<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from................... to ..........................
Commission File Number 333-58675
KEY COMPONENTS, LLC
----------------------------------------------------
(Exact name of Registrant as Specified in its charter)
Delaware 04-3425424
-------- ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
200 White Plains Road, Tarrytown, NY 10591
------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(914) 332-8088
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(Registrant's Telephone Number, Including Area Code)
KEY COMPONENTS FINANCE CORP.
----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 14-1805946
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
200 White Plains Road, Tarrytown, NY 10591
------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(914) 332-8088
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
/X/ Yes / / No
As of November 14, 1999, approximately 89.0% of Key Components, LLC was
owned by Key Components, Inc., a privately held New York corporation, and
approximately 11.0% was owned by SGC Partners II LLC, a privately owned Delaware
Limited Liability Corporation. All of the shares of common stock of Key
Components Finance Corp. were owned by Key Components, LLC.
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KEY COMPONENTS, LLC
Form 10-Q Index
September 30, 1999
Page
Number
------
PART I - Financial Information
Item 1. -- Consolidated Financial Statements:
Balance Sheets.................................................. 3
Statements of Operations........................................ 4
Statements of Cash Flows........................................ 5
Notes to Consolidated Financial Statements...................... 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
Item 3. -- Quantitative and Qualitative Disclosures about Market
Risk...................................................... 19
PART II - Other Information
Item 6.-- Exhibits and Reports on Form 8-K .......................... 20
Signatures........................................................... 21
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1 -- Consolidated Financial Statements
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1999 1998
------------- ------------
Assets: (unaudited)
Current
Cash and cash equivalents $ 2,673 $ 13,119
Accounts receivable, net of allowance for
doubtful accounts of $418 and $175,
respectively 24,196 7,989
Inventories 30,069 8,487
Prepaid expenses and other current assets 2,566 441
-------- --------
Total current assets 59,504 30,036
Property and equipment, net 21,954 12,222
Goodwill, net 96,555 44,378
Deferred financing costs, net 6,226 4,616
Intangibles, net 1,591 1,620
Other assets 4,261 272
-------- --------
$190,091 $ 93,144
======== ========
Liabilities and Partners' Capital:
Current
Current portion of long-term debt and
other long-term obligations $ 4,613 $ 518
Accounts payable 6,555 1,465
Accrued interest 3,784 750
Accrued wages and related benefits 3,025 1,205
Accrued income taxes 691 --
Accrued expenses and other current
liabilities 5,942 772
-------- --------
Total current liabilities 24,610 4,710
10 1/2% senior notes due 2008 80,000 80,000
Notes payable-- long term 55,500 --
Other long-term obligations 5,399 760
Deferred income taxes 855 --
-------- --------
Total liabilities 166,364 85,470
Redeemable member's equity 9,707 --
Member's equity 14,020 7,674
-------- --------
$190,091 $ 93,144
======== ========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months
September 30, Ended September 30,
------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 122,644 $ 47,444 $ 41,730 $ 14,428
Cost of goods sold 74,082 29,670 24,840 9,191
--------- --------- --------- ---------
Gross profit 48,562 17,774 16,890 5,237
Selling, general and
administrative
expenses 28,706 7,398 10,611 2,271
Stock appreciation rights
compensation 1,593 -- 1,593 --
Related party management fees 608 600 208 200
--------- --------- --------- ---------
Income from operations 17,655 9,776 4,478 2,766
Other income (expense):
Other income (expense) 282 (12) 129 (7)
Interest expense (10,981) (5,460) (3,704) (2,166)
--------- --------- --------- ---------
Income before provision for
income taxes and extraordinary
item 6,956 4,304 903 593
Provision for income taxes 2,815 27 675 (113)
Extraordinary item from early
retirement of debt -- 4,616 -- --
--------- --------- --------- ---------
Net income (loss) $ 4,141 $ (339) $ 228 $ 706
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
KEY COMPONENTS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
For the Nine Months Ended
September 30,
-------------------------
1999 1998
-------- --------
Cash flows from operating activities:
Net income (loss) $ 4,141 $ (339)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Allowance for doubtful accounts (47) --
Depreciation and amortization 6,074 2,974
Stock appreciation rights
compensation 1,593
Extraordinary item from early
retirement of debt -- 4,616
Changes in assets and liabilities,
net of acquisitions:
Accounts receivable (1,735) (679)
Inventories (584) (799)
Prepaid expenses and other assets 642 (333)
Accounts payable (1,640) 157
Accrued expenses 4,821 2,944
-------- --------
Net cash provided by operating activities 13,265 8,541
-------- --------
Cash flows from investing activities:
Acquisition of Valley Forge Corporation (82,855) --
Acquisition of G&H Technology, Inc. (3,985) --
Proceeds from sale of Multiplex
Technology, Inc. and Force 10
Marine Company 5,989 --
Funding of assets held for sale (525) --
Capital expenditures (2,294) (1,509)
-------- --------
Net cash used in investing activities (83,670) (1,509)
-------- --------
Cash flows from financing activities:
Payments of long-term debt and capital
lease obligations (32,402) (66,132)
Costs associated with early
retirement of debt -- (1,978)
Proceeds from debt issued 82,638 80,000
Proceeds from capital contributions 12,823 500
Capital withdrawals (911) (3,677)
Deferred financing costs (2,189) (4,514)
-------- --------
Net cash provided by financing activities 59,959 4,199
-------- --------
Net (decrease) increase in cash and cash
equivalents (10,446) 11,231
Cash and cash equivalents, beginning of
period 13,119 1,440
-------- --------
Cash and cash equivalents, end of period $ 2,673 $ 12,671
======== ========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
KEY COMPONENTS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements include Key Components, LLC
("KCLLC"), a parent holding company of the wholly and majority owned
subsidiaries, B.W. Elliott Manufacturing Co., LLC ("Elliott"), Hudson Lock, LLC
("Hudson"), ESP Lock Products, LLC ("ESP"), Key Components Finance Corp.
("Finance Corp") and the related entities acquired as part of the Valley Forge
Corporation and its subsidiaries (collectively, "VFC") acquisition (Note 2),
collectively, the "Company." All significant intercompany transactions have been
eliminated.
KCLLC and Finance Corp were formed on April 1, 1998 to facilitate an offering of
senior notes. Upon their formation, KCLLC became the parent holding company of
Elliott, Hudson, ESP and Finance Corp. Key Components, Inc. ("KCI"), a Delaware
corporation, became the sole member of KCLLC. KCLLC's assets are limited to the
Company's corporate office and it has no operations other than its investments
in its subsidiaries. Finance Corp has no assets or operations.
Certain reclassifications were made to conform the prior periods to the current
year presentation.
The accompanying unaudited financial statements of the Company contain all
adjustments that are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. While certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, the Company believes that the disclosures herein
are adequate to make the information not misleading. The results of operations
for the interim periods are not necessarily indicative of the results for full
years. These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1998 included in the Company's Form 10-K and the unaudited proforma
consolidated financial statements included in the Company's Form 8-K/A filed
April 1, 1999.
2. Acquisitions
During the nine months ended September 30, 1999, the Company acquired the
entities described below, which were accounted for by the purchase method of
accounting. The results of their operations have been included in the
consolidated financial statements since their respective dates of acquisition.
On January 19, 1999, the Company acquired all of the outstanding shares of VFC
for a purchase price of approximately $84.0 million (including the issuance of
stock appreciation rights of approximately $1.2 million) and assumed liabilities
of approximately $23.9 million. In conjunction with the acquisition, the Company
repaid $8.9 million of VFC's outstanding long-term debt out of the $23.9 million
of liabilities assumed as part of the acquisition. VFC manufactures electrical
and mechanical engineered components sold to original equipment manufacturers
("OEM"), dealers, and distributors. The Company recorded the excess purchase
price over net assets acquired, of approximately $52.0 million, as unallocated
purchase price, which is included in goodwill. The Company is currently
amortizing the unallocated purchase price over a period of thirty years. The
value ascribed to the unallocated purchase price is preliminary and is subject
to change. At the time of the acquisition, the Company decided to sell two VFC
subsidiaries, Force 10 Marine Company ("Force 10") and Multiplex Technology,
Inc. ("Multiplex"). The sale of Force 10 was completed on February 26, 1999 for
$1.7 million in cash. Multiplex was sold on May 28, 1999 for net proceeds of
approximately $4.3 million.
6
<PAGE>
On February 5, 1999, the Company acquired G&H Technology, Inc. ("G&H") for
approximately $4.0 million in cash . The acquired product lines are compatible
with the Company's mechanical engineered components business and the assets and
product lines of G&H were integrated into Elliott's main facility in Binghamton,
New York. The Company recorded goodwill of approximately $2.2 million in
connection with the acquisition. The pro forma effect of this transaction was
not material.
The acquisitions were financed with available Company resources and
approximately $82 million from a new $60-million term loan and a $40-million
revolving credit facility. The term loan is payable in quarterly installments
through January 19, 2005. Current maturities of long-term debt at September 30,
1999 included approximately $4.2 million related to the term loan. The revolving
credit facility commitment (of which $3.5 million was outstanding on September
30, 1999) is for six years. The Company has temporarily waived $5 million of the
revolving credit facility commitment. The term loan and revolving credit
facility bear interest at fluctuating interest rates determined by reference to
a base rate plus an applicable margin which will vary from 1.50% to 2.25%. The
revolving credit facility also calls for a fee of 0.50% on the unused portion of
the facility as well as quarterly commitment fees. These facilities amended the
former acquisition loan and revolving credit facility.
On an unaudited pro forma basis, assuming the VFC acquisition had occurred as of
the beginning of the periods presented, and excluding the results of operations
of Force 10 and Multiplex, the consolidated results of the Company would have
been as follows:
Nine Months Ended
(In thousands) September 30,
--------------------------
1999 1998
--------- ---------
Pro forma net sales $ 130,289 $ 119,230
Pro forma income before extraordinary item $ 4,684 $ 1,383
Net Income (loss) $ 4,684 $ (3,233)
3. Inventories
Inventories consist of the following:
(In thousands) September 30, December 31,
1999 1998
------- -------
Raw materials $12,646 $ 2,642
Work-in-process 9,066 3,982
Finished goods 8,357 1,863
------- -------
Total inventories $30,069 $ 8,487
======= =======
7
<PAGE>
4. Operating Segments
Through 1998, the Company operated in two business segments, both of which were
involved in the manufacture of mechanical engineered components. These
businesses were comprised of the manufacturing of specialty locks and related
accessories and the manufacture of flexible shaft products. Concurrent with the
VFC acquisition, the Company reorganized its operating segments into the
mechanical engineered components business and the electrical components
business. The VFC acquisition resulted in the Company expanding its mechanical
engineered components business from its two original business lines to include
the manufacturing of turbocharger actuators and related accessories. Further,
the VFC acquisition resulted in the Company entering into the business of
manufacturing electrical components. The electrical components business produces
an array of electrical componentry items for marine, recreational and industrial
applications. It also produces switches for utility companies and power
inverters, which are utilized in both the consumer and industrial markets.
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest, taxes and depreciation and amortization
("EBITDA"). In its calculation of EBITDA certain charges that management
determines as non-recurring are excluded. Segment information for the nine and
three months ended September 30, 1999 and 1998 is as follows:
Mechanical
Engineered Electrical
(In thousands) Components Components Total
----------- ----------- --------
Nine months ended September 30, 1999:
Net sales from external customers $ 61,368 $ 61,276 $122,644
Intersegment net sales 290 3,083 3,373
Segment profit - EBITDA 18,929 7,822 26,751
Segment assets 94,679 42,094 136,773
Depreciation and amortization 3,091 2,315 5,406
Interest expense 6,381 4,600 10,981
Nine months ended September 30, 1998:
Net sales from external customers $ 47,444 -- $ 47,444
Intersegment net sales -- -- --
Segment profit - EBITDA 13,933 -- 13,933
Segment assets 83,744 -- 83,744
Depreciation and amortization 2,856 -- 2,856
Interest expense 5,394 -- 5,394
8
<PAGE>
Mechanical
Engineered Electrical
(In thousands) Components Components Total
---------- ---------- ---------
Three months ended September 30, 1999:
Net sales from external customers $ 20,489 $ 21,241 $ 41,730
Intersegment net sales 57 612 669
Segment profit - EBITDA 6,633 1,372 8,005
Segment assets 94,679 42,094 136,773
Depreciation and amortization 1,058 875 1,933
Interest expense 2,122 1,582 3,704
Three months ended September 30, 1998:
Net sales from external customers $ 14,428 -- $ 14,428
Intersegment net sales -- -- --
Segment profit - EBITDA 4,015 -- 4,015
Segment assets 83,744 -- 83,744
Depreciation and amortization 825 -- 825
Interest expense 2,130 -- 2,130
Reconciliation of Selected Segment Information to the Company's Consolidated
Totals:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
(In thousands) September 30, September 30,
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Net sales from reportable
segments $ 126,017 $ 47,444 $ 42,399 $ 14,428
Elimination of intersegment
net sales (3,373) -- (669) --
--------- --------- --------- ---------
Total consolidated net
sales $ 122,644 $ 47,444 $ 41,730 $ 14,428
========= ========= ========= =========
Profit or loss:
Total profit from
reportable segments $ 26,751 $ 13,933 $ 8,005 $ 4,015
Reconciling items:
Corporate expenses (2,043) (308) (1,027) --
Depreciation and
amortization (6,074) (2,974) (2,156) (906)
Interest expense (10,981) (5,460) (3,704) (2,166)
Management fee (608) (600) (208) (200)
Non-recurring charges (89) (287) (7) (150)
--------- --------- --------- ---------
Total consolidated income
before taxes and
extraordinary item $ 6,956 $ 4,304 $ 903 $ 593
========= ========= ========= =========
</TABLE>
Assets: September 30, December 31,
----------------------- ------------
1999 1998 1998
-------- -------- --------
Total assets for
reportable segments $136,773 $ 83,744 $ 78,184
Unallocated amounts:
Corporate assets 2,477 10,030 14,960
Unallocated goodwill 50,841 -- --
-------- -------- --------
Total consolidated assets $190,091 $ 93,774 $ 93,144
======== ======== ========
9
<PAGE>
5. Equity Transactions
On August 12, 1999, KCLLC entered into agreements (the "SG Agreements") with
Keyhold, Inc. ("Keyhold"), a wholly owned subsidiary of SGC Partners II LLC
("SG") and SG, to sell up to $20.0 million of membership equity interests in
KCLLC. On September 1, 1999, SG (through Keyhold) made a capital contribution to
KCLLC of $10.0 million, before expenses of approximately $436,000. Keyhold
received approximately an 11% membership equity interest in KCLLC. Prior to
August 12, 2000, KCLLC may require SG (through Keyhold) to purchase up to an
additional $10.0 million of membership equity interests (the "Additional
Investment"), constituting the balance of SG's membership equity investment
commitment. KCLLC can require the Additional Investment be in one installment of
$10.0 million or in two installments of $5.0 million each. The Additional
Investment currently represents an additional 9.3% membership equity interest in
KCLLC. Pursuant to the SG Agreements, under certain circumstances, KCLLC is also
restricted from selling additional membership equity interests unless all or a
portion of the Additional Investment is made. The SG Agreements also provide
that upon the earlier of a change in control of the Company, as defined therein,
or August 31, 2004, SG and Keyhold have the right to require KCLLC to repurchase
Keyhold's outstanding investment in KCLLC at the then current market value.
In October 1999, the Company and the minority shareholders of Atlantic Guest,
Inc. ("Guest"), a subsidiary acquired as part of the VFC acquisition, verbally
agreed to sell their 7% share of Guest to the Company for a combination of cash
and stock.
6. Provision for Income Taxes
Effective May 31, 1997, Elliott, Hudson and ESP each elected to be treated as a
subchapter S corporation, which caused the stockholders of its then parent
company, KCI, to be personally liable for the taxes due on the income of the
Company. Through August 31, 1999, VFC was a C corporation and was responsible
for paying taxes on its income. Effective August 31, 1999, VFC was merged into
KCLLC and most of VFC's subsidiaries, as well as Elliott, Hudson and ESP, were
converted to limited liability company ("LLC") status. These conversions were
accomplished by merging each of the existing subsidiaries into a newly organized
Delaware LLC. Upon election of LLC status by the subsidiaries, the stockholders
of KCI and Keyhold became personally responsible for most of the taxes due on
the income of the Company.
For the nine and three months ended September 30, 1999, the Company's provision
for income taxes relates primarily to VFC's consolidated taxable income (as a C
corporation) and the taxable income of the subsidiaries not converted to LLC
status.
10
<PAGE>
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Key Components, LLC ("KCLLC") is a parent holding company of wholly and majority
owned subsidiaries (collectively, the "Company"). Through its operating
subsidiaries, the Company is a leading manufacturer of custom-engineered
essential componentry for application in a diverse array of end-use products.
The Company targets original equipment manufacturer ("OEM") markets where the
Company believes its value-added engineering and manufacturing capabilities,
along with its timely delivery, reliability and customer service, enable it to
differentiate the Company from its competitors and enhance profitability.
Through 1998, the Company operated in two business segments, both of which were
involved in the manufacture of mechanical engineered components. These
businesses were comprised of the manufacturing of specialty locks and related
accessories and of flexible shaft products.
