such amounts as are customarily maintained by
companies in the same or similar business operating in the same or
similar locations;
(ii) commercial general liability insurance against claims for
bodily injury, death or property damage occurring upon, about or in
connection with the use of any properties owned, occupied or controlled
by it, providing coverage on an occurrence basis with a combined single
limit of not less than $1,000,000 (plus $35,000,000 of additional
coverage under umbrella and similar policies) and including the broad
form CGL endorsement;
(iii) business interruption insurance, insuring against loss
of gross earnings for a period of not less
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than 12 months arising from any risks or occurrences required to be
covered by insurance pursuant to clause (i) above; and
(iv) such other insurance of the type and in the amount
described in Schedule 3.13 or as may be required by law.
Deductibles or self-insured retention shall not exceed $100,000 for fire and
extended coverage policies, $0 for commercial general liability policies or
$100,000 for business interruption policies.
(b) Fire and extended coverage policies (and any policies
required to be maintained pursuant to paragraph (c) below) maintained with
respect to any Collateral shall be endorsed or otherwise amended to include (i)
a non-contributing mortgage clause (regarding improvements to real property)
and lenders' loss payable clause (regarding personal property), in each case in
favor of the Administrative Agent and providing for losses thereunder to be
payable to the Administrative Agent or its designee, (ii) a provision to the
effect that neither the Borrower, the Administrative Agent nor any other party
shall be a coinsurer and (iii) such other provisions as the Administrative
Agent may reasonably require from time to time to protect the interests of the
Lenders. Commercial general liability policies shall be endorsed to name the
Administrative Agent as an additional insured. Business interruption policies
shall name the Administrative Agent as loss payee. Each such policy referred to
in this paragraph also shall provide that it shall not be canceled, modified or
not renewed (i) by reason of nonpayment of premium except upon not less than 10
days' prior written notice thereof by the insurer to the Administrative Agent
(giving the Administrative Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than 30 days' prior
written notice thereof by the insurer to the Administrative Agent. The Borrower
shall deliver to the Administrative Agent, prior to the cancelation,
modification or nonrenewal of any such policy of insurance, a copy of a renewal
or replacement policy (or other evidence of renewal of a policy previously
delivered to the Administrative Agent) together with evidence satisfactory to
the Administrative Agent of payment of the premium therefor.
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(c) If at any time the area in which any Mortgaged Property is
located is designated (i) a "flood hazard area" in any Flood Insurance Rate Map
published by the Federal Emergency Management Agency (or any successor agency),
the Borrower shall obtain flood insurance in such total amount as the
Administrative Agent or the Required Lenders may from time to time require, and
otherwise comply with the National Flood Insurance Program as set forth in the
Flood Disaster Protection Act of 1973, as amended from time to time, or (ii) a
"Zone 1" area, the Borrower shall obtain earthquake insurance in such total
amount as the Administrative Agent or the Required Lenders may from time to time
require.
SECTION 5.08. CASUALTY AND CONDEMNATION. (a) The Borrower will
furnish to the Administrative Agent and the Lenders prompt written notice of any
casualty or other insured damage to any portion of any material Collateral or
the commencement of any action or proceeding for the taking of any material
Collateral or any part thereof or interest therein under power of eminent domain
or by condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section
results in Net Proceeds (whether in the form of insurance proceeds, condemnation
award or otherwise), the Administrative Agent is authorized to collect such Net
Proceeds and, if received by Holdings, the Borrower or any Subsidiary, such Net
Proceeds shall be paid over to the Administrative Agent; PROVIDED that (i) if
the aggregate Net Proceeds in respect of such event (other than proceeds of
business income insurance) are less than $2,000,000, such Net Proceeds shall be
paid over to the Borrower unless a Default has occurred and is continuing, and
(ii) all proceeds of business income insurance shall be paid over to the
Borrower unless a Default has occurred and is continuing. All such Net Proceeds
retained by or paid over to the Administrative Agent shall be held by the
Administrative Agent and released from time to time to pay the costs of
repairing, restoring or replacing the affected property in accordance with the
terms of the applicable Security Document, subject to the provisions of the
applicable Security Document regarding application of such Net Proceeds during a
Default.
(c) If any Net Proceeds retained by or paid over to the
Administrative Agent as provided above continue to be held by the Administrative
Agent on the date that is two
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years after the occurrence of the event resulting in such Net Proceeds, then
such Net Proceeds shall be applied to prepay Term Borrowings as provided in
Section 2.10(b).
SECTION 5.09. BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS.
Each of Holdings and the Borrower will, and will cause each of its Subsidiaries
to, keep proper books of record and account in which full, true and correct
entries are made of all dealings and transactions in relation to its business
and activities. Each of Holdings and the Borrower will, and will cause each of
its Subsidiaries to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.
SECTION 5.10. COMPLIANCE WITH LAWS. Each of Holdings and the
Borrower will, and will cause each of its Subsidiaries to, comply with all laws,
rules, regulations and orders of any Governmental Authority applicable to it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.11. USE OF PROCEEDS AND LETTERS OF CREDIT. The
proceeds of the Tranche A Term Loans were used solely to repay in full the
principal amount of, and accrued interest with respect to, the two existing term
loans under the Existing Credit Agreement in an aggregate principal amount of
$100,000,000. The proceeds of the Delayed Draw Acquisition Loans will be used
solely to pay for a portion of the purchase price payable in connection with the
Acquisition and fees and expenses in connection therewith. The proceeds of the
Revolving Loans have been and will be used solely (a) for working capital
purposes, including the repayment in full of the principal amount of, and all
accrued interest with respect to, loans outstanding under the Borrower's
revolving credit facility under the Existing Credit Agreement, (b) to finance
redemptions of Subordinated Notes and (c) in an amount not in excess of
$10,000,000 at any time outstanding and to the extent permitted by clause (a) of
Section 6.04, (i) to fund distributions from the ESOP in accordance with the
terms of the ESOP Plan and Trust Document, (ii) to fund repurchases of the
Common Stock to fulfill its obligations with respect to the Put Options,
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(iii) to fund repurchases of Common Stock (and options to acquire Common Stock)
from directors and employees of Holdings, the Borrower and the Subsidiaries and
(iv) to finance Permitted Acquisitions; provided that the Borrower shall provide
notice to the Administrative Agent no later than five Business Days after the
date on which proceeds are used pursuant to clause (i), (ii), (iii) or (iv)
above. No part of the proceeds of any Loan has been or will be used, whether
directly or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations G, U and X. Letters of Credit
will be issued only for general corporate purposes (other than to finance
acquisitions).
SECTION 5.12. ADDITIONAL SUBSIDIARIES. If any additional
Subsidiary is formed or acquired after the Effective Date, the Borrower will
notify the Administrative Agent and the Lenders thereof and (a) if such
Subsidiary is a Subsidiary Loan Party, the Borrower will cause such Subsidiary
to become a party to the Subsidiary Guarantee Agreement, the Indemnity,
Subrogation and Contribution Agreement and each applicable Security Document in
the manner provided therein within three Business Days after such Subsidiary is
formed or acquired and promptly take such actions to create and perfect Liens on
such Subsidiary's assets to secure the Obligations as the Administrative Agent
or the Required Lenders shall reasonably request and (b) if any shares of
capital stock or Indebtedness of such Subsidiary are owned by or on behalf of
any Loan Party, the Borrower will cause such shares and promissory notes
evidencing such Indebtedness to be pledged pursuant to the Pledge Agreement
within three Business Days after such Subsidiary is formed or acquired (except
that, if such Subsidiary is a Foreign Subsidiary, shares of common stock of such
Subsidiary to be pledged pursuant to the Pledge Agreement may be limited to 65%
of the outstanding shares of common stock of such Subsidiary).
SECTION 5.13. FURTHER ASSURANCES. (a) Each of Holdings and the
Borrower will, and will cause each Subsidiary Loan Party to, execute any and all
further documents, financing statements, agreements and instruments, and take
all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
which may be required under any applicable law, or that the Administrative Agent
or the Required Lenders may reasonably request, to effectuate the transactions
contemplated by the
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Loan Documents or to grant, preserve, protect or perfect the Liens created or
intended to be created by the Security Documents or the validity or priority of
any such Lien, all at the expense of the Loan Parties. Holdings and the Borrower
also agree to provide to the Administrative Agent, from time to time upon
request, evidence reasonably satisfactory to the Administrative Agent as to the
perfection and priority of the Liens created or intended to be created by the
Security Documents.
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by the Borrower or
any Subsidiary Loan Party after the Effective Date (other than assets
constituting Collateral under the Security Agreement that become subject to the
Lien of the Security Agreement upon acquisition thereof), the Borrower will
notify the Administrative Agent and the Lenders thereof, and, if requested by
the Administrative Agent or the Required Lenders, the Borrower will cause such
assets to be subjected to a Lien securing the Obligations and will take, and
cause the Subsidiary Loan Parties to take, such actions as shall be necessary or
reasonably requested by the Administrative Agent to grant and perfect such
Liens, including actions described in paragraph (a) of this Section, all at the
expense of the Loan Parties.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, each of Holdings and the Borrower
covenants and agrees with the Lenders that:
SECTION 6.01. INDEBTEDNESS; CERTAIN EQUITY SECURITIES. (a) The
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) the Borrower Subordinated Notes;
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85
(iii) in the case of the Borrower, the Guarantee of the
Holdings Subordinated Notes;
(iv) in the case of the Borrower, the Senior Subordinated
Notes;
(v) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary; PROVIDED that
Indebtedness of any Subsidiary that is not a Loan Party to the Borrower
or any Subsidiary Loan Party shall be subject to Section 6.04;
(vi) Guarantees by the Borrower of Indebtedness of any
Subsidiary and by any Subsidiary of Indebtedness of the Borrower or any
other Subsidiary; PROVIDED that (A) the Indebtedness so guaranteed is
permitted by this Section, (B) Guarantees by the Borrower or any
Subsidiary Loan Party of Indebtedness of any Subsidiary that is not a
Loan Party shall be subject to Section 6.04 and (C) the Senior
Subordinated Notes shall not be Guaranteed by any Subsidiary that is
not a guarantor under the Subsidiary Guarantee Agreement;
(vii) Indebtedness of the Borrower or any Subsidiary incurred
to finance the acquisition, construction or improvement of any fixed or
capital assets, including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such
assets or secured by a Lien on any such assets prior to the acquisition
thereof, and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount
thereof or result in an earlier maturity date or decreased weighted
average life thereof; PROVIDED that (A) such Indebtedness is incurred
prior to or within 90 days after such acquisition or the completion of
such construction or improvement and (B) the aggregate principal amount
of Indebtedness permitted by this clause (vii) shall not exceed
$3,000,000 at any time outstanding;
(viii) Indebtedness of any Person that becomes a Subsidiary
after the date hereof; PROVIDED that (A) such Indebtedness exists at
the time such Person becomes a Subsidiary and is not created in
contemplation of or in connection with such Person becoming a
Subsidiary and (B) the aggregate principal
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amount of Indebtedness permitted by this clause (viii) shall not exceed
$1,500,000 at any time outstanding;
(ix) other unsecured Indebtedness in an aggregate principal
amount not exceeding $2,500,000 at any time outstanding; and
(x) Indebtedness of Argo-Tech Corporation (HBP) secured by
Liens on any Specified Real Estate; PROVIDED that such Indebtedness and
all related obligations are, by the express terms of the agreements and
instruments creating and securing such Indebtedness, recourse solely to
the Specified Real Estate securing such Indebtedness and are not
Guaranteed by Holdings, the Borrower or any other Subsidiary.
(b) Holdings will not create, incur, assume or permit to exist
any Indebtedness except (i) Indebtedness created under the Loan Documents, (ii)
Indebtedness in respect of the Corporation's Notes, subject to Section 6.08(a),
(iii) the Holdings Subordinated Notes and (vi) Indebtedness owing to the
Borrower in respect of loans made by the Borrower to Holdings in lieu of
dividends that the Borrower would have been entitled to pay to Holdings pursuant
to Section 6.08; PROVIDED that (A) any such loans made by the Borrower to
Holdings shall be made at the same times, in the same amounts and for the same
purposes as the Borrower would be permitted to pay dividends to Holdings
pursuant to Section 6.08 and (B) such loans shall be treated as dividends paid
to Holdings for purposes of determining compliance with Section 6.08.
(c) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, issue any preferred stock or be or become liable in
respect of any obligation (contingent or otherwise) to purchase, redeem, retire,
acquire or make any other payment in respect of any shares of capital stock of
Holdings, the Borrower or any Subsidiary or any option, warrant or other right
to acquire any such shares of capital stock, except pursuant to the Put Options.
SECTION 6.02. LIENS. (a) The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or permit to exist any Lien on
any property or asset now
<PAGE> 92
87
owned or hereafter acquired by it, or assign or sell any income or revenues
(including accounts receivable, other than sales of delinquent accounts
receivable for collection purposes in the ordinary course of business) or rights
in respect of any thereof, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on
any property or asset of any Person that becomes a Subsidiary after the
date hereof prior to the time such Person becomes a Subsidiary;
PROVIDED that (A) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary,
as the case may be, (B) such Lien shall not apply to any other property
or assets of the Borrower or any Subsidiary and (C) such Lien shall
secure only those obligations that it secures on the date of such
acquisition or the date such Person becomes a Subsidiary, as the case
may be and extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof;
(iv) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; PROVIDED that (A) such
security interests secure Indebtedness permitted by clause (vii) of
Section 6.01(a), (B) such security interests and the Indebtedness
secured thereby are incurred prior to or within 90 days after such
acquisition or the completion of such construction or improvement, (C)
the Indebtedness secured thereby does not exceed 100% of the cost of
acquiring, constructing or improving such fixed or capital assets and
(D) such security interests shall not apply to any other property or
assets of the Borrower or any Subsidiary;
(v) Liens on Specified Real Estate and the income and proceeds
thereof to the extent such Liens secure Indebtedness permitted by
clause (x) of Section 6.01(a) and such Liens do not apply to any other
property or assets of the Borrower or any Subsidiary; and
<PAGE> 93
88
(vi) Liens in the form of options on the Common Stock held by
the Borrower issued to directors and employees of Holdings, the
Borrower and the Subsidiaries.
(b) Holdings will not create, incur, assume or permit to exist
any Lien on any property or asset now owned or hereafter acquired by it, or
assign or sell any income or revenues (including accounts receivable) or rights
in respect thereof, except Liens created under the Pledge Agreement and
Permitted Encumbrances.
SECTION 6.03. FUNDAMENTAL CHANGES. (a) Neither Holdings nor
the Borrower will, nor will they permit any Subsidiary to, merge into or
consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Subsidiary may merge into the Borrower in a
transaction in which the Borrower is the surviving corporation, (ii) any
Subsidiary may merge into any Subsidiary Loan Party in a transaction in which
the surviving entity is a Subsidiary Loan Party, (iii) any Subsidiary that is
not a Loan Party may merge into any Subsidiary that is not a Loan Party and (iv)
any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders; PROVIDED that any
such merger involving a Person that is not a wholly owned Subsidiary immediately
prior to such merger shall not be permitted unless also permitted by Section
6.04.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and its Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.
(c) Holdings will not engage in any business or activity other
than the ownership of all the outstanding shares of capital stock of the
Borrower and activities incidental thereto. Holdings will not own or acquire any
assets (other than shares of its capital stock, capital stock of the Borrower,
cash and Permitted Investments) or incur any liabilities (other than
Indebtedness expressly permitted under Section 6.01(b), other liabilities under
the
<PAGE> 94
89
Loan Documents, liabilities imposed by law, including tax liabilities, and other
liabilities incidental to its existence and permitted business and activities).
(d) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, (i) permit the ESOP Trustee to be other than an
independent financial institution or (ii) permit any accumulated funding
deficiency to occur with respect to any Plan.
SECTION 6.04. INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND
ACQUISITIONS. Neither Holdings nor the Borrower will, nor will they permit any
of the Subsidiaries to, purchase, hold or acquire (including pursuant to any
merger with any Person that was not a wholly owned Subsidiary prior to such
merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit,
except:
(a) the Borrower will be permitted to make the Acquisition so
long as (i) no Default has occurred and is continuing or would result
therefrom, (ii) the Acquisition is consummated in accordance with the
Stock Purchase Agreement and related documentation, applicable law and
on terms otherwise satisfactory to the Required Lenders, (iii) the
conditions to the Borrower's obligations set forth in the Stock
Purchase Agreement shall have been satisfied without giving effect to
any waiver or amendment in any manner adverse to the Lenders that was
not approved by the Required Lenders, (iv) all actions required to be
taken with respect to J.C. Carter and its subsidiaries pursuant to
Sections 5.12 and 5.13 shall have been taken, (v) the Borrower and the
Subsidiaries are in compliance, on a pro forma basis after giving
effect to the Acquisition, with the covenants contained in Sections
6.01, 6.12, 6.13 and 6.14 recomputed as of the last day of the most
recently ended fiscal quarter of the Borrower, as if the Acquisition
had occurred on the first day of each relevant period for testing such
compliance, and (vi) the Borrower has delivered to the Administrative
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90
Agent an officers' certificate to the effect set forth in clauses (i)
and (v) above.
(b) if no Default has occurred and is continuing or would
result therefrom, the Borrower (and, in the case of clauses (ii), (iii)
and (iv) below, Holdings) will be permitted to (i) fund distributions
by the ESOP in accordance with the terms of the ESOP Plan and Trust
Document, (ii) repurchase Common Stock pursuant to the Put Options,
(iii) repurchase Common Stock (and options to acquire Common Stock)
from directors and employees of Holdings, the Borrower and the
Subsidiaries and (iv) make Permitted Acquisitions (other than the
Acquisition); PROVIDED that (A) the aggregate amount expended pursuant
to this clause (b), on a cumulative basis, during the period commencing
on the Effective Date and ending on any date of determination
immediately prior to the date of delivery of financial statements
pursuant to Section 5.01 with respect to the fiscal year ending October
25, 1997, shall not exceed an amount equal to $1,000,000, and on or
after the date of delivery of such financial statements, the aggregate
amount expended pursuant to this clause (b), on a cumulative basis,
during the period commencing on the Effective Date and ending on any
date of determination, shall not exceed an amount equal to the sum of
50% (or in the case of the fiscal year ending October 25, 1997, 12.5%)
(which percentage shall be increased to 75% for any fiscal year if the
Senior Leverage Ratio is less than 2.10 to 1.00 as of the last day of
such fiscal year) of Excess Cash Flow for each fiscal year of the
Borrower ending on or after October 25, 1997, and ending prior to such
date of determination, (B) consideration in respect of Permitted
Acquisitions shall consist solely of cash consideration and, subject to
compliance with Section 6.01, assumption or incurrence of Indebtedness
and (C) for purposes of determining compliance with the limitations of
clause (A), the aggregate principal amount of Indebtedness assumed,
incurred or otherwise resulting from Permitted Acquisitions shall be
deemed to constitute amounts expended for such purpose;
(c) Permitted Investments;
(d) investments existing on the Effective Date and set forth
on Schedule 6.04, to the extent such
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investments would not be permitted under any other clause of this
Section;
(e) investments by the Borrower in the capital stock of the
Subsidiaries; PROVIDED that (i) any such shares of capital stock shall
be pledged pursuant to the Pledge Agreement (subject to the limitations
applicable to common stock of a Foreign Subsidiary referred to in
Section 5.12) and (ii) the aggregate amount of investments in, and
loans and advances to, and Guarantees of Indebtedness of, Subsidiaries
that are not Loan Parties shall not exceed $100,000 in the aggregate at
any time outstanding;
(f) loans or advances made by the Borrower to any Subsidiary
and made by any Subsidiary to the Borrower or any other Subsidiary;
PROVIDED that (i) any such loans and advances made by a Loan Party
shall be evidenced by a promissory note pledged pursuant to the Pledge
Agreement and (ii) the amount of all such loans and advances by Loan
Parties to Subsidiaries that are not Loan Parties shall be subject to
the limitation set forth in clause (e)(ii) above;
(g) Guarantees constituting Indebtedness permitted by Section
6.01; PROVIDED that the aggregate principal amount of Indebtedness of
Subsidiaries that are not Loan Parties Guaranteed by any Loan Party
shall be subject to the limitation set forth in clause (e)(ii) above;
(h) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes
with, customers and suppliers, in each case in the ordinary course of
business;
(i) loans to directors and employees of the Borrower and the
Subsidiaries in their capacity as such, in an aggregate principal
amount not to exceed $2,500,000 at any time outstanding;
(j) Hedging Agreements permitted under
Section 6.07;
(k) the ESOP Loan in a principal amount not
exceeding $12,600,000 at any time outstanding;
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(l) contributions to the ESOP in accordance with the terms of
the ESOP Plan and Trust Document; and
(m) loans by the Borrower to Holdings to the extent Holdings
is permitted to incur such Indebtedness pursuant to Section 6.01(b).
SECTION 6.05. ASSET SALES. The Borrower will not, and will not
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of
any asset, including any capital stock, nor will the Borrower permit any of its
Subsidiaries to issue any additional shares of its capital stock or other
ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and
Permitted Investments in the ordinary course of business;
(b) sales, transfers and dispositions to the Borrower or a
Subsidiary; PROVIDED that any such sales, transfers or dispositions
involving a Subsidiary that is not a Loan Party shall be made in
compliance with Section 6.09;
(c) sales, transfers and dispositions of assets (other than
capital stock of a Subsidiary) that are not permitted by any other
clause of this Section; PROVIDED that the aggregate fair market value
of all assets sold, transferred or otherwise disposed of in reliance
upon this clause (c) shall not exceed $7,500,000 in the aggregate
during the term of this Agreement;
(d) sales of Specified Real Estate; and
(e) pursuant to stock options issued to directors and
employees of Holdings, the Borrower and the Subsidiaries, sales of
Common Stock purchased and held by the Borrower.
PROVIDED that all sales, transfers, leases and other dispositions permitted
hereby (other than those permitted by clause (b) above) shall be made for fair
value and solely for cash consideration.
SECTION 6.06. SALE AND LEASE-BACK TRANSACTIONS. The Borrower
will not, and will not permit any of its Subsidiaries to, enter into any
arrangement, directly or
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93
indirectly, with any Person whereby it shall sell or transfer any property, real
or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which it
intends to use for substantially the same purpose or purposes as the property
being sold or transferred, except the Specified Real Estate.
SECTION 6.07. HEDGING AGREEMENTS. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any Hedging Agreement,
other than Hedging Agreements entered into in the ordinary course of business to
hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in
the conduct of its business or the management of its liabilities.
SECTION 6.08. RESTRICTED PAYMENTS; CERTAIN PAYMENTS OF
INDEBTEDNESS. (a) Neither Holdings nor the Borrower will, nor will they permit
any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except:
(i) Holdings may declare and pay dividends with respect to
its capital stock payable solely in additional shares of its common
stock;
(ii) Subsidiaries of the Borrower may declare and pay
dividends ratably with respect to their capital stock;
(iii) subject to the limitations set forth in Section 6.04(a),
if at the time thereof and after giving effect thereto no Default has
occurred and is continuing, (A) Holdings and the Borrower may make the
Restricted Payments contemplated by and permitted under Section 6.04(a)
and (B) Holdings may make Restricted Payments consisting of the
issuance of the Corporation's Notes pursuant to the Stockholders'
Agreement (subject to and to be counted towards the dollar limitations
set forth with respect to distributions, repurchases and acquisitions
in Section 6.04(a)); and
(iv) if at the time thereof and after giving effect thereto
no Default has occurred and is continuing, the Borrower may pay cash
dividends to Holdings at such times and in such amounts as shall be
necessary, after giving effect to the application by
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Holdings of any other cash resources available to it (including
Permitted Investments), to permit Holdings to (A) pay taxes imposed
upon it and liabilities incidental to its existence when due, (B) pay
directors' fees to its directors when due and (C) make Restricted
Payments to be made by Holdings that are permitted by clause (iii)
above; PROVIDED that any dividends permitted to be paid to Holdings
shall not be paid prior to the date that Holdings will apply the
proceeds of such dividends to the purposes for which such dividends are
permitted.
(b) Neither Holdings nor the Borrower will, nor will they
permit any Subsidiary to, make or agree to pay or make, directly or indirectly,
any payment or other distribution (whether in cash, securities or other
property) of or in respect of principal of or interest on any Indebtedness, or
any payment or other distribution (whether in cash, securities or other
property), including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancelation or termination of any
Indebtedness, except:
(i) payment of Indebtedness created under the Loan
Documents;
(ii) payment of regularly scheduled interest and principal
payments as and when due in respect of any Indebtedness (subject, in
the case of the Senior Subordinated Notes, to the restrictions on
payments set forth in the indenture governing the Senior Subordinated
Notes); PROVIDED that principal payments in respect of the Senior
Subordinated Notes shall not be permitted; and
(iii) refinancings of Indebtedness to the extent permitted by
Section 6.01.
SECTION 6.09. TRANSACTIONS WITH AFFILIATES. Neither Holdings
nor the Borrower will, nor will they permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) transactions in the
ordinary course of business that do not involve Holdings and are at prices and
on terms and conditions not less favorable to the Borrower or such Subsidiary
than could be obtained on an arm's-length basis
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95
from unrelated third parties, (b) transactions between or among the Borrower and
the Subsidiary Loan Parties not involving any other Affiliate, (c) any
Restricted Payment permitted by Section 6.08, (d) director and employee loans
permitted by clause (h) of Section 6.04, (e) transactions between the Borrower
or a Subsidiary and an Affiliate that is an employee of the Borrower or such
Subsidiary that (i) are in the nature of employment agreements or otherwise
related to such employee's employment or compensation and (ii) are at prices and
on terms and conditions not materially less favorable to the Borrower or such
Subsidiary than are customarily obtained by other similarly situated employees
from their employers and (f) the Distributorship Agreements.
SECTION 6.10. RESTRICTIVE AGREEMENTS. Neither Holdings nor the
Borrower will, nor will they permit any Subsidiary to, directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of Holdings,
the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon
any of its property or assets, or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital stock
or to make or repay loans or advances to the Borrower or any other Subsidiary or
to Guarantee Indebtedness of the Borrower or any other Subsidiary; PROVIDED that
(i) the foregoing shall not apply to restrictions and conditions imposed by law
or by any Loan Document, (ii) the foregoing shall not apply to restrictions and
conditions existing on the Amendment Effective Date identified on Schedule 6.10
(but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition), (iii)
the foregoing shall not apply to customary restrictions and conditions contained
in agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be sold
and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases
restricting the assignment thereof.
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SECTION 6.11. AMENDMENT OF MATERIAL DOCUMENTS. Neither
Holdings nor the Borrower will, nor will they permit any Subsidiary to (a)
amend, modify or waive any of its rights under its certificate of incorporation,
by-laws or other organizational documents; PROVIDED that the certificate of
incorporation, by-laws and other organizational documents of J.C. Carter may be
amended or modified to the extent necessary to conform them to the
organizational documents of the Borrower and its other Subsidiaries (including
to allow for reincorporation in Delaware), (b) amend, supplement or modify any
of the terms or provisions contained in the TRW Agreement or Stockholders'
Agreement, (c) amend, supplement or modify any of the terms or provisions
contained in the Distributorship Agreements, except for such amendments,
supplements and modifications that do not (individually or in the aggregate)
have a Material Adverse Effect, (d) terminate, amend or modify the ESOP Plan and
Trust Document except for amendments required by law or which do not have a
material adverse effect on the cost of the ESOP to the Borrower or are required
by the Internal Revenue Service as a condition of obtaining a favorable
determination letter, (e) terminate, amend or modify the ESOP Loan Agreement,
the ESOP Term Note or the ESOP Pledge Agreement or (f) amend, modify or
supplement any terms or provisions contained in the Senior Subordinated Note
Documents.
SECTION 6.12. CAPITAL EXPENDITURES. The Borrower will not
permit the aggregate amount of Capital Expenditures made by the Borrower and the
Subsidiaries in any fiscal year to exceed the amount set forth below opposite
such year:
Fiscal Year Amount
----------- ------
1997 $5,500,000
1998 $5,500,000
1999 $6,500,000
2000 $6,500,000
2001 $6,500,000
2002 $6,500,000
2003 $6,500,000
2004 $6,500,000
;PROVIDED that, to the extent Capital Expenditures made in any fiscal year are
less than the amount set forth above for such fiscal year, 50% of such unused
amount may be carried forward to the immediately succeeding fiscal year.
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SECTION 6.13. SENIOR LEVERAGE RATIO. The Borrower will not
permit the Senior Leverage Ratio as of any date during any period set forth
below to be in excess of the ratio set forth below opposite such period:
Fiscal Quarter Ending: Ratio
- ---------------------- -----
August 2, 1997 4.20:1.0
October 24, 1997 3.00:1.0
January 30, 1998 3.00:1.0
May 1, 1998 2.75:1.0
July 31, 1998 2.75:1.0
October 30, 1998 2.50:1.0
January 31, 1999 2.50:1.0
April, 30 1999 2.25:1.0
July 30, 1999 2.25:1.0
October 29, 1999 2.00:1.0
January 28, 2000 2.00:1.0
April 28, 2000 1.85:1.0
July 28, 2000 1.85:1.0
October 27, 2000 1.75:1.0
Thereafter 1.50:1.0
SECTION 6.14. CONSOLIDATED INTEREST EXPENSE COVERAGE RATIO.
The Borrower will not permit the ratio of (a) Consolidated EBITDA of the
Borrower to (b) Consolidated Interest Expense (net of interest income) of the
Borrower, in each case for any period of four consecutive fiscal quarters of the
Borrower ending during any period set forth below to be less than the ratio set
forth below opposite such period:
Fiscal Quarter Ending: Ratio
- ---------------------- -----
August 2, 1997 2.00:1.0
October 24, 1997 1.50:1.0
January 30, 1998 1.50:1:0
May 1, 1998 1.85:1.0
July 31, 1998 1.85:1.0
October 30, 1998 2.00:1.0
January 29, 1999 2.00:1.0
April 30, 1999 2.00:1.0
July 30, 1999 2.00:1.0
October 29, 1999 2.10:1.0
January 28, 2000 2.10:1.0
April 28, 2000 2.10:1.0
July 28, 2000 2.10:1.0
October 27, 2000 2.40:1.0
Thereafter 2.75:1.0
<PAGE> 103
98
SECTION 6.15. CERTAIN ACTIONS UNDER SENIOR SUBORDINATED NOTE
DOCUMENTS. The Borrower will not designate any Indebtedness (other than the
Indebtedness hereunder) as "Designated Senior Indebtedness" within the meaning
of the Senior Subordinated Note Documents. The Borrower will not take any
action, or fail to take any action, that would result in any Indebtedness
hereunder not constituting "Senior Indebtedness" within the meaning of the
Senior Subordinated Note Documents.
ARTICLE VII
Events Of Default
-----------------
If any of the following events ("EVENTS OF DEFAULT") shall
occur:
(a) the Borrower shall fail to pay any principal of any Loan
or any reimbursement obligation in respect of any LC Disbursement when
and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or
any fee or any other amount (other than an amount referred to in clause
(a) of this Article) payable under this Agreement or any other Loan
Document, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or
on behalf of Holdings, the Borrower or any Subsidiary in or in
connection with any Loan Document or any amendment or modification
thereof or waiver thereunder, or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with
any Loan Document or any amendment or modification thereof or waiver
thereunder, shall prove to have been incorrect when made or deemed
made;
(d) Holdings or the Borrower shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.02, 5.04
(with respect to the
<PAGE> 104
99
existence of Holdings or the Borrower) or 5.11 or in Article VI;
(e) any Loan Party shall fail to observe or perform any
covenant, condition or agreement contained in any Loan Document (other
than those specified in clause (a), (b) or (d) of this Article), and
such failure shall continue unremedied for a period of 30 days after
notice thereof from the Administrative Agent to the Borrower (which
notice will be given at the request of any Lender);
(f) Holdings, the Borrower or any Subsidiary shall fail to
make any payment (whether of principal or interest and regardless of
amount) in respect of any Material Indebtedness, when and as the same
shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that
enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Indebtedness or any
trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity;
PROVIDED that this clause (g) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed seeking (i) liquidation,
reorganization or other relief in respect of Holdings, the Borrower or
any Subsidiary or its debts, or of a substantial part of its assets,
under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings, the Borrower or any
Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing
shall be entered;
<PAGE> 105
100
(i) Holdings, the Borrower or any Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect, (ii) consent to the institution of, or fail to
contest in a timely and appropriate manner, any proceeding or petition
described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Holdings, the Borrower or any
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of
the foregoing;
(j) Holdings, the Borrower or any Subsidiary shall become
unable, admit in writing its inability or fail generally to pay its
debts as they become due;
(k) one or more judgments for the payment of money in an
aggregate amount in excess of $1,500,000 shall be rendered against
Holdings, the Borrower, any Subsidiary or any combination thereof and
the same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to attach or levy upon
any assets of Holdings, the Borrower or any Subsidiary to enforce any
such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of
the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability
of the Borrower and its Subsidiaries in an aggregate amount exceeding
(i) $750,000 in any year or (ii) $1,500,000 for all periods;
(m) any Lien purported to be created under any Security
Document shall cease to be, or shall be asserted by any Loan Party not
to be, a valid and perfected Lien on any Collateral, with the priority
required by the applicable Security Document, except (i) as a result of
the sale or other disposition of the
<PAGE> 106
101
applicable Collateral in a transaction permitted under the Loan
Documents or (ii) as a result of the Administrative Agent's failure to
maintain possession of any stock certificates, promissory notes or
other instruments delivered to it under the Pledge Agreement; or
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Administrative Agent (which term for purposes of this Article shall
be deemed to refer to the Administrative Agent and the Collateral Agent) as its
agent and authorizes the Administrative Agent to take such actions on its behalf
and to exercise such powers as are delegated to the Administrative Agent by the
terms of the Loan
<PAGE> 107
102
Documents, together with such actions and powers as are reasonably incidental
thereto.
The bank serving as the Administrative Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with Holdings, the Borrower or any
Subsidiary or other Affiliate thereof as if it were not the Administrative Agent
hereunder.
The Administrative Agent shall not have any duties or
obligations except those expressly set forth in the Loan Documents. Without
limiting the generality of the foregoing, (a) the Administrative Agent shall not
be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing, (b) the Administrative Agent shall not
have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated by the
Loan Documents that the Administrative Agent is required to exercise in writing
by the Required Lenders (or such other number or percentage of the Lenders as
shall be necessary under the circumstances as provided in Section 9.02), and (c)
except as expressly set forth in the Loan Documents, the Administrative Agent
shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to Holdings, the Borrower or any of its
Subsidiaries that is communicated to or obtained by the bank serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 9.02) or in the absence of its own gross negligence or
wilful misconduct. The Administrative Agent shall not be deemed to have
knowledge of any Default unless and until written notice thereof is given to the
Administrative Agent by Holdings, the Subsidiaries, the Borrower or a Lender,
and the Administrative Agent shall not be responsible for or have any duty to
ascertain or inquire into (i) any statement, warranty or representation made in
or in connection with any Loan Document, (ii) the contents of any certificate,
report or other document delivered thereunder or in connection therewith, (iii)
the performance or
<PAGE> 108
103
observance of any of the covenants, agreements or other terms or conditions set
forth in any Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document or any other agreement, instrument or document,
or (v) the satisfaction of any condition set forth in Article IV or elsewhere in
any Loan Document, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. The
Administrative Agent also may rely upon any statement made to it orally or by
telephone and believed by it to be made by the proper Person, and shall not
incur any liability for relying thereon. The Administrative Agent may consult
with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.
The Administrative Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the
<PAGE> 109
104
Issuing Bank, appoint a successor Administrative Agent that shall be a bank with
an office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agent's
resignation hereunder, the provisions of this Article and Section 9.03 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as Administrative
Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. NOTICES. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by
<PAGE> 110
105
certified or registered mail or sent by telecopy, as follows:
(a) if to Holdings or the Borrower, to it at Argo-
Tech Corporation, 23555 Euclid Avenue, Cleveland, Ohio
44117-1795, Attention of Frances St Clair (Telecopy
No. (216) 692-6331);
(b) if to the Administrative Agent or the Collateral Agent, to
The Chase Manhattan Bank, Loan and Agency Services Group, One Chase
Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of
Sandra Miklave (Telecopy No. (212) 552-5658), with a copy to The Chase
Manhattan Bank, 270 Park Avenue, New York, New York 10017, Attention of
Stephen Simon (Telecopy No.(212) 270-5100);
(c) if to the Issuing Bank, to it at Standby Letter of Credit
Department, 55 Water Street, 17th Floor, Room 1710, New York, New York
10041, Attention of Roshdy Botros (Telecopy No. (212) 638-8200), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New York
10017, Attention of Stephen Simon (Telecopy No.(212) 270-5100);
(d) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. WAIVERS; AMENDMENTS. (a) No failure or delay by
the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender
in exercising any right or power hereunder or under any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are
<PAGE> 111
106
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of any Loan Document or consent to any departure by any
Loan Party therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, the Collateral Agent,
any Lender or the Issuing Bank may have had notice or knowledge of such Default
at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by Holdings, the Borrower and the Required Lenders or, in the case
of any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Administrative Agent or the Collateral Agent, as applicable,
and the Loan Party or Loan Parties that are parties thereto, in each case with
the consent of the Required Lenders; PROVIDED that no such agreement shall (i)
increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or reduce
the amount of, waive or excuse any such payment, or postpone the scheduled date
of expiration of any Commitment, without the written consent of each Lender
affected thereby, (iv) change Section 2.17(b) or (c) in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Lender, (v) change any of the provisions of this Section or the
definition of "Required Lenders" or any other provision of any Loan Document
specifying the number or percentage of Lenders (or Lenders of any Class)
required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender (or each Lender of such Class, as the case may be), (vi) release
Holdings or any Subsidiary Loan Party from its Guarantee under the Parent
Guarantee Agreement or the Subsidiary Guarantee Agreement,
<PAGE> 112
107
as applicable (except as expressly provided in the Parent Guarantee Agreement or
the Subsidiary Guarantee Agreement, as applicable), or limit its liability in
respect of such Guarantee, without the written consent of each Lender, (vii)
except in strict accordance with the express provisions thereof, release all or
any substantial part of the Collateral from the Liens of the Security Documents,
without the written consent of each Lender, or (viii) change any provisions of
any Loan Document in a manner that by its terms adversely affects the rights in
respect of payments due to Lenders holding Loans of any Class differently than
those holding Loans of any other Class, without the written consent of Lenders
holding a majority in interest of the outstanding Loans and unused Commitments
of each affected Class (in addition to any consents required under the foregoing
provisions of this Section); PROVIDED FURTHER that (A) no such agreement shall
amend, modify or otherwise affect the rights or duties of the Administrative
Agent, the Collateral Agent or the Issuing Bank without the prior written
consent of the Administrative Agent, the Collateral Agent or the Issuing Bank,
as the case may be, and (B) any waiver, amendment or modification of this
Agreement that by its terms affects the rights or duties under this Agreement of
the Revolving Lenders (but not the Tranche A Term Loan Lenders and Delayed Draw
Acquisition Loan Lenders), the Tranche A Term Loan Lenders (but not the
Revolving Lenders and Delayed Draw Acquisition Loan Lenders) or the Delayed Draw
Acquisition Loan Lenders (but not the Revolving Lenders and Tranch A Term Loan
Lenders) may be effected by an agreement or agreements in writing entered into
by Holdings, the Borrower and requisite percentage in interest of the affected
Class of Lenders.
SECTION 9.03. EXPENSES; INDEMNITY; DAMAGE WAIVER. (a) The
Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent, the Collateral Agent and their Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent and the Collateral Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of the Loan
Documents or any amendments, modifications or waivers of the provisions thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing
Bank in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder and (iii) all
<PAGE> 113
108
out-of-pocket expenses incurred by the Administrative Agent, the Collateral
Agent, the Issuing Bank or any Lender, including the fees, charges and
disbursements of any counsel for the Administrative Agent, the Collateral Agent,
the Issuing Bank or any Lender, in connection with the enforcement or protection
of its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Borrower shall indemnify the Administrative Agent, the
Collateral Agent, the Issuing Bank and each Lender, and each Related Party of
any of the foregoing Persons (each such Person being called an "INDEMNITEE")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of any Loan Document or any other agreement or instrument
contemplated hereby, the performance by the parties to the Loan Documents of
their respective obligations thereunder or the consummation of the Transactions
or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit
or the use of the proceeds therefrom (including any refusal by the Issuing Bank
to honor a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit), (iii) any actual or alleged presence or release of
Hazardous Materials on or from any Mortgaged Property or any other property
currently or formerly owned or operated by the Borrower or any of its
Subsidiaries, or any Environmental Liability related in any way to the Borrower
or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses resulted from the gross negligence or wilful misconduct of such
Indemnitee.
<PAGE> 114
109
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, the Collateral Agent or
the Issuing Bank under paragraph (a) or (b) of this Section, each Lender
severally agrees to pay to the Administrative Agent, the Collateral Agent or the
Issuing Bank, as the case may be, such Lender's pro rata share (determined as of
the time that the applicable unreimbursed expense or indemnity payment is
sought) of such unpaid amount; PROVIDED that the unreimbursed expense or
indemnified loss, claim, damage, liability or related expense, as the case may
be, was incurred by or asserted against the Administrative Agent, the Collateral
Agent or the Issuing Bank in its capacity as such. For purposes hereof, a
Lender's "pro rata share" shall be determined based upon its share of the sum of
the total Revolving Exposures, outstanding Term Loans and unused Commitments at
the time.
(d) To the extent permitted by applicable law, neither
Holdings nor the Borrower shall assert, and each hereby waives, any claim
against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, this Agreement or any
agreement or instrument contemplated hereby, the Transactions, any Loan or
Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby (including
any Affiliate of the Issuing Bank that issues any Letter of Credit), except that
the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be
null and void). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Collateral Agent, the Issuing Bank and the
<PAGE> 115
110
Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); PROVIDED that
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower and the Administrative Agent (and, in the case of an
assignment of all or a portion of a Revolving Commitment or any Lender's
obligations in respect of its LC Exposure, the Issuing Bank) must give their
prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) except in the case of an assignment to a Lender or
an Affiliate of a Lender or an assignment of the entire remaining amount of the
assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of
the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, (iii) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement, except that this
clause (iii) shall not be construed to prohibit the assignment of a
proportionate part of all the assigning Lender's rights and obligations in
respect of one Class of Commitments or Loans, (iv) the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and PROVIDED FURTHER that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default has occurred and is continuing. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the
<PAGE> 116
111
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.14, 2.15, 2.16 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Commitment
of, and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "REGISTER"). The entries in
the Register shall be conclusive, and Holdings, the Borrower, the Administrative
Agent, the Issuing Bank and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank and
any Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank sell participations to one or more
banks or other entities (a "PARTICIPANT") in all or a portion of such Lender's
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); PROVIDED that (i) such Lender's
obligations under this
<PAGE> 117
112
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) Holdings, the Borrower, the Administrative Agent, the Collateral
Agent, the Issuing Bank and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents; PROVIDED that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such Participant.
Subject to paragraph (f) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent permitted by
law, each Participant also shall be entitled to the benefits of Section 9.08 as
though it were a Lender, provided such Participant agrees to be subject to
Section 2.17(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.14 or 2.16 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.16 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.16(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; PROVIDED that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations
<PAGE> 118
113
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
SECTION 9.05. SURVIVAL. All covenants, agreements,
representations and warranties made by the Loan Parties in the Loan Documents
and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans and
issuance of any Letters of Credit, regardless of any investigation made by any
such other party or on its behalf and notwithstanding that the Administrative
Agent, the Issuing Bank or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is
extended hereunder, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or any fee or any other amount
payable under this Agreement is outstanding and unpaid or any Letter of Credit
is outstanding and so long as the Commitments have not expired or terminated.
The provisions of Sections 2.14, 2.15, 2.16 and 9.03 and Article VIII shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Loans, the expiration
or termination of the Letters of Credit and the Commitments or the termination
of this Agreement or any provision hereof.
SECTION 9.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof that, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an
<PAGE> 119
114
executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07. SEVERABILITY. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. RIGHT OF SETOFF. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other obligations at
any time owing by such Lender or Affiliate to or for the credit or the account
of the Borrower against any of and all the obligations of the Borrower now or
hereafter existing under this Agreement held by such Lender, irrespective of
whether or not such Lender shall have made any demand under this Agreement and
although such obligations may be unmatured. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff) that such Lender may have.
SECTION 9.09. GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE
OF PROCESS. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each of Holdings and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
<PAGE> 120
115
extent permitted by law, in such Federal court. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement or any other Loan
Document shall affect any right that the Administrative Agent, the Issuing Bank
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement or any other Loan Document against Holdings, the Borrower or its
properties in the courts of any jurisdiction.
(c) Each of Holdings and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 9.01. Nothing
in this Agreement or any other Loan Document will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. HEADINGS. Article and Section headings and the
Table of Contents used herein are for
<PAGE> 121
116
convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
SECTION 9.12. CONFIDENTIALITY. Each of the Administrative
Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality
of the Information (as defined below), except that Information may be disclosed
(a) to its and its Affiliates' directors, officers, employees and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement, (g) with the consent of
the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section or (ii) becomes
available to the Administrative Agent, the Issuing Bank or any Lender on a
nonconfidential basis from a source other than Holdings or the Borrower. For the
purposes of this Section, "INFORMATION" means all information received from
Holdings or the Borrower relating to Holdings or the Borrower or its business,
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by
Holdings or the Borrower; PROVIDED that, in the case of information received
from Holdings or the Borrower after the date hereof, such information is clearly
identified at the time of delivery as confidential. Any Person required to
maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
<PAGE> 122
117
SECTION 9.13. INTEREST RATE LIMITATION. Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the "CHARGES"), shall
exceed the maximum lawful rate (the "MAXIMUM RATE") which may be contracted for,
charged, taken, received or reserved by the Lender holding such Loan in
accordance with applicable law, the rate of interest payable in respect of such
Loan hereunder, together with all Charges payable in respect thereof, shall be
limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a
result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be
increased (but not above the Maximum Rate therefor) until such cumulated amount,
together with interest thereon at the Federal Funds Effective Rate to the date
of repayment, shall have been received by such Lender.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
AT HOLDINGS CORPORATION,
by /s/ Michael S. Lipscomb
----------------------------
Name: Michael S. Lipscomb
Title: President
ARGO-TECH CORPORATION,
by /s/ Yoichi Fujiki
----------------------------
Name: Yoichi Fujiki
Title: Vice President
<PAGE> 123
118
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
/s/ Matthew H. Massie
---------------------------
Name: Matthew H. Massie
Title: Vice President
BANK ONE, NA,
by
/s/ Babette Casey Coerdt
---------------------------
Name: Babette Casey Coerdt
Title: Vice President &
Group Manager
COMERICA BANK
by
/s/ Charles L. Weddell
---------------------------
Name: Charles L. Weddell
Title: Vice President
CAISSE NATIONALE DE CREDIT
AGRICOLE
by
/s/ Katherine L. Abbott
---------------------------
Name: Katherine L. Abbott
Title: First Vice President
CREDIT LYONNAIS CHICAGO BRANCH
by
/s/ Matthew Kirst
---------------------------
Name: Matthew Kirst
Title: Vice President
<PAGE> 124
119
HARRIS TRUST AND SAVINGS BANK
by
/s/ William Mcdonnell
-----------------------------
Name: William McDonnell
Title: Vice President
HELLER FINANCIAL, INC.
by
/s/ Kathi J. Inorio
-----------------------------
Name: Kathi J. Inorio
Title: Vice President
KEY BANK NATIONAL ASSOCIATION
by
/s/ Thomas J. Purcell
-----------------------------
Name: Thomas J. Purcell
Title: Vice President
NATIONAL CITY BANK
by
/s/ Todd C. Moules
-----------------------------
Name: Todd C. Moules
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
by
/s/ Bryon A. Pike
-----------------------------
Name: Bryon A. Pike
Title: Vice President
<PAGE> 1
Exhibit 10.27
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
J.C. CARTER COMPANY, INC.,
ROBERT L. VELOZ, INDIVIDUALLY AND AS TRUSTEE,
MARLENE J. VELOZ, INDIVIDUALLY AND AS TRUSTEE,
HARRY S. DERBYSHIRE, INDIVIDUALLY AND AS TRUSTEE,
EDITH T. DERBYSHIRE, INDIVIDUALLY AND AS TRUSTEE,
MICHAEL VELOZ, KATHERINE CANFIELD AND
MAUREEN PARTCH, AS TRUSTEE
AND
ARGO-TECH CORPORATION
DATED AS OF AUGUST 1, 1997
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
RECITALS ....................................................................................................... 1
SECTION 1: DEFINITIONS........................................................................................ 2
SECTION 2: SALE AND PURCHASE OF SHARES........................................................................ 7
2.1 Sale and Purchase of Shares................................................................. 7
2.2 Consideration............................................................................... 8
2.3 Purchase Price Adjustment................................................................... 8
SECTION 3: CLOSING AND DELIVERIES............................................................................ 10
3.1 Closing.................................................................................... 10
3.2 Deliveries by the Sellers.................................................................. 10
3.3 Deliveries by Buyer........................................................................ 11
SECTION 4: REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND THE COMPANY.......................................................................... 11
4.1 Organization, Power and Authority; Charter Documents and Corporate
Records.................................................................................... 11
4.2 Validity of Agreements; Authority.......................................................... 12
4.3 No Breach................................................................................... 12
4.4 Capitalization.............................................................................. 13
4.5 Subsidiaries and Investments................................................................ 13
4.6 Consents.................................................................................... 13
4.7 Financial Statements........................................................................ 14
4.8 Conduct of Business......................................................................... 14
4.9 Agreements.................................................................................. 14
4.10 Labor Relations and Practices............................................................... 16
4.11 Licenses and Permits........................................................................ 16
4.12 Intellectual Property....................................................................... 16
4.13 Orders and Actions.......................................................................... 17
4.14 Taxes....................................................................................... 17
4.15 Environmental............................................................................... 18
4.16 Insurance................................................................................... 20
4.17 Title to Assets; Sufficiency of Assets...................................................... 20
4.18 Government Contracts........................................................................ 21
4.19 Undisclosed Liabilities..................................................................... 22
4.20 Compliance With Laws and Orders............................................................. 22
4.21 Affiliated Transactions..................................................................... 22
4.22 Employee Benefit Plans; ERISA............................................................... 23
4.23 Company Information......................................................................... 25
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C>
4.24 Disclosure.................................................................................. 25
4.25 Indebtedness................................................................................ 25
4.26 Brokerage................................................................................... 25
SECTION 5: REPRESENTATIONS AND WARRANTIES OF BUYER............................................................ 25
5.1 Investment Intent........................................................................... 25
5.2 Organization Power and Authority............................................................ 25
5.3 Authorization and Execution................................................................. 26
5.4 No Breach................................................................................... 26
5.5 Consents and Approvals...................................................................... 26
5.6 Orders and Actions.......................................................................... 26
5.7 Buyer's Financing........................................................................... 26
5.8 Brokerage................................................................................... 26
SECTION 6: COVENANTS AND AGREEMENTS OF THE PARTIES............................................................ 26
6.1 Closing Conditions.......................................................................... 26
6.2 Reasonable Access........................................................................... 27
6.3 Conduct of Business......................................................................... 27
6.4 Litigation.................................................................................. 28
6.5 Publicity................................................................................... 28
6.6 Regulatory Filings.......................................................................... 29
6.7 Post-Closing Access......................................................................... 29
6.8 Expenses of Sale............................................................................ 30
6.9 Covenant Not to Compete..................................................................... 30
6.10 Notice of Developments...................................................................... 32
6.11 Exclusivity................................................................................. 32
6.12 Obtaining of Financing...................................................................... 32
6.13 Certain Fees................................................................................ 32
6.14 Indebtedness................................................................................ 33
6.15 Other Assistance............................................................................ 33
6.16 Continued Employment........................................................................ 33
6.17 Corporate Aircraft.......................................................................... 33
6.18 Santa Barbara Office Lease.................................................................. 34
6.19 Company Automobiles......................................................................... 34
6.20 Certain Employees........................................................................... 34
6.21 Environmental Investigation................................................................. 34
6.22 Nonassignability of Assets.................................................................. 34
6.23 Note Receivable/Accrued Bonus Payable........................................................35
SECTION 7: CONDITIONS TO THE OBLIGATIONS OF BUYER............................................................. 35
7.1 Representations and Warranties True and Correct............................................. 35
7.2 Covenants and Agreements Performed.......................................................... 35
7.3 Deliveries.................................................................................. 36
7.4 Consents.................................................................................... 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
7.5 HSR Act and Exon-Florio Amendment........................................................... 36
7.6 No Actions.................................................................................. 36
7.7 Adverse Change.............................................................................. 36
7.8 Resignations................................................................................ 36
7.9 Title Insurance and Survey.................................................................. 36
7.10 Indebtedness; Encumbrances.................................................................. 36
7.11 Financing................................................................................... 37
SECTION 8: CONDITIONS TO THE OBLIGATIONS OF THE SELLERS....................................................... 37
8.1 Representations and Warranties True and Correct............................................. 37
8.2 Covenants and Agreements Performed.......................................................... 37
8.3 Deliveries.................................................................................. 37
8.4 Consents.................................................................................... 37
8.5 HSR Act and Exon-Florio Amendment........................................................... 37
8.6 No Actions.................................................................................. 37
SECTION 9: INDEMNIFICATION AND SURVIVAL....................................................................... 38
9.1 Indemnification by the Sellers.............................................................. 38
9.2 Indemnification by Buyer.................................................................... 38
9.3 Notice and Opportunity to Defend............................................................ 38
9.4 Limitation.................................................................................. 39
9.5 Survival of Representations and Warranties and Covenants.................................... 40
9.6 Exclusive Remedy; Right to Indemnification Not Affected by Knowledge........................ 40
SECTION 10: TAX MATTERS....................................................................................... 41
10.1 Tax Liabilities for the Current Period...................................................... 41
10.2 Cooperation on Tax Matters.................................................................. 41
10.3 Tax Sharing Agreements...................................................................... 41
10.4 Certain Taxes............................................................................... 41
SECTION 11: TERMINATION....................................................................................... 42
11.1 Termination of Agreement.................................................................... 42
11.2 Effect of Termination....................................................................... 42
SECTION 12: MISCELLANEOUS..................................................................................... 43
12.1 Amendments.................................................................................. 43
12.2 Notices..................................................................................... 43
12.3 Assignment; Successors and Assigns.......................................................... 45
12.4 Rights of Third Parties..................................................................... 45
12.5 Waiver; Remedies............................................................................ 45
12.6 Equitable Relief............................................................................ 46
12.7 No Recourse Against Others.................................................................. 46
12.8 Choice of Law............................................................................... 46
</TABLE>
iii
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<TABLE>
<CAPTION>
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<S> <C>
12.9 Severability................................................................................ 46
12.10 Entire Agreement............................................................................ 46
12.11 Construction................................................................................ 46
12.12 Schedules................................................................................... 47
12.13 Headings, Recitals and References........................................................... 47
12.14 Further Assurances.......................................................................... 47
12.15 Facsimile Signatures........................................................................ 47
12.16 Counterparts................................................................................ 47
</TABLE>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of August 1, 1997 (this
"Agreement"), by and among J.C. Carter Company, Inc., a California corporation
(the "Company"), Robert L. Veloz and Marlene J. Veloz, as settlors, trustees and
primary beneficiaries of the Second Amendment and Complete Restatement of
Declaration of Trust for the Robert L. Veloz Family and Trust Agreement, dated
as of October 2, 1996, Maureen Partch, as trustee of, and Michael Veloz, as
primary beneficiary of, the Michael Veloz 1992 Stock Trust, dated December 22,
1992, Maureen Partch, as trustee of, and Katherine Canfield, as primary
beneficiary of, the Katherine Canfield 1992 Stock Trust, dated December 22,
1992, Harry S. Derbyshire and Edith T. Derbyshire, as settlors, trustees and
primary beneficiaries of the First Amendment to the Derbyshire Family Trust,
dated November 29, 1993 (which trusts are hereinafter collectively referred to
as the "Trusts," which trustees are hereinafter collectively referred to as the
"Trustees," and which trust beneficiaries are hereinafter collectively referred
to as the "Trust Beneficiaries"), Robert L. Veloz, in his individual capacity
("Veloz"), Marlene J. Veloz, in her individual capacity, Harry S. Derbyshire, in
his individual capacity ("Derbyshire"), Edith T. Derbyshire, in her individual
capacity (the Trusts, Trustees, Trust Beneficiaries, Veloz, Marlene J. Veloz,
Derbyshire and Edith T. Derbyshire are hereinafter collectively referred to as
the "Sellers"), and Argo-Tech Corporation, a Delaware corporation ("Buyer").
RECITALS:
---------
A. The Sellers are the beneficial and record owners of all the issued
and outstanding shares of capital stock of the Company (the "Shares").
B. The Sellers desire to sell to Buyer, and Buyer desires to purchase
from the Sellers, the number of Shares set forth opposite each Seller's name on
Schedule 4.4, all upon the terms and conditions set forth in this Agreement.
C. Veloz and Derbyshire, each primary beneficiaries of one or more of
the Trusts, have agreed to provide certain representations, warranties,
covenants and indemnities to Buyer in order to induce Buyer to enter into this
Agreement.
D. Marlene J. Veloz and Edith T. Derbyshire, the spouses of Veloz and
Derbyshire, respectively, have agreed to provide certain indemnities to Buyer in
order to induce Buyer to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and undertakings contained in this Agreement and subject
to and on the terms and conditions set forth in this Agreement, the parties
hereto hereby agree as follows:
<PAGE> 7
SECTION 1: DEFINITIONS
-----------
For purposes of this Agreement:
"ACTIONS" shall mean any pending, threatened or potential
claim, demand, dispute, litigation, action, suit, indictment, investigation,
proceeding, hearing, complaint, assessment, fine, penalty, inquiry or judgment,
administrative, arbitral or judicial, at law or in equity.
"ADJUSTMENT AMOUNT" shall have the meaning set forth in
Section 2.3(a).
"AFFILIATE" shall mean with respect to any Person, any Person
which directly or indirectly controls, is controlled by or is under common
control with such Person. A Person shall be deemed to control another Person if
such Person owns 10% or more of any class of stock of the "controlled" Person or
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of the controlled Person, whether through ownership
of stock or partnership interests, by contract or otherwise.
"AGREEMENT" shall have the meaning set forth in the preamble
to this Agreement.
"AIRCRAFT" shall have the meaning set forth in Section 6.17.
"ANCILLARY AGREEMENTS" shall mean any agreement or certificate
contemplated by this Agreement, in each case only as applicable to the relevant
party or parties to such Ancillary Agreement, as indicated by the context in
which such term is used.
"ANOTHER TRANSACTION" shall have the meaning set forth in
Section 6.11.
"ASSETS" shall have the meaning set forth in Section 4.17(b).
"AUDITED FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.7(a).
"BALANCE SHEET DATE" shall have the meaning set forth in
Section 4.8.
"BENEFICIARY" means (a) with respect to any claim for
indemnification or Circumstance which could give rise to a right of
indemnification pursuant to Section 9.1, any member of the Buyer Group and (b)
with respect to any claim for indemnification or Circumstance which could give
rise to a right of indemnification pursuant to Section 9.2, any member of the
Seller Group.
"BUSINESS" shall have the meaning set forth in Section 6.9(a).
"BUSINESS DAY" means any day other than a Saturday, Sunday or
a day on which banks in California are authorized or obligated by law or
executive order to close.
"BUYER" shall have the meaning set forth in the preamble to
this Agreement.
2
<PAGE> 8
"BUYER GROUP" shall have the meaning set forth in Section 9.1.
"CHARTER DOCUMENTS" means (a) the Certificate or Articles of
Incorporation, as amended to date, or similar corporate charter or other
instrument of organization and (b) the Bylaws, as amended to date, or similar
instrument.
"CFIUS" shall have the meaning set forth in Section 6.6.
"CHASE" shall have the meaning set forth in Section 5.7.
"CHASE LETTER" shall have the meaning set forth in
Section 5.7.
"CIRCUMSTANCE" shall have the meaning set forth in
Section 9.3.
"CLOSING" shall have the meaning set forth in Section 3.1.
"CLOSING DATE" shall have the meaning set forth in
Section 3.1.
"CLOSING DATE BALANCE SHEET" means the audited balance sheet
of the Company as of the close of business on the Closing Date (without giving
effect to any of the transactions contemplated pursuant to this Agreement,
including, without limitation, the asset transfers set forth in Sections 6.17,
6.18 and 6.19 and the transactions set forth in Section 6.23), as finally
determined in accordance with the procedures set forth in Section 2.3(b),
prepared in accordance with GAAP consistently applied, and adjusted to reflect
the adjustments and matters described in Annex A.
"CLOSING DATE BALANCE SHEET OBJECTION PERIOD" shall have the
meaning set forth in Section 2.3(b)(ii).
"CLOSING NET WORTH" shall have the meaning set forth in
Section 2.3(a).
"CODE" shall have the meaning set forth in Section 4.22(d).
"COMMON SHARES" shall mean the common stock, without par
value, of the Company.
"COMPANY" shall have the meaning set forth in the preamble to
this Agreement.
"COMPANY FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.7(a).
"CONDITION OF THE COMPANY" means the business, assets,
liabilities, results of operations, financial condition or prospects of the
Company and its Subsidiaries taken as a whole.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 6.9(e).
3
<PAGE> 9
"CONSENTS" shall mean any consent, approval, authorization,
qualification, waiver, novation or notification of a Governmental Authority or
any other Person.
"CONTAMINANTS" shall mean any contaminant, pollutant or
hazardous substance, or words of similar import, as defined by any Environmental
Laws, including, but not limited to, any waste materials, petroleum and
petroleum products and/or derivatives, or polychlorinated biphenyls (PCBs).
"CONTRACTS" shall have the meaning set forth in
Section 4.3(b).
"DAMAGES" means any loss, claim, liability, damage, fine,
penalty, amounts paid in settlement, costs (including costs of investigation or
enforcement) or expense (including, without limitation, reasonable attorneys'
fees and disbursements, witness fees and court costs).
"DEDUCTIBLE" shall have the meaning set forth in Section 9.4.
"DERBYSHIRE" shall have the meaning set forth in the preamble
to this Agreement.
"DIRECT CLAIM" shall have the meaning set forth in Section
9.3(b).
"EMPLOYEE PLANS" shall have the meaning set forth in Section
4.22(a).
"ENGAGING IN COMPETITION" shall have the meaning set forth in
Section 6.9(a).
"ENVIRONMENTAL LAWS" shall have the meaning set forth in
Section 4.15(a).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EXON-FLORIO AMENDMENT" shall have the meaning set forth in
Section 4.6.
"GAAP" shall mean United States generally accepted accounting
principles.
"GOVERNMENTAL AUTHORITY" shall mean any government or
political subdivision, whether federal, state, local or foreign, or any agency
or instrumentality of any such government or political subdivision, or any
federal, state, local or foreign court or arbitrator.
"GOVERNMENT CONTRACTS" shall mean Contracts relating to
procurements by or on behalf of any Governmental Authority, including instances
when the Company or any of its Subsidiaries has acted as a subcontractor at any
tier.
"HOULIHAN LOKEY" shall have the meaning set forth in Section
4.26.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
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"INDEBTEDNESS" means any indebtedness for borrowed money of
the Company or any of its Subsidiaries reflected in any promissory note,
indenture, bond, mortgage, credit agreement or other similar instrument,
including any and all interest expenses accrued and unpaid thereon and any
prepayment penalties payable with respect thereto.
"INDEMNITOR" means (a) with respect to any claim for
indemnification or Circumstance which could give rise to a right of
indemnification pursuant to Section 9.1, the Sellers, jointly and severally, and
(b) with respect to any claim for indemnification or Circumstance which could
give rise to a right of indemnification pursuant to Section 9.2, Buyer.
"INDEPENDENT ACCOUNTANTS" shall have the meaning set forth in
Section 2.3(b)(iii).
"INITIAL NET WORTH" shall have the meaning set forth in
Section 2.3(a).
"INTELLECTUAL PROPERTY" shall have the meaning set forth in
Section 4.12.
"INTERIM FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.7(a).
"INVESTMENTS" means any equity interest, directly or
indirectly, in any other Person in excess of 5% of the total equity ownership of
such Person.
"IRS" shall have the meaning set forth in Section 4.22(e).
"JUNE 30 BALANCE SHEET" shall have the meaning set forth in
Section 4.7(a).
"JUNE 30 FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 6.15(b).
"KNOWLEDGE" shall have the meaning set forth in Section 12.11.
"KNOWLEDGE OF THE COMPANY" shall have the meaning set forth in
Section 12.11.
"LAWS" shall mean any law, statute, code, ordinance, rule,
regulation, administrative or executive order, constitution, treaty, principle
of common law or other requirement of any Governmental Authority.
"LEASED REAL PROPERTY" shall have the meaning set forth in
Section 4.17(b).
"LEASES" shall have the meaning set forth in Section 4.17(a).
"LIENS" shall mean any mortgage, easement, right of way, lien,
Option, pledge, encumbrance, adverse claim, security interest, community
property interest, claim, charge, defect in title, right of first refusal or
restriction of any kind, including any restrictions on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership.
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<PAGE> 11
"MATERIALITY CONDITION" shall have the meaning set forth in
Section 9.4(b).
"NON-COMPETITION AREA" shall have the meaning set forth in
Section 6.9(a).
"NON-COMPETITION TERM" shall have the meaning set forth in
Section 6.9(d).
"NOTICE OF OBJECTION" shall have the meaning set forth in
Section 2.3(b)(ii).
"OPTION" means any option, warrant, call, convertible or
exchangeable security, subscription, preemptive right, other agreement or right
of similar nature.
"ORDERS" shall mean any order, judgment, injunction, award,
decree, ruling, charge or writ of any Governmental Authority.
"OWNED PROPERTY" shall have the meaning set forth in Section
4.17(a).
"PERMITS" shall mean any license, permit, authorization,
grant, approval, franchise, waiver, Consent, qualification or similar document
or authority issued or granted by any Governmental Authority.
"PERMITTED LIENS" shall have the meaning set forth in Section
4.17(b).
"PERSON" shall mean any individual, sole proprietorship,
partnership, corporation, limited liability company, unincorporated society or
association, trust or other entity or Governmental Authority.
"PURCHASE PRICE" shall have the meaning set forth in Section
2.2.
"REAL PROPERTY" shall have the meaning set forth in Section
4.17(b).
"RELEASE" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment.
"SEC" shall have the meaning set forth in Section 4.23.
"SECURITIES ACT" shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder.
"SELLER GROUP" shall have the meaning set forth in Section
9.2.
"SELLERS" shall have the meaning set forth in the preamble to
this Agreement.
"SHAREHOLDER INDEBTEDNESS" shall have the meaning set forth in
Section 6.14.
"SHARES" shall have the meaning set forth in the recitals of
this Agreement.
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"SUBSIDIARIES" shall mean any Person of which at least a
majority of the outstanding shares or other equity interests having ordinary
voting power for the election of directors or comparable managers of such
Person, whether or not at the time the shares of any other class or classes or
other equity interests of such Person shall have or might have voting power by
reason of the happening of any contingency, are at the time owned, directly or
indirectly, by the Company, by one or more of its Subsidiaries, or by the
Company and one or more of its Subsidiaries.
"SUBSIDIARY SHARES" shall have the meaning set forth in
Section 4.5(b).
"TAX RETURNS" shall have the meaning set forth in Section
4.14(a).
"TAXES" shall mean any domestic or foreign federal, state or
local income, franchise, business, occupation, sales/use, manufacturer's excise,
payroll, withholding, Federal Insurance Contributions Act and employment and
unemployment taxes, personal and real property taxes and all other taxes or
charges (including all interest and penalties) measured, assessed, levied,
imposed or collected by any Governmental Authority.
"TRUST BENEFICIARIES" shall have the meaning set forth in the
preamble to this Agreement.
"TRUSTEES" shall have the meaning set forth in the preamble to
this Agreement.
"TRUSTS" shall have the meaning set forth in the preamble to
this Agreement.
"VELOZ" shall have the meaning set forth in the preamble to
this Agreement.
"VELOZ RECEIVABLE" shall have the meaning set forth in Section
6.23.
SECTION 2: SALE AND PURCHASE OF SHARES
---------------------------
2.1 SALE AND PURCHASE OF SHARES. Subject to the terms and conditions of
this Agreement, at the Closing (a) the Sellers shall sell, assign and transfer
all of the Shares to Buyer, (b) the Sellers shall deliver to Buyer one or more
stock certificates representing the Shares with duly executed stock powers
attached in proper form for transfer as designated by Buyer, (c) Buyer shall
purchase all of the Shares free and clear of any and all Liens, and (d) Buyer
shall pay to the Sellers the Purchase Price as provided in Section 2.2 below.
2.2 CONSIDERATION. In full consideration for the Shares, but subject to
the terms and conditions of this Agreement and the Ancillary Agreements and
subject to adjustment pursuant to Section 2.3 below, at the Closing Buyer shall
pay to the Sellers an aggregate purchase price of One Hundred Seven Million
Dollars ($107,000,000) in cash by wire transfer of immediately available funds
(the "Purchase Price"). The Purchase Price will be distributed among the Sellers
as set forth in SCHEDULE 2.2.
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<PAGE> 13
2.3 PURCHASE PRICE ADJUSTMENT. (a) The Purchase Price shall be adjusted
by an amount (the "Adjustment Amount") equal to the absolute value of the
difference (if any) between (i) the Initial Net Worth and (ii) the Closing Net
Worth. "Initial Net Worth" shall mean the difference between (A) the total
assets of the Company as of the close of business on December 31, 1996 reduced
by (B) the total liabilities of the Company as of the close of business on
December 31, 1996, in each case as reflected on the audited December 31, 1996
balance sheet provided by the Company. "Closing Net Worth" shall mean the
difference between (A) the total assets of the Company as of the Closing Date
reduced by (B) the total liabilities of the Company as of the Closing Date, in
each case as reflected on the Closing Date Balance Sheet. The Closing Net Worth
shall not be reduced by (i) any legal and accounting fees associated with the
transactions contemplated by this Agreement or (ii) any other transactions
contemplated by this Agreement, including, without limitation, the asset
transfers set forth in Sections 6.17, 6.18 and 6.19 and the transactions set
forth in Section 6.23.