On January 19, 1999, the Company consummated the acquisition of all the
outstanding shares of Valley Forge Corporation ("VFC"), a public company with
over $100 million in annual revenues, for a purchase price of approximately
$84.0 million (including stock appreciation rights of approximately $1.2
million) and assumed liabilities of approximately $23.9 million. The Company
recorded the excess purchase price over net assets acquired of approximately
$52.0 million as unallocated purchase price, which is included in goodwill. The
Company is currently amortizing the unallocated purchase price over a period of
thirty years. The value ascribed to the unallocated purchase price is
preliminary and is subject to change. At the time of the acquisition, the
Company decided to sell two VFC subsidiaries, Force 10 Marine Company ("Force
10") and Multiplex Technology, Inc. ("Multiplex"). The sale of Force 10 was
completed on February 26, 1999 for $1.7 million in cash. Multiplex was sold on
May 28, 1999 for net proceeds of approximately $4.3 million.
Concurrent with the VFC acquisition, the Company reorganized its operating
segments into the mechanical engineered components business and electrical
components business. The acquisition of VFC resulted in the Company expanding
its mechanical engineered components business from its two original business
lines to include the manufacturing of turbocharger actuators and related
accessories. Further, the VFC acquisition resulted in the Company entering into
the business of manufacturing electrical components. The electrical components
business produces an array of electrical componentry items for marine,
recreational, and industrial applications. It also produces switches for utility
companies and power inverters, which are utilized in both the consumer and
industrial markets.
Simultaneously with the acquisition of VFC, the Company replaced its former
acquisition and revolving loan commitment with a new $60-million term loan and a
$40-million revolving credit facility. The term loan is payable in quarterly
installments through January 19, 2005. The current maturities of long-term debt
at September 30, 1999 included approximately $4.2 million related to the term
loan. The revolving credit facility commitment (of which approximately $3.5
million was outstanding on September 30, 1999) is for six years. The Company has
temporarily waived $5 million of the revolving credit facility commitment. The
term loan and revolving credit facility bear interest at fluctuating interest
rates determined by reference to a base rate plus an applicable margin which
will vary from 1.50% to 2.25%.
On February 5, 1999, the Company acquired G&H Technology, Inc. ("G&H") for
approximately $4.0 million in cash. The acquired assets and product lines are
compatible with, and were integrated into, the Company's existing mechanical
engineered components business.
11
<PAGE>
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30,
1998
Net Sales: Net sales were approximately $122.6 million for the nine months ended
September 30, 1999, an increase of approximately $75.2 million, or 158.5%, from
approximately $47.4 million for the nine months ended September 30, 1998. Net
sales of the mechanical engineered components business were approximately $61.4
million for the nine months ended September 30, 1999, an increase of
approximately $14.0 million, from approximately $47.4 million for the nine
months ended September 30, 1998. Net sales of the electrical components
business, which was acquired in the first quarter of fiscal 1999, were
approximately $61.3 million for the nine months ended September 30, 1999. The
increase in the total and segment net sales is primarily attributable to the
acquisitions of VFC and G&H.
Gross Profit: Gross profit was approximately $48.6 million for the nine months
ended September 30, 1999, an increase of approximately $30.8 million, or 173.2%,
from approximately $17.8 million for the nine months ended September 30, 1998.
Gross profit for the mechanical engineered components business was approximately
$24.4 million for the nine months ended September 30, 1999, an increase of
approximately $6.6 million, or 37.3% from approximately $17.8 million for the
nine months ended September 30, 1998. Gross profit for the electrical components
business was approximately $24.2 million for the nine months ended September 30,
1999.
Gross profit, as a percentage of net sales, was 39.6% and 37.5% for the nine
months ended September 30, 1999 and 1998, respectively. Gross profit, as a
percentage of net sales, for the mechanical engineered components business were
39.8% and 37.5% for the nine months ended September 30, 1999 and 1998,
respectively. Gross profit, as a percentage of net sales, for the electrical
components business was 39.4% for the nine months ended September 30, 1999. The
increase in total gross profit and total gross profit percentage are primarily
related to the acquisition of VFC and the correlated entry into the electrical
components business, which historicallyexperiences higher gross margins than in
the mechanical components business. The margins for the electrical components
business are generally higher as a result of the nature of the target markets to
which these businesses sell their products. However, for the nine months ended
September 30, 1999, the Company experienced an increase in the gross profit
margins of the mechanical components business. This increase is primarily
related to the mix of product sales and the volume of such sales during the
three months ended September 30, 1999. In addition, the gross profit margin of
the mechanical components business for the nine months ended September 30, 1999
has begun to experience increases due to the higher gross margin business
associated with the acquisition of G&H.
Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses were approximately $28.7 million for the nine
months ended September 30, 1999, an increase of approximately $21.3 million, or
288.0%, from approximately $7.4 million for the nine months ended September 30,
1998. Depreciation and amortization expense increased by approximately $2.0
million for the nine months ended September 30, 1999. Corporate expenses also
increased for the nine months ended September 30, 1999 by approximately $1.7
million. The increase in corporate expenses is primarily related to the
redundant costs of the VFC corporate office and the training and travel costs
associated with closing that office. The corporate office of Valley Forge closed
on September 30, 1999. In addition, the Company experienced unusual increases in
professional fees, primarily as a result of the subsidiaries' reorganization to
LLC status and the additional tax planning and reporting requirements, which
resulted from the VFC acquisition. The Company's continuing acquisition
activities were also a factor in professional fees increasing by approximately
$389,000 for the nine months ended September 30, 1999. These increases as well
as the remainder of the increase in SG&A expenses are predominantly attributable
to the acquisition of VFC, which added approximately $19.4 million (or 91.1% of
the total increase in SG&A expenses) to SG&A for the nine months ended September
30, 1999. SG&A expenses for the mechanical engineered components business were
approximately $8.7 million for the nine months ended September 30, 1999, an
increase of approximately $1.8 million, or 26.1%, from approximately $6.9
million for the nine months ended September 30, 1998. This increase was
partially related to the integration of G&H and predominantly related to the
expansion of the mechanical engineered
12
<PAGE>
components business as a result of the VFC acquisition. The electrical
components business had SG&A expenses of approximately $17.2 million for the
nine months ended September 30, 1999.
SG&A, as a percentage of net sales, was 23.4% for the nine months ended
September 30, 1999, an increase of 7.8% from 15.6% for the nine months ended
September 30, 1998. SG&A, as a percentage of net sales, for the mechanical
engineered components business was 14.2% and 14.6% for the nine months ended
September 30, 1999 and 1998, respectively. SG&A, as a percentage of net sales,
for the electrical components business was 28.0% for the nine months ended
September 30, 1999. The overall increase in the percentage of SG&A is directly
related to the electrical components business, which maintains higher levels of
sales and marketing expenses due to the nature of the target markets to which
these businesses sell their products.
SAR Valuation Compensation: For the nine months ended September 30, 1999, the
Company recorded a non-cash charge of approximately $1.6 million related to
outstanding stock appreciation rights. The stock appreciation rights ("SAR's")
were issued in conjunction with the VFC acquisition in lieu of cash
consideration for the purchase of equity held by VFC line management who
continued with the Company. The Company is required to report any change in the
valuation of the SAR's as a charge against earnings.
Income from Operations: Income from operations was approximately $17.7 million
for the nine months ended September 30, 1999, an increase of approximately $7.9
million, or 80.6%, from approximately $9.8 million for the nine months ended
September 30, 1998. This increase is related primarily to the acquisition of
VFC.
Interest Expense: Interest expense was approximately $11.0 million for the nine
months ended September 30, 1999, an increase of approximately $5.5 million, or
101.2%, from approximately $5.5 million for the nine months ended September 30,
1998. This increase is due to the issuance of $80.0 million of 10 1/2% senior
notes in May 1998 as well as the issuance of debt outstanding under the
Company's new credit facilities.
Provision for Income Taxes: The provision for income taxes was approximately
$2.8 million for the nine months ended September 30, 1999, an increase of $2.8
million, or 103.3%, from September 30, 1998. Effective May 31, 1997, Elliott,
Hudson and ESP each elected to be treated as a subchapter S corporation, which
caused the stockholders of its then parent company, KCI, to be personally liable
for the taxes due on the income of the Company. Through August 31, 1999, VFC was
a C corporation and was responsible for paying taxes on its income. Effective
August 31, 1999, VFC was merged into KCLLC and most of VFC's subsidiaries, as
well as Elliott, Hudson and ESP, were converted to limited liability company
("LLC") status. These conversions were accomplished by merging each of the
existing subsidiaries into a newly organized Delaware LLC. Upon election of LLC
status by the subsidiaries, the stockholders of KCI and Keyhold became
personally responsible for most of the taxes due on the income of the Company.
For the nine and three months ended September 30, 1999, the Company's provision
for income taxes relates primarily to VFC's consolidated taxable income (as a C
corporation) and the taxable income of the subsidiaries not converted to LLC
status.
Net Income: Net income was approximately $4.1 million for the nine months ended
September 30, 1999, an increase of approximately $4.5 million from a net loss of
approximately $339,000 for the nine months ended September 30, 1998. This
increase is the result of an increase in income from operations of approximately
$7.9 million which was partially offset by increases in interest expense of
approximately $5.5 million and the provision for income taxes of $2.8 million,
all due to the factors discussed above. Additionally, the results of operations
for the nine months ended September 30, 1998 were impacted by an extraordinary
charge of approximately $4.6 million resulting from the early repayment of debt
in connection with the Company's senior notes, which were issued in May 1998.
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Three Months Ended September 30, 1999 compared to Three Months Ended September
30, 1998
Net Sales: Net sales were approximately $41.7 million for the three months ended
September 30, 1999, an increase of approximately $27.3 million, or 189.2%, from
approximately $14.4 million for the three months ended September 30, 1998. Net
sales of the mechanical engineered components business were $20.5 million for
the three months ended September 30, 1999, an increase of approximately $6.1
million from approximately $14.4 million for the three months ended September
30, 1998. Net sales of the electrical components segment, which was acquired in
the first quarter of fiscal 1999, were approximately $21.2 million for the three
months ended September 30, 1999. The increases in the total and segment net
sales are primarily attributable to the acquisitions of VFC and G&H.
Gross Profit: Gross profit was approximately $16.9 million for the three months
ended September 30, 1999, an increase of approximately $11.7 million, or 222.5%,
from approximately $5.2 million for the three months ended September 30, 1998.
Gross profit for the mechanical engineered components business was approximately
$8.4 million for the three months ended September 30, 1999, an increase of
approximately $3.2 million or 60.9%, from approximately $5.2 million for the
three months ended September 30, 1998. Gross profit for the electrical
components business was approximately $8.5 million for the three months ended
September 30, 1999.
Gross profit, as a percentage of net sales, was 40.5% and 36.3% for the three
months ended September 30, 1999 and 1998, respectively. Gross profit, as a
percentage of net sales, for the mechanical engineered components business was
41.1% and 36.3% for the three months ended September 30, 1999 and 1998,
respectively. Gross profit, as a percentage of net sales, for the electrical
component business was 39.9% for the three months ended September 30, 1999. The
increases in total gross profit and total gross profit percentage are primarily
related to the acquisition of VFC and the correlated entry into the electrical
components business, which historically experiences higher gross margins than in
the mechanical components business. The margins for the electrical components
business are generally higher as a result of the nature of the target markets to
which these businesses sell their products. However, for the three months ended
September 30, 1999, the Company experienced an increase in the gross profit
margins of the mechanical components business. This increase is primarily
related to the mix of product sales and the volume of such sales during the
three months ended September 30, 1999. In addition, the gross profit margin of
the mechanical components business for the three months ended September 30, 1999
has begun to experience increases due to the higher gross margin business
associated with the acquisition of G&H.
Selling, General and Administrative Expenses: SG&A expenses of approximately
$10.6 million for the three months ended September 30, 1999 increased by
approximately $8.3 million, or 367.2%, from approximately $2.3 million for the
three months ended September 30, 1998. Depreciation and amortization expense
increased by approximately $820,000 for the three months ended September 30,
1999. Corporate expenses also increased for the three months ended September 30,
1999 by approximately $1.0 million. The increase in corporate expenses is
primarily related to the establishment of the corporate office of the Company,
the redundant costs of the VFC corporate office and the training and travel
costs associated with closing the VFC office. The corporate office of Valley
Forge closed on September 30, 1999. In addition, the Company experienced unusual
increases in professional fees, primarily as a result of the subsidiaries'
reorganization to LLC status and the additional tax planning and reporting
requirements which resulted from the VFC acquisition. The Company's continuing
acquisition activities were also a factor in professional fees increasing by
approximately $197,000 for the three months ended September 30, 1999.These
increases as well as the remainder of the increase in SG&A expenses are
predominantly attributable to the acquisition of VFC, which added approximately
$7.1 million (or 84.9% of the total increase in SG&A expenses) to SG&A for the
three months ended September 30, 1999. SG&A expenses for the mechanical
engineered components business were approximately $2.8 million for the three
months ended September 30, 1999, an increase of approximately $675,000, or
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31.7%, from approximately $2.1 million for the three months ended September 30,
1998. This increase was partially related to the integration of G&H and
predominantly related to the expansion of the mechanical engineered components
business as a result of the VFC acquisition. The electrical components business
had SG&A expenses of approximately $6.7 million for the three months ended
September 30, 1999.
SG&A, as a percentage of net sales, was 25.4% for the three months ended
September 30, 1999, which increased by 9.7% from 15.7% for the three months
ended September 30, 1998. SG&A, as a percentage of net sales, for the mechanical
engineered components business was 13.7% and 14.7% for the three months ended
September 30, 1999 and 1998, respectively. SG&A, as a percentage of net sales,
for the electrical components business was 31.7% for the three months ended
September 30, 1999. The overall increase in the percentage of SG&A is directly
related to the electrical components business, which maintains higher levels of
sales and marketing expenses due to the nature of the target markets to which
these businesses sell their products.
SAR Valuation Compensation: For the three months ended September 30, 1999, the
Company recorded a non-cash charge of approximately $1.6 million related to
outstanding stock appreciation rights. The stock appreciation rights ("SAR's")
were issued in conjunction with the VFC acquisition in lieu of cash
consideration for the purchase of equity held by VFC line management who
continued with the Company. The Company is required to report any change in the
valuation of the SAR's as a charge against earnings.
Income from Operations: Income from operations was approximately $4.5 million
for the three months ended September 30, 1999, an increase of approximately $1.7
million, or 61.9%, from approximately $2.8 million for the three months ended
September 30, 1998. This increase is related primarily to the acquisition of
VFC.
Interest Expense: Interest expense was approximately $3.7 million for the three
months ended September 30, 1999, an increase of approximately $1.5 million, or
71.2%, from approximately $2.2 million for the three months ended September 30,
1998. This increase is due to the issuance of debt outstanding under the
Company's new credit facilities.
Provision for Income Taxes: The provision for income taxes was approximately
$675,000 for the nine months ended September 30, 1999, an increase by
approximately $788,000, or 697.3% from September 30, 1998. Effective May 31,
1997, Elliott, Hudson and ESP each elected to be treated as a subchapter S
corporation, which caused the stockholders of their then parent company, KCI, to
be personally liable for the taxes due on the income of the Company. Through
August 31, 1999, VFC was a C corporation and was responsible for paying taxes on
its income. Effective August 31, 1999, VFC was merged into KCLLC and most of
VFC's subsidiaries, as well as Elliott, Hudson and ESP, were converted to
limited liability company ("LLC") status. These conversions were accomplished by
merging each of the existing subsidiaries into a newly organized Delaware LLC.
Upon election of LLC status by the subsidiaries, the stockholders of KCI and
Keyhold became personally responsible for most of the taxes due on income of the
Company.
For the three months ended September 30, 1999, the Company's provision for
income taxes relates primarily to VFC's consolidated taxable income (as a C
corporation) and the taxable income of the subsidiaries not converted to LLC
status.
Net Income: Net income of approximately $228,000 for the three months ended
September 30, 1999 decreased by approximately $478,000 from net income of
approximately $706,000 for the three months ended September 30, 1998. This
decrease is the result of an increase in income from operations of approximately
$1.7 million, which was offset by increases in interest expense of approximately
$1.5 million and the provision for income taxes of approximately $788,000, all
due to the factors discussed above.
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Liquidity and Capital Resources
The Company has historically generated funds from its operations, and its
working capital requirements generally have not fluctuated from quarter to
quarter. The Company's other main sources of liquidity generally are derived
from the Company's term loan and revolving credit facility described above.