(b)(i) Within 60 calendar days of the Closing Date, Buyer
shall deliver to Veloz and Derbyshire (A) the Closing Date Balance Sheet and (B)
a calculation of the Closing Net Worth based on the Closing Date Balance Sheet.
In connection with the review by Veloz and Derbyshire of the Closing Date
Balance Sheet and Buyer's calculation of the Closing Net Worth, Buyer shall,
promptly upon request, provide to Veloz and Derbyshire and their agents access
to the work papers of Buyer's accountants (both internal and external) relating
to the Closing Date Balance Sheet and Buyer's calculation of the Closing Net
Worth and any and all documentation related thereto.
(ii) Unless Veloz and Derbyshire give Buyer a notice of
objection ("Notice of Objection") to Buyer's calculation of the Closing Net
Worth within 30 calendar days after receiving the Closing Date Balance Sheet and
Buyer's calculation of the Closing Net Worth (the "Closing Date Balance Sheet
Objection Period"), the Closing Date Balance Sheet and Buyer's calculation of
the Closing Net Worth shall be final, conclusive and binding on the parties to
this Agreement.
(iii) If Veloz and Derbyshire deliver a Notice of Objection
within the Closing Date Balance Sheet Objection Period, Buyer, Veloz and
Derbyshire shall use reasonable efforts to resolve all disputes regarding the
objections of Veloz and Derbyshire set forth in the Notice of Objection. If
Buyer, on the one hand, and Veloz and Derbyshire, on the other hand, are not
able to resolve all disputes regarding the objections of Veloz and Derbyshire
set forth in the Notice of Objection within 14 calendar days after delivery by
Veloz and Derbyshire of the Notice of Objection, the remaining disputed items
shall be submitted for final resolution to a nationally recognized accounting
firm selected by mutual agreement of Buyer, on the one hand, and Veloz and
Derbyshire, on the other hand, or if Buyer, on the one hand, and Veloz and
Derbyshire, on the other hand, are unable to agree upon such accounting firm
within 20 calendar days after delivery by Veloz and Derbyshire of a Notice of
Objection, Buyer, Veloz and Derbyshire shall promptly instruct their respective
firms of independent certified public accountants to select, within five
Business Days thereafter, a third nationally recognized accounting firm (the
"Independent Accountants"). After offering Veloz, Derbyshire and their
representatives and Buyer and Buyer's representatives the opportunity to present
their positions as to the disputed items, which opportunity shall not extend for
more than 10 calendar days after the Independent
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Accountants have been selected, the Independent Accountants shall deliver a
written report resolving all disputed items and setting forth the basis for such
resolution within 30 calendar days after Veloz, Derbyshire and Buyer have
presented their positions as to the disputed items. The resolution of the
Independent Accountants shall be final, conclusive and binding upon the parties
to this Agreement and shall be reflected in any necessary revisions to the
Closing Date Balance Sheet and Buyer's calculation of the Closing Net Worth.
Notwithstanding anything in this Agreement to the contrary, the scope of the
Independent Accountants' review of any dispute between Buyer, on the one hand,
and Veloz and Derbyshire, on the other hand, regarding the Closing Date Balance
Sheet or the calculation of Closing Date Net Worth pursuant to this Section 2.3
shall be limited solely to the resolution of the objections of Veloz and
Derbyshire set forth in the Notice of Objection and Buyer shall have no right to
change, revise or otherwise modify the Closing Date Balance Sheet or its
calculation of the Closing Net Worth except as agreed to in writing by Veloz and
Derbyshire or as required by the Independent Accountants.
(c) One-half of the fees, costs and expenses of the
Independent Accountants for services rendered pursuant to Section 2.3(b) shall
be paid by Veloz and Derbyshire and one-half of such fees, costs and expenses
shall be paid by Buyer.
(d) If the Closing Net Worth (as finally determined pursuant
to this Section 2.3) is greater than the Initial Net Worth, Buyer shall pay the
Adjustment Amount (plus interest as determined pursuant to Section 2.3(e)) to
the Sellers, pro rata in accordance with their respective ownership interest in
the Company immediately prior to the Closing Date, on the Payment Date by wire
transfer of immediately available funds to an account designated by the Sellers.
If the Closing Net Worth (as finally determined pursuant to this Section 2.3) is
less than the Initial Net Worth, Veloz and Derbyshire shall, jointly and
severally, pay the Adjustment Amount (plus interest as determined pursuant to
Section 2.3(e)) to Buyer on the Payment Date, by wire transfer of immediately
available funds to an account designated by Buyer. "Payment Date" shall mean:
(i) if no Notice of Objection is timely delivered by Veloz and Derbyshire to
Buyer, three Business Days after the earlier of (A) the expiration of the
Closing Date Balance Sheet Objection Period and (B) the date of delivery by
Veloz and Derbyshire to Buyer of a notice that Buyer's calculation of the
Closing Net Worth will be accepted by Veloz and Derbyshire without objection; or
(ii) if a Notice of Objection with respect to Closing Date Balance Sheet is
timely delivered to Buyer, three Business Days after the date all disputed items
are finally resolved pursuant to Sections 2.3(b).
(e) The Adjustment Amount shall bear interest compounded
monthly from the Closing Date until the date of payment at the prime rate
publicly announced from time to time by Chase Manhattan Bank.
SECTION 3: CLOSING AND DELIVERIES
----------------------
3.1 CLOSING. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Jones, Day, Reavis & Pogue, North
Point, 901 Lakeside Avenue, Cleveland, Ohio 44114 on the third business day
following the satisfaction of all of the conditions set forth in Sections 7 and
8 (other than those conditions that are to be satisfied at the Closing), or
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<PAGE> 15
on such other date or at such other time and place as the parties shall mutually
agree in writing (the "Closing Date"). All proceedings to be taken and all
documents to be executed and delivered by all parties at the Closing shall be
deemed to have been taken and executed simultaneously and no proceedings shall
be deemed to have been taken nor documents executed or delivered until all have
been taken, executed and delivered.
3.2 DELIVERIES BY THE SELLERS. At the Closing, the Sellers shall
deliver or cause to be delivered to Buyer the following items:
(a) One or more certificates representing the Shares,
accompanied by duly executed stock powers in proper form for transfer;
(b) The Certificate of Incorporation of the Company, certified
as of the most recent practicable date by the Secretary of State of the State of
California;
(c) A Certificate of the Secretary of State of the State of
California as to the good standing as of the most recent practicable date of the
Company in California and a certificate of good standing as of the most recent
practicable date from the appropriate Governmental Authority in each state where
the Company or its Subsidiaries is qualified to do business;
(d) A certificate of the Secretary of the Company certifying
as to the Bylaws of the Company and as to the resolutions authorizing this
Agreement, any Ancillary Agreements and the transactions contemplated hereby and
thereby;
(e) A tax certificate showing that each of the Company and its
Subsidiaries has paid its franchise tax in the State of California and each
state where it is qualified to do business;
(f) A certificate from each of the Sellers and an officer of
the Company to the effect that the conditions set forth in Sections 7.1 and 7.2
have been satisfied;
(g) The resignation of each of Veloz and Derbyshire from their
respective offices of the Company and the resignation of each of the members of
the Board of Directors of the Company, each effective upon Closing;
(h) Satisfactory evidence in Buyer's reasonable judgment that
all Indebtedness and Shareholder Indebtedness have been repaid or discharged in
full; and
(i) An opinion of Sellers' counsel, dated the Closing Date, in
form and substance reasonably satisfactory to the Buyer and its counsel.
3.3 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver or cause
to be delivered to the Sellers the following items:
(a) The Purchase Price, paid by wire transfer of immediately
available funds in accordance with Section 2.2;
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(b) A certificate of an officer of Buyer to the effect that
the conditions set forth in Sections 8.1 and 8.2 have been satisfied;
(c) A certificate of the Secretary of Buyer certifying as to
the resolutions authorizing this Agreement, any Ancillary Agreements and the
transactions contemplated hereby and thereby; and
(d) An opinion from Buyer's counsel, dated the Closing Date,
in form and substance reasonably satisfactory to Sellers and their counsel.
SECTION 4: REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND THE COMPANY
-------------------------------------------
Each of the Sellers (other than Marlene J. Veloz, Edith T.
Derbyshire and, except with respect to representations and warranties relating
to the Trusts to which they are a party contained in Sections 4.1(c), 4.2, 4.3
and 4.4(b), the Trustees and Trust Beneficiaries) and the Company, jointly and
severally, represents and warrants to Buyer that:
4.1 ORGANIZATION, POWER AND AUTHORITY; CHARTER DOCUMENTS AND CORPORATE
RECORDS. (a) The Company and each of its Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as presently being
conducted. The Company and each of its Subsidiaries is qualified or otherwise
authorized to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of its business or location of its
properties requires such qualification or authorization, except in such
jurisdictions where the failure to be so qualified or authorized, individually
or in the aggregate, will not have, or would not reasonably be expected to have,
a material adverse effect on the Condition of the Company.
(b) SCHEDULE 4.1(b) contains copies of the Charter Documents
of the Company and each of its Subsidiaries that are correct and complete copies
thereof. The minute books of the Company and each of its Subsidiaries have been
made available to Buyer for its inspection and contain records of all meetings
and consents in lieu of meeting of the Board of Directors of the Company, its
Subsidiaries and the Company's shareholders since the time of the Company's
organization, and such records are correct and complete in all material
respects. The stock record books of the Company and each of its Subsidiaries,
which have been made available to Buyer for its inspection, are correct and
complete in all material respects.
(c) SCHEDULE 4.1(c) contains true and correct copies of the
Trust Agreement or Declaration of Trust of each of the Trusts.
4.2 VALIDITY OF AGREEMENTS; AUTHORITY. The Company has the corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements and to undertake and perform fully the transactions contemplated
hereby or thereby. All necessary corporate and shareholder action has been taken
by and on behalf of the Company with respect to the
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authorization, execution, delivery and performance of this Agreement and the
Ancillary Agreements. Each of the Trustees has the power and authority to (i)
execute and deliver this Agreement and the Ancillary Agreements on behalf of the
Trust, (ii) transfer and deliver to Buyer the Shares owned by such Trust and
(iii) perform its obligations under this Agreement and the Ancillary Agreements.
Each of the Sellers (other than the Trusts) has full capacity, authority, power
and right to (i) execute and deliver this Agreement and the Ancillary Agreements
and (ii) perform his or her obligations under this Agreement and the Ancillary
Agreement. This Agreement and the Ancillary Agreements have been duly executed
and delivered by each of the Sellers and the Company and, assuming the due
execution and delivery of this Agreement and the Ancillary Agreements by Buyer,
constitute the legal, valid and binding obligations of each of the Sellers and
the Company, enforceable against each of the Sellers and the Company in
accordance with their terms.
4.3 NO BREACH. Neither the execution and delivery of this Agreement or
the Ancillary Agreements by the Sellers or the Company, nor the performance of
their obligations hereunder or thereunder, will: (a) violate any provision of
the Trusts or the Charter Documents of the Company or any of its Subsidiaries,
(b) except as set forth on SCHEDULE 4.3, violate, conflict with or result in a
breach or termination of, or otherwise give any contracting party additional
rights or compensation under, or the right to terminate or accelerate, or
constitute a default under the terms of, any note, deed, lease, instrument,
security agreement, mortgage, commitment, contract, agreement, license,
arrangement or other instrument, whether written or oral, express or implied
(collectively, "Contracts"), to which the Company or any of the Sellers is a
party or by which any of the Assets are bound, (c) result in the creation or
imposition of any Liens with respect to, or otherwise have an adverse effect
upon, the Shares; (d) result in the creation or imposition of any Liens, other
than Permitted Liens, with respect to, or otherwise have an adverse effect upon,
the Assets; (e) violate any Order against, or binding upon, any of the Sellers
or the Company, or upon the Shares or the Assets, or (f) constitute a violation
by any of the Sellers or the Company or any of its Subsidiaries of any Law;
except, as to clauses (b), (d), (e) (except with respect to the Shares) and (f),
where such violations, breaches, defaults, terminations or rights of
termination, individually or in the aggregate, will not have, and would not
reasonably be expected to have, a material adverse effect on the Condition of
the Company or impair the ability of the Sellers or the Company to perform their
or its respective obligations under this Agreement or any of the Ancillary
Agreements.
4.4 CAPITALIZATION. (a) The authorized capital stock of the Company
consists of 2,000,000 Common Shares, of which 1,125,000 Common Shares are issued
and outstanding, all of which are validly issued and outstanding and are fully
paid and nonassessable. The Shares have not been issued in violation of, and are
not subject to, and there are no, outstanding Options relating to the Shares.
There are no authorized or outstanding Options under which the Company may be
obligated to issue or sell any shares of capital stock or any other securities
of the Company. The Shares represent the only issued and outstanding shares of
capital stock of the Company. There are no Contracts relating to the issuance,
sale or transfer of any equity securities or other securities of the Company or
any of its Subsidiaries.
(b) Each of the Sellers (i) is the record and beneficial owner
of all of the Shares set forth opposite its name on SCHEDULE 4.4; (ii) has full
power, right and authority, and any
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<PAGE> 18
approval required by Law, to make and enter into this Agreement and the
Ancillary Agreements and to sell, assign, transfer and deliver the Shares to
Buyer, and (iii) has good and marketable title to the Shares set forth opposite
its name on SCHEDULE 4.4 free and clear of all Liens. Upon the consummation of
the transactions contemplated by this Agreement in accordance with the terms
hereof, Buyer shall acquire good and marketable title to the Shares, free and
clear of all Liens.
4.5 SUBSIDIARIES AND INVESTMENTS. (a) Except as set forth on SCHEDULE
4.5, the Company has no Subsidiaries or Investments.
(b) The Company owns all of the issued and outstanding shares
of capital stock of each of its Subsidiaries (collectively, the "Subsidiary
Shares"), in each case free and clear of all Liens. There are no authorized or
outstanding Options relating to the Subsidiary Shares or with respect to which
any Subsidiary may be obligated to issue or sell any shares of capital stock or
any other securities of such Subsidiary. SCHEDULE 4.5 sets forth the authorized
capital stock of each Subsidiary. The Subsidiary Shares are validly issued and
outstanding and are fully paid and nonassessable. The Subsidiary Shares have not
been issued in violation of, and are not subject to, and there are no,
outstanding Options relating to the Subsidiary Shares. Veloz and Derbyshire
shall cause the certificates representing each of the Subsidiary Shares to be
delivered to Buyer at the Closing.
4.6 CONSENTS. Except as set forth on Schedule 4.6 and except for
compliance with the HSR Act and filing or approval under Section 721 of the
Defense Production Act of 1950, as amended (the "Exon-Florio Amendment"), no
Consents are required in connection with the execution and delivery by the
Sellers or the Company of this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated hereby or thereby, except for
those Consents, the failure of which to obtain, individually or in the
aggregate, will not have, and would not reasonably be expected to have, a
material adverse effect on the Condition of the Company or materially impair the
ability of the Sellers or the Company to perform their or its respective
obligations under this Agreement or any of the Ancillary Agreements.
4.7 FINANCIAL STATEMENTS. (a) The Company has delivered to Buyer
correct and complete copies of (i) the audited balance sheets of the Company as
of December 31, 1996 and 1995, and the related audited statements of operations,
shareholders' equity and cash flows for the years then ended, together with the
notes thereto and the reports thereon of the independent auditors of the
Company, and the other financial information included therewith (collectively,
the "Audited Financial Statements"), and (ii) the unaudited balance sheet of the
Company as of June 30, 1997 (the "June 30 Balance Sheet") and the related
unaudited statements of operations, shareholders' equity and cash flows for the
six-month period then ended (collectively, the "Interim Financial Statements"
and, together with the Audited Financial Statements, the "Company Financial
Statements"). The Audited Financial Statements and the Interim Financial
Statements are attached as SCHEDULE 4.7(a).
(b) The Audited Financial Statements and, except as provided
in SCHEDULE 4.7(b), the Interim Financial Statements have been prepared in
accordance with GAAP, consistently applied throughout the periods indicated
(subject, in the case of the Interim Financial Statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
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aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in Audited Financial
Statements)), and fairly present the financial position, results of operations
and cash flows of the Company and its Subsidiaries on a consolidated basis at
the respective dates thereof and for the periods therein indicated.
(c) The June 30 Financial Statements will be attached as
SCHEDULE 4.7(c) as soon as such financial statements are prepared. As of the
Closing Date, the June 30 Financial Statements will fairly present the financial
position, results of operations and cash flows of the Company and its
Subsidiaries on a consolidated basis at such dates and for such periods, and
will have been prepared in accordance with GAAP, consistently applied.
4.8 CONDUCT OF BUSINESS. Except as set forth on SCHEDULE 4.8, since
December 31, 1996 (the "Balance Sheet Date"), the Company and its Subsidiaries
have operated their businesses only in the ordinary course, and there has not
been any material adverse change in the Condition of the Company. Without
limiting the foregoing, except as set forth in SCHEDULE 4.8, since the Balance
Sheet Date, none of the Company or its Subsidiaries has taken any of the actions
prohibited under Section 6.3. For purposes of this SECTION 4.8, transactions
between the Company and Veloz and Derbyshire of the type and in the amounts
substantially similar to those transactions between the Company and Veloz and
Derbyshire previously disclosed to Buyer shall be considered to be in the
ordinary course.
4.9 AGREEMENTS. (a) SCHEDULE 4.9(a) sets forth a list, as of the date
hereof, of the following Contracts to which the Company or any of its
Subsidiaries is a party:
(i) Each employment, consulting or severance Contract
with an employee, former employee, director or officer that is not terminable at
will by the Company or any of its Subsidiaries and that (A) will require the
payment of amounts by the Company or any of its Subsidiaries after the Closing
Date in excess of $75,000 annually or (B) has a stated term in excess of one
year;
(ii) Each collective bargaining agreement with any
labor union;
(iii) Each Contract or commitment for capital
expenditures or for the acquisition or construction of fixed assets that
requires aggregate future payments in excess of $50,000;
(iv) Except for purchase orders entered into in the
ordinary course of business, each Contract granting to any Person a
first-refusal, first-offer or similar preferential right to purchase or acquire
any right or asset (or group of related assets) used in the operation of the
business of the Company or any of its Subsidiaries;
(v) Each indenture, mortgage, loan or credit
agreement under which the Company or any of its Subsidiaries has borrowed any
money or issued any note, bond, indenture or other evidence of Indebtedness
(including capital lease obligations), or guaranteed
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Indebtedness of others or the obligations or liabilities of any Person that
involves more than $50,000 or is not reflected on the June 30 Balance Sheet;
(vi) Each Contract with any manufacturer's
representative, distributor or other sales agent having a remaining term in
excess of one year and that is not terminable by the Company or any of its
Subsidiaries without penalty or payment of compensation on 90 calendar days or
less notice;
(vii) Each Contract under which the Company or any of
its Subsidiaries is (A) a lessee of any real property owned by a third party,
(B) a lessor of any real property owned by the Company or any of its
Subsidiaries, (C) a lessee of any machinery, equipment, vehicle or other
tangible personal property owned by a third party or (D) a lessor of any
tangible personal property owned by the Company or any of its Subsidiaries, in
any such case which requires aggregate annual payments either by or to the
Company or any of its Subsidiaries, as the case may be, in excess of $50,000;
(viii) Each Contract for the purchase or sale of raw
materials, commodities, supplies, products or other personal property or for the
furnishing or receipt of services which either requires performance over a
period of more than one year or requires aggregate future payments in excess of
$100,000 and is not cancelable without penalty or payment of compensation;
(ix) Each partnership or joint venture agreement;
(x) Each confidentiality agreement that has or could
have a significant impact on the operations of the business of the Company and
its Subsidiaries and each non-competition agreement (other than those
benefitting the Company or any of its Subsidiaries under which the Company or
any such Subsidiary has no current or future obligations); and
(xi) Each other Contract or commitment that (A)
involves future payments by or to the Company or any of its Subsidiaries in
excess of $100,000, and (B) is not a purchase or sales order or other Contract
entered into in the ordinary course of the business of the Company or any of its
Subsidiaries.
(b) Except as set forth on SCHEDULE 4.9(b), each Contract
listed or described thereon is a valid and binding obligation of the Company or
one of its Subsidiaries and is in full force and effect, and each of the Company
and its Subsidiaries, as the case may be, has performed all material obligations
required to be performed by it under the Contracts so listed or described and is
not (with or without the lapse of time or the giving of notice or both) in
breach or default in any respect thereunder, except for such breaches and
defaults which, individually or in the aggregate, will not have, and would not
reasonably be expected to have a material adverse effect on the Condition of the
Company.
4.10 LABOR RELATIONS AND PRACTICES. There are no material Actions
pending, or to the knowledge of the Company, Veloz and Derbyshire, threatened
between the Company and its employees. The Company has no Contracts with any
labor union or other labor organization or
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employee bargaining group relating to its employees. Neither the Company nor
Veloz or Derbyshire have knowledge of any efforts being made on the part of any
labor union or other labor organization or employee bargaining group or any
employee with respect to representation or organization of any of the Company's
employees.
4.11 LICENSES AND PERMITS. SCHEDULE 4.11(a) sets forth a complete and
accurate list and description of all Permits held by the Company and its
Subsidiaries. Each of the Permits listed on SCHEDULE 4.11 is valid and in full
force and effect. Each of the Company and its Subsidiaries is in compliance in
all material respects with the terms of such Permits and there is no pending or,
to the knowledge of the Company, Veloz and Derbyshire, threatened termination,
expiration or revocation thereof. Except as set forth on SCHEDULE 4.11(b), the
Company and its Subsidiaries have all of the Permits necessary to permit the
Company and its Subsidiaries to lawfully conduct and operate their respective
businesses in the manner currently conducted and operated and to permit the
Company and its Subsidiaries to own and use their respective assets in the
manner in which they currently own and use such assets, except where the failure
to have such a Permit or Permits, individually or in the aggregate, will not
have, and would not reasonably be expected to have, a material adverse effect on
the Condition of the Company.
4.12 INTELLECTUAL PROPERTY. SCHEDULE 4.12 sets forth an accurate and
complete list of all patents, patent applications, patent licenses, software
licenses, know-how, licenses, trademarks, copyrights, service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications and all other intangible property
rights or technology owned or used by the Company and its Subsidiaries in the
operation of their respective businesses (collectively, the "Intellectual
Property"), with each item listed on SCHEDULE 4.12 specifically designated as
owned or licensed by the Company or its Subsidiaries. Except as set forth on
SCHEDULE 4.12, the Company and its Subsidiaries, without payment of any license
fee, royalty or similar charge, owns the entire right, title and interest in and
to the Intellectual Property, and the Company and its Subsidiaries have the
exclusive right to use and license the same to others without infringement or
violation of the rights of others. To the knowledge of the Company, Veloz and
Derbyshire, there are no Actions, Orders or other adverse claims affecting or
challenging the Intellectual Property. To the knowledge of the Company, Veloz
and Derbyshire, no Person is infringing the Intellectual Property.
4.13 ORDERS AND ACTIONS. Except as set forth on SCHEDULE 4.13, there
are no (a) outstanding Orders against the Sellers or the Company or any of its
Subsidiaries, or any of the Assets, (b) Actions pending or, to the knowledge of
the Company, Veloz and Derbyshire, threatened against the Sellers, the Company
or any of its Subsidiaries, or any of the Assets, which, if adversely
determined, (i) will result in, or would reasonably be expected to result in,
liability in excess of $100,000 individually or $250,000 in the aggregate to the
Company or any of the Subsidiaries, (ii) will have, or would reasonably be
expected to have, a material adverse effect on any Intellectual Property or
(iii) otherwise will have, or would reasonably be expected to have, a material
adverse effect on the Condition of the Company or to impair the ability of the
Sellers or the Company to perform their or its respective obligations under this
Agreement or any of the Ancillary Agreements or (c) Actions pending, or to the
knowledge of the Company, Veloz and Derbyshire, threatened against the Sellers,
the Company or any of its Subsidiaries with respect to the transactions
contemplated hereby. SCHEDULE 4.13 lists all Actions or series of related
Actions
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against the Company or any of its Subsidiaries or any predecessor (whether
arising out of similar facts or circumstances, a consistent or pervasive course
of conduct or practice or otherwise) which have been settled in the last five
years for amounts in excess of $25,000 (and the amounts paid in settlement
thereof) or settlements which will have, or would reasonably be expected to
have, a material adverse effect on any Intellectual Property or the Condition of
the Company.
4.14 TAXES. (a) All federal, state, local, and foreign tax returns and
reports (collectively, "Tax Returns") that are or were required to be filed
before the Closing by, or with respect to, the Company, its Subsidiaries, or any
of their respective income, properties or operations, have been timely filed or
caused to be filed. Except as set forth on SCHEDULE 4.14(a), all Taxes owed by
the Company or any of its Subsidiaries for the taxable periods covered by such
Tax Returns (whether or not shown to be due on such Tax Returns) have been paid.
The Assets are not subject to any Liens, whether or not perfected, for any Taxes
or assessments or similar government charges.
(b) Except as set forth on SCHEDULE 4.14(b), all Tax Returns
of the Company and its Subsidiaries relating to taxable years that remain open
are true and correct in all material respects.
(c) Except as set forth on SCHEDULE 4.14(c), as of the date
hereof, (i) there are no material pending or, to the knowledge of the Company,
Veloz and Derbyshire, threatened audits, claims, deficiencies or adjustments
against the Company or any of its Subsidiaries relating to any liability for
Taxes, and (ii) neither the Company nor any of its Subsidiaries has granted any
extensions of the statutes of limitations for the assessment or collection of
any Taxes which remain in effect.
(d) No claim has ever been made by a taxing authority in a
jurisdiction where the Company or any of its Subsidiaries does not file Tax
Returns that such non-filing Company or Subsidiary is or may be subject to Tax
in such jurisdiction.
(e) The Company made a timely and valid election to be treated
as an "S corporation" for federal income tax purposes pursuant to Section 1362
of the Code (and for state purposes in all states in which the Company was
engaged in business that permit such election) effective as of October 1, 1992,
and such S corporation election was terminated by revocation pursuant to Section
1362(d)(1) of the Code effective January 1, 1997.
(f) Neither the Company nor any of its Subsidiaries has been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(a)(ii) of the Code.
(g) Each of the Company and its Subsidiaries has disclosed on
its federal income Tax Returns all positions taken therein that could give rise
to a substantial understatement of federal income Tax within the meaning of
Section 6652 of the Code.
(h) Neither the Company nor any of its Subsidiaries (x) has
been a member of an affiliated group filing a consolidated federal income Tax
Return (other than a group the common
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parent of which is the Company) or (y) has any liability for the Taxes of any
Person (other than of any of the Company or its Subsidiaries) under Treas. Reg.
Section 1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(i) Neither the Company nor any of its Subsidiaries has agreed
to an adjustment under Section 481 of the Code with respect to a change in
method of accounting.
4.15 ENVIRONMENTAL. Except as set forth in SCHEDULE 4.15, to the
knowledge of the Company, Veloz and Derbyshire:
(a) The operations, properties and assets of the Company and
its Subsidiaries are and have complied in all material respects with the
requirements of all applicable federal, state, local and foreign environmental,
health and safety statutes, regulations, Orders, common law and other
requirements having the force and effect of Law relating to public or workplace
health and safety or pollution and protection of the environment (including,
without limitation, those relating to the Release of contaminants into the
environment) (collectively, "Environmental Laws");
(b) The operations, properties and assets of the Company and
its Subsidiaries are not the subject of any notice of any federal, state, local
or foreign investigation evaluating whether any remedial action is needed to
respond to a Release or threatened Release of any Contaminant into the
environment;
(c) Each of the Company and its Subsidiaries possesses, is in
compliance in all material respects with, and has complied in all material
respects with, all Permits required for the conduct of the Company's and its
Subsidiaries' businesses under Environmental Laws. All such Permits are
presently in full force and effect;
(d) Neither the Company nor any of its Subsidiaries has
generated, stored, transported, recycled, treated, disposed of or otherwise
handled in any way any Contaminants for itself or for any other Person, nor has
any other Person at any time stored, transported, recycled, treated, disposed of
or otherwise handled in any way any Contaminants on any property owned or leased
by the Company or any of its Subsidiaries at any time, except in material
compliance with all Environmental Laws;
(e) There are no locations where any Contaminants from the
operation of the Company's or any of its Subsidiaries' businesses have been
stored, treated, recycled or disposed of, except in material compliance with all
Environmental Laws;
(f) There are no Contaminants located on, within or under any
land, buildings or other improvements owned or leased by the Company or any of
its Subsidiaries at any time, including any surface and subsurface waters on or
under any real property owned or leased by the Company or any of its
Subsidiaries at any time;
(g) There is no ongoing or threatened Release, and there has
been no past Release, of Contaminants into the environment from the operation of
the Company or any of its
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Subsidiaries or from any facility at which any Contaminants generated by the
Company or any of its Subsidiaries have been stored, treated, recycled or
disposed of;
(h) There are no PCB's nor any asbestos located on or within
any land, building or other improvement owned or leased by the Company or any of
its Subsidiaries;
(i) Neither the Company nor any of its Subsidiaries is under
any current obligation imposed by any Governmental Authority to make any
expenditure to achieve or maintain compliance with any environmental
requirement;
(j) None of Veloz, Derbyshire or the Company has received oral
or written notice from any Person, including any employee, that such Person may
have impaired health, or that the environment may have been damaged, as the
result of the operation of the business of the Company and its Subsidiaries or
the Release of Contaminants from or on any land, building or other improvement
owned or leased by the Company or any of its Subsidiaries; and
(k) No underground storage tanks are or have ever been located
on any properties owned or leased by the Company or any of its Subsidiaries.
For purposes of this Section 4.15, references to the Company shall be
deemed to include any Affiliate and predecessor thereof and any such contractor
of the Company for whose conduct or omission the Company or any of its
Subsidiaries may be held liable.
4.16 INSURANCE. (a) The Company has insurance policies in full force
and effect for such amounts as are sufficient (i) for material compliance with
all requirements of Law and of all Contracts to which the Company or any of its
Subsidiaries is a party or by which any of them is bound and (ii) to provide
adequate insurance coverage for the assets and operations of the Company and its
Subsidiaries for all risks customarily insured against by a Person engaged in a
similar business.
(b) Set forth in SCHEDULE 4.16 is a list of all fire,
liability and other forms of insurance and all fidelity bonds held by or
applicable to the Company or any of its Subsidiaries or their respective
businesses or properties, setting forth in respect of each such policy the
policy name, policy number, carrier, term, type of coverage and annual premium.
Except as set forth on SCHEDULE 4.16, each policy is in full force and effect
and will remain in full force and effect through the Closing. SCHEDULE 4.16 also
describes any self-insurance or risk retention arrangements currently in effect
for the Company and its Subsidiaries.
4.17 TITLE TO ASSETS; SUFFICIENCY OF ASSETS. (a) SCHEDULE 4.17(a) sets
forth a description of each parcel of real property owned by the Company or any
of its Subsidiaries (the "Owned Property") and a list of all of the leasehold
interests of the Company and its Subsidiaries (the "Leases"). There are no
leases, subleases, licenses, concessions or other agreements, written or oral,
granting to any party or parties (other than the Company and its Subsidiaries)
the right of use or occupancy of any portion of the Real Property, and there are
no parties (other than the Company and the Subsidiaries) in possession of any
portion of the Real Property.
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(b) Except as set forth on SCHEDULE 4.17(b), (i) each of the
Company and its Subsidiaries has good and marketable title to the Owned
Property, valid and enforceable leasehold interests with respect to the leases
of real property that require aggregate annual payments either by the Company or
any Subsidiary, as the case may be, in excess of $50,000 (the "Leased Real
Property," and together with the Owned Property, the "Real Property") and good
title, valid and enforceable leasehold interests, licenses or rights to occupy,
possess or use all other material assets, properties and rights which it
occupies, possesses, uses or purports to own, whether or not reflected on the
Company Financial Statements (the Owned Property, the Leased Property and such
other assets, properties and rights that purports to be owned or leased by the
Company and its Subsidiaries are collectively referred to herein as the
"Assets"), free and clear of all Liens, except for the following ("Permitted
Liens"): (A) Liens for Taxes not yet due and payable or being contested in good
faith by appropriate proceedings; (B) with respect to the Real Property,
easements, covenants, conditions, encroachments and restrictions, including any
zoning or other governmentally-established restrictions or encumbrances which do
not materially interfere with the conduct of the business of the Company and its
Subsidiaries or the use or enjoyment of such Real Property and as to which no
material violation or encroachment exists; (C) workers or unemployment
compensation Liens arising in the ordinary course of business consistent with
past practice; and (D) mechanic's, materialman's, supplier's, vendor's or
similar Liens arising in the ordinary course of business consistent with past
practice securing amounts which are not delinquent and (ii) the tangible Assets
are, in all material respects, in good operating condition and repair, normal
wear and tear excepted.
(c) The Assets include all rights, properties and other assets
necessary for the conduct of the business of the Company and its Subsidiaries in
all material respects in the same manner as the business of the Company and its
Subsidiaries has been conducted by the Company and its Subsidiaries prior to the
date hereof.
4.18 GOVERNMENT CONTRACTS. (a) Except as set forth on SCHEDULE 4.18(a),
each of the Company and its Subsidiaries has complied in all material respects
with all applicable Laws, rules, policies, procedures, regulations, accounting
standards, cost principles, cost accounting standards, solicitation provisions
and contract clauses in conducting all past and present activities relating to
Government Contracts and Government Contract procurements, including, without
limitation, accounting and record keeping activities, disclosures, reports, wage
and hour regulations, certifications and representations, testing and marketing
activities, proposal and bid preparation and submissions, negotiations as well
as contract performance. All proposals, representations, statements,
disclosures, reports, invoices and certifications made in connection with
Government Contracts were current, accurate and complete. There are not now, nor
have there been within the last five years any government investigations or
audits of the Company or any of its Subsidiaries or any officer or employee of
the Company or any of its Subsidiaries in connection with Government Contract
activities. Except as set forth in SCHEDULE 4.18(a) hereto, each Government
Contract of the Company and its Subsidiaries is expected to finish substantially
on schedule and within budget, in each case substantially in accordance with the
schedule and budget disclosed to Buyer prior to the date of this Agreement, and
neither the Company nor any of its Subsidiaries presently has any basis to
conclude that existing schedules or budgets are not reasonable.
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(b) Neither the Company nor any of its Subsidiaries has been
determined to be "non-responsible" in connection with any Government Contract
procurement. Except as set forth in SCHEDULE 4.18(b), neither the Company nor
any of its Subsidiaries has received any notice, and none of the Company, Veloz
or Derbyshire is aware of any circumstances that would justify such a notice,
that any of its Government Contracts have been or may be terminated, either for
convenience or default. Neither the Company nor any of its Subsidiaries is
presently debarred or suspended, or proposed for debarment or suspension from
procurements or non-procurements at the federal, state or local governmental
levels, and are not aware of any circumstances that would justify a proposal or
decision to suspend or debar the Company or any of its Subsidiaries from
procurement or non-procurement activities. The Company, its Subsidiaries and
their respective personnel have all necessary security clearances to perform
outstanding Government Contracts and none of the Company, Veloz or Derbyshire is
aware of any circumstances that may lead to the suspension or revocation of such
security clearances. Neither the Company nor any of its Subsidiaries has engaged
in any illegal, fraudulent or improper conduct in connection with Government
Contract activities.
(c) Except as set forth in SCHEDULE 4.18(c), none of the
Company, Veloz or Derbyshire has received oral or written notice from any
Governmental Authority or prime contractor regarding the termination or
suspension of any Government Contract, the cessation of any delivery orders
thereunder, any reduction by any Governmental Authority in the amount of its
business with the Company or any of its Subsidiaries or defective pricing.
(d) Except as set forth in SCHEDULE 4.18(d) and except for
such claims that would not have, and would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Condition of
the Company, there have been no outstanding claims submitted by or against the
Company or any of its Subsidiaries in connection with their respective
government contracting activities and none of the Company, Veloz or Derbyshire
has basis to conclude that any claims may be submitted by or against the Company
or any of its Subsidiaries in connection with past and present government
contracting activities.
4.19 UNDISCLOSED LIABILITIES. Except as set forth on SCHEDULE 4.19 and
except that no representation is made in this Section 4.19 with respect to
matters covered in Section 4.15, neither the Company nor any of its Subsidiaries
have any liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent or otherwise) except for liabilities or
obligations reflected or reserved against in the June 30 Balance Sheet and
current liabilities incurred in the ordinary course of business consistent with
past practice since the date thereof.
4.20 COMPLIANCE WITH LAWS AND ORDERS. Each of the Company, its
Subsidiaries and each of the facilities on any of the Real Property is, and
since January 1, 1992 each of the Company, its Subsidiaries and each of the
facilities on any of the Real Property has been, in compliance with all
applicable Orders and Laws, except for such noncompliance, if any, as will not
have, and would not reasonably be expected to have, a material adverse effect on
the Condition of the Company. No representation is made in this Section 4.20
with respect to matters covered in Section 4.15.
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4.21 AFFILIATED TRANSACTIONS. Except for those agreements or
transactions listed on SCHEDULE 4.21, contemplated by this Agreement, previously
disclosed to Buyer and fees paid to directors and salaries paid to officers,
neither the Company nor any of its Subsidiaries have, within the past three
years, (a) paid any dividends or distributions to its shareholders or (b)(i)
paid, loaned or advanced any amount to, (ii) sold, transferred or leased any
properties or assets to, or (iii) entered into or continued any agreement,
arrangement or understanding (written or otherwise) with, any of its officers,
directors or shareholders or any Affiliate or "associate" (as such term is
defined in the Securities Exchange Act of 1934) of any such Persons (other than
the Company or its Subsidiaries). No shareholder or any Affiliate or associate
of Veloz, Derbyshire or any Sellers (i) has, or since December 31, 1995, has
had, any interest in any property, whether real, personal, mixed and whether
tangible or intangible, used in or pertaining to the business of the Company or
any of its Subsidiaries, or (ii) owns, or since December 31, 1995 has owned, of
record or as a beneficial owner an equity interest or any other financial or
profit interest in, a Person that has (A) had business dealings or a material
financial interest in any transactions with the Company or any of its
Subsidiaries, or (B) engaged in competition with the Company or any of its
Subsidiaries with respect to any line of the products or services of the Company
or such Subsidiary in any market presently served by the Company or such
Subsidiary. Except as set forth in SCHEDULE 4.21, none of the Sellers or any
Affiliate or associate of the Sellers is a party to any Contract with, or has
any claim or right against, the Company or any of its Subsidiaries.
4.22 EMPLOYEE BENEFIT PLANS; ERISA. (a) Except for the employee plans
disclosed on SCHEDULE 4.22(a) (the "Employee Plans"), neither the Company nor
any of its Subsidiaries maintains, contributes to or has an obligation to
contribute to any Employee Benefit Plan (as defined in Section 3(3) of ERISA),
or any other severance, bonus, stock option, stock appreciation, stock purchase,
retirement, insurance, health, welfare, vacation, pension, profit-sharing or
deferred compensation plan, agreement or arrangement providing benefits for
employees or former employees of the Company and its Subsidiaries nor has the
Company, any of its Subsidiaries or any officer or director of the Company or
any of its Subsidiaries taken any action directly or indirectly to obligate the
Company or any of its Subsidiaries to institute any such employee benefit plan.
(b) Neither the Company nor any of its Subsidiaries has any
liability with respect to any Employee Benefit Plan or any arrangements or
practices of the type described in the preceding sentence previously maintained
or contributed to by the Company or any of its Subsidiaries, or to which the
Company or any of its Subsidiaries previously had an obligation to contribute,
which will have, or would reasonably be expected to have, a material adverse
effect upon the Condition of the Company. Veloz and Derbyshire previously
delivered or caused to be delivered to Buyer or its counsel complete and correct
copies of each of the Employee Plans, including all amendments thereto, and any
other documents, forms or other instruments relating thereto reasonably
requested by Buyer or its counsel. Except as disclosed on SCHEDULE 4.22(b), all
Employee Plans have been maintained in material compliance with all Laws,
including ERISA, and all Orders and have been administered in accordance with
the terms of the applicable plan documents, except where such failure to comply
will not have, and would not reasonably be expected to have, a material adverse
effect on the Condition of the Company.
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(c) Except as disclosed on SCHEDULE 4.22(c), and except for
continuation coverage under Section 4980B of the Code or as required by any Law
(including ERISA), neither the Company nor any of its Subsidiaries has made any
promises or commitments to provide, and is under any obligation or liability to
provide, (i) medical benefits (including through insurance) to retirees of the
Company or any of its Subsidiaries or their dependents or (ii) life insurance or
other death benefits (including through insurance) to retirees of the Company or
their dependents.
(d) No Employee Plan (i) is or at any time was funded through
a "welfare benefit fund" as defined in Section 419(e) of the Internal Revenue
Code of 1986, as amended (the "Code"), (ii) is or at any time was subject to
Title IV of ERISA, (iii) is or at any time was subject to the minimum funding
standards of Section 302 of ERISA or Section 412 of the Code, or (iv) is or at
any time was a "multiemployer plan" within the meaning of Section 3(37) or
4001(a)(13) of ERISA, or Section 414(f) of the Code, or a "multiple employer
plan" within the meaning of Section 413(c) of the Code. No trade or business is
or, at any time within the past six years, has been, treated, together with the
Company and its Subsidiaries, as a single employer under Section 414 of the Code
or Section 4001 of ERISA.
(e) Each Employee Plan intended to be qualified under Section
401(a) of the Code is so qualified and has heretofore been determined by the
Internal Revenue Service ("IRS") to be so qualified, and each trust created
thereunder has heretofore been determined by the IRS to be exempt from tax under
the provisions of Section 501(a) of the Code.
(f) With respect to any insurance policy that has, or does,
provide funding for benefits under any Employee Plan, (i) there is no liability
of the Company or any of its Subsidiaries, in the nature of a retroactive or
retrospective rate adjustment, loss sharing arrangement or other actual or
contingent liability, nor would there be any such liability if such insurance
policy was terminated on the date hereof except where such liability will not
have, and would not reasonably be expected to have, a material adverse effect on
the Condition of the Company, and (ii) to the knowledge of the Company, Veloz
and Derbyshire, no insurance company issuing any such policy is in receivership,
conservatorship, liquidation or similar proceeding and no such proceedings with
respect to any insurer are imminent.
(g) The execution and performance of this Agreement or any of
the Ancillary Agreements will not (i) constitute a stated triggering event under
any Employee Plan that will result in any payment (whether of severance pay or
otherwise) becoming due from the Company or any of its Subsidiaries to any
present or former officer, employee, director, shareholder or consultant, or
former employee (or dependents of any thereof), or (ii) accelerate the time of
payment or vesting, or increase the amount, of compensation due under any
Employee Plan to any employee, officer, director, shareholder or consultant of
the Company or any of its Subsidiaries.
(h) Except as set forth on SCHEDULE 4.22(h), all
contributions, transfers and payments by the Company or any of its Subsidiaries
in respect of any Employee Plan have been or are fully deductible under the
Code.
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(i) No Employee Plan provides benefits to any individual who
is not a current or former employee of the Company or any of its Subsidiaries,
or the dependents or other beneficiaries of any such current or former employee.
(j) Other than routine claims for benefits, there are no
Actions with respect to any Employee Plan.
(k) Except as set forth on SCHEDULE 4.22(k), all (i) insurance
premiums required to be paid with respect to, (ii) benefits, expenses and other
amounts due and payable under, and (iii) contributions, transfers, or payments
required to be made to, any Employee Plan prior to the Closing will have been
paid, made or accrued on or before the Closing.
(l) The Company and each of its Subsidiaries have reserved all
rights necessary to amend or terminate each of the Employee Plans without any
Consents of any other Person.
(m) The execution and performance of this Agreement will not
result in payments (or transfers of property) which constitute "excess parachute
payments" within the meaning of Section 280G of the Code.
4.23 COMPANY INFORMATION. None of the information supplied by the
Sellers or the Company for inclusion in Buyer's registration statement or other
securities offering document relating to the proposed issuance of securities of
the Buyer will, at the respective times filed with the Securities and Exchange
Commission ("SEC") and distributed to prospective purchasers of such securities,
contain any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
4.24 DISCLOSURE. None of Veloz, Derbyshire or the Company have withheld
from Buyer any material facts relating to the assets, properties, liabilities,
business, operations, financial condition, results of operations or prospects of
the Company and its Subsidiaries. Neither this Agreement (including the
Schedules hereto) or the Ancillary Agreements nor any other agreement, document,
certificate or written statement furnished to Buyer by or on behalf of the
Sellers or the Company in connection with this Agreement or the Ancillary
Agreements or the transactions contemplated hereby contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading. No representation is
made in this Section 4.24 with respect to matters covered in Section 4.15.
4.25 INDEBTEDNESS. SCHEDULE 4.25 contains a complete and correct
description of all Indebtedness and Shareholder Indebtedness, the names of the
creditors or debtors, respectively, and the amount outstanding as of June 30,
1997, and a complete and accurate list of any additional creditors and debtors
from such date through the date of this Agreement.
4.26 BROKERAGE. Except for the compensation payable to Houlihan Lokey
Howard & Zukin ("Houlihan Lokey") in connection with the transactions
contemplated by this Agreement, which shall be paid by Veloz and Derbyshire, no
broker, finder or similar agent has been employed
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by or on behalf of the Sellers or the Company, and no Person with which the
Sellers or the Company has had any dealings or communications of any kind other
than Houlihan Lokey is entitled to any brokerage commission, finder's fee or any
similar compensation in connection with this Agreement or the transactions
contemplated hereby.
SECTION 5: REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Sellers that:
5.1 INVESTMENT INTENT. The Shares are being purchased for its own
account and not with the view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act.
5.2 ORGANIZATION, POWER AND AUTHORITY. The Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as presently being conducted.
5.3 AUTHORIZATION AND EXECUTION. Buyer has the corporate power and
authority to execute and deliver this Agreement and any Ancillary Agreements and
to undertake and perform fully the transactions contemplated hereby and thereby.
The execution, delivery and performance by Buyer of this Agreement and any
Ancillary Agreements have been duly authorized by all necessary corporate action
on the part of Buyer. This Agreement and any Ancillary Agreements have been duly
executed and delivered by Buyer, and assuming the due execution and delivery of
this Agreement and the Ancillary Agreements by the Sellers and the Company,
constitute legal, valid and binding obligations of Buyer, enforceable against
Buyer in accordance with their terms.
5.4 NO BREACH. Neither the execution and delivery of this Agreement or
the Ancillary Agreements by Buyer nor the performance of its obligations
hereunder or thereunder will violate, conflict with or result in a breach of any
Law or Order or the Charter Documents of Buyer, except where such violations,
conflicts or breaches, individually or in the aggregate, will not have, and
would not reasonably be expected to have, a material adverse effect on the
results of operation and financial condition of Buyer or impair the ability of
Buyer to perform its obligations under this Agreement.
5.5 CONSENTS AND APPROVALS. To the knowledge of Buyer, except for
compliance with the HSR Act and the Exon-Florio Amendment, no Consent is
required with respect to the actions of Buyer in connection with the execution
and delivery of this Agreement by Buyer or in order for Buyer to perform its
obligations under this Agreement.
5.6 ORDERS AND ACTIONS. There are no material (i) outstanding Orders
against Buyer or (ii) Actions pending or, to the knowledge of Buyer, threatened
against Buyer, in each case, which will have, or would reasonably be expected to
have, a material adverse effect on the results of operations and financial
condition of Buyer or impair the ability of Buyer to perform its obligations
under this Agreement
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5.7 BUYER'S FINANCING. Buyer has received a proposal letter from Chase
Manhattan Bank ("Chase") to provide Buyer with all of the financing required to
enable Buyer to consummate the transactions contemplated hereby (the "Chase
Letter").
5.8 BROKERAGE. No broker, finder or similar agent has been employed by
or on behalf of the Buyer, and no Person with which the Buyer has had any
dealings or communications of any kind is entitled to any brokerage commission,
finder's fee or any similar compensation in connection with this Agreement or
the transactions contemplated hereby.
SECTION 6: COVENANTS AND AGREEMENTS OF THE PARTIES
---------------------------------------
6.1 CLOSING CONDITIONS. The Sellers shall, and shall cause the Company
and its Subsidiaries to, use all reasonable efforts to cause the conditions to
the obligation of the Sellers and the Buyer to consummate the transactions
contemplated by this Agreement to be fulfilled and Buyer shall use all
reasonable efforts to cause the conditions to its obligation and the obligation
of the Sellers to consummate the transactions contemplated by this Agreement to
be fulfilled.
6.2 REASONABLE ACCESS. From the date hereof until the Closing, the
Sellers shall cause the Company and its Subsidiaries to give Buyer and its
representatives (including its lenders or other sources of financing), upon
reasonable notice to Veloz or Derbyshire reasonable access to the assets,
properties, books, records, agreements, employees and commitments of the Company
and its Subsidiaries and shall cause the Company and its Subsidiaries to permit
Buyer to make such inspections as it may reasonably require and to furnish Buyer
during such period with all such information relating to the Company and its
Subsidiaries as Buyer may from time to time reasonably request.
6.3 CONDUCT OF BUSINESS. Between the date hereof and the Closing Date,
the Sellers shall cause the Company and its Subsidiaries to conduct their
business only in the ordinary course consistent with past practice, except in
connection with the transactions contemplated hereby. For purposes of this
Section 6.3, transactions between the Company and Veloz of the type and in the
amounts substantially similar to those transactions between the Company and
Veloz previously disclosed to Buyer shall be considered to be in the ordinary
course consistent with past practice. Without limiting the generality of the
foregoing, except as otherwise expressly permitted by this Agreement or as set
forth on Schedule 6.3, between the date hereof and the Closing Date, Veloz and
Derbyshire shall cause the Company and its Subsidiaries to use reasonable
efforts to preserve its existing business relationships and affiliations intact
and keep available the services of its present employees and shall not permit
the Company or any of its Subsidiaries to:
(a) Issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any shares of its capital stock, or grant or issue,
or agree to grant or issue, any Options relating to the issuance thereof;
(b) Acquire any shares of its capital stock or declare any
dividends with respect to its shares of capital stock in securities or other
property or make any other non-cash distribution with respect to its capital
stock;
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(c) Except in the ordinary course of business consistent with
past practice, sell, pledge, dispose of or encumber any of the Assets;
(d) Except in the ordinary course of business consistent with
past practice, or as necessary or advisable under applicable Law, make or permit
to be made any material amendment or termination of any Contract listed on
SCHEDULE 4.9 or of any Employee Plan;
(e) Amend or authorize any amendment of its Charter
Documents;
(f) Merge with or into, consolidate with or acquire all or
substantially all of the stock or assets of any other Person;
(g) Enter into any commitment, contract, lease, sublease,
license or sublicense (or series of related commitments, contracts, leases,
subleases, licenses or sublicenses) either involving more than $100,000 or
outside the ordinary course of business consistent with past practice;
(h) Commit to the acquisition or construction of any property,
plant or equipment in excess of $100,000 individually or $500,000 in the
aggregate;
(i) Create, incur, assume, or guarantee any indebtedness
(including capital lease obligations) involving $50,000 individually or $200,000
in the aggregate or outside the ordinary course of business consistent with past
practice;
(j) Discharge or cancel any material claim or right with
respect to any Intellectual Property;
(k) (i) Other than pursuant to existing employment agreements,
make or grant any increases in the compensation or benefits payable or to become
payable to (A) any of its officers or directors or (B) other employees whose
current salary exceeds $75,000 per year, (ii) adopt, amend, modify, or terminate
any Employee Plan or any retirement, deferred compensation, bonus, insurance,
pension or material fringe benefit plan, program or arrangement (or make any
loan or other credit accommodation) to or for any officer, employee or director,
or (iii) other than in the ordinary course of business consistent with past
practices, make any contribution to any Employee Plan or any retirement,
deferred compensation or bonus program, plan or arrangement for the benefit of
any employee, officer or director; and
(l) Make or enter into any agreement or understanding to do
any of the foregoing.
6.4 LITIGATION. Until the Closing, each of the Company, Veloz and
Derbyshire shall promptly notify Buyer of any Actions that, to the knowledge of
the Company, Veloz and Derbyshire, are commenced, made or threatened against the
Company or the Sellers that are reasonably likely to have a material adverse
effect on the Condition of the Company or impair the ability of the Company or
the Sellers to perform its or their obligations under this Agreement and Buyer
shall promptly notify each of the Company, Veloz and Derbyshire of any Actions
that, to
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the knowledge of Buyer, are commenced, made or threatened against Buyer that are
reasonably likely to impair the ability of Buyer to perform its obligations
under this Agreement.
6.5 PUBLICITY. The Company, Veloz, Derbyshire and the Buyer shall make
a joint press release announcing the execution of this Agreement and the
transactions contemplated hereby that shall be acceptable to each of the
Company, Veloz, Derbyshire and the Buyer. No other publicity release or
announcement concerning the transactions contemplated hereby shall be issued by
either party without the advance consent of such other party, except any such
release or announcement as may be required by applicable Law.
6.6 REGULATORY FILINGS. (a) As promptly as practicable after the date
of this Agreement, Buyer and the Sellers shall make, or cause to be made, such
filings as may be required pursuant to the HSR Act and the Exon-Florio Amendment
with respect to the transactions contemplated by this Agreement. Thereafter,
Buyer and the Sellers will file or cause to be filed as promptly as practicable
with the United States Federal Trade Commission, the United States Department of
Justice and/or the Committee on Foreign Investment in the United States
("CFIUS"), as appropriate, any supplemental information that may be requested
pursuant to the HSR Act or the Exon-Florio Amendment. All filings referred to in
this Section 6.6 will comply in all material respects with the requirements of
the respective Laws pursuant to which they are made.
(b) Without limiting the generality or effect of Section
6.6(a), each party to this Agreement will (i) use reasonable efforts to comply
as expeditiously as possible with all lawful requests of Governmental
Authorities for additional information and documents pursuant to the HSR Act or
the Exon-Florio Amendment, (ii) not (A) extend any waiting period under the HSR
Act or (B) enter into any agreement with any Governmental Authority not to
consummate the transactions contemplated by this Agreement, except with the
prior written consent of the other parties, and (iii) cooperate with the other
parties and use reasonable best efforts to cause the lifting or removal of any
temporary restraining order, preliminary injunction or other judicial or
administrative order that may be entered into in connection with the
transactions contemplated by this Agreement.
(c) As promptly as practicable, Buyer, the Company and the
Sellers will make, or cause to be made, all filings with courts or other
Governmental Authorities and apply in writing for all other material
governmental or third party approvals and consents in form reasonably
satisfactory to Buyer and the Sellers in their judgment reasonably exercised,
required to be taken, made or obtained by them in order to effectuate the
transactions contemplated hereby, will cooperate with the other in effecting the
foregoing, and will deliver to the other copies of such filings, approvals and
consents.
6.7 POST-CLOSING ACCESS. Buyer, on the one hand, and the Sellers, on
the other hand, agree to retain for a period of six years after the Closing Date
any and all books and records relating to the Assets, liabilities and business
of the Company and its Subsidiaries that exist on, or existed prior to, the
Closing Date and that are related to the transactions contemplated hereby. In
the event any of such parties needs access to such books and records for the
purposes of (a) responding to any inquiries of any Governmental Authority, (b)
preparing tax returns and financial
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statements, or (c) any other similar business purpose (including, without
limitation, effecting a registration of any securities of the Company or any of
its Subsidiaries under the Securities Act), each of the parties will allow
authorized representatives of the other parties access to such books and records
upon reasonable notice during normal business hours for the sole purpose of
obtaining information for use as aforesaid and will permit the other parties to
make such extracts and copies thereof as may be necessary and, if required for
such purpose, to have access to and possession of original documents. Upon
request, each of the parties shall provide the authorized representatives of the
other parties with reasonable assistance and guidance in connection with the
retrieval, organization and review of such records. Each of the parties shall
maintain such records during such six-year period in the format (electronic or
otherwise) in which such records are currently maintained. After expiration of
such six-year period, each of the parties shall have the right to cause the
disposition of any such books and records in its possession, but shall do so
only upon providing the other parties with 30 days advance written notice. Each
of the parties shall have the right, at its own expense within 30 days after its
receipt of such notice, to make copies or extracts of such books and records, or
to obtain the originals thereof for its own use.
6.8 EXPENSES OF SALE. Except as otherwise expressly provided in this
Agreement, the Sellers, on the one hand, and Buyer, on the other hand, shall
bear its own direct and indirect expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation and
performance of the transactions contemplated hereby; provided, however, that the
parties agree that (i) after the Closing the Buyer shall pay or cause the
Company to pay the reasonable legal and accounting fees of the Sellers and the
Company incurred on or prior to the Closing Date in connection with the
transactions contemplated by this Agreement, and (ii) Veloz and Derbyshire shall
have sole responsibility for, and shall pay, any and all fees payable to
Houlihan Lokey.
6.9 COVENANT NOT TO COMPETE. (a) During the Non-competition Term, Veloz
covenants that he shall not, and shall not permit any of his Affiliates to,
either individually or as a partner, joint venturer, creditor, employee,
officer, director, agent, consultant or shareholder of another Person, or
otherwise, directly or indirectly, (i) participate in, engage in, or have a
financial or management interest in any business operation of any enterprise if
such business operation engages in any activity that is the same as, similar to
or competitive with any activity now engaged in by the Company or any of its
Subsidiaries (or any successor or successors of any of them), including the
business of designing, manufacturing or marketing aircraft fluid controls,
including valves, regulators, pumps, electronics and aircraft ground refueling
equipment, related controls, point of sales inventory office systems or any type
of cryogenic pumps (for purposes of this Section 6.9, the "Business") in any of:
the City of Costa Mesa, California; the Counties of Orange, Los Angeles, or San
Diego, California, or any other city or county in the State of California; the
District of Columbia or any other state, territory, district or commonwealth of
the United States or any county, parish, city or similar political subdivision
in any other state, territory, district or commonwealth of the United States;
any other country or territory anywhere in the world or in any city, canton,
county, district, parish, province or any other political subdivision in any
such country or territory; or anywhere in the world (each city, canton,
commonwealth, county, district, parish, province, state, country, territory or
other political subdivision or other location in the world shall be referred to
as a "Non-competition Area"), (ii) solicit any other Person to engage in the
Business in the Non-competition Area, or (iii) assist any
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other Person to engage in the Business in the Non-competition Area, in each such
case so long as the Business is conducted in such Non-competition Area by the
Company or any of its subsidiaries or any successor or successors of either
(such activities described in clauses (i), (ii) and (iii) shall hereinafter
collectively be referred to as "Engaging in Competition"); PROVIDED, HOWEVER,
that the direct or indirect ownership by Veloz of an interest constituting no
more than five percent in the aggregate of the outstanding voting capital stock
in a corporation whose shares are traded on a recognized stock exchange or in an
over-the-counter market shall not, of itself, constitute Engaging in
Competition. The parties to this Agreement intend that the covenant contained in
the preceding sentence of this Section 6.9(d) shall be construed as a series of
separate covenants, one for each city, canton, commonwealth, county, district,
parish, state, province, country, territory, or other political subdivision or
other area of the world specified. Except for geographic coverage, each separate
covenant shall be considered identical in terms to the covenant contained in the
preceding sentence. If, in any judicial or other proceeding, a court or other
Governmental Authority declines to enforce any of the separate covenants
included in this Section 6.9(a), the unenforceable covenant shall be considered
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
(b) Except as set forth on SCHEDULE 6.9(b), Veloz covenants,
during the Non- competition Term, that he will not, and will not permit any of
his Affiliates to, on his own behalf or on behalf of any other Person, undertake
or assist in the solicitation of any Person who is as of the date hereof, or was
during the 12 months prior to the date hereof, a current or potential customer
or employee of the Company or any of its Subsidiaries to terminate his, her or
its relationship, employment or other association with the Company or any such
Subsidiary or to refuse the employ or any other relationship or association with
the Buyer, the Company or any of their subsidiaries.
(c) From and after the Closing Date, Veloz covenants that he
will not, and he will not permit any of his Affiliates to, take any action that
is designed to be materially detrimental to the goodwill of the Company and its
Subsidiaries or Buyer, except as compelled by judicial or administrative
process.
(d) "Non-competition Term" means a period beginning on the
Closing Date and continuing through and including the day before the fifth
anniversary of the Closing Date. If Veloz is not in compliance with this Section
6.9 during any calendar month within the Non- competition Term, then Buyer shall
be entitled, among other remedies, to compliance by Veloz with the terms of this
Section 6.9 for an additional number of days that equals the number of days
during which such noncompliance occurred. The term "Non-competition Term" shall
also include this additional period.
(e) Each of the Sellers agrees not to divulge, communicate or
use to the detriment of Buyer, the Company or any of their Subsidiaries for the
benefit of any other Person, or misuse in any way, any confidential information
or trade secrets of the Company or any of its Subsidiaries, including any
information not generally known to the public or the competitors of the Company
and its Subsidiaries relating to the business, products, customers, employees,
sales data, policies and procedures, marketing strategies, secret processes,
know-how, formulas or
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other data or information (the "Confidential Information"). Each of the Sellers
agrees and acknowledges that the Confidential Information constitutes a valuable
asset of the Company and its Subsidiaries, and further agrees and acknowledges
that any Confidential Information he, she or it has acquired was received in
confidence and in his, her or its capacity as a fiduciary of the Company and its
Subsidiaries.
(f) Veloz hereby agrees that all restrictions in this Section
6.9, including, without limitation, those relating to duration and the
restricted territory, are necessary and fundamental to the protection of the
Business of Buyer, and are reasonable and valid, and all defenses to the strict
enforcement thereof by Buyer are hereby waived by Veloz.
6.10 NOTICE OF DEVELOPMENTS. Between the date hereof and the Closing
Date, the Company, the Sellers shall give prompt written notice to Buyer of any
material development affecting the Condition of the Company of which it has
knowledge. Each party to this Agreement will give prompt written notice to the
others of (a) any material development affecting the ability of the parties to
consummate the transactions contemplated by this Agreement and (b) any
inaccuracy of or material omission from any representation or warranty, or any
material breach of any covenant or other agreement contained in this Agreement
of which such party has knowledge.
6.11 EXCLUSIVITY. Neither the Company nor any of the Sellers will, or
will cause or permit any of their respective officers, directors, agents or
Affiliates to, (a) enter into any written or oral agreement or understanding
with any Person (other than Buyer or any Affiliate of Buyer) regarding a sale of
the Company or any of its Subsidiaries or any substantial part of their stock,
assets or business, or a merger, consolidation, or recapitalization involving
the Company or any of its Subsidiaries ("Another Transaction"), (b) enter into
or continue any negotiations or discussions with any Person (other than Buyer or
any Affiliate of Buyer) regarding the possibility of Another Transaction; or (c)
provide any non-public financial or other confidential or proprietary
information regarding the Company or any of its Subsidiaries (including this
Agreement or any financial information, projections, or proposals regarding the
Company's and its Subsidiaries' businesses) to any Person (other than to Buyer
or any Affiliate of Buyer, its financing sources and their respective
representatives) whom the Company or the Sellers know, or have reason to
believe, would have any interest in acquiring the capital stock, assets or
business of the Company or any of its Subsidiaries, or would disclose such
information to any such Person.
6.12 OBTAINING OF FINANCING. Buyer shall use reasonable efforts to
obtain the funds necessary to purchase the Shares as contemplated by Section
5.7.
6.13 CERTAIN FEES. Buyer and the Sellers agree that (a) if the Closing
shall not have occurred by October 1, 1997 as a result of Buyer's inability to
obtain financing for the transactions contemplated hereby or the failure of
Buyer to satisfy any closing conditions binding upon it pursuant to Sections
8.1, 8.2 or 8.3 which are required to be satisfied on or prior to such date,
Buyer shall pay to the Sellers, pro rata based on their respective ownership
interest in the Company, the aggregate sum of $1,672,500 by wire transfer of
immediately available funds on the next Business Day, and (b) if the Closing
shall not have occurred by October 7, 1997 as a result of Buyer's inability to
obtain financing for the transactions contemplated hereby or the failure of
Buyer to satisfy any closing conditions binding upon it pursuant to Sections
8.1, 8.2 or 8.3 which
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are required to be satisfied on or prior to such date, Buyer shall pay to the
Sellers, pro rata based on their respective ownership interest in the Company,
the aggregate sum of $1,672,500 by wire transfer of immediately available funds
on the next Business Day.
6.14 INDEBTEDNESS. The Sellers shall use reasonable efforts to cause
(a) all Indebtedness (except for those capitalized leases set forth on Schedule
6.14) to be paid in full at the Closing, (b) any outstanding letters of credit
issued by lenders who hold Indebtedness to be terminated as of the Closing, (c)
all Liens on the Assets (except for those capitalized leases set forth on
Schedule 6.14) or capital stock of the Company's Subsidiaries to be released as
of the Closing, and (d) except for the Veloz Receivable, which will be treated
as set forth in Section 6.23, all indebtedness owed to the Company or any of its
Subsidiaries by the Sellers or any Affiliate or associate of any of the Sellers
(the "Shareholder Indebtedness") to be paid in full as of the Closing.
6.15 OTHER ASSISTANCE. (a) To the extent requested by Buyer, the
Sellers shall, and shall cause the Company and its Subsidiaries to, reasonably
cooperate with and assist Buyer in (i) the preparation of a registration
statement or other securities offering document relating to a proposed issuance
of securities of the Buyer, including participation in the review of such
registration statement, offering document and other offering materials and (ii)
the consummation of such securities offering, including participation in any
road show to the extent reasonably requested by Buyer. In connection therewith,
the Sellers shall, and shall cause the Company and its Subsidiaries to provide
to Buyer and its representatives and agents, including Buyer's attorneys,
auditors, financial representatives, underwriters, placement agents and their
counsel (i) continuing access to the Company's facilities and (ii) access to the
agents, the officers and employees of the Company and its Subsidiaries at
reasonable times and locations.
(b) The Sellers shall, or shall cause the Company to, make
such other changes or adjustments to its historical audited financial statements
reasonably requested by Buyer in order for such financial statements to comply
with the requirements of the SEC with respect to financial statements included
in a registration statement. No later than August 4, 1997, the Sellers shall or
shall cause the Company to, provide to Buyer the unaudited balance sheet of the
Company dated as of June 30, 1997 and the related unaudited statements of
operations, shareholders' equity and cash flows for the six-month period then
ended, prepared by Ernst & Young, which financial statements shall comply with
the requirements of the SEC with respect to financial statements included in a
registration statement (the "June 30 Financial Statements").
6.16 CONTINUED EMPLOYMENT. Buyer agrees to continue the employment by
the Company of Michael Veloz, Katherine Canfield and Greg Canfield for a period
of not less than one year following the Closing Date on substantially the same
terms and conditions as set forth in Schedule 6.16.
6.17 CORPORATE AIRCRAFT. Subject to Section 6.22, if the consent of
McDonnell Douglas Leasing Corporation can be obtained by the Company or Veloz
for no additional consideration, the Company shall assign the Company's current
lease for its Astrajet aircraft (the "Aircraft") to Veloz Corporation on the
same terms and conditions provided in such lease. At the Closing, the Company's
interest in the Santa Barbara Airport hangar for the Aircraft shall be
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transferred to Veloz or Veloz Corporation for no additional consideration. The
Company shall also transfer the management contract related to the operation of
the Aircraft to Veloz Corporation and Veloz Corporation shall assume any and all
obligations thereunder.
6.18 SANTA BARBARA OFFICE LEASE. Subject to Section 6.22, upon the
Closing, and provided the Company obtains any required consent, the Company
shall transfer the Company's existing office lease in Santa Barbara to Veloz
Corporation. All office equipment contained in the Santa Barbara office and
described on SCHEDULE 6.18 shall also be transferred to Veloz Corporation for no
additional consideration. The Company shall not object if Mrs. Lannon, the
office secretary at the Santa Barbara office, shall become an employee of Veloz
Corporation effective upon the Closing.
6.19 COMPANY AUTOMOBILES. Upon the Closing, the 1995 BMW automobile
currently used by Veloz shall be transferred by the Company to Veloz for no
additional consideration and the 1992 Infiniti Q45, (two) 1994 Infiniti Q45's
and the 1995 Infiniti Q45 currently used by Derbyshire shall be transferred by
the Company to Derbyshire for no additional consideration. Subject to Section
6.22, the automobile lease/purchase obligations on the 1996 Mercedes and 1996
Cadillac Seville both used by Veloz shall be transferred to Veloz and assumed by
Veloz and the 1995 Infiniti J-30 used by Derbyshire shall be transferred to
Derbyshire and assumed by Derbyshire, each according to their current terms,
provided the Company obtains any required consents.
6.20 CERTAIN EMPLOYEES. The Company shall not object if the Company
employees specified on Schedule 6.20 shall, effective upon the Closing, become
employees of Veloz Corporation.
6.21 ENVIRONMENTAL INVESTIGATION. Buyer acknowledges that its
environmental investigation of the Company and its Subsidiaries and their
respective operations, properties and assets was completed on or prior to the
date of this Agreement. Buyer agrees not to conduct any further environmental
investigation of the Company or its Subsidiaries or their respective operations,
properties or assets unless and until any environmental matter concerning the
Company or its Subsidiaries or any of their respective operations, properties or
assets arises subsequent to the date of this Agreement, in which case Buyer may
fully investigate such matter.
6.22 NONASSIGNABILITY OF ASSETS. To the extent that the assignment,
transfer, conveyance or delivery or attempted assignment, transfer, conveyance
or delivery to Veloz or Veloz Corporation, as applicable, of any of the assets
described in Sections 6.17, 6.18 or 6.19 (the "Incidental Assets") is prohibited
by any applicable Law or would require any Consents and such Consents shall not
have been obtained prior to the Closing, this Agreement shall not constitute an
assignment, transfer, conveyance or delivery, or any attempted assignment,
transfer, conveyance or delivery thereof. Following the Closing, Buyer shall use
reasonable efforts and cooperate with Veloz and the Company to obtain promptly
such Consents; PROVIDED, HOWEVER, that neither Buyer nor Veloz, Derbyshire or
the Veloz Corporation shall be required to pay any consideration for any such
Consent. Pending such Consents, the parties shall cooperate with each other in
any reasonable and lawful arrangements designed to provide to Veloz and Veloz
Corporation, as applicable, the benefits of use of such Incidental Assets. Once
Consent for the
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assignment, transfer, conveyance or delivery of an Incidental Asset not
assigned, transferred, conveyed or delivered at the Closing is obtained or made,
Buyer shall assign, transfer, convey and deliver such Incidental Asset to Veloz
or Veloz Corporation, as applicable, at no additional cost. To the extent that
any such Incidental Asset cannot be transferred or the full benefits of use of
any such Incidental Asset cannot be provided to Veloz or Veloz Corporation, as
applicable, following the Closing pursuant to this Section 6.22, then Buyer and
Veloz shall enter into such arrangements (including subleasing or subcontracting
if permitted) to provide to the parties the economic (taking into account tax
costs and benefits) and operational equivalent of obtaining such Consent, and
the performance by Veloz or Veloz Corporation, as applicable, of the obligations
thereunder.
6.23 NOTE RECEIVABLE/ACCRUED BONUS PAYABLE. The note receivable of
Veloz in favor of the Company in the principal amount of $1,593,221 (as of June
30, 1997) plus all accrued but unpaid interest thereon (the "Veloz Receivable")
shall be offset immediately after the Closing against the accrued bonus payable
by the Company to Veloz of $2,005,913, with the difference written off and
forgiven by the Company. Any applicable interest on the Veloz Receivable shall
accrue at the same rate of interest that was in effect immediately prior to the
date of this Agreement.
SECTION 7: CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
The obligation of Buyer to consummate the transactions contemplated by
this Agreement is subject to the fulfillment, on or before the Closing Date, of
the following conditions (any of which may be waived in whole or in part by
Buyer in writing except for Section 7.5 with respect to the HSR Act):
7.1 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. All of the
representations and warranties of the Sellers and the Company contained in this
Agreement or in any written certificate delivered pursuant to this Agreement (i)
shall have been true and correct on the date of this Agreement or as of the date
of any such certificate, and (ii) shall be true and correct in all material
respects (except that those representations and warranties which expressly
contain a materiality qualifier shall each be true and correct in all respects,
giving effect to such qualifier) on and (except for representations and
warranties that expressly relate to a date earlier than the Closing Date) as of
the Closing as if then made, except for those representations and warranties set
forth in Section 4.4(a) with respect to the capitalization of the Company and
Section 4.4(b), which shall be true and correct in all respects on and as of the
Closing as if then made.
7.2 COVENANTS AND AGREEMENTS PERFORMED. Each of the Sellers and the
Company shall have performed or complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be performed
or complied with by them prior to or on the Closing Date, except for the
covenants and agreements set forth in Section 2.1, which shall have been
performed or complied with by the Sellers on the Closing Date in all respects.
7.3 DELIVERIES. The Sellers shall have delivered all of the items
required by Section 3.2.
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7.4 CONSENTS. All Consents listed on SCHEDULE 7.4 shall have been
obtained.
7.5 HSR ACT AND EXON-FLORIO AMENDMENT. The waiting period (including
any extension thereof by reason of a request for additional information)
relating to the notification and report forms under the HSR Act filed by Buyer
(or its ultimate parent entity) and the Sellers with respect to the transactions
contemplated by this Agreement shall have expired or been terminated, and no
conditions to the transactions contemplated by this Agreement shall have been
imposed by any Governmental Authority and clearance shall have been received
from CFIUS for the transactions contemplated by this Agreement under the
Exon-Florio Amendment.
7.6 NO ACTIONS. No Action shall be pending or threatened by any
Governmental Authority seeking to restrain or prohibit this Agreement or the
consummation of the transactions contemplated hereby. No Order preventing
consummation of any of the transactions contemplated by this Agreement shall be
in effect.
7.7 ADVERSE CHANGE. Between the date of this Agreement and the Closing
Date, no change or event shall have occurred which has had, or could reasonably
be expected to result in, a material adverse change in the Condition of the
Company.
7.8 RESIGNATIONS. Each of the members of the Board of Directors of the
Company shall have resigned effective as of the Closing Date.
7.9 TITLE INSURANCE AND SURVEY. The Buyer and Chase (or a substitute
lender) as lender shall have obtained at the Buyer's sole cost and expense (a)
insurance policies from a reputable title insurance company insuring the title
of Buyer and the mortgage lien of Chase (or a substitute lender) to the Owned
Property showing title to be vested in the Company or its applicable Subsidiary,
subject only to Permitted Liens, and (b) surveys of the Owned Property
sufficient to eliminate the general survey exceptions to such title insurance
and that do not evidence any Liens, encroachments or other defects or
encumbrances, other than Permitted Liens. The insurance policies from such title
insurance company shall be in such amounts and with such endorsements as Buyer
and or Chase (or a substitute lender) shall reasonably require, to the extent
available, including, without limitation, comprehensive endorsements, zoning
endorsements and extended coverage. The Sellers and the Company agree to execute
such documents required to cause such title insurance company to issue such
policies.
7.10 INDEBTEDNESS; ENCUMBRANCES. As of the Closing, (a) all outstanding
Indebtedness (except for those capitalized lease obligations set forth on
SCHEDULE 6.14) and Shareholder Indebtedness (except as provided in Section 6.23)
shall be paid in full, (b) any outstanding letters of credit issued by lenders
who hold Indebtedness shall be terminated, and (c) the Company shall have
obtained the release of all Liens on the capital stock of each of the
Subsidiaries and on all Assets securing such Indebtedness and shall have cleared
all public records of any such Liens (except for those capitalized lease
obligations set forth on SCHEDULE 6.14). At the Closing, the Sellers shall
provide or arrange to be provided to Buyer all releases and other documents in
form and substance reasonably satisfactory to Buyer demonstrating the release
(actual and of record) of such Liens.
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<PAGE> 41
7.11 FINANCING. Buyer shall have obtained funding of the financing
described in Chase Letter.
SECTION 8: CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
--------------------------------------------
The obligation of Sellers to consummate the transactions contemplated
by this Agreement is subject to the fulfillment, on or before the Closing Date,
of the following conditions (any of which may be waived in whole or in part by
Veloz and Derbyshire in writing except for Section 8.5 with respect to the HSR
Act):
8.1 REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. All of the
representations and warranties of Buyer contained in this Agreement or in any
written certificate delivered pursuant to this Agreement (i) shall have been
true and correct on the date of this Agreement or as of the date of any such
certificate, and (ii) shall be true and correct in all material respects (except
that those representations which expressly contain a materiality qualifier shall
each be true and correct in all respects, giving effect to such qualifier) on
and (except for representations and warranties that expressly relate to a date
earlier than the Closing Date) as of the Closing as if then made.
8.2 COVENANTS AND AGREEMENTS PERFORMED. Buyer shall have performed or
complied with in all material respects all covenants, agreements and conditions
required by this Agreement to be performed or complied with by Buyer prior to or
on the Closing Date.
8.3 DELIVERIES. Buyer shall have delivered all of the items required by
Section 3.3.
8.4 CONSENTS. All Consents listed on Schedule 8.4 shall have been
obtained.
8.5 HSR ACT AND EXON-FLORIO AMENDMENT. The waiting period (including
any extension thereof by reason of a request for additional information)
relating to the notification and report forms under the HSR Act filed by Buyer
(or its ultimate parent entity) and the Sellers with respect to the transactions
contemplated by this Agreement shall have expired or been terminated, and no
conditions to the transactions contemplated by this Agreement shall have been
imposed by any Governmental Authority and clearance shall have been received
from CFIUS for the transactions contemplated by this Agreement under the
Exon-Florio Amendment.
8.6 NO ACTIONS. No Action shall be pending or threatened by any
Governmental Authority seeking to restrain or prohibit this Agreement or the
consummation of the transactions contemplated hereby. No Order preventing
consummation of any of the transactions contemplated by this Agreement shall be
in effect.
SECTION 9: INDEMNIFICATION AND SURVIVAL
----------------------------
9.1 INDEMNIFICATION BY THE SELLERS. Subject to Sections 9.4 and 9.5
following the Closing, the Sellers shall, and hereby do, jointly and severally
indemnify, defend and hold Buyer
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and any of its Affiliates, and their respective stockholders, directors,
officers, employees and agents (collectively, the "Buyer Group"), harmless from
and against and will pay the amount of any and all Damages actually incurred or
suffered by the Buyer Group based upon, relating to, arising out of, resulting
from or otherwise in respect of (a) any inaccuracy of any representation or
warranty of Sellers or the Company contained in this Agreement or any
certificate delivered by or on behalf of the Sellers and the Company in
connection herewith or breach of any covenant or agreement of the Sellers or the
Company, or failure to satisfy any obligation that the Sellers assume, are
responsible for or are liable for contained in this Agreement that survives the
Closing, (b) the matters set forth on SCHEDULE 9.1 and (c) the transactions
contemplated by Sections 6.16, 6.17, 6.18, 6.19 and 6.20, including any and all
Damages relating to the ownership (whether owned by Buyer or Veloz or Derbyshire
or any Affiliate of Veloz or Derbyshire) or use after the Closing of any of the
assets referred to in such Sections and the employment after the Closing of any
of the individuals referred to in such Sections by Veloz or an Affiliate of
Veloz and the termination or resignation of any such individuals from employment
with the Company.
9.2 INDEMNIFICATION BY BUYER. Subject to Sections 9.4 and 9.5 following
the Closing, Buyer shall indemnify, defend and hold Sellers and any of their
respective trustees, personal representatives or heirs (collectively, the
"Seller Group") harmless from and against and will pay the amount of any and all
Damages actually incurred or suffered by the Seller Group based upon, relating
to, arising out of, resulting from or otherwise in respect of any inaccuracy of
any representation or warranty of Buyer contained in this Agreement or any
certificate delivered by or on behalf of Buyer in connection herewith or breach
of any covenant or agreement of Buyer, or failure to satisfy any obligation that
Buyer assumes, is responsible for or is liable for contained in this Agreement
that survives the Closing.
9.3 NOTICE AND OPPORTUNITY TO DEFEND. (a) With respect to third party
claims, promptly after receipt by any Beneficiary of notice of any Action, claim
or potential claim (any of which is hereinafter individually referred to as a
"Circumstance"), which could give rise to a right to indemnification pursuant to
Section 9.1 or 9.2, the Beneficiary shall give the Indemnitor written notice
describing the Circumstance in reasonable detail. The Indemnitor shall have the
right, at its option, to compromise or defend, at its own expense and by its own
counsel (which counsel shall be subject to the reasonable approval of the
Beneficiary), any such third party claim involving the asserted liability of the
Beneficiary; PROVIDED, HOWEVER, that the Indemnitor shall not have the right to
compromise or assume the defense of any claim giving rise to Damages with
respect to which the Indemnitor is not obligated to provide full indemnification
under Section 9 unless the portion of such Damages of which there is any
reasonable likelihood of liability for which the Indemnitor has an obligation to
provide indemnification hereunder exceeds the portion of such Damages of which
there is any reasonable likelihood of liability for which the Indemnitor has no
obligation to provide indemnification hereunder. The assumption of any third
party claim under this Section 9.3 by the Indemnitor shall constitute an
acknowledgment by the Indemnitor of its obligation to indemnify the Beneficiary
with respect to the full amount of such claim, subject to the limitations
described in Sections 9.4 and 9.5 and the Indemnitor's right to rescind such
acknowledgment upon its reasonable determination, and upon prompt written notice
to the Beneficiary, that it does not bear sole or principal responsibility for
such third party claim under this Agreement; provided, however, that the
Indemnitor shall no longer be entitled to rescind its acknowledgment of its
obligation to indemnify after the Indemnitor has irrevocably committed to
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<PAGE> 43
the expenditure of any material costs related to such claim. If any Indemnitor
shall undertake to compromise or defend any such asserted liability, it shall
promptly notify the Beneficiary of its intention to do so, and the Beneficiary
shall cooperate fully with, and provide appropriate documentation as reasonably
requested by the Indemnitor and its counsel in the compromise of, or defense
against, any such asserted liability. If the Indemnitor elects to defend any
matter and the Beneficiary decides to participate in such defense, the
Indemnitor shall not be liable to the Beneficiary for any fees or expenses of
counsel to the Beneficiary unless the Indemnitor shall receive a legal opinion
from counsel to the Beneficiary that representation of the Indemnitor and the
Beneficiary by the Indemnitor's counsel would result in actual or potential
differing interests between the Indemnitor and Beneficiary which would make
joint representation inappropriate. Under no circumstances shall the Beneficiary
or the Indemnitor compromise any such asserted liability without the written
consent of the other, which consent shall not be unreasonably withheld, unless
the Indemnitor shall have failed or refused to undertake the defense or
compromise of any such asserted liability after a reasonable period of time has
elapsed following the notice of a Circumstance received by such Indemnitor
pursuant to this Section 9.3; and, PROVIDED, FURTHER, that the Beneficiary shall
not be required to consent to any settlement either involving the imposition of
equitable remedies or leaving unsettled related claims for equitable remedies.
(b) A claim for indemnification for any matter not involving a
third party claim (a "Direct Claim") may be asserted by notice to the party or
parties from whom indemnification is sought, specifying, to the extent known,
the nature, circumstances and amount of such Direct Claim. Failure to give such
notice shall not affect the indemnification provided hereunder except to the
extent that such failure shall have actually and materially prejudiced the
Indemnitor as a result thereof. Any payment pursuant to a Direct Claim shall be
made not later than 30 days after receipt by the Indemnitor of written notice
from the Beneficiary stating the amount of such Direct Claim. Any payment
required under this Section which is not made when due shall bear interest at
the rate per annum determined in accordance with Section 2.3 hereof.
9.4 LIMITATION. (a) Notwithstanding anything in Section 9.1 to the
contrary, none of Sellers shall be obligated to indemnify any Person otherwise
entitled to indemnification under this Agreement (i) unless and until the
aggregate amount of all such Damages exceed $1,000,000 (the "Deductible"), and
then only to the extent that such aggregate Damages exceed the Deductible, and
(ii) to the extent that the aggregate amount of all such payments to the Buyer
Group pursuant to Section 9.1 would exceed $5,000,000; PROVIDED, HOWEVER, that
any Damages of the Buyer Group based upon, relating to, arising out of,
resulting from or otherwise in respect of (A) any inaccuracy of any
representation or warranty contained in Sections 4.4(b), 4.5(b), 4.14, 4.15 and
4.26 or (B) the items set forth on SCHEDULE 9.1 or referred to in Section
9.1(c), shall not be subject to the limitations set forth in clauses (i) and
(ii) above. Notwithstanding the foregoing, if the amount of any claim or series
of related claims for Damages does not exceed $5,000 then the amount of such
claim will be excluded from the calculation of the aggregate amount of Damages
for the purposes of the previous sentence. Buyer agrees that the total liability
and responsibility of each Trust and each Trustee, in his or her capacity as
such, shall be limited to the trust funds held in the Trust. Buyer further
agrees that after any distribution from any Trust, each distributee of such
Trust shall be liable and responsible for any indemnification claim of Buyer
against the Trustee of such Trust, subject to the limitations set forth in this
Section 9.4 (other than limitations
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<PAGE> 44
set forth in the preceding sentence). Buyer further agrees that the total
liability and responsibility of each distributee of each Trust (other than
Veloz, Marlene J. Veloz, Derbyshire and Edith T. Derbyshire) shall be limited to
the aggregate amount of the funds actually distributed to each distributee.
(b) For purposes of determining whether an event described in
Section 9.1 or 9.2 has occurred, any requirement in any representation or
warranty that an event or fact be material or have a material adverse effect on
the Condition of the Company in order for such event or fact to constitute a
misrepresentation or breach of such warranty (each, a "Materiality Condition")
shall be ignored, and if the conditions set forth in Section 9.4(a) are
satisfied, in each case ignoring all Materiality Conditions, the Beneficiary
shall be indemnified in accordance with this Agreement.
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. The
representations and warranties of the Sellers contained in this Agreement shall
each survive the Closing for a period of nine months, except for (a) the
representations and warranties made in Section 4.15, which shall survive the
Closing for a period of three years, (b) the representations and warranties made
in Sections 4.4(b), 4.5(b) and 4.26, which shall survive the Closing and remain
in effect indefinitely, and (c) the representations and warranties made in
Section 4.14, which shall survive the Closing until the applicable statute of
limitations has commenced and expired (after giving effect to any extensions
thereof). Any claim for indemnification hereunder with respect to any alleged
inaccuracy of any representation or warranty that is not asserted by notice
given as provided in this Agreement within the applicable period of survival is
hereby irrevocably waived after such time. The representations and warranties of
the Company shall not survive the Closing and the Sellers hereby release and
waive, effective as of the Closing Date, any right of indemnity or contribution
from the Company and its Subsidiaries under or with respect to this Agreement.
The covenants and other agreements contained in this Agreement shall survive the
Closing indefinitely or until the date or dates specified therein.
9.6 EXCLUSIVE REMEDY; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE. The indemnity provided herein shall be the sole and exclusive remedy
of the parties hereto, their Affiliates, successors and assigns with respect to
any Damages, except for the right of the parties pursuant to Section 12.6. The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation.
SECTION 10: TAX MATTERS
-----------
10.1 TAX LIABILITIES FOR THE CURRENT PERIOD. Buyer shall prepare or
cause to be prepared and file or cause to be filed all Tax Returns for the
Company and each of its Subsidiaries for all periods ending on or prior to the
Closing Date which are filed after the Closing Date.
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<PAGE> 45
Buyer shall permit Veloz and Derbyshire to review and comment on each such Tax
Return described in the preceding sentence prior to filing.
10.2 COOPERATION ON TAX MATTERS. (a) Buyer, the Company, and the
Sellers shall cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder.
(b) Buyer and the Sellers agree, upon request, to use their
best efforts to obtain any certificate or other document from any Governmental
Authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, Taxes
that could be imposed on the transactions contemplated hereby).
(c) If so requested by Buyer (but only if so requested), the
Sellers agree to make the election set forth in Section 1371(e)(2) of the Code
with respect to the tax treatment of distributions made during the
post-termination transition period of the Company.
10.3 TAX SHARING AGREEMENTS. All tax sharing agreements or similar
agreements with respect to or involving the Company or any of its Subsidiaries
shall be terminated as of the Closing Date and, after the Closing Date, neither
the Company nor any of its Subsidiaries shall be bound by or have any liability
thereunder.
10.4 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration, and other such Taxes and fees (including any penalties and
interest thereon) incurred in connection with this Agreement shall be paid by
the Sellers when due, and the Sellers shall, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration, and other Taxes and fees, and, if
required by applicable law, Buyer shall, and shall cause its Affiliates to, join
in the execution of any such Tax Returns and other documentation.
SECTION 11: TERMINATION
-----------
11.1 TERMINATION OF AGREEMENT. Anything in this Agreement to the
contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date only:
(a) By written consent of each of Veloz, Derbyshire and
Buyer;
(b) By Buyer (if Buyer is not then in breach of any term of
this Agreement), if the Company or any of the Sellers shall have breached in any
material respect any representation, warranty, covenant or agreement contained
in this Agreement and such breach has not been
40
<PAGE> 46
remedied within five days after receipt of notice stating Buyer's intent to
terminate this Agreement pursuant to this paragraph;
(c) By Veloz and Derbyshire (if each of the Sellers is not
then in breach of any term of this Agreement), if Buyer has breached in any
material respect any representation, warranty, covenant or agreement contained
in this Agreement and such breach has not been remedied within five days after
receipt of notice stating Veloz's and Derbyshire's intent to terminate this
Agreement pursuant to this paragraph;
(d) By Veloz and Derbyshire, on the one hand, or Buyer, on the
other hand, if the Closing does not occur on or before October 14, 1997, for any
reason other than delay or nonperformance of the party seeking such termination;
(e) By Veloz and Derbyshire, on the one hand, or Buyer, on the
other hand, if notwithstanding Veloz's, Derbyshire's and Buyer's efforts
pursuant to Section 6.6(b), any Governmental Authority shall have issued an
Order or taken any other action restraining, enjoining or otherwise prohibiting
the transactions contemplated hereby, and such Order or other action shall have
become final and nonappealable; or
(f) By Buyer, if any of the conditions in Section 7 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition on
or before the Closing Date; or (ii) by Veloz and Derbyshire, if any of the
conditions in Section 8 has not been satisfied as of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of the Sellers to comply with its, his or her obligations under this
Agreement) and Veloz and Derbyshire have not waived such condition on or before
the Closing Date.
11.2 EFFECT OF TERMINATION. (a) Except as provided in Section 11.2(b)
below, if any party terminates this Agreement pursuant to Section 11.1 above,
all rights and obligations of the parties hereunder shall terminate without any
liability of any party to any other party; PROVIDED, HOWEVER, that (i) if this
Agreement is terminated by a party due to the breach by any other party of any
covenant or agreement contained herein, or due to any inaccuracy or
misrepresentation in any of such other party's representations or warranties
contained herein, or due to the failure of such other party to fulfill its
obligations in connection with the satisfaction of any condition to Closing,
then the terminating party shall remain entitled to pursue all available legal
rights and remedies pursuant to this Agreement or otherwise notwithstanding such
termination and (ii) the payment provisions of Sections 6.8 and 6.13 (to the
extent Buyer became obligated to make such payment prior to the termination of
this Agreement) will survive termination and remain in full force and effect
thereafter.
(b) If Buyer terminates this Agreement prior to October 1,
1997 pursuant to Section 11.1(f) based on its failure to satisfy the condition
set forth in Section 7.11, then Buyer shall pay to the Sellers, pro rata based
on their respective ownership interest in the Company, the aggregate sum of
$3,345,000 by wire transfer of immediately available funds within five Business
Days of the date of such termination but in no event later than October 2, 1997.
If Buyer
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<PAGE> 47
becomes obligated to make such payment pursuant to this Section 11.2(b), Buyer's
obligations under Section 6.13 shall terminate automatically. In no event shall
Buyer be obligated to make payments under both Sections 6.13 and Section
11.2(b).
SECTION 12: MISCELLANEOUS
-------------
12.1 AMENDMENTS. This Agreement may be amended or modified only by an
instrument in writing duly executed by the parties to this Agreement.
12.2 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given and received (a)
when delivered personally to the recipient or when sent to the recipient by
facsimile transmission (receipt confirmed), (b) one business day after the date
when sent to the recipient by reputable express courier service (charges
prepaid) or (c) two business days after the date when mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid. Such
notices, requests, demands, claims and other communications shall be sent to the
intended recipient at the respective addresses indicated below:
If to Buyer:
Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, OH 44117-1795
Attention: Paul R. Keen
Vice President, General
Counsel and Secretary
Telecopy No.: 216-692-6331
With a copy to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, OH 44114
Attention: Patrick J. Leddy, Esq.
Telecopy No.: 216-579-0212
If to the Company:
J.C. Carter Company Inc.
671 W. Seventeenth Street
Costa Mesa, California 92627
Attention: President
Telecopy No.:(714) 752-2997
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<PAGE> 48
If to Veloz, Marlene J. Veloz,
Michael Veloz or Katherine Canfield:
Robert L. Veloz
1502 East Mountain Drive
Santa Barbara, California 93108
With a copy to:
Latham & Watkins
701 "B" Street
Suite 2100
San Diego, CA
Attention: Thomas A. Edwards, Esq.
Telecopy No.: 619-696-7419
If to Derbyshire or Edith T. Derbyshire:
Harry S. Derbyshire
6817 Vianda Court
Carlsbad, California 92009
With a copy to:
Latham & Watkins
701 "B" Street
Suite 2100
San Diego, CA
Attention: Thomas A. Edwards, Esq.
Telecopy No.: 619-696-7419
If to the Maureen Partch:
Maureen Partch, as Trustee
c/o Robert Veloz
1502 East Mountain Drive
Santa Barbara, California 93108
or in any case to such other address or telecopy number as hereinafter shall be
furnished as provided in this Section 12.2 by any of the parties to this
Agreement to Buyer, Veloz and Derbyshire.
12.3 ASSIGNMENT; SUCCESSORS AND ASSIGNS. No party to this Agreement
shall convey, assign or otherwise transfer any of its rights or obligations
under this Agreement without the express written consent of the other party to
this Agreement; PROVIDED, HOWEVER, that Buyer may
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<PAGE> 49
assign its rights hereunder to any direct or indirect wholly owned subsidiary of
Buyer without the consent of Veloz, Derbyshire and the Company; and PROVIDED,
FURTHER, that an assignment of rights under this Agreement shall in no way
diminish the obligations of the parties to this Agreement and, from and after
any such assignment, the representations and warranties made by the assignor
shall be made by the assignor and the assignee. This agreement shall be binding
upon and shall inure to the benefit of the parties to this Agreement and their
respective successors, personal representatives, executors, heirs, distributees
and permitted assigns.
12.4 RIGHTS OF THIRD PARTIES. Except as provided in Section 9, nothing
in this Agreement is intended, or shall be construed, to confer upon or give any
Person other than the parties to this Agreement any rights or remedies under or
by reason of this Agreement.
12.5 WAIVER; REMEDIES. No delay on the part of Buyer, on the one hand,
or the Sellers or the Company, on the other hand, in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any waiver
on the part of Buyer, on the one hand, or the Sellers or the Company, on the
other hand, of any right, power or privilege hereunder operate as a waiver of
any other right, power or privilege hereunder, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder.
12.6 EQUITABLE RELIEF. The parties hereto agree that irreparable damage
would occur in the event that the covenants or agreements contained in Sections
2.1, 2.3, 6.7, 6.9, 6.11, 10.2 and 12.14 were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, it is agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of such Sections of this Agreement and to enforce specifically the
terms and provisions thereof in any court of the Untied States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled pursuant to this Agreement at law or in equity.
12.7 NO RECOURSE AGAINST OTHERS. Each of the parties hereto agrees that
no director, officer, employee or agent, in his capacity as such of the Company,
any of its Subsidiaries or Buyer, shall have any liability hereunder or for any
claim related to this Agreement.
12.8 CHOICE OF LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of California without
regard to principles of conflicts of laws. The Company and each of the Sellers
hereby consent and submit itself or themselves to the jurisdiction of the courts
of the State of Ohio for the purposes of any legal action or proceeding arising
out of this Agreement and waive any objection to venue laid therein. Process in
any action or proceeding referred to in the preceding sentence may be served on
any party anywhere in the world.
12.9 SEVERABILITY. If it is found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) that any term or
provision of this Agreement is invalid or unenforceable, (a) the remaining terms
and provisions hereof shall be unimpaired and shall remain in full force and
effect and (b) the invalid or unenforceable provision or term shall be replaced
by a
44
<PAGE> 50
term or provision that is valid and enforceable and that comes closest to
expressing the intention of such invalid or unenforceable term or provision.
12.10 ENTIRE AGREEMENT. This Agreement, together with the Schedules
hereto, constitute the entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes all other prior agreements or
understandings of the parties relating thereto.
12.11 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Any reference to the
singular in this Agreement shall also include the plural and vice versa. The
word "knowledge" shall mean knowledge obtained or obtainable after due inquiry
and reasonable investigation; "knowledge of the Company" shall mean the
knowledge of Badrik Melikian, Melinda Fink, Charles Ronie, Anne Felgen, Jeff
Rusk, Richard Cisco, Chris Michael, Michael Windsor and Dino Scanderbeg obtained
or obtainable after due inquiry and reasonable investigation.
12.12 SCHEDULES. The Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof. The disclosures in the
Schedules to this Agreement shall relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
12.13 HEADINGS, RECITALS AND REFERENCES. All section titles or captions
contained in this Agreement and the table of contents to this Agreement are
inserted for convenience only, shall not be deemed a part of this Agreement and
shall not affect the meaning or interpretation of this Agreement. Unless
otherwise indicated, all references in this Agreement to numbered Sections or
Schedules are to Sections or Schedules of this Agreement.
12.14 FURTHER ASSURANCES. The Sellers shall, at the written request and
expense of Buyer, at any time and from time to time following the Closing,
execute and deliver to Buyer all such further instruments and take all such
further action as may be reasonably necessary or appropriate in order to more
effectively sell, assign, transfer and convey to Buyer the Shares or otherwise
to confirm or carry out the provisions of this Agreement. Buyer shall, and shall
cause the Company to, at any time and from time to time following the Closing
hereunder, execute and deliver to the Sellers all such further instruments and
take all such further action as may be reasonably necessary or appropriate in
order to confirm or carry out the provisions of this Agreement.
12.15 FACSIMILE SIGNATURES. This Agreement may be executed via
facsimile signatures and such signatures may be relied upon as original
signatures.
45
<PAGE> 51
12.16 COUNTERPARTS. This Agreement may be executed concurrently in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
46
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the day and year first above written.
ARGO-TECH CORPORATION
By:
---------------------------------------------
Name:
Title:
J.C. CARTER COMPANY, INC.
By:
---------------------------------------------
Name:
Title:
------------------------------------------------
Robert L. Veloz
------------------------------------------------
Harry S. Derbyshire
------------------------------------------------
Marlene J. Veloz
------------------------------------------------
Edith T. Derbyshire
------------------------------------------------
Robert L. Veloz, as settlor, trustee and
primary beneficiary of the Second Amendment
to and Complete Restatement of the
Declaration of Trust for the Robert L. Veloz
Family and Trust Agreement dated as of
October 2, 1996
47
<PAGE> 53
-------------------------------------------
Marlene J. Veloz, as settlor, trustee and
primary beneficiary of the Second Amendment
to and Complete Restatement of the
Declaration of Trust for the Robert L. Veloz
Family and Trust Agreement dated as of
October 2, 1996
-------------------------------------------
Maureen Partch, as Trustee of the Michael
Veloz 1992 Stock Trust dated December 22,
1992
-------------------------------------------
Michael Veloz, as primary beneficiary of the
Michael Veloz 1992 Stock Trust dated
December 22, 1992
-------------------------------------------
Maureen Partch, as Trustee of the Katherine
Canfield 1992 Stock Trust dated December 22,
1992
-------------------------------------------
Katherine Canfield, as primary beneficiary
of the Katherine Canfield 1992 Stock Trust
dated December 22, 1992
-------------------------------------------
Harry S. Derbyshire, as settlor, trustee and
primary beneficiary of the First Amendment
and Restatement to the Derbyshire Family
Trust, dated as of November 29, 1993
-------------------------------------------
Edith T. Derbyshire, as settlor, trustee and
primary beneficiary of the First Amendment
and Restatement of the Derbyshire Family
Trust, dated as of November 29, 1993
48
<PAGE> 1
Exhibit 10.28
3/24/95 Basic Plan Document No. 05
- --------------------------------------------------------------------------------
PRISM(R)
PROTOTYPE RETIREMENT
PLAN AND TRUST
- --------------------------------------------------------------------------------
<PAGE> 2
PRISM(R) PROTOTYPE RETIREMENT PLAN AND TRUST
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. Unless the context indicates otherwise, the following
terms, when used herein with initial capital letters, shall have the
meanings set forth below:
(A) ACCOUNTING DATE: The date which is the last business day of
each month of the Employer's Plan Year or such other date as
may be agreed upon between the Employer and the Trustee, but
only if the Employer has specifically requested the Trustee to
prepare an accounting on or before such date. Notwithstanding
the foregoing, the Trustee shall value the assets held in the
Trust on each business day that the Trustee and the New York
Stock Exchange are open for business.
(B) ADOPTION AGREEMENT: The Adoption Agreement adopting this Plan
which has been executed by the Employer and accepted by the
Trustee, including any amendment thereof, which is
incorporated herein by reference.
(C) BASIC PLAN DOCUMENT: This document, which, in connection with
the Adoption Agreement forms the Plan.
(D) BENEFICIARY: The person or persons to whom a deceased
Participant's benefits are payable under the Plan.
(E) BREAK IN SERVICE: A 12-consecutive month period during which
the Participant does not complete more than one-half of the
Hours of Service with the Employer required for a Year of
Service, as elected in the Adoption Agreement. For eligibility
purposes, the initial 12-consecutive month period is the
period beginning on the Employees date of hire. Subsequent
12-consecutive month periods for eligibility purposes will be
either the period ending on the annual anniversary of the
Employee's date of hire or the Plan Year, as selected in the
Adoption Agreement. For all other purposes, the 12-consecutive
month period shall be the Plan Year, or other computation
period as selected in the Adoption Agreement. If the elapsed
time method of crediting service is elected in the Adoption
Agreement, "Break In Service" will mean a Period of Severance
of at least 12 consecutive months.
(F) CODE: The Internal Revenue Code of 1986, and amendments
thereto.
(G) COMMITTEE: The Committee provided for in Article XI, which
shall be a Named Fiduciary as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
To the extent that the Employer does not appoint a Committee,
the Employer shall have the duty of the day to day
administration of the Plan and shall be the Named Fiduciary
for that purpose.
<PAGE> 3
(H) COMPENSATION: Compensation shall have the following various
definitions, as may be appropriate within the context of the
Plan:
(1) Compensation as that term is defined in Section
6.6(A) of the Plan. For any Self-Employed Individual
covered under the Plan, Compensation will mean Earned
Income. Compensation shall include only that
compensation which is actually paid to the
Participant during the determination period. Except
as provided elsewhere in this Plan, the determination
period shall be the period elected by the Employer in
the Adoption Agreement. If the Employer makes no
election, the determination period shall be the Plan
Year. For purposes of allocations of Employer Profit
Sharing or Matching Contributions, the definition of
Compensation in Section 6.6(A)(2)(a) shall be used,
as modified in the Adoption Agreement.
Notwithstanding the above, if elected by the Employer
in the Adoption Agreement, Compensation for
allocation purposes shall include any amount which is
contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in
the gross income of the employee under Sections 125,
402(e)(3), 402(h)(l)(B) or 403(b) of the Code.
(2) For years beginning after December 31, 1988, and
prior to January 1, 1994, the annual Compensation of
each Participant taken into account for determining
all benefits provided under the Plan for any
determination period shall not exceed $200,000. This
limitation shall be adjusted by the Secretary at the
same time and in the same manner as under Section
415(d) of the Code except that the dollar increase in
effect on January l of any calendar year is effective
for plan years beginning in such calendar year and
the first adjustment to the $200,000 limitation is
effective on January l, 1990. After December 31,
1993, the annual Compensation of each Participant
taken into account for determining all benefits
provided under the Plan for any determination period
shall not exceed $150,000, or such other lesser
amount as may be specified in the Adoption Agreement.
This limitation shall be adjusted by the Secretary at
the same time and in the same manner as under Section
415(d) of the Code. If a Plan determines Compensation
on a period of time that contains fewer than 12
calendar months, then the annual Compensation limit
is an amount equal to the annual Compensation limit
for the calendar year in which the Compensation
period begins multiplied by a ratio obtained by
dividing the number of full months in the period by
12.
In determining the Compensation of a Participant for
purposes of this limitation, the rules of Section
414(q)(6) of the Code shall apply, except in applying
such rules, the term "family" shall include only the
Spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19
before the close of the year. If, as a result of the
2
<PAGE> 4
application of such rules the adjusted annual
compensation limitation is exceeded, then (except for
purposes of determining the portion of Compensation
up to the integration level if this Plan provides for
permitted disparity), the limitation shall be
prorated among the affected individuals in proportion
to each such individual's Compensation as determined
under this Section prior to the application of this
limitation.
If compensation for any prior determination period is
taken into account in determining an Employee's
allocations or benefits for the current determination
period, the compensation for such prior year is
subject to the applicable annual compensation limit
in effect for that prior year. For this purpose, for
years beginning before January 1, 1990, the
applicable compensation limit is $200,000. In
addition, in determining allocations in plan years
beginning on or after January l, 1994, the annual
compensation limit in effect for determination
periods beginning before that date is $150,000.
(I) DISABILITY: The inability to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months. The permanence and
degree of such impairment shall be supported by medical
evidence. The Employer shall determine the existence of a
Disability based on its current disability policy, applied on
a uniform and nondiscriminatory basis.
(J) EARNED INCOME: The net earnings from self-employment in the
trade or business with respect to which the Plan is
established, for which personal services of the individual are
a material income-producing factor. Net earnings will be
determined without regard to items not included in gross
income and the deductions allocable to such items. Net
earnings are reduced by contributions by the Employer to a
qualified Plan to the extent deductible under Section 404 of
the Code. Net earnings shall be determined with regard to the
deduction allowed to the taxpayer by Section 164(f) of the
Code for taxable years beginning after December 31, 1989.
(K) EARLY RETIREMENT DATE: The date specified in the Adoption
Agreement at which a participating Employee may receive an
early retirement benefit.
(L) EFFECTIVE DATE: The date specified in the Adoption Agreement
which shall be the effective date of the provisions of this
Plan, unless modified in Item B(18) of the Adoption Agreement.
If the Plan is a restatement of an existing Plan, the original
effective date of the Plan shall be as specified in the
Adoption Agreement.
(M) ELIGIBLE EMPLOYEE: Any Employee who is eligible to receive an
Employer contribution (including forfeitures), as defined in
Item B(6) of the Adoption Agreement.
3
<PAGE> 5
(N) ELIGIBILITY COMPUTATION PERIOD: For purposes of determining
Years of Service and Breaks in Service for purposes of
eligibility, the initial Eligibility Computation Period is the
12-consecutive month period beginning on the Employee's
Employment Commencement Date.
(1) For plans in which the Eligibility Computation
Periods commence on the 12-consecutive month
anniversary of the Employee's Employment Commencement
Date, the succeeding 12-consecutive month periods
commence with the first anniversary of the Employee's
Employment Commencement Date.
(2) For plans in which the Eligibility Computation Period
shifts to the Plan Year, the succeeding
12-consecutive month periods commence with the first
Plan Year which commences prior to the first
anniversary of the Employee's Employment Commencement
Date regardless of whether the Employee is entitled
to be credited with number of Hours of Service
specified in the Adoption Agreement during the
initial Eligibility Computation Period. An Employee
who is credited with number of Hours of Service
specified in the Adoption Agreement in both the
initial Eligibility Computation Period and the first
Plan Year which commences prior to the first
anniversary of the Employee's initial Eligibility
Computation Period will be credited with two Years of
Service for purposes of eligibility to participate.
Years of Service and Breaks in Service will be
measured on the same Eligibility Computation Period.
(3) Notwithstanding any other provisions of this section,
if the elapsed time method of crediting service is
elected in the Adoption Agreement for purposes of
eligibility, an Employee will receive credit for the
aggregate of all time periods completed (as may be
elected in the Adoption Agreement) beginning with the
Employee's Employment Commencement Date or
Reemployment Commencement Date and ending on the date
a Break In Service begins. The Employee will receive
credit for any Period of Severance of less than 12
consecutive months.
(O) EMPLOYEE: Any employee, including any Self Employed
Individual, of the Employer maintaining the Plan or of any
other employer required to be aggregated with such Employer
under Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee
deemed to be an Employee of any Employer described in the
previous paragraph as provided in Sections 414(n) or (o) of
the Code.
(P) EMPLOYER: The Employer specified in the Adoption Agreement and
any successor to the business of the Employer establishing the
Plan, which shall be the
4
<PAGE> 6
Plan Administrator for purposes of Section 3(16) of ERISA, a
Named Fiduciary as defined in ERISA, and which may delegate
all or any part of its powers, duties and authorities in such
capacity without ceasing to be such Plan Administrator.
(Q) EMPLOYMENT COMMENCEMENT DATE: The date on which an Employee
first performs an Hour of Service for the Employer.
(R) ENTRY DATE: The date selected by the Employer in Item B(6)(d)
of the Adoption Agreement, which shall be:
(1) The Effective Date of the Plan, for any Employee who
has satisfied the eligibility requirements set forth
in the Adoption Agreement;
(2) The first day of the month which coincides with or
immediately follows the date on which the Employee
satisfies the eligibility requirements set forth in
the Adoption Agreement;
(3) The first day of the Plan Year or the fourth,
seventh, or tenth month of the Plan Year which
coincides with or immediately follows the date on
which the Employee satisfies such eligibility
requirements;
(4) The first day of the Plan Year or the seventh month
of the Plan Year which coincides with or immediately
follows the date on which the Employee satisfies such
eligibility requirements;
(5) The first day of the Plan Year, but only if the
eligibility service requirements specified in Item
B(6)(d) are six months or less; or,
(6) As soon as practicable after the Employee satisfies
such eligibility requirements specified in the
Adoption Agreement, but in no event beyond the date
which would be six months following the date on which
the Employee first completes the eligibility
requirements specified in the Adoption Agreement.
(S) ERISA: The Employee Retirement Income Security Act of 1974,
as amended.
(T) HIGHLY COMPENSATED EMPLOYEE: The term Highly Compensated
Employee includes highly compensated active employees and
highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination
year and who, during the look-back year: (i) received
Compensation from the Employer in excess of $75,000 (as
adjusted pursuant to Section 415(d) of the Code); (ii)
received Compensation from the Employer in excess of $50,000
(as adjusted pursuant to Section 415(d) of the Code) and was a
member of the top-paid group for such year; or (iii) was an
5
<PAGE> 7
officer of the Employer and received Compensation during such
year that is greater than 50 percent of the dollar limitation
in effect under section 4l5(b)(1)(A) of the Code. The term
Highly Compensated Employee also includes: (i) Employees who
are both described in the preceding sentence if the term
"determination year" is substituted for the term "look-back
year" and the Employee is one of the 100 Employees who receive
the most compensation from the Employer during the
determination year; and (ii) Employees who are 5 percent
owners at any time during the look-back year or determination
year.
If no officer has satisfied the Compensation requirement of
(iii) above during either a determination year or look-back
year, the highest paid officer for such year shall be treated
as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan
Year. The look-back year shall be the twelve-month period
immediately preceding the determination year. A highly
compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior
to the determination year, performs no service for the
Employer during the determination year, and was a highly
compensated active employee for either the separation year or
any determination year ending on or after the Employee's 55th
birthday.
If an Employee is, during a determination year or look-back
year, a family member of either a 5 percent owner who is an
active or former employee or a Highly Compensated Employee who
is one of the 10 most Highly Compensated Employees ranked on
the basis of Compensation paid by the Employer during such
year, then the family member and the 5 percent owner or
top-ten Highly Compensated Employee shall be aggregated. In
such case, the family member and 5 percent owner or top-ten
Highly Compensated Employee shall be treated as a single
employee receiving Compensation and Plan contributions or
benefits equal to the sum of such Compensation and
contributions or benefits of the family member and 5 percent
owner or top-ten Highly Compensated Employee.
For purposes of this Section, family member includes the
Spouse, lineal ascendants and descendants of the employee or
former employee and the spouses of such lineal ascendants and
descendants.
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
Employees in the top-paid group, the top l00 Employees, the
number of Employees treated as officers and the Compensation
that is considered, will be made in accordance with Section
414(q) of the Code and the regulations thereunder.
6
<PAGE> 8
(U) HOUR OF SERVICE:
(l) Each hour for which an Employee is paid, or entitled
to payment, for the performance of duties for the
Employer. These hours shall be credited to the
Employee for the computation period in which the
duties are performed; and
(2) Each hour for which an Employee is paid, or entitled
to payment, by the Employer on account of a period of
time during which no duties are performed
(irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness,
incapacity (including Disability), layoff, jury duty,
military duty, or leave of absence. No more than 501
Hours of Service shall be credited under this
paragraph for any single continuous period (whether
or not such period occurs in a single computation
period). Hours under this paragraph shall be
calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations
which are incorporated herein by reference; and
(3) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer. The same Hours of Service shall not
be credited both under subparagraph (l) or
subparagraph (2), as the case may be, and under this
subparagraph (3). These hours shall be credited to
the Employee for the computation period or periods to
which the award or agreement pertains rather than for
the computation period in which the award, agreement
or payment is made.
Hours of Service will be credited for employment with
other members of an affiliated service group (under
Section 414(m)), a controlled group of corporations
(under Section 414(b)), or a group of trades or
businesses under common control (under Section
414(c)) of which the adopting Employer is a member,
and any other entity required to be aggregated with
the Employer pursuant to Section 414(o).
Hours of Service will also be credited for any
individual considered an Employee for purposes of
this Plan under Sections 414(n) or 414(o).
(4) Where the Employer maintains the Plan of a
predecessor employer, service for such predecessor
employer shall be treated as service for the
Employer. If the Employer does not maintain the Plan
of a predecessor employer, the Plan does not credit
service with the predecessor employer, unless the
Employer identifies the predecessor in its Adoption
Agreement and specifies the purposes for which the
Plan will credit service with that predecessor
employer.
(5) Solely for purposes of determining whether a
Break-in-Service, as defined in Section 1.1(E), for
participation and vesting purposes has occurred in a
7
<PAGE> 9
computation period, an individual who is absent from
work for maternity or paternity reasons shall receive
credit for the Hours of Service which would otherwise
have been credited to such individual but for such
absence, or in any case in which such hours cannot be
determined, 8 Hours of Service per day of such
absence. For purposes of this paragraph, an absence
from work for maternity or paternity reasons means an
absence (l) by reason of the pregnancy of the
individual, (2) by reason of a birth of a child of
the individual, (3) by reason of the placement of a
child with the individual in connection with the
adoption of such child by such individual, or (4) for
purposes of caring for such child for a period
beginning immediately following such birth or
placement. The Hours of Service credited under this
paragraph shall be credited (1) in the computation
period in which the absence begins if the crediting
is necessary to prevent a Break-in-Service in that
period, or (2) in all other cases, in the following
computation period.
(6) Hours of Service will be determined on the basis of
the method selected in the Adoption Agreement.
(V) INVESTMENT FUND: One of the firms provided for in Section
10.7, and as selected by the Employer, as a Named Fiduciary,
on the Investment Fund Designation portion of the Adoption
Agreement.
(W) LEASED EMPLOYEE: Any person (other than an employee of the
recipient) who pursuant to an agreement between the recipient
and any other person ("leasing organization") has performed
services for the recipient (or for the recipient and related
persons determined in accordance with Section 414(n)(6) of the
Code) on a substantially full time basis for a period of at
least one year, and such services are of a type historically
performed by employees in the business field of the recipient
employer. Contributions or benefits provided a leased employee
by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as
provided by the recipient employer.
A leased employee shall not be considered an employee of the
recipient if: (i) such employee is covered by a money purchase
pension Plan providing: (1) a nonintegrated employer
contribution rate of at least 10 percent of compensation, as
defined in Section 415(c)(3) of the Code, but including
amounts contributed pursuant to a salary reduction agreement
which are excludable from the employee's gross income under
Section 125, Section 402(e)(3), Section 402(h)(1)(B) or
Section 403(b) of the Code, (2) immediate participation, and
(3) full and immediate vesting; and (ii) leased employees do
not constitute more than 20 percent of the recipient's
nonhighly compensated workforce.
(X) NET PROFITS: Current and accumulated earnings of the Employer
before Federal and state taxes and contributions to this and
any other qualified Plan, determined by the Employer in
accordance with generally accepted accounting principles.
8
<PAGE> 10
(Y) NONHIGHLY COMPENSATED EMPLOYEE: An Employee of the Employer
who is neither a Highly Compensated Employee nor a Family
Member.
(Z) NORMAL RETIREMENT DATE: The date specified in the Adoption
Agreement at which a participant shall become fully vested in
his account balances, as provided for in this document.
(AA) OWNER-EMPLOYEE: An individual who is a sole proprietor, or who
is a partner owning more than 10 percent of either the capital
or profits interest of the partnership.
(BB) PAIRED PLANS: The Employer has adopted Plan #001 and Plan
#003, both using this basic Plan document, which constitutes a
set of "paired plans" as defined by the Internal Revenue
Service in Revenue Procedure 89-9, or any successor thereto.
(CC) PARTICIPANT: A person who becomes eligible to participate in
accordance with the provisions of Article II, and whose
participation has not been terminated.
(DD) PERMITTED DISPARITY LEVEL: The level selected in the Adoption
Agreement, not to exceed the Taxable Wage Base in effect at
the beginning of the Plan Year. The Taxable Wage Base is the
contribution and benefit base under section 230 of the Social
Security Act at the beginning of the year.
(EE) PERIOD OF SERVICE: The period beginning on the Employee's
Employment Commencement Date or Reemployment Commencement
Date, and ending on the date a Period of Severance begins. The
Employee will receive credit for any Period of Service of less
than l2 consecutive months. Fractional periods of a year will
be expressed in days.
(FF) PERIOD OF SEVERANCE: A continuous period of time during which
the Employee is not employed by the Employer. A Period of
Severance begins on the date the Employee retires, quits, or
is discharged, or dies, or if earlier, the twelve month
anniversary of the date on which the Employee was first absent
from work for any other reason; provided, that if an Employee
is absent from work for any other reason and retires, quits,
is discharged, or dies within 12 months, the Period of
Severance begins on the day the Employee quits, retires, is
discharged, or dies.
(GG) PLAN: This Plan established by the Employer as embodied in
this agreement and in the Adoption Agreement, and all
subsequent amendments thereto.
(HH) PLAN YEAR: The 12-consecutive month period designated by the
Employer in the Adoption Agreement. In the event that the
original Effective Date is not the first day of the Plan Year,
the first Plan Year shall be a short Plan Year, beginning on
the original Effective Date, and ending on the last day of the
Plan Year as specified in the Adoption Agreement.
9
<PAGE> 11
(II) QUALIFIED DISTRIBUTION DATE: For purposes of Section 7.13, the
Qualified Distribution Date, if selected in the Adoption
Agreement, shall be the earliest retirement date specified in
Code Section 414(p) and shall operate to allow a distribution
to an Alternate Payee at the time a domestic relations order
is determined to be qualified.
(JJ) REEMPLOYMENT COMMENCEMENT DATE: The date on which an Employee
completes an Hour of Service with the Employer after a Break
In Service or a Period of Severance.
(KK) RELATED EMPLOYERS: Any employer related to the Employer as a
controlled group of corporations (as defined in
Section 414(b) of the Code), a group of trades or businesses
(whether or not incorporated) which are under common control
(as defined in Section 414(c)) or an affiliated service group
(as defined in Section 414(m) or in Section 414(o) of the
Code). If the Employer is a member of a related group, the
term "Employer" includes the related group members for
purposes of crediting Hours of Service, determining Years of
Service and Breaks in Service under Article II, applying
participation and coverage testing, applying the limitations
on allocations in Section 6.6, applying the top heavy rules
and the minimum allocation requirements of Article IX, the
definitions of Employee, Highly Compensated Employee,
Compensation and Leased Employee, and for any other purpose
required by the applicable Code section or by a Plan
provision. However, an Employer may contribute to the Plan
only by signing the Adoption Agreement or a Participation
Agreement to the Employer's Adoption Agreement. If one or more
of the Employer's related group members become Participating
Employers by executing a Participation Agreement to the
Employer's Adoption Agreement, the term "Employer" includes
the participating related group members for all purposes of
the Plan, and "Plan Administrator" means the Employer that is
the signatory to the Adoption Agreement.
If the Employer's Plan is a standardized Plan, all Employees
of the Employer or of any member of the Employer's related
group, are eligible to participate in the Plan, irrespective
of whether the related group member directly employing the
Employee is a Participating Employer. If the Employer's Plan
is a nonstandardized Plan, the Employer must specify in Item
B(5) of its Adoption Agreement, whether the Employees of
related group members that are not Participating Employers are
eligible to participate in the Plan. Under a non-standardized
Plan, the Employer may elect to exclude from the definition of
"Compensation" for allocation purposes any Compensation
received from a related employer that has not executed a
Participation Agreement and whose Employees are not eligible
to participate in the Plan.
(LL) SELF-EMPLOYED INDIVIDUAL: An individual who has Earned Income
for the taxable year from the trade or business for which the
Plan is established; also, an individual who would have had
Earned Income but for the fact that the trade or business had
no Net Profits for the taxable year.
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<PAGE> 12
(MM) SPOUSE: The person to whom the Participant is legally married
at the relevant time. Notwithstanding the foregoing, if
selected in the Adoption Agreement, Spouse shall only refer to
an individual to whom a Participant has been married to for a
period of at least one year, ending at the relevant time.
(NN) STOCKHOLDER-EMPLOYEE: An employee or officer of an electing
small business (Subchapter S) corporation who owns (or is
considered as owning within the meaning of Section 318(a)(I)
of the Code), on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the
corporation.
(OO) TERMINATION DATE: The date on which a Participant's employment
is terminated as provided in Section 5.1.
(PP) TRUSTEE: The entity specified in Item B(17) of the Adoption
Agreement, which shall be any bank or trust company which is
affiliated with KeyCorp. within the meaning of Section 1504 of
the Code, each of which with full trust powers, and its
successors by merger or reorganization.
(QQ) TRUST FUND: All assets held under the Plan by the Trustee.
(RR) VALUATION DATE: The date on which the assets of the Trust
shall be valued, as provided for herein, with earning or
losses since the previous Valuation Date being credited, as
appropriate to Participant accounts. Notwithstanding anything
to the contrary m the Plan, the Valuation date shall be each
business day that the Trustee and the New York Stock Exchange
are each open for business, provided, however, that the
Trustee shall not be obligated to value the Trust in the
event, through circumstances beyond its control, appropriate
prices may not be obtained for the assets held in the
Investment Funds.
(SS) VESTING COMPUTATION PERIOD: The Vesting Computation Period
shall be the 12-consecutive month period selected by the
Employer in the Adoption Agreement.
(TT) YEAR OF PARTICIPATION: For purposes of vesting, a twelve (12)
month period in which an Employee has a balance in an account
established under a 401(k)/401(m) arrangement regardless of
whether the Employee is currently making contributions under
the arrangement.
(UU) YEAR OF SERVICE: (i) If the elapsed time method of crediting
service is elected in the Adoption Agreement, a Year of
Service will mean a one-year Period of Service. If the actual
hours method of crediting service is elected in the Adoption
Agreement, a Year of Service will mean a 12-consecutive month
period as specified in the Adoption Agreement during which the
Employee completes the number of Hours of Service (not to
exceed 1000) specified in the Adoption Agreement.
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<PAGE> 13
1.2 GENDER AND NUMBER. Unless the context indicates otherwise, the
masculine shall include the feminine, and the use of any words herein
in the singular shall include the plural and vice versa.
1.3 CONTROL OF TRADES OR BUSINESSES BY OWNER-EMPLOYEE. If this Plan
provides contributions or benefits for one or more Owner-Employees who
control both the business for which this Plan is established and one or
more other trades or businesses, this Plan and the Plan established for
other trades or businesses must, when looked at as a single Plan,
satisfy Sections 401(a) and (d) for the employees of this and all other
trades or businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a Plan
which satisfies Sections 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or
benefits of the employees under the Plan of the trades or businesses
which are controlled must be as favorable as those provided for him
under the most favorable Plan of the trade or business which is not
controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or two or
more Owner-Employees, will be considered to control a trade or
business if the Owner-Employee, or two or more Owner-Employees
together:
(1) Own the entire interest in an unincorporated trade or
business, or
(2) In the case of a partnership, own more than 50 percent of
either capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an Owner-Employee, or
two or more Owner-Employees shall be treated as owning any
interest in a partnership which is owned, directly or
indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control
within the meaning of the preceding sentence.
ARTICLE II
ELIGIBILITY AND VESTING
2.1 ELIGIBILITY.
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<PAGE> 14
(A) PARTICIPATION. Every Employee who meets the eligibility
requirements specified by the Employer in the Adoption
Agreement shall become eligible to commence participation in
this Plan.
(B) COMMENCEMENT OF PARTICIPATION.
(1) For purposes of Money Purchase Pension Plans, Profit
Sharing Plans and 401(k) Plans with Profit Sharing
Contributions, each Eligible Employee shall commence
participation on the Entry Date.
(2) For purposes of 401(k) and 401(m) arrangements, an
Eligible Employee may, but is not required to, enroll
as a Participant as of the Entry Date on which such
Employee is initially eligible by filing with the
Committee before such date, an enrollment form
prescribed by the Committee. The time period for
filing an enrollment form shall be determined by the
Committee. The form shall include an authorization
and request to the Employer to deduct mom such
Participant's Compensation in each pay period the
designated After Tax Contributions, and/or to reduce
such Participant's Compensation in each pay period by
the amount of the designated Before Tax
Contributions.
(C) Years of Service Counted Towards Eligibility. Ml Years of
Service with the Employer are counted toward eligibility
except the following:
(l) In a Plan which (a) requires an Employee to complete
more than one Year of Service as an eligibility
requirement and (b) provides immediate 100% vesting
in a Participant's Employer Contribution Account
after not more than two (2) Years of Service, if an
Employee has a 1-year Break in Service before
satisfying the Plan's requirement for eligibility,
service before such break will not be taken into
account.
(2) In the case of a Participant who does not have any
nonforfeitable right to the account balance derived
from Employer contributions, Years of Service before
a period of consecutive 1-year Breaks in Service will
not be taken into account in computing eligibility
service if the number of consecutive I-year Breaks in
Service in such period equals or exceeds the greater
of 5 or the aggregate number of Years of Service.
Such aggregate number of Years of Service will not
include any Years of Service disregarded under the
preceding sentence by reason of prior Breaks in
Service.
(3) If a Participant's Years of Service are disregarded
pursuant to the preceding paragraph, such Participant
will be treated as a new Employee for eligibility
purposes. If a Participant's Years of Service may not
be disregarded pursuant to the preceding paragraph,
such Participant shall
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<PAGE> 15
continue to participate in the Plan, or, if
terminated, shall participate immediately upon
reemployment.
(D) ELIGIBILITY BREAK IN SERVICE, ONE YEAR HOLD-OUT RULE. If the
Plan is a nonstandardized Plan, then:
(1) In the case of any Participant who has a 1-year Break
in Service or Severance, years of eligibility service
before such break will not be taken into account
until the Employee has completed a Year of Service
after returning to employment.
(2) For plans in which the eligibility computation is
measured with reference to the Employment
Commencement Date, such Year of Service will be
measured beginning on the Employee's Reemployment
Commencement Date and, if necessary, subsequent
12-consecutive month periods beginning on
anniversaries of the Reemployment Commencement Date.
(3) For plans which shift the Eligibility Computation
Period to the Plan Year, such Year of Service will be
measured by the 12-consecutive month period beginning
on the Employee's Reemployment Commencement Date and,
if necessary, Plan Years beginning with the Plan Year
which includes the first anniversary of the
Reemployment Commencement Date.
(4) If a Participant completes a Year of Service in
accordance with this provision, his or her
participation will be reinstated as a Participant as
of the Reemployment Commencement Date.
(E) PARTICIPATION UPON RETURN TO ELIGIBLE CLASS.
(1) In the event a Participant is no longer a member of
an eligible class of Employees and becomes ineligible
to participate but has not incurred a Break In
Service, such Employee shall participate immediately
upon returning to an eligible class of Employees. If
such Participant incurs a Break In Service
eligibility will be determined under the Break in
Service rules of the Plan.
(2) In the event an Employee who is not a member of an
eligible class of Employees becomes a member of an
eligible class, such Employee will participate
immediately if such Employee has satisfied the
minimum age and service requirements and would have
otherwise previously become a Participant.
2.2 VESTING.
(A) VESTING SCHEDULE. In the case of an Employee who terminates
participation under this Plan for any reason other than death,
Disability, or employment at the
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<PAGE> 16
Normal Retirement Date, such Participant, as of the last day
of his participation under this Plan, shall have a vested
interest in his Employer Contribution Account pursuant to the
formula specified by the Employer in the Adoption Agreement.
(B) VESTING UPON NORMAL RETIREMENT DATE. Notwithstanding the
vesting schedule elected by the Employer in Items B(7)(a) or
C(4)(d) of the Adoption Agreement, an Employee's right to his
or her Employer Contribution balance shall be nonforfeitable
at the Employee's Normal Retirement Date.
(C) VESTING BREAK IN SERVICE - 1 YEAR HOLDOUT. In the case of any
Participant who has incurred a 1-year Break in Service, Years
of Service before such break will not be taken into account
until the Participant has completed a Year of Service after
such Break in Service.
(D) VESTING FOR PRE-BREAK AND POST-BREAK ACCOUNT. In the case of a
Participant who has 5 or more consecutive 1-year Breaks in
Service, all service after such Breaks in Service will be
disregarded for the purpose of vesting the employer-derived
account balance that accrued before such Breaks in Service.
Such Participant's pre-break service will count in vesting the
post-break employer-derived account balance only if either:
(1) such Participant has any nonforfeitable interest in
the account balance attributable to employer
contributions at the time of separation from service;
or
(2) upon returning to service the number of consecutive
1-year Breaks in Service is less than the number of
Years of Service. Separate accounts will be
maintained for the Participant's pre-break and
post-break Employer Contribution Account balance.
Both accounts will share in the earnings and losses
of the Trust Fund.
(E) AMENDMENT OF VESTING SCHEDULE. If the Plan's vesting schedule
is amended, or the Plan is amended in any way that directly or
indirectly affects the computation of the Participant's
nonforfeitable percentage or if the Plan is deemed amended by
an automatic change to or from a top-heavy vesting schedule,
each Participant with at least three (3) Years of Service with
the Employer may elect within a reasonable period after the
adoption of the amendment or change, to have the
nonforfeitable percentage computed under this Plan without
regard to such amendment or change. For Participants who do
not have at least l Hour of Service in any Plan Year beginning
after December 31, 1988, the preceding sentence shall be
applied by substituting "5 Years of Service" for "3 Years of
Service" where such language appears.
This period during which the election may be made shall
commence with the date the amendment is adopted or deemed to
be made and shall end on the latest of:
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<PAGE> 17
(1) Sixty (60) days after the amendment is adopted;
(2) Sixty (60) days after the amendment becomes
effective; or
(3) Sixty (60) days after the Participant is issued
written notice of the amendment by the Employer or
Committee.
(F) AMENDMENT AFFECTING VESTED AND/OR ACCRUED BENEFITS. No
amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's
account balance may be reduced to the extent permitted under
Section 4l2(c)(8) of the Code. For purposes of this paragraph,
a Plan amendment which has the effect of decreasing a
Participant's account balance or eliminating an optional form
of benefit, with respect to benefits attributable to service
before the amendment shall be treated as reducing an accrued
benefit. Furthermore, if the vesting schedule of a Plan is
amended, in the case of an Employee who is a Participant as of
the later of the date such amendment is adopted or the date it
becomes effective, the nonforfeitable percentage (determined
as of such date) of such Employee's Employer-derived accrued
benefit will not be less than the percentage computed under
the Plan without regard to such amendment.
ARTICLE III
CODE 401(k) AND CODE 401(m) ARRANGEMENTS
3.1 PROVISION RELATING TO BOTH BEFORE TAX CONTRIBUTIONS AND AFTER TAX
CONTRIBUTIONS.
(A) DEFINITIONS: The following definitions are applicable to this
Article of the Plan.
(1) ACTUAL DEFERRAL PERCENTAGE OR ADP: for a specified
group of Participants for a Plan Year, the average of
the ratios (calculated separately for each
Participant in such group) of (1) the amount of
Employer contributions actually paid over to the
trust on behalf of such Participant for the Plan Year
to (2) the Participant's Compensation for such Plan
Year (whether or not the Employee was a Participant
for the entire Plan Year, but limited to that portion
of the Plan Year in which the Employee was an
Eligible Participant if the Employer so elects for
such Plan Year to so limit Compensation for all
Eligible Employees). Employer contributions on behalf
of any Participant shall include (1) any Before Tax
Contributions made pursuant to the Participant's
deferral election, including Excess Before Tax
Contributions, but excluding Before Tax Contributions
that are taken into account-in the Contribution
Percentage test (provided the ADP test is satisfied
both with and without exclusion of these Before Tax
Contributions); and (2) at the election of the
Employer, Qualified Non-elective Contributions and
Qualified Matching Contributions. For purposes of
computing Actual Deferral Percentages, an Employee
who would be a Participant but for the failure to
make Before Tax
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<PAGE> 18
Contributions shall be treated as a participant on
whose behalf no Before Tax Contributions are made.
(2) AFTER TAX CONTRIBUTIONS ("EMPLOYEE CONTRIBUTIONS"):
Any contribution made to the Plan by or on behalf of
a Participant that is included in the Participant's
gross income in the year in which made and that is
maintained under a separate account to which earnings
and losses are allocated.
(3) AGGREGATE LIMIT: The sum of (i) 125 percent of the
greater of the ADP of the Non-highly Compensated
Employees for the Plan Year or the ACP of Non-highly
Compensated Employees under the Plan subject to Code
Section 401(m) for the Plan Year beginning with or
within the Plan Year of the cash or deferred
arrangement and (ii) the lesser of 200% or two plus
the lesser of such ADP or ACP. "Lesser" is
substituted for "greater" in "(j)", above, and
"greater" is substituted for "lesser" after "two plus
the" in "(ii)" if it would result in a larger
Aggregate Limit.
(4) AVERAGE CONTRIBUTION PERCENTAGE OR ACP: The average
(expressed as a percentage) of the Contribution
Percentages of the Eligible Participants in a group.
(5) BEFORE TAX CONTRIBUTIONS ("ELECTIVE DEFERRALS"):
Employer contributions made to the Plan at the
election of the Participant, in lieu of cash
compensation, which shall include contributions made
pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year,
a Participant's Before Tax Contributions are the sum
of all Employer contributions made on behalf of such
Participant pursuant to an election to defer under
any qualified cash or deferred arrangement as
described in Section 401(k) of the Code, any
simplified employee pension cash or deferred
arrangement as described in Code Section
402(h)(1)(B), any eligible deferred compensation Plan
under Code Section 457, any Plan as described under
Code Section 457, any Plan as described under Code
Section 501(c)( 18), and any Employer contributions
made on behalf of a Participant for the purchase of
an annuity contract under Code Section 403(b)
pursuant to a salary reduction agreement.
(6) CONTRIBUTION PERCENTAGE: The ratio (expressed as a
percentage) of the Participant's Contribution
Percentage Amounts to the Participant's Compensation
for the Plan Year (whether or not the Employee was a
Participant for the entire Plan Year, but limited to
that portion of the Plan Year in which the Employee
was an Eligible Participant if the Employer so elects
for such Plan Year to so limit Compensation for all
Eligible Employees).
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<PAGE> 19
(7) CONTRIBUTION PERCENTAGE AMOUNTS: The sum of the After
Tax Contributions, Matching Contributions, and
Qualified Matching Contributions (to the extent not
taken into account for purposes of the ADP test) made
under the Plan on behalf of the Participant for the
Plan Year. Such Contribution Percentage Amounts shall
not include Matching Contributions that are forfeited
either to correct Excess Aggregate Contributions or
because the contributions to which they relate are
Excess Before Tax Contributions, Excess Contributions
or Excess Aggregate Contributions. If so elected in
the Adoption Agreement the Employer may include
Qualified Non-elective Contributions in the
Contribution Percentage Amounts. The Employer also
may elect to use Before Tax Contributions in the
Contribution Percentage Amounts so long as the ADP
test is met before the Before Tax Contributions are
used in the ACP test and continues to be met
following the exclusion of those Before Tax
Contributions that are used to meet the ACP test.
(8) ELIGIBLE PARTICIPANT: Any Employee who is eligible to
make an After Tax Contribution or a Before Tax
Contribution (if the Employer takes such
contributions into account in the calculation of the
Contribution Percentage), or to receive a Matching
Contribution (including forfeitures) or a Qualified
Matching Contribution. If an After Tax Contribution
is required as a condition of participation in the
Plan, any Employee who would be a Participant in the
Plan if such Employee made such a contribution shall
be treated as an eligible Employee on behalf of whom
no After Tax Contributions are made.
(9) EXCESS AGGREGATE CONTRIBUTIONS: With respect to any
Plan Year, the excess of:
(a) The aggregate Contribution Percentage
Amounts taken into account in computing the
numerator of the Contribution Percentage
actually made on behalf of Highly
Compensated Employees for such Plan Year,
over
(b) The maximum Contribution Percentage Amounts
permitted by the ACP test (determined by
reducing contributions made on behalf of
Highly Compensated Employees in order of
their Contribution Percentages beginning
with the highest of such percentages).
Such determination shall be made after first
determining Excess Before Tax Contributions
pursuant to Section 3.2(D) and (E) and then
determining Excess Contributions pursuant to
section 3.2(F), (G) and (H).
(10) EXCESS BEFORE TAX CONTRIBUTIONS ("EXCESS ELECTIVE
DEFERRALS"): Those Before Tax Contributions that are
includible in a Participant's gross
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<PAGE> 20
income under Section 402(g) of the Code to the extent
such Participant's Before Tax Contributions for a
taxable year exceed the dollar limitation under such
Code section. Excess Before Tax Contributions shall
be treated as Annual Additions under the Plan, unless
such amounts are distributed no later than the first
April 15 following the close of the Participants
taxable year. Excess Before Tax Contributions shall
be adjusted for income or loss up to the end of the
taxable year of the Employee, and if elected in the
Adoption Agreement, for the income or loss
attributable to the period from the end of the
Employee's taxable year to the date of distribution
(the "Gap Period"). The income or loss allocable to
Excess Before Tax Contributions is (1) the income or
loss allocable to the Participant's Before Tax
Contribution Account for the taxable year multiplied
by a fraction, the numerator of which is such
Participant's Excess Before Tax Contributions for the
year and the denominator is the Participant's account
balance attributable to Before Tax Contributions
without regard to any income or loss occurring during
such taxable year plus, (2) if Gap Period income or
loss applies, ten percent of the amount determined
under (1) multiplied by the number of whole calendar
months between the end of the Participant's taxable
year and the date of distribution, counting the month
of distribution if distribution occurs after the 15th
of such month.