On August 12, 1999, KCLLC entered into agreements (the "SG Agreements") with
Keyhold, Inc. ("Keyhold"), a wholly owned subsidiary of SGC Partners II LLC
("SG") and SG, to sell up to $20.0 million of membership equity interests in
KCLLC. On September 1, 1999, SG (through Keyhold) made a capital contribution to
KCLLC of $10.0 million, before expenses of approximately $436,000. Keyhold
received approximately an 11% membership equity interest in KCLLC. Prior to
August 12, 2000, KCLLC may require SG (through Keyhold) to purchase up to an
additional $10.0 of million membership equity interests (the "Additional
Investment"), constituting the balance of SG's membership equity investment
commitment. KCLLC can require the Additional Investment be in one installment of
$10.0 million or in two installments of $5.0 million each. The Additional
Investment currently represents an additional 9.3% membership equity interest in
KCLLC. Pursuant to the SG Agreements, under certain circumstances, KCLLC is also
restricted from selling additional membership equity interests unless all or a
portion of the Additional Investment is made. The SG Agreements also provides
that upon the earlier of a change in control of the Company, as defined therein,
or August 31, 2004, SG and Keyhold have the right to require KCLLC to repurchase
Keyhold's outstanding investment in KCLLC at the then current market value.
The Company's primary liquidity demands will be for capital expenditures,
general corporate purposes, and principal and interest payments on its
outstanding debt. The Company's $80.0 million of senior notes require semiannual
interest payments on the outstanding principal. The senior note has no
requirement for principal payments until they are due in June 2008. The term
loan requires quarterly principal and interest payments. Under its new revolving
credit facility, the Company has the option to lock in a specified interest rate
by entering into a contract, which rolls over at different time intervals
ranging from 30 to 180 days. As the underlying contract comes up for renewal,
the interest associated with the contract becomes due. As of September 30, 1999,
the Company had no outstanding commitments for capital expenditures and
anticipates further capital expenditures of approximately $1.2 million for the
remainder of fiscal 1999. The expenditures are primarily to maintain its
facilities, expand its production capacity in order to take advantage of
profitable market opportunities, and to further automate its production
processes to maximize profitability. To the extent cash flow from operations is
insufficient to cover the Company's capital expenditures, debt service, and
other general requirements, the Company would seek to utilize its borrowing
availability under its existing revolving credit facility.
Cash flows provided by operating activities were approximately $13.3 million and
approximately $8.5 million for the nine months ended September 30, 1999 and
1998, respectively. The net increase of approximately $4.7 million over the
prior period resulted primarily from the increase in net income plus non-cash
charges of approximately $4.5 million. The increases in the non-cash charges
primarily relate to depreciation and amortization as well as the $1.6 million
charge recorded in connection with the SAR's discussed above.
Cash flows used in investing activities were approximately $83.7 million and
approximately $1.5 million for the nine months ended September 30, 1999 and
1998, respectively. The primary reason for the increase in investing activities
was the acquisitions of VFC and G&H described above. The Company also sold Force
10 and Multiplex, which it had acquired as part of VFC, for a total of
approximately $6.0 million in cash. Capital expenditures for the nine months
ended September 30, 1999 and 1998 totaled approximately $2.3 million and
approximately $1.5 million, respectively.
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Cash flows from financing activities provided net cash of approximately $60.0
million and approximately $4.2 million for the nine months ended September 30,
1999 and 1998, respectively. The primary reasons for the net increase of
approximately $55.8 million of financing activities for the nine months ended
September 30, 1999 were the new term loan and credit facility, whose proceeds
were used to finance the Valley Forge acquisition during the nine months ended
September 30, 1999 as opposed to the nine months ended September 30, 1998 when
the proceeds received from the issuance of the senior notes were primarily used
to repay other outstanding debt. An aggregate of approximately $82.6 million of
proceeds were received under this new term loan and credit facility. The
repayment of approximately $32.4 million on long-term debt and other long-term
obligations offset this, the most significant portion being the repayment of
approximately $8.9 million of VFC's long-term debt, which was made in
conjunction with the VFC acquisition. Simultaneous with the closing of the VFC
acquisition, the Company was the recipient of approximately $3.2 million in
capital from KCI in January 1999. This capital was raised by KCI through the
sale of new stock. The Company also received net proceeds of approximately $9.6
million related to the capital contribution by SG as described above. The
proceeds of the SG contribution plus cash from operations were used to pay down
most of the outstanding borrowings under the revolving credit facility. In
connection with the new debt facilities, the Company incurred approximately $2.2
million of deferred financing costs during the nine months ended September 30,
1999. During the nine months ended September 30, 1998, the Company received
$80.0 million of proceeds from the issuance of the senior notes, which was used
to repay approximately $66.1 of outstanding debt. During that period, the
Company recorded approximately $4.5 million of deferred financing costs, which
is being amortized over the life of the senior notes.
In October 1999, the Company and the minority shareholders of Atlantic Guest,
Inc. ("Guest"), a subsidiary acquired as part of the VFC acquisition, verbally
agreed to sell their 7% share of Guest to the Company for a combination of cash
and stock.
Management believes that the Company's cash flow from operations, together with
its borrowing availability under the new credit facilities, will be adequate to
meet its anticipated capital requirements for the foreseeable future.
Inflation
Inflation has not been material to the Company's operations for the periods
presented.
Backlog
The Company's backlog of orders as of September 30, 1999, was approximately
$24.6 million. The Company includes in its backlog only those orders for which
it has accepted purchase orders. However, backlog is not necessarily indicative
of future sales. A substantial portion of the Company's sales have a three-to-
eight-week lead-time and, therefore, only a small portion of orders, in relation
to the annual
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sales of the Company, are in backlog at any point in time. In addition, purchase
orders can generally be cancelled at any time without penalty.
Other Matters
Year 2000 Compliance
The Company is heavily dependent upon computer technology to effectively carry
out its day-to-day operations. In addition, the Company is dependent on
suppliers and customers who also use computer technology in the conduct of their
business. The terms "Year 2000 issues" or "Year 2000 problems," or words of a
similar nature, refer to the potential for failure of computer applications as a
result of the failure of programs to properly recognize and handle dates beyond
the year 1999. In the case of the Company, such computer applications may
include customer order processing, inventory management, shipment of products,
manufacturing process controllers, internal financial systems, and other
information systems.
The Company's assessment of the possible consequences of Year 2000 compliance
(the "Year 2000" Plan) issues on its business, results of operations, or
financial condition has been completed. The Year 2000 Plan included (1)
upgrading the Company's information technology software and all applicable
software and embedded technology applications in its manufacturing equipment and
systems to become Year 2000 compliant, (2) assessing the Year 2000 readiness of
suppliers and customers, and (3) developing contingency plans, if practical, for
critical systems and processes. Implementation of the Year 2000 Plan was
undertaken at all the Company's operating subsidiaries with respect to various
operating and information systems. The Year 2000 Plan has been fully implemented
at all locations and with respect to all critical information systems.
Because the Company is dependent upon its suppliers and customers to
successfully and profitably operate its business, the Year 2000 Plan an
assessment process with respect to those vendors and customers deemed most
critical to the operations and business of the Company. The Company has received
positive responses from the vendors and customers it has contacted as to their
state of readiness regarding these issues.
The cost of the Year 2000 Plan included the purchase price of computer hardware
and software packages, fees for contract programmers, and the cost of internal
information technology resources. The costs of achieving Year 2000 compliance
was not material.
The Company expects no material adverse effect on its results of operations,
liquidity, or financial condition as a result of problems encountered in its own
business due to Year 2000 issues or the impact of Year 2000 problems on its
vendors or customers. However, the risks to the Company associated with Year
2000 issues could be significant. While the Company has performed its own
evaluation and testing of its information technology and non-information
technology systems, it is dependent to some extent on the assurances and
guidance provided by suppliers of technology and programming services as to Year
2000 compliance readiness.
Similarly, the Company's Year 2000 Plan calls for an ongoing analysis of the
possible effects of Year 2000 problems on its suppliers of materials and
non-information technology goods and services, as well as its customers and the
demand for its products. The Company has limited ability to independently verify
the possible effects of Year 2000 issues on its customers and suppliers.
Therefore, the Company's assumptions concerning the effect of Year 2000 issues
on its results of operations, liquidity, and financial condition rely on its
ability to analyze the business and operations of each of its critical vendors
or customers. This process, by the nature of the problem, is limited to such
persons' public statements, their responses to the Company's inquiries, and the
information available to the Company from third parties concerning the
industries or particular vendors or customers involved.
Risk also exists that despite the Company's best efforts, critical systems may
malfunction due to Year 2000 problems and disrupt its operations. The Company is
unable to determine at this time the nature or length of
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time for such possible disruption and therefore the potential materiality
thereof to its business or profitability.
Interruptions of communication services or power supply due to Year 2000
problems may cause affected locations to cease or curtail production or receipt
and shipment of materials and products. The Company is dependent on the
suppliers of power and communication services that no such disruptions occur.
As part of its Year 2000 Plan, the Company will continue to identify and
evaluate risks and possible alternatives, should various contingencies arise.
Should unforeseen circumstances result in substantial delay that may lead to
disruption of business, the Company will develop contingency plans where
possible and not cost prohibitive. To some extent the Company may not be able to
develop contingency plans, such as in the case of communication services or the
supply of power.
Forward-Looking Statements
This report contains forward-looking statements based on current expectations
that involve a number of risks and uncertainties. Generally, forward-looking
statements include words or phrases such as "management anticipates," "the
Company believes," "the Company anticipates," and words and phrases of similar
impact, and include but are not limited to statements regarding future
operations and business environment. The forward-looking statements are made
pursuant to safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The factors that could cause actual results to differ materially
from the forward-looking statements include the following: (i) industry
conditions and competition, (ii) operational risks and insurance, (iii)
environmental liabilities which may arise in the future and not covered by
insurance or indemnity, (iv) the impact of current and future laws and
government regulations, and (v) the risks described from time to time in the
Company's reports to the Securities and Exchange Commission.
Item 3 -- Quantitative and Qualitative Disclosures about Market Risk
The Company's primary exposure to market risk is related to the variability in
interest rates associated with the new $60-million term loan and the $40-million
revolving credit facility. Under both the term loan and the revolving credit
facility, the Company has the option to lock in a certain interest rate based on
either the base rate, which is equivalent to prime, or LIBOR plus an applicable
margin specified in the agreement. Principally all of the borrowings under the
term loan are locked in at approximately 8.7% until January 2000, when the
underlying LIBOR contract is up for renewal. The Company's borrowings under the
revolving line of credit are currently at approximately 8.7%. The senior notes
bear a fixed rate of interest and therefore are not subject to market risk. The
Company does not trade in derivative financial instruments.
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Part II - Other Information
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
3.5 Amended and Restated Limited Liability Company Operating Agreement
of KCLLC, dated as of September 1, 1999.
4.4 Supplemental Indenture, dated as of August 31, 1999, among KCLLC,
Finance Corp, Gits Manufacturing Co., LLC, Marine Industries, LLC,
Turner Electric, LLC, Hudson Lock, LLC, Elliott Manufacturing, LLC,
ESP Lock, LLC and United States Trust Company.
4.5 Amendment to Indenture dated August 31, 1999, among KCI and certain
of its subsidiaries and United States Trust Company.
10.25 Share Purchase Agreement among KCI, KCLLC, SGC Partners II LLC and
Keyhold, Inc., dated August 12, 1999.
10.26 Registration Rights Agreement of KCLLC, dated as of September 1,
1999, among KCI, KCLLC, SGC Partners II LLC and Keyhold, Inc.
10.27 Shareholders Agreement dated as of September 1, 1999, among KCLLC,
KCI, SGC Partners II LLC, Keyhold, Inc. and certain other
shareholders of KCI.
10.28 Amendment No. 2 to Amended and Restated Credit and Guaranty
Agreement, dated August 31, 1999 among KCLLC and Certain of its
Subsidiaries, Certain Lenders and Societe Generale.
10.29 Joinder Agreement, dated as of August 31, 1999, by Certain
Subsidiaries of KCLLC to Societe Generale.
99.1 Exhibit 27 - Financial Data Schedule
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY COMPONENTS, LLC
By: /s/ CLAY B. LIFFLANDER
Date: November 12, 1999 -------------------------------------
Clay B. Lifflander
President
Date: November 12, 1999 By: /s/ ROBERT B. KAY
------------------------------------
Robert B. Kay
Chief Financial Officer
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEY COMPONENTS FINANCE CORP.
By: /s/ CLAY B. LIFFLANDER
Date: November 12, 1999 -------------------------------------
Clay B. Lifflander
President
Date: November 12, 1999 By: /s/ ROBERT B. KAY
------------------------------------
Robert B. Kay
Chief Financial Officer
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AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING
AGREEMENT (the "Agreement") of KEY COMPONENTS, LLC, a
Delaware limited liability company (the "Company"), dated
as of September 1, 1999, by and among the Company and the
persons or entities who have executed the signature pages
hereto as members and who from time to time hereafter
execute this Agreement as members (collectively, the
"Members").
----------------------------------------------------------
The Company was formed on April 17, 1998.
The Company and Key Components, Inc., a New York corporation
("KCI"), are parties to an Operating Agreement dated April 17, 1998.
Pursuant to a Share Purchase Agreement dated August 12, 1999 (the
"Purchase Agreement"), among the Company, KCI, SGC Partners II LLC, a Delaware
limited liability company ("SG"), and Keyhold, Inc., a Delaware corporation and
a wholly-owned subsidiary of SG ("Sub") the Company has agreed to sell shares in
the Company ("Shares") in exchange for a capital contribution to the Company,
and to admit Sub as a member of the Company.
It is a condition to the purchase and sale of the Shares under the
Purchase Agreement that the Company, KCI and Sub enter into this amended and
restated operating agreement and that the Company, KCI, certain stockholders of
KCI, SG and Sub enter into the Shareholders Agreement, dated the date hereof,
governing the operation of the Company, KCI and their subsidiaries and certain
rights and obligations of the Members and stockholders of KCI (the "Shareholders
Agreement").
The parties agree as follows:
1. Formation. The Company was formed as a limited liability company
pursuant to the Delaware Limited Liability Company Act (the "Act") by the
execution and filing of a Certificate of Formation (the "Certificate of
Formation") with the Delaware Secretary of State ("Secretary of State") on April
17, 1998. The Company was qualified to do business in the State of New York by
the execution and filing of an Application for Authority with the New York
Department of State on May 18, 1998. The Members shall execute such further
documents and take such further actions as shall be necessary or appropriate to
comply with the requirements of law for the operation of a limited liability
company in any other jurisdiction in which the Company elects to conduct its
business.
2. Name. The name of the Company is Key Components, LLC.
3. Purpose. The purpose of the Company is to engage in any lawful
act or activity for which limited liability companies may be formed under the
Act and to engage in any and all activities necessary or incidental thereto.
<PAGE>
4. Principal Office. The Company's principal place of business shall
be located at 200 White Plains Road, 4th Floor, Tarrytown, New York 10591. The
Company may have such other business offices within or without the State of
Delaware as determined from time to time.
5. Term. The term of the Company began on the date of the filing of
the Certificate of Formation with the Secretary of State and shall continue
until dissolved in accordance with this Agreement.
6. Incorporation by Reference of the Shareholders Agreement. Certain
rights and obligations of the Members are set forth in the Shareholders
Agreement. The relevant terms of the Shareholders Agreement are hereby
incorporated into this Agreement by reference and made a part hereof, and shall
be deemed to be terms of this Agreement for the purpose of any interpretation
and enforcement of this Agreement under Section 18-111 of the Act. All reference
to "this Agreement" shall mean this Agreement and the Shareholders Agreement, to
the extent applicable.
7. Members; Shares; Percentage Interests; Classes. (a) The name,
present mailing address, facsimile number, taxpayer identification number,
percentage interest in the Company's outstanding equity (the "Percentage
Interest"), class of Shares held (the "Class") and amount of the capital
contributions of each Member, as of the date hereof, are set forth on Schedule
I.
(b) Each Member shall, upon becoming a Member, acquire an equity
interest in the Company. Members shall be allocated a specified number of Shares
in respect of their equity interests. The total number of Shares allocated to a
Member at any time is used to determine such Member's Percentage Interest. The
numbers of Shares allocated to Members in respect of their respective equity
interests in the Company at any time are set forth on Schedule I, as amended
from time to time.
(c) The maximum number of Shares that the Company is authorized to
have allocated to Members at any one time is 5,000,000 Shares.
(d) The Percentage Interest of each Member at any time is calculated
by dividing (x) the total number of Shares allocated to such Member at such time
by (y) the total number of Shares allocated to all Members at such time and
expressing the result as a percentage. The sum of the Percentage Interests of
all Members at any time shall be 100%.
(e) Whenever a new Member is admitted, Schedule I shall be amended
to give effect to any changes in the number of Shares allocated to, and the
Percentage Interests of, all Members for succeeding periods determined on the
basis of the terms upon which the new Member is admitted.
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(f) Whenever a Member withdraws, Schedule I shall be amended to give
effect to the changes in the number of Shares allocated to, and the Percentage
Interests of, all Members for succeeding periods resulting from the withdrawal.
(g) The Members are hereby classified into two Classes: Class A
Members and Class B Members. With respect to the Shares issued to each Member on
or before the date hereof, such Member shall be entitled to the rights and
subject to the restrictions which this Agreement provides or imposes on the
Class to which the Member belongs. Class A includes all Members identified as
Class A Members on Schedule I and all Members subsequently designated as Class A
Members in accordance with this Agreement. Class B includes all Members
identified as Class B Members on Schedule I and all Members subsequently
designated as Class B Members in accordance with this Agreement. In connection
with the issuance of additional Shares, whether to existing Members or to new
Members, the Members may create or designate additional Classes, having such
relative rights, powers, duties, preferences and limitations as the Members
shall determine, subject to the limitations set forth in this Agreement and
prescribed by law. Initially, KCI shall be the Class A Member and Sub shall be
the Class B Member.