(11) EXCESS CONTRIBUTIONS: With respect to any Plan Year,
the excess of:
(a) The aggregate amount of Employer
contributions actually taken into account in
computing the ADP of Highly Compensated
Employee for such Plan Year, over
(b) The maximum amount of such contributions
permitted by the ADP test (determined by
reducing contributions made on behalf of
Highly Compensated Employee in order of the
ADPs, beginning with the highest of such
percentages).
(12) MATCHING CONTRIBUTIONS: An Employer contribution made
to this or any other defined contribution Plan on
behalf of a Participant on account of an After Tax
Contribution made by such Participant, or on account
of a Participant's Before Tax Contribution, under a
Plan maintained by the Employer.
(13) QUALIFIED MATCHING CONTRIBUTIONS: Matching
Contributions which are subject to the distribution
and nonforfeitability requirements under Section
401(k) of the Code when made. Qualified Matching
Contributions shall be allocated, in the discretion
of Employer, to the accounts of all Employees, or
only to the accounts of Non-highly Compensated
Employees.
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<PAGE> 21
(14) QUALIFIED NON-ELECTIVE CONTRIBUTIONS: Contributions
(other than Matching Contributions or Qualified
Matching Contributions) made by the Employer and
allocated to Participants' accounts that the
Participants may not elect to receive in cash until
distributed from the Plan; that are nonforfeitable
when made; and that are distributable only in
accordance with the distribution provisions that are
applicable to Before Tax Contributions and Qualified
Matching Contributions. Qualified Non-elective
Contributions shall be allocated, in the discretion
of Employer, to the accounts of all Employees, or
only to the accounts of Non-highly Compensated
Employees.
(B) NONFORFEITABILITY AND VESTING. The Participant's accrued
benefits derived from Before Tax Contributions and After Tax
Contributions are nonforfeitable and fully vested.
(C) NOTICE TO COMMITTEE. The Committee shall set the time period
during which a Participant may provide written notice to
increase, decrease or terminate Before Tax Contributions and
After Tax Contributions.
(D) SUSPENSION AFTER RECEIPT OF HARDSHIP DISTRIBUTION. If the
Employer has elected in the Adoption Agreement to have the
"safe harbor" hardship rules apply, an Employee's Before Tax
Contributions and After Tax Contributions shall be suspended
for twelve months after the receipt by such Employee of a
Hardship distribution (as defined in Section 3.9) from this
Plan or any other Plan maintained by the Employer.
(E) SEPARATE ACCOUNTS. Separate accounts for Before Tax
Contributions and After Tax Contributions will be maintained
for each Participant. Each account will be credited with the
applicable contributions and earnings thereon.
3.2 BEFORE TAX CONTRIBUTIONS. (ELECTIVE DEFERRALS).
(A) ALLOCATION OF BEFORE TAX CONTRIBUTIONS. If the Employer
selects Item C(2) in the Adoption Agreement, for each Plan
Year the Employer will contribute and allocate to each
Participant's Before Tax Contribution Account an amount equal
to the amount of the Participant's Before Tax Contributions.
The provisions of the cash or deferred arrangement may be made
effective as of the first day of the Plan Year in which the
cash or deferred option is adopted, however, under no
circumstances may a salary reduction agreement or other
deferral mechanism be adopted retroactively. Before Tax
Contributions must be contributed and allocated to the Plan no
later than thirty (30) days after the close of the Plan Year
for which the contributions are deemed to be made, or such
other time as provided in applicable regulations under the
Code.
(B) BEFORE TAX CONTRIBUTIONS PURSUANT TO A SALARY REDUCTION
AGREEMENT. To the extent provided in the Adoption Agreement, a
Participant may elect to have
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<PAGE> 22
Before Tax Contributions made under this Plan. Before Tax
Contributions shall be continuing contributions through
payroll deduction made pursuant to a salary reduction
agreement.
(1) COMMENCEMENT OF BEFORE TAX CONTRIBUTIONS. An Employee
may elect to commence Before Tax Contributions as of
his or her Entry Date as described in Section 2.1(B).
Such election shall not become effective before the
Entry Date. Such election may not be made
retroactively.
(2) MODIFICATION AND TERMINATION OF BEFORE TAX
CONTRIBUTIONS. A Participant's election to commence
Before Tax Contributions shall remain in effect until
modified or terminated. A Participant may increase or
decrease his or her Before Tax Contributions as of
any date as selected by the Employer in Item C(3) of
the Adoption Agreement upon notice to the Committee.
A Participant may terminate his or her election to
make Before Tax Contributions as of the Participant's
next wage payment date upon notice to the Committee.
Any Participant who terminates Before Tax
Contributions may elect to recommence making Before
Tax Contributions as of the date selected by the
Employer in Item C(3) of the Adoption Agreement
following his or her suspension of contributions.
(C) CASH BONUSES. If Item C(2)(c) of the Adoption Agreement is
selected, a Participant may also enter into a salary reduction
agreement on cash bonuses that, directing that the amount of
such salary reduction be contributed to the Plan as a Before
Tax Contribution, or received by the Participant in cash. A
Participant shall be afforded a reasonable period to elect to
defer amounts described in this Section 3.2 to the Plan. Such
election shall not become effective before the Participant's
Entry Date.
(D) MAXIMUM AMOUNT OF BEFORE TAX CONTRIBUTIONS. A Participant's
Before Tax Contributions are subject to any limitations
imposed in Item C(2) of the Adoption Agreement, calculated on
an annual basis, and any further limitations under the Plan.
No Participant shall be permitted to have Before Tax
Contributions made under this Plan, or any other qualified
Plan maintained by the Employer, during any taxable year in
excess of the dollar limitation contained in Code Section
402(g) in effect at the beginning of such taxable year.
Furthermore, if an Employee receives a Hardship distribution
(as defined in Section 3.9, utilizing the "safe harbor" rules)
from this Plan or any other Plan maintained by the Employer,
the Employee may not make Before Tax Contributions for the
Employee's taxable year immediately following the taxable year
of the Hardship distribution in excess of the applicable limit
under Section 402(g) of the Code for such taxable year less
the amount of the Employee's Before Tax Contributions for the
taxable year of the Hardship distribution.
(E) DISTRIBUTION OF EXCESS BEFORE TAX CONTRIBUTIONS. If a
Participant makes Before Tax Contributions to this Plan and to
another Plan, and the Participant has
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<PAGE> 23
made Excess Before Tax Contributions to one or more of the
plans, the Participant may assign the amount of any such
Excess Before Tax Contributions among the plans under which
such Before Tax Contributions were made. The Participant may
assign to this Plan any Excess Before Tax Contributions made
during a taxable year of the Participant to this Plan by
notifying the Committee on or before the date specified in the
Adoption Agreement of the amount of the Excess Before Tax
Contributions to be assigned to the Plan. A Participant is
deemed to notify the Committee of any Excess Before Tax
Contributions that arise by taking into account only those
Before Tax Contributions made under the Plan or Plans of this
Employer.
Notwithstanding any other provision of the Plan, Excess Before
Tax Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than April 15
to any Participant to whose account Excess Before Tax
Contributions were assigned for the preceding year and who
claims Excess Before Tax Contributions for such taxable year.
The Participant's claim shall be in writing; shall be
submitted to the Committee not later than the date elected in
Item CC of the Adoption Agreement; shall specify the amount of
the Participant's Excess Before Tax Contribution for the
preceding calendar year; and shall be accompanied by the
Participant's written statement that if such amounts are not
distributed, such Excess Before Tax Contributions, when added
to amounts deferred under other plans or arrangements
described in Sections 401(k), 408(k), or 403(b) of the Code,
will exceed the limit imposed on the Participant by Section
402(g) of the Code for the year in which the deferral
occurred.
(F) ACTUAL DEFERRAL PERCENTAGE. The ADP for Participants who are
Highly Compensated Employees for each Plan Year and the ADP
for Non-highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(l) 1.25 LIMIT. The ADP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ADP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by 1.25; or
(2) 2.0 LIMIT. The ADP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ADP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by 2.0, provided that the ADP for
Participants who are Highly Compensated Employees
does not exceed the ADP for Participants who are
Non-highly Compensated Employees by more than two (2)
percentage points.
(3) SPECIAL RULES.
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<PAGE> 24
(a) The ADP for any Participant who is a Highly
Compensated Employee for the Plan Year and
who is eligible to have Before Tax
Contributions (and Qualified Non-elective
Contributions, or Qualified Matching
Contributions, or both, if treated as
Elective Deferrals for purposes of the ADP
test) allocated to his or her accounts under
two or more arrangements described in
Section 401(k) of the Code, that are
maintained by the Employer, shall be
determined as if such Before Tax
Contributions (and, if applicable, such
Qualified Non-elective Contributions or
Qualified Matching Contributions, or both,)
were made under a single arrangement. If a
Highly Compensated Employee participates in
two or more cash or deferred arrangements
that have different Plan Years, all cash or
deferred arrangements ending with or within
the same calendar year shall be treated as a
single arrangement.
(b) In the event that this Plan satisfies the
requirements of Sections 401(k), 401(a)(4),
or 410(b) of the Code only if aggregated
with one or more other plans, or if one or
more other plans satisfy the requirements of
such Sections of the Code only if aggregated
with this Plan, then this section shall be
applied by determining the ADP of Employees
as if all such plans were a single Plan. For
Plan Years beginning after December 31,
1989, plans may be aggregated in order to
satisfy Section 401(k) of the Code only if
they have the same Plan Year.
(c) For purposes of determining the ADP of a
Participant who is a 5-percent owner or one
of the ten most highly-paid Highly
Compensated Employees, the Before Tax
Contributions (and Qualified Non-elective
Contributions or Qualified Matching
Contributions, or both, if treated as Before
Tax Contributions for purposes of the ADP
test) and Compensation of such Participant
shall include the Before Tax Contributions
(and, if applicable, Qualified Non-elective
Contributions) and Compensation for the Plan
Year of Family Members (as defined in
Section 414(q)(6) of the Code). Family
Members, with respect to such Highly
Compensated Employees, shall be disregarded
as separate employees in determining the ADP
both for Participants who are Non-highly
Compensated Employees and for Participants
who are Highly Compensated Employees.
(d) For purposes of determining the ADP test,
Before Tax Contributions if treated as
Before Tax Contributions and Qualified
Non-elective Contributions must be made
before the last day of the twelve-month
period immediately following the Plan Year
to which contributions relate.
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<PAGE> 25
(e) The Employer shall maintain records
sufficient to demonstrate satisfaction of
the ADP test and the amount of Qualified
Non-elective Contributions used in such
test.
(f) The determination and treatment of the ADP
amounts of any Participant shall satisfy
such other requirements as may be prescribed
by the Secretary of the Treasury.
(G) DISTRIBUTION OF EXCESS CONTRIBUTIONS. Notwithstanding any
other provision of the Plan, Excess Contributions, plus any
income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to
Participants to whose accounts Excess Contributions were
allocated for the preceding Plan Year. If such excess amounts
are distributed more than 2-1/2 months after the last day of
the Plan Year in which such excess amounts arose, a ten (10)
percent excise tax will be imposed on the Employer maintaining
the Plan with respect to such amounts. Such distributions
shall be made to Highly Compensated Employees on the basis of
the respective portions of the Excess Contributions
attributable to each of such Employees. Excess Contributions
of Participants who are subject to the Family Member
aggregation rules shall be allocated among the Family Members
in proportion to the Before Tax Contributions (and amounts
treated as Before Tax Contributions) of each Family Member
that is combined to determine the combined ADP.
Excess Contributions (including the amounts recharacterized)
shall be treated as Annual Additions under the Plan.
(1) DETERMINATION OF INCOME OR LOSS. The Excess
Contributions shall be adjusted for income or loss up
to the date of distribution. The income or loss
allowable to Excess Contributions is (1) the income
or loss allocable to the Participant's Before Tax
Contribution Account (and, if applicable, the
Qualified Non-elective Contribution Account or the
Qualified Matching Contribution Account or both)
multiplied by a fraction, the numerator of which is
such Participant's Excess Contribution for the year
and the denominator is the Participant's account
balance attributable to Before Tax Contributions (and
Qualified Non-Elective Contributions or Qualified
Matching Contributions or both, if any of such
contributions are included in the ADP test) without
regard to any income or loss occurring during such
taxable year, plus, (2) if Gap Period income or loss
applies, as elected in the Adoption Agreement, ten
percent of the amount determined under (1) multiplied
by the number of whole calendar months between the
end of the Plan Year and the date of distribution,
counting the month of distribution if distribution
occurs after the 15th of such month.
(2) ACCOUNTING FOR EXCESS CONTRIBUTIONS. Excess
Contributions shall be distributed from the
Participant's Before Tax Contribution Account and
Qualified Matching Contribution Account (if
applicable) in proportion to
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<PAGE> 26
the Participant's Before Tax Contributions and
Qualified Matching Contributions (to the extent used
in the ADP test) for the Plan Year. Excess
Contributions shall be distributed from the
participant's Qualified Non-elective Contribution
Account only to the extent that such Excess
Contributions exceed the balance in the Participant's
Before Tax Contribution Account.
(H) RECHARACTERIZATION. If the Plan permits After Tax
Contributions (Employee Contributions), Excess Contributions
may be recharacterized pursuant to this subsection.
Recharacterized amounts may be used in the Plan from which
Excess Contributions arose or in another Plan of the employer
with the same Plan Year.
(1) TREATMENT OF AMOUNTS RECHARACTERIZATION. A
Participant may treat his or her Excess Contributions
as an amount distributed to the Participant and then
contributed by the Participant to the Plan.
Recharacterized amounts will remain nonforfeitable
and subject to the same distribution requirements as
Before Tax Contributions. Amounts may not be
recharacterized by a Highly Compensated Employee to
the extent that such amount in combination with other
After Tax Contributions made by that Employee would
exceed any stated limit under the Plan on After Tax
Contributions.
(2) TIMING OF RECHARACTERIZATION. Recharacterization must
occur no later than two and one-half months after the
last day of the Plan Year in which such Excess
Contributions arose and is deemed to occur no earlier
than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and
the consequences thereof. Recharacterized amounts
will be taxable to the Participant for the
Participant's tax year in which the Participant would
have received them in cash.
(I) ADJUSTMENTS TO BEFORE TAX CONTRIBUTION PERCENTAGES. Anything
to the contrary in this Article III notwithstanding, the
Committee shall have the right to reduce the percentages
designated pursuant to Section 3.2(B), of any one or more
Highly Compensated Employees in a manner prescribed or
approved by the Committee to the extent necessary or
convenient to ensure that at least one of the ADP tests set
forth in Section 3.2(F) is satisfied, but in no event shall
such reduction result in a percentage less than zero. Any such
reduction shall be effected quarterly, or more frequently as
the Committee may determine and each affected Highly
Compensated Employee shall be deemed to have elected the
permissible percentage determined by the Committee. The
Committee may, on a prospective basis, and subject to the
percentage limits of Section 3.3 below, treat amounts
contributed to the Plan pursuant to a salary reduction
agreement as After Tax Contributions by each affected Highly
Compensated Employee; provided that if any such reduction
cannot be so treated because of the said percentage limits or
because of the nondiscrimination requirements of Code Section
401(m) or otherwise, then the amount of such reduction (and
any income allocable thereto)
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<PAGE> 27
shall be distributed to each affected Highly Compensated
Employee pursuant to Code Section 401(k)(8) or Code Section
401(m)(6), if applicable, not later than the close of the
first 2-1/2 months of the Plan Year following the Plan Year in
which the contribution was made.
3.3 AFTER TAX CONTRIBUTIONS. (EMPLOYEE CONTRIBUTIONS).
(A) ALLOCATION OF AFTER TAX CONTRIBUTIONS. If the Employer selects
Item C(2)(b) in the Adoption Agreement, the Employer will
deduct from the Participant's pay and allocate to each
Participant's After Tax Contribution Account an amount equal
to the percentage of Compensation authorized by the
Participant as an After Tax Contribution. The Employer shall
transmit After Tax Contributions to the Trustee within thirty
(30) days after the month end in which such deductions are
made.
(B) EMPLOYEE AUTHORIZES AFTER TAX CONTRIBUTIONS. To the extent
provided in the Adoption Agreement, a Participant may elect to
make After Tax Contributions under the Plan.
(1) ELECTION TO MAKE AFTER TAX CONTRIBUTIONS. An Employee
may elect to make After Tax Contributions as of his
or her Entry Date as described in Section 2.1(B).
Such election will not become effective before the
Entry Date.
(2) MODIFICATION AND TERMINATION OF AFTER TAX
CONTRIBUTIONS. A Participant's election to commence
After Tax Contributions shall remain in effect until
modified or terminated. A Participant may increase or
decrease his or her After Tax Contributions as
selected by the Employer in Item C(3) of the Adoption
Agreement upon written notice to the Committee. A
Participant may terminate his or her election to make
After Tax Contributions at any time as of the
Participant's next wage payment date upon written
notice to the Committee. Any Participant who
terminates After Tax Contributions may elect to
recommence making After Tax Contributions as of the
date selected by the Employer in Item C(3) of the
Adoption Agreement following his or her suspension of
contributions.
(C) MAXIMUM AMOUNT OF AFTER TAX CONTRIBUTIONS. Participant's After
Tax Contributions are subject to any limitations imposed in
Item C(3) of the Adoption Agreement, calculated on an annual
basis, and any further limitations under the Plan.
(D) CASH BONUSES. If Item C(2)(c) of the Adoption Agreement is
selected, a Participant may also enter into a salary reduction
agreement on cash bonuses, directing that the amount of such
salary reduction be contributed to the Plan as an After Tax
Contribution, or received by the Participant in cash. A
Participant shall be afforded a reasonable period to elect to
defer amounts described in this Section
26
<PAGE> 28
3.3 to the Plan. Such election shall not become effective
before the Participant's Entry Date.
3.4 EMPLOYER CONTRIBUTIONS.
(A) MATCHING CONTRIBUTIONS. If elected by the Employer in the
Adoption Agreement, the Employer will or may make Matching
Contributions to the Plan. The amount of such Matching
Contributions shall be calculated by reference to the
Participants' Before Tax Contributions and/or After Tax
Contributions as specified by the Employer in the Adoption
Agreement.
(B) QUAHFIED MATCHING CONTRIBUTIONS. If elected by the Employer in
the Adoption Agreement, the Employer may make Qualified
Matching Contributions to the Plan.
In addition, in lieu of distributing Excess Contributions as
provided in Section 3.2(G) of the Plan, or Excess Aggregate
Contributions as provided in Section 3.5(C) of the Plan, the
Employer may make Qualified Matching Contributions on behalf
of Employees that are sufficient to satisfy either the Actual
Deferral Percentage or the Average Contribution Percentage
test, or both, pursuant to regulations under the Code.
(C) QUALIFIED NON-ELECTIVE CONTRIBUTIONS. If elected by the
Employer in the Adoption Agreement, the Employer may make
Qualified Non-elective Contributions to the Plan.
In addition, in lieu of distributing Excess Contributions as
provided in Section 3.2(G) of the Plan, or Excess Aggregate
Contributions as provided in Section 3.5(C) of the Plan, the
Employer may make Qualified Non-elective Contributions on
behalf of Employees that are sufficient to satisfy either the
Actual Deferral Percentage or the Average Contribution
Percentage test, or both, pursuant to regulations under the
Code.
(D) SEPARATE ACCOUNTS. An Employer Matching Account shall be
maintained for a Participant's accrued benefit attributable to
Matching Contributions. A Qualified Matching Contribution
Account shall be maintained for a Participant's accrued
benefit attributable to Qualified Matching Contributions. A
Qualified Non-elective Contribution Account shall be
maintained for a Participant's accrued benefit attributable to
Qualified Non-elective Contributions. Such accounts shall be
credited with the applicable contributions, earnings and
losses, distributions, and other adjustments.
(E) VESTING. Matching Contributions will be vested in accordance
with the Employer's election in Items C(4)(d) and C(4)(e) of
the Adoption Agreement. In any event, Matching Contributions
shall be fully vested at Normal Retirement Date, upon the
complete or partial termination of the Plan, or upon the
complete
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<PAGE> 29
discontinuance of Matching Contributions, as applicable.
Qualified Non-elective Contributions and Qualified Matching
Contributions are nonforfeitable when made.
(F) FORFEITURES. Forfeitures of Matching Contributions shall be
used to reduce such contributions, or shall be allocated to
Participants, in accordance with the Employer's election in
Item C(6) of the Adoption Agreement.
(G) ALLOCATION OF DISCRETIONARY MATCHING CONTRIBUTIONS. If the
Employer selects Item C(4)(b) in the Adoption Agreement, any
discretionary Matching Contributions shall be allocated as of
the allocation date specified in Item C(4)(c)(ii) of the
Adoption Agreement, to the Employer Matching Account of each
Participant who has made Before Tax Contributions and/or After
Tax Contributions eligible for matching. If Item
C(4)(c)(ii)(e) has been selected (imposing a last day of the
Plan Year requirement) the allocation shall be made to a
Participant who (1) if a Participant in a nonstandardized
Plan, is employed or on leave of absence on the last day of
the Plan Year, and (2) if a Participant in a standardized
Plan, either completes more than 500 Hours of service during
the Plan Year or is employed on the last day of the Plan Year.
The following Participants will also share in the Matching
Contributions for the year, if elected in the Adoption
Agreement: (1) Participants in a nonstandardized Plan whose
employment terminated before the end of the Plan Year because
of retirement, death, disability or as specified in the
Adoption Agreement, and (2) Participants in a standardized
Plan whose employment terminated before the end of the Plan
Year because of retirement, death, disability or as specified
in the Adoption Agreement, and completed 500 Hours of Service
or less. Notwithstanding the foregoing, if the Employer makes
a contribution prior to the end of the Plan Year, Participants
shall be entitled to an allocation of that contribution when
made, without regard to any end of the Plan Year requirement.
(H) LIMITATION ON EMPLOYER CONTRIBUTIONS. he Employer's
contributions for any Plan Year shall not exceed the maximum
amount which the Employer may deduct pursuant to Section 404
of the Code.
3.5 LIMITATIONS ON AFTER TAX CONTRIBUTIONS (EMPLOYEE CONTRIBUTIONS) AND
MATCHING CONTRIBUTIONS.
(A) CONTRIBUTION PERCENTAGE. The ACP for Participants who are
Highly Compensated Employees for each Plan Year and the ACP
for Participants who are Non-highly Compensated Employees for
the same Plan Year must satisfy one of the following tests:
(l) 1.25 LIMIT The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ACP for Participants who are Non-highly
Compensated Employees for the same Plan Year by 1.25,
or
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<PAGE> 30
(2) 2.0 LIMIT. The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not
exceed the ACP for Participants who are Non-highly
Compensated Employees for the same Plan Year
multiplied by two (2), provided that the ACP for
Participants who are Highly Compensated Employees
does not exceed the ACP for Participants who are
Non-highly Compensated Employees by more than two (2)
percentage points.
(B) SPECIAL RULES.
(l) MULTIPLE USE. If one or more Highly Compensated
Employees participate in both a cash or deferred
arrangement and a Plan subject to the ACP test
maintained by the Employer and the sum of the ADP and
ACP of those Highly Compensated Employees subject to
either or both tests exceeds the Aggregate Limit,
then the ACP of those Highly Compensated Employees
who also participate in a cash or deferred
arrangement will be reduced (beginning with such
Highly Compensated Employee whose ACP is the highest)
so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution
Percentage amounts is reduced shall be treated as an
Excess Aggregate Contribution. The ADP and ACP of the
Highly Compensated Employees are determined after any
corrections required to meet the ADP and ACP tests.
Multiple use does not occur if either the ADP and ACP
of the Highly Compensated Employees does not exceed
1.25 multiplied by the ADP and ACP of the Non-highly
Compensated Employees.
(2) AGGREGATION OF CONTRIBUTION PERCENTAGES. For purposes
of this section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and
who is eligible to have Contribution Percentage
Amounts allocated to his or her accounts under two or
more plans described in Section 401(a) of the Code,
or arrangements described in Section 401(k) of the
Code, that are maintained by the Employer, shall be
determined as if the total of such Contribution
Percentage Amounts was made under each Plan. If a
Highly Compensated Employee participates in two or
more cash or deferred arrangements that have
different Plan years all cash or deferred
arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be
treated as separate if mandated to be disaggregated
under regulations under Section 401(m) of the Code.
(3) AGGREGATION OF PLANS. In the event that this Plan
satisfies the requirements of Sections 401(m), 401
(a)(4) or 410(b) of the Code only if aggregated with
one or more other plans, or if one or more other
plans satisfy the requirements of such sections of
the Code only if aggregated with this Plan, then this
section shall be applied by determining the
Contribution Percentage of Employees as if all such
plans were a single
29
<PAGE> 31
Plan. For Plan Years beginning after December 31,
1989, plans may be aggregated in order to satisfy
Section 401(m) of the Code only if they have the same
Plan Year.
(4) FAMILY AGGREGATION. For purposes of determining the
Contribution Percentage of a Participant who is a
five-percent owner or one of the ten most highly-paid
Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Employee
shall include the Contribution Percentage Amounts and
Compensation for the Plan Year of Family Members, as
defined in Section 414(q)(6) of the Code. Family
Members, with respect to Highly Compensated
Employees, shall be disregarded as separate employees
in determining the Contribution Percentage both for
Participants who are Non-highly Compensated Employees
and for Participants who are Highly Compensated
Employees.
(5) TIME OF CONTRIBUTIONS. For purposes of determining
the Contribution Percentage test, After Tax
Contributions are considered to have been made in the
Plan Year in which contributed to the Trust. Matching
Contributions and Qualified Non-elective
Contributions will be considered made for a Plan Year
if made no later than the end of the twelve-month
period beginning on the day after the close of the
Plan Year.
(6) RECORDS. The Employer shall maintain records
sufficient to demonstrate satisfaction of the ACP
test and the amount of Qualified Non-elective
Contributions or Qualified Matching Contributions, or
both, used in such test.
(7) REGULATIONS. The determination and treatment of the
Contribution Percentage of any Participant shall
satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
(C) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.
(1) GENERAL RULE. Notwithanding any other provision of
this Plan, Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be
forfeited, if forfeitable, or if not forfeitable,
distributed no later than the last day of each Plan
Year to Participants to whose accounts Excess
Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions
of Participants who are subject to the Family Member
aggregation rules shall be allocated among the Family
Members in proportion to the After Tax and Matching
Contributions (or amounts treated as Matching
Contributions) of each Family Member that is combined
to determine the combined ACP. If such Excess
Aggregate Contributions are distributed more than
2-1/2 months after the last day of the Plan Year in
which such excess amounts arose, a ten (10) percent
30
<PAGE> 32
excise tax will be imposed on the Employer
maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as
Annual Additions under the Plan.
(2) DETERMINATION OF INCOME OR LOSS. Excess Aggregate
Contributions shall be adjusted for income or loss up
to the date of distribution. The income or loss
allocable to Excess Aggregate Contributions is the
sum of: (1) income or loss allocable to the
Participant's After Tax Contribution Account,
Matching Contribution Account, Qualified Matching
Contribution Account, (if any, and if all amounts
therein are not used in the ADP test) and, if
applicable, the Qualified Non-elective Contribution
Account and Before Tax Contribution Account for the
Plan Year multiplied by a fraction, the numerator of
which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the
Participant's account balance(s) attributable to
Contribution Percentage Amounts without regard to any
income or loss occurring during such Plan Year; and
(2) ten percent of the amount determined under (1)
multiplied by the number of whole calendar months
between the end of the Plan Year and the date of
distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
(3) FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS.
Forfeitures of Excess Aggregate Contributions may
either be reallocated to the accounts of Non-Highly
Compensated Employees or applied to reduce Employer
Contributions, as elected by the Employer in Item
C(6)(c) of the Adoption Agreement.
(4) ACCOUNTING FOR EXCESS AGGREGATE CONTRIBUTIONS. Excess
Aggregate Contributions shall be forfeited, if
forfeitable, or distributed on a pro-rata basis from
the Participant's After Tax Contribution Account and
Matching Contribution Account and Qualified Matching
Contribution Account (and, if applicable, the
Participant's Qualified Non-elective Contribution
Account and Before Tax Contribution Account, or
both).
3.6 NET PROFITS NOT REQUIRED IF SO ELECTED IN ADOPTION AGREEMENT. If the
Employer elects, Matching Contributions may be made without regard to
Net Profits in accordance with Item C(4)(c)(iii) of the Adoption
Agreement. If the Plan is a profit-sharing Plan, the Plan shall
continue to be designed to qualify as a profit-sharing Plan for
purposes of Sections 401(a), 402, 412, and 417 of the Code. Net Profits
shall not be required for Before Tax Contributions or After Tax
Contributions to be made to the Plan.
3.7 FORM, PAYMENT AND ALLOCATION OF CONTRIBUTIONS. All contributions under
this Article III made for a Plan Year shall be made in cash, and shall
be delivered to the Trustee at such time or times as shall be agreed
upon between the Committee and the Trustee. The Committee shall
instruct the Trustee as to the allocation of contributions to the
Participant's accounts.
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<PAGE> 33
3.8 DISTRIBUTION REQUIREMENTS FOR BEFORE TAX CONTRIBUTION ACCOUNT. Before
Tax Contributions, Qualified Non-elective Contributions and Qualified
Matching Contributions, and income allocable to each are not
distributable to a Participant or his or her Beneficiary or
Beneficiaries, in accordance with such Participant's, Beneficiary's or
Beneficiaries' election, earlier than upon separation from service,
death, disability, or as selected in the Adoption Agreement. Such
amounts may not be distributed unless in accordance with the
Participant's election made pursuant to rules established by the
Committee as authorized in the Adoption Agreement, and upon:
(A) Termination of the Plan without the establishment of another
defined contribution Plan, other than an employee stock
ownership Plan (as defined in Section 4975(e) or Section 409
of the Code) or a simplified employee pension Plan as defined
in Section 408(k).
(B) The disposition by a corporation to an unrelated corporation
of substantially all of the assets (within the meaning of
Section 409(d)(2) of the Code) used in a trade or business of
such corporation if such corporation continues to maintain
this Plan after the disposition, but only with respect to
Employees who continue employment with the corporation
acquiring such assets.
(C) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary (within the
meaning of Section 409(d)(3) of the Code) if such corporation
continues to maintain this Plan, but only with respect to
Employees who continue employment with such subsidiary.
(D) The attainment of age 59-1/2 in the case of a profit-sharing
Plan, or the attainment of the Plan's Normal Retirement Date,
if either or both are selected in the Adoption Agreement.
(E) The Hardship of the Participant as described in Section 3.9,
if selected in the Adoption Agreement.
All distributions that may be made pursuant to one or more of
the foregoing distributable events are subject to the spousal
and Participant consent requirements (if applicable) contained
in Sections 411(a)(11) and 417 of the Code. In addition,
distributions after March 31, 1988, that are triggered by any
of the first three events above, in Sections 3.8(A), (B) and
(C) must be made in a lump sum.
3.9 HARDSHIP DISTRIBUTION.
(A) AMOUNT AVAILABLE FOR WITHDRAWAL, Upon the written request of a
Participant received and approved by the Committee, a
Participant may withdraw, in cash, up to one hundred percent
(100%) of the amount of such Participant's Before Tax
Contributions (and any earnings credited to a Participant's
account as of the end of the last Plan Year ending before July
1, 1989) or such lesser amount as the
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<PAGE> 34
Committee may approve, in the event of Hardship. For purposes
of this Section, Hardship is defined as immediate and heavy
financial need of the Employee where such Employee lacks other
available resources. Hardship distributions are subject to the
spousal consent requirements contained in Sections 411(a)(11)
and 417 of the Code. The Committee is authorized to and shall
request from the Participant making such a request such
evidence as the Committee deems necessary and appropriate to
substantiate a Hardship, the amount of expenses resulting from
such Hardship and the other resources of the Participant
reasonably available to meet such expenses.
(B) SPECIAL RULES:
(1) IMMEDIATE AND HEAVY NEED. The following are the only
financial needs considered immediate and heavy:
expenses incurred or necessary for medical care,
described in Section 213(d) of the Code, of the
Employee, the Employee's Spouse or dependents; the
purchase (excluding mortgage payments) of a principal
residence for the Employee; payment of tuition and
related educational fees for the next twelve months
of post-secondary education for the Employee, the
Employee's Spouse, children or dependents; or the
need to prevent the eviction of the Employee from, or
a foreclosure on the mortgage of, the Employee's
principal residence.
(2) SATISFACTION OF NEED. A distribution will be
considered as necessary to satisfy an immediate and
heavy financial need of the Employee only if:
(a) The Employee has obtained all distributions,
other than Hardship distributions, and all
nontaxable loans under all plans maintained
by the Employer;
(b) All plans maintained by the Employer provide
that the Employee's Before Tax Contributions
(and After Tax Contributions) will be
suspended for twelve months after the
receipt of the Hardship distribution;
(c) The distribution is not in excess of an
immediate and heavy financial need
(including amounts necessary to pay any
federal, state or local income taxes or
penalties reasonably anticipated to result
from the distribution); and
(d) All plans maintained by the Employer provide
that the Employee may not make Before Tax
Contributions for the Employee's taxable
year immediately following the taxable year
of the Hardship distribution in excess of
the applicable limit under Section 402(g) of
the Code for such taxable year less the
amount of such Employee's Before Tax
Contributions for the taxable year of the
Hardship distribution.
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<PAGE> 35
(3) TAXES AND PENALTIES. The amount of an immediate and
heavy financial need may include any amounts
necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result
from the distribution.
3.10 WITHDRAWAL OF AFTER TAX CONTRIBUTIONS. Subject to the provisions of the
Plan, in accordance with rules for giving notice as determined by the
Committee, a Participant may withdraw as of the first Accounting Date
subsequent to receipt by the Committee of such notice:
(A) MAXIMUM AMOUNT. An amount equal to not more than 100% of the
Participant's After Tax Contribution Account determined as of
such Accounting Date. No Participant who has made any
withdrawal of After Tax Contributions in the twelve (12)
months preceding the giving of such notice may make a
withdrawal under this Section. A Participant who makes a
withdrawal of After Tax Contributions shall be required to
suspend After Tax Contributions for a period of six (6)
months, commencing with the effective date of such withdrawal.
A Participant may, pursuant to Article III, elect to commence
After Tax Contributions as of the first day of the first
payroll period of the month following the conclusion of such
suspension period, or the first payroll period of any month
thereafter, upon advance written notice to the Committee.
(B) MINIMUM AMOUNT. Notwithstanding anything to the contrary in
this Section 3.10, any withdrawal made pursuant to Section
3.10(A) shall be for a minimum whole dollar amount not less
than Five Hundred Dollars ($500.00); except that if the amount
available for withdrawal is less than Five Hundred Dollars
($500.00) then the minimum amount of the withdrawal shall be
the amount available.
(C) FORFEITURES. No forfeitures will occur solely as a result of
an Employee's withdrawal of After Tax Contributions.
(D) LOAN SECURITY. Notwithstanding anything to the contrary in
this Section 3.10, a Participant may not make a withdrawal
pursuant to this Section of any portion of the Participants
vested interest which has been assigned to secure repayment of
a loan in accordance with Section 11.10, below, until such
time as the Committee shall have released said portion so
assigned.
3.11. WITHDRAWAL OF MATCHING CONTRIBUTIONS. Subject to the provisions of the
Plan, in accordance with rules for giving notice as determined by the
Committee, and as elected in the Adoption Agreement, a Participant may
withdraw as of the first Accounting Date subsequent to receipt by the
Committee of such notice:
(A) MAXIMUM AMOUNT. An amount equal to not more than 100% of the
vested amounts in the Participant's Matching Contribution
Account determined as of such Accounting Date. No Participant
who has made any withdrawal of Matching
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<PAGE> 36
Contributions in the twelve (12) months preceding the giving
of such notice may make a withdrawal under this Section.
(B) MINIMUM AMOUNT. Notwithstanding anything to the contrary in
this Section 3.11, any withdrawal made pursuant to Section
3.11(A) shall be for a minimum whole dollar amount not less
than Five Hundred Dollars ($500.00); except that if the amount
available for withdrawal is less than Five Hundred Dollars
($500.00) then the minimum amount of the withdrawal shall be
the amount available.
(C) FORFEITURES. No forfeitures will occur solely as a result of
an Employee's withdrawal of Matching Contributions.
(D) LOAN SECURITY. Notwithstanding anything to the contrary in
this Section 3.11, a Participant may not make a withdrawal,
pursuant to this Section of any portion of the Participant's
vested interest which has been assigned to secure repayment of
a loan in accordance with Section 11. 10, below, until such
time as the Committee shall have released said portion so
assigned.
ARTICLE IV
OTHER CONTRIBUTIONS
4.1 EMPLOYER CONTRIBUTIONS.
(A) MONEY PURCHASE PENSION PLANS ONLY. As elected by the Employer
in the Adoption Agreement, the Employer shall make
contributions to the Plan.
(B) PROFIT SHARING PLANS AND 401(K) PLANS ONLY.
(1) EMPLOYER CONTRIBUTIONS. For each Plan Year, the
Employer, shall or may make contributions to the Plan
in an amount as selected in the Adoption Agreement or
determined by Resolution of the Board of Directors of
the Employer.
(2) NET PROFITS NOT REQUIRED IF SO ELECTED IN ADOPTION
AGREEMENT. If the Employer elects, Employer
Contributions under a profit sharing Plan may be made
without regard to Net Profits in accordance with Item
B(8)(a)(iii) of the Adoption Agreement. The Plan
shall continue to be designed to qualify as a
profit-sharing Plan for purposes of Sections 401(a),
402, 412, and 417 of the Code.
4.2 SEPARATE ACCOUNTS. An Employer Contribution Account shall be maintained
for each Participant to which will be credited the employer pension or
profit sharing contributions ("Employer Contributions"). Such accounts
shall be credited with the applicable contributions, earnings and
losses, distributions, and other adjustments.
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<PAGE> 37
4.3 VESTING. Employer Contributions will be vested in accordance with the
Employer's election in Item B(7), as applicable, of the Adoption
Agreement. In any event, Employer Contributions shall be fully vested
at Normal Retirement Date, upon the complete or partial termination of
the Plan, and, in profit sharing plans, upon the complete
discontinuance of Employer Contributions.
4.4 LIMITATION ON EMPLOYER CONTRIBUTIONS. The Employer's Contribution for
any Plan Year shall not exceed the maximum amount which the Employer
may deduct pursuant to Section 404 of the Code. The Employer
Contributions shall be payable not later than the time for filing the
Employer's federal income tax return, including extensions.
4.5 EMPLOYEE CONTRIBUTIONS.
(A) DISTRIBUTIONS FROM QUAHFIED PLANS - ROLLOVERS.
(1) If the Employer selects Item B(9) in the Adoption
Agreement, an Employee who is entitled to make a
rollover contribution described in Section 402(a)(5),
Section 403(a)(4) or Section 408(d)(3) of the Code
("Rollover Contribution"), may elect, with the
approval of the Committee, to make such a Rollover
Contribution to the Plan. The Employee shall deliver
or cause to be delivered, to the Trustee the cash
which constitutes such Rollover Contribution at such
time or times and in such manner as shall be
specified by the Committee. As of the date of receipt
of such property by the Trustee, a Rollover Account
shall be established in the name of the Employee who
has made a Rollover Contribution as provided in this
Section 4.5 and shall be credited with such assets on
such date. A Rollover Contribution shall not be
deemed to be a contribution of such Employee for any
purpose of this Agreement. All Rollover Contributions
and the earnings on these contributions shall be
immediately fully vested and nonforfeitable.
(2) Subject to the provisions of the Plan, on advance
notice given to the Committee in accordance with
rules established by the Committee a Participant in a
profit sharing Plan or 401(k) profit sharing Plan may
withdraw all or any part (in any whole dollar amount
specified by the Participant) of the value of any
Rollover Account, provided no Participant who has
made any withdrawal under Section 4.5(A) during the
calendar year in which such notice is given may make
an additional withdrawal under this Section 4.5(A)
during the remainder of such year.
(B) NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS NO LONGER ACCEPTED.
(1) This Plan will not accept nondeductible employee
contributions and matching contributions except
pursuant to a 401(m) arrangement described in Article
III. Employee contributions for Plan Years beginning
after
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<PAGE> 38
December 31, 1986, together with any matching
contributions as defined in Section 401(m) of the
Code, will be limited so as to meet the
nondiscrimination test of Section 401(m).
(2) A separate account will be maintained by the Trustee
for the previously made nondeductible employee
contributions of each Participant.
(3) Employee contributions and earnings thereon will be
nonforfeitable at all times. No forfeitures will
occur solely as a result of an Employee's withdrawal
of Employee contributions.
(C) DEDUCTIBLE EMPLOYEE CONTRIBUTIONS NO LONGER ACCEPTED. The
Committee will not accept deductible Employee contributions
which are made for a taxable year beginning after December 31,
1986. Contributions made prior to that date will be maintained
in a separate account which will be nonforfeitable at all
times. The account will share in the gains and losses of the
Trust Fund in the same manner as described in Article VI of
the Plan. No part of the deductible voluntary contribution
account will be used to purchase life insurance. Subject to
Section 7.10, Joint and survivor annuity requirements (if
applicable), the Participant may withdraw any part of the
deductible voluntary contribution account by making a written
application to the Committee.
4.6 EXCLUSIVE BENEFIT. Except as provided in the Plan, the Employer has no
beneficial interest in the Trust Fund, and no part of the Trust Fund
shall revert or be repaid to the Employer, directly or indirectly, or
diverted to purposes other than for the exclusive benefit of
Participants and their Beneficiaries, except that (1) any contribution
made by the Employer because of a mistake of fact must be returned to
the Employer within one year of the contribution; (2) in the event the
deduction of a contribution made by the Employer is disallowed under
Section 404 of the Code, such contribution (to the extent disallowed)
must be returned to the Employer within one year of the disallowance of
the deduction; and (3) in the event that the Commissioner of Internal
Revenue determines that the Plan is not initially qualified under the
Internal Revenue Code, any contribution made incident to that initial
qualification by the Employer must be returned to the Employer within
one year after the date the initial qualification is denied, but only
if the application for the qualification is made by the time prescribed
by law for filing the Employer's return for the taxable year in, which
the Plan is adopted or such later date as the Secretary of the Treasury
may prescribe.
4.7 FORM, PAYMENT AND ALLOCATION OF CONTRIBUTIONS. Contributions made for a
Plan Year shall be made in cash; provided, however, that if the Plan
has an Employer Stock Fund, contributions for the Employer Stock Fund
may be made in Employer Stock. Contributions shall be delivered to the
Trustee at such time or times as shall be agreed upon between the
Committee and the Trustee. The Committee shall instruct the Trustee as
to the allocation of contributions to the Participant's accounts
pursuant to the elections made in the Adoption Agreement. Employer
Stock contributed to the Plan shall be valued at fair market value at
the time of its transfer to the Plan.
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<PAGE> 39
4.8 SAFE HARBOR ALLOCATION. Notwithstanding anything to the contrary in the
Adoption Agreement, in the event the requirements of Code Sections
401(a)(26) or 410(b) are not met during the Plan Year, Employer
Contributions will be allocated to Eligible Employees in the following
order until the applicable requirements are met:
(A) Eligible Employees employed by the Employer on the last day of
the Plan Year and who have completed more than 750 Hours of
Service during the Plan Year;
(B) Eligible Employees employed by the Employer on the last day of
the Plan Year and who have completed more than 500 but less
than 750 Hours of Service during the Plan Year;
(C) Eligible Employees employed by the Employer on the last day of
the Plan Year and who have completed 500 or fewer Hours of
Service during the Plan Year;
(D) Eligible Employees who have completed 750 or more Hours of
Service during the Plan Year;
(E) Eligible Employees who have completed more than 500 but less
than 750 Hours of Service during the Plan Year.
In no event will Employees who have terminated employment with
the Employer during the Plan Year and who have completed 500
or fewer Hours of Service during the Plan Year receive any
allocation of Employer Profit Sharing Contributions.
ARTICLE V
PERIOD OF PARTICIPATION
5.1 TERMINATION DATES. A Participant's Termination Date will be the date on
which his employment with the Employer is terminated because of the
first to occur of the following events:
(A) NORMAL RETIREMENT. The Participant retires from the employ of
the Employer upon attaining the Normal Retirement Date
selected in the Adoption Agreement. If the Employer enforces a
mandatory retirement age the Normal Retirement Date is the
date the Participant attains the lesser of that mandatory age
or the age specified in the Adoption Agreement.
(B) EARLY RETIREMENT. The Participant retires from the employ of
the Employer upon attaining the Early Retirement Date selected
in the Adoption Agreement. If a Participant terminates
employment prior to meeting any minimum age specified in the
Adoption Agreement but after having completed the specified
minimum service requirement, the terminated Participant shall
be entitled to an early retirement benefit upon attaining the
minimum age required.
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<PAGE> 40
(C) LATE RETIREMENT. The Participant retires from the employ of
the Employer after the Normal Retirement Date. A Participant
who continues to work beyond the Normal Retirement Date shall
continue participation in the Plan on the same basis as the
other Participants.
(D) DISABILITY RETIREMENT. The Participant is terminated from the
employ of the Employer because of Disability, as determined by
the Committee, as defined in Section 1.1(I), irrespective of
his age.
(E) DEATH. The Participant's death.
(F) OTHER TERMINATION. The Participant terminates employment
before Normal, Early, Late or Disability Retirement.
If a Participant continues in the employ of the Employer but
no longer is a member of a class of Employees to which the
Plan has been and continues to be extended by the Employer,
the Participant's Termination Date nevertheless will be as
stated above and his or her accounts will be held as stated in
Section 5.2.
5.2 RESTRICTED PARTICIPATION. When distribution of part or all of the
benefits to which a Participant is entitled under the Plan is deferred
beyond or cannot be made until after the Participant's Termination
Date, or during any period that a Participant continues in the employ
of the Employer but no longer is a member of a class of Employees to
which the Plan has been and continues to be extended by the Employer,
the Participant, or in the event of his or her death such Participant's
Beneficiary, will be considered and treated as a Participant for all
purposes of the Plan, except that no share of contributions or
forfeitures will be credited to his or her Accounts (a) for any period
such Participant continues in the employ of the Employer but no longer
is a member of a class of Employees to which the Plan has been and
continues to be extended by the Employer, or (b) after the
Participant's Termination Date.
ARTICLE VI
ACCOUNTING
6.1 ACCOUNTS ESTABLISHED. There shall be established and maintained for
each Participant such accounts as are applicable, to reflect such
Participant's interest in each Investment Fund.
All income, expenses, gains and losses attributable to each account
shall be separately accounted for. The interest of each Participant in
the Trust Fund at any time shall consist of the amount credited to his
or her accounts as of the last preceding Valuation Date plus credits
and minus debits to such accounts since that date.
6.2 EMPLOYER CONTRIBUTIONS CONSIDERED MADE ON LAST DAY OF PLAN YEAR. Unless
otherwise elected in the Adoption Agreement, for purposes of this
Article VI, the
39
<PAGE> 41
Employer's Contribution under Article IV will be considered to have
been made on the last day of the Plan Year for which contributed.
6.3 ACCOUNTING STEPS. As of each Valuation Date, the Trustee shall:
(A) Charge to the prior account balances all previously uncharged
payments or distributions made from Participants' accounts
since the last preceding Valuation Date.
(B) Adjust the net credit balances in Participants' accounts
upward or downward, pro rata, so that the total of such net
credit balances will equal the then adjusted net worth of the
Trust Fund;
(C) Allocate and credit Employer Contributions and any forfeitures
(as described in Section 7.3) that are to be allocated and
credited as of that date in accordance with Sections 6.5 and
6.6.
Notwithstanding the preceding, the Trustee shall be authorized
to utilize such other method of accounting for the gains or
losses experience by the Trust as may accurately reflect each
Participant's interest therein.
6.4 ALLOCATION OF EMPLOYER CONTRIBUTIONS.
(A) DISCRETIONARY PROFIT SHARING CONTRIBUTIONS.
(1) NONSTANDARDIZED PLANS. If the Plan is a
nonstandardized Plan, Employer Contributions for the
Plan Year shall be allocated among and credited to
the Employer Contribution Accounts of each
Participant, including a Participant on leave of
absence, who is entitled to receive a contribution as
elected by the Employer in the Adoption Agreement,
pursuant to the formula elected by the Employer in
Item B(8)(b) of the Adoption Agreement If elected in
the Adoption Agreement, Participants whose employment
terminated because of retirement, death or disability
before the end of the Plan Year will share in the
contributions for the year if elected in the Adoption
Agreement.
(2) STANDARDIZED PLANS. Employer Contributions for the
Plan Year shall be allocated among and credited to
the Employer Contribution Account of each Participant
who either completes more than 500 Hours of Service
during the Plan Year (or such lesser number of Hours
of Service as may be specified in the Adoption
Agreement) or is employed on the last day of the Plan
Year pursuant to the formula elected by the Employer
in Item B(8)(b) of the Adoption Agreement. If elected
in the Adoption Agreement, Participants whose
employment terminated before the end of the Plan Year
because of retirement, death or disability will share
in the contributions for the year if elected in the
Adoption Agreement.
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<PAGE> 42
(B) MONEY PURCHASE PENSION PLANS. Employer Contributions will be
made and allocated to the Employer Contribution Accounts of
Participants for the Plan Year as elected in the Adoption
Agreement. Sections 6.4(A)(l) and (2) above also apply to the
Money Purchase Pension Plans.
(C) PAIRED PLANS. Notwithstanding anything in the Plan to the
contrary, if the Employer maintains two plans which are Paired
Plans, only one may contain an allocation, as elected in the
Adoption Agreement, utilizing permitted disparity as defined
in Code Section 401(l).
6.5 ALLOCATION OF FORFEITURES. As elected in Items B(11) and/or C(6) of the
Adoption Agreement, as of the last day of the Plan Year, any
forfeitures which arose under the Plan during that year shall be used
to: (i) pay the expenses of the Plan; (ii) reduce Employer
Contributions; or, (iii) be allocated to Participants accounts, as may
be selected in the Adoption Agreement. Forfeitures under (iii) shall be
allocated as provided in Section 6.4.
6.6 LIMITATION ON ALLOCATIONS.
(A) DEFINITIONS: For purposes of limiting allocations pursuant to
this section, the following definitions shall apply:
(1) ANNUAL ADDITIONS: The sum of the following amounts
credited to a Participant's account for the
Limitation Year:
(a) Employer Contributions;
(b) Employee Contributions;
(c) forfeitures;
(d) amounts allocated, alter March 31, 1984, to
an individual medical account, as defined in
Section 415 (l)(2) of the Code, which is
part of a pension or annuity Plan maintained
by the Employer are treated as Annual
Additions to a defined contribution Plan.
Also amounts derived from contributions paid
or accrued alter December 31, 1985, in
taxable years ending alter such date, which
are attributable to post-retirement medical
benefits, allocated to the separate account
of a Key Employee, as defined in Section
4l9A(d)(3) of the Code, under a welfare
benefit find, as defined in Section 419(e)
of the Code, maintained by the Employer are
treated as Annual Additions to a defined
contribution Plan; and,
(e) allocations under a simplified employee
pension.
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<PAGE> 43
For this purpose, any Excess Amount applied under
Sections 6.6(B)(4) or 6.6(C)(6) in the Limitation
Year to reduce Employer Contributions will be
considered Annual Additions for such Limitation Year.
(2) COMPENSATION: Compensation as described below,
interpreted consistently with the provisions of Code
Section 414(s) and the regulations issued thereunder,
as may be selected by the Employer, and uniformly
applied for testing purpose:
(a) W-2 COMPENSATION (WAGES, TIPS, AND OTHER
COMPENSATION REQUIRED TO BE REPORTED UNDER
SECTIONS 6041, 6051, AND 6052 OF THE CODE,
AS REPORTED ON FORM W-2). Compensation is
defined as wages within the meaning of
Section 3401(a) and all other payments of
compensation to an Employee by the Employer
(in the course of the Employer's trade or
business) for which the Employer is required
to finish the Employee a written statement
under Sections 6041(d), 6051(a)(3) and 6052
of the Code. Compensation must be determined
without regard to any rules under Section
3401(a) that limit the remuneration included
in wages based on the nature or location of
the employment or the services performed
(such as the exception for agricultural
labor in Section 3401(a)(2).
(b) WITHHOLDING COMPENSATION (SS.3401(A)).
Compensation is defined as wages within the
meaning of Section 3401(a) for the purposes
of income tax withholding at the source but
determined without regard to any rules that
limit the remuneration included in wages
based on the nature or location of the
employment or the services performed (such
as the exception for agricultural labor in
Section 3401(a)(2)).
(c) SECTION 415 SAFE-HARBOR COMPENSATION.
Compensation is defined as wages, salaries,
and fees for professional services and other
amounts received (without regard to whether
or not an amount is paid in cash) for
personal services actually rendered in the
course of employment with the Employer
maintaining the Plan to the extent that the
amounts are includible in gross income
(including, but not limited to, commissions
paid salesman, compensation for services on
the basis of a percentage of profits,
commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements
or other expense allowances under a
nonaccountable Plan (as described in
1.62-2(c)), and excluding the following:
(i) Employer contributions to a Plan of
deferred compensation which are not
includible in the Employee's gross
income for the taxable year in which
contributed, or Employer
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<PAGE> 44
contributions under a simplified
employee pension Plan to the extent
such contributions are deductible by
the Employee, or any distributions
from a Plan of deferred
compensation;
(ii) amounts realized from the exercise
of a non-qualified stock option, or
when restricted stock (or property)
held by an Employee becomes freely
transferable or is no longer subject
to a substantial risk of forfeiture;
(iii) amounts realized from the sale,
exchange or other disposition of
stock acquired under a qualified
stock option; and
(iv) other amounts which received special
tax benefits, or contributions made
by the Employer (whether or not
under a salary reduction agreement)
towards the purchase of an annuity
contract described in Section 403(b)
of the Code (whether or not the
contributions are actually
excludable from the gross income of
the Employee).
Notwithstanding anything in the definitions of
Compensation preceding, at the discretion of the
Employer, uniformity applied, Compensation shall, for
purposes of ADP and ACP testing as provided for in
Article III, include amounts not currently includible
in income pursuant to Code Sections 125, 402(a)(8),
402(h) and 403(b). For allocation purposes, such
amounts shall be includible as elected in the
Adoption Agreement.
For any self-employed Individual, Compensation will
mean Earned Income.
For Limitation Years beginning after December 31,
1991, for purposes of applying the limitations of
Section 6.6, Compensation for a Limitation Year is
the compensation actually paid or made available
during such Limitation Year.
Notwithstanding the preceding sentence, Compensation
for a Participant in a defined contribution Plan who
is permanently and totally disabled (as defined in
Section 22(e)(3) of the Code) is the Compensation
such Participant would have received for the
Limitation Year if the Participant had been paid at
the rate of Compensation paid immediately before
becoming permanently and totally disabled; such
imputed compensation for the disabled Participant may
be taken into account only if the Participant is not
a Highly Compensated Employee, (as defined in Section
414(q) of the Code), and contributions made on behalf
of such Participant are nonforfeitable when made.
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<PAGE> 45
(3) DEFINED BENEFIT FRACTION: A fraction, the numerator
of which is the sum of the Participant's Projected
Annual Benefits under all the defined benefit plans
(whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser
of 125 percent of the dollar limitation determined
for the Limitation Year under Sections 415(b) and (d)
of the Code or 140 percent of the Participant's
Highest Average Compensation, including any
adjustments under Section 415(b) of the Code.
Notwithstanding the above if the Participant was a
participant as of the first day of the first
Limitation Year beginning after December 31, 1986, in
one or more defined benefit plans maintained by the
Employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than
125 percent of the sum of the annual benefits under
such plans which the Participant had accrued as of
the close of the last Limitation Year beginning
before January l, 1987, disregarding any changes in
the terms and conditions of the Plan after May 5,
1986. The preceding sentence applies only if the
defined benefit plans individually and in the
aggregate satisfied the requirements of Section 415
for all Limitation Years beginning before January 1,
1987.
(4) DEFINED CONTRIBUTION DOLLAR LIMITATION: For purposes
of calculating the Maximum Permissible Amount:
$30,000 or, if greater, one-fourth of the defined
benefit dollar limitation set forth in Section
415(b)(1) of the Code as in effect for the Limitation
Year.
(5) DEFINED CONTRIBUTION FRACTION: A fraction, the
numerator of which is the sum of the Annual Additions
to the Participant's accounts under all the defined -
contribution plans (whether or not terminated)
maintained by the Employer for the current and all
prior Limitation Years, (including the Annual
Additions attributable to the Participant's
nondeductible employee contributions to all defined
benefit plans, whether or not terminated, maintained
by the Employer, and the Annual Additions
attributable to all welfare benefit funds, as defined
in Section 419(e) of the Code, individual medical
accounts, as defined in Section 415(l)(2) of the
Code, and simplified employee pension, maintained by
the Employer), and the denominator of which is the
sum of the maximum aggregate amounts for the current
and all prior Limitation Years of service with the
Employer (regardless of whether a defined
contribution Plan was maintained by the Employer).
The maximum aggregate amount in any Limitation Year
is the lesser of 125 percent of the dollar limitation
determined under Sections 415(b) and (d) of the Code
in effect under Section 415(c)(1)(A) of the Code or
35 percent of the Participant's Compensation for such
year.
If the Employee was a participant as of the end of
the first day of the first Limitation Year beginning
after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which
were in
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<PAGE> 46
existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction
and the Defined Benefit Fraction would otherwise
exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0 times (2)
the denominator of this fraction, will be permanently
subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they
would be computed as of the end of the last
Limitation Year beginning before January 1, 1987, and
disregarding any changes in the terms and conditions
of the Plan made after May 5, 1986, but using the
Section 415 limitation applicable to the first
Limitation Year beginning on or after January l,
1987.
The Annual Addition for any Limitation Year beginning
before January l, 1987, shall not be recomputed to
treat all Employee contributions as Annual Additions.
(6) EMPLOYER: For purposes of this Section 6.6: the
Employer that adopts this Plan, and all members of a
controlled group of corporations (as defined in
section 414(b) of the Code as modified by Section
415(h), all commonly controlled trades or businesses
(as defined in Section 414(c) as modified by Section
415(h)) or affiliated service groups (as defined in
Section 414(m)) of which the adopting Employer is a
part, and any other entity required to be aggregated
with the Employer pursuant to regulations under
Section 414(o) of the Code.
(7) EXCESS AMOUNT: The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum
Permissible Amount
(8) HIGHEST AVERAGE COMPENSATION: For purposes of
calculating the Defined Benefit Fraction, the average
compensation for the three (3) consecutive Years of
Service with the Employer that produces the highest
average. A Year of Service with the Employer is the
twelve-consecutive month period defined in Item
B(4)(j) of the Adoption Agreement.
(9) LIMITATION YEAR: A calendar year or any other 12
consecutive month period elected in Item B(4)(d) of
the Adoption Agreement All qualified plans maintained
by the Employer must use the same Limitation Year. If
the Limitation Year is amended to a different
12-consecutive month period, the new Limitation Year
must begin on a date within the Limitation Year in
which the amendment is made.
(10) MASTER OR PROTOTYPE PLAN: A Plan the form of which is
the subject of a favorable opinion letter from the
Internal Revenue Service.
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<PAGE> 47
(11) MAXIMUM PERMISSIBLE AMOUNT: The maximum Annual
Addition that may be contributed or allocated to a
Participant's account under the Plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation,
or
(b) 25 percent of the Participant's Compensation
for the Limitation Year.
The Compensation limitation referred to in
(b) shall not apply to any contribution for
medical benefits (within the meaning of
Section 401(h) or Section 419A(f)(2) of the
Code) which is otherwise treated as an
Annual Addition under Section 415(l)(1) or
419A(d)(2) of the Code.
If a short Limitation Year is created
because of an amendment changing the
Limitation Year to a different
12-consecutive month period, the Maximum
Permissible Amount will not exceed the
Defined Contribution Dollar Limitation
multiplied by the
following fraction:
Number of Months in the short Limitation Year
---------------------------------------------
12
(12) PROJECTED ANNUAL BENEFIT: For purposes of calculating
the Defined Benefit Fraction: the annual retirement
benefit (adjusted to an actuarially equivalent
straight life annuity if such benefit is expressed in
a form other than a straight life annuity or
qualified joint and survivor annuity) to which the
Participant would be entitled under the terms of the
Plan, assuming: (1) the Participant will continue
employment until Normal Retirement Date under the
Plan, (or current age, if later), and (2) the
Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine
benefits under the Plan will remain constant for all
future Limitation Years.
(B) ANNUAL ADDITION LIMITATIONS:
(1) If the Participant does not participate in, and has
never participated in another qualified Plan or
welfare benefit fund, as defined in Section 419(e) of
the Code maintained by the Employer, or an individual
medical account, as defined in Section 415(l)(2) of
the Code, maintained by the Employer, or a simplified
employee pension, as defined in Section 408(K) of the
Code, maintained by the Employer which provides an
Annual Addition as defined in Section 6.6(E), the
amount of Annual Additions which may be credited to
the Participant's account for any Limitation Year
will not exceed the lesser of the Maximum Permissible
Amount or any
46
<PAGE> 48
other limitation contained in this Plan. If the
Employer Contribution that would otherwise be
contributed or allocated to the Participant's account
would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the
amount contributed or allocated will be reduced so
that the Annual Additions for the Limitation Year
will equal the Maximum Permissible Amount.
(2) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer
may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimation
of the Participant's Compensation for the Limitation
Year, uniformly determined for all Participants
similarly situated.
(3) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on
the basis of the Participant's actual Compensation
for the Limitation Year.
(4) If pursuant to Section 6.6(B)(3) or as result of the
allocation of forfeitures, there is an Excess Amount,
the excess will be disposed of as follows:
(a) Any nondeductible voluntary employee
contributions, to the extent they would
reduce the Excess Amount, will be returned
to the Participant.
(b) If after the application of paragraph (a) an
Excess Amount still exists and the
Participant is covered by the Plan at the
end of the Limitation Year, the Excess
Amount in the Participant's account will be
used to reduce Employer Contributions
(including any allocation of forfeitures)
for such Participant in the next Limitation
year, and each succeeding Limitation Year,
if necessary.
(c) If after the application of paragraph (a) an
Excess Amount still exists, and the
Participant is not covered by the Plan at
the end of a Limitation Year, the Excess
Amount will be held unallocated in a
suspense account. The suspense account will
be applied to reduce future Employer
Contributions (including allocation of any
forfeitures) for all remaining Participants
in the next Limitation Year and each
succeeding Limitation Year, if necessary.
(d) If a suspense account is in existence at any
time during a Limitation Year pursuant to
this Section 6.6(A), it will not participate
in the allocation of the trust's investment
gains and losses. If a suspense account is
in existence at any time during a particular
Limitation Year, all amounts in the suspense
account must be allocated and reallocated to
Participants' accounts before
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<PAGE> 49
any Employer Contributions or any Employee
contributions may be made to the Plan for
that Limitation Year. Excess Amounts may not
be distributed to Participants or former
Participants.
(C) MULTIPLE PLAN LIMITATION.
(1) This Section 6.6(C) applies if in addition to this
Plan, the Participant is covered under another
qualified Master or Prototype defined contribution
Plan maintained by the Employer, a welfare benefit
fund, as defined in Section 419(e) of the Code
maintained by the Employer, or an individual medical
account, as defined in Section 415(l)(2) of the Code,
maintained by the Employer, or a simplified employee
pension maintained by the employer which provides an
Annual Addition as defined in Section 6.6(A) during
any Limitation Year. The Annual Additions which may
be credited to a Participant's accounts under this
Plan for any such Limitation Year shall not exceed
the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's accounts under
the other qualified master and prototype defined
contribution plans, welfare benefit firms, individual
medical accounts, and simplified employee pensions
for the same Limitation Year. If the Annual Additions
with respect to the Participant under other qualified
master and prototype defined contribution plans and
welfare benefit firms, individual medical accounts,
and simplified employee pension, maintained by the
Employer are less than the Maximum Permissible Amount
and the contributions that would otherwise be
contributed or allocated to the Participant's
Employer Contribution Account under this Plan would
cause the Annual Additions for the Limitation Year to
exceed this limitation, the amount contributed or
allocated will be reduced so that the Annual
Additions under all such plans and firms for the
Limitation Year will equal the Maximum Permissible
Amount. If the Annual Additions with respect to the
Participant under such other qualified master and
prototype defined contribution plans, welfare benefit
funds individual medical accounts, and simplified
employee pension, in the aggregate are equal to or
greater than the Maximum Permissible Amount, no
amount will be contributed or allocated to the
Participant's Employer Contribution Account under
this Plan for the Limitation Year.
(2) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer
may determine the Maximum Permissible Amount for a
Participant in the manner described in Section
6.6(B)(2).
(3) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible
Amount for the Limitation Year will be determined on
the basis of the Participant's actual Compensation
for the Limitation Year.
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<PAGE> 50
(4) If, pursuant to Section 6.6(C)(3) or as a result of
the allocation of forfeitures, a Participant's Annual
Additions under this Plan and all other plans result
in an Excess Amount for a Limitation Year, the Excess
Amount shall be deemed to consist of the amounts last
allocated, except that Annual Additions attributable
to a simplified employee pension will be deemed to
have been allocated first, followed by annual
additions to a welfare benefit fund or individual
medical account regardless of the actual allocation
date.
(5) If an Excess Amount was allocated to a Participant on
an allocation date of this Plan which coincides with
an allocation date of another Plan, the Excess Amount
attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such
date, times
(b) the ratio of (i) the Annual Additions
allocated to the Participant for the
Limitation Year as of such date under this
Plan to (ii) the total Annual Additions
allocated to the Participant for the
Limitation Year as of such date under this
and all other qualified Master or Prototype
defined contribution plans.
(6) Any Excess Amount attributed to this Plan should be
disposed of as provided in Section 6.6(C)(4).
(D) If the Participant is covered under another qualified defined
contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may be
credited to the Participant's accounts under this clan for any
Limitation Year will be limited in accordance with Section
6.6(C) (1-6) as though the Plan were a Master or Prototype
Plan unless the Employer provides other limitations in Item
B(12) of the Adoption Agreement.
(E) If the Employer maintains, or at any time maintained, a
qualified defined benefit Plan covering any Participant in
this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not
exceed 1.0 in any Limitation Year. The Annual Additions which
may be credited to the Participant's accounts under this Plan
for any Limitation Year will be limited in accordance with
Item B(12) of the Adoption Agreement.
6.7 REPORTS TO PARTICIPANTS. The Committee shall cause reports to be made
at least annually to each Participant and to the Beneficiary of each
deceased Participant as to the value of each such Participant's
accounts, as of an appropriate preceding Valuation Date.
ARTICLE VII
PAYMENT OF ACCOUNT BALANCES
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<PAGE> 51
7.1 TERMINATION OF EMPLOYMENT UPON DISABILITY OR DEATH. A Participant shall
become fully vested in his or her Employer Contribution Accounts if the
Participant becomes Disabled under Sections 5.1(A), (B), (C) or (D) or
dies while still employed. The accounts of a Participant who retires
becomes Disabled or dies will become distributable to the Participant
or to his or her Spouse or Beneficiary. If distributed immediately,
subject to Section 7.4, the distributable balance, after adjustments,
will be determined as soon as practicable following the receipt by the
Trustee of written notice of the Participant's termination from the
Committee.
7.2 TIMING FOR DETERMINING ACCOUNT BALANCE UPON TERMINATION OF EMPLOYMENT
PRIOR TO RETIREMENT, DISABILITY OR DEATH. If a Participant terminates
employment with the Employer before retirement under Sections 5.1(F)
the vested portion of the Participant's Employer Contribution Account
and/or Matching Account shall be determined and such Participant's
accounts will be distributable to the Participant. If distributed
immediately, subject to Section 7.4, the distributable balance, after
adjustments, will be determined as soon as practicable following
receipt by the Trustee of written notice of the Participant's
termination from the Committee. The account balance shall be
distributable at such time as elected in the Adoption Agreement, but in
no event shall an account balance not be distributable later than the
Participant's Normal Retirement Date.
7.3 VESTING ON DISTRIBUTION BEFORE BREAK-IN-SERVICE; CASH-OUTS.
(A) If an Employee terminates service, and the value of the
Employee's vested account balance derived from Employer and
Employee contributions is not greater than $3,500, the
Employee will receive a distribution of the value of the
entire vested portion of such account balances, and Rollover
Account balance, if any. The nonvested portion will be treated
as a forfeiture. For purposes of this Section 7.3, if the
value of an Employee's vested account balance is zero, the
Employee shall be deemed to have received a distribution of
such vested account balance. A Participant's vested account
balance shall not include accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code for Plan Years beginning prior to January 1, 1989.
(B) If an Employee terminates service, and elects, in accordance
with the requirements of Section 7.4, to receive the value of
the Employee's vested account balance, the nonvested portion
will be treated as a forfeiture. If the Employee elects to
have distributed less than the entire vested portion of the
balance in the Employer Contribution Account, the part of the
nonvested portion that will be treated as a forfeiture is the
total nonvested portion multiplied by a fraction, the
numerator of which is the amount of the distribution
attributable to Employer Contributions and the denominator of
which is the total value of the vested balance in the Employer
Contribution Account.
(C) If an Employee receives a distribution pursuant to this
Section 7.3 and the Employee resumes employment covered under
this Plan, the Employee's Employer Contribution Account and/or
Matching Account balance will be
50
<PAGE> 52
restored to the amount on the date of distribution if the
Employee repays to the Plan the full amount of the
distribution attributable to Employer contributions before the
earlier of 5 years after the first date on which the
Participant is subsequently reemployed by the Employer, or the
date the Participant incurs five (5) consecutive one (1) year
Breaks in Service following the date of the distribution. If
an Employee is deemed to receive a distribution pursuant to
this Section 7.3, and the Employee resumes employment covered
under this Plan before the date the Participant incurs five
(5) consecutive one (1) year Breaks in Service, upon the
reemployment of such Employee, the Employer Contribution
Account balance and/or Matching Account balance of the
Employee will be restored to the amount on the date of such
deemed distribution.
7.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS.
(A) If the value of a Participant's vested account balance derived
from Employer and Employee contributions exceeds (or at the
time of any prior distribution exceeded) $3,500, and the
account balance is immediately distributable, the Participant
and the Participant's Spouse (or where either the Participant
or the Spouse has died, the survivor) must consent to any
distribution of such account balance. The consent of the
Participant and the Participant's Spouse shall be obtained in
writing within the 90-day period ending on the annuity
starting date. The annuity starting date is the first day of
the first period for which an amount is paid as an annuity or
any other form. The Committee shall notify the Participant and
the Participant's Spouse of the right to defer any
distribution until the Participant's account balance is no
longer immediately distributable. Such notification shall
include a general description of the material features, and an
explanation of the relative values of, the optional forms of
benefit available under the Plan in a manner that would
satisfy the notice requirements of Section 417(a)(3), and
shall be provided no less than 30 days and no more than 90
days prior to the annuity starting date. However, distribution
may commence less than 30 days after the notice described in
the preceding sentence is given, provided the distribution is
one to which sections 401(a)( 11) and 417 of the Internal
Revenue Code do not apply, the plan administrator clearly
informs the participant that the participant has a right to a
period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution
option), and the participant, after receiving the notice,
affirmatively elects a distribution.
Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form of a
Qualified Joint and Survivor Annuity while the account balance
is immediately distributable. (Furthermore, if payment in the
form of a Qualified Joint and Survivor Annuity is not required
with respect to the Participant pursuant to Section 7.10 of
the Plan, only the Participant need consent to the
distribution of an account balance that is immediately
distributable. Neither the consent of the Participant nor the
Participant's Spouse shall be required to the extent that a
distribution is required to
51
<PAGE> 53
satisfy Section 401(a)(9) or Section 415 of the Code. In
addition, upon termination of this Plan if the Plan does not
offer an annuity option (purchased from a commercial
provider), and if the Employer or any entity within the same
controlled group as the Employer does not maintain another
defined contribution Plan (other than an employee stock
ownership Plan as defined in Section 4975(e)(7) of the Code),
the Participant's account balance will, without the
Participant's consent, be distributed to the Participant.
However, if any entity within the same controlled group as the
Employer maintains another defined contribution Plan (other
than an employee stock ownership Plan as defined in Section
4975(e)(7) of the Code) then the Participant's account balance
will be transferred, without the Participant's consent, to the
other Plan if the Participant does not consent to an immediate
distribution.
An account balance is immediately distributable if any part of
the account balance could be distributed to the Participant
(or surviving spouse) before the Participant attains or would
have attained if not deceased) the later of the Normal
Retirement Date or age 62.
(B) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first
day of the first Plan Year beginning after December 31, 1988,
the Participant's vested account balance shall not include
amounts attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Code.
7.5 COMMENCEMENT OF BENEFITS. Unless the Participant elects otherwise,
payments will be made or commence to a Participant by the Trustee, as
directed by the Committee, no later than the sixtieth (60th) day after
the latest of the close of the Plan Year in which (1) the Participant
attains age sixty-five (65) (or Normal Retirement Date; if earlier);
(2) occurs the tenth (10th) anniversary of the year in which the
Participant commenced participation in the Plan; or (3) the Participant
terminates his or her service with the Employer.
Notwithstanding the foregoing, the failure of a Participant and Spouse
to consent to a distribution while a benefit is immediately
distributable, within the meaning of Section 7.4 of the Plan, shall be
deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy this section.
7.6 TIMING AND MODES OF DISTRIBUTION.
(A) GENERAL RULES.
(1) Subject to Section 7.10, Joint and Survivor Annuity
Requirements, the requirements of this Section 7.6
shall apply to any distribution of a Participant's
interest and will take precedence over any
inconsistent provisions of this Plan. Unless
otherwise specified, the provisions of this Section
7.6 apply to calendar years beginning after December
31, 1984.
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<PAGE> 54
(2) All distributions required under this Section 7.6
shall be determined and made in accordance with the
Income Tax Regulations under Section 401(a)(9),
including the minimum distribution incidental benefit
requirement of Section 1.401(a)(9)-2 of the
regulations.
(3) The normal form of payment for a profit-sharing Plan
satisfying the requirements of Section 7.10(F) hereof
shall be a single sum with no option for annuity
payments; provided, however, that distributions may
be made:
(a) In installment payments, if the Employer has
elected installment payments in Item
B(10)(a) of the Adoption Agreement;
(b) Through such other form of benefit as may be
identified in Item B(10)(a) of the Adoption
Agreement, which shall be available to
Participants as an optional form of benefit
payment, and shall preclude Employer
discretion;
(c) Through such other form of benefits as may
be required to be protected as Section
411(d)(6) protected benefits.
(B) REQUIRED BEGINNING DATE. The entire interest of a Participant
must be distributed or begin to be distributed no later than
the Participant's required beginning date.
(C) LIMITS ON DISTRIBUTION PERIODS. As of the first distribution
calendar year, distributions, if not made in a single-sum, may
only be made over one of the following periods (or a
combination thereof):
(1) the life of the Participant,
(2) the life of the Participant and a designated
Beneficiary,
(3) a period certain not extending beyond the life
expectancy of the Participant, or
(4) a period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
designated Beneficiary.
(D) DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR. If the
Participant's interest is to be distributed in other than a
single sum, the following minimum distribution rules shall
apply on or after the required beginning date:
(1) Individual Account
(a) If a Participant's benefit is to be
distributed over:
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<PAGE> 55
(i) a period not extending beyond the
life expectancy of the participant
or the joint life and last survivor
expectancy of the Participant and
the Participant's designated
Beneficiary; or
(ii) a period not extending beyond the
life expectancy of the designated
Beneficiary, the amount required to
be distributed for each calendar
year, beginning with distributions
for the first distribution calendar
year, must at least equal the
quotient obtained by dividing the
Participant's benefit by the
applicable life expectancy.
(b) For calendar years beginning before January
1, 1989, if the Participant's Spouse is not
the designated beneficiary, the method of
distribution selected must assure that at
least 50% of the present value of the amount
available for distribution is paid within
the life expectancy of the Participant.
(c) For calendar years beginning after December
31, 1988, the amount to be distributed each
year, beginning with distributions for the
first distribution calendar year shall not
be less than the quotient obtained by
dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy
or (2) if the Participant's Spouse is not
the designated Beneficiary, the applicable
divisor determined from the table set forth
in Q&A-4 of Section 1.401(a)(9)-2 of the
Income Tax Regulations. Distributions after
the death of the Participant shall be
distributed using the applicable life
expectancy in Section (1)(a) above as the
relevant divisor without regard to
Regulations Section 1.401(a)(9)-2.
(d) The minimum distribution required for the
Participant's first distribution calendar
year must be made on or before the
Participant's required beginning date. The
minimum distribution for other calendar
years, including the minimum distribution
for the distribution calendar year in which
the Employee's required beginning date
occurs, must be made on or before December
31 of that distribution calendar year.
(2) OTHER FORMS. If the Participant's benefit is
distributed in the form of an annuity purchased from
an insurance company, distributions thereunder shall
be made in accordance with the requirements of
Section 401(a)(9) of the Code and the regulations
thereunder.
(E) DEATH DISTRIBUTION PROVISIONS
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<PAGE> 56
(1) DISTRIBUTION BEGINNING BEFORE DEATH. If the
Participant dies after distribution of his or her
interest has begun, the remaining portion of such
interest will continue to be distributed at least as
rapidly as under the method of distribution being
used prior to the Participant's death.
(2) DISTRIBUTION BEGINNING AFTER DEATH. If the
Participant dies before distribution of his or her
interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of
the calendar year containing the fifth anniversary of
the Participant's death except to the extent that an
election is made to receive distributions in
accordance with (a) or (b) below:
(a) if any portion of the Participant's interest
is payable to a designated Beneficiary,
distributions may be made over the life or
over a period certain not greater than the
life expectancy of the designated
Beneficiary commencing on or before December
31 of the calendar year immediately
following the calendar year in which the
Participant died;
(b) if the designated Beneficiary is the
Participant's surviving Spouse, the date
distributions are required to begin in
accordance with (a) above shall not be
earlier than the later of (1) December 31 of
the calendar year immediately following the
calendar year in which the Participant died
and (2) December 31 of the calendar year in
which the Participant would have attained
age 70-1/2.
If the Participant has not made an election
pursuant to this Section 7.6(E)(2) by the
time of his or her death, the Participant's
designated Beneficiary must elect the method
of distribution no later than the earlier of
(1) December 31 of the calendar year in
which distributions would be required to
begin under this section, or (2) December 31
of the calendar year in which contains the
fifth anniversary of the date of death of
the Participant. If the Participant has no
designated Beneficiary, or if the designated
Beneficiary does not elect a method of
distribution, distribution of the
Participant's entire interest must be
completed by December 31 of the calendar
year containing the fifth anniversary of the
Participant's death.
(3) SURVIVING SPOUSE'S DEATH. For purposes of Section
(E)(2) above, if the surviving Spouse dies after the
Participant, but before payments to such Spouse
begin, the provisions of Section (E)(2) with the
exception of paragraph (b) therein, shall be applied
as if the surviving Spouse were the Participant.
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<PAGE> 57
(4) MINOR BENEFICIARY. For purposes of this Section (E),
any amount paid to a child of the Participant will be
treated as if it had been paid to the surviving
Spouse if the amount becomes payable to the surviving
Spouse when the child reaches the age of majority.
(5) DISTRIBUTION CONSIDERED TO BEGIN ON REQUIRED
BEGINNING DATE. For the purposes of this Section (E),
distribution of a Participant's interest is
considered to begin on the Participant's required
beginning date (or, if Section (E)(3) above is
applicable, the date distribution is required to
begin to the surviving Spouse pursuant to Section
(E)(2) above). If distribution in the form of an
annuity irrevocably commences to the Participant
before the required beginning date, the date
distribution is considered to begin is the date
distribution actually commences.
(F) DEFINITIONS.
(1) APPLICABLE LIFE EXPECTANCY: The life expectancy (or
joint and last survivor expectancy) calculated using
the attained age of the Participant (or designated
Beneficiary) as of the Participant's (or designated
Beneficiary's) birthday in the applicable calendar
year reduced by one for each calendar year which has
elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated,
the applicable life expectancy shall be the life
expectancy as so recalculated. The applicable
calendar year shall be the first distribution
calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
(2) DESIGNATED BENEFICIARY: The individual who is
designated as 'the Beneficiary under the Plan in
accordance with Section 401(a)(9) and the proposed
regulations thereunder.
(3) DISTRIBUTION CALENDAR YEAR: A calendar year for which
a minimum distribution is required. For distributions
beginning before the Participant's death, the first
distribution calendar year is the calendar year
immediately preceding the calendar year which
contains the Participant's required beginning date.
For distributions beginning after the Participant's
death, the first distribution calendar year is the
calendar year in which distributions are required to
begin pursuant to Section (E) above.
(4) LIFE EXPECTANCY: Life expectancy and joint and last
survivor expectancy are computed by use of the
expected return multiples in Tables V and VI of
Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or
Spouse, in the case of distributions described in
Section (E)(2)(b) above) by the time distributions
are required to begin, life expectancies shall be
recalculated annually. Such election shall be
irrevocable as to the Participant (or
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<PAGE> 58
Spouse) and shall apply to all subsequent years. The
life expectancy of a non-spouse Beneficiary may not
be recalculated.
(5) PARTICIPANT'S BENEFIT:
(a) The account balance as of the last valuation
date in the calendar year immediately
preceding the distribution calendar year
(valuation calendar year) increased by the
amount of any contributions or forfeitures
allocated to the account balance as of dates
in the valuation calendar year after the
valuation date and decreased by
distributions made in the valuation calendar
year after the valuation date.
(b) Exception for second distribution calendar
year. For purposes of paragraph (a) above,
if any portion of the minimum distribution
for the first distribution calendar year is
made in the second distribution calendar
year on or before the required beginning
date, the amount of the minimum distribution
made in the second distribution calendar
year shall be treated as if it had been made
in the immediately preceding distribution
calendar year.
(6) REQUIRED BEGINNING DATE:
(a) GENERAL RULE. The required beginning date of
a Participant is the first day of April of
thee calendar year following the calendar
year in which the Participant attains age
70-1/2.
(b) TRANSITIONAL RULES. The required beginning
date of a Participant who attains age 70-1/2
before January 1, 1988, shall be determined
in accordance with (l) or (2) below:
(i) Non-5-percent owners. The required
beginning date of a Participant who
is not a 5-percent owner is the
first day of April of the calendar
year following the calendar year in
which the later of retirement or
attainment of age 70-1/2 occurs.
(ii) 5-percent owners. The required
beginning date of a Participant who
is a 5-percent owner during any year
beginning after December 31, 1979,
is the first day of April following
the later of:
(a) the calendar year in which
the participant attains
age 70-1/2, or
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<PAGE> 59
(b) the earlier of the calendar
year with or within which
ends the Plan Year in which
the Participant becomes a
5-percent owner, or the
calendar year in which the
Participant retires.
The required beginning date of a
Participant who is not a 5-percent
owner who attains age 70-1/2 during
1988 and who has not retired as of
January 1, 1989, is April 1, 1990.
(c) 5-PERCENT OWNER. A Participant is
treated as a 5-percent owner for
purposes of this Section if such
Participant is a 5-percent owner
as defined in Section 416(i) of the
Code (determined in accordance with
Section 416 but without regard to
whether the Plan is top-heavy) at
any time during the Plan Year
ending with or within the calendar
year in which such owner attains
age 66-1/2 or any subsequent Plan
Year.
(d) Once distributions have begun to a
5-percent owner under this Section,
they must continue to be
distributed, even if the Participant
ceases to be a 5-percent owner in a
subsequent year.
(G) TRANSITIONAL RULE.
(1) DISTRIBUTIONS TO 5-PERCENT OWNERS. Notwithstanding
the other requirements of this Section 7.6 and
subject to the requirements of Section 7.10, Joint
and Survivor Annuity Requirements, distributions on
behalf of any Employee, including a 5-percent owner,
may be made in accordance with all of the following
requirements (regardless of when such distribution
commences):
(a) The distribution by the plan is one which
would not have disqualified such plan under
Section 401(a)(9) of the Internal Revenue
Code as in effect prior to amendment by the
Deficit Reduction Act of 1984.
(b) The distribution is in accordance with a
method of distribution designated by the
Employee whose interest in the plan is being
distributed or, if the Employee is deceased,
by a Beneficiary of such Employee.
(c) Such designation was in writing, was signed
by the Employee or the Beneficiary, and was
made before January l, 1984.
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<PAGE> 60
(d) The Employee had accrued a benefit under the
Plan as of December 31, 1983.
(e) The method of distribution designated by the
Employee or the Beneficiary specifies the
time at which distribution will commence,
the period over which distributions will be
made, and in the case of any distribution
upon the Employee's death, the Beneficiaries
of the Employee listed in order of priority.
(2) DISTRIBUTION ON DEATH. A distribution upon death will
not be covered by this transitional rule unless the
information in the designation contains the required
information described above with respect to the
distributions to be made upon the death of the
Employee.
(3) DESIGNATION OF DISTRIBUTION METHOD. For any
distribution which commences before January 1, 1984,
but continues after December 31, 1983, the Employee,
or the Beneficiary, to whom such distribution is
being made, will be presumed to have designated the
method of distribution under which the distribution
is being made if the method of distribution was
specified in writing and the distribution satisfies
the requirements in subsections (G)(1)(a) and (e).
(4) REVOCATION OF DESIGNATIONS. If a designation is
revoked any subsequent distribution must satisfy the
requirements of Section 401(a)(9) of the Code and the
regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to
begin, the plan must distribute by the end of the
calendar year following the calendar year in which
the revocation occurs the total amount not yet
distributed which would have been required to have
been distributed to satisfy Section 401(a)(9) of the
Code and the regulations thereunder, but for the
Section 242(b)(2) election. For calendar years
beginning after December 31, 1988, such distributions
must meet the minimum distribution incidental benefit
requirements in Section 1.401(a)(9)-2 of the Income
Tax Regulations. Any changes in the designation will
be considered to be a revocation of the designation.
However, the mere substitution or addition of another
Beneficiary (one not named in the designation) under
the designation will not be considered to be a
revocation of the designation, so long as such
substitution or addition does not alter the period
over which distributions are to be made under the
designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in
which an amount is transferred or rolled over from
one Plan to another Plan, the rules in Q&A J-2 and
Q&A J-3 shall apply.
7.7 DESIGNATION OF BENEFICIARY.
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(A) DEFAULT BENEFICIARY. In the case of a Participant who is
married, the Participant's Beneficiary shall be the
Participant's Spouse, but if the Participant's Spouse consents
as provided in this Section 7.7, or if the Participant is not
married, then the Participant shall have the right to
designate that after such Participant's death such
Participant's accounts shall be distributed to a designated
Beneficiary or Beneficiaries.
(B) SPOUSAL CONSENT. Any consent of a Spouse given pursuant to
this Section must be in writing and given prior to the death
of the Participant. Such consent must acknowledge the effect
of the Participant's Beneficiary designation, the identity of
any non-Spouse Beneficiary, including any class of
Beneficiaries and contingent Beneficiaries, and the consent
must be witnessed by a Plan representative or a Notary Public.
The Participant may not subsequently change the designation of
his or her Beneficiary unless his Spouse consent to the new
designation in accordance with the requirements set forth in
the preceding sentence. The consent of a Participant's Spouse
shall not be required if the Participant establishes to the
satisfaction of the Committee that consent may not be obtained
because there is no Spouse, the Spouse cannot be located or
because of such other circumstances as the Secretary of the
Treasury may prescribe by regulations. A Spouse's consent
shall be irrevocable. Any consent by a Spouse, or
establishment that the consent of the Spouse may not be
obtained, shall be effective only with respect to that Spouse.
(C) CHANGING BENEFICIARIES. Subject to Subparagraphs (A) and (B)
above, the Participant's designation of Beneficiary may be
made, changed or revoked by the Participant at any time by a
written instrument, in form satisfactory to the Committee, and
shall become effective only when executed by such Participant
(and, if applicable, consented to by the Participant's Spouse
as set forth in Section 7.7(B)) and filed with the Committee
prior to such Participant's death. If all of the Beneficiaries
named in such designation shall have predeceased such
Participant, or die prior to complete distribution of the
Participant's accounts, or if such Participant fails to
execute and file a designation and is not survived by a Spouse
the payment of such Participant's accounts shall be made
pursuant to the Plan and to such Beneficiaries as required by
state law. Neither the Employer, the Committee, nor the
Trustee, shall have any duty to see that such Participant, any
Spouse or any Beneficiary executes and files any such
designation with the Committee.
7.8 OPTIONAL FORMS OF BENEFIT. The optional forms of benefit provided by
this Plan are not subject to Employer discretion and are made available
to all Participants on a nondiscriminatory basis. The optional forms of
benefit are described in Articles III and VII, as may be selected in
the Adoption Agreement. If selected in Item B(13) of the Adoption
Agreement, the Employer may attach to the Plan a list of the Section
"411(d)(6) protected benefits" that must be preserved from a
individually designed Plan or other prototype Plan which this Plan
amends.
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7.9 DISTRIBUTION UPON DISABILITY. In the event of the Disability of the
Participant, the Trustee, following receipt of notification of such
Disability from the Committee, shall make distributions from the
Account.
7.10 JOINT AND SURVIVOR ANNUITY REQUIREMENTS.
(A) APPLICATION. The provisions of this Section 7.10 shall apply
to any Participant who is credited with at least one Hour of
Service with the Employer on or after August 23, 1984, and
such other Participants as provided in Section 7.10(G).
(B) QUALIFIED JOINT AND SURVIVOR ANNUITY. Unless an optional form
of benefit is selected pursuant to a Qualified Election within
the ninety-day period ending on the Annuity Starting Date, a
married Participant's Vested Account Balance will be paid in
the form of a Qualified Joint and Survivor Annuity and an
unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. The Participant may elect to have
such annuity distributed upon attainment of the Earliest
Retirement Age under the Plan.
(C) QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY. Unless an optional
form of benefit has been selected within the election period
pursuant to a Qualified Election, if a Participant dies before
the Annuity Starting Date then the Participant's Vested
Account Balance shall be applied toward the purchase of an
annuity for the life of the surviving Spouse. The surviving
Spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
(D) DEFINITIONS.
(1) ELECTION PERIOD: The period which begins on the first
day of the Plan Year in which the Participant attains
age 35 and ends on the date of the Participant's
death. If a Participant separates from service prior
to the first day of the Plan Year in which age 35 is
attained, with respect to the account balance as of
the date of separation, the election period shall
begin on the date of separation.
Pre-age 35 waiver: A Participant who will not yet
attain age 35 as of the end of any current Plan Year
may make a special Qualified Election to waive the
Qualified Preretirement Survivor Annuity for the
period beginning on the date of such election and
ending on the first day of the Plan Year in which the
Participant will attain age 35. Such election shall
not be valid unless the Participant receives a
written explanation of the Qualified Preretirement
Survivor Annuity in such terms as are comparable to
the explanation required under Section 7.10(E).
Qualified Preretirement Survivor Annuity coverage
will be automatically reinstated as of the first day
of the Plan Year in which the Participant attains age
35. Any new
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waiver on or after such date shall be subject to the
full requirements of this Section 7.10.
(2) EARLIEST RETIREMENT AGE: The earliest date on which,
under the Plan, the Participant could elect to
receive retirement benefits.
(3) QUALIFIED ELECTION: A waiver of a Qualified Joint and
Survivor Annuity or a Qualified Preretirement
Survivor Annuity. Any waiver of a Qualified Joint and
Survivor Annuity or a Qualified Preretirement
Survivor Annuity shall not be effective unless: (a)
the Participant's Spouse consents in writing to the
election; (b) the election designates a specific
Beneficiary including any class of Beneficiaries or
any contingent Beneficiaries, which may not be
changed without spousal consent (or the Spouse
expressly permits designations by the Participant
without any further spousal consent); (c) the
Spouse's consent acknowledges the effect of the
election; and (d) the Spouse's consent is witnessed
by a Plan representative or Notary Public.
Additionally, a Participant's waiver of the Qualified
Joint and Survivor Annuity shall not be effective
unless the election designates a form of benefit
payment which may not be changed without spousal
consent (or the spouse expressly permits designations
by the Participant without any further spousal
consent). If it is established to the satisfaction of
a Plan representative that there is no Spouse or that
the Spouse cannot be located, a waiver will be deemed
a Qualified Election.
Any consent by a Spouse obtained under this provision
(or establishment that the consent of a Spouse may
not be obtained) shall be effective only with respect
to such Spouse. A consent that permits designations
by the Participant without any requirement of further
consent by such Spouse must acknowledge that the
Spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where
applicable, and that the Spouse voluntarily elects to
relinquish either or both of such rights. A
revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any
time before the commencement of benefits. The number
of revocations shall not be limited. No consent
obtained under this provision shall be valid unless
the Participant has received notice as provided in
Paragraph (E) below.
(4) QUALIFIED JOINT AND SURVIVOR ANNUITY: An immediate
annuity for the life of the Participant with a
survivor annuity for the life of the Spouse which is
not less than 50 percent and not more than 100
percent of the amount of the annuity which is payable
during the joint lives of the Participant and the
Spouse and which is the amount of benefit which can
be purchased with the Participant's vested account
balance. The percentage of the survivor annuity under
the Plan shall be 50%.
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(5) SPOUSE (SURVIVING SPOUSE): the Spouse or surviving
Spouse of the Participant, provided that a former
Spouse will be treated as the Spouse or surviving
Spouse and the current Spouse will not be treated as
the Spouse or surviving Spouse to the extent provided
under a qualified domestic relations order as
described in Section 414(p) of the Code.
(6) ANNUITY STARTING DATE: The first day of the first
period for which an amount is payable as an annuity
or any other form.
(7) VESTED ACCOUNT BALANCE: The aggregate value of the
Participant's vested account balances derived from
Employer and Employee contributions (including
rollovers), whether vested before or upon death. The
provisions of this Section 7.10 shall apply to a
Participant who is vested in amounts attributable to
Employer contributions, Employee contributions (or
both) at the time of death or distribution.
(E) NOTICE REQUIREMENTS.
(1) QUALIFIED JOINT AND SURVIVOR ANNUITY. In the case of
a Qualified Joint and Survivor Annuity as described
in Section 7.10(B), the Committee shall no less than
30 days and no more than 90 days prior to the Annuity
Starting Date provide each Participant a written
explanation of: (i) the terms and conditions of a
Qualified Joint and Survivor Annuity; (ii) the
Participant's right to make and the effect of an
election to waive the Qualified Joint and Survivor
Annuity form of benefit; (iii) the rights of a
Participant's Spouse; and (iv) the right to make, and
the effect of, a revocation of a previous election to
waive the Qualified Joint and Survivor Annuity.
(2) QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY. In the
case of a Qualified Pre-Retirement Survivor Annuity
as described in Section 7.10(C), the Committee shall
provide each Participant within the applicable period
for such Participant a written explanation of the
Qualified Pre-Retirement Survivor Annuity in such
terms and in such manner as would be comparable to
the explanation provided for meeting the requirements
of Section 7.10(E) applicable to a Qualified Joint
and Survivor Annuity.
The applicable period for a Participant is whichever
of the following periods ends last: (i) the period
beginning with the first day of the Plan Year
preceding the Plan Year in which the Participant
attains age thirty-two (32) and ending with the close
of the Plan Year in which the Participant attains age
thirty-five (35); (ii) a reasonable period ending
after the individual becomes a Participant; (iii) a
reasonable period ending after Section 7.10(E)(3)
ceases to apply to the Participant; and (iv) a
reasonable period ending after Section 7.10 first
applies to the Participant. Notwithstanding the
foregoing, notice must be provided within a
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reasonable period ending after separation from
service in the case of a Participant who separates
from service before attaining age thirty-five (35).
For purposes of applying the preceding paragraph, a
reasonable period ending after the enumerated events
described in (ii), (iii) and (iv) is the end of the
two-year period beginning one year prior to the date
the applicable event occurs, and ending one year
after that date. In the case of a Participant who
separates from service before the Plan Year in which
age 35 is attained, notice shall be provided within
the two-year period beginning one-year prior to
separation and ending one year after separation. If
such a Participant thereafter returns to employment
with the Employer, the applicable period for such
participant shall be redetermined.
(3) SUBSIDIZED ANNUITY DISTRIBUTIONS. Notwithstanding the
other requirements of this Section 7.10(E), the
respective notices prescribed by this Section 7.10(E)
need not be given to a Participant if (1) the Plan
"fully subsidizes" the cost of a Qualified Joint and
Survivor Annuity or Qualified Pre-Retirement Survivor
Annuity, and (2) the Plan does not allow the
Participant to waive the Qualified Joint and Survivor
Annuity or Qualified Preretirement Survivor Annuity
and does not allow a married Participant to designate
a non-Spouse Beneficiary. For purposes of this
Section 7.10(E), a Plan filly subsidizes the cost of
a benefit if no increase in cost, or decrease in
benefits to the Participant may result from the
Participant's failure to elect another benefit.
(F) SAFE HARBOR RULES.
(1) APPLICATION. This Section shall apply to a
Participant in a profit-sharing Plan, and to any
distribution, made on or after the first day of the
first Plan Year beginning after December 31, 1988,
from or under a separate account attributable solely
to accumulated deductible employee contributions, as
defined in Section 72(o)(5)(B) of the Code, and
maintained on behalf of a Participant in a money
purchase pension Plan, (including a target benefit
Plan) if the following conditions are satisfied: (1)
the Participant does not or cannot elect payments in
the form of a life annuity, and (2) on the death of
the Participant, the Participant's vested account
balance will be paid to the Participant's surviving
Spouse, but if there is no surviving Spouse or, if
the surviving Spouse has already consented in a
manner conforming to a Qualified Election, then to
the Participant's designated Beneficiary. The
surviving Spouse may elect to have distribution of
the vested account balance commence within the 90-day
period following the date of the Participant's death.
The account balance shall be adjusted for gains or
losses occurring after the Participant's death in
accordance with the provisions of the Plan governing
the adjustment of account balances for other types of
distributions. This Section 7.10(F) shall not be
operative
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with respect to a Participant in a profit-sharing
Plan if the Plan is a direct or indirect transferee
of a defined benefit Plan, money purchase Plan, a
target benefit Plan, stock bonus, or profit-sharing
Plan which is subject to the survivor annuity
requirements of Section 401(a)(11) and Section 417 of
the Code. If this Section 7.10(F) is operative, then
the provisions of this Section 7.10, other than in
Section 7.10(G), shall be inoperative.
(2) WAIVER. The Participant may waive the spousal death
benefit described in this section at any time
provided that no such waiver shall be effective
unless it satisfies the conditions of Section
7.10(D)(3) (other than the notification requirement
referred to therein) that would apply to the
Participant's waiver of the Qualified Preretirement
Survivor Annuity.
(3) VESTED ACCOUNT BALANCE. For purposes of this Section
7.10(F), vested account balance shall mean, in the
case of a money purchase pension Plan or a target
benefit Plan, the Participant's separate account
balance attributable solely to accumulated deductible
employee contributions within the meaning of Section
72(o)(5)(B)of the Code. In the case of a
profit-sharing Plan, vested account balance shall
have the same meaning as provided in Section
7.10(D)(7).
(G) TRANSITIONAL RULES.
(1) Any living Participant not receiving benefits on
August 23, 1984, who would otherwise not receive the
benefits prescribed by the previous sections of this
Section 7.10 must be given the opportunity to elect
to have the prior sections of this Section 7.10 apply
if such Participant is credited with at least one
Hour of Service under this Plan or a predecessor Plan
in a Plan Year beginning on or after January 1, 1976,
and such Participant had at least ten (10) years of
vesting service when he or she separated from
service.
(2) Any living Participant not receiving benefits on
August 23, 1984 who was credited with at least one
Hour of Service under this Plan or predecessor Plan
on or after September 2, 1974, and who is not
otherwise credited with any service in a Plan Year
beginning on or after January 1, 1976 must be given
the opportunity to have his or her benefits paid in
accordance with Section 7.10(G)(4).
(3) The respective opportunities to elect (as described
in Section 7.10(G)(1) and (2) above) must be afforded
to the appropriate Participants during the period
commencing on August 23, 1984 and ending on the date
benefits would otherwise commence to these
Participants.
(4) Any Participant who has elected pursuant to Section
7.10(G)(2) and any Participant who does not elect
under Section 7.10(G)(1) or who meets the
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requirements of Section 7.10(G)(1) except that such
Participant does not have at least ten (10) years of
vesting service when he or she separates from
service, shall have his or her benefits distributed
in accordance with all of the following requirements
of benefits would have been payable in the form of a
life annuity:
a) Automatic joint and survivor annuity. If
benefits in the form of a life annuity
become payable to a married participant who:
(i) begins to receive payments under the
Plan on or after Normal Retirement
Date; or
(ii) dies on or after Normal Retirement
Date while still working for the
Employer; or
(iii) begins to receive payments on or
after the Qualified Early Retirement
Age; or
(iv) separates from service on or after
attaining Normal Retirement Date (or
the Qualified Early Retirement Age)
and after satisfying the eligibility
requirements for the payment of
benefits under the Plan and
thereafter dies before beginning to
receive such benefits;
then such benefits will be received under
this Plan in the form of a Qualified Joint
and Survivor Annuity, unless the Participant
has elected otherwise during the election
period. The election period must begin at
least 6 months before the Participant
attains Qualified Early Retirement Age and
end not more than 90 days before the
commencement of benefits. Any election
hereunder will be in writing and may be
changed by the Participant at any time.
b) Election of early survivor annuity. A
Participant who is employed after attaining
the Qualified Early Retirement Age will be
given the opportunity to elect, during the
election period, to have a survivor annuity
payable on death. If the Participant elects
the survivor annuity, payments under such
annuity must not be less than the payments
which would have been made to the Spouse
under the Qualified Joint and Survivor
Annuity if the Participant had retired on
the day before his or her death. Any
election under this provision will be in
writing and may be changed by the
Participant at any time. The election period
begins on the later of (1) the 90th day
before the Participant attains the Qualified
Early Retirement Age, or (2) the date on
which participation begins, and ends on the
date the Participant terminates employment.
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c) For purposes of this Section 7.10(G)(4):
(i) Qualified Early Retirement Age is
the latest of: (i) the earliest
date, under the Plan, on which the
Participant may elect to receive
retirement benefits, (ii) the first
day of the 120th month beginning
before the Participant reaches
Normal Retirement Date, or (iii) the
date the Participant begins
participation.
(ii) Qualified Joint and Survivor Annuity
is an annuity for the life of the
participant with a survivor annuity
for the life of the Spouse as
described in Section 7.10(D)(4).
(H) NONTRANSFERABILITY. Any annuity distributed from the Plan must
be nontransferable.
(I) INCORPORATION OF TERMS. The terms of any annuity contract
purchased and distributed by the Plan to a Participant or
Spouse shall comply with the requirements of this Plan.
7.11 DISTRIBUTIONS TO QUALIFIED PLANS. In the event a former Employee whose
accounts have not been fully distributed becomes an active participant
in a Plan qualified under Section 401(a) of the Code, the Committee may
direct the Trustee to transfer the amount in such Participant's
account(s) to any such Plan provided the Plan to receive such transfers
authorizes accepting the transfer, provides that assets transferred
shall be held in a separate account and requires that the assets
transferred shall not be subject to any forfeiture provisions.
7.12 PROFIT SHARING PLANS AND 401(K) PROFIT SHARING PLANS ONLY - WITHDRAWAL
OF EMPLOYER CONTRIBUTIONS. Subject to the provisions of the Plan, in
accordance with rules for giving notice as determined by the Committee,
and as elected in the Adoption Agreement, a Participant may withdraw as
of the first Accounting Date subsequent to receipt by the Committee of
such notice:
(A) An amount equal to not more than 100% of the Participant's
Employer Contribution Account determined as of such Accounting
Date. No Participant who has made any withdrawal of Employer
Contributions in the twelve (12) months preceding the giving
of such notice may make a withdrawal under this Section.
(B) Notwithstanding anything to the contrary in this Section 7.12,
any withdrawal made pursuant to Section 7.12(A) shall be for a
minimum whole dollar amount not less than Five Hundred Dollars
($500.00); except that if the amount available for withdrawal
is less than Five Hundred Dollars ($500.00) then the minimum
amount of the withdrawal shall be the amount available.
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(C) No forfeitures will occur solely as a result of an Employee's
withdrawal of employer Contributions.
(D) Notwithstanding anything to the contrary in this Section 7.12,
a Participant may not make a withdrawal, pursuant to this
Section of any portion of the Participant's vested interest
which has been assigned to secure repayment of a loan in
accordance with Section 10.10, below, until such time as the
Committee shall have released said portion so assigned.
7.13 PROHIBITION AGAINST ALIENATION.
(A) Except as provided in Sections 401(a)(13) and 414(p) of the
Code, no benefit or interest available under this Plan will be
subject to assignment or alienation, either voluntarily or
involuntarily.
(B) The preceding sentence shall also apply to the creation,
assignment, or recognition of a right to any benefit payable
with respect to a Participant pursuant to a domestic relations
order, unless the Committee determines that such order is a
qualified domestic relations order, as defined in Section
414(p) of the Code, or any domestic relations order entered
before January 1, 1985.
(C) All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights
afforded to any "alternate payee" under a "qualified domestic
relations order." Furthermore, an immediate distribution to an
"alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if
the affected Participant has not reached the "earliest
retirement age" under the Plan, provided that in no event will
any such distribution accelerate the repayment of any loan
made to the affected Participant under the Plan, unless such
Participant consents thereto in writing. For purposes of this
Section 7.13, "alternate payee," "qualified domestic relations
order" and "earliest retirement age" shall have the meaning
set forth under Code Section 414(p), unless a Qualified
Distribution Date has been selected in the Adoption Agreement,
in which case the earliest retirement age shall be the date on
which the domestic relations order is determined to be
qualified.
7.14 MISSING PARTICIPANT OR BENEFICIARY. Each Participant and/or each
Beneficiary must file with the Committee from time to time in writing
his or her post office address and each change of post office address.
Any communication, statement or notice addressed to a Participant
and/or Beneficiary at such last post office address filed with the
Committee or if no address is filed with the Committee then at the last
post office address as shown on the Employer's records, will be binding
on the Participant and/or Beneficiary for all purposes of the Plan.
Neither the Committee nor the Trustee shall be required to search for
or locate a Participant or Beneficiary.
Any other provision of the Plan to the contrary notwithstanding, if any
application for a benefit has not been filed by a Participant otherwise
eligible therefor within ninety (90)
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days after the Plan Year in which occurred his or her termination date,
the Committee shall mail to such Participant and/or Beneficiary at his
or her last known address an application for benefit and a reminder
that he or she is eligible for such benefit. If such application is not
filed with the Committee in accordance with the provisions of the Plan
within ninety (90) days after it is so mailed to such Participant or
his or her termination date, whichever is later, the benefit shall be
forfeited and shall be used to reduce future Employer Contributions as
though the Participant were not vested in his or her accounts as of the
end of said ninety (90) day period. Upon the subsequent filing of an
application therefor by the Participant and/or his Beneficiary, such
accounts shall be immediately reinstated pursuant to this provision as
though the Participant were 100% vested in his or her accounts in an
amount equal to the cash value of the accounts on the date forfeited.
To the extent forfeited amounts are not available, the Employer shall
contribute the amount required to reinstate the Participant's account
balance.
7.15 LIMITATION ON CERTAIN DISTRIBUTIONS. Not withstanding anything
contained herein to the contrary, the Trustee may, in its discretion,
delay satisfying requests for distributions for up to one year where
distributions require amounts to be withdrawn from the Guaranteed
Investment Contract Fund; provided, however, that in no event shall the
Trustee delay distributions to a Participant beyond the legally
required time for distribution as set forth in Section 7.5.
7.16 FORM OF DISTRIBUTIONS AND WITHDRAWALS. The Trustee shall make all
distributions and withdrawals under the Plan, including Hardship
withdrawals, other withdrawals while the Participant is still employed,
and distributions upon retirement, disability, death and separation
from service, pro rata, from all accounts and Investment Funds, as
follows:
(A) In a Plan with no Employer Stock Fund, all withdrawals and
distributions under the Plan shall be made in cash.
(B) In a Plan with an Employer Stock Fund:
(l) Withdrawals and distributions under the Plan from the
other Investment Fund(s) shall be made in cash.
(2) Withdrawals and distributions under the Plan from the
Employer Stock Fund may be made in cash or in fill
shares of Employer Stock, with any fractional share
paid in cash, as elected by the Participant. For the
cash portion of any distribution or withdrawal, the
Participant will receive the cash proceeds from the
sale of shares of Employer Stock as of the sale date.
ARTICLE VIII
DIRECT ROLLOVERS
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8.1 GENERAL. This Article applies to distributions made on or after January
l, 1993. 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 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.
8.2 DEFINITIONS.
(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 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.
(E) WAIVER OF NOTICE. If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply,
such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-(11)(c) of the Income
Tax Regulations is given, provided that: (1) the plan
administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or
not to elect a
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distribution (and, if applicable, a particular distribution
option), and (2) the Participant, after receiving the notice,
affirmatively elects a distribution.
ARTICLE IX
TOP-HEAVY PROVISIONS
9.1 USE OF TOP-HEAVY PROVISIONS. If the Plan becomes a Top-Heavy Plan in
any Plan Year after December 31, 1983, the provisions of this Article
IX will supersede any conflicting provision in the Plan or the Adoption
Agreement. The Committee has sole responsibility to make the
determination as to the top-heavy status of the Plan.
9.2 TOP-HEAVY DEFINITIONS.
(A) KEY EMPLOYEE: Any Employee or former Employee and the
Beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such
individual's annual Compensation exceeds 50% of the dollar
limitation under Section 415(b)(l)(A) of the Code, an owner
(or considered an owner under Section 318 of the Code) of one
of the ten largest interests in the Employer if such
individual's Compensation exceeds 100% of the dollar
limitation under Section 415(c)(1)(A) of the Code, a 5 percent
owner of the Employer, or a 1 percent owner of the Employer
who has an annual Compensation of more than $150,000. Annual
compensation means compensation as defined in Item B(4)(a) of
the Adoption Agreement, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which
are excludable from the Employee's gross income under Section
125, Section 402(e)(3), Section 402(h)(l)(B) or Section 403(b)
of the Code. The determination period is the Plan Year
containing the Determination Date and the 4 preceding Plan
Years.
The determination of who is Key Employee will made by the
Committee in accordance with Section 416(i)(l) of the Code and
the regulations thereunder.
(B) TOP-HEAVY PLAN: This Plan, for any Plan Year beginning after
December 31, 1983, if any of the following conditions exists:
(l) If the Top-Heavy Ratio for this Plan exceeds 60
percent and this Plan is not part of any Required
Aggregation Group or Permissive Aggregation Group of
plans.
(2) If this Plan is a part of a Required Aggregation
Group of plans but not part of a Permissive
Aggregation Group and the Top-Heavy Ratio for the
group of plans exceeds 60 percent.
(3) If this Plan is a part of a Required Aggregation
Group and part of a Permissive Aggregation Group of
plans and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60 percent.
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(C) TOP-HEAVY RATIO: For purposes of determining if the Plan is a
Top-Heavy Plan:
(1) If the Employer maintains one or more defined
contribution plans (including any Simplified employee
pension Plan) and the Employer has not maintained any
defined benefit Plan which during the 5-year period
ending on the Determination Date(s) has or has had
accrued benefits, the Top-Heavy Ratio for this Plan
alone or for the Required or Permissive Aggregation
Group as appropriate is a fraction, the numerator of
which is the sum of the account balances of all Key
Employees as of the Determination Date(s) (including
any part of any account balance distributed in the
5-year period ending on the Determination Date(s)),
and the denominator of which is the sum of all
account balances (including any part of any account
balance distributed in the 5-year period ending on
the Determination Date(s), both computed in
accordance with Section 416 of the Code and the
regulating thereunder. Both the numerator and
denominator of the Top-Heavy Ratio are increased to
reflect any contribution not actually made as of the
Determination Date, but which is required to be taken
into account on that date under Section 416 of the
Code and the regulations thereunder.
(2) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee
Pension Plan) and the Employer maintains or has
maintained one or more defined benefit plans which
during the 5-year period ending on the Determination
Date(s) has or has had any accrued benefits, the
Top-Heavy Ratio for any Required or Permissive
Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of account balances
under the aggregated defined contribution plan or
plans for all Key Employees determined in accordance
with (1) above, and the Present Value of accrued
benefits under the aggregated defined benefit plan or
plans for all Key Employees as of the Determination
Date(s), and the denominator of which is the sum of
the account balances under the aggregated defined
contribution plan or plans for all Participants,
determined in accordance with (1) above, and the
Present Value of accrued benefits under the defined
benefit plan or plans for all Participants as of the
Determination Date(s), all determined in accordance
with Section 416 of the Code and regulations
thereunder. The accrued benefits under a defined
benefit plan in both the numerator and denominator of
the Top-Heavy Ratio are increased for any
distribution of an accrued benefit made in the
five-year period ending on the Determination Date.
(3) For purposes of (1) and (2) above, the value of
account balances and the Present Value of accrued
benefits will be determined as of the most recent
Valuation Date that falls within or ends with the
12-month period ending on the Determination Date,
except as provided in Section 416 of the Code and the
regulations thereunder for the first and second Plan
years of a
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defined benefit Plan. The account balances and
accrued benefits of a Participant (a) who is not a
Key Employee but who was a Key Employee in a prior
year, or (b) who has not been credited with at least
one Hour of Service with any Employer maintaining the
Plan at any time during the five-year period ending
on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to
which distributions, rollovers, and transfers are
taken into account will be made in accordance with
Section 416 of the Code and the regulations
thereunder. Voluntary deductible employee
contributions will not be taken into account for
purposes of computing the Top-Heavy Ratio. When
aggregating plans the value of account balances and
accrued benefits will be calculated with reference to
the Determination Dates that fall within the same
calendar year.
The accrued benefit of a Participant other than a 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 accrual rate permitted under the fractional
rule of Section 411(b)(1)(C) of the Code.
(D) PERMISSIVE AGGREGATION GROUP: The Required Aggregation Group
of plans plus any other Plan or plans of the Employer which,
when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of Section
401(a)(4) and Section 410 of the Code.
(E) REQUIRED AGGREGATION GROUP: (1) Each qualified plan of the
Employer in which at least one Key Employee participates or
participated at any time during the determination period
(regardless of whether the Plan has terminated), and (2) any
other qualified Plan of Employer which enables a Plan
described in (1) to meet the requirements of Section 401(a)(4)
or Section 410 of the Code.
(F) DETERMINATION DATE: For purposes of determining if there is a
Key Employee and for calculating the Top-Heavy Ratio: l) for
any Plan Year subsequent to the first Plan Year, the last day
of the preceding Plan Year, and 2) for the first Plan Year of
the Plan, the last day of that year.
(G) VALUATION DATE: The date specified in Item B(14)(c) of the
Adoption Agreement as of which account balances or accrued
benefits are valued for purposes of calculating the Top-Heavy
Ratio.
(H) PRESENT VALUE: Present Value shall be based only on the
interest and mortality rates specified in the Adoption
Agreement.
9.3 MINIMUM ALLOCATION
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(A) Except as otherwise provided in Section 9.3(C) and (D) below,
the Employer Contributions and forfeitures allocated on behalf
of any Participant who is not a Key Employee shall not be less
than the lesser of three percent (3%) of such Participant's
Compensation or in the case where the Employer has no defined
benefit Plan which designates this Plan to satisfy Section 401
of the Code, the largest percentage of Employer contributions
and forfeitures, as a percentage of the Key Employee's
Compensation, as limited by Section 401(a)(17) of the Code,
allocated on behalf of any Key Employee for that year. The
minimum allocation is determined without regard to any Social
Security contribution. This minimum allocation shall be made
even though, under other Plan provisions, the Participant
would not otherwise be entitled to receive an allocation or
would have received a lesser allocation for the year because
of (i) such Participants failure to complete 1,000 Hours of
Service (or any other equivalent provided in the Plan) or (ii)
the Employee's failure to make mandatory contributions or
(iii) Compensation less than a stated amount.
(B) For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 6.6(A) as
limited by Section 40l(a)(17) of the Code.
(C) Section 9.3(A) shall not apply to any Participant who was not
employed by the Employer on the last day of the Plan Year.
(D) Section 9.3(A) shall not apply to any Participant to the
extent the Participant is covered under any other plan or
plans of the Employer and the Employer has provided in Item
B(14) of the Adoption Agreement that the minimum allocation or
benefit requirement applicable to Top-Heavy Plans will be met
in the other plan or plans.
(E) The minimum allocation required (to the extent required to be
nonforfeitable under Section 416(b) of the Code) may not be
forfeited under Section 41l(a)(3)(B) or Section 411(a)(3)(D)
of the Code.
(F) For each Plan Year in which the Paired Plans are Top-Heavy,
the Top-Heavy requirements set forth in Article VIII of the
Plan and Item B(14) of the Adoption Agreement shall apply.
(G) Neither Before Tax Contributions nor Matching Contributions
may be taken into account for the purpose of satisfying the
minimum Top-Heavy contribution requirements.
9.4 MINIMUM VESTING SCHEDULES. For any Plan Year in which this Plan is a
Top-Heavy Plan, the vesting schedule elected by the Employer in Item
B(14) and/or C(4)(d) of the Adoption Agreement will automatically apply
to the Plan. The minimum vesting schedule applies to all benefits
within the meaning of Section 411(a)(7) of the Code except those
attributable to Employee contributions, including benefits accrued
before the effective
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date of Section 416 and benefits accrued before the Plan became a
Top-Heavy Plan. Further, no decrease in a Participant's nonforfeitable
percentage may occur in the event the Plan's status as a Top-Heavy Plan
changes for any Plan Year. However, this Section 9.4 does not apply to
the account balance of any Employee who does not have an Hour of
Service after the Plan has initially become a Top-Heavy Plan and such
Employee's account balance attributable to employer contributions and
forfeitures will be determined without regard to this Section 9.4.
ARTICLE X
TRUSTEE
10.1 TRUSTEE. The Trustee shall receive, hold, invest, administer and
distribute the Trust Fund in accordance with the provisions of the Plan
as herein set forth.
10.2 RECORDS AND ACCOUNTS OF TRUSTEE. The Trustee shall maintain accurate
and detailed records and accounts of all its transactions of the Trust
Fund, which shall be available at all reasonable times for inspection
or audit by any person designated by the Employer and by any other
person or entity to the extent required by law.
10.3 REPORTS TO EMPLOYER. As soon as practicable following the close of each
accounting period and following the effective date of the termination
of the Plan, the Trustee shall file a written report with the Employer.
The report shall set forth all transactions with respect to the Trust
Fund during the period listing the Trust Fund assets with their market
value as of the close of the period covered by the report.
10.4 POWERS OF TRUSTEE. The Trustee shall administer the Trust Fund as a
nondiscretionary Trustee, and the Trustee shall not have any discretion
or authority with regard to the investment of the Trust Fund and shall
act solely as a directed Trustee of the fund contributed to it. The
Trustee, as a nondiscretionary Trustee, as may be directed by the
Employer (or the Participants to the extent provided herein) is
authorized and empowered, by way of limitation, with the following
powers, rights and duties, each of which the Trustee shall exercise in
a nondiscretionary manner as directed in accordance with the direction
of the Employer (or the Participants) as a Named Fiduciary (except to
the extent that Plan assets are subject to the control and management
of a properly appointed Investment Manager):
(A) At the direction of the Named Fiduciary, to sell, write
options on, convey or transfer, invest and reinvest any part
thereof in each and every kind of property, whether real,
personal or mixed, tangible or intangible, whether income or
non- income producing and wherever situated, including, but
not limited to, time deposits (including time deposits in the
Trustee or its affiliates, or any successor thereto, if the
deposits bear a reasonable rate of interest), fee simple,
leasehold or lesser estates in real estate, shares of common
and preferred stock, mortgages, bonds, leases, notes,
debentures, equipment or collateral trust certificates,
rights, warrants, convertible or exchangeable, and other
corporate, individual or
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government securities or obligations, annuity, retirement or
other insurance contracts, mutual funds (including funds for
which the Trustee or its affiliates serve as investment
advisor), units of group or collective trusts established to
permit the pooling of funds of separate pension and profit
sharing trusts, provided the Internal Revenue Service has
ruled such group trust to be qualified under Code Section
401(a) and exempt under Code Section 501(a) (or the applicable
corresponding provision of any other Revenue Act) or in units
of any other common, collective or commingled trust fund
heretofore or hereafter established and maintained by the
Trustee or its affiliates; as long as the Trustee holds any
units hereunder, the instrument establishing such common trust
fund (including all amendments thereto) shall be deemed to
have been adopted and made a part of this Plan, and such other
investments as the Named Fiduciary shall direct the Trustee to
invest Plan assets or hold as an Investment Fund for the
investment of Plan assets pursuant to Participant direction.
(B) At the direction of the Named Fiduciary, to sell, convert,
redeem, exchange, grant options for the purchase or exchange
of, or otherwise dispose of any property held hereunder, at
public or private sale, for cash or upon credit with or
without security, without obligation on the part of any person
dealing with the Trustee to see to the application of the
proceeds of or to inquire into the validity, expediency, or
propriety of any such disposal;
(C) At the direction of the Named Fiduciary, to manage, operate,
repair, partition and improve and mortgage or lease (with or
without an option to purchase) for any length of time any
property held in the Trust Fund; to renew or extend any
mortgage or lease, upon such terms as the Trustee may deem
expedient; to agree to reduction of the rate of interest on
any mortgage; to agree to any modification in the terms of any
lease or mortgage, or of any guarantee pertaining to either of
them; to exercise and enforce any right of foreclosure; to bid
in property on foreclosure; to take a deed in lieu of
foreclosure with or without paying consideration therefor and
in connection therewith to release the obligation on the bond
secured by the mortgage; and to exercise and enforce in any
action, suit or proceeding at law or in equity any rights,
covenants, conditions, or remedies with respect to any lease
or mortgage or to any guarantee pertaining to either of them
or to waive any default in the performance thereof;
(D) In accordance with the direction of a Named Fiduciary, to
vote, personally or by general or limited proxy, any shares of
stock or other securities held in the Trust Fund, provided
that all voting rights pertaining to shares of any financial
institution in the state where the Trustee is located shall be
exercised by the trustee only if and as directed in writing by
the Committee; provided further, that the Trustee and the
Employer may agree in writing that such voting rights be
passed through to the Participant's in proportion to their
interest in the Investment Funds, to delegate discretionary
voting power to the trustees of a voting trust for any period
of time; and to exercise or sell, personally or by power of
attorney, any
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conversion or subscription or other rights appurtenant to any
securities or other property held in the Trust Fund;
(E) As may be directed by the Named Fiduciary, to join in or
oppose any reorganization, recapitalization, consolidation,
merger or liquidation, or any Plan therefor, or any lease
(with or without an option to purchase), mortgage or sale of
the property of any organization the securities of which are
held in the Trust Fund; to pay from the Trust Fund any
assessments, charges, or compensation specified in any Plan of
reorganization, recapitalization, consolidation, merger or
liquidation; to deposit any property with any committee or
depository; and to retain any property allotted to the Trust
Fund in any reorganization, recapitalization, consolidation,
merger or liquidation;
(F) In accordance with the written instructions of a Named
Fiduciary, to settle, compromise or commit to arbitration any
claim, debt or obligation of or against the Trust Fund; to
enforce or abstain from enforcing any right, claim, debt, or
obligation; and to abandon any property determined by it to be
worthless;
(G) As may be directed by the Named Fiduciary, to continue to hold
any property of the Trust Fund, whether or not productive of
income; to reserve from investment and keep unproductive of
income, without liability for interest, such cash as it deems
advisable and, consistent with its obligations as Trustee
hereunder, to hold such cash in a demand deposit in the
Trustee bank, its affiliates, or any successor thereto;
(H) To hold property of the Trust Fund in its own name, or in the
name of nominee, without disclosure of this trust, or in
bearer form so that it may pass by delivery, and to deposit
property with any depository, but no such holding or
depositing shall relieve the Trustee of its responsibility for
the safe custody and disposition of the Trust Fund in
accordance with the provisions of this agreement as may be
directed by the Named Fiduciary, and the Trustee's records
shall at all times show that such property is part of the
Trust Fund;
(I) As directed by the Named Fiduciary, to make, execute and
deliver, as Trustee, any deeds, conveyances, leases (with or
without option to purchase), mortgages, options, contracts,
waivers, or other instruments that the Trustee shall deem
necessary or desirable in the exercise of its powers under
this agreement;
(J) To employ, at the expense of the Employer or the Trust Fund,
agents and delegate to them such duties as the Trustee sees
fit; the Trustee shall not be responsible for any loss
occasioned by any such agents selected by it with reasonable
care; the Trustee may consult with legal counsel (who may be
counsel for the Employer) concerning any questions which may
arise with reference to its power or duties under this Plan,
and the written opinion of such counsel shall be full and
complete protection with respect to any action taken or not
taken by the Trustee in good faith and in accordance with the
written opinion of such counsel;
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(K) To pay out of the Trust Fund any taxes imposed or levied with
respect to the Trust Fund and may contest the validity or
amount of any tax, assessment, penalty, claim or demand
respecting the Trust Fund; however, unless the Trustee shall
have first been indemnified to its satisfaction, it shall not
be required to contest the validity of any tax, or to
institute, maintain or defend against any other action or
proceeding either at law or in equity;
(L) To make loans to Participants in accordance with policies
established by the Committee and in accordance with the terms
of the Plan and the and to segregate or otherwise identify
property of the Trust Fund as directed by the Committee for
such purpose including providing collateral for loans made
pursuant to the Plan.
10.5 TRUSTEE'S FEES AND EXPENSES. The Trustee shall be entitled to receive
reasonable fees for its services hereunder in accordance with its
schedule of fees then in effect and shall be entitled to receive
reimbursement for all reasonable expenses incurred by it in the
administration of this Plan. Except to the extent that the Employer
shall pay such fees and expenses, they shall be charged to and
collected by the Trustee from each Participant's accounts. The
Trustee's fees and expenses for extraordinary services in connection
with any Participant's accounts may be charged to and collected by the
Trustee from such accounts.
10.6 TRUSTEE MAY RESIGN OR BE REMOVED. The Trustee may resign by written
notice to the Employer which shall be effective sixty (60) days after
delivery unless the Trustee and the Employer agree to an earlier
effective date. The Trustee may be removed by the Employer by written
notice to the Trustee which shall be effective sixty (60) days after
delivery unless the Trustee and the Employer agree to an earlier
effective date. Prior to the effective date of such restitution or
removal, the Employer shall amend its Plan to eliminate any reference
to the PRISM(R) PROTOTYPE RETIREMENT PLAN AND TRUST, and appoint a new
trustee. The Trustee shall deliver the Trust Fund to its successor on
the effective date of resignation or removal, or as soon after such
effective date as practicable. However, the Trustee may first subtract
any amounts owed it from the Trust Fund for compensation, expenses and
taxes due.
If the Employer fails to so amend the Plan and appoint a successor
trustee within the sixty (60) days, or longer period as the Trustee
permits in writing, the Trustee shall apply to a court of competent
jurisdiction for appointment of a successor trustee.
10.7 SEPARATE INVESTMENT FUNDS.
(A) The assets of the Trust Fund shall be held in such number of
Investment Funds as the Employer and the Trustee may agree,
plus an Employer Stock Fund if selected by the Employer in the
Adoption Agreement, as the Employer shall designate in writing
on the Investment Fund Designation form affixed to the
Adoption Agreement. Such Investment Funds shall be selected by
the Employer from among the funds offered by the Trustee for
use as Investment Funds in the PRISM(R) PROTOTYPE RETIREMENT
PLAN & TRUST. The Trustee reserves the right
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to change the funds available for use as Investment Funds in
the PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST, from time to
time, and the Employer agrees to execute an amended Investment
Fund Designation form to reflect any such changes as may
impact the Investment Funds available to the Employer's Plan.
The Employer hereby acknowledges that, available as Investment
Funds are interests in registered investment companies (i.e.
mutual funds) for which the sponsoring organization, its
parent, affiliates or successors may serve as investment
advisor and receive compensation from the registered
investment company for its services as investment advisor. The
Employer acknowledges that it, as Named Fiduciary, has the
sole responsibility for selection of the Investment Funds
offered under the Plan, and it has done so on the basis of the
Employer's determination, after due inquiry, of the
appropriateness of the selected Investment Funds as vehicles
for the investment of Plan assets pursuant to the terms of the
Plan, considering all relevant facts and circumstances,
including but not limited to (i) the investment policy and
philosophy of the Employer developed pursuant to ERISA
Section 402(b)(1); (ii) the Participants, including average
level of investment experience and sophistication;
(iii) the ability of Participants, using an appropriate mix
of Investment Funds, to diversify the investment of Plan
assets held for their benefit; (iv) the ability of
Participants to, utilizing an appropriate mix of Investment
Funds, to structure an investment portfolio within their
account in the Plan with risk and return characteristics
within the normal range of risk and return characteristics
for individuals with similar investment backgrounds,
experience and expectations; and, (v) in making the selection
of Investment Funds, the Employer did not rely on any
representations or recommendations from the Trustee or any of
its employees, except as may have been provided through
written materials, including marketing materials provided by
the various sponsors or distributors of the Investment Funds,
and that the Investment Fund selection has not be influenced,
approved, or encouraged through the actions of the Trustee or
its employees.
For purposes of the Plan, "Employer Stock" shall mean common
stock listed on a recognized securities exchange issued by an
Employer of Employees covered by the Plan or by an affiliate
of such Employer and which shall be a "qualifying employer
security" as defined in ERISA. The Employer Stock Fund shall
be invested and reinvested in shares of Employer Stock, which
stock shall be purchased by the Trustee to the extent not
contributed to the Plan by the Employer, except for amounts
which may reasonably be expected to be necessary to satisfy
distributions to be made in cash. No Employer Stock shall be
acquired or held in any Investment Fund other than the
Employer Stock Fund. Up to 100% of the assets of the Trust
Fund may be invested in Employer Stock.
All contributions shall be allocated by the Trustee to the
Plan's Investment Funds specified by the Employer. Dividends,
interest and other distributions shall be reinvested in the
same Investment Fund from which received.
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Employers sponsoring 401(k) profit sharing plans may elect to
determine the Investment Funds, including an Employer Stock
Fund, if applicable, into which Matching Contributions and/or
Employer Contributions will be invested and/or into which
Participants may not direct contributions. By making these
designations, the Employer shall be deemed to have advised the
Trustee in writing regarding the retention of investment
powers.
Notwithstanding the foregoing provisions of this Section
10.7(A), the Trustee may, in its discretion, accept certain
investments which have been, and are, held as part of the
Trust Fund prior to the date the Employer adopted this Plan.
Such investments shall be considered investments directed by
the Employer or an Investment Committee for the Plan
("Investment Committee"), if one is acting. The Trustee shall
hold, administer and dispose of such investments in accordance
with directions to the Trustee contained in a written notice
from the Employer or Investment Committee. Any such notice
shall advise the Trustee regarding the retention of investment
powers by the Employer or the Investment Committee and shall
be of a continuing nature or otherwise, and may be revoked in
writing by the Employer or Investment Committee.
The Trustee shall not be liable but shall be fully protected
by reason of its taking or refraining from taking any action
at the direction of the Employer or Investment Committee, nor
shall the Trustee be liable but shall he filly protected by
reason of its refraining from taking any action because of the
failure of the Employer or the Investment Committee to give a
direction or order. The Trustee shall be under no duty to
question or make inquiry as to any direction, notification or
order or failure to give a direction, notification or order by
the Employer or the Investment Committee. The Trustee shall be
under no duty to make any review of investments directed by
the Employer or Investment Committee acquired for the Trust
Fund and under no duty at any time to make any recommendation
with respect to disposing of or continuing to retain any such
investments. While the Employer may direct the Trustee with
respect to Plan investments, the Employer may not (1) borrow
from the Fund or pledge any assets of the Fund as security for
a loan; (2) buy property or assets from or sell property or
assets to the Fund; (3) charge any fee for services rendered
to the Fund; or (4) receive any services from the Fund on a
preferential basis.
The Employer hereby indemnifies and holds the Trustee or its
nominee harmless from any and all actions, claims, demands,
liabilities, losses, damages or reasonable expenses of
whatsoever kind and nature in connection with or arising out
of (l) any action taken or omitted in good faith or any
investment or disbursement of any part of the Trust Fund made
by the Trustee in accordance with the directions of the
Employer or the Investment Committee or any inaction with
respect to any Employer or Investment Committee directed
investment or with respect to any investment previously made
at the direction of the Employer or Investment Committee in
the absence of directions from the Employer or Investment
Committee therefor, or (2) any failure by the Trustee to pay
for any
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property purchased by the Employer or the Investment Committee
for the Trust Fund b? reason of the insufficiency of funds in
the Trust Fund.
Anything hereinabove to the contrary notwithstanding, the
Employer shall have no responsibility to the Trustee under the
foregoing indemnification if the Trustee knowingly
participated in or knowingly concealed any act or omission of
the Employer or Investment Committee knowing that such act or
omission constituted a breach of fiduciary responsibility, or
if the Trustee fails to perform any of the duties undertaken
by it under the provisions of this Plan, or if the Trustee
fails to act in conformity with the directions of an
authorized representative of the Employer or the Investment
Committee.
(B) Each Participant shall by such mechanism as may be agreed upon
between the Trustee and Employer, direct that the
contributions made to his or her accounts for which the
Participant may direct investments, as selected by the
Employer in the Adoption Agreement, be invested in one or more
of the Investment Funds, including the Employer Stock Fund, if
applicable. At the time an Employee becomes eligible for the
Plan, he or she shall specify the percentage of his or her
accounts (expressed in percentage increments as may be agreed
to between the Employer and the Trustee) to be invested
pro-rata in each such Investment Fund.
(C) Upon prior written notice to the Trustee, or other form of
notice acceptable to the Trustee, a Participant may change an
investment direction with respect to future contributions.
Through acceptable notice to the Trustee, the Participant may
elect to transfer all or a portion of such Participant's
interest in each Investment Fund (based on the value of such
interest on the Valuation Date immediately preceding such
election), including an Employer Stock Fund, if applicable, to
any other of the Investment Funds selected by the Employer so
that the Participant's interest in the Investment Funds
immediately after the transfer is allocated in percentage
increments as may be agreed to by the Employer and the
Trustee.
Notwithstanding any Participant's election to change
Investment Funds, the Trustee may, in its discretion, delay
satisfaction of requests to change from a guaranteed
investment contract fund for up to one year, or delay
satisfaction of changes in Investment Funds pending settlement
of prior changes in Investment Funds.
(D) The Employer will be responsible when transmitting Employer
and Employee contributions to show the dollar amount to be
credited to each Investment Fund for each Employee.
(E) Except as otherwise provided in the Plan, neither the Trustee,
nor the Employer, nor any fiduciary of the Plan shall be
liable to the Participant or any of his or her beneficiaries
for any loss resulting from action taken at the direction of
the Participant.
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(F) In a 401(k) profit sharing Plan where the Employer has elected
to invest a portion or all of the Matching Contributions
and/or Employer Contributions in the Employer Stock Fund, then
the following shall apply:
If selected by the Employer in the Adoption Agreement, a
Participant who is fifty-five (55) years of age or older and
who is 100% vested in his Matching Contribution account and/or
Employer Contribution account may elect to have the Employer
Stock (and any earnings thereon) attributable to such Matching
Contributions and/or Employer Contributions diversified in the
other Investment Funds under the Plan in accordance with the
following rules and limitations. The amount of Employer Stock
which may be diversified each Plan Year shall be determined in
accordance with the following schedule:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
then the percent of the number
of whole shares (rounded to the
nearest whole number) credited
If the age attained by the to the Participants' Matching
Participant during the Plan Account and/or Employer
Year is: Contribution Account on the
last day of the preceding Plan
Year which may be diversified
pursuant to the rules below may
not exceed
----------------------------------------------------------------------------
<S> <C> <C>
55 25%
----------------------------------------------------------------------------
56 25%
----------------------------------------------------------------------------
57 30%
----------------------------------------------------------------------------
58 40%
----------------------------------------------------------------------------
59 50%
----------------------------------------------------------------------------
60 60%
----------------------------------------------------------------------------
61 70%
----------------------------------------------------------------------------
62 80%
----------------------------------------------------------------------------
63 90%
----------------------------------------------------------------------------
64 100%
----------------------------------------------------------------------------
</TABLE>
The election to diversify may only be made once each Plan
Year. The election may be made in any month by providing
notice to the Committee in accordance with the frequency
selected by the Employer for other Investment Fund changes
under the Plan. Each election to make a transfer pursuant to
this Section shall
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<PAGE> 84
specify the Investment Fund(s) into which the shares subject
to diversification will be reinvested so that the
Participant's interest in the said Investment Fund(s),
immediately after the transfer, is allocated in increments as
may be allowed by the Trustee. Thereafter, the Participant's
interest in said Investment Fund(s) shall be subject to
transfer in accordance with this Section.
(G) Forfeitures arising under the Plan will be invested in an
Investment Fund as may be selected in the discretion of the
Employer.
(H) In the event the Trust holds life insurance, the following
restrictions shall apply:
(l) Limitations on Premium Payments
(a) If ordinary or whole life insurance
contracts are purchased on the life of a
Participant, less than one-half of the
insured Participant's current allocation of
contributions will be used to pay premiums
attributable to such insurance. Ordinary or
whole life insurance contracts are those
with both nondecreasing benefits and
nonincreasing premiums.
(b) If term or universal life insurance
contracts are purchased, no more than
one-quarter of the insured Participant's
current allocation of contributions will be
used to pay premiums attributable to such
insurance.
(c) If a combination of ordinary or whole life
insurance contracts and term or universal
life insurance contracts are purchased, the
sum of one-half of the ordinary life
insurance premiums and all other life
insurance premiums will not exceed
one-fourth of the aggregate employer
contributions allocated to any participant.
(2) The Plan Administrator will direct the Trustee to
convert the entire value of any life insurance
contract at or before the Participant's actual
retirement or distribution on termination of
employment, but not later than the Participant's
Required Beginning Date to provide cash values or
retirement annuity income, or, subject to the Joint
and Survivor Annuity waiver requirements of Section
7.10, the Plan Administrator may direct the Trustee
to distribute the insurance contract directly to the
Participant.
(3) The Trustee, at the direction of the Employer shall
be entitled to exercise all rights and options with
respect to any such life insurance contracts held by
the Plan.
10.8 REGISTRATION, DISTRIBUTION AND VOTING OF EMPLOYER STOCK AND PROCEDURES
REGARDING TENDER OFFERS.
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<PAGE> 85
(A) All voting rights on shares of Employer Stock held in the
Employer Stock Fund shall be exercised by the Trustee only as
directed by the Participants acting in their capacity as
"Named Fiduciaries" (as defined in Section 402 of the Act) in
accordance with the following provisions of this Section
10.8(A):
(1) As soon as practicable before each annual or special
shareholders' meeting of the Employer, the Trustee
shall finish to each Participant sufficient copies of
the proxy solicitation material sent generally to
shareholders, together with a form requesting
confidential instructions on how the shares of
Employer Stock allocated to such Participant's
account, and, separately, such shares of Employer
Stock as may be unallocated ("Unallocated Shares") or
allocated to Participant accounts but for which the
Trustee does not receive timely voting instruction
from the Participant ("Non-Directed Shares"),
(including fractional shares to 1/1000th of a share)
are to be voted. The direction with respect to
Non-Directed Shares and Unallocated Shares 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 Stock credited to the Participant's account
and the denominator of which is the total number of
shares credited to the accounts of all such
Participants who have timely provided directions to
the Trustee with respect to Non-Directed Shares and
Unallocated Shares under this Section 10.8(A)(1). The
Employer and the Committee will cooperate with the
Trustee to ensure that Participants receive the
requisite information in a timely manner. The
materials furnished to the Participants shall include
a notice from the Trustee that the Trustee will vote
any shares for which timely instructions are not
received by the Trustee as may be directed by those
voting Participants, acting in their capacity as
Named Fiduciaries of the Plan as provided above. Upon
timely receipt of such instructions, the Trustee
shall vote the shares as instructed. The instructions
received by the Trustee from Participants or
Beneficiaries shall be held by the Trustee in strict
confidence and shall not be divulged or released to
any person including directors, officers or employees
of the Employer, or of any other company, except as
otherwise required by law.