8. Capital Contributions; Capital Accounts.
(a) Capital Contributions. Each Member has contributed, or shall
contribute, to the Company, as such Member's initial capital contribution, cash
or property in the amount set forth on Schedule I. Except as set forth below or
as otherwise provided by applicable law, no Member shall be required to make
additional capital contributions without such Member's consent or restore any
deficit to such Member's Capital Account. Except with the consent of the Board
of Directors (as defined below), no Member shall be entitled to make any
additional capital contribution or to make any capital contribution in property
other than cash.
(b) Capital Accounts. There shall be established and maintained for
each Member a separate capital account ("Capital Account"). There shall be added
to the Capital Account of each Member (i) the amount of any money, and the fair
market value of any other property, contributed by the Member to the Company as
capital, (ii) income and gain allocated to the Member by the Company in
accordance with Section 9 and (iii) all other items properly allocated to the
Capital Account of such Member as required by the regulations promulgated under
Section 704(b) and Section 704(c) (the "Section 704 Regulations") of the
Internal Revenue Code of 1986, as amended (such Code, as amended from time to
time or any successor federal income tax legislation, the "Code") herein, and
there shall be subtracted from such Capital Account (x) the amount of any money,
and the fair market value of any other property, distributed to the Member, (y)
losses and expenses allocated to the Member by the Company in accordance with
Section 9 herein, and (z) all other items properly charged to the Capital
Account of such Member as required by the Section 704 Regulations. If property
other than cash is distributed to the Members (whether in liquidation of the
Company or otherwise), for purposes of computing Capital Accounts the property
will be deemed to have been sold and distributed by the Company for its fair
market value and the income, gain, loss or expense from the deemed sale will be
allocated in accordance with Section 9 herein. All capital,
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whenever contributed, shall be subject in all respects to the risks of the
business and subordinate in right of payment to the claims of present or future
creditors of the Company and of any successor firm in accordance with this
Agreement.
(c) Interest. No interest shall be paid to any Member or accrue by
reason of the amount of such Member's capital contribution or Capital Account.
(d) Adjustments. The Members intend to comply with the Section 704
Regulations in all respects, and to agree to adjust their Capital Accounts to
the full extent that the Section 704 Regulations may apply (including, without
limitation, applying the concepts of the minimum gain chargebacks and qualified
income offsets). To this end, each Member agrees to make any Capital Account
adjustment that, in the opinion of tax counsel selected by the Board of
Directors, is necessary or appropriate to maintain equality between the
aggregate Capital Accounts of the Members and the amount of capital of the
Company reflected on its balance sheet (as computed for book purposes), as long
as such adjustments are consistent with the underlying economic arrangement of
the Members and are based on, wherever practicable, and consistent with federal
tax accounting principles. Except as described in this Section 8, no adjustment
shall be made to a Member's Capital Account without the prior unanimous written
consent of the Members.
(e) Market Value Adjustments. Each Member agrees to make appropriate
adjustments to the Capital Account of such Member upon any transfer of Shares,
including those that apply upon any of the events set forth in Section
1.704-(b)(2)(iv)(f)(5) of the Regulations and in the manner described in
Sections 1.704-1(b)(2)(iv)(f) and (g) of the Regulations.
(f) Transfer. Each Member agrees that, if all or any part of its
Shares are transferred in accordance with this Agreement, except to the extent
otherwise provided in the Section 704 Regulations, upon admission of the
transferee as a Member, the Capital Account, and Percentage Interest of the
transferor that is attributable to the transferred Shares will carry over to the
transferee.
(g) Withdrawal of Capital. Except as specifically provided in this
Agreement, no Member will be entitled to withdraw all, or any part of, such
Member's capital contribution or capital account from the Company prior to the
Company's dissolution and liquidation. When such withdrawal is permitted, no
Member will be entitled to demand a distribution of property other than money.
9. Allocations.
(a) In General. Except as provided in Sections 9(c) and 9(d) below,
each item of income, gain, loss or expense of the Company for any Allocation
Period (as defined below) shall be allocated in accordance with the Percentage
Interests of the Class A and Class B Members as set forth on Schedule I. Income,
gain, loss and expense shall be referred to for this purpose as "Net Profits" or
"Net Losses," as applicable, and shall be determined in the same manner used in
determining the Company's taxable income or loss for federal income tax
purposes, except that:
(i) there shall be added any income exempt from federal income tax;
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(ii) there shall be subtracted any expenditures that are neither
deductible nor chargeable to the Capital Accounts;
(iii) in the case of any property contributed as capital, fair
market value (as of the most recent such valuation and adjusted pursuant
to this clause (iii)) rather than adjusted tax basis shall be used to
compute gain or loss resulting from any disposition of the property and
depreciation, amortization and other cost recovery deductions and similar
items of income or deduction in respect of such property shall be
calculated as if the unadjusted tax basis of the asset were such fair
market value;
(iv) unrealized gain or loss attributable to any property
distributed to Members shall be deemed realized immediately prior to the
distribution; and
(v) appropriate adjustments shall be made to reflect any deemed sale
or purchase of assets and deemed realization of items of income, gain,
loss or expense as a result of a revaluation of assets upon the admission,
withdrawal or expulsion of a Member as provided for herein.
(b) Allocation Periods. Allocations under paragraph (a) of this
Section 9 shall be made for each period (an "Allocation Period") commencing with
the day after an Allocation Event (or, in the case of the first Allocation
Period, commencing with the date of the filing of the Certificate of Formation
with the Secretary of State) and ending on the date of the next succeeding
Allocation Event. An "Allocation Event" shall mean any one of the following:
(i) the end of a calendar year;
(ii) the admission or withdrawal of a Member;
(iii) the termination of the Company for federal income tax
purposes;
(iv) the dissolution of the Company; and
(v) any other event which the Board of Directors, in its discretion,
designates as an "Allocation Event."
(c) Deficit Capital Account and Nonrecourse Debt Rules.
Notwithstanding the general allocation rules set forth in Section 9(a), the
following special allocation rules shall apply under the circumstances
described.
(i) Limitation on Loss Allocations. Items of loss, deduction or
expense shall be allocated to the Capital Account of any Member only until
such allocation would reduce such Member's Adjusted Capital Account to
zero, and any excess amounts shall be specially allocated pro rata to any
other Member or Members to the extent that such special allocation would
not also create a negative balance in such other Member's or Members'
Capital Accounts (such special allocation shall be referred to herein as a
"Special Loss Allocation"). In the event of any Special Loss Allocations
to a Member or Members, all
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future allocations of income shall first be made pro rata to the Member or
Members who have received such Special Loss Allocations to the extent of
such Member's or Members' "Special Loss Balance." The term "Special Loss
Balance" means, as of any date with respect to any Member, the amount by
which the aggregate Special Loss Allocations made to such Member's Capital
Account exceeds the sum of special income allocations made to such
Member's Capital Account.
(ii) (A) Qualified Income Offset. If in any Fiscal Year a Member
unexpectedly receives an adjustment, allocation or distribution described
in Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items
of income and gain shall be specifically allocated to such Member in an
amount and manner sufficient to eliminate any deficit in the Adjusted
Capital Account of such Member as quickly as possible; provided that an
allocation pursuant to this Section 9(c)(ii)(A) shall be made only if and
to the extent that a deficit would exist in such Member's Adjusted Capital
Account after all other allocations provided for in this Section 9 have
been tentatively made and as if this Section 9(c)(ii)(A) were not in this
Agreement.
(B) Gross Income Allocation. If any Member has a deficit Adjusted
Capital Account at the end of any Fiscal Year, such Member shall be
specially allocated items of income and gain in the amount of such excess
as quickly as possible; provided that an allocation pursuant to this
Section 9(c)(ii)(B) shall be made only if and to the extent that a deficit
would exist in such Member's Adjusted Capital Account after all other
allocations provided for in this Section 9 have been tentatively made and
as if Sections 9(c)(ii)(A) and 9(c)(ii)(B) herein were not in this
Agreement.
(iii) Company Minimum Gain Chargeback. If there is a net decrease in
Company Minimum Gain during any Fiscal Year, each Member shall be
specially allocated items of income and gain for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in proportion to, and to the
extent of, an amount equal to such Member's share of the net decrease in
Company Minimum Gain during such Fiscal Year, subject to the exceptions
set forth in Section 1.704-2(f)(2), (3) and (5) of the Regulations;
provided that, if the Company has any discretion as to an exception set
forth in Section 1.704-2(f)(5), the Tax Matters Partner (as defined in
Section 21 of this Agreement) with the consent of the other Members shall
exercise such discretion on behalf of the Company. The Tax Matters Partner
shall upon the direction of the Board of Directors, if the application of
this Section 9(c)(iii) hereof would cause a distortion in the economic
arrangement among the Members, ask the Commissioner of the Internal
Revenue Service to waive the Company Minimum Gain chargeback requirements
pursuant to Section 1.704-2(f)(4) of the Regulations. To the extent that
this Section is inconsistent with Section 1.704-2(f) or Section 1.704-2(k)
of the Regulations or incomplete with respect to such Sections of the
Regulations, the Company Minimum Gain chargeback provided for herein shall
be applied and interpreted in accordance with such Sections of the
Regulations.
(iv) Member Minimum Gain Chargeback. If there is a net decrease in
Member Minimum Gain during any Fiscal Year, each Member who has a share of
the
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Member Minimum Gain attributable to Member Nonrecourse Debt shall be
allocated items of income and gain for such Fiscal Year (and, if
necessary, for subsequent Fiscal Years) in proportion to, and to the
extent of, an amount equal to such Member's share of the net decrease in
Member Minimum Gain during such Fiscal Year, subject to the exceptions set
forth in Sections 1.704-2(f)(2), (3), and (5) of the Regulations as
referenced by Section 1.704-2(i)(4) of the Regulations. The Tax Matters
Partner shall upon the direction of the Board of Directors, if the
application of this Section 9(c)(iv) hereof would cause a distortion in
the economic arrangement among the Members, ask the Commissioner of the
Internal Revenue Service to waive the Member Minimum Gain Chargeback
requirement pursuant to Section 1.704-2(i)(4) of the Regulations. To the
extent that this Section 9(c)(iv) hereof is inconsistent with Sections
1.704-2(i)(4) or 1.704-2(k) of the Regulations or incomplete with respect
to such Sections of the Regulations, the Member Minimum Gain Chargeback
provided for herein shall be applied and interpreted in accordance with
such Sections of the Regulations.
(v) Member Nonrecourse Deductions. Member Nonrecourse Deductions
shall be allocated among the Members in accordance with the ratios in
which the Members share the economic risk of loss for the Member
Nonrecourse Debt that gave rise to those deductions as determined under
Section 1.752-2 of the Regulations. This allocation is intended to comply
with the requirements of Section 1.704-2(i) of the Regulations and shall
be interpreted and applied consistent therewith.
(vi) Limited Effect and Interpretation. The special rules set forth
in Sections 9(c)(i), (ii), (iii), (iv) and (v) hereof (the "Regulatory
Allocations") shall be applied only to the extent required by applicable
Regulations for the resulting allocations provided for in this Section
9(c), taking into account such Regulatory Allocations, to be respected for
federal income tax purposes. The Regulatory Allocations are intended to
comply with the requirements of Sections 1.704-1(b), 1.704-2 and 1.752-1
through 1.752-5 of the Regulations and shall be interpreted and applied
consistently therewith.
(vii) Curative Allocations. The Regulatory Allocations may not be
consistent with the manner in which the Members intend to divide the Net
Profits, Net Losses and similar items. Accordingly, Net Profits, Net
Losses and other items will be reallocated among the Members in a manner
consistent with Sections 1.704-1(b) and 1.704-2 of the Regulations so as
to negate as rapidly as possible any deviation from the manner in which
Net Profits, Net Losses and other items are intended to be allocated among
the Members pursuant to Section 9(a) that is caused by the Regulatory
Allocations.
(viii) Change in Regulations. If the Regulations incorporating the
Regulatory Allocations are hereafter changed or if new Regulations are
hereafter adopted, and such changed or new Regulations, in the opinion of
independent tax counsel for the Company, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in
order to avoid a significant risk that a material portion of any
allocation set forth in this Section 9 would not be respected for federal
income tax purposes, the Members shall make such reasonable amendments to
this Agreement as, in the opinion of such counsel, are necessary or
desirable, taking into account the interests of the Members as
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a whole and all other relevant factors, to avoid or reduce significantly
such risk to the extent possible without materially changing the amounts
allocable to any Member pursuant to this Agreement and without changing
the amounts distributable hereunder.
(d) Special Allocation to Account for Additional Investment.
Notwithstanding the general allocation rules set forth in Section 9(a), in the
event that any additional Shares in the Company are issued to Sub pursuant to
Section 1.1 (b) of the Purchase Agreement: (1) Sub's Capital Account shall be
increased by the amount of cash paid for such additional Shares; (2) the
Percentage Interests of the Class A and Class B Members shall be recalculated
pursuant to Sections 7(b) and 7(d) of this Agreement; and (3) the amount of any
Net Profits or Net Losses of the Company for any current or future Allocation
Period shall be allocated 100% to either the Class A Members (in accordance with
their Percentage Interests) or to the Class B Members (in accordance with their
Percentage Interests), as appropriate, until the aggregate Capital Account
balance of the Class B Members as a percentage of the aggregate Capital Account
balances of all Members is equal to the aggregate Percentage Interest held by
the Class B Members.
(e) Admissions and Withdrawals. In the discretion of the Board of
Directors, in case any person shall be admitted as a new Member to the Company,
or any Member shall withdraw from the Company or shall die, the Company shall be
deemed to have sold its assets for their respective fair market values, as
determined in good faith by the Board of Directors, and concurrently repurchased
such assets, on the date of such event for the same consideration.
(f) Tax Allocations.
(i) Except as otherwise provided in this subsection (i), as of
the end of each Fiscal Year of the Company, the Company's income and expense and
capital gain or loss, all as determined for federal income tax purposes, shall
be allocated for tax purposes among the Members in a manner consistent with the
economic allocations of Sections 9(a), 9(b), 9(c) and 9(d) above and giving
effect to Section 704(b) and (c) of the Code and the Section 704 Regulations and
Section 706(c)(i) of the Code as determined by the Board of Directors; provided,
that without the consent of the Class A Members the Company shall not use any
method other than the traditional method, as described in Treas. Reg. Section
1.704-3(b)(1), for making allocations under Section 704(c) of the Code.
(ii) If a Member shall make additional capital contributions
to the Company as of a date other than the first day of a Fiscal Year, withdraw
from the Company or make a withdrawal from such Member's Capital Account as of a
date other than the last day of a fiscal year, the Board of Directors shall make
such adjustments in the determination and allocation among the Members of
income, gain, loss, deduction or credit for tax purposes as the Board of
Directors shall deem necessary in their reasonable judgment to equitably take
into account such interim event and applicable provisions of law.
(iii) In determining a Member's allocable share of the
Company's taxable income, the Member's allocable share of each item of Net
Profits and Net Losses shall be properly adjusted to reflect the difference
between such Member's share of the adjusted tax basis and the book value of the
Company's assets used in determining such item. With respect to depreciation, in
determining the taxable income allocable to such Member, Net Profits and Net
Losses allocable to
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such Member shall be adjusted by eliminating depreciation allocable to such
Member and substituting therefor tax depreciation allocable to such Member
determined by reference to such Member's share of the tax basis of the Company's
assets. This provision is intended to comply with the requirements of Section
704(c) of the Code and Section 1.704-1(b)(2)(iv)(f) of the Regulations and shall
be interpreted and applied consistently therewith.
(iv) Any gain recognized from any disposition of a Company
asset that is treated as ordinary income because it is attributable to the
recapture of any depreciation or amortization shall be allocated among the
Members in the same ratio as the prior allocations of Net Profits, Net Losses or
other items that included such depreciation or amortization, but not in excess
of the gain otherwise allocable to each Member.
(v) All tax credits shall be allocated among the Members in
accordance with applicable law.
(g) Section 754 Election. The Tax Matters Partner shall, subject to
the direction of the Board of Directors, make an election to adjust the basis of
the Company's assets pursuant to Section 754 of the Code and the Treasury
Regulations promulgated thereunder.
(h) Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 9 and hereby agree to be
bound by the provisions of this Section 9 in reporting their shares of the
Company's profits, gains, income, losses, deductions, credits and other items
for income tax purposes.
(i) Certain Defined Terms. The following terms shall have the
meaning assigned below:
"Adjusted Capital Account" means with respect to any Member, the
balance in such Member's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following adjustments: (i) such
Capital Account shall be deemed to be increased by any amounts that such
Member is obligated to restore to the Company (pursuant to this Agreement
or otherwise) or is deemed to be obligated to restore pursuant to (A) the
penultimate sentence of Section 1.704-2(g)(1) of the Regulations, or (B)
the penultimate sentence of Section 1.704-2(i)(5) of the Regulations or
(C) Section 1.704-1(b)(2)(ii)(c) of the Regulations; and (ii) such Capital
Account shall be deemed to be decreased by the items described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. The foregoing
definition of Adjusted Capital Account is intended to comply with the
provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted and applied consistently therewith.
"Company Minimum Gain" means the aggregate amount of gain (of
whatever character), determined for each Nonrecourse Liability of the
Company, that would be realized by the Company if it disposed of the
Company property subject to such liability in a taxable transaction in
full satisfaction thereof (and for no other consideration) and by
aggregating the amounts so computed, determined in accordance with
Sections 1.704-2(d) and (k) of the Regulations.
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"Fiscal Year" means the fiscal and taxable year of the Company which shall
be the year ending December 31.
"Member Minimum Gain" means the aggregate amount of gain (of whatever
character), determined for each Member Nonrecourse Debt, that would be realized
by the Company if it disposed of the Company property subject to such Member
Nonrecourse Debt in a taxable transaction in full satisfaction thereof (and for
no other consideration), determined in accordance with the provisions of
Sections 1.704-2(i)(3) and (k) of the Regulations for determining a Member's
share of minimum gain attributable to a Member Nonrecourse Debt.
"Member Nonrecourse Debt" has the meaning ascribed to the term "partner
non-recourse debt" specified in Section 1.704-2(b)(4) of the Regulations.
"Member Nonrecourse Deductions" has the meaning ascribed to the term
"partner nonrecourse deductions" specified in Section 1.704-2(i)(2) of the
Regulations.
"Nonrecourse Liability" means any Company liability (or portion thereof)
for which no Member bears the economic risk of loss for such liability under
Section 1.752-2 of the Regulations.
10. Distributions.
(a) Income Tax Distributions.
(i) Pro Rata Distributions. The Board of Directors shall, at least
five days prior to the date (the "Tax Distribution Date") on which any
Member (or any stockholder of KCI) is required to make any estimated tax
payments with respect to an Estimation Period, cause the Company to make a
pro rata cash distribution to each Member equal to the greater of (x) the
product of (1) such Member's Percentage Interest and (2) the Quarterly Pro
Rata Tax Liability of the Company, or (y) the Grossed-Up Minimum Amount.
An "Estimation Period" shall mean the period for which any Member (or any
stockholder of KCI) is required to estimate for Federal income tax
purposes his allocation of taxable income from the Company during a
calendar year in connection with determining his estimated Federal income
tax liability for such period. The "Quarterly Pro Rata Tax Liability of
the Company" shall equal (A) the product of (x) the taxable income of the
Company for any Estimation Period that is allocated to the Members'
Capital Accounts as a result of allocations pursuant only to Section 9(a)
of this Agreement and (y) the Tax Percentage, reduced by (B) to the extent
not previously taken into account, any income tax benefit attributable to
the tax items of the Company and its subsidiaries which could be legally
realized (without regard to actual realization) by the Members with
respect to tax items of the Company and its subsidiaries in the current or
any prior taxable year, or portion thereof, computed at the applicable Tax
Percentage for the year that such benefit is taken into account for
purposes of this computation. "Tax Percentage" means, for a particular
taxable year, the highest effective marginal combined rate of Federal,
state and local income tax, imposed (1) for any period when KCI is a
pass-through entity for Federal income tax
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purposes, on any stockholder of KCI and (2) for any period when KCI is not
a pass-through entity for Federal income tax purposes, on a Delaware
corporation that owns Shares in the Company. The "Grossed-Up Minimum
Amount" is the minimum amount, based on the prior tax year's tax liability
of Sub or any stockholder of KCI (taking into account only tax items
attributable to the Company (including tax items specially allocated under
clause (ii), below)) the pro rata distribution of which is required to
avoid any underpayment penalties or interest by Sub and any stockholder of
KCI (taking into account only tax items attributable to the Company
(including tax items specially allocated under clause (ii) below)).
(ii) Distributions For Special Allocations. If for any Estimation
Period a Member receives a special allocation ("Special Allocation") of
taxable income as a result of allocations other than pursuant to Section
9(a), then at least five days prior to the Tax Distribution Date for the
Estimation Period the Board of Directors shall cause the Company to make a
cash distribution to such Member equal to (A) the product of (1) the
amount of taxable income Specially Allocated to such Member for the
Estimation Period and (2) such Member's Tax Rate, reduced by (B) to the
extent not previously taken into account (including with respect to pro
rata distributions under Section 10(a)(i)) such Member's allocable share
of any income tax benefit attributable to the tax items of the Company and
its subsidiaries which could be legally realized (without regard to actual
realization) by that Member with respect to tax items of the Company and
its subsidiaries in the current or any prior taxable year, or portion
thereof, computed at the Member's Tax Rate for the year that such benefit
is taken into account for purposes of this computation. A Member's "Tax
Rate" shall mean (A) in the case of the Class A Member when it is a
pass-through entity for Federal income tax purposes, the highest effective
combined rate of Federal, state and local income tax imposed on any
stockholder of KCI (taking into account any taxes imposed directly on KCI
pursuant to Section 1374 of the Code), and (B) in the case of the Class A
Member when it is not a pass-through entity for Federal income tax
purposes or the Class B Member, the highest effective combined rate of
Federal, state and local income tax imposed on a Delaware corporation that
owns Shares in the Company.
(b) Deemed Tax Distributions. To the extent the Company is required
by law to make tax payments on behalf of a Member (e.g. backup withholding or
withholding with respect to Members who are neither citizens nor residents of
the United States), such payments shall be treated as distributions to the
Member on whose behalf the payment is made.
(c) Other Distributions. Except as otherwise provided in paragraphs
(a) and (b) of this Section 10 or as otherwise required by the Act,
distributions to Members shall be made at such time and in such form and amounts
as the Board of Directors shall from time to time determine pro rata in
accordance with the respective Percentage Interest of each Member.
(d) Capital Return. Any Member who has received the return of all or
any part of such Member's capital contribution pursuant to any distribution that
has been wrongfully or erroneously made to such Person in violation of the Act,
the Certificate of Formation or this Agreement will be required to return such
distribution to the Company if notice of an obligation to
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return such amount is given to such Member (or former Member) within three years
of the date of such return or distribution.
11. Management.
(a) Board of Directors; Unlimited Term of Office. Except as
otherwise provided herein or in the Act, the Company shall be governed by a
board of directors (the "Board of Directors"). The Board of Directors shall be
comprised of the seven members who shall be the members of the Board of
Directors of KCI. The term of office of each Director shall be unlimited. All of
the provisions of the Shareholders Agreement relating to the operation of the
Board of Directors of KCI, including Section 5(c), shall be equally applicable
to the Board of Directors of the Company.
(b) Management by Board of Directors. The property, business and
affairs of the Company shall be managed by its Board of Directors and in
accordance with the terms of this Agreement. Except where the Members' approval
is expressly required by this Agreement or by the Act, the Board of Directors
shall have full authority, power and discretion to make all decisions with
respect to the Company's business and to perform such other services and
activities as set forth in this Agreement. Each Director shall be an agent of
the Company for its business purposes and may bind the Company in the ordinary
course.
(c) No Management by Members. Except as otherwise expressly provided
in this Agreement or the Act, the Members shall have no right to control or
manage, and shall not take part in the control or management of, the property,
business or affairs of the Company.
(d) Execution and Delivery of Instruments. Each Director shall have
the full power to execute and deliver, for and on behalf of the Company, any and
all documents and instruments which may be necessary or desirable to carry on
the business of the Company, including any and all deeds, contracts, leases,
mortgages, deeds of trust, promissory notes, security agreements and financing
statements pertaining to the Company's assets or obligations, and to authorize
the confession of judgment against the Company, and no other signature shall be
required for any such instrument or document to bind the Company; provided that
the execution or delivery of the document or instrument is an authorized act of
the Board of Directors taken in accordance with this Agreement.
(e) No Salaries, Fees or Bonuses; Reimbursement of Expenses. (i)
Except as otherwise provided in this Agreement or as approved by the Board of
Directors, neither the Directors nor the Members shall receive any salaries,
fees, bonuses, remunerations, benefits or other compensation from the Company
for their services to the Company as Directors or otherwise.
(f) Liability for Certain Acts. A director of the Company shall
perform his or her duties in good faith and in a manner he or she reasonably
believes to be in the best interests
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of the Company. A director who so performs such duties shall not have any
liability by reason of being or having been a director. Without limiting the
generality of the preceding sentence, a director does not in any way guaranty
the return of any capital contribution to a Member or a profit for the Members
from the operations of the Company.
(g) No Exclusive Duty to Company. The directors shall not be
required to manage the Company as their sole and exclusive functions and they
may have other business interests and may engage in other activities in addition
to those relating to the Company. Neither the Company nor any Member shall have
any right pursuant to this Agreement to share or participate in such other
business interests or activities of the directors or to the income or proceeds
derived therefrom. The directors shall incur no liability to the Company or any
Member as a result of engaging in any other business interests or activities.
(h) Appointment of Officers, etc. The officers of the Company shall
be the same individuals and shall hold the same offices as the officers of KCI.
12. Voting Rights of Members; Meetings of Members.
(a) Voting Rights of Members: In General. Except as specifically
provided by this Agreement, or as required by the Act, Members shall not be
entitled to vote on any matter.
(b) Meetings of Members. A meeting of the Members may be called
annually by the Board of Directors. Meetings of the Members shall be held at the
Company's principal place of business or at any other place agreed to by the
Board of Directors.
(c) Act of Members. Except as specifically provided by this
Agreement, or as required by the Act, the affirmative vote of Members holding a
majority of the Percentage Interests shall be the act of the Members.
(d) Written Consent. In lieu of holding a meeting, the Members may
vote or otherwise take action by a written instrument indicating the consent of
Members holding such Percentage Interests as would be required for Members to
take action under this Agreement. If such consent is not unanimous, notice shall
be given to those Members who have not consented in writing.
13. Admission of Additional Members. (a) One or more additional
Members of the Company may be admitted to the Company at any time or from time
to time in accordance with the terms of this Agreement. Each new Member shall be
required to become a party to and be bound by this Agreement.
(b) The Company may issue Membership Interests (including warrants,
options, rights or convertible instruments), from time to time in one or more
classes, or one or more series of such classes, which classes or series shall
have, subject to the provisions of applicable law, such designations,
preferences and relative, participating, optional or other
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special rights as shall be fixed by the unanimous decision of the Board,
including with respect to (a) the allocation of income, gain, loss or expense to
each such class or series; (b) the right of each such class or series to share
in distributions; (c) the rights of each such class or series upon dissolution
and liquidation of the Company; (d) the price at which, and the terms and
conditions upon which, each such class or series of Membership Interests may be
redeemed by the Company, if any such class or series is so redeemable; (e) the
rate at which, and the terms and conditions upon which, each such class or
series may be converted into another class or series of Membership Interests;
and (f) the right of each such class or series to vote on, or take action with
respect to, Company matters, including matters relating to the relative rights,
preferences and privileges of such class or series, to the extent permitted by
applicable law, if any such class or series is granted such voting rights.
14. Dissolution. Subject to the provisions of Section 15 of this
Agreement, the Company shall be dissolved and its affairs wound up and
terminated upon the first to occur of the following:
(a) December 31, 2048;
(b) The determination of all of the Members to dissolve the Company;
or
(c) The occurrence of an event of withdrawal of a Member or any
other event causing a dissolution of the Company under Section 18-801 of the
Act.
15. Continuation of the Company. Notwithstanding the provisions of
Section 14(c) hereof, the occurrence of an event of withdrawal of a Member shall
not dissolve the Company if within ninety days after the occurrence of such
event of withdrawal, the business of the Company is continued by the agreement
of all of the remaining Members.
16. Limitation on Liability. The debts, obligations and liabilities
of the Company, whether arising in contract, tort or otherwise, shall be solely
debts, obligations and liabilities of the Company, and no Member of the Company
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Member of the Company.
17. Further Assurances. Each of the Members shall hereafter execute
and deliver such further instruments and documents and do such further acts and
things as may be required or useful to carry out the intent and purpose of this
Agreement, including, without limitation, executing and delivering any amended,
modified or restated limited liability company agreements.
18. Indemnification. To the fullest extent permitted by law, the
Company shall indemnify and hold harmless the Board of Directors and Members and
their respective affiliates, directors, members, shareholders, partners,
officers, employees and agents (collectively, the "Indemnitees") from and
against any and all liabilities, judgments, claims,
14
<PAGE>
settlements, losses, damages, fees, liens, taxes, penalties, obligations and
expenses, including reasonable attorneys' fees (collectively, "Losses") paid or
incurred by any such Indemnitee in connection with the conduct of the Company's
business in accordance with this Agreement and the Act, except that no
Indemnitee shall be entitled to indemnification in respect of any Loss incurred
by the Indemnitee by reason of the Indemnitee's gross negligence, willful
misconduct, bad faith or a knowing violation of law. Any indemnity under this
Section shall be provided out of and to the extent of Company assets only and no
Member shall have any personal liability on account thereof. All rights of an
Indemnitee under this Section shall survive the dissolution of the Company and
the withdrawal of the Indemnitee from membership in the Company.
19. Withdrawal. Except as otherwise provided in this Agreement, no
Member shall have the right to withdraw from the Company except with the consent
of the other Member and upon such terms and conditions as may be specifically
agreed upon between such other Member and the withdrawing Member. The provisions
of this Agreement with respect to distributions upon withdrawal are exclusive
and no Member shall be entitled to claim any further or different distribution
upon withdrawal under Section 18-604 of the Delaware Act or otherwise.
20. Liquidation.
(a) In General. Upon dissolution of the Company, the Board of
Directors or other persons selected by the Board of Directors shall be the
liquidators of the Company (collectively, the "Liquidators"). The Liquidators
shall liquidate the assets of the Company and apply and distribute the proceeds
of such liquidation in the following order of priority, unless otherwise
required by mandatory provisions of applicable law:
(i) to creditors of the Company (including Members); and
(ii) to the Members, to the extent of and in proportion to the
balances in their respective Capital Accounts, after adjustment to reflect
any income, gain, loss or expense for the fiscal year in which such
liquidation occurs.
(b) Reserve for Contingent Liabilities. Notwithstanding paragraph
(a) of this Section, the Liquidators may place in escrow a reserve of cash or
other assets of the Company for contingent liabilities in an amount determined
by the Liquidators to be appropriate for such purposes.
21. Tax Matters. The Members and the Company intend that the Company
will be treated as a partnership for United States federal income tax purposes
and will file such forms as may be necessary or appropriate in furtherance
thereof. The Members and former Members shall, on each such person's tax return,
treat each item of income, gain, loss or expense in a manner consistent with the
treatment of such item on the Company's tax returns and reports. KCI shall act
as the tax matters partner for the Company (the "Tax Matters Partner") and shall
be
15
<PAGE>
generally authorized to prepare, execute and file tax returns on behalf of the
Company and to represent the Company before the Internal Revenue Service and any
state or local taxing authority.
22. Amendments.
(a) In General. Except as otherwise provided by this Agreement or
the Act, this Agreement may be amended by the unanimous vote of the Members and
only if set forth in a written instrument signed by each Member.
(b) Amendments by Board of Directors. Notwithstanding anything to
the contrary contained in this Section, the Board of Directors may modify the
provisions of this Agreement without the consent of the Members if, upon advice
of counsel to the Company, the modification is necessary to cause the Company to
be or to continue to be classified as a partnership for federal income tax
purposes.
(c) Consent in Certain Cases. Notwithstanding anything to the
contrary contained in this Section, without the consent of the affected Member,
no amendment to this Agreement may (i) increase the liability of such Member
beyond the liability of such Member expressly set forth in this Agreement or
under applicable law, or modify or affect the limited liability of such Member,
(ii) except as provided in this Agreement, reduce the Percentage Interest or
right to distributions from the Company of such Member, (iii) except as provided
in this Agreement, change the method of calculating the amount of allocations
made to such Member or (iv) otherwise adversely affect the rights of such
Member.
23. Counterparts. This Agreement may be executed in any number of
counterparts and each such counterpart hereof shall together be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
COMPANY:
KEY COMPONENTS, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
MEMBERS:
KEY COMPONENTS, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEYHOLD, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
COMPANY:
KEY COMPONENTS, LLC
By:
-------------------------------------
Name:
Title:
MEMBERS:
KEY COMPONENTS, INC.
By:
-------------------------------------
Name:
Title:
KEYHOLD, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
<PAGE>
Schedule I
to
Limited Liability Company Operating Agreement
of
KEY COMPONENTS, LLC
<TABLE>
<CAPTION>
Percentage
Name of Member Class of Shares Address and Facsimile Number Capital Account Interest Shares
-------------- --------------- ---------------------------- --------------- -------- ------
<S> <C> <C> <C> <C> <C>
1. Key Components, Inc. Class A (100%) $80,744,101 88.98% 1,113,117
2. Keyhold, Inc. Class B (100%) $10,000,000 11.02% 137, 931
</TABLE>
<PAGE>
SUPPLEMENTAL INDENTURE, dated as of August 31, 1999, among KEY COMPONENTS
LLC, a Delaware limited liability company (the "Company"), KEY COMPONENTS
FINANCE CORP., a Delaware corporation ("Finance Corp." and, together with the
Company, the "Issuers"), GITS MANUFACTURING COMPANY, LLC, a Delaware limited
liability company, MARINE INDUSTRIES COMPANY, LLC, a Delaware limited liability
company, TURNER ELECTRIC, LLC, a Delaware limited liability company, HUDSON
LOCK, LLC, a Delaware limited liability company, B.W. ELLIOTT MANUFACTURING CO.,
LLC, a New York limited liability company, and ESP LOCK PRODUCTS, LLC, a
Delaware limited liability company (each of Gits Manufacturing Company, LLC,
Marine Industries Company, LLC, Turner Electric, LLC, Hudson Lock, LLC, B.W.