(2) With respect to all corporate matters submitted to
shareholders, all shares of Employer Stock shall be
voted only in accordance with the directions of such
Participants as Named Fiduciaries as given to the
Trustee as provided in Section 10.8(A)(1). With
respect to shares of Employer Stock allocated to the
account of a deceased Participant, such Participant's
Beneficiary, as Named Fiduciary, shall be entitled to
direct the voting of shares of Employer Sock as if
such Beneficiary were the Participant.
(B) All tender or exchange decisions with respect to Employer
Stock held in the Employer Stock Fund shall be made only by
the Participants acting in their
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<PAGE> 86
capacity as Named Fiduciaries with respect to the Employer
Stock allocated to their accounts in accordance with the
following provisions of this Section 10.8(B):
(1) In the event an offer shall be received by the
Trustee (including a tender offer for shares of
Employer Stock subject to Section 14(d)(1) of the
Securities Exchange Act of 1934 or subject to Rule
13e-4 promulgated under that Act, as those provisions
may from time to time be amended) to purchase or
exchange any shares of Employer Stock held by the
Trust, the Trustee will advise each Participant who
has shares of Employer Stock credited to such
Participant's account in writing of the terms of the
offer as soon as practicable after its commencement
and will furnish each Participant with a form by
which he may instruct the Trustee confidentially
whether or not to tender or exchange shares allocated
to such Participant's account, and, separately,
Unallocated Shares and Non-Directed Shares
(including fractional shares to 1/1000th of a share).
The directions with respect to Non-Directed Shares
and Unallocated Shares 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 Stock credited to the Participant's account
and the denominator of which is the total number of
shares credited to the accounts of all such
Participants who have timely provided directions to
the Trustee with respect to Non-Directed Shares and
Unallocated Shares under this Section 10.8(B). The
materials furnished to the Participants shall include
(i) a notice from the Trustee that, except as
provided in this Section 10.8(B), the Trustee will
not tender or exchange any shares for which timely
instructions are not received by the Trustee and (ii)
such related documents as are prepared by any person
and provided to the shareholders of the Employer
pursuant to the Securities Exchange Act of 1934. The
Committee and the Trustee may also provide
Participants with such other material concerning the
tender or exchange offer as the Trustee or the
Committee in its discretion determines to be
appropriate; provided, however, that prior to any
distribution of materials by the Committee, the
Trustee shall be furnished with sufficient numbers of
complete copies of all such materials. The Employer
and the Committee will cooperate with the Trustee to
ensure that Participants receive the requisite
information in a timely manner.
(2) The Trustee shall tender or not tender shares or
exchange shares of Employer Stock (including
fractional shares to 1/1000th of a share) only as and
to the extent instructed by the Participants as Named
Fiduciaries as provided in Section l0.8(B)(l). With
respect to shares of Employer Stock allocated to the
account of a deceased Participant, such Participant's
Beneficiary, as a Named Fiduciary, shall be entitled
to direct the Trustee whether or not to tender or
exchange such shares as if such Beneficiary were the
Participant. If tender or exchange instructions for
shares of
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<PAGE> 87
Employer Stock allocated to the account of any
Participant are not timely received by the Trustee,
the Trustee will treat the non-receipt as a direction
not to tender or exchange such shares. The
instructions received by the Trustee from
Participants or Beneficiaries shall be held by the
Trustee in strict confidence and shall not be
divulged or released to any person, including
directors, officers or employees of the Employer, or
of any other company, except as otherwise required by
law.
(3) In the event, under the terms of a tender offer or
otherwise, any shares of Employer Stock 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 securities from such offer in the same manner
and the same proportion as shall be timely received
by the Trustee from the Participants, as Named
Fiduciaries, entitled under this Section 10.8(B) to
give instructions as to the sale, exchange or
transfer of securities pursuant to such offer.
(4) In the event an offer shall be received by the
Trustee and instructions shall be solicited from
Participants pursuant to Section l0.8(B)(I-3)
regarding such offer, and prior to termination of
such offer, another offer is received by the Trustee
for the securities subject to the first offer, the
Trustee shall use its best efforts under the
circumstances to solicit instructions from the
Participants to the Trustee (i) with respect to
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 securities so withdrawn for sale, exchange
or transfer pursuant to the second offer and (ii)
with respect to securities not tendered for sale,
exchange or transfer pursuant to the first offer,
whether to tender or not to tender such securities
for sale, exchange or transfer pursuant to the second
offer. The Trustee shall follow all such instructions
received in a timely manner from Participants in the
same manner and in the same proportion as provided in
Section l0.8(B)(l-3). With respect to any further
offer for any Employer Stock received by the Trustee
and subject to any earlier offer (including
successive offers from one or more existing
offerors), the Trustee shall act in the same manner
as described above.
(5) A Participant's instructions to the Trustee to tender
or exchange shares of Employer Stock will not be
deemed a withdrawal or suspension from the Plan or a
forfeiture of any portion of the Participant's
interest in the Plan. Funds received in exchange for
tendered shares will be credited to the account of
the Participant whose shares were tendered and will
be used by the Trustee to purchase Employer Stock, as
soon as practicable. In the interim, the Trustee will
invest such funds in short-term investments permitted
under the Plan, and in the same manner in which
forfeited amounts are invested.
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<PAGE> 88
(6) In the event the Employer initiates a tender or
exchange offer, the Trustee may, in its sole
discretion, enter into an agreement with the Employer
not to tender or exchange any shares of Employer
Stock in such offer, in which event, the foregoing
provisions of this Section 10.8(B) shall have no
effect with respect to such offer and the Trustee
shall not tender or exchange any shares of Employer
Stock in such offer.
(C) The Trustee acting with respect to the Employer Stock Fund may
with the consent of the Committee designate any Employee or
other Trustee as agent to solicit the instructions to vote
provided for in Subsection (A) of this Section, and shall be
held harmless in relying upon such agent's written advice as
to how shares are to be voted, and said Trustee may, with the
consent of the Committee, designate any Employee as agent to
solicit instructions from Participants regarding such a tender
offer, as required under Subsection (B) above, and shall be
held harmless in relying upon such agent's written advice as
to whether shares of Employer Stock are to be tendered.
(D) The Employer shall be responsible for complying with
applicable federal and state securities laws and regulations.
10.9 VALUATION OF INVESTMENT FUNDS AND ACCOUNTS.
(A) As of each Valuation Date, the Trustee shall determine the
fair market value of each Investment Fund, including an
Employer Stock Fund, if any, being administered by the
Trustee. With respect to each such Investment Fund, the
Trustee shall determine (a) the change in value between the
current Valuation Date and the then last preceding Valuation
Date, (b) the net gain or loss resulting from expenses paid
(including fees and expenses, if any, which are to be charged
to such Fund) and (c) realized and unrealized gains and
losses.
The transfer of funds to or from an Investment Fund pursuant
to Section 10.7(C) and payments, distributions and withdrawals
from an Investment Fund to provide benefits under the Plan for
Participants or Beneficiaries shall not be deemed to be gains,
expenses or losses of an Investment Fund.
After each Valuation Date, the Trustee shall allocate the net
gain or loss of each Investment Fund as of such Valuation Date
to the accounts of Participants participating in such
Investment Fund on such Valuation Date. Contributions,
forfeitures and rollovers received and credited to
Participants' accounts as of such Valuation Date, or as of any
earlier date since the last preceding Valuation Date shall not
be considered in allocating gains or losses allocated to
Participants' accounts.
(B) The reasonable and equitable decision of the Trustee as to the
value of each Investment Fund, including an Employer Stock
Fund, if any, and of any account
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<PAGE> 89
as of each Valuation Date shall be conclusive and binding upon
all persons having any interest, direct or indirect, in the
Investment Funds or in any account.
ARTICLE XI
ADMINISTRATION
11.1 COMMITTEE MEMBERSHIP. The Employer shall appoint a Committee which
shall consist of at least one member. The Committee members will be
named in the Adoption Agreement and may be, but are not required to be,
Employees of the Employer. All members of the Committee shall serve at
the pleasure of the Employer. In the event that the Committee has more
than one member, one member shall serve as Chairman and one as
Secretary. Any member of the Committee may resign by notice in writing
to the Employer. Any vacancy in the Committee shall be filled by the
Employer as soon as practicable after a vacancy. If the Employer does
not designate a Committee, the Employer shall assume all of the duties
of the Committee.
11.2 POWERS AND DUTIES OF COMMITTEE. The Committee shall have all powers and
duties and only the powers and duties as are specifically conferred
upon it by this Plan or as the Employer may delegate to or impose upon
it consistent with the provisions of this Plan, ERISA and the Code.
Without limiting the generality of the foregoing, the Committee shall
have the following powers and duties:
(A) to interpret and construe the terms and provisions of this
Plan and to decide any questions which may arise hereunder,
including but not limited to --
(1) the amount of a Participant's Compensation,
(2) a Participant's Years of Service,
(3) the age of any person who might be entitled to
receive benefits,
(4) the right of any person to receive benefits,
(5) the amount of any benefits to be paid to any persons;
(B) to cause to be maintained all necessary records and accounts
under this Plan and to keep in convenient form any data as may
be necessary for valuation of the assets and liabilities;
(C) to rely upon the records of the Employer or upon any
certificate, statement or other representation made to it by a
Participant, a Beneficiary, the authorized representative of
the Participant or Beneficiary, or the Trustee concerning any
fact required to be determined under any of the provisions of
this Plan, and the Committee shall not be required to make
inquiry into the propriety of any action by the Employer or
the Trustee;
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<PAGE> 90
(D) to give written notice to a Participant, a Beneficiary, or the
authorized representative of the Participant or Beneficiary,
of the amount of benefits payable under this Plan;
(E) to make and enforce any rules, not inconsistent with this
Plan, as it shall deem necessary or proper for the efficient
administration of this Plan;
(F) to have and exercise such other authority as it deems
necessary to carry out the purposes and provisions of this
Plan, provided that any act of discretion permitted shall be
exercised in a uniform non-discriminatory manner with respect
to individuals in like or similar circumstances;
(G) to adopt rules and guidelines for the administration of this
Plan, provided that they are not inconsistent with the terms
of this Plan and are uniformly applicable to all persons
similarly situated and to delegate in accordance with Section
11.8 such functions and duties as the Committee deems
advisable;
(H) to establish a funding policy and investment objectives
consistent with the purposes of the Plan and the requirements
of law;
(I) to employ such attorneys, accountants and agents as it shall
determine to assist it in carrying out its duties hereunder.
Except as otherwise provided in this Plan or determined by the
Employer, any action or determination taken or made by the Committee or
any interpretation or construction made by the Committee shall be final
and shall be binding upon all persons. The Committee shall at all times
exercise the power and authority given to it under this Plan in a fair,
reasonable and non-discriminatory manner.
11.3 ACTIONS OF THE COMMITTEE. Any act authorized or required to be taken by
the Committee shall be taken by a decision of the majority of the
members acting at the time. Any decision of the Committee may be
expressed by a vote at a Committee meeting or in writing, signed by all
members of the Committee, without a meeting. All allocation statements,
notices, directions, approvals, instructions and all other
communications required or authorized to be given by the Committee
under this Plan shall be in writing and signed by a majority of the
members of the Committee. The Committee may, however, by an instrument
in writing signed by all the members and filed with the Trustee,
designate one or more if its members as having the authority to sign
all such communications on behalf of the Committee. Until notified in
writing to the contrary, the Trustee shall be fully protected in acting
in accordance with all communications which it considers genuine and to
have been signed on behalf of the Committee by the members authorized
to sign communications. If at any time for any reason the Committee
shall be unable to act with respect to any matter, the Employer shall
act with respect to that matter and its action shall be final and it
shall be binding upon all persons.
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<PAGE> 91
11.4 RESIGNATION, REMOVAL AND DESIGNATION OF SUCCESSORS. Any member of the
Committee may resign at any time and any member may be removed by the
Employer with or without cause. In case of resignation, death, removal
or inability or failure for any cause of any member of the Committee to
serve or to continue to serve, a successor shall be appointed by the
Employer. The Committee shall promptly notify the Trustee of any change
in its membership.
11.5 COMMITTEE REVIEW. If any Participant, Spouse, Beneficiary, or other
authorized representative of a Participant, Spouse or Beneficiary shall
file an application with the Committee for benefits under the Plan and
the application is denied, in whole or in part, such applicant shall be
notified of the denial in writing within ninety (90) days of receipt of
the claim. The notice to the applicant shall state that the Committee
has denied the application pursuant to the exercise of its
discretionary powers. This notice shall set forth the specific reasons
for the denial, specific reference to pertinent Plan provisions upon
which the denial is based, a description of any additional information
needed to perfect the claim with an explanation of why it is necessary
and an explanation of procedure for appeal.
Any Participant, Spouse, Beneficiary, or other authorized
representative of the Participant, Spouse or Beneficiary whose
application for benefits has been denied may, within sixty (60) days
after receiving the notification, make a written application to the
Committee to review the denial. The applicant may request that the
review be made by written statements submitted by the applicant and the
Committee, at a hearing, or by both. Any hearing shall be held in the
main offices of the Employer on a date and time as the Employer shall
designate with at least seven (7) days notice to the applicant unless
the applicant accepts shorter notice. Within sixty (60) days after the
review has been completed, the Employer shall render a written decision
and shall send a copy to the applicant. This decision shall include
specific reasons for the decision, as well as specific references to
the pertinent Plan provisions upon which the decision is based.
If the Participant, Spouse, Beneficiary, or other authorized
representative of a Participant, Spouse or Beneficiary does not file
written notice with the Employer at the times set forth above, the
individual shall have waived all benefits under this Plan other than as
set forth in the notice from the Committee.
11.6 RECORDS. The Committee shall keep or cause to be kept records of all
meetings, proceedings and actions held, undertaken or performed by it
and shall finish to the Employer reports as the Employer may request.
11.7 COMPENSATION. The members of the Committee shall serve without
compensation for services as such, but all reasonably incurred fees and
expenses shall be paid by the Employer.
11.8 DESIGNATION OF NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY AMONG
FIDUCIARIES. The Employer, the Committee and the Trustee shall be
"Named Fiduciaries" with respect to this Plan as that term is defined
in ERISA. The Named Fiduciaries shall
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<PAGE> 92
have only those specific powers, duties, responsibilities and
obligations as are given to them under this Plan. The Named Fiduciaries
may designate any person or persons as a fiduciary and may delegate to
such person or persons any one or more of their powers, functions,
duties and responsibilities with respect to the Plan as set forth in
this Plan, authorizing or providing for such direction, information or
action. Any such designation shall be made in writing and shall become
effective upon written acceptance. No such designation or delegation by
the Employer or the Committee of any of its powers, authority or
responsibilities to the Trustee shall become effective unless such
designation or delegation shall first be accepted by the Trustee in a
writing signed by it and delivered to the Employer or the Committee, as
applicable. Furthermore, each Named Fiduciary may rely upon any such
direction, information or action of another Named Fiduciary as being
proper under this Plan and is not required to inquire into the
propriety of any such direction, information or action. It is intended
that under this Plan each Named Fiduciary shall be responsible for the
proper exercise of its own powers, duties, responsibilities and
obligations and shall not be responsible for act or failure to act of
another fiduciary.
11.9 NOTICE BY COMMITTEE OR EMPLOYER. Any communication or notice to any
person by the Committee or the Employer shall be in writing and may be
given by delivery to the person or by first class mail with postage
prepaid addressed to the person at the last address on file with the
Committee or the Employer. Any notice delivered as provided above shall
be deemed to have been given when delivered, and any notice mailed as
provided above shall be deemed to have been given when mailed.
11.10 LOANS TO PARTICIPANTS.
(A) (1) In accordance with Section 11.8 above, the Committee
is hereby designated as the named fiduciary with sole
authority and responsibility to approve or deny loans
and, except as provided in subsections (G) and (H) of
this Section, collect unpaid loans, in accordance
with the provisions of this Section 11.10. This
Section 11.10 shall apply if the Employer is eligible
to and elects Item B(16) of the Adoption Agreement.
(2) Subject to the consent of the Committee, loans may be
made upon approval of the written application of a
Participant or Beneficiary submitted to the
Committee. Such application shall be submitted during
a specified period established by the Committee prior
to the date the loan is to be made. The Committee
shall notify the Participant or Beneficiary whether
the loan has been approved or denied. Loans shall be
made available to all Participants and Beneficiaries
on a reasonably equivalent basis, except that no
loans will be made to any Stockholder-Employee or
Owner-Employee and no loan shall be made to any
Participant which the Committee, upon reviewing the
Participant's written application determines may be
reasonably expected to be unable to repay the loan.
Loans shall not be made available to Highly
Compensated Employees (as defined in Section 414(q)
of the Code) in an amount greater than the amount
made available to other Employees. Except for loans
made prior
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to the date this Plan is adopted, a Participant or
Beneficiary shall have no more than five loans
outstanding at any given time.
(3) All loans will be adequately secured and will bear a
reasonable rate of interest. Rates of interest will
be determined daily by the Trustee for Plan loans.
The Committee will determine the minimum loan amount
for the Plan.
(B) In reviewing and approving or denying loan applications
hereunder, the Committee shall bear sole responsibility for
ensuring compliance with all applicable federal or state laws
and regulations, including the federal Truth In Lending Act
(15 U.S.C. ss.1601 et seq.), and Equal Credit Opportunity Act
(15 U.S.C. ss.1691 et seq.). The Committee shall upon request
supply the Trustee with evidence that it has complied with
such federal or state law.
(C) Notwithstanding Section 7.13 above, each loan made hereunder
shall be secured by a written assignment, in favor of the
Plan, of that portion of the Participant's accounts which the
Committee determines to be necessary to adequately secure
repayment of the loan.
(D) A Participant must obtain the consent of his or her Spouse, if
any, to use the account balance as security for the loan.
Spousal consent shall be obtained no earlier than the
beginning of the ninety (90) day period that ends on the date
the loan is to be so secured. The consent must be in writing
and must be witnessed by a Plan representative or Notary
Public. Such consent shall thereafter be binding with respect
to the consenting spouse or any subsequent spouse with respect
to that loan. A new consent shall be required if the account
balance is used for renegotiation, extension, renewal, or
other revision of the loan.
Notwithstanding the preceding paragraph, no spousal consent is
required for the use of the account balance as security for a
Plan loan to the Participant under a safe-harbor profit
sharing Plan as described in Section 7.10(F).
(E) No loan shall be approved by the Committee to any Participant
or Beneficiary in any amount which exceeds the lesser of
(1) $50,000, reduced by the excess (if any) of -
(a) the highest outstanding balance of loans
from the Plan during the one-year period
ending on the day before the date on which
such loan was made, over,
(b) the outstanding balance of loans from the
Plan on the date on which such loan was
made, or
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<PAGE> 94
(2) fifty percent (50%) of the present value of the
Participant's nonforfeitable accrued benefit.
For purposes of the above limitation, all loans from all plans
of the Employer and other members of a group of employers
described in Sections 414(b), (c), (m) and (o) of the Code are
aggregated.
The term of the loan shall be determined by the Committee.
Furthermore, any loan shall, by its terms require that
repayment (principal and interest) be amortized in level
payments, not less frequently than quarterly over a period not
extending beyond five years from the date of the loan, except
that the Committee, in its discretion, may permit a repayment
period in excess of five years for loans made to a Participant
or Beneficiary used to acquire a dwelling unit which, within a
reasonable time (determined at the time the loan is made) will
be used as a principal residence of the borrower.
An assignment or pledge of any portion of the participant's
interest in the Plan will be treated as a loan under this
paragraph.
(F) Each loan hereunder shall be made pro rata from the borrowing
Participant's available accounts and Investment Funds. Loan
repayments shall generally be made via payroll deduction,
except that the repayment of outstanding principal at
maturity, in the event the loan is called, or in the event the
Participant chooses to prepay the loan shall be made in such
manner as the Committee shall determine. Loan repayments and
interest thereon shall be credited to the Investment Funds and
accounts in accordance with current elections. No loan shall
be considered a general investment of the Trust Fund. Each
loan shall be evidenced by a written agreement, evidencing the
Participant's obligation to repay the borrowed amount to the
Plan, in such form and with such provisions consistent with
this Section 11.10 as is acceptable to the Trustee. All loan
agreements shall be deposited with the Trustee.
(G) In the event a Participant does not repay the principal of
such loan or interest thereon at such times as are required by
the terms of the loan or if the Participant ceases to be an
Employee while such Participant has a loan made hereunder
which is outstanding, the Committee, in its discretion, may
direct the Trustee to take such action as the Committee may
reasonably determine, including:
(1) demand repayment of the loan and, subject to Section
10.4(K), institute legal action against the
Participant to enforce collection of any balance due
from the Participant, or
(2) demand repayment of the loan, and charge the total
amount of the unpaid loan and unpaid interest against
the balance credited to the Participant's vested
account balance which was assigned as security for
the loan and reduce any payment or distribution from
the Trust Fund to which the
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<PAGE> 95
Participant or the Participant's Beneficiary may
become entitled to the extent necessary to discharge
the obligation on the loan.
Notwithstanding the foregoing provisions of this Paraph (G),
in the event of default, foreclosure on the note and
attachment of security will not occur until a distributable
event occurs in the Plan.
(H) In the event the Committee fails or refuses for any reason to
direct the Trustee as provided in Paragraph (G) above or if
the Trustee otherwise reasonably concludes that the
collectibility of a loan hereunder is in jeopardy, the Trustee
is authorized to take such action as it may reasonably
determine to enforce repayment and satisfaction of the loan.
The Employer shall be responsible for costs and expenses
incurred in collecting any loan balance.
(I) In the event that the amount of any payment or distribution
from the Trust Fund is insufficient to repay the balance due
on any loan, the Participant shall be liable for and continue
to make repayments on such balance.
(J) If a valid spousal consent has been obtained in accordance
with Paragraph (D), then, notwithstanding any other provision
of this Plan, the portion of the Participant's vested account
balance used as a security interest held by the Plan by reason
of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the account
balance payable at the time of death or distribution, but only
if the reduction is used as repayment of the loan. If less
than 100% of the Participant's vested account balance
(determined without regard to the preceding sentence) is
payable to the surviving Spouse, then the account balance
shall be adjusted by first reducing the vested account balance
by the amount of the security used as repayment of the loan,
and then determining the benefit payable to the surviving
Spouse.
ARTICLE XII
FAILURE TO ATTAIN OR RETAIN QUALIFIED STATUS
12.1 FAILURE TO QUALIFY AS A PROTOTYPE. This Plan is established with the
intent that it shall qualify under Section 401 of the Code and that it
shall comply with ERISA and all other applicable laws, regulations and
rulings. It may be modified and amended retroactively, if necessary, to
secure such qualification. Should the Internal Revenue Service
determine that this Plan does not qualify under the Code or any statute
of similar import, or fails or refuses to issue an opinion, and if the
Plan is not amended, as required to qualify, before the time allowed by
law for the Employer to file its corporate federal tax return for the
taxable year in which the Effective Date occurs, the Plan shall be
considered to be rescinded and of no force and effect. Any assets
attributable to contributions made by the Employer shall be returned to
the Employer by the Trustee as soon as administratively feasible. The
Employer shall refund to the Participant any contributions made by the
Participant to the Plan.
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<PAGE> 96
12.2 FAILURE OF EMPLOYER TO ATTAIN OR RETAIN QUALIFICATION. If the
Employer's Plan fails to attain or retain qualification, such Plan will
no longer participate in this prototype Plan and will be considered an
individually designed Plan.
ARTICLE XIII
MISCELLANEOUS
13.1 EMPLOYER ACTION. Except as may be specifically provided herein, any
action required or permitted to be taken by the Employer may be taken
on behalf of the Employer by any officer of the Employer.
13.2 NO GUARANTEE OF INTERESTS. Neither the Trustee, the Employer nor any
other named fiduciary in any way guarantees the Trust Fund from loss or
depreciation, nor do they guarantee any payment to any person. The
liability of the Trustee, the Employer and a named fiduciary to make
any payments hereunder is limited to the available assets of the Trust
Fund.
13.3 EMPLOYMENT RIGHTS. The Plan is not a contract of employment.
Participation in the Plan will not give any Participant the right to be
retained in the Employer's employ, nor any right or claim to any
benefit under the Plan, unless the right or claim has specifically
accrued under the Plan.
13.4 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law, an
interpretation of the Plan and a decision on any matter within a named
fiduciary's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it
becomes known and the person responsible shall make such adjustment on
account thereof as he or she considers equitable and practicable.
13.5 UNIFORM RULES. In the administration of the Plan, uniform rules will be
applied to all Participants similarly situated.
13.6 EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person
acting on it considers pertinent and reliable and signed, made or
presented by the proper party or parties.
13.7 WAIVER OF NOTICE. Any notice required under the Plan may be waived by
the person entitled to notice.
13.8 CONTROLLING LAW. The law of the state where the Trustee is located
shall be the controlling state law in all matters relating to the Plan
and shall apply to the extent that it is not preempted by the laws of
the United States of America.
13.9 TAX EXEMPTION OF TRUST. The trust herein created is designated as
constituting a part of a Plan intended to qualify under Sections 401(a)
of the Code and to be tax-exempt under Section 501(a) of the Code.
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<PAGE> 97
13.10 COUNTERPARTS. The Plan may be executed in two or more counterparts, any
one of which will be an original without reference to the others.
13.11 ANNUAL STATEMENT OF ACCOUNT. The assets of the Trust Fund will be
valued annually at fair market as of the last day of each Plan Year. On
such date the earnings and losses of the Trust Fund will be allocated
to each Participant's accounts in the ratio that such account balance
bears to all account balances. The Trustee will deliver to the Employer
a statement of each Participant's account balances as of the last day
of Plan Year.
13.12 NO DUTY TO INQUIRE. No person shall have any duty to make any inquiry
as to the application or use of the Trust Fund, or any part thereof, or
to inquire into the validity, expediency or propriety of any matter or
thing done or proposed to be done by the Trustee.
13.13 INVALIDITY. In case any provisions of this Plan shall be invalid, this
fact shall not affect the validity of any other provision.
13.14 TITLES. Titles to Articles and Sections are for convenience only and
shall have no bearing upon the construction or interpretation of this
Plan.
13.15 NO DUTY OF TRUSTEE TO COLLECT CONTRIBUTIONS. The Trustee shall be
accountable for all contributions received but shall have no duty to
require any contributions to be delivered or to determine if the
contributions received comply with the Plan or with any Board of
Directors resolution of the Employer providing for contributions.
13.16 TRUSTEE DISTRIBUTES BY COMMITTEE DIRECTION. The Trustee shall make
distributions only through Committee direction. The Trustee shall have
no responsibility to see how distributions are applied or to ascertain
whether the Committee's directions comply with the Plan.
Notwithstanding anything in the Plan to the contrary, payments made in
accordance with these provisions will continue only so long as amounts
remain in the Participant's accounts.
ARTICLE XIV
AMENDMENT OR TERMINATION
14.1 AMENDMENT BY THE SPONSOR. Society National Bank, the sponsoring
organization, reserves the right without being required to obtain the
approval of the Employer to amend any part of the Plan from time to
time, subject to the provisions of Article XII, Section 14.2 and the
following:
(A) Except as provided in Section 14.1(B) and (C), no amendment
shall become effective until at least thirty (30) days' prior
written notice (unless the Employer agrees to shorter notice)
has been given to the Employer, nor shall any such amendment
reduce Participants' benefits to less than the benefits to
which they
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<PAGE> 98
would have been entitled if they had resigned from the employ
of the Employer on the effective date of the amendment;
(B) An amendment of the Plan and Trust which the sponsor deems
necessary to enable the Plan and Trust to meet the
requirements of Section 401(a) of the Code may be made
effective as of the date the Plan and Trust was established by
the sponsor or as of any subsequent date;
(C) An amendment of the Plan and Trust to conform the Plan and
Trust to any change in the law, regulations or rulings of the
United States may take effect as of the date such amendment is
required to be effective. Any amendment executed pursuant to
the provisions of this Section 14.1 shall be executed by an
authorized officer of the sponsor, or its successor. For
purposes of this Section 14.1, the Employer shall be deemed to
have been furnished a copy of any amendment on the business
day next following the mailing by the sponsor or the Trustee.
14.2 AMENDMENT BY ADOPTING EMPLOYER. The Employer may (l) change the choice
of options in the Adoption Agreement, (2) add overriding language in
the Adoption Agreement when such language is necessary to satisfy
Section 415 or Section 416 of the Code because of the required
aggregation of multiple plans, and (3) add certain model amendments
published by the Internal Revenue Service which specifically provide
that their adoption will not cause the Plan to be treated as
individually designed. An Employer that amends the Plan for any other
reason, including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in this Master
or Prototype Plan and will be considered to have an individually
designed Plan.
14.3 VESTING - PLAN TERMINATION. In the event of termination or partial
termination of the Plan, the account balance of each affected
Participant will be nonforfeitable.
14.4 VESTING - COMPLETE DISCONTINUANCE OF CONTRIBUTIONS. In the event of a
complete discontinuance of contributions under the Plan, the account
balance of each affected Participant will be nonforfeitable.
14.5 PLAN MERGER - MAINTENANCE OF BENEFIT. In the event of a merger or
consolidation with, or transfer of assets to any other Plan, each
Participant will receive a benefit immediately after the merger,
consolidation or transfer (if the Plan then terminated) which is at
least equal to the benefit the Participant was entitled to immediately
before such merger, consolidation or transfer (if the Plan had then
terminated).
14.6 DIRECT TRANSFER. In its discretion, the Trustee may accept the direct
transfer of Plan assets from the trustee of other retirement plans
described in Code Section 401(a). If the Plan receives a direct
transfer of elective deferrals (or amounts treated as elective
deferrals) under a Plan with a Code Section 401(k) arrangement, the
distribution restrictions of Code Sections 40l(k)(2) and (10) continue
to apply to those transferred elective deferrals.
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<PAGE> 99
14.7 TERMINATION OF PARTICIPATION BY EMPLOYER. The Employer expects to
continue its participation in this Plan indefinitely but reserves the
right to terminate this Plan as to its Employees at any time by written
instrument filed with the Trustee. In the event of such termination,
partial termination or complete discontinuance of contributions, or
termination as provided in Section 13.3, the account balance of each
affected Participant will be nonforfeitable. Distribution to
Participants who have theretofore become entitled to the payment of any
benefits hereunder or to Spouses or Beneficiaries of deceased
Participants shall be made in the same manner as if the Employer's
participation had not terminated or contributions had not been
discontinued.
The account(s) of each such Participant, in the event of payment in
other than a single sum, need not be converted into cash, but may
continue to remain in the trust, with a right and obligation thereafter
to participate in the net earnings, losses, taxes and expenses of the
trust.
If any Participant shall die after the termination of the Employer's
participation and before all of said Participant's interest has been
paid, then, upon the written direction of Employer, the entire
undistributed portion shall be paid in a single sum to the
Participant's Beneficiary.
In the event of complete discontinuance of contributions, the Employer
shall terminate this Plan as to its Employees and each Participant's
interest shall be distributed to such Participant.
14.8 NOTICE OF AMENDMENT, TERMINATION OR PARTIAL TERMINATION. The Committee
will notify affected Participants of an amendment, termination or
partial termination of the Plan within a reasonable time.
14.9 SUBSTITUTION OF TRUSTEE. Any corporation or association into which the
Trustee may be converted, merged or with which it may be consolidated,
or any corporation or association resulting from any conversion,
merger, reorganization or consolidation to which the Trustee may be a
party, shall be the successor of the Trustee hereunder without the
execution or filing of any instrument or the performance of any further
act.
ARTICLE XV
DISCHARGE OF DUTIES BY FIDUCIARIES
15.1 DISCHARGE OF DUTIES. Subject to the provisions of Articles IX and X,
the Named Fiduciaries and any other fiduciary shall discharge their
respective duties set forth in the Plan solely in the interest of the
Participants and their Spouses and Beneficiaries and:
(A) for the exclusive purpose of:
(l) providing benefits to Participants and their Spouses
and Beneficiaries; and
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<PAGE> 100
(2) defraying reasonable expenses of administering the Plan;
(B) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person 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; and
(C) by diversifying the investments of the Plan so as to minimize
the risk of large losses, unless under the circumstances it is
clearly prudent not to do so.
ARTICLE XVI
AMENDMENT AND CONTINUATION OF ORIGINAL PLAN
16.1 AMENDMENT AND CONTINUATION. Notwithstanding any of the foregoing
provisions of the Plan to the contrary, an Employer which has
previously established a profit sharing Plan and trust or money
purchase pension Plan and trust, as applicable, (the "Original Plan")
may, in accordance with the provisions of the Original Plan, amend and
continue that Plan in the form of this Plan and Trust and become an
Employer hereunder, subject to the following:
(A) Subject to the conditions and limitations of the Plan, each
person who is a Participant or former Participant under the
Original Plan immediately prior to the Effective Date of the
amendment and continuation thereof in the form of this Plan
will continue as a Participant under this Plan;
(B) The words "Original Plan" shall be substituted for the word
"Plan" where the word appears in Section 2.2 of the Plan;
(C) No election may be made in the Adoption Agreement if such
election will reduce the benefits of a Participant under the
Original Plan to less than the benefits to which he would have
been entitled if he had resigned from the employ of the
Employer on the date of the amendment and continuation of the
Original Plan in the form of this Plan;
(D) The amounts, if any, credited to a Participant's or former
Participant's accounts, immediately prior to the Effective
Date of the amendment and continuation of the Original Plan in
the form of this Plan shall constitute the opening balances in
his or her accounts, as appropriate, under this Plan and
Trust;
(E) Amounts being paid to a former Participant or Beneficiary in
accordance with the provisions of the Original Plan shall
continue to be paid in accordance with such provisions; and
(F) Any Beneficiary designation in effect under the Original Plan
immediately before its amendment and continuation in the form
of this Plan shall be deemed to be a
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<PAGE> 101
valid Beneficiary designation filed with the Employer under
Section 7.7 of this Plan, to the extent consistent with the
provisions of this Plan, unless and until the Participant or
former Participant revokes such Beneficiary designation or
makes a new Beneficiary designation under this Plan.
IN WITNESS WHEREOF, Society National Bank has established this
prototype Plan as of the 24th day of March, 1995.
SOCIETY NATIONAL BANK
By:
---------------------------------
Title: Senior Vice President and
General Counsel
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<PAGE> 102
PRISM(R) PROTOTYPE RETIREMENT PLAN AND TRUST
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
ARTICLE I - DEFINITIONS...........................................................................................1
1.1 Definitions.....................................................................................1
1.2 Gender and Number..............................................................................12
1.3 Control of Trades or Businesses by Owner-Employee..............................................12
ARTICLE II - ELIGIBILITY AND VESTING.............................................................................13
2.1 Eligibility....................................................................................13
2.2 Vesting........................................................................................15
ARTICLE III - CODE 401(k) AND CODE 401(m) ARRANGEMENTS...........................................................16
3.1 Provision Relating to Both Before Tax Contributions
and After Tax Contributions....................................................................16
3.2 Before Tax Contributions. (Elective Deferrals).................................................20
3.3 After Tax Contributions. (Employee Contributions)..............................................26
3.4 Employer Contributions.........................................................................27
3.5 Limitations on After Tax Contributions (Employee Contributions)
and Matching Contributions.....................................................................29
3.6 Net Profits Not Required if So Elected in Adoption Agreement...................................32
3.7 Form, Payment and Allocation of Contributions..................................................32
3.8 Distribution Requirements for Before Tax Contribution Account..................................32
3.9 Hardship Distribution..........................................................................33
3.10 Withdrawal of After Tax Contributions..........................................................34
3.11. Withdrawal of Matching Contributions...........................................................35
ARTICLE IV - OTHER CONTRIBUTIONS.................................................................................35
4.1 Employer Contributions.........................................................................35
4.2 Separate Accounts..............................................................................36
4.3 Vesting........................................................................................36
4.4 Limitation on Employer Contributions...........................................................36
4.5 Employee Contributions.........................................................................36
4.6 Exclusive Benefit..............................................................................37
4.7 Form, Payment and Allocation of Contributions..................................................38
4.8 Safe Harbor Allocation.........................................................................38
</TABLE>
i
<PAGE> 103
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
ARTICLE V - PERIOD OF PARTICIPATION..............................................................................38
5.1 Termination Dates..............................................................................38
5.2 Restricted Participation.......................................................................39
ARTICLE VI - ACCOUNTING..........................................................................................40
6.1 Accounts Established...........................................................................40
6.2 Employer Contributions Considered Made On Last Day of Plan Year................................40
6.3 Accounting Steps...............................................................................40
6.4 Allocation of Employer Contributions...........................................................40
6.5 Allocation of Forfeitures......................................................................41
6.6 Limitation on Allocations......................................................................41
6.7 Reports to Participants........................................................................50
ARTICLE VII - PAYMENT OF ACCOUNT BALANCES........................................................................50
7.1 Termination of Employment Upon Disability or Death.............................................50
7.2 Timing for Determining Account Balance Upon Termination
of Employment Prior to Retirement, Disability or Death.........................................50
7.3 Vesting On Distribution Before Break-in-Service; Cash-Outs.....................................50
7.4 Restrictions on Immediate Distributions........................................................51
7.5 Commencement of Benefits.......................................................................52
7.6 Timing and Modes of Distribution...............................................................52
7.7 Designation of Beneficiary.....................................................................60
7.8 Optional Forms of Benefit......................................................................61
7.9 Distribution Upon Disability...................................................................61
7.10 Joint and Survivor Annuity Requirements........................................................61
7.11 Distributions to Qualified Plans...............................................................67
7.12 Profit Sharing Plans and 401(k) Profit Sharing Plans Only - Withdrawal of
Employer Contributions.........................................................................67
7.13 Prohibition Against Alienation.................................................................68
7.14 Missing Participant or Beneficiary.............................................................68
7.15 Limitation on Certain Distributions............................................................69
7.16 Form of Distributions and Withdrawals..........................................................69
ARTICLE VIII - DIRECT ROLLOVERS..................................................................................70
8.1 General........................................................................................70
8.2 Definitions....................................................................................70
ARTICLE IX - TOP-HEAVY PROVISIONS................................................................................71
9.1 Use of Top-Heavy Provisions....................................................................71
9.2 Top-Heavy Definitions..........................................................................71
9.3 Minimum Allocation.............................................................................74
9.4 Minimum Vesting Schedules......................................................................74
</TABLE>
ii
<PAGE> 104
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
ARTICLE X - TRUSTEE..............................................................................................75
10.1 Trustee........................................................................................75
10.2 Records and Accounts of Trustee................................................................75
10.3 Reports to Employer............................................................................75
10.4 Powers of Trustee..............................................................................75
10.5 Trustee's Fees and Expenses....................................................................78
10.6 Trustee May Resign or Be Removed...............................................................78
10.7 Separate Investment Funds......................................................................78
10.8 Registration, Distribution and Voting of Employer Stock and Procedures
Regarding Tender Offers........................................................................83
10.9 Valuation of Investment Funds and Accounts.....................................................87
ARTICLE XI - ADMINISTRATION......................................................................................88
11.1 Committee Membership...........................................................................88
11.2 Powers and Duties of Committee.................................................................88
11.3 Actions of the Committee.......................................................................89
11.4 Resignation, Removal and Designation of Successors.............................................90
11.5 Committee Review...............................................................................90
11.6 Records........................................................................................90
11.7 Compensation...................................................................................90
11.8 Designation of Named Fiduciaries and Allocation of Responsibility Among
Fiduciaries....................................................................................90
11.9 Notice by Committee or Employer................................................................91
11.10 Loans to Participants..........................................................................91
ARTICLE XII - FAILURE TO ATTAIN OR RETAIN QUALIFIED STATUS.......................................................94
12.1 Failure to Qualify as a Prototype..............................................................94
12.2 Failure of Employer to Attain or Retain Qualification..........................................95
ARTICLE XIII - MISCELLANEOUS.....................................................................................95
13.1 Employer Action................................................................................95
13.2 No Guarantee of Interests......................................................................95
13.3 Employment Rights..............................................................................95
13.4 Interpretations and Adjustments................................................................95
13.5 Uniform Rules..................................................................................95
13.6 Evidence.......................................................................................95
13.7 Waiver of Notice...............................................................................95
13.8 Controlling Law................................................................................95
13.9 Tax Exemption of Trust.........................................................................95
13.10 Counterparts...................................................................................96
13.11 Annual Statement of Account....................................................................96
13.12 No Duty to Inquire.............................................................................96
</TABLE>
iii
<PAGE> 105
<TABLE>
<CAPTION>
Article Page
<S> <C> <C>
13.13 Invalidity.....................................................................................96
13.14 Titles.........................................................................................96
13.15 No Duty of Trustee to Collect Contributions....................................................96
13.16 Trustee Distributes by Committee Direction.....................................................96
ARTICLE XIV - AMENDMENT OR TERMINATION...........................................................................96
14.1 Amendment by the Sponsor.......................................................................96
14.2 Amendment by Adopting Employer.................................................................97
14.3 Vesting - Plan Termination.....................................................................97
14.4 Vesting - Complete Discontinuance of Contributions.............................................97
14.5 Plan Merger - Maintenance of Benefit...........................................................97
14.6 Direct Transfer................................................................................97
14.7 Termination of Participation by Employer.......................................................98
14.8 Notice of Amendment, Termination or Partial Termination........................................98
14.9 Substitution of Trustee........................................................................98
ARTICLE XV - DISCHARGE OF DUTIES BY FIDUCIARIES..................................................................98
15.1 Discharge of Duties............................................................................98
ARTICLE XVI - AMENDMENT AND CONTINUATION OF ORIGINAL PLAN........................................................99
16.1 Amendment and Continuation.....................................................................99
</TABLE>
iv
<PAGE> 106
The Airline Monitor reports that commercial airlines are currently experiencing
historically high passenger utilization factors levels of approximately 70%,
which suggest the industry is bordering on a capacity shortage.
<PAGE> 1
Exhibit 10.29
08/03/94 Basic Plan Document # 05
Plan #002
IRS Letter Serial No.: __________
PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST
SECTION 401(k) PROFIT SHARING PLAN
(NONSTANDARDIZED)
ADOPTION AGREEMENT(1)
The Employer (2), designated below, hereby establishes a profit-sharing plan
(optionally including a cash or deferred arrangement (as defined in Section
401(k) of the Internal Revenue Code)) for all Eligible Employees as defined in
this Adoption Agreement pursuant to the terms of the PRISM(R) PROTOTYPE
RETIREMENT PLAN & TRUST BASIC PLAN DOCUMENT # 05.
<TABLE>
<CAPTION>
A. EMPLOYER INFORMATION:
<S> <C> <C> <C>
1. NAME: Argo-Tech Corporation
------------------------------------------------------------------------
2. ADDRESS: 23555 Euclid Avenue
------------------------------------------------------------------------
3. ADDRESS: Cleveland, Ohio 44117
------------------------------------------------------------------------
4. ATTENTION: Eric A. Alley Telephone: (216) 692-5259
--------------------------------------- ---------------------
5. EMPLOYER TAXPAYER IDENTIFICATION NUMBER(3): 06-1100916
----------------------------------------------
</TABLE>
B. BASIC PLAN PROVISIONS:
1. PLAN NAME (SELECT ONE):
a. ______ This plan is established effective
______________, 19____, (the "Effective
Date") as a profit sharing plan and trust
(optionally with a "cash or deferred
arrangement" as defined in Code Section
401(k)) to be known as _____________________
- ------------------------
(1) Footnotes in this Adoption Agreement are not to be construed as part
of the Plan provisions but are explanatory only. To the extent a
footnote is inconsistent with the provisions of the Basic Plan
Document or applicable law, the provisions of the Plan shall be
construed in conformity with the Basic Plan Document or law.
(2) Terms that are capitalized are defined in the PRISM(R)PROTOTYPE
RETIREMENT PLAN & TRUST BASIC PLAN DOCUMENT.
(3) The Plan will have an individual TIN, distinct from the Employer TIN.
<PAGE> 2
Plan and Trust (the "Plan") in the form of
the [PRISM(R) PROTOTYPE RETIREMENT PLAN &
TRUST].
b. X This plan is an amendment and restatement
--- in the form of the PRISM(R) PROTOTYPE
RETIREMENT PLAN & TRUST, effective November
1, 1994, (the "Effective Date") of the
Argo-Tech Employee Savings Plan and Trust
(the "Plan"), originally effective as of May
1, 1987 (the "Original Effective Date").
2. EMPLOYER'S THREE DIGIT PLAN NUMBER: 003
-----------
3. COMMITTEE MEMBERS(4):
Eric A. Alley, Frances St. Clair, Michael Lipscomb,
-------------------------------------------------------
Paul R. Keen, Yoichi Fujiki, James Cunningham
-------------------------------------------------------
-------------------------------------------------------
4. DEFINITIONS:
A. COMPENSATION for allocation purposes:
Compensation shall mean the entire amount of compensation paid
in cash (or would have been paid but for the provisions of the
Plan) to such Participant by reason of his employment as an
Employee, as modified below:
i Will be determined over the following
applicable period (select only one):
(a) X the Plan Year
(b) _____ the period of Plan participation
during the Plan Year
(c) _____ a consecutive 12 month period
commencing on _________ and ending with,
or within, the Plan Year.
ii X If selected, Compensation will
---- include Employer contributions made
pursuant to a Salary Reduction
Agreement, or other arrangement,
which are not includible in the
gross income of the Employee under
Sections 125, 402(a)(8), 402(h) or
403(b) of the Internal Revenue Code.
iii Shall NOT include (select as many as
desired):
(a) _____ Bonuses
- ----------------------
(4) Committee members direct the day to day operation of the Plan.
Committee members serve at the pleasure of the Employer. See Section
11.4 for changes in Committee membership. If no Committee members are
specified, the Employer shall assume responsibility for the operations
of the Plan.
2
<PAGE> 3
(b) _____ Commissions
(c) _____ Taxable fringe benefits identified
below:
---------------------------------
---------------------------------
---------------------------------
(d) X Other items of remuneration
----- identified below: Any imputed
income, any supplemental
unemployment benefit payments,
any payments under plans imposed
by governments other than the
United States, any payments made
for transportation, any special
allowances, or any adjustments
to cover conditions or
circumstances peculiar to
service in foreign countries.
IV Shall be limited to $_______________, which
shall be the maximum amount of compensation
considered for plan allocation purposes (but
not for testing purposes), and may not be an
amount in excess of the Internal Revenue
Code Section 401(a)(17) limit in effect
for the Plan Year (5). If no amount is
specified, Compensation shall be limited
to the Internal Revenue Code Section
401(a)(17) amount, as adjusted by the
Secretary of the Treasury from time to time.
b. EARLY RETIREMENT DATE:
i X is not applicable to this Plan
-----
ii _____ is the latter of the date on
which the Participant attains age
______________ (not less than 55)
and the date on which the
Participant completes ___________
Years of Service.
c. HOUR OF SERVICE shall be determined on the basis of
the method selected below. Only one method may be
selected. The method shall be applied to all
Employees covered under the Plan as follows (select
only one):
i X On the basis of actual hours for which
----- an Employee is paid, or entitled to
be paid.
ii _____ On the basis of days worked.
An Employee shall be credited with
ten (10) Hours of Service if under
Section 1.1(U) of the Plan such
Employee would be credited with at
least one (1) Hour of Service during
the day.
iii _____ On the basis of weeks worked.
An Employee shall be credited with
forty-five (45) Hours of Service if
under Section 1.1(U) of the
- ------------------------------
(5) If no amount is specified, the maximum amount of Compensation allowed
under Code Section 401(a)(17) (the "$150,000 limit" ("$200,000 limit"
prior to the Plan Year beginning before January 1, 1994)), as
adjusted from time to time, shall be used.
3
<PAGE> 4
Plan such Employee would be credited
with at least one (1) Hour of
Service during the week.
iv _____ On the basis of semi-monthly
payroll periods. An Employee shall
be credited with ninety-five (95)
Hours of Service if under Section
1.1(U) of the Plan such Employee
would be credited with at least
one (1) Hour of Service during the
semi-monthly payroll period.
v _____ On the basis of months worked.
An Employee shall be credited with
one hundred ninety (190) Hours of
Service if under Section 1.1(U) of
the Plan such Employee would be
credited with at least one (1) Hour
of Service during the month.
d. LIMITATION YEAR shall mean the 12 month period
commencing on November 1 and ending on October 31.
e. NORMAL RETIREMENT DATE for each Participant shall mean
(select one):
i X the date the Participant attains
age: 55 (not to exceed 65)
-----
ii _____ the latter of the date the
Participant attains age (not to
exceed 65) or the _________________
(not to exceed 5th) anniversary of
the participation commencement date.
If for the Plan Years beginning
before January 1, 1988, Normal
Retirement Date was determined with
reference to the anniversary of the
participation commencement date
(more than 5 but not to exceed 10
years), the anniversary date for
Participants who first commenced
participation under the Plan before
the first Plan Year beginning on or
after January 1, 1988 shall be the
earlier of (A) the tenth anniversary
of the date the Participant
commenced participation in the Plan
(or such anniversary as had been
elected by the employer, if less
than 10) or (B) the fifth
anniversary of the first day of the
first Plan Year beginning on or
after January 1, 1988.
Notwithstanding any other provisions
of the Plan, the participant
commencement date is the first day
of the first Plan Year in which the
Participant commenced participation
in the Plan.
f. PERMITTED DISPARITY LEVEL, for purposes of allocating
Employer Contributions, shall mean (select only one):
i X Not applicable - the Plan does not
use permitted disparity.
------
ii _____ The maximum earnings considered as
wages for purposes of
Internal Revenue Code Section
3121(a).
iii _____ ________% (not greater than
100%) of the maximum earnings
considered as wages for purposes of
Internal Revenue Code Section
3121(a) (plus $1).
4
<PAGE> 5
iv _____ $__________, provided that the
amount does not exceed the maximum
earnings considered as wages for
purposes of Internal Revenue Code
Section 3121(a).
g. PLAN YEAR shall mean (select and complete only one of the
following):
i X the 12-consecutive month period
------ which coincides with the Limitation
Year. The first Plan Year shall be
the period commencing on the
Effective Date and ending on the
last day of the Limitation Year.
ii _____ the 12-consecutive month
period commencing on ___________,
19___, and each annual anniversary
thereof.
iii _____ the calendar year (January 1 through
December 31).
h. QUALIFIED DISTRIBUTION DATE, for purposes of making
distributions under the provisions of a Qualified
Domestic Relations Order (as defined in Internal Revenue
Code Section 414(p)), ______ SHALL X SHALL NOT be the
date the order is determined to be qualified. If SHALL
is selected, the Alternate Payee will be entitled to an
immediate distribution of benefits as directed by the
Qualified Domestic Relations Order. If SHALL NOT is
selected, the Alternate Payee may only take a
distribution on the earliest date that the Participant is
entitled to a distribution.
i. SPOUSE:
_____ If selected, Spouse shall mean only
that person who has actually been
the Participant's spouse for at
least one year.
j. YEAR OF SERVICE shall mean:
i For ELIGIBILITY purposes (select one of the
following):
(a) _____ the 12 consecutive
months during which an
Employee is credited with
_______ (not more than
1000) Hours of Service.
(b) X a Period of Service
----- (using the elapsed time
method of counting Service,
as described in Section
1.1(N)(3) of the Plan).
ii For ALLOCATION accrual purposes (select one
of the following):
N/A
(a) _____ the 12 consecutive
months during which an
Employee is credited with
________ (not more than
1000) Hours of Service.
5
<PAGE> 6
(b) _____ a Period of Service
(using the elapsed time
method of counting Service,
as described in Section
1.1(N)(3) of the Plan).
iii For VESTING service purposes (select one of
the following):
N/A
(a) _____ the 12 consecutive
months during which an
Employee is credited with
________ (not more than
1000) Hours of Service.
(b) _____ a Period of Service
(using the elapsed time
method of counting Service,
as described in Section
1.1(N)(3) of the Plan).
iv For purpose of computing Years of Service in
plans where Year of Service is defined in
terms of Hours of Service), the consecutive
12 month period shall be:
(a) For ELIGIBILITY purposes, the first
Year of Service shall be computed
using the 12 month period commencing
on the Employee's date of hire and
ending on the first annual
anniversary of the Employee's date
of hire (the "Initial Computation
Period"). In the event an employee
does not complete an eligibility
Year of Service during this initial
computation period, the computation
period shall be (select only one):
(1) _____ the period commencing
on each annual
anniversary of the
Employee's date of
hire and ending on
the next annual
anniversary of the
Employee's date of
hire.
(2) _____ the Plan Year,
commencing with the
Plan Year in which
the Initial
Computation Period
ends.
(b) For VESTING purposes, Years of
Service shall be computed on the
basis of:
(1) _____ the period
commencing on each
annual anniversary
of the Employee's
date of hire and
ending on the next
annual anniversary
of the Employee's
date of hire. (2)
_____ the Plan Year,
commencing with the
first Plan Year an
Employee completes
an Hour of Service.
(c) For ALLOCATION accrual purposes,
Year of Service shall be computed on
the basis of the Plan Year.
6
<PAGE> 7
v _____ For ELIGIBILITY purposes, Years of
Service with the following
Predecessor Employers shall count
in fulfilling the eligibility
requirements for this Plan:
_________________________________
_________________________________
vi _____ For VESTING purposes, Years of
Service with the following
Predecessor Employers shall count
for purposes of determining the
nonforfeitable amount of a
Participant's account:
_________________________________
_________________________________
_________________________________
5. COVERAGE:
This Plan is extended by the Employer to the following
Employees who have met the eligibility requirements (select as
many as appropriate):
i _____ All Employees
ii _____ Salaried Employees
iii _____ Sales Employees
iv _____ Hourly Employees
v _____ Leased Employees
vi _____ All Employees except (select as
applicable):
(a) _____ those who are
members of a unit of
Employees covered by
a collective
bargaining agreement
where retirement
benefits were a
subject of good
faith negotiations.
(b) _____ those who are
nonresident aliens
(within the meaning
of Internal Revenue
Code Section
7701(b)(1)(B)) and
who receive no
earned income
(within the meaning
of Internal Revenue
Code Section
711(d) (3)) from
the Employer which
constitutes income
from sources within
the United States
(within the meaning
of Internal Revenue
Code Section
761(a)(3)).
vii _____ Union Employees (who are
members of the following unions or
union affiliates:
_________________________________
_________________________________
_________________________________
viii X Other Employees, described as
--- follows:
All salaried Employees, who are
regular, permanent, salaried
Employees of an Employer as
designated as such in accordance
7
<PAGE> 8
with the policy of the Employer, but
not including any such Employees who
are covered by a collective
bargaining agreement unless such
agreement or the Plan specifically
provides for coverage by the Plan,
or any Employee who is a Leased
Employee within the meaning of Code
Section 414.
6. ELIGIBILITY:
An Employee covered by the Plan may become a Participant upon
completion of the following eligibility requirements:
a. SERVICE(6):
i _____ There shall be no minimum service
requirement for an Employee
to become a Participant.
ii X The Employee must complete 3
[Years/]Months of Service (not
------ more than 2 years) to be a
Participant for purposes of
receiving allocations of
Employer Profit Sharing
Contributions.
b. AGE:
i X There shall be no minimum age
----- requirement for an Employee to
become a Participant.
ii _____ The Employee must attain age ______
(not more than 21) to be
a Participant in the Plan.
c. WAIVER OF AGE AND SERVICE REQUIREMENTS:
i _____ Notwithstanding the provisions
of Items B(6)(a) and (b), Employees
who have not satisfied the age and
service requirements, but would
otherwise be eligible to participate
in the plan, shall be eligible to
participate on the Effective Date.
ii _____ For new Plans, notwithstanding
the provisions of Items B(6)(a) and
(b), Employees who have not
satisfied the age and service
requirements, but would otherwise be
eligible to participate in the plan,
shall be eligible to participate on
the Effective Date.
d. ENTRY DATES:
Upon completion of the eligibility requirements, an
Employee shall commence participation in the Plan
(select only one):
- ----------------------------------
(6) If a fractional year is elected, the elapsed time method of computing
service shall be used for the fractional year. Eligibility provisions for
optional cash or deferred arrangements are contained in Item C of this
Adoption Agreement.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
8
<PAGE> 9
i _____ As soon as practicable under
the payroll practices utilized by
the Employer, and consistently
applied to all Employees(7).
ii _____ As of the first day of the
month following the completion of
the eligibility requirements.
iii X As of the earliest of the first
------ day of the Plan Year, fourth,
seventh or tenth month of the Plan
Year next following completion of
the eligibility requirements.
iv _____ As of the earliest of the
first day of the Plan Year or
seventh month of the Plan Year next
following completion of the
eligibility requirements.
v _____ As of the first day of the
Plan Year next following completion
of the eligibility requirements (may
only be selected if the eligibility
year of service requirement is 6
months or less).
7. VESTING:
N/A
a. The percentage of a Participant's Employer
Contribution Account (attributable to Employer Profit
Sharing Contributions) to be vested in him or her
upon termination of employment prior to attainment of
the Plan's Normal Retirement Date shall be: (8)
<TABLE>
<CAPTION>
COMPLETED YEARS OF SERVICE
1 2 3 4 5 6 7
------ ------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
i _____ ____ 100%
----
ii _____ ____ ____ 100%
----
iii _____ ____ 20% 40% 60% 80% 100%
----- ---- ---- ---- ----
iv _____ ____ ____ 20% 40% 60% 80% 100%
---- ---- ---- ----- ----
v _____ 10% 20% 30% 40% 60% 80% 100%
----- ----- ---- ---- ---- ---- ----
vi _____ ____ ____ ____ ____ 100%
----
vii _____ ____ ____ ____ ____ ____ ____ 100%
----
viii _____ Full and immediate vesting upon entry into the Plan (9)
</TABLE>
Notwithstanding anything to the contrary in
the Plan, the amount inserted in the blanks
above shall not exceed the limits specified
in Code Section 411(a)(2).
- ---------------------------------
(7) Notwithstanding the foregoing, an Employee who has met the eligibility
requirements may not enter the Plan later than six months following the
date on which the Employee first completes the eligibility requirements.
(8) Notwithstanding the selection made in this Item B(7)(a), a Participant
shall be fully vested in his or her Employer Contribution Accounts if the
Participant dies or becomes Disabled while in the employ of the Employer.
(9) If more than one Year of Service is an eligibility requirement, Item viii
must be selected.
9
<PAGE> 10
b. For purposes of computing a Participant's vested
account balance, Years of Service for vesting
purposes _____ SHALL ____ SHALL NOT include Years of
Service before the Employer maintained this Plan or
any predecessor plan, and _____SHALL ______SHALL NOT
include Years of Service before the Employee attained
age 18.
c. Notwithstanding the provisions of this Item B(7)(c)
of the Adoption Agreement, a Participant shall become
fully vested in his Participant's Employer
Contribution if(10):
i _____ the Participant's job is
eliminated without the Participant
being offered a comparable position
elsewhere with the Employer.
ii _____ for such other reason as is
described below:
8. EMPLOYER PROFIT SHARING CONTRIBUTIONS:
N/A
a. CONTRIBUTIONS:
i _____ In its discretion, the Employer may
contribute Employer Profit Sharing
Contributions to the Plan.
ii _____ The Employer shall contribute
Employer Profit Sharing
Contributions to the Plan in the
amount of ______% of the
Compensation of all Eligible
Participants under the Plan.
iii _____ If selected, the Employer may
make Employer Profit Sharing
Contributions without regard to
current or accumulated Net Profits
of the Employer for the taxable year
ending with, or within the Plan
Year.
iv _____ If selected, the Employer may
designate all or any part of the
Employer Profit Sharing
Contributions as Qualified
Nonelective Contributions, provided,
however, that contributions so
designated will be subject to the
same vesting, distribution, and
withdrawal restrictions as Before
Tax Contributions. (11)
b. ALLOCATIONS:
Employer Profit Sharing Contributions shall be
allocated to the accounts of eligible Participants
according to the following selected allocation
formula:
- ---------------------------------------
(10) The provisions of this section will be administered by the Employer on a
consistent and nondiscriminatory basis.
(11) Amounts designated as Qualified Nonelective Contributions will be allocated
pursuant toss. 3.1(A)(14) of the Basic Plan Document.
10
<PAGE> 11
i _____ The Employer Profit Sharing
Contributions shall be allocated to
each eligible Participant's account
in the ratio which the Participant's
Compensation bears to the
Compensation of all eligible
Participants. Employer Profit
Sharing Plan Contributions, shall be
allocated to the accounts of
Participants who have completed a
Year of Service(12) (select one):
(a) _____ as of the last day
of the month
preceding the month
in which the
contribution was
made.
(b) _____ as of the last day
of the Plan quarter
preceding the
quarter in which the
contribution was
made.
(c) _____ as of the last day
of the Plan Year.
ii _____ The Employer Profit Sharing
Contributions shall be allocated in
accordance with the following
formula:
(a) If the Plan is Top-Heavy,
the contribution shall be
first credited to each
eligible Participant's
Account in the ratio which
the Participant's
Compensation bears to the
total Compensation of all
eligible Participants, up
to 3% of each Participant's
Compensation.
(b) If the Plan is Top-Heavy,
any Employer Profit
Sharing Contribution
remaining after the
allocation in (a) above
shall be credited to each
eligible Participant's
account in the ratio which
the Participant's Excess
Compensation(13) bears to
the total Excess
Compensation of all
eligible Participants, up
to 3% of each eligible
Participant's Excess
Compensation.
(c) Any contributions remaining
after the allocation in
(b) above shall be
credited to each eligible
Participant's account in
the ratio which the sum of
the Participant's total
Compensation and Excess
Compensation bears to the
sum of the total
Compensation and Excess
Compensation of all
eligible Participants, up
to an amount equal to the
maximum Excess
Percentage(14) times
- ------------------------
(12) In the event contributions are allocated on a basis other than a full plan
year, the Year of Service shall be based on the elapsed time method of
calculation, and a Participant shall be deemed to have completed an
appropriate Period of Service for allocation purposes if the Participant
has completed a pro-rata Period of Service corresponding to the interval on
which contributions are allocated.
(13) Excess Compensation means a Participant's Compensation in excess of the
Permitted Disparity Level specified in the Definitions section of this
Adoption Agreement.
(14) The maximum Excess Percentage shall be the greater of (i) the percentage
rate of tax under Internal Revenue Code Section 3111(a) (as in effect as
of the beginning of the Plan Year) which is attributable to the old
age insurance portion of the Old Age, Survivor and Disability Insurance
provisions of the Social Security
(continued...)
11
<PAGE> 12
the sum of the
Participant's Compensation
and Excess Compensation. If
the Plan is Top-Heavy, the
maximum Excess Percentage
is ________% (insert
percentage). If the Plan is
not Top-Heavy, the maximum
Excess Percentage is
_______% (insert
percentage, which shall not
exceed the prior Excess
Percentage limitation
specified by more than 3).
(d) Any remaining Employer
Profit Sharing Contribution
shall be allocated among
eligible Participants'
accounts in the ratio which
the Participant's
Compensation bears to the
total Compensation of all
Participants.
iii _____ If selected, and the Employer
has elected to allocate Employer
Profit Sharing Plan Contributions as
of the last day of the Plan Year, a
Participant must be employed by the
Employer on the last day of the Plan
Year in order to receive an
allocation.(15)
iv _____ A Participant who terminates
before the end of the period for
which contributions are allocated
shall share in the allocation of
Employer Profit Sharing
Contributions if termination of
employment was the result of (select
all that apply):
(a) _____ retirement
(b) _____ disability
(c) _____ death
(d) _____ other, as specified
below:
9. ROLLOVER & TRANSFER CONTRIBUTIONS (SELECT ONE):
a. X Subject to policies, applied in a
------ consistent and nondiscriminatory manner,
adopted by the Committee, each Employee, who
would otherwise be eligible to participate
in the Plan except that such Employee
- --------
(14) (...continued)
Act; or (ii) 5.7%, subject to the following limitations:
(i) If the Permitted Disparity Level is less than or equal to 80% of the
maximum earnings considered wages under Internal Revenue Code Section
3121(a) in effect on the first day of the Plan Year (the "Wage Base"),
but is greater than the greater of $10,000 or 20% of the Wage Base,
the maximum Excess Percentage shall be 4.3%;
(ii) If the Permitted Disparity Level is less than the Wage Base, but more
than 80% of the Wage Base, the maximum Excess Percentage shall be
5.4%.
(15) This option shall only be effective if Item 8(b)(i)(c) has been selected.
Even if this Item is selected, the provisions of Section 4.8 of the Basic
Plan Document may supersede this requirement if necessary to satisfy Code
Sections 401(a)(26) and 410(b).
12
<PAGE> 13
has not yet met the eligibility
requirements, and each Participant may make
a Rollover Contribution as described in
Internal Revenue Code Sections 402(a)(5),
403(a)(4) or 408(d)(3).
b. _____ Subject to policies, applied in a
consistent and nondiscriminatory manner,
adopted by the Committee, each Participant
may make a Rollover Contribution as
described in Internal Revenue Code Sections
402(a)(5), 403(a)(4) or 408(d)(3).
c. _____ No Employee shall make Rollover
Contributions to the
Plan.
10. DISTRIBUTIONS:
a. DISTRIBUTIONS UPON SEPARATION FROM SERVICE:
The Normal Form of Benefit under the Plan shall be a
single lump sum distribution, made X (if selected) as
soon as administratively practical after receipt of a
distribution request from a Participant entitled to a
distribution or _______ (if selected) upon the
Participant's attainment of the Plan's Early
Retirement Date or the Plan's Normal Retirement Date,
whichever is earlier.
In addition to the Normal Form of Benefit, the
Participant shall be entitled to select from among
the following optional forms of benefit specified by
the employer (select as many as apply):
i _____ Installment payments
ii _____ Such other forms as may be specified below:
-----------------------------------
-----------------------------------
-----------------------------------
b. IN-SERVICE DISTRIBUTIONS (SELECT AS MAY BE
APPROPRIATE):
i _____ There shall be no in-service
distribution of Participant account
balances derived from Employer
Profit Sharing Contributions.
ii _____ Participants may request an
in-service distribution of their
account balance attributable to
Employer Profit Sharing
Contributions, for the following
reasons:
(a) _____ For purposes
of satisfying a
financial hardship,
as determined in
accordance with the
uniform
nondiscriminatory
policy of the
Committee;
(b) _____ Attainment of age
59 1/2 by the
Participant; or
(c) _____ Attainment of the
Plan's Normal
Retirement Date by
the Participant.
13
<PAGE> 14
11. FORFEITURES:
a. Forfeitures of amounts attributable to Employer
Profit Sharing Contributions shall be reallocated as
of:
i _____ the last day of the Plan Year in
which the Forfeiture occurred.
ii _____ the last day of the Plan Year
following the Plan Year in which
the Forfeiture occurred.
iii _____ the last day of the Plan Year
in which the Participant suffering
the Forfeiture has incurred five
consecutive One Year Breaks in
Service.
b. Forfeitures of Employer Profit Sharing Contributions
shall be reallocated as follows:
i _____ Not applicable as Employer Profit
Sharing Contributions are always
100% vested and nonforfeitable.
ii _____ Used first to pay the expenses of
administering the Plan, and then
allocated pursuant to one of the
following two options(16):
iii _____ Forfeitures shall be allocated to
Participant's accounts in the same
manner as Employer Profit Sharing
Contributions, Employer Matching
Contributions, Qualified
Nonelective Contributions or
Qualified Matching Contributions,
in the discretion of the Employer,
for the year in which the
Forfeiture arose.
iv _____ Forfeitures shall be applied to
reduce the Employer Profit Sharing
Contributions, Employer Matching
Contributions, Qualified
Nonelective Contributions or
Qualified Matching Contributions,
in the discretion of the Employer,
for the Plan Year following the
Plan Year in which the Forfeiture
arose.
12. LIMITATIONS ON ALLOCATIONS:
If the Employer maintains or ever maintained another qualified
retirement plan in which any Participant in this Plan is (or
was) a participant, or could possibly become a participant,
the Employer must complete the following:
a. If the Participant is covered under another qualified
defined contribution plan maintained by the Employer
other than a Master or Prototype Plan:
i _____ The provisions of this Plan shall
apply as if the other plan were
a Master or Prototype plan; or,
- --------
(16) If this option is selected, iii or iv must be selected to reallocate
Forfeitures of Employer Profit Sharing Contributions remaining after
expenses of administering the Plan have been paid.
14
<PAGE> 15
ii X The following provisions will be
----- effective to limit the total Annual
Additions to the Maximum Permissible
Amount, and will properly reduce any
Excess Amounts, in a manner that
precludes Employer discretion:
See attached addendum
b. If the Participant is or ever has been a participant
in a qualified defined benefit plan maintained by the
Employer, the following provisions will be effective
to satisfy the 1.0 limitation of Internal Revenue
Code Section 415(e), in a manner that precludes
Employer discretion:
See attached addendum
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
13. INTERNAL REVENUE CODE SECTION 411(d)(6) PROTECTED BENEFITS:
X If selected, the Employer is attaching to this
--- Adoption Agreement a list of Internal Revenue Code
Section 411(d)(6) Protected Benefits from a prior
plan that this Plan amends, that will be protected
in this Plan, specifying the means, where
appropriate, of preserving those benefits.