Elliott Manufacturing Co., LLC, ESP Lock Products, LLC a "New Subsidiary
Guarantor" and collectively referred to herein as the "New Subsidiary
Guarantors") and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking
corporation, as trustee (the "Trustee") to the Indenture dated as of May 28,
1998 (the "Indenture") among the Issuers and the Trustee.
W I T N E S S E T H
WHEREAS, Section 10.1 of the Indenture provides that the Issuers and the
Trustee may, among other things, amend the Indenture or the Securities without
notice to or consent of any Securityholder to add Guarantees with respect to the
Securities or to secure the Securities;
WHEREAS, Section 6.2 of the Indenture provides that no Subsidiary
Guarantor may consolidate or merge with or into any Person other than the
Company or any other Subsidiary Guarantor unless certain conditions are met,
including, that such Person assumes by Supplemental Indenture all of the
obligations of the Subsidiary Guarantor under the Indenture and the Subsidiary
Guarantee;
WHEREAS, the Company intends to effectuate a reorganization of its
corporate structure, by, among other things, merging the Subsidiary Guarantors
listed on Schedule 1 attached hereto (the "Predecessor Subsidiary Guarantors")
with and into single member limited liability companies, the single member of
each being the Company;
WHEREAS, Section 11.7 of the Indenture provides that each new Subsidiary
of the Company (other than (i) a new Subsidiary designated as an Unrestricted
Subsidiary and (ii) Foreign Subsidiaries) must execute and deliver to the
Trustee this Supplemental Indenture pursuant to which such Subsidiary shall
agree to be bound by the provisions of Article XI of the Indenture; and
WHEREAS, the New Subsidiary Guarantors desire to become Subsidiary
Guarantors under the Indenture and shall execute and deliver to the Trustee this
Supplemental Indenture.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used and not defined herein shall have
the meaning specified in or pursuant to the Indenture.
<PAGE>
2. Guarantee. Each New Subsidiary Guarantor hereby agrees to
unconditionally assume all the obligations of each Predecessor Subsidiary
Guarantor under the Indenture as described therein.
3. Release of Predecessor Subsidiary Guarantors. Simultaneous with the
execution hereof, the Trustee shall release each Predecessor Subsidiary
Guarantor from their obligations as Subsidiary Guarantors under the Indenture.
4. Trustee. The Trustee accepts the modification of the Indenture effected
by this Supplemental Indenture, but only upon the terms and conditions set forth
in the Indenture. Without limiting the generality of the foregoing, the Trustee
assumes no responsibility for the correctness of the recitals herein contained,
which shall be taken as the statements of the Issuers. The Trustee makes no
representation and shall have no responsibility as to the validity and
sufficiency of this Supplemental Indenture.
5. Effect on Indenture. As supplemented by this Supplemental Indenture,
the Indenture is hereby ratified and confirmed in all aspects.
6. Counterparts. This Supplemental Indenture may be executed in
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
7. Governing Law. This Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
GITS MANUFACTURING COMPANY, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
MARINE INDUSTRIES COMPANY, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
- 2 -
<PAGE>
TURNER ELECTRIC, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
HUDSON LOCK, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
B.W. ELLIOTT MANUFACTURING CO., LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
ESP LOCK PRODUCTS, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEY COMPONENTS, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEY COMPONENTS FINANCE CORP.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
- 3 -
<PAGE>
UNITED STATES TRUST COMPANY OF NEW
YORK, as Trustee
By: /s/ Christine C. Collins
-------------------------------------
Name: CHRISTINE C. COLLINS
Title: ASSISTANT VICE PRESIDENT
- 4 -
<PAGE>
SCHEDULE I
Hudson Lock, Inc.
B.W. Elliott Manufacturing Company, Inc.
ESP Lock Products, Inc.
Gits Manufacturing Company, Inc.
Marine Industries Company
Turner Electric Corporation
- 5 -
<PAGE>
August 31, 1999
United States Trust Company of New York, as Trustee
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Administration
Re: Key Components, LLC Key Components Finance Corp. 10 1/2% Senior
Notes due 2008, Indenture dated as of May 28, 1998, United States
Trust Company of New York, Trustee (the "Indenture")
Gentlemen:
Reference is made to the Indenture. All terms used but not defined herein
shall have the respective meanings ascribed thereto in the Indenture. Pursuant
to Section 10.1(vii) of the Indenture, the Issuers and the Subsidiary Guarantors
seek to amend the Indenture without notice to or consent of any Securityholder.
Specifically, the undersigned seek to amend the Indenture as follows:
1. The definition of "Taxpayer(s)" contained in Section 1.1 of the
Indenture is hereby deleted in its entirety and the definition set forth in this
Paragraph 1 is substituted in lieu thereof, and made a part of the Indenture:
"Taxpayer(s)" means, (i) with respect to any member of the Company
for any period during which the member is a pass through entity for federal
income tax purposes, the stockholders, members or partners of such pass through
entity, and (ii) with respect to any member of the Company for any period during
which the member is not a pass through entity for federal income tax purposes,
such member.
2. Section 5.4(b)(vi) is hereby deleted in its entirety, and the provision
set forth in this paragraph 2 is substituted in lieu thereof, and made a part of
the Indenture:
"(vi) during the period that the Company is disregarded or is
treated as a pass through entity for U.S. federal income tax purposes and after
such period to the extent relating to liability for such period, the Company may
make cash distributions to, or for the benefit of the Taxpayers, in respect of
each Estimation Period, in an aggregate amount not to exceed the Permitted
Quarterly Tax Distribution; provided, that the amount of distributions made
pursuant to this Section 5.4(b)(vi) will be excluded in the calculation of the
amount of restricted Payments pursuant to Section 5.4(a)(3) above."
Kindly acknowledge your agreement and consent to the amendments to the
Indenture contained herein by signing this amendment letter in the space
provided below.
<PAGE>
Very truly yours,
KEY COMPONENTS, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEY COMPONENTS FINANCE CORP.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
VALLEY FORGE CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
CRUISING EQUIPMENT COMPANY
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
GITS MANUFACTURING COMPANY, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
<PAGE>
GLENDINNING MARINE PRODUCTS, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
ATLANTIC GUEST, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
HEART INTERFACE CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
MARINE INDUSTRIES COMPANY
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
TURNER ELECTRIC CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
VFC ACQUISITION COMPANY, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
<PAGE>
VALLEY FORGE INTERNATIONAL CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
GUEST BUILDING, L.L.C.
By: Atlantic Guest, Inc.,
its sole member
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
GLENDINNING BUILDING, L.L.C.
By: Glendinning Marine Products, Inc.,
its sole member
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
Acknowledged and Agreed
this ___ day of August, 1999
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By:
-------------------------------------
Name:
Title:
<PAGE>
VALLEY FORGE INTERNATIONAL CORPORATION
By:
-------------------------------------
Name:
Title:
GUEST BUILDING, L.L.C.
By: Atlantic Guest, Inc.,
its sole member
By:
-------------------------------------
Name:
Title:
GLENDINNING BUILDING, L.L.C.
By: Glendinning Marine Products, Inc.,
its sole member
By:
-------------------------------------
Name:
Title:
Acknowledged and Agreed
this ___ day of August, 1999
UNITED STATES TRUST COMPANY OF
NEW YORK, as Trustee
By: /s/ Christine C. Collins
-------------------------------------
Name: CHRISTINE C. COLLINS
Title: ASSISTANT VICE PRESIDENT
<PAGE>
EXECUTION COPY
================================================================================
SHARE PURCHASE AGREEMENT
among
KEY COMPONENTS, INC.
KEY COMPONENTS, LLC
SGC PARTNERS II LLC
and
KEYHOLD, INC.
August 12, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Introduction
ARTICLE I
AUTHORIZATION AND SALE OF THE SHARES
SECTION 1.1. PURCHASE AND SALE OF THE SHARES...............................1
SECTION 1.2. CLOSING.......................................................2
SECTION 1.3. CLOSING DELIVERIES............................................2
ARTICLE II
COMPANY AND PARENT REPRESENTATIONS AND WARRANTIES
SECTION 2.1. ORGANIZATION AND STANDING OF THE COMPANY.....................3
SECTION 2.2. AUTHORITY; VALID AND BINDING AGREEMENTS......................3
SECTION 2.3. CONFLICTS; CONSENTS..........................................3
SECTION 2.4. CAPITALIZATION...............................................4
SECTION 2.5. EQUITY INTERESTS.............................................5
SECTION 2.6. FINANCIAL INFORMATION........................................5
SECTION 2.7. UNDISCLOSED LIABILITIES......................................6
SECTION 2.8. TAXES........................................................6
SECTION 2.9. ASSETS OTHER THAN REAL PROPERTY..............................7
SECTION 2.10. OWNED AND LEASED REAL PROPERTY...............................7
SECTION 2.11. ENVIRONMENTAL MATTERS........................................9
SECTION 2.12. INTELLECTUAL PROPERTY, ETC...................................9
SECTION 2.13. PERMITS.....................................................10
SECTION 2.14. MATERIAL CONTRACTS..........................................10
SECTION 2.15. LITIGATION..................................................11
SECTION 2.16. ABSENCE OF CHANGES OR EVENTS................................11
SECTION 2.17. COMPLIANCE WITH APPLICABLE LAWS.............................12
SECTION 2.18. CERTAIN EMPLOYEE MATTERS....................................12
SECTION 2.19. BENEFIT PLANS...............................................13
SECTION 2.20. TRANSACTIONS WITH AFFILIATES................................14
SECTION 2.21. DISCLOSURE..................................................14
SECTION 2.22. BROKERS.....................................................15
SECTION 2.23. FOREIGN CORRUPT PRACTICES ACT...............................15
SECTION 2.24. YEAR 2000...................................................15
SECTION 2.25. INVESTMENT COMPANY..........................................15
SECTION 2.26. SMALLBUSINESS MATTERS.......................................15
SECTION 2.27. SOLVENCY....................................................15
SECTION 2.28. INSURANCE...................................................15
SECTION 2.29. BOOKS AND RECORDS...........................................16
SECTION 2.30. CUSTOMERS AND SUPPLIERS.....................................16
i
<PAGE>
ARTICLE III
THE INVESTOR'S AND SUB'S REPRESENTATIONS AND WARRANTIES
SECTION 3.1. ORGANIZATION AND AUTHORITY...................................16
SECTION 3.2. SECURITIES ACT...............................................17
SECTION 3.3. ACCREDITED INVESTOR..........................................17
SECTION 3.4. BROKERS......................................................17
SECTION 3.5. RESTRICTED SECURITIES........................................17
ARTICLE IV
CONDITIONS OF THE INVESTOR'S AND SUB'S OBLIGATIONS
SECTION 4.1. REPRESENTATIONS AND WARRANTIES; COVENANTS....................17
SECTION 4.2. CONSENTS AND APPROVALS.......................................17
SECTION 4.3. OPERATIVE AGREEMENTS.........................................18
SECTION 4.4. INJUNCTIONS, ETC.............................................18
SECTION 4.5. FINANCIAL STATEMENTS.........................................18
SECTION 4.6. MINORITY DRAG ALONG AGREEMENTS...............................18
SECTION 4.7. HART SCOTT RODINO............................................18
SECTION 4.8. CLOSING DOCUMENTS............................................18
SECTION 4.9. PROCEEDINGS..................................................19
ARTICLE V
CONDITIONS OF COMPANY'S OBLIGATIONS
SECTION 5.1. REPRESENTATIONS AND WARRANTIES...............................19
SECTION 5.2. OPERATIVE AGREEMENTS.........................................19
SECTION 5.3. INJUNCTIONS, ETC.............................................19
SECTION 5.4. CLOSING DOCUMENTS............................................20
SECTION 5.5. PURCHASE PRICE...............................................20
ARTICLE VI
COVENANTS
SECTION 6.1. USE OF PROCEEDS..............................................20
SECTION 6.2. SBA FORMS....................................................20
SECTION 6.3. CONDUCT OF BUSINESS..........................................20
SECTION 6.4. COOPERATION..................................................20
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NOTICES......................................................21
SECTION 7.2. INDEMNIFICATION..............................................22
SECTION 7.3. SURVIVAL OF AGREEMENT; TERMINATION...........................23
ii
<PAGE>
SECTION 7.4. ASSIGNMENT..................................................23
SECTION 7.5. NO THIRD-PARTY BENEFICIARIES................................24
SECTION 7.6. EXPENSES....................................................24
SECTION 7.7. PUBLIC ANNOUNCEMENTS........................................24
SECTION 7.8. WAIVERS; AMENDMENT..........................................24
SECTION 7.9. ENTIRE AGREEMENT............................................25
SECTION 7.10. SEVERABILITY................................................25
SECTION 7.11. COUNTERPARTS................................................25
SECTION 7.12. HEADINGS, DEFINITIONS, INTERPRETATIONS......................25
SECTION 7.13. APPLICABLE LAW..............................................29
SECTION 7.14. CONSENT TO JURISDICTION.....................................29
SECTION 7.15. RESTRICTIVE LEGENDS.........................................29
iii
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE AGREEMENT, dated August 12, 1999, among KEY
COMPONENTS, LLC, a Delaware limited liability company (the
"Company"), Key Components, Inc., a New York corporation and
the sole existing member of the Company (the "Parent"), SGC
Partners II LLC, a Delaware limited liability company (the
"Investor"), and Keyhold, Inc., a Delaware corporation and a
wholly owned subsidiary of the Investor ("Sub").
- --------------------------------------------------------------------------------
INTRODUCTION
The Investor desires to purchase from the Company, and the
Company desires to issue and sell to the Investor, an aggregate of up to 266,963
shares (the "Shares") of the Company. As a condition to the purchase and sale,
on the Closing Date, the Parent, the Company and Sub will become party to the
Company's Amended and Restated Limited Liability Company Operating Agreement,
substantially in the form attached as Exhibit A hereto (the "Operating
Agreement"), and the Registration Rights Agreement, substantially in the form
attached as Exhibit B hereto (the "Registration Rights Agreement"), and the
Investor, Sub, the Company, the Parent and the stockholders of the Parent (the
"Parent Stockholders") will become party to a Shareholders Agreement,
substantially in the form of Exhibit C hereto (the "Shareholders Agreement" and,
together with this Agreement, the Operating Agreement and the Registration
Rights Agreement, the Operative Agreements"). The Operative Agreements set forth
certain rights, options and other agreements among the parties.
Certain capitalized terms are defined in Section 7.12(b) of
this Agreement.
Accordingly, in consideration of the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
AUTHORIZATION AND SALE OF THE SHARES
Section 1.1. Purchase and Sale of the Shares (a) Upon the
terms and subject to the conditions of this Agreement, at the Initial Closing,
the Company shall issue and sell to Sub, and Sub shall purchase from the
Company, 137,931 Shares (the "Initial Shares") for an aggregate purchase price
of $10,000,000 in cash (the "Purchase Price").
(b) Upon the terms and subject to the conditions of this
Agreement, at any time prior to the first anniversary of the date hereof, the
Company may require the Investor (through Sub) to purchase, up to 129,032
additional Shares (the "Additional Shares") for an aggregate purchase price of
$10,000,000 (the "Additional Investment"). The Company may require the Investor
(through Sub) to make the Additional Investment in one installment of
$10,000,000 or in not more than two installments of $5,000,000 each. If the
Investor (through Sub) makes the Additional Investment in one installment of
$10,000,000, the Company shall issue Sub 129,032 Additional Shares. If the
Investor (through Sub) makes the Additional Investment in one or more
installments of $5,000,000, upon the first such installment, the Company shall
issue Sub 64,516 of the Additional Shares, and on the second such installment,
if any, the Company shall issue Sub the other 64,516 Additional Shares;
provided,
-1-
<PAGE>
however, that prior to the first anniversary of the date hereof (a) no member of
the Company Group may obtain any Equity-Linked Financing from any Person other
than the Investor or Sub unless the Investor (through Sub) has made at least one
installment of the Additional Investment in the amount of $5,000,000, and (b) no
member of the Company Group may obtain any Equity-Linked Financing at a price
less than the equivalent of $93.00 per share of common stock of Parent or per
share of the Company from any Person other than the Investor or Sub unless the
Investor (through Sub) has made the maximum Additional Investment of
$10,000,000; and provided further that if the Company or Parent obtains
Equity-Linked Financing at a price equal to or greater than the equivalent of
$93.00 per share of Common Stock of the Parent or per share of the Company
before the Investor has made the maximum Additional Investment of $10,000,000,
the Investor shall have no further obligation to make the remainder of the
Additional Investment under this Section 1.1(b). The number of Additional Shares
to be issued pursuant to this Section 1.1(b) shall be adjusted equitably upon
any reclassification, share combination, share subdivision, share dividend,
share exchange, stock split, reverse stock split, or similar transaction or
event; and provided further that the Investor shall not be obligated to make the
second $5,000,000 installment of the Additional Investment unless the Company
intends to use the proceeds of such second installment to make an acquisition or
for a purpose the Investor reasonably agrees to be a growth initiative.
Section 1.2. Closing. The closing (the "Initial Closing") for
the purchase and sale of the Initial Shares shall be held at the offices of
Howard, Smith & Levin LLP, 1330 Avenue of the Americas, New York, New York
10019, at 10:00 a.m. on August 31, 1999, or at such other time or on such other
date as may be agreed to by the Investor and the Company. The date on which the
Initial Closing shall occur is herein referred to as the "Initial Closing Date."
The closing or closings (each an "Additional Closing") for each Additional
Investment shall be held on the fifth business day after the Company gives
written notice that it requires Investor to make an investment in accordance
with Section 1.1 or at such time and on such date as may be agreed to by the
Investor and the Company. The date or dates on which the Company issues, and the
Investor purchases, any Additional Shares in accordance with the terms hereof,
are herein referred to as an "Additional Closing Date". Any such Additional
Closings shall be on the terms and subject to the conditions set forth in this
Agreement. Any references in this Agreement to the "Closing" or the "Closing
Date" without qualification as to "Initial" or "Additional" shall be deemed to
apply to the Initial Closing and any Additional Closings and the Initial Closing
Date and any Additional Closing Dates, as appropriate.
Section 1.3. Closing Deliveries. At the Initial Closing, (a)
the Investor shall deliver to the Company, by wire transfer of funds to the
Company's account, the Purchase Price and (b) the Company shall issue and
deliver to the Investor certificates representing the Initial Shares, registered
in the name of Sub and bearing the legends set forth in Section 7.15. At any
Additional Closings, (a) the Investor shall deliver to the Company, by wire
transfer of funds to the Company's account, the purchase price for the
Additional Shares purchased at such Additional Closing and (b) the Company shall
issue and deliver to the Investor certificates representing such Additional
Shares, registered in the name of Sub and bearing the legends set forth in
Section 7.15.
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ARTICLE II
COMPANY AND PARENT REPRESENTATIONS AND WARRANTIES
For purposes of Sections 2.7 and 2.9 through 2.30 references
to the Company shall include the Parent, the Company and the Company
Subsidiaries (as defined in Section 2.5) taken as a whole. Except as set forth
on the disclosure schedule provided to the Investor and attached hereto (the
"Disclosure Schedule"), the Parent and the Company jointly and severally
represent and warrant to the Investor and Sub that:
Section 2.1. Organization and Standing of the Company. Each of
the Parent, the Company and each Company Subsidiary is duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization. Each of the Parent, the Company and each Company Subsidiary has
all requisite power and authority necessary to enable it to own and operate its
properties and assets and to conduct its business as presently conducted and
proposed to be conducted. Each of the Parent, the Company and each Company
Subsidiary is duly qualified to do business and in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing or
holding of its properties or assets requires qualification.
Section 2.2. Authority; Valid and Binding Agreements. The
Parent and the Company each have all requisite power and authority to (i)
execute and deliver the Operative Agreements and (ii) consummate the
transactions contemplated hereby and thereby, and the Company has the requisite
power and authority to issue and sell the Shares. The execution, delivery and
performance by the Parent and the Company of the Operative Agreements and all
documents to be executed by the Parent or the Company in connection therewith
and the authorization, issuance, sale and delivery of the Shares have been duly
authorized by all necessary action on the part of the Company and the Parent.
This Agreement has been duly executed and delivered by the Parent and the
Company and constitutes, and the other Operative Agreements when duly executed
and delivered will constitute, the legal, valid and binding obligations of the
Parent and the Company, enforceable against the Parent and the Company in
accordance with their terms except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and (ii)
the effect of rules or law governing the availability of equitable remedies.
Section 2.3. Conflicts; Consents. The execution and delivery
by the Parent and the Company of this Agreement does not, and the execution and
delivery of the other Operative Agreements by the Parent, the Company and the
Parent Stockholders, as the case may be, and the consummation of the
transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not, breach, conflict with, or result in any violation
of or default (with or without notice or lapse of time or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to the loss of any benefit under, or result in the creation or imposition of
any Lien of any nature whatsoever upon any of the properties or assets of the
Parent, the Company or any Company Subsidiary under, (i) any loan or credit
agreement, note, bond, mortgage, indenture, deed of trust, license, franchise,
lease, contract, commitment, Permit (as defined in Section 2.13), agreement,
understanding, instrument or obligation or other arrangement to which the
Parent, the Company or any Company Subsidiary is a party or by which the Parent,
the Company, any Company Subsidiary or any of their properties or assets may be
bound or affected, (ii) any provision of the Parent's, the Company's or any
Company Subsidiary's constitutive or governance documents, (iii) any
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judgment, order, writ, injunction or any decree, or any statute, law, ordinance,
rule or regulation applicable to the Parent, the Company, any Company Subsidiary
or any of their properties or assets. No consent, approval, order, license,
Permit or authorization of, or notification, registration, declaration or filing
with, any Governmental Authority or any other Person is required to be obtained
or made by or with respect to the Parent, the Company or any Company Subsidiary
in connection with the execution, delivery and performance by the Parent, the
Company and the Parent Stockholders, as the case may be, of any of the Operative
Agreements, the issuance and sale of the Shares, or the consummation of the
transactions contemplated hereby and thereby, other than any such breaches,
conflicts, violations, defaults, rights of termination, cancellation or
acceleration, loss of benefits or creation or imposition of Liens that
individually or in the aggregate could not reasonably be expected to (x) have a
Material Adverse Effect, (y) materially impair the ability of the Company or
Parent to perform their obligations under the Operative Agreements or (z)
prevent or materially delay the consummation of any of the transactions
contemplated the Operative Agreements.
Section 2.4. Capitalization. (a) The Company is authorized to
admit additional members, and upon the due execution of the Operating Agreement
by the parties thereto, the Company will be authorized to issue 5,000,000 shares
in respect of membership interests in the Company, of which 1,251,048 will be
validly issued and outstanding after giving effect to the transactions
contemplated hereby at the Initial Closing. The admission of Sub as a member of
the Company and the issuance of the Shares has been duly authorized and, when
issued in accordance with this Agreement, the Shares (i) will be validly issued,
fully paid, (ii) will have the rights, preferences and privileges described in
the Operative Agreements and (iii) will not have been issued in violation of,
and will not be subject to, any preemptive or subscription rights and will not
result in the antidilution provisions of any security of the Company becoming
applicable.
(b) The Shares, when issued and delivered in accordance with
this Agreement, will be free and clear of any Liens and Sub will have good title
thereto. The Shares, when issued as of the Initial Closing Date, will represent
11.02% of the total outstanding equity or membership interests of the Company
assuming no exercise of the options set forth on Schedule I of the Shareholders
Agreement.
(c) Except as set forth on Schedule 2.4(c), there are no
outstanding warrants, options, rights, other securities, agreements,
subscriptions or other commitments, arrangements or undertakings pursuant to
which the Parent, the Company or any Company Subsidiary is or may become
obligated to issue, deliver or sell, or cause to be issued, delivered or sold,
any additional shares or other equity membership or partnership interests, as
the case may be, of the Parent, the Company or any Company Subsidiary, or to
issue, grant, extend or enter into any such warrant, option, right, security,
agreement, subscription or other commitment, arrangement or undertaking. Except
for the rights of the Investor and Sub set forth herein and in the other
Operative Agreements, there are no outstanding options, rights, other
securities, agreements or other commitments, arrangements or undertakings
pursuant to which the Parent, the Company or any Company Subsidiary is or may
become obligated to redeem, repurchase or otherwise acquire or retire any shares
or other equity membership or partnership interests, as the case may be, of the
Parent, the Company or any Company Subsidiary which are presently outstanding or
may be issued in the future.
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(d) The Parent is the sole member of the Company and as of the
date hereof owns, and through the time immediately prior to the Initial Closing
will own, of record and beneficially 100% of the membership interests of the
Company, free and clear of all Liens or any other restriction on the right to
vote, sell or otherwise dispose of such interest. There are no bonds,
debentures, notes or other indebtedness or securities of the Parent, the Company
or any Company Subsidiary having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the members of the Company may vote.
(e) Other than the rights granted to the Investor and Sub
pursuant to this Agreement and the other Operative Agreements, there are no
outstanding rights which permit the holder thereof to cause the Parent, the
Company or any Company Subsidiary to file a registration statement under the
Securities Act or which permit the holder thereof to include securities of such
entity in a registration statement filed by such entity under the Securities
Act, and there are no outstanding agreements or other commitments which
otherwise relate to the registration of any securities of the Parent, the
Company or any Company Subsidiary under the Securities Act.
(f) Assuming that the representations and warranties of the
Investor and Sub set forth in Section 3.2 and 3.3 are true and correct, the
offering, issuance and delivery of the Shares is and will be in full compliance
with the Securities Act and applicable state securities laws.
Section 2.5. Equity Interests. A true and correct list of the
Company's Subsidiaries are set forth on Schedule 2.5 (the "Company
Subsidiaries"). Each of the Company Subsidiaries is directly or indirectly
wholly owned by the Company. Neither the Company nor the Parent has any other
Subsidiaries and, except for the Company's interest in Mastervolt BV, does not
directly or indirectly own any capital stock of or other equity interests in any
corporation, partnership, limited liability company or other Person. Neither the
Company, the Parent, nor any Subsidiary is a member of or participant in any
partnership, joint venture, limited liability company or similar entity (other
than, in the case of the Parent, the Company).
Section 2.6. Financial Information. (a) The Parent and the
Company have made available to the Investor complete and correct copies of (i)
the consolidated, audited balance sheet of the Parent and its Subsidiaries as of
December 31, 1998 (the "Balance Sheet"), and the related statements of
operations, cash flows for the year then ended December 31, 1998 (the "1998
Financials"), (ii) the consolidated, unaudited balance sheet of the Parent and
its Subsidiaries as of March 31, 1999, and the related statements of operations,
cash flows for the quarter then ended (the "First Quarter Financials"), and
(iii) the consolidated, unaudited monthly balance sheets of the Parent and its
Subsidiaries as of the end of each month after March 31, 1999 through June,
1999, and the related statements of operations, cash flows for the period then
ended, which statements are prepared in accordance with GAAP and attached hereto
as Schedule 2.6. (together with the First Quarter Financials, the "Unaudited
Financials" and, the Unaudited Financials together with the 1998 Financials,
being the "Financial Statements"). The forecasts and projections previously
delivered to the Investor by the Parent and the Company and attached hereto as
Schedule 2.6 have been prepared in good faith based on discussions with the
operational managers of the Company Group and the Company believes that such
projections are based on reasonable assumptions.
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(b) The Company has filed all required reports, forms and
other documents required to be filed under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), with the SEC since June 30, 1998 (the "Company
SEC Documents"). As of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
the rules and regulations of the SEC promulgated thereunder applicable to such
documents, and none of the Company SEC Documents contained any untrue statements
of a material fact or omitted to state a 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. The financial
statements included in the Company SEC Documents (including the 1998 Financials)
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and the Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved and fairly present in
all material respects the consolidated financial position of the Parent and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of Unaudited Financials, to normal and recurring year-end audit adjustments
not material in scope or amount).
Section 2.7. Undisclosed Liabilities. Except as set forth on
the Financial Statements or on Schedule 2.7, the Company does not have any
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise and whether due or to become due) except for liabilities
and obligations incurred in the ordinary course of business consistent with past
practice, and which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. The reserves, if any, established by
the Company or the lack of reserves, if applicable, are reasonable based upon
facts and circumstances known by the Company on the date hereof and there are no
loss contingencies that are required to be accrued by Statement of Financial
Accounting Standard No. 5 of the Financial Accounting Standards Board which are
not provided for on the Balance Sheet.
Section 2.8. Taxes. The Parent, the Company and the Company
Subsidiaries have filed or will have filed or caused to be filed in a timely
manner (within any applicable extension periods) and in the appropriate
jurisdictions all returns, reports and forms ("Returns") required to be filed on
or before the Initial Closing Date with a Governmental Authority responsible for
the imposition of a Tax and such Returns are and will be true, correct and
complete in all material respects. The charges, accruals, and reserves for Taxes
with respect to the Parent, the Company and the Company Subsidiaries as
reflected on the Balance Sheet are adequate to cover Tax liabilities of the
Parent, the Company and the Company Subsidiaries accruing throughout the date
thereof. All Taxes due from and payable by the Parent, the Company and the
Company Subsidiaries on or prior to the Closing Date have been or will be fully
paid on a timely basis. No Liens have been filed and no claims are being
asserted by or against the Parent, the Company or the Company Subsidiaries, with
respect to any Taxes. For each taxable year since the inception of the Parent,
the Parent has maintained a valid election under Section 1362(a) of the Code (as
well as the equivalent provisions, if any, of all applicable state or local Tax
statutes) to be treated as an "S corporation" and no corporation qualifies as a
"predecessor corporation" of the Parent (for purposes of Section 1374(c) of the
Code). The Parent, the Company and the Company Subsidiaries have complied and
will comply with all applicable laws relating to the payment and withholding of
Taxes (including withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 and 6049 of the Code and similar
provisions under any other applicable laws) and, within the time and in the
manner prescribed by law,
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have withheld from wages, fees and other payments and paid over to the proper
governmental or regulatory authorities all amounts required. Neither the Parent,
the Company nor any of the Company Subsidiaries has received a notice of
assessment or proposed assessment of any Taxes claimed to be owed by it or any
other Person on its behalf. Except for the audit of Valley Forge Corporation and
its subsidiaries for the year ended December 31, 1995, no Returns filed by or on
behalf of the Parent, the Company or any of the Company Subsidiaries with
respect to Taxes are currently being audited or examined. Neither the Parent,
the Company, nor any Company Subsidiary has any notice of any such audit or
examination. Neither the Parent, the Company nor any of the Company Subsidiaries
is required to include in income any adjustment pursuant to Section 481(a) of
the Code by reason of a voluntary change in accounting method initiated by the
Parent, the Company or any of the Company Subsidiaries, and no Governmental
Authority has proposed an adjustment or change in accounting method. To the
knowledge of the Company with respect to Valley Forge Corporation, all
transactions or methods of accounting that could give rise to an understatement
of Federal income tax have been adequately disclosed on either the Parent's, the
Company's or any relevant Company Subsidiary's tax returns in accordance with
Section 6662(d)(2)(B). Neither the Parent, the Company nor any Company
Subsidiary is a party to any Tax-sharing or Tax indemnity agreement or any other
agreement of a similar nature that remains in effect. Neither the Parent, the
Company nor any Company Subsidiary has consented to any waiver of the statute of
limitations for the assessment of any Taxes and has not requested any extension
of time for the payment of any Taxes. The Company has been a single-member LLC
at all times since its inception. For Federal income tax purposes, all income
and assets of the Company are treated as income and assets of Parent.
Section 2.9. Assets Other than Real Property. Except as
disclosed on Schedule 2.9, the Company has good title to, or a valid leasehold
interest in, as applicable, all tangible assets reflected on the Balance Sheet
or acquired after the date thereof, free and clear of all Liens except statutory
liens for the payment of current taxes that are not yet delinquent and security
interests which arise in the ordinary course of business and which do not affect
the properties or assets of the Company in any material respect. With respect to
the property and assets it leases, the Company is in compliance with such leases
in all material respects. To the knowledge of the Company, (i) the tangible
assets owned by the Company are in all material respects in good operating
condition and repair, ordinary wear and tear excepted, and (ii) all tangible
assets leased by the Company are in all material respects in the condition
required by the terms of the lease applicable thereto during the term of such
lease and upon the expiration thereof. Such assets, together with the assets
referred to in Schedule 2.10 and Schedule 2.13, constitute all of the material
properties, interests, assets and rights held for use or used in connection with
the business and operations of the Company and constitute all those necessary to
continue to operate the business of the Company consistent with current and
historical practice and as presently contemplated to be conducted. Except as
indicated in the preceding sentence, this Section 2.9 does not relate to (i)
real property or interests in real property or (ii) intellectual property of the
Company; such items are covered under Sections 2.10 and 2.11 and Section 2.12,
respectively.
Section 2.10. Owned and Leased Real Property. (a) The address
of each parcel of real property and any interest therein owned by the Company is
set forth on Schedule 2.10(a) hereto (each such property or interest, together
with any structures, improvements, easements and other rights on or appurtenant
thereto, an "Owned Property").