14. TOP-HEAVY PLAN PROVISIONS:
For each Plan Year in which the Plan is a Top-Heavy Plan the
following provisions will apply:
a. The percentage of a Participant's Employer
Contribution Account to be vested in him upon
termination of employment prior to retirement shall
be:
i _____ a percentage determined in
accordance with the following
schedule:
YEARS OF SERVICE PERCENTAGE
---------------- ----------
Less than two 0
Two but less than three 20
Three but less than four 40
Four but less than five 60
Five but less than six 80
Six or more 100;
ii _____ 100% vesting after ________
(not to exceed 3) Years of Service;
provided, however, that Years of
Service may not exceed two (2) if
the service requirement for
eligibility exceeds 1 year; or
15
<PAGE> 16
iii X computed in accordance with the
----- vesting schedule selected by the
Employer in Items B(7)(a) or
C(4)(d), as long as the benefits
under the vesting schedule in Items
B(7)(a) or C(4)(d) vest at least as
rapidly as the two options specified
in this Item B(14)(a), above.
If the vesting schedule under the Plan shifts in or
out of the schedules above for any Plan Year because
of the Plan's Top-Heavy status, such shift is an
amendment to the vesting schedule and the election in
Section 2.2 of the Basic Plan Document applies.
b. For purposes of minimum Top-Heavy allocations,
contributions and forfeitures equal to 3 % (not less
than 3%) of each Non-key Employee's Compensation will
be allocated to each Participant's Contribution
Account when the Plan is a Top-Heavy Plan, except as
otherwise provided in the Basic Plan Document. This
Item 14 will not apply to any Participant to the
extent the Participant is covered under any other
plan or plans of the Employer and the Employer
completes the following: (Insert the name of the plan
or plans which will meet the minimum allocation or
benefit requirement applicable to Top-Heavy plans.)
Argo-Tech Corporation Employee Stock Ownership Plan
----------------------------------------------------
----------------------------------------------------
c. The Valuation Date as of which account balances or
accrued benefits are valued for purposes of computing
the Top-Heavy Ratio shall be the last day of each
Plan Year.
d. If the Employer maintains or has ever maintained one
or more defined benefit plans which have covered or
could cover a Participant in this Plan, complete the
following:
Present Value: For purposes of establishing Present
Value to compute the Top- Heavy Ratio, any benefit
shall be discounted only for mortality and interest
based on the following:
Interest rate 7 % Mortality table 1951 GAM/Males,
----- ---------------
projected w/Schedule C to 1980
------------------------------
15. INVESTMENTS:
a. Investments made pursuant to the investment direction
provisions of the Basic Plan Document shall be made
into any appropriate Investment Fund as selected by
the Employer. In addition, investment of Plan assets
is expressly authorized,
16
<PAGE> 17
as required by Revenue Ruling 81-100, in each of the
following common or collective funds sponsored by the
Trustee, or an affiliate of the Trustee (17):
SOCIETY NATIONAL BANK EB MANAGED GUARANTEED INCOME
CONTRACT FUND, THE SOCIETY NATIONAL BANK MULTIPLE
INVESTMENT TRUST FOR EMPLOYEE BENEFIT TRUSTS, AND
OTHER COLLECTIVE TRUSTS EXEMPT FROM TAX UNDER IRC
SECTION 501 AND AS DESCRIBED IN REV. RUL. 81-100.
b. _____ If selected, an Employer Stock Fund
shall be available as an Investment Fund
pursuant to the terms of the Basic Plan
Document.
____ If selected, and an Employer Stock
Fund is available as an Investment
Fund, Participants will have the
right, notwithstanding any other
provisions of the Plan, to direct
that a portion of the Plan assets
held for their benefit and invested
in the Employer Stock Fund be
diversified pursuant to the
provisions of Section 10.7(F) of the
Basic Plan Document.
c. Participants may make changes of existing account
balances and future contributions from among the
Investment Funds offered:
i X Once during each business day that
----- the Trustee and the New York Stock
Exchange are open.
ii _____ Once during each calendar month.
iii _____ Once during each quarter of the Plan
Year.
iv _____ Once during each rolling _____ day
period.
d. X If selected, the Participant shall be
--- restricted in making changes of existing
account balances from any Investment Fund,
as specified in the terms or conditions of
such Investment Fund, and the Employer shall
attach an addendum specifying such
restriction.
e. The Participant will designate into which Investment
Funds all contributions to their accounts are made,
EXCEPT the following:
i _____ Employer Profit Sharing
Contributions
ii _____ Employer Mandatory Matching
Contributions
iii _____ Employer Discretionary Matching
Contributions
iv _____ Qualified Matching Contributions
v _____ Qualified Nonelective Contributions
- -----------------------------------
(17) This Item is for use in identifying collective trust funds, which, pursuant
to Revenue Ruling 81-100 must be specifically referenced in the Plan.
Actual Investment Funds are referenced on the Investment Fund Designation
form attached to this Adoption Agreement.
17
<PAGE> 18
f. _____ If selected, and to the extent a
selection is made above, the Employer shall
attach an Investment Direction Addendum
specifying how the contributions so
specified shall be invested among the
Investment Fund.
g. _____ If selected, the Participant shall be
restricted in the use of the Employer Stock
Fund as an Investment Fund for designating
the investment of contributions in the
Participant's account, as follows:
i _____ The Participant may not direct
the investment of Plan assets held
in their account into the Employer
Stock Fund.
ii _____ The Participant may direct
_____% of the following
contributions into the Employer
Stock Fund:
(a) _____ Employer Profit
Sharing Contributions
(b) _____ Employer Mandatory
Matching Contributions
(c) _____ Employer Discretionary
Matching Contributions
(d) _____ Qualified Matching
Contributions
(e) _____ Qualified Nonelective
Contributions
iii _____ ______% of the following
contributions will be invested into
the Employer Stock Fund, with the
balance invested among:
(a) _____ the other Investment
Funds, including the
Employer Stock Fund
(b) _____ the other Investment
Funds, NOT including
the Employer Stock Fund
16. LOANS (SELECT ONE):
a. X Loans may be made from the Plan in
------ accordance with the Basic Plan Document and
such policies and procedures as the
Committee may adopt and apply on a
consistent and nondiscriminatory basis.18
b. _____ No loans shall be made from the Plan.
17. TRUSTEE:
The Trustee of this Plan shall be SOCIETY NATIONAL BANK (a
bank or trust company affiliated with KeyCorp within the
meaning of Internal Revenue Code Section 1504).
- ---------------------------------------
(18) If this option is selected, the Employer must establish appropriate
procedures for implementation of the Plan's loan program.
18
<PAGE> 19
18. EFFECTIVE DATE ADDENDUM:
X If selected the Employer is attaching to this
---- Adoption Agreement an effective date addendum which
provides for certain retroactive or prospective
effective dates for specified provisions of this
Plan, in compliance with the effective date
requirements of certain provisions of the Internal
Revenue Code.
c. SECTION 401(k) PLAN PROVISIONS:
1. SERVICE:
An Eligible Employee shall be required to fulfill the
following eligibility service requirements in order
to participate in the Plan through a salary reduction
agreement and for purposes of receiving an allocation
of Employer Matching Contributions:
a. ____ The Employee must complete ___ Years/Months
of Service (not more than 1 year) to be a
Participant for purposes of receiving
allocations of Employer Discretionary
Matching Contributions.
b. X The Employee must complete 3 [Years]/Months
of Service not more than 1 year) to be a
Participant for purposes of entering into a
Salary Reduction Agreement and having
Employee Before Tax Contributions or
Employee After Tax Contributions contributed
to the Plan on the Employee's behalf.
2. EMPLOYEE SALARY DEFERRALS:
a. X Participants shall be entitled to
enter into a Salary Reduction
Agreement providing for Before Tax
Contributions to be made to the
Plan.
i The minimum Before Tax
Contribution shall be 1%
of the Participant's
Compensation.
ii The maximum Before Tax
Contribution shall be 13%
of the Participant's
Compensation.
b. X Participants shall be entitled to
enter into a Salary Reduction
Agreement providing for After Tax
Contributions to be made to the
Plan.
i The minimum After Tax
Contribution shall be 1%
of the Participant's
Compensation.
ii The maximum After Tax
Contribution shall be 10%
of the Participant's
Compensation.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
19
<PAGE> 20
iii _______ If selected,
notwithstanding the
above, a Participant
shall not be able to
enter into a Salary
Reduction Agreement
providing for After
Tax Contributions to
be made to the Plan
unless the
Participant has
entered into a
Salary Reduction
Agreement that
provides for Before
Tax Contributions to
be made to the Plan
in an amount of at
least % of the
Participant's
Compensation.
c. ______ If selected, a Participant shall be entitled to
enter into a Salary Reduction Agreement providing
that any extraordinary item of compensation, not
yet payable (including bonuses), be withheld from
the Participant's Compensation and contributed to
the Plan as either a Before Tax Contribution, or
After Tax Contribution (provided such
contributions are authorized above, and to the
extent that such contribution, when aggregated
with either the Participants other Before Tax
Contributions or After Tax Contributions do not
exceed the limitations specified above, on an
annual basis).
3. CONTRIBUTION CHANGES:
a. Participants may increase or decrease the amount of
contributions made to the Plan pursuant to a Salary
Reduction Agreement once each:
I Plan Year
----
II Semi-annual period, based on the Plan Year
----
III Quarter, based on the Plan Year
----
IV Month
----
V X Other, as specified below:
----
Effective as of February 1, May 1, August 1, and
November 1, but not more than twice during each
Plan Year
b. Claims for returns of Excess Before Tax Contributions
for the Participant's preceding taxable year must be
made in writing, and submitted to the Committee by
March 1 (specify a date between March 1 and April
15)(19).
- --------------------------------------------
(19) The date specified is for the refund of amount deferred in excess of the
Code Section 402(g) limit (the $7,000 limit) for the Participant's taxable
year.
20
<PAGE> 21
4. EMPLOYER MATCHING CONTRIBUTIONS(20):
a. MANDATORY MATCHING CONTRIBUTIONS:
The Employer shall make contributions to the Plan, in
an amount as specified below:
i An amount, equal to _________% of each
Participant's Before Tax Contributions,
but not to exceed _______% of the
Participant's Compensation, or
$________.
ii An amount, equal to ________% of each
Participant's After Tax Contributions,
but not to exceed _______% of the
Participant's Compensation, or
$________.
iii An amount, equal to ________% of each
Participant's contributions made
pursuant to a Salary Reduction Agreement
(including both Before Tax Contributions
and After Tax Contributions), but only
if the Participant has entered into a
Salary Reduction Agreement providing for
Before Tax Contributions of at least
________% of the Participant's
Compensation, but not to exceed
________% of the Participant's
Compensation, or $_______ .
iv An amount equal to the sum of the
following:
(a) _____% of the first
________% of the
Participant's
Compensation
deferred pursuant to
a Salary Reduction
Agreement; plus,
(b) _____% of the next % of the
Participant's
Compensation
deferred pursuant to
a Salary Reduction
Agreement; plus,
(c) _____% of the next % of
the Participant's
Compensation
deferred pursuant
to a Salary
Reduction
Agreement, but not
to exceed % of the
Participant's
Compensation, or
$______.
v An amount, equal to $_____, for each Participant
who enters into a Salary Reduction Agreement
providing for_____ Before Tax Contributions, After
Tax Contributions, or _____ either Before Tax
Contributions or After Tax Contributions (or a
combination of both) equal to or exceeding %_____
of the Participant's Compensation. Such
contributions shall be made and allocated:
(a) only during the first Plan Year the
Plan is in effect, or if a
restatement, for the first Plan
Year
- -----------------------------------
(20) The Employer shall have the right to designate all, or any portion of
Employer Matching Contributions as Qualified Matching Contributions,
which shall then be subject to the same vesting, distribution, and
withdrawal restrictions as Before Tax Contributions.
21
<PAGE> 22
beginning with, or containing the
restatement Effective Date.
(b) each Plan Year that a Participant
has in force a Salary Reduction
Agreement meeting the criteria
specified above.
(c) during the first Plan Year that the
Participant participates through a
Salary Reduction Agreement meeting
the criteria specified above.
b. DISCRETIONARY MATCHING CONTRIBUTIONS:
______ The Employer shall make
contributions to the Plan, in an
amount determined by resolution of
the Board of Directors on an annual
basis. The Board resolution shall
provide for the percentage and/or
amount of Before Tax Contributions
and/or After Tax Contributions to be
matched and the maximum percentage
and/or amount of Before Tax
Contributions and/or After Tax
Contributions eligible for matching.
c. ALLOCATION OF MATCHING CONTRIBUTIONS:
Employer Matching Contributions shall be
allocated pursuant to the terms of the Basic
Plan Document, notwithstanding the
foregoing:
i ________ A Participant who
terminates before the end
of the period for which
contributions are allocated
shall share in the
allocation of Employer
Matching Contributions if
termination of employment
was the result of (select
all
that apply):
(a) ______ retirement
(b) ______ disability
(c) ______ death
(d) ______ other, as
specified
below:
--------------------------
--------------------------
--------------------------
ii Employer Matching
Contributions shall be
allocated to the accounts
of Participants(select
one):
(a) ___ as of each pay
period for which
a contribution
was made pursuant
to a Salary
Reduction
Agreement.
(b) ___ semi-monthly.
22
<PAGE> 23
(c) ___ as of the last day of the month
preceding the month in which the
contribution was made.
(d) ___ as of the last day of the Plan
quarter preceding the quarter in
which the contribution was made.
(e) ___ as of the last day of the Plan
year.
iii ____ If selected, the Employer may make Employer
Matching H Contributions without regard to
current or accumulated Net Profits of the
Employer for the taxable year ending with,
or within the Plan Year(21).
d. The percentage of a Participant's Employer Matching
Contribution Account(22) (attributable to Employer
Matching Contributions) to be vested in him or her
upon termination of employment prior to attainment of
the Plan's Normal Retirement Date shall be.(23)
Completed Years of Service
<TABLE>
<CAPTION>
1 2 3 4 5 6 7
-------- -------- -------- -------- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
i 100%
-------- -------- -----
ii 100%
-------- -------- -------- -----
iii 20% 40% 60% 80% 100%
-------- -------- ------- ------- ------- ------- -----
iv 20% 40% 60% 80% 100%
-------- -------- -------- ------- ------- ------- ------ -----
v 10% 20% 30% 40% 60% 80% 100%
-------- ----- ------- ------- ------- ------- ------ -----
vi 20% 40% 60% 80% 100%
vii -------- ----- ------- ------- ------- ---- 100%
-------- ----- ------- ------- ------- ---- ----
viii Full and immediate vesting upon entry into the Plan
--------
</TABLE>
------------------------------------------
Notwithstanding anything to the contrary in the Plan, the
amount inserted in the blanks above shall not exceed the
limits specified in Code section 411(a)(2).
- --------------------------------------
(21) Net Profits will never be required for the contribution of Before Tax
Contributions, After Tax Contributions, Qualified Nonelective Contributions
or Qualified Matching Contributions.
(22) Notwithstanding anything in the Adoption Agreement to the contrary, amounts
in a Participant's account attributable to Before Tax Contributions,
Qualified Nonelective Contributions, and Qualified Matching Contributions
shall be 100% vested and nonforfeitable at all time.
(23) Notwithstanding the selection made in this Item B(7)(b), a Participant
shall be fully vested in his or her Employer Contribution Accounts if the
Participant dies or become Disabled while in the employ of the Employer.
23
<PAGE> 24
e. Notwithstanding the provisions of this Item
C(4)(e) of the Adoption Agreement, a
Participant shall become fully vested in his
Participant's Employer Matching Contribution
Account if(24):
i ____ the Participant's job is eliminated
without the Participant being
offered a comparable position
elsewhere with the Employer.
ii _____ for such other reason as is
described below:
f. CORRECTIVE CONTRIBUTIONS:
i _____ If selected, the Employer shall be
authorized to make Qualified
Matching Contributions, subject to
the terms of the Basic Plan
Document, in an amount determined
by resolution of the Board of
Directors on an annual basis.
ii _____ If selected, the Employer shall be
authorized to make Qualified
Nonelective Contributions, subject
to the terms of the Basic Plan
Document, in an amount determined
by resolution of the Board of
Directors on an annual basis.
5. GAP EARNINGS:
If selected, Gap Earnings, as defined in section
3.2(G)(1) of the Basic Plan Document, will be
calculated for Excess Elective Deferrals, Excess
Contributions and Excess Aggregate Contributions, and
refunded to the Participant as provided for in
Article III of the Basic Plan Document.
6. FORFEITURES:
a. Forfeitures of amounts attributable to Employer
Matching Contributions shall be reallocated as of:
i the last day of the Plan Year in which the
Forfeiture occurred.
ii the last day of the Plan Year following the
Plan Year in which the Forfeiture occurred.
iii the last day of the Plan Y ear in which the
Participant suffering the Forfeiture has
incurred the fifth consecutive One Year
Break in Service.
b. Forfeitures of Employer Matching
Contributions shall be reallocated as
follows:
- --------
24 The provisions of this section will be administered by the Employer
on a consistent and nondiscriminatory basis.
24
<PAGE> 25
i ___ Not applicable as Employer Matching
Contributions are always 100%
vested and nonforfeitable.
ii ___ Used first to pay the expenses of
administering the Plan, and then
allocated pursuant to one of the
following two options:
iii ___ Forfeitures shall be allocated to
Participant's accounts in the same
manner as Employer Profit Sharing
Contributions, Employer Matching
Contributions, Qualified
Nonelective Contributions or
Qualified Matching Contributions,
in the discretion of the Employer,
for the year in which the
Forfeiture arose.
iv ___ Forfeitures shall be applied to
reduce the Employer Profit Sharing
Contributions, Employer Matching
Contributions, Qualified
Nonelective Contributions or
Qualified Matching Contributions,
in the discretion of the Employer,
for the Plan Year following the
Plan Year in which the Forfeiture
arose.
c. Forfeitures of Excess Aggregate Contributions shall
be:
i ___ Applied to reduce Employer
contributions for the Plan Year in
which the excess arose, but
allocated as below, to the extent
the excess exceeds Employer
contributions for the Plan Year, or
the Employer has already
contributed for such Plan Year.
ii ___ Allocated after all other
forfeitures under the Plan:
(a) ___ to the Matching
Contribution account of
each Non-highly
Compensated Participant
who made Before Tax
Contributions or After Tax
Contributions ion the
ratio which each such
Participant's Compensation
for the Plan Year bears to
the total Compensation of
all such Participants for
the Plan Year; or,
(b) ___ to the Matching
Contribution account of
each Non-highly
Compensated Eligible
Participant in the ratio
which each Eligible
Participant's Compensation
for the Plan Year bears to
the total Compensation of
all Eligible Participants
for the Plan Year
7. IN-SERVICE DISTRIBUTIONS (SELECT AS MAY BE APPROPRIATE):
a. There shall be no in-service distribution of
Participant account balances derived from
Before Tax Contributions (including
Qualified Nonelective Contributions and
Qualified Matching Contributions treated as
Before Tax Contributions under the terms of
the Basic Plan Document), or
Employer Matching Contributions.
25
<PAGE> 26
b. X Participants may request an in-service distribution of their
____ account balance attributable to Employer Matching
Contributions, for the following reasons:
i X For purposes of satisfying a financial hardship, as
---- determined in accordance with the uniform
nondiscriminatory policy of the Committee;
ii X Attainment of age 59 1/2 by the Participant; or
----
iii Attainment of the Plan's Normal Retirement Date by
____ the Participant.
c. X Participants may request an in-service distribution of their
--- account balance attributable to Employee Before Tax
Contributions, for the following reasons:
i ____ For purposes of satisfying a financial hardship, as
determined by the facts and circumstances of an
Employee's situation, in accordance with the
provisions of section 3.9 of the Basic Plan
Document;
ii X For purposes of satisfying a financial hardship,
---- using the "safe harbor" provisions of section
3.9 of the Basic Plan Document.
iii X Attainment of age 59 1/2 by the Participant; or
---
iv ___ Attainment of the Plan's Normal Retirement Date by
the Participant.
26
<PAGE> 27
NOTICE: [The adopting Employer may not rely on an opinion letter issued by the
National Office of the Internal Revenue Service as evidence that the Plan is
qualified under the provisions of Section 401 of the Internal Revenue Code. In
order to obtain reliance with respect to the Plan's qualifiction, the Employer
must apply to the Key District Office of the Internal Revenue Service for a
determination letter.]
This Adoption Agreement may only be used in conjunction with Basic Plan Document
#05.
This Plan document may only be used under the express authority of KeyCorp, its
subsidiaries and affiliates, and is not effective as completed until executed by
a duly authorized officer of KeyCorp, one of its subsidiaries or affiliates, and
approved by KeyCorp's counsel.
KeyCorp, as sponsor, may amend or discontinue this prototype plan document upon
proper notification to all adopting Employers pursuant to Revenue Ruling 89-13.
Failure to properly fill out an Adoption Agreement may result in
disqualification of the Plan, and adverse tax consequences to the Employer and
Plan Participants.
This Plan is sponsored by:
KeyCorp, on behalf of its operating subsidiaries, banking and
trust company affiliates
127 Public Square
Cleveland, Ohio 44114
(800) 982-3811
IN WITNESS WHEREOF, the Employer and the Trustee, by their respective
duly authorized officers, have caused this Adoption Agreement to be executed on
this 31st day of , 19 [can't read].
EMPLOYER: TRUSTEE:
Argo-Tech Corporation Society National Bank
- ---------------------------------- -----------------------------------
By: By: /s/Kimberlyn D. Hall
-------------------------------- -------------------------------
Title: Title: Trust Officer
---------------------------- ----------------------------
[can't read]
and and
By: [signature] By: [signature]
------------------------------- -------------------------------
Title: Vice President Title: Vice President
---------------------------- ----------------------------
APPROVED ON BEHALF OF TRUSTEE:
Initials: Date:
------------------ ----------------
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
27
<PAGE> 28
INVESTMENT FUND DESIGNATION
The Investment Committee designated by Argo-Tech Corporation (the
"Named Fiduciary"), as an independent fiduciary with respect to the Argo-Tech
Employee Savings Plan (the "Plan"), an employee pension benefit plan covered by
the applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and its employees who participate therein (the
"Participants"), hereby designates the following investment funds from among the
investment fund options available for adopting employers of the PRISM(R)
PROTOTYPE RETIREMENT PLAN & TRUST (as defined in ss. 10.7 of the Plan),
available for selection by Participants for the investment of Plan assets held
for their benefit:
(a) EB MaGIC Fund
-----------------------------------------------------
(b) Victory Investment Quality Bond Fund
-----------------------------------------------------
(c) Victory Balance Fund
-----------------------------------------------------
(d) Victory Stock Index Fund
-----------------------------------------------------
(e) Victory Special Value Fund
-----------------------------------------------------
(f) Victory International Growth Fund
-----------------------------------------------------
(g)
-----------------------------------------------------
_____ In addition, if selected, an Employer Stock Fund will also
be available.
In making the selection of Investment Funds, the Named Fiduciary hereby confirms
and acknowledges that:
- The Named Fiduciary has had made available to it
copies of the prospectuses (to the extent required
under applicable federal securities law and
regulation) for each investment fund available for
selection by adopting employers of the PRISM(R)
PROTOTYPE RETIREMENT PLAN & TRUST, and has received
copies of each such prospectus for the Investment
Funds selected;
- The Named Fiduciary acknowledges that the Trustee of
the Plan may receive certain fees for services
provide to, or on behalf of an Investment Fund, or
the sponsors or distributors thereof, pursuant to
plans of distribution adopted by the fund under the
provisions of Rule 12b-1 of the Investment Company
Act of 1940, and further acknowledges that (i) such
fee, if paid, is appropriate for services rendered to
the fund, and when aggregated with other fees for
service payable to the Trustee constitutes reasonable
compensation for the Trustee's services to the Plan;
and (ii) the Plan will be able to redeem its interest
in any such Investment Fund on reasonably short
notice without penalty;
- The Named Fiduciary further acknowledges that it has
selected the Investment Funds on its determination,
after due inquiry, that the Investment Funds are
appropriate vehicles for the investment of Plan
assets pursuant to the terms of the Plan, considering
all relevant facts and circumstances, including but
not limited to (i) the investment policy and
philosophy of the Named Fiduciary developed pursuant
to ERISA section 404; (ii) the ability of
Participants, using an appropriate mix of Investment
Funds, to diversify the investment of Plan assets
28
<PAGE> 29
held for their benefit; and, (iii) the ability of
Participants to, utilizing an appropriate mix of
Investment Funds, to structure an investment
portfolio within their account in the Plan with risk
and return characteristics within the normal range of
risk and return characteristics for individuals with
similar investment backgrounds, experience and
expectations; and,
- The Named Fiduciary acknowledges that it has not
relied on any representations or recommendations from
the Trustee or any of its employees in selecting the
Investment Funds.
The Trustee agrees to follow the Named Fiduciary's direction with respect to
offering the Investment Funds available for selection by the Participants in the
Plan for the investment of Plan assets held for their benefit:
IN WITNESS WHEREOF, the Employer, by its duly authorized
representative, has executed this document in connection with adoption of the
Plan utilizing the PRISM(R) PROTOTYPE RETIREMENT PLAN & TRUST documents, as
provided by the Trustee.
NAMED FIDUCIARY: THE INVESTMENT COMMITTEE
By: [signature]
-------------------------------------
Seen and accepted by the Trustee, who shall provide the Investment
Funds selected by the Employer pursuant to the terms of this document, and
pursuant to the Plan.
TRUSTEE:
By: [signature]
-------------------------------------
29
<PAGE> 30
ADDENDUM
TO
ARGO-TECH EMPLOYEE SAVINGS PLAN AND TRUST
1. ITEM B(12): LIMITATIONS ON ALLOCATIONS:
a. ii If as a result of the allocation of forfeitures, a
reasonable error in estimating the Participant's
Compensation, a reasonable error in estimating the
amount of Before Tax Contributions that may be made
with respect to any Participant under the limits of
Section 415 of the Code, or other reasonable facts
and circumstances that the Commissioner of Internal
Revenue finds to justify the availability of the
rules set forth below, the annual addition to the
separate accounts of a Participant or former
Participant in any Plan Year would exceed the Maximum
Permissible Amount, the amount of his After-Tax
Contributions for such Plan Year, that would exceed
the Maximum Permissible Amount, shall be reduced to
the extent necessary to eliminate such excess. The
amount of any such reduction of After-Tax
Contributions shall be returned to such Participant
or former Participant (plus the earnings, if any,
attributable to such amount). If the Maximum
Permissible Amount would still be exceeded after
application of the previous sentence, the amount of
the Before Tax Contributions made on behalf of such
Participant or former Participant for such Plan Year
that would exceed the Maximum Permissible Amount
shall be reduced to the extent necessary to eliminate
such excess. The amount of any such reduction of
Before Tax Contributions shall be returned to such
Participant or former Participant. In the event that
a Participant or former Participant is covered by any
other qualified defined contribution plan (whether or
not terminated) maintained by an Employer or a
Related Employer and the Maximum Permissible Amount
would still be exceeded after invocation of the
preceding procedure, the procedure shall then be
implemented by returning the employee contributions
(and earnings, if applicable) and elective deferrals
made by the Participant to all such other plans for
such Plan year. If the Maximum Permissible Amount
would still be exceeded after returning all of the
contributions made by the Participant or former
Participant under such other plans, the portion of
the employer contributions and of forfeitures for the
Plan year under all such other plans, which has been
allocated to such Participant thereunder, but which
exceeds the Maximum Permissible Amount, shall be
treated as provided in such other plans. In the event
that a Participant or former Participant is covered
by a qualified defined benefit plan, the provisions
of paragraph b. below shall be implemented prior to
effecting any reduction in the benefit of such
Participant or former Participant under the defined
contribution plans.
b. If any Participant or former Participant in the Plan is also
covered by a qualified defined benefit plan (whether or not
terminated) maintained by an Employer or a Related Employer,
the sum of the Defined Benefit Fraction and the Defined
Contribution Fraction shall in no event exceed 1.0 in any Plan
Year. In the event the special
30
<PAGE> 31
limitation contained in this paragraph is exceeded, the
benefits otherwise payable to the Participant or former
Participant under any such qualified defined benefit plan
shall be reduced to the extent necessary to meet such
limitation.
2. ITEM B(13): SECTION 411(d)(6) PROTECTED BENEFITS:
--------------------------------------------------
Notwithstanding anything in the Plan or the Adoption Agreement to the
contrary, pursuant to Section 7.8 of the Plan, the following are
section 41 1(d)(6) protected benefits which shall be preserved in the
Plan and be available as options to the Participants:
- By filing written notice with the Committee such number of
days in advance of the end of any Plan Year quarter on which
it will become effective as shall be established from time to
time by the Committee, a Participant may, but not more than
twice in a Plan Year, elect to withdraw in cash an amount
equal to all, or a portion equal to at least $500, of the
value of the aggregate balance of his account attributable to
After Tax Contributions and Rollover Contributions, as of the
most recent valuation date.
- By filing written notice with the Committee such number of
days in advance of the end of any Plan Year quarter on which
it will become effective, a Participant who has attained age
59 1/2 may elect to withdraw in cash an amount equal to
all, or a portion equal to at least $500, of the value of the
aggregate balance of his account attributable to Before Tax
Contributions or Matching Employer Contributions (made to the
Plan for periods prior to July l, 1994), as of the most recent
valuation date.
- A Participant may make a Hardship withdrawal of amounts
attributable to Matching Employer Contributions (made to the
Plan for periods prior to July l, 1994) in accordance with the
provisions specified with respect to Before Tax Contributions
in Section 3.9 of the Plan.
All other provisions of the Plan and the Adoption Agreement shall be
unaffected by this Section 2 of the Addendum, which shall be given
force and effect only to the extent necessary to preserve
section 411(d)(6) protected benefits consistent with the provisions of
the Code and regulations issued thereunder.
3. ITEM B(15)(d): INVESTMENT FUND RESTRICTIONS:
--------------------------------------------
Without limiting the generality of Section 6 of this Addendum,
notwithstanding anything in the Plan or the Adoption Agreement to the
contrary, Participants may be restricted in making investment changes
with respect to Plan assets allocated to their account and invested in
certain investment funds, annuity contracts, or insurance contracts.
4. ITEM B(18): EFFECTIVE DATE ADDENDUM:
-------------------------------------
Until March l, 1994, distributions shall not be required to be provided
at any time earlier than under the provisions of the Plan in effect
immediately prior to this November l, 1994, restatement.
31
<PAGE> 32
5. ITEM C(4): EMPLOYER MATCHING CONTRIBUTIONS:
-------------------------------------------
Notwithstanding anything in the Plan or the Adoption Agreement to the
contrary, the following shall apply:
Employer Matching Contributions were made to the Plan with respect to
periods prior to July 1, 1994. Effective as of November l, 1994 and
notwithstanding any provision of the Plan as in effect prior to this
November I, 1994 restatement of the Plan to the contrary, each
Participant and former Participant whose account attributable to
Employer Matching Contributions has not been forfeited prior to
November l, 1994, shall, to the extent otherwise forfeitable, be fully
vested in his account attributable to Employer Matching Contributions.
6. INVESTMENT PROVISIONS:
---------------------
Notwithstanding anything in the Plan or the Adoption Agreement to the
contrary, the Investment Committee designated by Argo-Tech Corporation
shall have the authority to select the Investment Funds or other
investments available from time to time under the Plan, as may be
agreed to in writing by the Trustee.
Notwithstanding anything in the Plan or the Adoption Agreement to the
contrary, the frequency and terms under which Participants may make
investment elections, investment transfers, and investment changes
under the Plan shall be as established from time to time by the
Committee and agreed to by the Trustee.
Notwithstanding anything in the Plan or the Adoption Agreement to the
contrary, any portion of the assets of the Plan may be invested in an
annuity contract or investment contract with an insurance company. With
respect to any period during which any portion of the Plan is funded by
one or more annuity contracts or investment contracts not held by the
Trustee, each reference in the Plan to the Trustee, other than the
references contained in paragraphs (PP) and (QQ) of the Plan, shall be
deemed to be references to the Committee, the Investment Committee, as
designated by Argo-Tech Corporation, 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.
7. MISCELLANEOUS:
-------------
Notwithstanding anything in the Plan or the Adoption Agreement to the
contrary:
a. The phrase "coincides with" in subparagraph (2) of paragraph
(R) of Section I.1 shall not apply. Entry Dates shall be as
specified in the Adoption Agreement.
b. Paragraph (D) of Section 2.1 shall not apply.
c. Spousal consent shall not be required for purposes of
paragraph (A) of Section 3.9 because the Plan is a safe harbor
profit-sharing plan described in Section 7.10(F).
32
<PAGE> 1
Exhibit 10.30
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================================================================================
AGREEMENT OF PURCHASE AND SALE
------------------------------
between
AGNEM HOLDINGS, INC.
and
TRW INC.
Dated as of August 5, 1986
================================================================================
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TABLE OF CONTENTS
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Preamble...........................................................................................................
Recitals ..........................................................................................................
ARTICLE 1 - General Provisions
1.l Definitions......................................................................................
1.2 Other Definitions and Meanings; Interpretation...................................................
1.3 TRW's Knowledge..................................................................................
ARTICLE II - Purchase and Sale
2.1 Transaction......................................................................................
2.2 Acquired Assets..................................................................................
2.3 Excluded Assets..................................................................................
2.4 Assumed Liabilities..............................................................................
2.5 Excluded Liabilities.............................................................................
2.6 Purchase Price...................................................................................
2.7 Adjustment.......................................................................................
(a) Closing Audit...........................................................................
(b) Review by Purchaser.....................................................................
(c) Accounting Principles...................................................................
(d) Base-Line Net Book Value................................................................
(e) Determination of Closing Net Book Value.................................................
(f) Amount of Adjustment....................................................................
2.8 Payment of Purchase Price...............................................................
2.9 Refund of Purchase Price.........................................................................
2.10 Method of Payment................................................................................
ARTICLE III - Representations and Warranties
3.1 TRW's General Representations and Warranties.....................................................
(a) Organization and Existence..............................................................
(b) Power and Authority.....................................................................
(c) Authorization...........................................................................
(d) Binding Effect..........................................................................
(e) No Default..............................................................................
(f) Finders.................................................................................
(g) Representations and Warranties True and Complete........................................
3.2 TRW's Representations and Warranties Concerning the Disclosure Package...........................
(a) Financial Statements....................................................................
(b) Investments.............................................................................
(c) Receivables.............................................................................
(d) Inventories.............................................................................
(e) Real Estate.............................................................................
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(f) Personal Property.......................................................................
(g) Liabilities.............................................................................
(h) Litigation..............................................................................
(i) Contracts...............................................................................
(j) Intellectual Property...................................................................
(k) Employee Benefits.......................................................................
(l) Permits and Approvals...................................................................
(m) Compliance with Laws....................................................................
(n) Payment of Taxes; Tax Liens.............................................................
(o) No Material Events......................................................................
(p) Additional Information..................................................................
(q) Undisclosed Liabilities.................................................................
3.3 Purchaser's Representations and Warranties.......................................................
(a) Organization and Existence..............................................................
(b) Power and Authority.....................................................................
(c) Authorization...........................................................................
(d) Binding Effect..........................................................................
(e) No Default..............................................................................
(f) Finders.................................................................................
(g) Purchaser's Financing Plan..............................................................
(h) Representations and Warranties True and Complete........................................
3.4 Disclaimer.......................................................................................
3.5 Survival.........................................................................................
ARTICLE IV - Actions Before Closing
4.1 Access to Records................................................................................
4.2 Interim Conduct of the Business..................................................................
4.3 Purchaser's Approval of Certain Transactions.....................................................
4.4 Negotiation of Other Agreements..................................................................
4.5 Consents to Assignment...........................................................................
4.6 Novation of Government Contracts.................................................................
4.7 Government Approvals.............................................................................
4.8 Review of Disclosure Package; Right to Reject....................................................
4.9 Purchaser's Financing............................................................................
4.10 Labor Relations..................................................................................
4.11 Special Receivables..............................................................................
ARTICLE V - Conditions
5.1 Conditions to Purchaser's Obligations............................................................
5.2 Conditions to TRW's Obligations..................................................................
ARTICLE VI - Closing
6.1 The Closing......................................................................................
6.2 Time, Date, and Place of Closing.................................................................
6.3 Purchaser's Obligations..........................................................................
6.4 TRW's Obligations................................................................................
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6.5 Real Estate Conveyance...........................................................................
(a) Title Insurance Commitment..............................................................
(b) Warranty Deeds..........................................................................
(c) Instructions............................................................................
(d) Confirmation............................................................................
6.6 Leasehold Interests in Real Estate...............................................................
ARTICLE VII - Actions After Closing
7.1 Further Conveyances..............................................................................
7.2 Further Consents to Assignment...................................................................
7.3 Resale of Inventories............................................................................
7.4 Access to Former Business Records................................................................
7.5 Access to Former Employees.......................................................................
7.6 Access to Business Records.......................................................................
7.7 Access to Employees..............................................................................
7.8 Trade Receivables................................................................................
7.9 Environmental Claims ............................................................................
7.10 Environmental Remediation........................................................................
ARTICLE VIII - Employees and Employee Benefits
8.1 Employment.......................................................................................
8.2 Pension Plans....................................................................................
8.3 401(k) Plan .....................................................................................
8.4 Medical Benefits.................................................................................
8.5 Life Insurance...................................................................................
8.6 Accrued Vacation ................................................................................
8.7 Workers' Compensation............................................................................
8.8 Severance Payments...............................................................................
8.9 Unemployment Insurance...........................................................................
8.10 Other Employee Benefits..........................................................................
8.11 Termination or Layoff of Certain Employees.......................................................
ARTICLE IX - Indemnification
9.1 Indemnification of TRW...........................................................................
9.2 Indemnification of Purchaser.....................................................................
9.3 Claims...........................................................................................
(a) Notice..................................................................................
(b) Responsibility for Defense .............................................................
(c) Right to Participate....................................................................
(d) Settlement ............................................................................
9.4 Limitation on Indemnification....................................................................
ARTICLE X - Amendment, Waiver, and Termination
10.1 Amendment........................................................................................
10.2 Waiver...........................................................................................
10.3 Termination ....................................................................................
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10.4 Unilateral Right of Cancellation.................................................................
ARTICLE XI - Miscellaneous
11.1 Cooperation......................................................................................
11.2 Confidentiality .................................................................................
11.3 Severability.....................................................................................
11.4 Expenses.........................................................................................
11.5 Transfer of Taxes................................................................................
11.6 Bulk Sales.......................................................................................
11.7 Notices..........................................................................................
11.8 Assignment.......................................................................................
11.9 No Third Parties.................................................................................
11.10 Incorporation by Reference.......................................................................
11.11 Governing Law....................................................................................
11.12 Counterparts.....................................................................................
11.13 Complete Agreement...............................................................................
APPENDICES
Appendix A - Certain Definitions
Appendix B - Due Diligence Plan and Certifications
Appendix C - Contents of the PAD Disclosure Package
Appendix D - Documents To Be Delivered by TRW at the Closing
Appendix E - Documents To Be Delivered by Purchaser at the Closing
Appendix F - Form of Shared Assets Agreement
Appendix G - Form of Shared Liabilities Agreement
Appendix H - Form of Unconditional Guarantee
Appendix I - Form of Opinion of the General Counsel of TRW
Appendix J - Form of Opinion of Counsel of Purchaser
Appendix K - List of TAPCO Agreements
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AGREEMENT OF PURCHASE AND SALE
------------------------------
This AGREEMENT OF PURCHASE AND SALE (this "Agreement") is dated as of
August 5, 1986, and is between AGNEM HOLDINGS, INC. ("Purchaser"), a Delaware
corporation, and TRW INC. ("TRW"), an Ohio corporation.
Recitals
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A. Through the Power Accessories Division (the "Division") of TRW
Aircraft Components Group (the "Group"), TRW is engaged in the business (the
"Business") of designing, developing, manufacturing, assembling, selling, and
servicing aircraft engine fuel pumps, underwater propulsion systems, and
components for nuclear propulsion systems (the "'Products").
B. As part of a major program to restructure TRW, TRW has decided to
sell the Business.
C. Purchaser desires to purchase from TRW, and TRW desires to sell to
Purchaser, the Business on and subject to the terms and conditions contained in
this Agreement.
Terms And Conditions
--------------------
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, and intending to be legally bound hereby, Purchaser and
TRW hereby agree as follows:
ARTICLE 1
General Provisions
------------------
1.l DEFINITIONS: Appendix A to this Agreement sets forth the
definitions of certain terms used in this Agreement. Those terms shall have the
meanings set forth on Appendix A where used herein and identified with initial
capital letters.
1.2 OTHER DEFINITIONS AND MEANINGS; INTERPRETATION: For purposes of
this Agreement, the term "parties" means (except where the context otherwise
requires) Purchaser and TRW; the term "person" includes any natural person,
firm, association, partnership, corporation, government or political subdivision
thereof, governmental agency or other entity other than the parties; and the
words "hereof", "herein", "hereby" and other words of similar import refer to
this Agreement as a whole. The table of contents and the headings of the
Articles and Sections of this Agreement have been included herein for
convenience of reference only and shall not be deemed to affect the meaning of
the operative provisions of this Agreement. All dollar amounts referred to
herein are in United States Dollars.
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1.3 TRW'S KNOWLEDGE: Where a statement contained in this Agreement is
said to be to "TRW's knowledge" (or words of similar import) such expression
means that, after having conducted a due diligence review and in reliance on due
diligence certifications, both as described in Appendix B here to, the
management of TRW believes the statement to be true, accurate, and complete in
all material respects.
ARTICLE II
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Purchase And Sale
-----------------
2.1 TRANSACTION: On and subject to the terms and conditions of this
Agreement, and subject only to the Other Agreements, (a) at the Closing,
Purchaser will purchase from TRW, and TRW will sell, transfer, and assign to
Purchaser, or cause to be sold, transferred, and assigned to Purchaser, all of
the Acquired Assets; (b) at the Closing, Purchaser will assume and become
directly and solely responsible for the payment or discharge of all of the
Assumed Liabilities; and (c) Purchaser will pay to TRW (or its subsidiaries) the
Purchase Price as herein provided. Notwithstanding such transaction, TRW will
retain the Excluded Assets and the Excluded Liabilities.
2.2 ACQUIRED ASSETS: Subject only to the provisions of the Other
Agreements, for purposes hereof the term "Acquired Assets" means all assets,
properties, and rights held by TRW as of the Closing Time which relate primarily
to TRW's conduct of the Business, including all assets reflected on the balance
sheet of the Business as of the Closing Time, but excluding the Excluded Assets.
Without limiting the generality of the foregoing, the Acquired Assets will
include all of TRW'S rights, title, and interest in and to the following assets
(other than Excluded Assets) which are used by TRW primarily in its conduct of
the Business as of the Closing Time:
(a) All notes, accounts, and trade acceptances receivable;
(b) All prepaid and similar items, including, without
limitation, all prepaid expenses, deferred charges, advance payments,
and other prepaid items;
(c) All inventories, wherever located, including, without
limitation, inventories of raw materials, components, assemblies,
subassemblies, work-in-process, finished goods, replacement parts,
spare parts, operating supplies, and packaging;
(d) All real property (whether as owner, lessor, lessee, or
otherwise) including, without limitation, all land, buildings,
improvements, fixtures, and appurtenances thereto, and all such items
under construction;
(e) To the extent assignable, all personal property (whether
as owner, lessor, lessee, or otherwise), including, without limitation,
all machinery, equipment, tooling, dies, molds, jigs, patterns, gauges,
materials handling equipment, furniture, office equipment, cars,
trucks, and other vehicles;
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(f) To the extent assignable, all orders, contracts, and
commitments for the purchase of goods and/or services, including,
without limitation, all such items relating to the purchase of capital,
tooling, products, supplies, and services;
(g) To the extent assignable, all orders, contracts, and
commitments for the sale of the Products, including, without
limitation, all such items relating to distribution, dealership, and
similar arrangements;
(h) To the extent assignable, all other orders, contracts, and
commitments, including, without limitation, all leases, licenses,
causes of action, rights of action, and warranty and product liability
claims against other persons;
(i) To the extent assignable, all Intellectual Property
(whether as owner, inventor, employer of an inventor, licensor,
licensee or otherwise), including, without limitation, all patents,
trademarks, trade names, copyrights, trade secrets, technical
information, manufacturing processes and techniques, designs, drawings,
and other know-how;
(j) To the extent assignable, all permits, approvals,
qualifications, and the like and issued by any government or
governmental unit, agency, board, body, or instrumentality, whether
federal, state or local, and all applications therefor;
(k) Subject to the provisions of Section 7.4 hereof, all
nonprivileged business books and records which relate primarily to the
Business, including, without limitation, all nonprivileged financial,
operating, inventory, legal, personnel, payroll, and customer records
and all sales and promotional literature, correspondence, and files;
(l) Subject to the provisions of the Library Agreements, all
books, furniture, equipment, and other materials in the Group technical
library; and
(m) Subject to the provisions of the Equipment Sharing
Agreements, the electron spectrometer and related equipment at MMTC and
all other assets of MMTC identified in a written document signed or
initialed by the parties prior to the Closing.
2.3 EXCLUDED ASSETS: Subject only to the provisions of the Other
Agreements, for purposes hereof the term "Excluded Assets" means the following
rights, properties, and assets as the same shall exist as of the Closing Time:
(a) All cash and cash equivalent items held by TRW as of the
Closing Time, including, without limitation, certificates of deposit,
time deposits, marketable securities, and the proceeds of accounts
receivable paid on or prior to the Closing Time;
(b) All rights, properties, and assets of TRW used by TRW
primarily in a business other than the Business, including, without
limitation, (i) rights, properties, and assets of the Group used
primarily in businesses other than those conducted by the Division and
(ii) rights, properties, and assets of TRW used primarily in the
conduct of
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TRW's coal combustion project, PROVIDED that the Excluded Assets
described in this paragraph (b) shall not include the real property and
fixtures at the TAPCO Facility;
(c) All rights, properties, and assets of the Business which
shall have been transferred or disposed of by TRW prior to the Closing
Time in transactions conducted in the ordinary course of business and
not in breach of this Agreement;
(d) The name and trademark "TRW" and related trademarks,
corporate names, and trade names incorporating "TRW" or the stylized
"TRW" logo which is used by TRW as part of any trademark or trade name;
(e) All assets held by TRW, whether in trust or otherwise, in
respect of employee benefit plans pertaining to employees of the
Business, including, without limitation, such plans which are retained
by TRW pursuant to Article VIII hereof; and
(f) All assets, whether or not used by TRW primarily in its
conduct of the Business, which are identified on Annex A-7 to Part A of
the Disclosure Package.
2.4 ASSUMED LIABILITIES: Subject only to the provisions of the Other
Agreements, for purposes hereof the term "Assumed Liabilities" means all
liabilities and obligations of TRW as of the Closing Time arising primarily out
of TRW's conduct of the Business, including, without limitation, all liabilities
reflected on the balance sheet of the Business as of the Closing Time, but
excluding the Excluded Liabilities. Without limiting the generality of the
foregoing, the Assumed Liabilities will include the following liabilities and
obligations (other than Excluded Liabilities) which arise or have arisen
primarily out of TRW's conduct of the Business at or prior to the Closing Time
(including, without limitation, any claim, action, litigation, or proceeding,
whether or not pending at the Closing Time, relating thereto):
(a) All liabilities and obligations incurred by TRW in its
conduct of the Business which are accrued on the books of the Business
and all obligations which have been incurred in the ordinary course of
the Business and are due and payable after the Closing Time;
(b) All liabilities and obligations of TRW under orders,
contracts, and other commitments included in the Acquired Assets,
including, without limitation, all liabilities and obligations of TRW
under the TAPCO Agreements;
(c) All liabilities and obligations arising out of, resulting
from, or relating to claims which have not been resolved or settled
prior to the Closing Time seeking return, replacement, and/or repair of
Products pursuant either to express product warranties extended by TRW
prior to the Closing Time or product warranties or obligations implied
or provided by law;
(d) All liabilities and obligations arising out of, resulting
from, or relating to claims, whether founded upon negligence, breach of
warranty, strict liability in tort, and/or other similar legal theory,
seeking compensation or recovery for or relating to
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injury to person or damage to property occurring after the Closing
Time and arising out of (i) a defect or alleged defect of a Product
manufactured by TRW before the Closing Time or by Purchaser after the
Closing Time or (ii) the use of the Acquired Assets by Purchaser after
the Closing Time or the conduct of the Business by Purchaser after the
Closing Time;
(e) All liabilities and obligations arising out of, resulting
from, or relating to any violation of any statute, ordinance,
regulation, or other governmental requirement in connection with the
use and ownership of the Acquired Assets by Purchaser after the Closing
Time or the conduct of the Business by Purchaser after the Closing
Time;
(f) In the case of contracts (at any tier) with the United
States Government for which Purchaser provides the Certificate of Cost
and Pricing Data after the Closing Time, all liabilities and
obligations arising out of, resulting from, or relating to claims that
cost or pricing information provided by Purchaser after the Closing
Time to the United States Government or a higher-tier contractor or
subcontractor of the United States Government with respect to such
contract is or was defective;
(g) All liabilities and obligations arising out of, resulting
from, or relating to claims of infringement or other misappropriation
of the Intellectual Property rights of other persons with respect to
the use of the Acquired Assets by Purchaser after the Closing Time or
the conduct of the Business by Purchaser after the Closing Time;
(h) All Assumed Environmental Obligations;
(i) All Shared Environmental Obligations involving an
aggregate liability of Fifty Thousand Dollars ($50,000) or less;
(j) A fraction of the aggregate liability for Shared
Environmental Obligations (other than those described in Section 2.4(i)
hereof), the numerator of which fraction will be the period of time
after the Closing during which the Environmental Activity occurred
giving rise to the Shared Environmental Obligation and the denominator
of which fraction will be the total period of time before and after the
Closing during which the Environmental Activity occurred giving rise to
the Shared Environmental Obligation;
(k) All liabilities and obligations arising out of Purchaser's
obligations under Article VIII hereof; and
(l) All liabilities and obligations of MMTC reflected in the
Closing Date Net Book Value and all other obligations of MMTC
identified in a written document signed or initialed by the parties
prior to the Closing.
2.5 EXCLUDED LIABILITIES: Subject only to the provisions of the Other
Agreements, for the purposes hereof the term "Excluded Liabilities" means the
following liabilities and obligations (including, without limitation, any claim,
action, litigation, or proceeding, whether or not pending at the Closing Time,
relating thereto):
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(a) All liabilities and obligations incurred by TRW in
connection with the conduct of its businesses other than the Business;
(b) All liabilities and obligations of the Business which have
been fully discharged or satisfied by TRW prior to the Closing Time;
(c) All liabilities and obligations arising out of, resulting
from, or relating to claims which have been resolved or settled prior
to the Closing Time seeking return, replacement, and/or repair of
Products pursuant either to express product warranties extended by TRW
prior to the Closing Time or product warranties or obligations implied
or provided by law;
(d) All liabilities and obligations arising out of, resulting
from, or relating to claims, whether founded upon negligence, breach of
warranty, strict liability in tort, and/or other similar legal theory,
seeking compensation or recovery for or relating to injury to person or
damage to property occurring before the Closing Time and arising out of
(i) a defect or alleged defect of a Product manufactured by TRW before
the Closing Time or (ii) the use of the Acquired Assets by TRW before
the Closing Time or the conduct of the Business by TRW before the
Closing Time;
(e) All liabilities and obligations arising out of, resulting
from, or relating to any violation of any statute, ordinance,
regulation or other governmental requirement in connection with the use
and ownership of the Acquired Assets by TRW before the Closing Time or
conduct of the Business by TRW before the Closing Time;
(f) In the case of contracts (at any tier) with the United
States Government for which TRW provides the Certificate of Cost and
Pricing Data before the Closing Time, all liabilities and obligations
arising out of, resulting from, or relating to claims that cost or
pricing information provided by TRW before the Closing Time to the
United States Government or a higher-tier contractor or subcontractor
of the United States Government with respect to such contract is or was
defective;
(g) All liabilities and obligations arising out of, resulting
from or relating to a breach or default by TRW under any contract,
lease or agreement assigned to Purchaser hereunder, but only if and to
the extent that such breach or default is disclosed by TRW to Purchaser
in writing at or before the Closing Time, PROVIDED that nothing
contained in this Section 2.5(g) shall be deemed to modify TRW's
representations and warranties pursuant to Section 3.2 hereof;
(h) All liabilities and obligations arising out of, resulting
from, or relating to claims of infringement or other misappropriation
of the Intellectual Property rights of other persons with respect to
the use of the Acquired Assets by TRW before the Closing Time or the
conduct of the Business by TRW before the Closing Time;
(i) All liabilities and obligations arising out of TRW's
obligations under Article VIII hereof and, except as otherwise
expressly provided in said Article VIII, all
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liabilities and obligations arising out of, resulting from or
relating to claims, actions, litigation or proceedings, whether or not
pending as of the Closing Time, of employees or former employees of
TRW as a result of TRW's actions or omissions prior to the Closing
Time;
(j) All liabilities and obligations of TRW for income,
franchise and other "doing business" type taxes and all liabilities and
obligations of TRW for other taxes to the extent the same are not
reflected on the Closing Net Book Value;
(k) All Excluded Environmental Obligations;
(l) A fraction of the aggregate liability for Shared
Environmental Obligations (other than those described in Section 2.4(i)
hereof), the numerator of which fraction will be the period of time
before the Closing during which the Environmental Activity occurred
giving rise to the Shared Environmental Obligation and the denominator
of which will be the total period of time before and after the Closing
during which the Environmental Activity occurred giving rise to the
Shared Environmental Obligation;
(m) Liabilities and obligations, whether or not arising
primarily out of TRW's conduct of the Business, which are identified on
Annex A-8 to Part A of the Disclosure Package;
(n) All liabilities and obligations arising out of, resulting
from, or relating to claims, actions, litigation, or proceedings
pending or threatened against TRW as of the Closing Time; and
(o) All liabilities and obligations not otherwise provided for
in paragraphs (a) through (n) of this Section 2.5 which (i) are not
disclosed in the Disclosure Package or reflected or reserved against in
the Closing Net Book Value AND (ii) do not arise out of the use of the
Acquired Assets by Purchaser after the Closing or the conduct of the
Business by Purchaser after the Closing AND (iii) are in excess of
$1,000,000 per liability or obligation AND (iv) are identified and
fully described in a written notice from Purchaser to TRW on or before
5:00 p.m. (Eastern Time) on the date which is the first anniversary of
the Closing Date, BUT EXCEPTING any obligations incurred in the
ordinary course of the Business and not in violation of the terms of
this Agreement between the data hereof and the Closing Time.
2.6 PURCHASE PRICE: For purposes hereof, the term "Purchase Price"
means One Hundred and Forty Two Million Five Hundred Thousand Dollars
($142,500,000) PLUS OR MINUS the amount of the Adjustment.
2.7 ADJUSTMENT: The Adjustment will be determined as follows:
(a) CLOSING AUDIT: Promptly after the Closing, TRW will cause
Messrs. Ernst & Whinney (the "Auditors"), independent certified public
accountants, to conduct an audit of the Acquired Assets and the Assumed
Liabilities. Within sixty (60) days after
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the Closing or as soon thereafter as reasonably possible, the Auditors
will deliver to Purchaser and TRW a report (the "Auditors' Report")
based on the audit stating the aggregate book value of assets included
in the Acquired Assets and the aggregate book amount of liabilities
included in the Assumed Liabilities, as the same were (or should have
been) reflected on the books of TRW as of the Closing Time in
accordance with the accounting principles described in Section 2.7(c).
Purchaser, if it so elects, shall have the right to have its own
independent certified public accounts or internal auditors observe the
audit to be conducted by the Auditors and to inspect the work papers
generated by the Auditors resulting therefrom.
(b) REVIEW BY PURCHASER: Following receipt of the Auditors'
Report, Purchaser will be afforded a period of thirty (30) days to
review the Auditors' Report. At or before the end of that period,
Purchaser will either (i) accept the Auditors' Report in its entirety,
in which case the aggregate book value of assets included in the
Acquired Assets and the aggregate book amount of liabilities included
in the Assumed Liabilities will be deemed to be as set forth on the
Auditors' Report, or (ii) deliver to TRW and the Auditors written
notice and a detailed written explanation of those items in the
Auditors' Report which Purchaser disputes, in which case the aggregate
book value of the Acquired Assets and the aggregate book amount of the
Assumed Liabilities not affected by the disputed items will be deemed
to be as set forth on the Auditors' Report. Within a further period of
thirty (30) days from the end of the aforementioned review period, the
parties will attempt to resolve in good faith any disputed items.
Failing such resolution, the unresolved disputed items will be referred
for final binding resolution to another nationally-recognized firm of
certified public accountants mutually acceptable to TRW and Purchaser.
The aggregate book value of Acquired Assets and aggregate book amount
of Assumed Liabilities affected by such unresolved disputed items (if
any) will be deemed to be as determined by such firm in accordance with
the accounting principles described in Section 2.7(c) within thirty
(30) days of such reference.
(c) ACCOUNTING PRINCIPLES: The aggregate book value of the
Acquired Assets and the aggregate book amount of the Assumed
Liabilities will be determined in accordance with the standard
procedures and instructions set forth in TRW's Standard Practice
Instructions heretofore supplied to Purchaser and the supplemental
accounting principles described on Annex A-6 to Part A of the
Disclosure Package, which standard procedures and instructions and
supplemental accounting principles will be the same as those used to
determine the Base-Line Net Book Value. Only assets and liabilities
reflected on the balance sheet of the Business in accordance with such
principles will be taken into account for purposes of determining the
Closing Net Book Value. Notwithstanding the foregoing, (i) the Closing
Net Book Value will reflect an additional reserve for trade accounts
receivable in the amount of Five Hundred Thousand Dollars ($500,000)
(the "Supplemental Receivables Reserve") and (ii) the Closing Net Book
Value will be calculated in accordance with the provisions of Sections
4.11 and 8.10 hereof.
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(d) BASE-LINE NET BOOK VALUE: The Base-Line Net Book Value
will be an amount equal to Seventy-Two Million Three hundred
Ninety-One Thousand Dollars ($72,391,000).
(e) DETERMINATION OF CLOSING NET BOOK VALUE: The Closing Net
Book Value will be an amount equal to the aggregate book value of
assets included in the Acquired Assets MINUS the aggregate book amount
of liabilities included in the Assumed Liabilities as of the Closing
Time, both as determined under Section 2.7(b).
(f) AMOUNT OF ADJUSTMENT: If the Closing Net Book Value is
equal to the Base-Line Net Book Value, then the Adjustment will equal
zero. If the Closing Net Book Value is more than the Base-Line Net Book
Value, then the Adjustment will be a positive amount equal to the
amount by which the Closing Net Book Value is more than the Base- Line
Net Book Value. If the Closing Net Book Value is less than the
Base-Line Net Book Value, then the Adjustment will be a negative amount
equal to the amount by which the Closing Net Book Value is less than
the Base-Line Net Book Value. The Purchase Price will finally be
determined on the date the amount of the Adjustment is finally
determined.
2.8 PAYMENT OF PURCHASE PRICE: Purchaser will pay the Purchase Price as
follows:
(a) At the Closing, Purchaser will pay TRW One Hundred
Forty-Two Million Five Hundred Thousand Dollars ($142,500,000); and
(b) If the Adjustment is a positive amount, then Purchaser
will pay TRW the amount of the Adjustment within ten (10) business days
after the final determination of the Purchase Price pursuant to Section
2.7(f).
2.9 REFUND OF PURCHASE PRICE: If the Adjustment is a negative amount,
then TRW will refund to Purchaser the amount of the Adjustment within ten (10)
business days after the final determination of the Purchase Price pursuant to
Section 2.7(f).
2.10 METHOD OF PAYMENT: All payments hereunder shall be made by
delivery to the payee--
(a) upon the prior request of the payee, by depositing, by
bank wire transfer, the required amount (in immediately available
funds) in an account of the payee, which account shall be designated by
the payee for such purpose at least five (5) business days prior to the
date of the required payment; or
(b) in all other cases, of one or more bank cashiers checks
(in immediately available funds) drawn on a bank or banks acceptable to
the payee and payable to the order of the payee.
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ARTICLE III
Representations And Warranties
------------------------------
3.1 TRW'S GENERAL REPRESENTATIONS AND WARRANTIES: TRW hereby represents
and warrants to Purchaser the following:
(a) ORGANIZATION AND EXISTENCE: TRW is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Ohio.
(b) POWER AND AUTHORITY: TRW has full power and authority
under its Amended Articles of Incorporation and Regulations and the
laws of the State of Ohio to execute, deliver, and perform this
Agreement and each of the Other Agreements.
(c) AUTHORIZATION: The execution, delivery, and performance of
this Agreement and each of the Other Agreements by TRW has been duly
authorized by all requisite corporate action on the part of TRW.
(d) BINDING EFFECT: This Agreement is a valid, binding, and
legal obligation of TRW and, upon due execution and delivery by TRW and
Purchaser, each of the Other Agreements will be a valid, legal and
binding obligation of TRW.
(e) NO DEFAULT: Neither the execution and delivery of this
Agreement nor TRW's full performance of its obligations hereunder will
violate or breach, or otherwise constitute or give rise to a Default
under, the terms or provisions of TRW's Amended Articles of
Incorporation or Regulations or any order, arbitration award, judgment,
decree or other instrument, law, rule, or regulation to which TRW is a
party or by which the Acquired Assets are bound or any material
contract, commitment, or other obligation to which TRW is a party or by
which the Acquired Assets are bound.
(f) FINDERS: TRW has not engaged and is not directly or
indirectly obligated to anyone acting as a broker, finder, or in any
other similar capacity in connection with TRW's sale of the Business,
except Morgan Stanley & Co. Incorporated and Salomon Brothers Inc.
(g) REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE: All
representations and warranties of TRW in this agreement are true,
accurate, and complete in all material respects as of the date hereof
and will be true, accurate, and complete in all material respects as of
the Closing (as if such representations and warranties were made anew
as of the Closing, except with respect to the effect of transactions
contemplated or permitted by this Agreement and except that any
statements made as of a specified date are made only as of that date).
3.2 TRW'S REPRESENTATIONS AND WARRANTIES CONCERNING THE DISCLOSURE
PACKAGE: Within sixteen (16) days after the execution and delivery of this
Agreement, TRW will deliver the PAD Disclosure Package (the "Disclosure
Package") to Purchaser with copies to J. J. Lowrey & Co., LeBoeuf, Lamb, Leiby &
MacRae, Debevoise & Plimpton and Prudential Capital Markets Group. The
Disclosure Package will consist of sixteen (16) Parts, consecutively lettered
A-P,
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<PAGE> 16
inclusive. TRW hereby represents and warrants to Purchaser that the Disclosure
Package will contain the information required by Appendix C hereto. In addition,
TRW hereby represents and warrants to Purchaser the following with respect to
the Disclosure Package:
(a) FINANCIAL STATEMENTS: The financial statements contained
in Part A are true and correct in all material respects and fairly
present, in accordance with TRW's Standard Practice Instructions
heretofore delivered to Purchaser and the supplemental accounting
principles described on Annex A-6 to Part A (applied on a consistent
basis except as described in any footnotes thereto) , the financial
position and results of operations of the Business as of the dates and
for the periods therein set forth, subject only to normal year-end
adjustments in the case of those statements which relate to interim
periods. The Base- Line Balance Sheet constitutes a pro forma
restatement of the Business Balance Sheet giving effect to the division
of assets and liabilities between TRW and Purchaser as contemplated in
Article II hereof and the supplemental accounting principles described
on Annex A-6 to Part A.
(b) INVESTMENTS: Except as otherwise disclosed on Part B and
subject to investments arising out of the temporary investment of short
term cash and of TRW employee benefit plans, TRW does not own or hold
any material equity interest, directly or indirectly, in any
corporation, partnership, joint venture, business, firm or other entity
which, to TRW'S knowledge, engages in competition with the Business and
TRW is a party to no commitment or agreement to acquire any such
interest.
(c) RECEIVABLES: Except as otherwise disclosed on Part C, (l)
TRW has Ownership of all notes receivable, accounts receivable, and
trade acceptances receivable listed on Annexes C-l, C-2, C-3, and C-4
to Part C; (2) none of such receivables are owing to the Business by
any subsidiary or affiliate of TRW; and (3) all of such trade
receivables (less the amount of any reserves therefor in excess of the
Supplemental Receivables Reserve) are good and collectible in the
ordinary course of business without setoff or counterclaim.
(d) INVENTORIES: Except as otherwise disclosed on Part D, (l)
TRW has Ownership of all inventories described on Part D; (2) except
for inventory reserves reflected on the balance sheet of the Business,
all such inventories, whether of raw materials, components, assemblies,
subassemblies, work-in-process, or finished goods, are of a quality
usable and salable in the ordinary course of business in accordance
with standard practices and procedures used by TRW in valuing
inventories; (3) all such inventories have been valued on the Business
Balance Sheet using the "last in-first out" method of accounting; and
(4) all such inventories have been restated on the Base-Line Balance
Sheet using the "first in-first out" method of accounting.
(e) REAL ESTATE: Except as otherwise disclosed on Part E, (l)
TRW has Ownership in fee simple to all of the real properties and
improvements thereon listed as "owned" on Annex E-l to Part E; (2) in
all material respects, TRW has the right under valid and subsisting
leases to occupy and control as a lessee (subject to the terms of such
leases and to the possible effect of the Bankruptcy Code in the event
of a lessor's
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bankruptcy or the effect of a condemnation or confiscation of the
leased premises) all of the real property listed as "leased" on Annex
E-2 to Part E; (3) all of the real estate improvements included in the
Acquired Assets are in reasonably good condition and repair, ordinary
wear and tear excepted, given the purpose for which the same are used
in the conduct of the Business; and (4) TRW is not in Default under
any such lease, which Default gives the lessor the right to terminate
the lease or is likely to have a material and adverse effect on the
usefulness of the leased property to the Business.
(f) PERSONAL PROPERTY: Except as otherwise disclosed on Part
F, (l) TRW has Ownership of all tangible personal property listed as
"owned" on Annexes F-l, F-2, and F-3 to Part F; (2) in all material
respects, TRW has the right under valid and subsisting leases to
possess and control as lessee all of the tangible personal property
listed as "leased" on Annexes F-l, F-2, and F-3 to Part F (subject to
the terms of such leases and to the possible effect of the Bankruptcy
Code in the event of a lessor's bankruptcy or the effect of a
condemnation or confiscation of the leased property); (3) all items of
personal property included in the Acquired Assets are in reasonably
good condition and repair, ordinary wear and tear excepted, given the
purposes for which the same are used in the conduct of the Business;
and (4) TRW is not in Default under any such leases, which Defaults are
in the aggregate likely to have a material and adverse effect on the
Business.
(g) LIABILITIES: Except as otherwise disclosed on Part G, TRW
is not in Default under any note, bond, debenture, mortgage, indenture,
security agreement, guaranty, or other instrument of indebtedness,
which Default is likely to have a material and adverse effect on the
Business.
(h) LITIGATION: Except as otherwise disclosed on Part H, (l)
there presently exists no litigation, proceedings, actions, claims, or
investigations at law or in equity pending or threatened which would,
in the aggregate, have a material and adverse effect on the Business;
and (2) TRW is subject to no notice, writ, injunction, order, or decree
of any court, agency, or other governmental authority which would
materially and adversely affect the Business.
(i) CONTRACTS: Except as otherwise disclosed on Part I , (l)
to TRW's knowledge, each of the contracts, commitments, and other
obligations listed on Part 1 is a valid and binding obligation of TRW
and the other party or parties thereto; (2) neither TRW nor, to TRW's
knowledge, any other party thereto has terminated, canceled, or
substantially modified any material contract, commitment, or other
obligation; (3) the other party or parties thereto have not advised TRW
of an intent to cancel or otherwise terminate any material contract,
commitment, or other obligation; and (4) neither TRW, nor, to TRW's
knowledge, any other party thereto is in Default under any contract,
commitment, or other obligation identified in Part I, which Default is
likely to have a material and adverse effect on the Business.
(j) INTELLECTUAL PROPERTY: Except as otherwise disclosed on
Part J, (l) TRW has Ownership of the Intellectual Property listed as
"owned" on Annexes J-l, J-2, J-3, and J-4 to Part J; (2) TRW has the
right under valid and subsisting license, technology, or
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similar agreements referred to on Annex J-5 to Part J to employ the
intellectual Property listed as licensed on said Annex J-5 to Part J
in its conduct of the Business subject only to the terms of any such
agreements referred to in Annex J-5 to Part J; (3) TRW is not in
Default under any such agreement referred to in Annex J-5 to Part J,
which Default is likely to have a material and adverse effect on the
Business; (4) except as disclosed in Annex J-6, TRW has granted no
rights or interest to any person in connection with any of the
intellectual Property described in Annexes J-l, J-2, J-3, and J-4 to
Part J; and (5) to TRW's knowledge, TRW is not obligated to pay any
amount, whether as a royalty, license, fee, or other payment to any
person in order to use any of the Intellectual Property used by TRW in
its conduct of the Business, which obligation or payment would
adversely and materially affect the Business.
(k) EMPLOYEE BENEFITS: Except as otherwise disclosed on Part
K, TRW has no pension, retirement, profit-sharing, employee stock
option or stock purchase, bonus, deferred compensation, incentive
compensation, life insurance, health insurance, disability insurance,
fringe benefit, or other material employee benefit plan relating and
applicable to the Business or its employees.
(l) PERMITS AND APPROVALS: Except as otherwise disclosed on
Part L, insofar as the Business is concerned, (l) TRW is not in Default
under any material permit, approval, or qualification listed on Annex
L-l to Part L, which Default is likely to have a material and adverse
effect on the Business; and (2) to TRW's knowledge, no other permit,
approval, or qualification of any government or governmental unit,
agency, board, body, or instrumentality, whether federal, state, or
local, is necessary, in a material and substantial sense, for the
conduct of the Business as the same has been and is being conducted.
(m) COMPLIANCE WITH LAWS: Except as otherwise disclosed on
Part M, to TRW's knowledge, TRW is in compliance with all laws,
ordinances, codes, restrictions, regulations, and other legal
requirements (including, without limitation, (i) laws, regulations and
other requirements imposed by action of, permits from, or agreement
with any governmental agency or authority relating to the generation,
management, handling, transportation, treatment, storage, disposal,
delivery, discharge, release or emission of any waste, pollutant or
toxic, hazardous or other substance or other action, omission or
condition affecting the environment, air and water pollution, ground
water contamination, the handling, storage or release into the
environment of hazardous materials or hazardous substances, or the
transportation of hazardous substances, or the transportation of
hazardous materials and (ii) regulations promulgated by the
Occupational Safety and Health Administration) applicable to TRW's
conduct of the Business the noncompliance with which would have a
material and adverse effect on the Business or the Acquired Assets.
(n) PAYMENT OF TAXES; TAX LIENS: Except as otherwise disclosed
in Part N, (1) all tax returns required to be filed by TRW with respect
to the Business (including the assets thereof) have been or will be
filed on or before the Closing Date; (2) all taxes indicated as due and
payable on such returns have been or will be paid when required by
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law; and (3) the Acquired Assets are not encumbered by any liens
arising out of unpaid taxes which are due and payable.
(o) NO MATERIAL EVENTS: Except as otherwise disclosed in Part
O, the Business has been conducted only in the ordinary and usual
course since December 31, 1985, and no Material Events have occurred
since December 31, 1985 and June 27, 1986.
(p) ADDITIONAL INFORMATION: Except as otherwise disclosed on
Part P, the factual information set forth in those written documents
furnished by TRW to Purchaser and its representatives from and after
April 10, 1986, (excluding, however, the information set forth in the
Offering Memorandum dated February, 1986, prepared by TRW and its
financial advisors and furnished by TRW or such advisors to Purchaser
or its representatives on or before April 10, 1986) which is identified
in a list of documents to be provided by Purchaser to TRW not later
than five (5) days after the date of this Agreement and which is
included in Part P was, as of the date stated thereon (or, if no such
date was stated thereon, then the date originally delivered to
Purchaser or its representatives) true, accurate, and complete in all
material respects.
(q) UNDISCLOSED LIABILITIES: Except as and to the extent
reflected or reserved against in the Closing Net Book Value or
disclosed in the Disclosure Package, and except for any obligations
incurred in the ordinary course of the Business and not in violation of
the terms of this Agreement between the date hereof and the Closing
Time, (i) there are no liabilities or obligations, whether accrued,
known or unknown, or contingent, including without limitation any
product, patent, trademark, criminal or civil liabilities, pertaining
to or affecting the Business or the Acquired Assets, and (ii) to TRW's
knowledge, there is no basis for the assertion of any such liabilities
or obligations against the Business or the Acquired Assets which would
have a material and adverse effect on the Business or the Acquired
Assets.
3.3 PURCHASER'S REPRESENTATIONS AND WARRANTIES: Purchaser hereby
represents and warrants to TRW the following:
(a) ORGANIZATION AND EXISTENCE: Purchaser is a corporation
duly organized, validly existing, and in good standing under the laws
of Delaware.
(b) POWER AND AUTHORITY: Purchaser has full corporate power
and authority under its Certificate of Incorporation and By-laws and
under the laws of Delaware to execute, deliver, and perform this
Agreement and each of the Other Agreements.
(c) AUTHORIZATION: The execution, delivery, and performance of
this Agreement and each of the Other Agreements have been duly
authorized by all requisite corporate actions on the part of Purchaser.
(d) BINDING EFFECT: This Agreement is a valid, binding, and
legal obligation of Purchaser and, upon due execution and delivery by
TRW and Purchaser, each of the Other Agreements will be a valid, legal
and binding obligation of Purchaser.
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(e) NO DEFAULT: Neither the execution and delivery of this
Agreement nor Purchasers's full performance of its obligations
hereunder will violate or breach, or otherwise constitute or give rise
to a Default under, the terms or provisions of Purchaser's Certificate
of Incorporation and By-laws or any order, arbitration award, judgment,
decree or other instrument, law, rule or regulation to which Purchaser
is a party or any material contract, commitment, or other obligation to
which Purchaser is a party.
(f) FINDERS: Purchaser has not engaged and is not directly or
indirectly obligated to anyone acting as a broker, finder, or in any
other similar capacity in connection with Purchaser's purchase of the
Business, except Corporate Growth Resources.
(g) PURCHASER'S FINANCING PLAN: Simultaneously with the
execution and delivery of this Agreement, Purchaser has delivered to
TRW a true, accurate, and complete copy of the plan ("Purchaser's
Financing Plan") by which Purchaser anticipates obtaining for Purchaser
sufficient funds to enable Purchaser to pay the Purchase Price as
herein contemplated and which identifies all representations,
warranties, indemnities, and agreements which Purchaser's lenders will
request or require of TRW before, at, or after the Closing as a
condition to providing Purchaser with all or part of such funds.
(h) REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE: All
representations and warranties of Purchaser in this Agreement are true,
accurate, and complete in all material respects as of the date hereof
and will be true, accurate, and complete in all material respects as of
the Closing (as if such representations and warranties were made anew
as of the Closing except with respect to the effect of the transactions
contemplated or permitted by this Agreement).
3.4 DISCLAIMER: Except as set forth in Article III of this Agreement,
neither party has made any further representation or warranty, either express or
implied, concerning the subject matter of this Agreement and neither party has
relied on any such further representation or warranty. This Agreement shall not
be governed by the warranties provided by Article 2 of the Uniform Commercial
Code as adopted in any jurisdiction.
3.5 SURVIVAL: The parties' respective covenants, representations, and
warranties contained in this Agreement will survive the execution and delivery
of this Agreement and the Closing. Neither party will, however, have any
liability to the other arising out of a breach of any representation, warranty,
or covenant contained in Article III of this Agreement, and any cause of action
based thereupon shall expire and terminate, unless the party claiming that such
breach occurred delivers to the other party written notice and a full
explanation of the alleged breach on or before 5:00 p.m. (Eastern Time) on the
date which is the first anniversary of the Closing Date.
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ARTICLE IV
Actions Before Closing
----------------------
4.1 ACCESS TO RECORDS: TRW hereby covenants to Purchaser that, between
the date hereof and the Closing and subject to the obligation of confidentiality
imposed by Section 11.2 hereof, TRW will afford duly authorized representatives
of Purchaser, displaying appropriate credentials and requisite security
clearances, free and full access during normal business hours to all of the
assets, properties, books, and nonprivileged records of the Business and will
permit such representatives to make abstracts from, or take copies of, such
books, records or other documentation, or to obtain temporary possession of any
thereof as may be reasonably required by Purchaser and TRW will furnish to
Purchaser such information concerning the Business and its assets, liabilities,
or condition as Purchaser may request.
4.2 INTERIM CONDUCT OF THE BUSINESS: TRW hereby covenants to Purchaser
that, from the date hereof to the Closing, TRW will conduct the Business only in
the ordinary and usual course, subject to Purchaser's approval of certain
transactions pursuant to Section 4.3 hereof below. Without limiting the
generality of the foregoing, TRW hereby covenants to Purchaser that, insofar as
the Business is concerned, TRW will use its best efforts to:
(a) preserve substantially intact the Business' relationships
with suppliers, customers, employees, creditors, and others having
business dealings with the Business;
(b) maintain in full force and effect its existing policies of
insurance which materially affect the Business;
(c) maintain all Intellectual Property to be included as part
of the Acquired Assets in substantially the same standing as exist on
the date hereof and continue the prosecution of all applications
therefor; and
(d) continue performance in the ordinary course of its
obligations under contracts, commitments, or other obligations to be
included as part of the Acquired Assets.
4.3 PURCHASER'S APPROVAL OF CERTAIN TRANSACTIONS: TRW hereby covenants
to Purchaser that, except as may otherwise be required under this Agreement,
from the date hereof to the Closing, insofar as the Business is concerned TRW
will not do any of the following without the prior approval with written
confirmation of Purchaser, which approval shall not be unreasonably withheld:
(a) incur or permit the incurrence of any debt for borrowed
money or incur any obligation or other liability which would constitute
an Assumed Liability, except in the ordinary course of business;
(b) purchase or dispose of any real property or real property
interest to be included as part of the Acquired Assets;
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(c) enter into any lease of real or personal property or any
renewals thereof involving a term of more than one (1) year or rental
obligation exceeding One Hundred Thousand Dollars ($100,000) per annum
in any single case;
(d) voluntarily permit to be incurred any Encumbrances on any
of the Acquired Assets except in the ordinary course of business;
(e) except for normal merit or cost-of-living increases in
accordance with TRW's past practices, increase the rate of compensation
for any of the employees of the Business or otherwise enter into or
alter any employment, consulting, or managerial services agreement
primarily affecting the Business;
(f) commence, enter into, or alter any pension, retirement,
profit-sharing, employee stock option or stock purchase, bonus,
deferred compensation, incentive compensation, life insurance, health
Insurance, disability insurance, severance pay, fringe benefit, or
other employee benefit plan or arrangement affecting employees of the
Business who are to become employees of Purchaser at the Closing
(except that this covenant shall not apply to any such plan or
arrangement generally applicable to all hourly or all salaried
employees of TRW);
(g) make any new commitments or increase any previous
commitments for capital expenditures in an aggregate amount exceeding
Five Hundred Thousand Dollars ($500,000);
(h) accelerate or delay the shipment or sale of Products
except as may be necessary in the ordinary course of business;
(i) enter into any transaction, contract or commitment outside
of the ordinary course of business, sell any of the assets (other than
inventory sold pursuant to contracts or commitments in effect on the
date hereof with third parties not affiliated with TRW) of the Business
for less than fair market value, waive any right of substantial value,
cancel any debt or claim except in the ordinary course of business or
voluntarily suffer any extraordinary loss; or
(j) sell, assign, transfer, license, or convey any of the
Intellectual Property to be included as part of the Acquired Assets.
4.4 NEGOTIATION OF OTHER AGREEMENTS: TRW hereby covenants to Purchaser,
and Purchaser hereby covenants to TRW, that between the date hereof and the
Closing the parties will negotiate in good faith such other and further
agreements as they may deem appropriate for the orderly transfer of the Business
from TRW to Purchaser. Without limiting the generality of the foregoing,
Purchaser and TRW will negotiate assets and liabilities to be included on
Appendix A-7 and Appendix A-8 of the Disclosure Package and the substantive
portions of the Other Agreements.
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4.5 CONSENTS TO ASSIGNMENT: TRW hereby covenants to Purchaser that,
between the date hereof and the Closing TRW will obtain the written consents or
approvals (or effective waivers thereof) of assignment of all open purchase
orders between TRW and the following customers of the Business: General Electric
Company; Honeywell Inc.; McDermott International, Inc.; Pratt & Whitney Aircraft
Group, United Technologies Corporation; Societe Nationale D'Etude et De
Construction De Moteurs D'Aviation (SNECMA); Westinghouse Electric Corporation;
General Dynamics Corporation; McDonnell Douglas Corporation; Allison Gas Turbine
Division, General Motors Corporation; The Boeing Company; Rockwell
international; Lockheed Corporation; and Aviall, Inc. TRW further covenants to
Purchaser that, between the date hereof and the Closing, TRW will use its best
efforts to obtain the consents or approvals (or effective waivers thereof) of
all other persons whose consents or approvals are required for the assignment of
TRW's rights under other contracts, leases, licenses, permits, approvals, and
other similar items constituting part of the Acquired Assets. Failure of TRW to
obtain, after good faith attempt, the consents or approvals described in this
Section 4.5 shall not give rise to monetary damages against TRW.
4.6 NOVATION OF GOVERNMENT CONTRACTS: From the date hereof to the
Closing, the parties will cooperate and use their best efforts to obtain, as and
to the extent legally required, the novation of all government contracts and
subcontracts included as part of Acquired Assets.
4.7 GOVERNMENT APPROVALS: TRW hereby covenants to Purchaser, and
Purchaser hereby covenants to TRW, that from the date hereof to the Closing the
parties will use their best efforts to obtain any government approvals or
authorizations which are necessary to consummate the transactions contemplated
by this Agreement.
4.8 REVIEW OF DISCLOSURE PACKAGE; RIGHT TO REJECT: Purchaser hereby
covenants to TRW that Purchaser will use its good faith best efforts to review
the Disclosure Package promptly upon delivery of the Disclosure Package to
Purchaser by TRW. At any time during the twenty-eight (28) day period after TRW
delivers the Disclosure Package to Purchaser, Purchaser will have the right, if
it so elects and upon notice to TRW, to reject the Disclosure Package. If
Purchaser does not reject the Disclosure package within said period, Purchaser
will be deemed to have accepted the Disclosure Package.
4.9 PURCHASER'S FINANCING: Purchaser hereby covenants to TRW that
Purchaser will use its prompt good faith best efforts to implement Purchaser's
Financing Plan with a view toward enabling purchaser to pay the Purchase Price
as herein contemplated. Without limiting the generality of the foregoing,
Purchaser hereby covenants to TRW that --
(a) Purchaser will provide TRW on a current and updated basis
such reports as to Purchaser's progress toward implementing Purchaser's
Financing Plan as TRW may from time to time request;
(b) Purchaser will promptly notify TRW of any material changes
which hereafter occur with respect to Purchaser's Financing Plan; and
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(c) Purchaser will immediately notify TRW when and if
Purchaser has or develops any reason to believe that Purchaser's
Financing Plan cannot or will not be implemented or that Purchaser will
not or may not have sufficient funds to pay the Purchase Price as
herein contemplated.
4.10 LABOR RELATIONS: Purchaser hereby covenants to TRW that Purchaser
will use its prompt good faith best efforts to satisfy the conditions set forth
in Sections 5.1(h) and 5.2(g) hereof.
4.11 SPECIAL RECEIVABLES: TRW hereby covenants to Purchaser that (i)
TRW will use its prompt good faith best efforts to determine whether or not TRW
will bill the Special Receivables prior to the Closing and (ii) TRW will advise
Purchaser as promptly as reasonably possible prior to the Closing of TRW's
decision concerning the billing of the Special Receivables. In the event that
for any reason TRW does not bill all or any portion of the Special Receivables
prior to the Closing (such Special Receivables which are unbilled as of the
Closing being hereinafter referred to as the "unbilled Special Receivables"),
TRW and Purchaser will negotiate in good faith prior to the Closing to
effectuate an arrangement reasonably satisfactory to TRW and Purchaser pursuant
to which (i) TRW will identify in a written schedule all contracts which include
Unbilled Special Receivables and the amount of the Unbilled Special Receivables
under each such contract as of the most recent practicable date, (ii) the
accounting principles described in Section 2.7(c) hereof, which the parties have
agreed will be used to determine the Closing Net Book Value, will reflect an
additional reserve in the amount of the Unbilled Special Receivables as of the
Closing Time, (iii) Purchaser will agree that from and after the Closing,
Purchaser will cooperate with TRW in all reasonable respects in connection with
the billing and collection of the Unbilled Special Receivables in accordance
with procedures and at the time or times designated by TRW, (iv) TRW will agree
that it will not request that Purchaser bill any of the Unbilled Special
Receivables unless TRW has reached an understanding with the U.S. Government
with respect to the billing of such receivables, and (v) Purchaser will agree to
remit to TRW any and all amounts which it collects in respect of any Unbilled
Special Receivables not later than two (2) business days after its receipt of
such amounts.
ARTICLE V
Conditions
----------
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS: The obligation of Purchaser
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions at or before the Closing:
(a) The representations and warranties of TRW contained in
this Agreement shall be true, accurate, and complete in all material
respects as of the date hereof and as of the Closing (as if such
representations and warranties had been made anew as of the Closing,
except with respect to the effect of transactions contemplated or
permitted by this Agreement and except that any statements made as of a
specified date are made only as of that date);
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(b) TRW shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or satisfied
by TRW, and TRW shall have delivered to Purchaser all documents,
certificates, and instruments required to be delivered by TRW under the
terms of this Agreement, including, without limitation, the documents
referred to on Appendix D hereto;
(c) All corporate and other proceedings or actions to be taken
by TRW in connection with the transactions contemplated by this
Agreement, and all documents incidental thereto, shall be satisfactory
in form and substance to Purchaser;
(d) TRW shall have obtained all of the consents and approvals,
or effective waivers thereof, which TRW is required to obtain under
Section 4.5 hereof;
(e) All requisite governmental approvals and authorizations
necessary for consummation of the transactions contemplated hereby
shall have been duly issued or granted;
(f) There shall not have been issued and in effect any
injunction or similar legal order prohibiting or restraining
consummation of any of the transactions herein contemplated and no
legal action or governmental investigation which might reasonably be
expected to result in any such injunction or order shall be pending;
(g) TRW and Purchaser shall each have executed and delivered
to the other the Other Agreements;
(h) Purchaser shall not have delivered to TRW, on or before
the date which is twenty one (21) days after the date on which both
parties shall have executed this Agreement, written notice to the
effect that, in Purchaser's best good faith judgment, labor relations
of the Business are unacceptable to Purchaser; and
(i) Purchaser shall not have delivered to TRW, on or before
the date which is seven (7) days following TRW's delivery of a copy of
any of the executed TAPCO Agreements to Purchaser, written notice to
the effect that, in Purchaser's best good faith judgment, such
agreement has been so revised from the draft of such agreement included
in Appendix K hereto as to constitute a material and adverse change in
such agreement.
5.2 CONDITIONS TO TRW'S OBLIGATIONS: The obligation of TRW to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions at or before the Closing:
(a) The representations and warranties of Purchaser contained
in this Agreement shall be true, accurate, and complete in all material
respects as of the date hereof and as of the Closing (as if such
representations and warranties have been made anew as of the Closing,
except with respect to the effect of transactions contemplated or
permitted by this Agreement);
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(b) Purchaser shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or
satisfied by Purchaser, and Purchaser shall have delivered all
documents, certificates, and instruments required to be
delivered by Purchaser under the terms of this Agreement, including,
without limitation, the documents referred to on Appendix E hereto;
(c) Purchaser shall have taken all corporate and other
proceedings to be taken by it in connection with the transactions
contemplated by this Agreement;
(d) All requisite governmental approvals and authorizations
necessary for consummation of the transactions contemplated hereby
shall have been duly issued or granted;
(e) There shall not have been issued and in effect any
injunction or similar legal order prohibiting or restraining
consummation of any of the transactions herein contemplated and no
legal action or governmental investigation which might reasonably be
expected to result in any such injunction or order shall be pending;
(f) TRW and Purchaser shall each have executed and delivered
to the other the Other Agreements; and
(g) Purchaser shall not have delivered to TRW on or before the
date which is twenty one days after the date on which both parties
shall have executed this Agreement, written notice to the effect that,
in Purchaser's best good faith judgment, labor relations of the
Business are unacceptable to Purchaser.
ARTICLE VI
Closing
-------
6.1 THE CLOSING: For purposes hereof, the term "Closing" means the time
at which the transactions contemplated hereby will be consummated after
satisfaction or waiver of the conditions set forth in Article V of this
Agreement.
6.2 TIME, DATE, AND PLACE OF CLOSING: The Closing will occur at 10:00
a.m. (Eastern Time) on Friday, September 5, 1986, or such other date as the
parties may agree in writing (the "Closing Date"). The Closing will take place
at the offices of TRW at 30050 Chagrin Boulevard, Cleveland, Ohio, or at such
other place as the parties may agree in writing.
6.3 PURCHASER'S OBLIGATIONS: At the Closing, Purchaser will deliver to
TRW the following:
(a) the documents, certificates, and other items referred to
in Section 5.2(b) hereof;
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(b) the amount specified in Section 2.8(a) hereof; and
(c) an executed and notarized instrument satisfactory in form
and substance to TRW pursuant to which Purchaser assumes the Assumed
Liabilities as of the Closing.
6.4 TRW'S OBLIGATIONS: At the Closing, TRW will deliver to Purchaser
the following:
(a) the documents, certificates, and other items referred to
in Section 5.1(b) hereof;
(b) Ownership to the Acquired Assets as herein contemplated;
and
(c) executed and notarized deeds, bills of sale, and such
other instruments reasonably satisfactory in form and substance to
Purchaser pursuant to which TRW conveys the Acquired Assets to
Purchaser.
6.5 REAL ESTATE CONVEYANCE: TRW's conveyance of real estate owned by
TRW and included as part of the Acquired Assets will be carried out as follows:
(a) TITLE INSURANCE COMMITMENT: Prior to the Closing, TRW will
obtain a commitment from a nationally-recognized title insurance
company (the "Title Company"), with a copy to Purchaser, that the Title
Company will issue to Purchaser at the Closing an Owner's Policy of
Title Insurance (i) in an amount equal to or in excess of the fair
market value of the insured real estate (as determined by an appraisal
to be obtained by Purchaser from a nationally-recognized appraisal
company not later than ten (10) days prior to the Closing Date), (ii)
in form approved by the American Land Title Association and (iii) in
substance satisfactory to Purchaser, insuring fee simple title to such
real estate to be in Purchaser subject only to applicable zoning and
building laws and regulations, the lien of real estate taxes and
assessments not yet due and payable and such other Encumbrances as are
consented to by Purchaser (the "Exceptions") and the standard
reservations of the Title Company (excluding, however, unfiled
mechanics' and rnaterialmen's liens). TRW will use its best efforts to
obtain from the Title Company a commitment that such Owner's Policy of
Title Insurance will include an endorsement to the effect that the
current use of the real estate in the conduct of the Business complies
with applicable zoning requirements.
(b) WARRANTY DEEDS: No later than seven (7) days before the
Closing Date, TRW will execute and deliver to the Title Company for
safekeeping general or corporate warranty deeds conveying and
warranting title to such real estate to Purchaser, subject only to the
Exceptions, together with such affidavits, certificates, and other
instruments as are ordinarily delivered to a purchaser of real estate
or filed in the public records of the community where such real estate
is located.
(c) INSTRUCTIONS: At the time TRW delivers such warranty deeds
to the Title Company, TRW and Purchaser will deliver to the Title
Company a joint letter instructing the Title Company to hold such
warranty deeds until the Closing and, at the Closing,
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(i) if the Title Company is then prepared to issue to
Purchaser the Title Company's Owner's Policy of Title
Insurance in the form set forth in the commitment described in
Section 6.5(a), and upon joint telephonic instructions from
TRW and Purchaser, to file the warranty deeds for record in
appropriate public records, or
(ii) otherwise, to return such warranty deeds to TRW.
(d) CONFIRMATION: If the Title Company is instructed to file
the warranty deeds for record, then such warranty deeds will be deemed
to have been filed as of the close of business on the Closing Date.
6.6 LEASEHOLD INTERESTS IN REAL ESTATE: At the Closing, TRW will
deliver to Purchaser true and complete originals of all leases to which TRW is a
party in respect of real estate which is included as part of the Acquired
Assets. At the Closing, TRW will deliver to Purchaser an instrument or
instruments with respect to each such lease, reasonably satisfactory in form and
substance to Purchaser, pursuant to which (i) TRW assigns and conveys TRW's
leasehold interest to Purchaser and (ii) the lessor under such lease consents to
the assignment of such leasehold interest to Purchaser.
ARTICLE VII
Actions After Closing
---------------------
7.1 FURTHER CONVEYANCES: After the Closing, TRW will, without further
cost or expense to Purchaser, execute and deliver to Purchaser (or cause to be
executed and delivered to purchaser), such additional instruments of conveyance,
and TRW shall take such other and further actions as Purchaser may reasonably
request and which are ordinarily provided by a seller, more completely to sell,
transfer, and assign to Purchaser and vest in Purchaser Ownership to the
Acquired Assets.
7.2 FURTHER CONSENTS TO ASSIGNMENT: As and to the extent TRW shall have
failed to obtain prior to Closing the consent or approval (or an effective
waiver thereof) of any person or persons in respect of any item described in
Section 4.5 hereof or the parties shall have failed to obtain the novation of
any government contract or subcontract as provided in Section 4.6 hereof, after
the Closing--
(a) the parties will use their best efforts to obtain from
such person or persons the consents, approvals, or novations (or
effective waivers thereof); and
(b) if the parties are unable to obtain any such consent,
approval, novation, or waiver, then (l) this Agreement shall not
constitute or be deemed to be a contract to assign the same if an
attempted assignment without such consent, approval, novation, or
waiver would constitute a breach of such item or create in any party
thereto the right or power to cancel or terminate such item and (2) TRW
will cooperate with Purchaser in any
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reasonable arrangement designed to provide Purchaser with the benefit
of TRW's rights under such item, including enforcement (at Purchaser's
expense) of any and all rights of TRW against such person as Purchaser
may reasonably request.
In use of its best efforts under subsection (b) above, TRW
will not be obligated to pay any additional consideration in order to
obtain any consent, approval, novation, or waiver. TRW will cooperate
with Purchaser in obtaining a reasonable and economic solution with
such person PROVIDED that Purchaser pays or reimburses TRW for all
amounts necessary in order to obtain such consent, approval, novation,
or waiver.
7.3 RESALE OF INVENTORIES: Notwithstanding the provisions of Section
2.3(d) hereof, Purchaser will have the right to resell any and all of the
inventories and utilize any sales and Promotional materials constituting part of
the Acquired Assets. Within thirty (30) days after the Closing, however,
Purchaser will, to the extent practicable and acceptable to customers, institute
a procedure whereby a stamp or other indelible identifying mark is affixed to
Products finally inspected by Purchaser after the Closing in order to
distinguish such Products from Products finally inspected by TRW prior to the
Closing.
7.4 ACCESS TO FORMER BUSINESS RECORDS: For a period of ten (10) years
following the Closing, Purchaser will retain all business records constituting
part of the Acquired Assets. During such period, Purchaser will afford duly
authorized representatives of TRW displaying appropriate credentials and
requisite security clearances free and full access to all of such records and
will permit such representatives to make abstracts from or to take copies of any
of such records, or to obtain temporary possession of any thereof as may be
reasonably required by TRW. During such period, Purchaser will, without any
expense to TRW except as and to the extent otherwise provided in Section 7.5
hereof, cooperate with TRW, and cause employees of the Business to cooperate
with TRW, in furnishing information, evidence, testimony, and other assistance
in connection with any action, proceeding, or investigation relating to TRW's
conduct of the Business prior to the Closing. Without limiting the generality of
the foregoing, Purchaser will make available to TRW any such records TRW may
reasonably need in order to defend or prosecute any legal or administrative
action to which TRW is a party. If any such records are needed by TRW to respond
to legal process, then Purchaser will permit TRW to remove business records and
technical data temporarily from Purchaser's premises for purposes of responding
to such legal process.
7.5 ACCESS TO FORMER EMPLOYEES: After the Closing, Purchaser will make
available to TRW former employees of TRW employed by Purchaser whom TRW may
reasonably need in order to defend or prosecute any legal or administrative
action to which TRW is a party. TRW will pay or reimburse Purchaser for all
expenses which may be incurred by such employees in connection therewith,
including, without limitation, all travel, lodging, and meal expenses, and TRW
will compensate Purchaser for the number of whole business days spent by each
such employee in providing such services at the rate of one hundred thirty
percent (130%) of the average daily gross pay per business day (excluding the
value of employee benefits) of such employee during the calendar month in which
such services are performed.
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7.6 ACCESS TO BUSINESS RECORDS: For a period of six (6) years after the
Closing Date, TRW will retain all records in its possession on the Closing Date
which relate primarily to the Business. During such period, Purchaser will
afford duly authorized representatives of Purchaser displaying appropriate
credentials and requisite security clearances free and full access to all of
such records and will permit such representatives to make abstracts from or to
take copies of any of such records, or to obtain temporary possession of any
thereof as may be reasonably required by purchaser. During such period, TRW
will, without any expense to Purchaser except as and to the extent otherwise
provided in Section 7.7 hereof, cooperate with Purchaser, and cause its
employees to cooperate with Purchaser, in furnishing information, evidence,
testimony, and other assistance in connection with any action, proceeding, or
investigation relating to the conduct of the Business prior to the Closing.
Without limiting the generality of the foregoing, TRW will make available to
Purchaser any such records Purchaser may reasonably need in order to defend or
prosecute any legal or administrative action to which Purchaser is a party. If
any such records are needed by Purchaser to respond to legal process, then TRW
will permit Purchaser to remove business records and technical data temporarily
from TRW's premises for purposes of responding to such legal process.
7.7 ACCESS TO EMPLOYEES: After the Closing, TRW will make available to
Purchaser employees of TRW whom Purchaser may reasonably need in order to defend
or prosecute any legal or administrative action to which Purchaser is a party
and which relates to the conduct of the Business prior to the Closing. Purchaser
will pay or reimburse TRW for all expenses which may be incurred by such
employees in connection therewith, including, without limitation, all travel,
lodging, and meal expenses, and Purchaser will compensate TRW for the number of
whole business days spent by each such employee in providing such services at
the rate of one hundred thirty percent (130%) of the average daily gross pay per
business day (excluding the value of employee benefits) of such employee during
the calendar month in which such services are performed.
7.8 TRADE RECEIVABLES: After the Closing, Purchaser will use its best
good faith efforts to collect promptly all trade accounts receivable included in
the Acquired Assets. In addition, without TRW's express consent, Purchaser will
refrain from taking any action which would render uncollectible or compromise
any such receivables or settle any such receivables for less than full face
value. Subject to Purchaser's satisfaction of its obligations under this Section
7.8:
(a) In the event that any such receivables (less the amount of
any reserves therefor reflected in the Closing Net Book Value net of
the Supplemental Receivables Reserve) are not collected in full by
Purchaser within one hundred twenty (120) days after the Closing (the
"First Date"), TRW will pay to Purchaser on the Second Date (as
hereinafter defined) interest at the Prime Rate on the amount thereof
from time to time outstanding during the period commencing on the First
Date and continuing through and including the date on which such
receivables are collected in full (less the amount of any such reserves
net of the Supplemental Receivables Reserve) or the one hundred and
eightieth (180th) day after the Closing (the "Second Date"), whichever
shall first occur.
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(b) In the event that any such receivables are not collected
in full by Purchaser on or before the Second Date, TRW will repurchase
such receivables from Purchaser
promptly after the Second Date for an amount equal to the full amount
outstanding with respect to such receivables (less the amount of any
such reserves net of the Supplemental Receivables Reserve) on the
Second Date and Purchaser will transfer and assign such receivables to
TRW free and clear of any Encumbrance (except for any Encumbrance which
constituted an Encumbrance in respect of such receivables as of the
Closing Time).
7.9 ENVIRONMENTAL CLAIMS: After the Closing, each party will provide
the other with prompt written notice of any actual or threatened Environmental
Claim of which such party becomes aware and for which such other party will or
may have any responsibility hereunder. Neither party will take any action to
solicit, promote, or encourage the making of any Environmental Claim by any
person unless such action is, in the opinion of counsel to such party, legally
required or is necessary in order to eliminate, reduce, or minimize the
aggregate liability of the parties therefor.
7.10 ENVIRONMENTAL REMEDIATION: If, within two (2) years after the
Closing, Purchaser determines that the Business or any operation of the Business
or any condition of the Acquired Assets failed to comply with applicable
environmental laws or regulations as of the Closing (such alleged failure being
hereinafter called an "Environmental Condition") which requires remediation,
then Purchaser will promptly deliver to TRW written notice of such
determination, together with a detailed description of such Environmental
Condition and the basis for such determination.
Upon delivery of such notice to TRW, the following shall apply:
(a) Within sixty (60) days after delivery of such notice to
TRW, TRW will provide Purchaser with written notice of whether TRW
agrees, agrees in part, or disagrees with Purchaser's determination
that the Environmental Condition requires remediation. If TRW's notice
indicates that TRW agrees or agrees in part with Purchaser's
determination, then TRW will proceed with the preparation of an
Environmental Plan as provided in Section 7.10(b) hereof with respect
to remediation TRW agrees is required. If TRW's notice indicates that
TRW disagrees or disagrees in part that remediation is required, then
the disagreed portion of Purchaser's determination will be deemed to be
a "Questioned Environmental Condition" hereunder and will be resolved
as provided in Section 7.10(d) hereof.
(b) If TRW's notice indicates that TRW agrees or agrees in
part with Purchaser's determination, TRW will promptly and at TRW's
expense prepare and deliver to Purchaser a plan (an "Environmental
Plan") outlining the remedial actions TRW proposes to take to eliminate
or correct such Environmental Condition (other than that portion, if
any, of the Environmental Condition which is a Questioned Environmental
Condition), PROVIDED that such Environmental Plan will (i) constitute,
in TRW's best good faith judgment, a reasonably prudent and reasonably
cost effective method of eliminating or correcting such Environmental
Condition and (ii) be reasonably calculated to minimize the disruption
of Purchaser's operation of the Business and use of the Acquired
Assets.
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(c) Within sixty (60) days after TRW delivers an Environmental
Plan to Purchaser, Purchaser will provide TRW with written notice of
whether Purchaser agrees, agrees in part, or disagrees with such
Environmental Plan. If Purchaser's notice indicates that Purchaser
agrees or agrees in part with such Environmental Plan, then TRW will
proceed promptly with the agreed portions of such Environmental Plan.
If Purchaser's notice indicates that Purchaser disagrees or disagrees
in part with such Environmental Plan, then the disagreed portion of
such Environmental Plan shall be deemed to be a "Questioned
Environmental Remediation" hereunder and will be resolved as provided
in Section 7.10(d) hereof.
(d) With respect to any Questioned Environmental Condition or
any Questioned Environmental Remediation, the parties will resolve any
disagreement through use of a binding "mini-trial" tribunal; PROVIDED,
HOWEVER, that either party shall have the right to seek resolution in a
court of law if the parties cannot, after reasonable good faith
efforts, agree on the rules and procedures to be followed by such
mini-trial tribunal.
(e) In connection with TRW's preparation and implementation of
an Environmental Plan, (i) TRW will use its best good faith efforts to
prepare and implement the Environmental Plan expeditiously; (ii) TRW
will have the sole right and authority to implement the Environmental
Plan and such implementation will be at TRW's sole cost and expense;
(iii) the parties will cooperate in the implementation of such
Environmental Plan to minimize the cost thereof, maximize the
effectiveness thereof, and minimize the disruption of Purchaser's
conduct of Business or use of the Acquired Assets; (iv) Purchaser will
afford TRW and its authorized representatives full and free access to
the real properties, buildings, machinery, equipment, utilities, and
other assets of the Business as may reasonably be required to prepare
or implement the Environmental Plan; and (v) Purchaser will have the
right of reasonable concurrence with respect to the implementation of
any such Environmental Plan.
(f) Any remediation undertaken by TRW pursuant to this Section
7.10 shall be deemed to be an "Environmental Remediation" hereunder.
ARTICLE VIII
Employees and Employee Benefits
-------------------------------
8.1 EMPLOYMENT: Effective as of the Closing Time, each employee of the
Business (excepting only (i) any employees listed on Annex K-7 to Part K of the
Disclosure Package up to a maximum of five (5) such employees, PROVIDED that
such employees will not be members of the general management or manufacturing or
design engineering departments of the Business and that the retention of such
employees by TRW will not impair Purchaser's ability to conduct the Business (or
any material part of the Business) in the normal course after the Closing, (ii)
any employees of MMTC in excess of seventy-five (75) employees, such
seventy-five (75) employees to be designated in writing by Purchaser prior to
the Closing and reasonably
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satisfactory to TRW, and (iii) any employees of the Group's Central Human
Resources Division in excess of eighteen (18) employees, such eighteen (18)
employees to be designated in writing by Purchaser prior to the Closing and
reasonably satisfactory to TRW) will cease to be an employee of TRW and will
become an employee of Purchaser. TRW will neither employ nor offer employment to
any of such employee during the twelve (12) month period following the Closing
without the prior written consent of Purchaser. During such period, Purchaser
will not, without the prior written consent of TRW, employ or offer employment
to any former employee of the Business who retired from or voluntarily
terminated employment with TRW during the six (6) month period preceding the
Closing.
8.2 PENSION PLANS: TRW currently maintains the following pension plans
covering employees of the Business: the TRW Salaried Pension Plan (the "Salaried
Plan") covering salaried employees of TRW, including salaried employees of the
Business, and the TRW-AWA Retirement Plan (the "AWA Plan") covering hourly
employees of the Business. (For purposes hereof, the Salaried Plan and the AWA
Plan are referred to collectively as the "Pension Plans".) With respect to the
Pension Plans, the following shall apply:
(a) Purchaser will not become a sponsor of either of the
Pension Plans and no assets or liabilities of either such plan will be
transferred to or assumed by Purchaser or any plan or trust maintained
by Purchaser.
(b) Within sixty (60) days after the Closing, TRW will cause
the Pension Plans to be amended (as and to the extent necessary)
effective as of the Closing Time to provide that each employee of the
Business who is a participant in any of the Pension Plans and who
becomes an employee of Purchaser at the Closing Time (i) will be
entitled to payment of any and all benefits vested as of the Closing
Time under the Salaried Plan or the AWA Plan, as the case may be, when
such employee has terminated employment with Purchaser after the
Closing Time and (ii) will receive full credit for such employee's
service with Purchaser after the Closing Time for purposes of vesting
under the Salaried Plan or the AWA Plan, as the case may be.
(c) Within sixty (60) days after the Closing, Purchaser will
cause pension plans maintained by Purchaser to be amended (as and to
the extent necessary) effective as of the Closing Time to provide that
each employee of the Business who is a participant in the Salaried Plan
or the AWA Plan and who becomes an employee of Purchaser at the Closing
Time will receive full credit for such employee's service with TRW
prior to the Closing Time for purposes of participation (if Purchaser's
plan has an eligibility requirement) and vesting under the applicable
pension plan of Purchaser.
8.3 401(K) PLAN: TRW currently maintains The TRW Stock Savings Plan
(the "401(k) Plan") for its eligible employees, including eligible employees of
the Business. Purchaser will not become a sponsor of the 401(k) Plan and no
assets or liabilities of the 401(k) Plan will be transferred to or assumed by
Purchaser or any plan or trust maintained by Purchaser. Within sixty (60) days
after the Closing, TRW will cause the 401(k) Plan to be amended (as and to the
extent necessary) effective as of the Closing Time to provide that each employee
of the Business who becomes an employee of Purchaser at the Closing Time will be
entitled to receive
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amounts held in such employee's "pre-tax" accounts only when such employee's
employment with Purchaser is terminated, subject only to existing generally
applicable provisions of the 401(k) Plan as to withdrawal of "pre-tax" accounts.
8.4 MEDICAL BENEFITS: TRW will provide former employees of the Business
who have retired prior to the Closing Time with medical benefit coverage as
provided under TRW retiree medical benefit plans. As of the Closing Time,
Purchaser will provide employees of the Business who become employees of
Purchaser at the Closing Time with medical benefit coverage under medical
benefit plans comparable to the medical benefit plans for such employees
maintained by Purchaser immediately prior to the Closing Time. Each party
reserves the right to change its employee medical benefits plans in the future
when and as it deems appropriate.
8.5 LIFE INSURANCE: TRW will provide former employees of the Business
who have retired prior to the Closing Time with life insurance coverage under
TRW retiree life insurance benefit plans. As of the Closing Time, Purchaser will
provide employees of the Business who become employees of Purchaser at the
Closing Time with coverage under life insurance benefit plans comparable to the
life insurance benefit plans for such employees maintained by Purchaser
immediately prior to the Closing Time. Each party reserves the right to change
its employee life insurance plans in the future when and as it deems
appropriate.
8.6 ACCRUED VACATION: As of the Closing Time, Purchaser will assume all
obligations of TRW to employees of the Business who become employees of
Purchaser at the Closing Time for accrued vacation to the extent the same is
reflected in the Closing Net Book Value. TRW will have no obligation to make any
payment to employees after the date of the Closing Time with respect to any such
vacation pay entitlement.
8.7 WORKERS' COMPENSATION: TRW will bear the entire cost and expense of
all workers' compensation claims arising out of injuries identifiably sustained
by employees of the Business on or before the Closing Time. Purchaser will bear
the entire cost and expense of all workers' compensation claims arising out of
injuries identifiably sustained by employees of the Business after the Closing
Time. TRW will bear the entire cost and expense of all workers' compensation
claims arising out of injuries without an identifiable date of occurrence and
which are alleged to have arisen either before or before and after the Closing
Time which are filed within thirty (30) days after the Closing Date.
Notwithstanding the foregoing, TRW's liability for total workers' compensation
liability claims with respect to the Business at the TAPCO Facility shall not
exceed one hundred fifty percent (150%) of the average annual workers'
compensation premium allocated to the Business at such facility for the fiscal
year ended December 31, 1985, and Purchaser will bear all other costs and
expenses arising out of workers' compensation claims of employees of the
Business.
8.8 SEVERANCE PAYMENTS: TRW will bear the entire cost and expense of
severance payments payable to employees of the Business whose employment with
the Business is terminated by TRW before the Closing Time. Purchaser will bear
the entire cost and expense of severance payments payable to employees of the
Business whose employment with the Business is terminated by purchaser at or
after the Closing Time.
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8.9 UNEMPLOYMENT INSURANCE: The parties will use their mutual best
efforts before and after the Closing Time to cause the transfer of a pro rata
portion of TRW's unemployment insurance experience ratings to Purchaser in the
State of Ohio.
8.10 OTHER EMPLOYEE BENEFITS: Between the date hereof and the Closing,
the parties will negotiate in good faith their respective obligations to
employees of the Business under other employee benefit plans maintained by TRW
and by Purchaser; PROVIDED, HOWEVER, that (i) any and all obligations of TRW
under the Memorandum of Understanding will be the sole responsibility of TRW and
(ii) the accounting principles described in Section 2.7(c) hereof will reflect
the fact that any and all such obligations will be Excluded Liabilities for
purpose of determining the Closing Net Book Value, EXCEPT that notwithstanding
the foregoing provisions of this Section 8.10, Purchaser will be responsible for
any and all severance and related benefits payable to employees who are entitled
to severance payments pursuant to Article VII. B. of the Memorandum of
Understanding.
8.11 TERMINATION OR LAYOFF OF CERTAIN EMPLOYEES:
(a) In the event that the employment of any Support Employee
with Purchaser is involuntarily terminated, except for just cause,
during the Termination Period solely as a result of a Termination
Event, TRW will reimburse Purchaser, promptly upon notice from
Purchaser, for the entire cost and expense of severance payments made
by Purchaser to such employee under Purchaser's severance programs as
in effect on the date of termination; PROVIDED, HOWEVER, that the
aggregate amount which TRW shall be so obligated to reimburse Purchaser
in respect of each such employee shall not exceed the aggregate amount
of severance payments which would have been payable to such employee
had TRW's severance program as in effect on the Closing Date
immediately prior to the Closing continued in effect with respect to
such employee through the date of such employee's termination; and
PROVIDED FURTHER that TRW shall not have any obligation to any Support
Employee arising from the termination of employment of such employee or
any amounts payable to such employee in connection therewith.
(b) In the event that any Hourly Support Employee is laid off
during the Termination Period solely as a result of a Termination
Event, TRW will reimburse Purchaser, promptly upon notice from
Purchaser, for any and all costs and expenses which are incurred by
Purchaser as a result of such layoff and which would have been incurred
by TRW if such Hourly Support Employee had been laid off under the TRW
labor contract applicable to such employee as in effect on the Closing
Date; PROVIDED, HOWEVER, that TRW shall not have any obligation to any
Hourly Support Employee arising from the layoff of such employee or any
amounts payable to such employee in connection therewith.
(c) During the twelve (12) month period following the
termination of any Support Employee or Hourly Support Employee,
Purchaser will not, without the prior written consent of TRW, employ or
offer employment to such employee.
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ARTICLE IX
Indemnification
---------------
9.1 INDEMNIFICATION OF TRW: Purchaser will indemnify, defend, and hold
TRW harmless from and against any and all liabilities (regardless of legal
theory, including, without limitation, strict liability), damages, losses,
claims, costs (including, without limitation, the costs of cleanup and
corrective measures), and expenses (including attorneys' fees) arising out of or
resulting from (a) any misrepresentation or breach of warranty by Purchaser for
which notice is given by TRW within the period specified in Section 3.5 hereof;
(b) Purchaser's failure or alleged failure to pay or cause to be paid when due
and payable or to satisfy or cause to be satisfied any of the Assumed
Liabilities, including, without limitation, the Assumed Environmental
Obligations and Purchaser's share of the Shared Environmental Obligations and
any claim, action, litigation or proceeding in respect of any Assumed Liability;
(c) nonperformance of any covenant or other obligation, including, without
limitation, Purchaser's obligations with respect to Environmental Remediation,
to be performed on the part of Purchaser under this Agreement; and (d) the
termination of any Support Employee or the layoff of any Hourly Support Employee
as provided in Section 8.11 (excluding, however, any severance payments and any
costs and expenses of layoff for which TRW has agreed to reimburse Purchaser as
and to the extent provided in Section 8.11).
9.2 INDEMNIFICATION OF PURCHASER: Subject to the limitation set forth
in Section 9.4 hereof, TRW will indemnify, defend, and hold Purchaser harmless
from and against any and all liabilities (regardless of legal theory, including,
without limitation, strict liability), damages, losses, claims, costs
(including, without limitation, the costs of cleanup and corrective measures),
and expenses (including attorneys' fees) arising out of or resulting from (a)
any misrepresentation or breach of warranty by TRW for which notice is given by
Purchaser within the period specified in Section 3.5 hereof; (b) TRW's failure
or alleged failure fully to pay or cause to be paid when due and payable or to
satisfy or cause to be satisfied any of the Excluded Liabilities, including,
without limitation, the Excluded Environmental Obligations and TRW's share of
the Shared Environmental Obligations, and any claim, action, litigation or
proceeding in respect of any Excluded Liability; (c) nonperformance of any
covenant or other obligation, including, without limitation, TRW's obligations
with respect to Environmental Remediation, to be performed on the part of TRW
under this Agreement; and (d) debarment or suspension of the Business as a
contractor or subcontractor to the United States Government arising out of TRW's
conduct of the Business prior to the Closing.
9.3 CLAIMS: If either party desires to make a claim against the other
under Section 9.1 or 9.2 hereof which does not involve a claim by any person
other than the parties, then such party shall make such claim by promptly
delivering written notice to the other. If either Purchaser or TRW (the
"claimant") desires to make a claim against the other (the "indemnitor") under
Section 9.1 or 9.2 hereof which involves a claim by a person other than the
parties, then such claim will be made in the following manner and be subject to
the following terms and conditions:
(a) NOTICE: The claimant will give prompt notice to the
indemnitor of any demand, claim, or threat of litigation or the actual
institution of any action, suit, or
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proceeding (collectively, a "claim") at any time served on or
instituted against the claimant with respect to which the claimant
believes it would have a right of indemnification under Section 9.1 or
9.2 hereof. In providing such notice, the claimant shall only state the
existence of such claim and shall not admit or deny the validity of the
facts or circumstances out of which such claim arose. Solely for
purposes of determining whether the claimant is entitled to
indemnification under Section 9.1 or 9.2 hereof, the alleged facts or
circumstances on which such claim is based shall be deemed to be true.
(b) RESPONSIBILITY FOR DEFENSE: Within thirty (30) days after
receipt of any such notice, but not less than five (5) working days
prior to the time the claimant is required to respond to a claim, the
indemnitor will, by giving written notice to the claimant, have the
right to assume responsibility for the defense of the claim in the name
of the claimant or otherwise as the indemnitor may elect, PROVIDED that
the indemnitor also agrees that it would have responsibility to
indemnify the claimant with respect to such claim. Otherwise, the
claimant will have responsibility for the defense of the claim. Subject
to the provisions of subsections (c) and (d) below, the party having
responsibility for defense of a claim (the "defending party") will have
the full authority to defend, cure, adjust, compromise, or settle such
claim or appeal any judgment or ruling of a court or other tribunal in
connection with such claim in its own name and/or in the name of the
other party.
(c) RIGHT TO PARTICIPATE: Notwithstanding a defending party's
responsibility for the defense of a claim, the other party shall have
the right to participate, at its own expense and with its own counsel,
in the defense of a claim and the defending party will consult with the
other party from time to time on matters relating to the defense of
such claim. The defending party will provide the other party with
copies of all pleadings and material correspondence relating to such
claim.
(d) SETTLEMENT: A defending party will provide the other party
with timely written notice of any proposed adjustment, compromise, or
other settlement of a claim which the defending party intends to
propose or accept. If the other party fails to provide the defending
party with timely written notice of objection to such settlement, then
the defending party shall have the authority to propose or accept such
settlement and enter into any agreement, in its own name and/or in the
name of the other party, giving legal effect to such settlement. If the
other party objects to such settlement, then the defending party may,
if it so elects, tender the defense to the other party by paying to the
other the amount of money proposed to be paid in settlement of the
claim, in which case the defending party shall have no further
liability to the other party hereunder with respect to such claim and
the other party shall have full authority for the future defense of
such claim and full responsibility for any and all liabilities,
obligations, costs, and expenses resulting therefrom.
9.4 LIMITATION ON INDEMNIFICATION: Notwithstanding the provisions of
Section 9.2(a) hereof, TRW will not be obligated to indemnify, defend, or hold
Purchaser harmless from or against any liability, damage, loss, claim, cost, or
expense (including attorneys' fees) described in such Section 9.2(a) and not in
Sections 9.2 (b), (c) or (d) hereof unless a given claim exceeds
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<PAGE> 38
One Hundred Fifty Thousand Dollars ($150,000). In no event will TRW's total
obligation to Purchaser under Section 9.2(a) hereof exceed, in the aggregate,
Thirty-Five Million Dollars ($35,000,000).
ARTICLE X
Amendment, Waiver, And Termination
----------------------------------
10.1 AMENDMENT: This Agreement may be amended at any time prior to the
Closing but only by written instrument executed by both of the parties hereto.
10.2 WAIVER: Either party may at any time waive compliance by the other
with any covenants or conditions contained in this Agreement but only by written
instrument executed by the party waiving such compliance. No such waiver,
however, shall be deemed to constitute the waiver of any such covenant or
condition in any other circumstance or the waiver of any other covenant or
condition.
10.3 TERMINATION: This Agreement may be terminated at any time prior to
the Closing, but only by written instrument signed by both parties. This
Agreement shall terminate automatically, and without further action by the
parties hereto, if (i) Purchaser rejects the Disclosure Package (as provided in
Section 4.8 hereof) or (ii) the Closing shall not have occurred by the date
which is forty-five (45) days after the date on which both parties shall have
executed this Agreement or such other date as the parties may agree in writing
as a result of negotiations conducted in good faith.
10.4 UNILATERAL RIGHT OF CANCELLATION: In addition to its rights under
Section 10.3 hereof, TRW will have the unilateral right to cancel this Agreement
by delivering written cancellation notice to Purchaser at any time prior to
Closing, if --
(a) TRW has or develops, whether as a result of a notice from
Purchaser pursuant to Section 4.9 hereof or otherwise, reasonable
grounds for believing that Purchaser will not or may not have available
at the Closing sufficient funds to pay the Purchase Price as herein
contemplated; and
(b) TRW delivers to Purchaser a written demand that Purchaser
provide TRW with written assurance of Purchaser's ability to pay the
Purchase Price as herein contemplated; and
(c) Purchaser fails to deliver to TRW, within five (5) days
after delivery of TRW's demand pursuant to Section 10.4(b) hereof,
written assurance, adequate to TRW in the exercise of TRW's reasonable
good faith discretion and taking into account Purchaser's Financing
Plan, of Purchaser's ability to pay the Purchase Price as herein
contemplated.
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Upon delivery of written cancellation notice as provided in this Section 10.4,
this Agreement will be deemed to be canceled as of the date of such notice
without prejudice to any rights or remedies TRW may have at law or in equity
against Purchaser for any misrepresentation or breach of warranty or covenant by
purchaser hereunder.
ARTICLE XI
Miscellaneous
-------------
11.1 COOPERATION: Each of Purchaser and TRW will cooperate with the
other party, at the other party's request and expense, in furnishing
information, testimony, and other assistance in connection with any actions,
proceedings, arrangements, and disputes with other persons or governmental
inquiries or investigations involving TRW's conduct of the Business or the
transactions contemplated hereby.
11.2 CONFIDENTIALITY: Reference is made to the Confidentiality
Agreement (the "Confidentiality Agreement") dated the date hereof and the
Supplemental Confidentiality Agreement (the "Supplemental Confidentiality
Agreement") dated the date hereof between TRW and Purchaser. TRW and Purchaser
agree to abide by the terms and conditions of the Confidentiality Agreement and
the Supplemental Confidentiality Agreement through the Closing. After the
Closing, TRW will hold the Confidential Information (as defined in the
Supplemental Confidentiality Agreement) in strictest confidence and will use
neither the Confidential Information nor other information concerning the
Business TRW may retain after the Closing for any purpose which might be
competitively disadvantageous to Purchaser or the Business. After the Closing,
both TRW and Purchaser will have the right jointly or severally to enforce any
other confidentiality agreements into which TRW may have entered with other
prospective purchasers of the Business.
11.3 SEVERABILITY: If any provision of this Agreement shall finally be
determined to be unlawful, then such provision shall be deemed to be severed
from this Agreement and every other provision of this Agreement shall remain in
full force and effect.
11.4 EXPENSES: Except as otherwise provided in this Section 11.4 and
Section 11.5, each party will bear its own expenses incurred in connection with
this Agreement and the transactions contemplated hereby, whether or not such
transactions shall be consummated. Each party will bear one-half (1/2) of the
Title Company's fee or premium in respect of the Owner's Policy of Title
Insurance described in Section 6.5. Purchaser will be solely responsible for the
cost of the appraisal described in Section 6.5. Purchaser will be solely
responsible for payment of any fees of Corporate Growth Resources resulting from
or arising out of the transactions contemplated hereby. TRW will be solely
responsible for payment of any fees of the Auditors, Morgan Stanley & Co.
Incorporated, and Salomon Brothers Inc resulting from or arising out of the
transactions contemplated hereby. TRW and Purchaser will each pay one-half of
any fees charged by the firm of certified public accountants referred to in the
final two sentences of Section 2.7(b) hereof.
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11.5 TRANSFER TAXES: TRW and Purchaser will bear equally any transfer
taxes, if any, which may result from the transfer of the Acquired Assets from
TRW to Purchaser, other than sales or use taxes, if any, which shall be the sole
responsibility of Purchaser.
11.6 BULK SALES: Purchaser waives compliance by TRW with the provisions
of any so- called bulk sales law of any state.
11.7 NOTICES: All notices, requests and other communications hereunder
shall be in writing and shall be deemed to have been duly given at the time of
receipt if delivered by hand or communicated by electronic transmission, or, if
mailed, three (3) days after mailing registered or certified mail, return
receipt requested, with postage prepaid:
If to Purchaser, to: Agnem Holdings, Inc.
131 Pequot Lane
New Canaan, Connecticut 06840
Attention: Albert O. Mendez
and to: Agnem Holdings, Inc.
c/o J. J. Lowrey & Co.
180 Maiden Lane
New York City, New York 10038
Attention: W. Ian Laird
with a copy to: LeBoeuf, Lamb, Leiby & MacRae
520 Madison Avenue
New York City, New York 10022
Attention: Louis H. Singer, Esq.
If to TRW, to: TRW Inc.
1900 Richmond Road
Cleveland, Ohio 44124
Telex: 980227/TRWCLEV EUCD
Attention: Secretary
PROVIDED, HOWEVER, that if either party shall have designated a different
address by notice to the other given as provided above, then to the last address
so designated.
11.8 ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of the successors of each of the parties hereto, but shall not be
assignable by either party without the prior written consent of the other;
PROVIDED, HOWEVER, that Purchaser may assign all of its rights and delegate all
of its duties under this Agreement to a wholly-owned subsidiary of Purchaser and
may change its name to any other name selected by Purchaser; and PROVIDED
FURTHER that in
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the case of any such assignment, Purchaser delivers written notice of such
assignment to TRW no later than ten (10) business days before the Closing,
together with Purchaser's unconditional guarantee of its assignee's performance
of this Agreement in the form of Appendix H hereto.
11.9 NO THIRD PARTIES: This Agreement is not intended to, and shall
not, create any rights in or confer any benefits upon any person other than the
parties hereto.
11.10 INCORPORATION BY REFERENCE: The Appendices to this Agreement and
the Disclosure Package constitute integral parts of this Agreement and are
hereby incorporated into this Agreement by this Reference.
11.11 GOVERNING LAW: This Agreement will be governed by and construed
in accordance with the internal substantive laws of the State of Ohio, except
where the substantive laws of another jurisdiction mandatorily apply.
11.12 COUNTERPARTS: More than one counterpart of this Agreement may be
executed by the parties hereto, and each fully executed counterpart shall be
deemed an original without production of the others.
11.13 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 either party relating thereto, EXCEPT
that any confidentiality agreement in effect on the date hereof between TRW and
any officer, employee or representative of Purchaser shall continue in force and
effect through the Closing.
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IN WITNESS WHEREOF, AGNEM HOLDINGS, INC. and TRW INC. have each
caused this Agreement to be executed by their respective duly authorized
officers and have caused their respective corporate seals to be hereunto affixed
and attested, all as of the date first above written.
AGNEM HOLDINGS, INC.
(Corporate Seal) By: /s/ President
---------------------------------
Date: August 6, 1986
-------------------------------
By: /s/ James J. Lowrey by his
Attorney-in-fact
---------------------------------
Vice President
Date: August 6, 1986
-------------------------------
Attest:
By: /s/ Assistant Secretary
--------------------------------
TRW INC.
(Corporate Seal) By: /s/ R.A. Campbell
---------------------------------
Executive Vice President
Date: August 5, 1986
-------------------------------
Attest:
By: /s/ Assistant Secretary
-------------------------------
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Appendix A
----------
CERTAIN DEFINITIONS
-------------------
The following terms have the meanings set forth below where
used in the Agreement and identified with initial capital letters:
Acquired Assets As defined in Section 2.2 of the Agreement.
Adjustment As determined under Section 2.7 of the
Agreement.
Agreement As defined in the Preamble to the Agreement.
Assumed Environmental All liabilities and obligations for
Obligations Environmental Claims whenever made arising
out of, resulting from, or relating to
Environmental Activities conducted by
Purchaser in Purchaser's operation of the
TAPCO Facility or conduct of the Business or
use of the Acquired Assets which were not
conducted by TRW in TRW's operation of the
TAPCO Facility or conduct of the Business or
use of the Acquired Assets before the
Closing Time; all liabilities and
obligations for Environmental Claims made
twenty (20) years or more after the Closing
arising out of, resulting from, or relating
to Environmental Activities conducted both
by TRW in TRW's operation of the TAPCO
Facility or conduct of the Business or use
of the Acquired Assets before the Closing
Time and by Purchaser in Purchaser's
operation of the TAPCO Facility or conduct
of the Business or use of the Acquired
Assets after the Closing Time; and all of
Purchaser's obligations with respect to
Environmental Remediation set forth in
Section 7.10 of the Agreement.
Assumed Liabilities As defined in Section 2.4 of the Agreement.
Auditors As defined in Section 2.7(a) of the
Agreement.
Auditors' Report As defined in Section 2.7(a) of the
Agreement.
Base-Line Balance TRW's unaudited pro forma restated
Sheet balance sheet for the Sheet Business at
December 31, 1985, included as Annex A-2 to
Part A of the Disclosure Package.
Base-Line Net Book As defined in Section 2.7(d) of the
Value Agreement.
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Appendix A
----------
Bumped Employee Any hourly employee of the Business at the
TAPCO Facility who is laid off during the
Termination Period as a result of the
exercise of "bumping" or other contractual
rights by any other Hourly Support Employee,
but if and only if such other Hourly Support
Employee would have been laid off during the
Termination Period solely as a result of a
Termination Event but for the exercise of
such "bumping" or other contractual rights.
Business As defined in Recital A to the Agreement.
Business Balance TRW's unaudited consolidating balance sheet
Sheet for the Business at December 31, 1985,
included as Annex A-I to Part A of the
Disclosure Package.
Closing As defined in Section 6.1 of the Agreement.
Closing Date As defined in Section 6.2 of the Agreement.
Closing Net Book As defined in Section 2.7(e) of the
Value Agreement.
Closing Time 11:59 p.m. (Eastern Time) on the Closing
Date.
Default An occurrence which constitutes a breach or
default under a contract, order, or other
commitment, after the expiration of any
grace period provided without cure.
Disclosure As defined in Section 3.2 of the Agreement.
Package
Division As defined in Recital A to the Agreement
Encumbrance Any encumbrance or lien, including, without
limitation, any mortgage, judgment lien,
materialman's lien, mechanic's lien,
security interest, encroachment, easement,
or other restriction, in each case having a
material adverse effect on the thing or
right so encumbered.
Environmental Any action, omission, or maintenance of a
Activities condition adversely affecting the
environment arising out of the conduct of
the Business or the use of the Acquired
Assets or the operation of the TAPCO
Facility, including, without limitation,
generation, management, handling,
transportation, treatment, storage,
disposal, delivery, discharge, release, or
emission of any waste, pollutant, toxic, or
other hazardous substance.
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<PAGE> 45
Appendix A
----------
Environmental Claim Any claim made or lawsuit filed or
threatened, and any investigation which
results in a claim made or lawsuit filed or
threatened, by a person other than the
parties with respect to Environmental
Activities.
Environmental As defined in Section 7.10 of the Agreement.
Condition
Environmental Plan As defined in Section 7.10(b) of the
Agreement
Environmental As described in Section 7.10(f) of the
Remediation Agreement.
Exceptions As defined in Section 6.5(a) of the
Agreement.
Excluded Assets As defined in Section 2.3 of the Agreement.
Excluded Environmental All liabilities and obligations for
Obligations Environmental Claims whenever made arising
out of, resulting from, or related to
Environmental Activities conducted by TRW in
TRW's operation of the TAPCO Facility or
conduct of the Business or use of the
Acquired Assets which are not conducted by
Purchaser in Purchaser's operation of the
TAPCO Facility or conduct of the Business or
use of the Acquired Assets after the Closing
Time; all liabilities and obligations for
Environmental Claims made within two (2)
years after the Closing arising out of,
resulting from, or relating to Environmental
Activities conducted both by TRW in TRW's
operation of the TAPCO Facility or conduct
of the Business or use of the Acquired
Assets before the Closing Time and by
Purchaser in Purchaser's operation of the
TAPCO Facility or conduct of the Business or
use of the Acquired Assets after the Closing
Time; and all of TRW's obligations with
respect to Environmental Remediation set
forth in Sections 7.10 of the Agreement.
Excluded Liabilities As defined in Section 2.5 of the Agreement.
First Date As defined in Section 7.8 of the Agreement.
40l(k) Plan As defined in Section 8.3 of the Agreement.
Group As defined in Recital A to the Agreement.
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<PAGE> 46
Appendix A
----------
Hourly Support Any hourly employee of the Business as of
Employee the Closing who is engaged primarily in
activities in support of businesses at the
TAPCO Facility other than the Business and
whose job classification is one which is
designated in a written document signed or
initialed by Purchaser and TRW prior to the
Closing, and any hourly employee of the
Business hired by Purchaser after the
Closing to replace any such employee who
retires, is discharged for cause or
voluntarily terminates employment during the
Termination Period, and any Bumped Employee
in respect of such employee or replacement
employee, PROVIDED that the total number of
Hourly Support Employees shall not exceed
sixty-two (62).
Intellectual Rights consisting of, conferred by, or
Property otherwise relating to (i) patents and patent
applications (including all renewals,
extensions, or modifications thereof); (ii)
trade secrets, including without limitation,
know-how, inventions, computerized data and
information, computer programs, business
records, files and data, discoveries,
formulae, production outlines, product
designs, manufacturing information,
processes and techniques, testing and
quality control processes and techniques,
drawings and customer lists; (iii)
trademarks, service marks, and applications
therefor; (iv) copyrights; (v) trade names;
and (vi) other intellectual property.
IS Agreement An agreement to be dated the Closing Date
between Purchaser and TRW relating to
certain information systems services to be
provided by TRW to Purchaser from and after
the Closing.
Library Agreements One or more agreements to be
dated on or before the Closing Date between
Purchaser and TRW (or between TRW and the
owners of one or more of the other
businesses which have operations at the
TAPCO Facility) relating to the sharing of
materials maintained in the Group technical
library.
Material Event Any event, condition, circumstance, change,
or occurrence which has a material and
adverse effect on the Business or the
properties, assets, liabilities (fixed or
otherwise) or condition (financial or
otherwise) of the Business.
Memorandum of Memo of Understanding captioned "Severance
Understanding Policy for Non-Retained Employees Upon Sale
of TAPCO Facility" dated October 28, 1985
between TRW and the Aircraft Workers
Alliance Amalgamated, Inc.
4
<PAGE> 47
Appendix A
----------
MMTC The Group's Manufacturing and Material
Technology Center at the TAPCO Facility.
Other Agreements Collectively, the Shared Assets Agreement,
the Shared Liabilities Agreement, the
Transition Agreement, the IS Agreement, the
Shared Equipment Agreements, the Library
Agreements, and such other agreements as the
parties shall deem necessary or desirable to
effect the transactions contemplated by the
Agreement, all of which agreements shall be
reasonably satisfactory in form and
substance to TRW and Purchaser.
Ownership Such ownership as confers upon the person
having it good and marketable title to and
control over the thing or right owned, free
and clear of any and all Encumbrances except
Permitted Encumbrances.
Pension Plans As defined in Section 8.2 of the Agreement.
Permitted Encumbrances Encumbrances disclosed on Part
E of the Disclosure Package and the
Exceptions.
Prime Rate The rate of interest publicly announced
by National City Bank of Cleveland, Ohio,
from time to time as its prime or base rate
for U.S. Dollar loans.
Products As defined in Recital A to the Agreement.
Purchaser As defined in the Preamble to the Agreement.
Purchase Price As defined in Section 2.6 of the Agreement.
Purchaser's Financing As defined in Section 4.9 of the Agreement.
Plan
Questioned As described in Section 7.10(a) of the
Environmental Agreement.
Condition
Questioned As defined in Section 7.10(c) of the
Environmental Agreement.
Remediation
Salaried Plan As defined in Section 8.2 of the Agreement.
Second Date As defined in Section 7.8 of the Agreement.
5
<PAGE> 48
Appendix A
----------
Shared Assets An agreement to be dated the Closing Date
Agreement between Purchaser and TRW relating to the
sharing of certain assets, such agreement to
be in the form of Appendix F to the
Agreement.
Shared Equipment One or more agreements to be dated on or
Agreements before the Closing Date between Purchaser
and TRW (or between TRW and the owners of
one or more of the other businesses which
have operations at the TAPCO Facility)
relating to the sharing of certain equipment
used in the conduct of the Business (or the
activities of MMTC in support of the
Business) and in one or more other
businesses (or the activities of MMTC in
support of such other businesses).
Shared Environmental All liabilities and obligations for
Obligations Environmental Claims made two (2) years or
more after the Closing, but within twenty
(20) years after the Closing, arising out
of, resulting from, or relating to
Environmental Activities conducted both by
TRW in TRW's operation of the TAPCO Facility
or conduct of the Business or use of the
Acquired Assets before the Closing Time and
by Purchaser in Purchaser's operation of the
TAPCO Facility or conduct of the Business or
use of the Acquired Assets after the Closing
Time.
Shared Liabilities An agreement to be dated the Closing Date
Agreement between Purchaser and TRW relating to the
sharing of certain liabilities, such
agreement to be in the form of Appendix G to
the Agreement.
Special Receivables Receivables owing to TRW (estimated by TRW
on the date hereof to be in the amount of
approximately Five Million Dollars
($5,000,000)) in respect of certain
contracts between TRW and one or more
contractors or subcontractors of the U.S.
Government but which have not been billed as
of the date of the Agreement as a result of
or in connection with pending U.S.
Government investigations of certain cost
accounting irregularities at the Division.
Substitute Employee Any salaried employee of the Business who is
engaged primarily in activities in support
of business at the TAPCO Facility other than
the Business and who is designated by
Purchaser as a substitute for a Support
Employee as a result of Purchaser's good
faith determination upon the advice of
counsel that the layoff of the Support
Employee for whom such employee is
substituted would violate (or would create a
significant risk of violation of) any legal
obligation of Purchaser under applicable
equal employment opportunity or employment
discrimination law or regulation.
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Appendix A
----------
Supplemental As defined in Section 2.7(c) of the
Receivables Reserve Agreement.
Support Employee Any salaried employee of the Business as of
the Closing who is engaged primarily in
activities in support of businesses at the
TAPCO Facility other than the Business and
whose job classification is one which is
designated in a written document signed or
initialed by Purchaser and TRW prior to the
Closing, and any salaried employee of the
Business hired by Purchaser after the
Closing to replace any such employee who
retires, is discharged for cause or
voluntarily terminates employment during the
Termination Period, and any Substitute
Employee in respect of any such employee or
replacement employee, PROVIDED that the
total number of Support Employees
shall not exceed forty-nine (49).
TAPCO Agreements Collectively, the lease and
service agreements listed in Appendix K
hereto as such agreements shall be
negotiated and finalized by the parties
thereto on or before the Closing Date.
TAPCO Facility The facility on Euclid Avenue in
Cleveland, Ohio, owned by TRW and used by
the Group in the conduct of the Business and
other businesses.
Termination Event An event during the Termination Period which
reduces the number of Support Employees or
Hourly Support Employees reasonably required
by Purchaser in support of a business at the
TAPCO Facility other than the Business as a
result of (i) a decision by the owner of
such other business to discontinue, relocate
or downsize the operations of such other
businesses as conducted at the TAPCO
Facility or (ii) a decrease in the level of
services required from Purchaser by such
other businesses at the TAPCO Facility.
Termination Period The two (2) year period commencing at the
Closing Time and extending through and
including the second anniversary of the
Closing Date.
Title Company As defined in Section 6.5(a) of the
Agreement.
TRW As defined in the Preamble to the Agreement.
Transition Agreement An agreement to be dated the Closing Date
between Purchaser and TRW relating to
certain transitional matters.
Unbilled Special As defined in Section 4.11 of the Agreement.
Receivables
7
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement (No.
333-38223) of Argo-Tech Corporation on Form S-1 of our report dated November 26,
1997, 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
November 26, 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 Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-38223) and related Prospectus of Argo-Tech
Corporation for the registration of $140,000,000 Senior Subordinated Notes.
/s/ ERNST & YOUNG LLP
Long Beach, California
November 26, 1997
<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