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(b) Each parcel of real property and any interest therein that
the Company occupies, uses or otherwise has rights to pursuant to a lease,
license, occupancy agreement or other agreement (each such agreement, together
with all amendments, modifications, extensions and supplements thereto, a
"Lease"), is referred to as "Leased Property". The Owned Properties and the
Leased Properties are referred to collectively as the "Company Properties". Each
Lease is in full force and effect and constitutes the valid and binding
obligation of the Company, as applicable, enforceable against the Company in
accordance with its terms. There exists no default, or any event which upon the
giving of notice or the passage of time, or both, would give rise to any
default, in the performance by the Company (or, to the knowledge of the Company,
the lessor thereunder), of any of its obligations under any Lease, except for
such defaults that, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(c) Except as described on Schedule 2.10(c), the Parent, the
Company or one of the Company Subsidiaries is the sole owner and holder of (i)
good and marketable fee title to each Owned Property, and (ii) a good, valid and
existing leasehold estate, as tenant (or such other rights as described in such
Schedule), in each Leased Property, in each case free and clear of all Liens and
other encumbrances, restrictions and matters affecting title to or the use and
occupancy of such Company Property, except as disclosed on Schedule 2.10(c)
hereto ("Permitted Encumbrances"). No Company Property violates the terms or
conditions of any Permitted Encumbrance, except for such violations that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(d) To the knowledge of the Company, each Company Property is
in good repair and no condition exists which would interfere with the Company's
customary use and operation thereof, and no part of any Company Property is
subject to any building or use restrictions that would restrict or prevent the
current use and operation of such Company Property, except for such conditions
or restrictions that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect. To the knowledge of the Company, each Company
Property is zoned for its current use, and such current use is in all respects a
conforming use. No Governmental Authority having jurisdiction over any Company
Property has issued or, to the knowledge of the Company, has threatened to
issue, any notice or order that adversely affects the use or operation of any
Company Property, or requires, as of the date hereof or a specified date in the
future, any repairs, alterations, additions or improvements thereto, or the
payment or dedication of any money, fee, exaction or property. There are neither
any actual, nor, to the knowledge of the Company, any threatened or contemplated
condemnation or eminent domain proceedings that affect any Company Property or
any part thereof, and the Company has received no written notice of the
intention of any Governmental Authority or other Person to take or use all or
any part thereof. The Company has no knowledge of any actual or pending
imposition of any assessments for public improvements with respect to any
Company Property and, to the knowledge of the Company, no such improvements have
been constructed or planned that would be paid for by means of assessments upon
any Company Property. To the Company's knowledge, no improvements constituting a
part of any Company Property encroach on real property not owned or leased by
the Company. The Company has not received any written notice from any insurance
company which has issued an insurance policy with respect to any Company
Property requesting performance of any structural or other repairs or
alterations to such Company Property. Each Company Property consists of
sufficient land, parking areas, sidewalks, driveways and other improvements to
permit the continued use of such Company Property in the manner and for the
purposes to which it is presently devoted.
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Section 2.11. Environmental Matters. (a) To the knowledge of
the Company, no conditions exist at, on or under any Company Property which,
with the passage of time, or the giving of notice or both, would give rise to
liability under any Environmental Law.
(b) To the knowledge of the Company, there have been no past,
and there are no pending or threatened (i) claims or written complaints, notices
or requests for information received by the Company with respect to any alleged
violation of any Environmental Law, or (ii) written complaints, notices or
inquiries to the Company regarding potential liability under any Environmental
Law.
(c) To the knowledge of the Company, there have been no
Releases of Hazardous Materials at, on or from any Company Property.
(d) To the knowledge of the Company, each Company Property is
in compliance with all Environmental Laws in all material respects. The Company
has been issued and is in compliance with all Permits, certificates, approvals,
licenses and other authorizations relating to environmental matters and
necessary or desirable for their respective businesses.
(e) No Company Property is listed or proposed for listing on
the National Priorities List pursuant to CERCLA, on the CERCLIS or on any
similar federal or state list of sites requiring investigation or clean-up.
(f) (i) to the knowledge of the Company, there are no
underground storage tanks, active or abandoned, including petroleum storage
tanks, landfills, lagoons, surface impoundments, disposal areas or disposal
ponds, on or under any Company Property, and
(ii) to the knowledge of the Company, there are no
polychlorinated biphenyls or friable asbestos present at any Company
Property.
(g) The Company has not directly transported or directly
arranged for the transportation of any Hazardous Material to any location which
is listed or proposed for listing on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any similar federal or state list or which is the
subject of any federal, state or local enforcement actions or other
investigations which may lead to claims against the Company for any remedial
work, damage to natural resources or personal injury, including claims under
CERCLA. To the knowledge of the Company, no generation, manufacture, storage,
treatment, transportation or disposal of Hazardous Material has occurred or is
occurring on or from any Company Property.
Section 2.12. Intellectual Property, etc. Except as set forth
on Schedule 2.12, the Company owns or has the right to use, without payment to
any other Person, all patents, trademarks, trade names, service marks,
copyrights and other intellectual property rights used in its business as
presently conducted and to be used in its business as proposed to be conducted.
Except as otherwise indicated on Schedule 2.12, all patents, trademarks, trade
names and service marks of the Company the loss of which could reasonably be
expected to have a Material Adverse Effect on the Company have
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been duly registered and filed in or issued by each appropriate Governmental
Authority in the jurisdictions indicated, all necessary affidavits of continuing
use have been filed, and all necessary maintenance fees have been paid to
continue all such rights in effect. As used in the business of the Company, to
the Company's knowledge, no such patent, trademark, trade name, service mark,
copyright, application therefore, trade secret or other intellectual property
right infringes any rights owned or held by any other person. There is no
pending, and the Company has no notice or knowledge of any threatened,
litigation, objection or claim being asserted by any Person with respect to the
ownership, validity, enforceability or use of any such patents, trademarks,
trade names, service marks, copyrights, applications therefor, trade secrets or
other intellectual property rights or challenging or questioning the validity or
effectiveness of any license relating to any such right. To the knowledge of the
Company, no person is infringing the rights of the Company in such patent,
trademark, trade name, service mark, copyright, application therefore, trade
secret or other intellectual property right.
Section 2.13. Permits. The Company has obtained each permit,
license and other authorization or approval necessary or useful for the Company
to own, lease or use any of its properties or assets, including the Company
Properties except for such licenses, certificates, permits, and rights the
absence of which would not individually or in the aggregate have a Material
Adverse Effect (each, a "Permit"). Each such Permit was duly issued and
obtained, currently is in full force and effect, and shall remain in full force
and effect for its respective term. To the knowledge of the Company, no default
or violation, or event which with the passage of time or giving of notice or
both would become a default or violation, has occurred in the due observance of
any Permit, and the consummation of the transactions contemplated in this
Agreement will not result in the non-renewal, revocation or termination of any
such or Permit.
Section 2.14. Material Contracts. Schedule 2.14 contains a
true and complete list or description of all written or oral contracts,
agreements and other instruments ("Contracts") to which the Company is a party
(other than purchase orders entered into in the ordinary course of business by
the Company) (A) relating to indebtedness for money borrowed or capital leases,
(B) relating to commitments in excess of $100,000 in any given year, (C)
relating to the employment or compensation of any director, officer, member or
stockholder of the Company, or any Affiliate of such Person, (D) relating to the
employment or compensation of any consultant, independent contractor or other
agent of the Company, or, to the knowledge of the Company, any Affiliate of such
Person, relating to the payment in excess of $100,000 in any given year, (E)
relating to the sale or other disposition of any assets, properties or rights
(other than the sale of inventory), (F) relating to the distribution of the
Company's Products or services and which require the payment of money in excess
of $100,000, (G) which restricts the Company's ability to do business in any
geographic area or grants to any Person exclusive or similar rights in any line
of business or in any geographic area, (H) which restricts the Company's ability
to solicit employees of another Person or restricts another Person's ability to
solicit the Company's employees, (I) to which any member or Affiliate of any
member is a party, or (J) that is otherwise material to the results of
operations, financial condition or prospects of the Company or entered into
other than in the ordinary course of business. Except as set forth on Schedule
2.14, all Contracts are valid, binding and in full force and effect as to the
Company, and to the knowledge of the Company, there is no material default, or
any event which upon notice or the passage of time, or both, would give rise to
any material default, in the performance of the Company nor, to the Company's
knowledge, in the performance of any other party to any such Contracts in any
material respect.
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Section 2.15. Litigation. There are no material suits,
actions, claims, judgments, arbitrations or other legal, administrative or
regulatory proceedings or, to the knowledge of the Company, investigations,
whether at law or in equity, or before or by any Federal, foreign, state or
municipal or other governmental department, commission, board, bureau, agency or
instrumentality (a) pending or, to the knowledge of the Company, threatened by
or against or affecting the Company or any of its properties or assets or (b) to
the knowledge of the Company, pending or threatened by or against any of the
officers or employees of the Company which relate to or involve the termination
by such Person of his employment with any of such Person's former employers.
Except as set forth on Schedule 2.15 hereto, to the knowledge of the Company,
there is no basis for any such lawsuit, claim, arbitration or other proceeding
or investigation. There is no outstanding judgment, order or decree of any
Governmental Authority or arbitrator applicable to the Company or any of its
properties, assets or business.
Section 2.16. Absence of Changes or Events. Except as set
forth on Schedule 2.16 or in the Company SEC Documents filed with the SEC prior
to the date hereof, since December 31, 1998, the business of the Company has
been conducted in the ordinary course consistent with past practice and there
has not been:
(a) any event, violation or other matter that could,
individually or in the aggregate, reasonably be expected to have or
result in a Material Adverse Effect;
(b) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by
the Company, in excess of $100,000 in the singular or the aggregate,
other than obligations under customer contracts, current obligations and
liabilities incurred in the ordinary course of business and consistent
with past practice;
(c) any payment, discharge, satisfaction or settlement of any
claim or obligation of the Company, except in the ordinary course of
business and consistent with past practice;
(d) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of the Company (except
in respect of taxes payable by the Parent Stockholders as permitted by
the Indenture of the Company and Key Components Finance Corp., dated May
28, 1998 (the "Indenture") or any direct or indirect redemption, purchase
or other acquisition of any such shares;
(e) except for (i) this Agreement, (ii) the Additional
Investment and the rights of the Investor and Sub set forth in the other
Operative Agreements and (iii) issuances of equity interests set forth on
Schedule 2.4(c), any issuance or sale, or any contract entered into for
the issuance or sale, of any shares of the Company or securities
convertible into or exercisable for an equity interest in the Company;
(f) any sale, assignment, pledge, encumbrance, transfer or
other disposition of any tangible asset of the Company (other than sales
or the licensing of its Products to customers in the ordinary course of
business consistent with past practice), or any sale, assignment,
transfer or other disposition of any Intellectual Property (other than
licensing of Products of the Company in the ordinary course of business
and on a non-exclusive basis);
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(g) any creation of any Lien on any property of the Company
except statutory liens for the payment of current taxes that are not yet
delinquent and security interests which arise in the ordinary course of
business and which do not affect the properties or assets of the Company
in any material respect;
(h) any write-down of the value of any asset of the Company or
any write-off as uncollectible of any accounts or notes receivable or any
portion thereof except in the ordinary course of business and in a
magnitude consistent with historical practice;
(i) any cancellation of any debts or claims or any amendment,
termination or waiver of any rights of the Company except in the ordinary
course of business consistent with past practice;
(j) any general increase in the compensation of employees of
the Company (including any increase pursuant to any written bonus,
pension, profit-sharing or other benefit or compensation plan, policy or
arrangement or commitment), any increase in fees or payments made or due
to Millbrook Capital Management, Inc., or any increase in any such
compensation or bonus payable to any officer, member, director,
consultant or agent of the Company having an annual salary or
remuneration in excess of $100,000;
(k) any damage, destruction or loss (whether or not covered by
insurance) affecting any asset or property of the Company resulting in
liability or loss in excess of $100,000;
(l) any change in the independent public accountants of the
Company or any material change in the accounting methods or accounting
practices followed by the Company or any material change in depreciation
or amortization policies or rates; or
(m) any agreement, whether in writing or otherwise, to take
any of the actions specified in the foregoing items (a) through (l).
Section 2.17. Compliance with Applicable Laws. (a) The Company
and its properties, assets, operations and business are in compliance in all
material respects with all applicable statutes, laws, ordinances, rules and
regulations of any Governmental Authority and any filing requirements relating
thereto, including laws and regulations relating to environmental requirements
and occupational safety and health and all building, fire, zoning, setback, and
subdivision laws (collectively, "Legal Requirements"), and, except as otherwise
disclosed on Schedule 2.17 hereto, no written notes or notices of violation of
any Legal Requirements have been issued by any Governmental Authority.
Section 2.18. Certain Employee Matters. (a) In the last five
years, the Company has not experienced any labor disputes, union organization
attempts or work stoppage due to labor disagreements. There is no unfair labor
practice charge or complaint against the Company pending, or to the knowledge of
the Company, threatened before the National Labor Relations Board or any
comparable state agency or authority and there are no existing or prior facts,
circumstances or conditions that could reasonably be expected to form the basis
therefor. There is no written or oral contract, commitment, agreement,
understanding or other arrangement with any labor organization, nor
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work rules or practices agreed to with any labor organization or employee
association, applicable to employees of the Company, nor is the Company a party
to or bound by any collective bargaining or similar agreement; there is, and in
the last five years, there has been, no representation of the employees of the
Company by any labor organization and, to the knowledge of the Company, there
are no union organizing activities among the employees of the Company, nor to
the knowledge of the Company, has any question concerning representation been
raised or is threatened respecting the employees of the Company.
(b) Except as set forth in Schedule 2.18, the Company does not
have any unsatisfied liability to any previously terminated employee or
independent contractor. The Company has made available all written employee
handbooks, policies, programs and arrangements to the Investor. To the knowledge
of the Company, no key employee or group of employees has any plans to terminate
their employment with the Company as a result of the transactions contemplated
hereby or otherwise.
Section 2.19. Benefit Plans. (a) Except as set forth in
Section 2.19(a), the Company has made available to the Investor true and
complete copies of (A) each pension, retirement, savings, deferred compensation,
and profit-sharing plan and each stock option, stock appreciation, stock
purchase, performance share, bonus or other incentive plan, severance plan,
health, group insurance or other welfare plan, or other similar plan and any
"employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), under which the
Company has any material current or future obligation or liability or any
potential, contingent or secondary liability under Title IV of ERISA or under
which any employee or former employee (or beneficiary of any employee or former
employee) of the Company has or may have any current or future right to benefits
(the term "plan" shall include any contract, agreement, policy or understanding,
each such plan being hereinafter referred to in this Agreement individually as a
"Benefit Plan"), (B) the summary plan description for each Benefit Plan, (C) the
latest annual report, if any, which has been filed with the IRS for each Benefit
Plan, (D) the most recent IRS determination letter for each Benefit Plan that is
a pension plan (as defined in ERISA) intended to be qualified under Section
401(a) of the Code and (E) copies of any existing reports for the most recent
Benefit Plan year showing compliance with discrimination rules under those of
Sections 401(a), 401(k), 401(m), 419, 419A, 505, 501(c)(9), 105(h), 125 or 129
of the Code applicable to such Benefit Plan. Each Benefit Plan intended to be
tax qualified under Sections 401(a) and 501(a) of the Code is and has been
determined by the IRS to be tax qualified under Sections 401(a) and 501(a) of
the Code and, since such determination, no amendment to or failure to amend any
such Benefit Plan and no other event or circumstance has occurred that could
reasonably be expected to adversely affect its tax qualified status. There has
been no prohibited transaction within the meaning of Section 4975 of the Code
and Section 406 of Title I of ERISA with respect to any Benefit Plan.
(b) There are no actions, claims, lawsuits or arbitrations
pending, or, to the knowledge of the Company, threatened, with respect to any
Benefit Plan or the assets of any Benefit Plan. To the knowledge of the Company,
each Benefit Plan has been administered in all material respects in accordance
with its terms and with all applicable laws (including, without limitation,
ERISA). Except as set forth on Schedule 2.19(b), the Company has satisfied all
material funding, compliance and reporting requirements for all Benefit Plans.
With respect to each Benefit Plan, if applicable, the Company has paid all
contributions (including employee salary reduction contributions) and all
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insurance premiums that have become due and any such expense accrued but not yet
due has been properly reflected in the Financial Statements.
(c) The consummation of the transactions contemplated by this
Agreement will not (1) entitle any employee or independent contractor of the
Company to severance pay or termination benefits, (2) accelerate the time of
payment or vesting, or increase the amount of compensation due to any such
employee or former employee or independent contractor or (3) obligate the
Company or any of its Affiliates, to pay or otherwise be liable for any
compensation, vacation days, pension contribution or other benefits to any
employee, consultant, agent or independent contractor of the Company for periods
before the Closing Date.
(d) Except as set forth on Schedule 2.19(b), no Benefit Plan
is subject to the provisions of Section 412 of the Code or Part 3 of Subtitle B
of Title I of ERISA. No Benefit Plan is subject to Title IV of ERISA. Since
inception, neither the Company nor any business or entity treated as a single
employer with the Company for purposes of Title IV of ERISA contributed to or
was obliged to contribute to a pension plan that was at any time subject to
Title IV of ERISA.
(e) No Benefit Plan provides or is required to provide, now or
in the future, health, medical, dental, accident, disability, death or survivor
benefits to or in respect of any Person beyond termination of employment, except
to the extent required under any state insurance law or under Part 6 of Subtitle
B of Title I of ERISA and under Section 4980(B) of the Code. No Benefit Plan
covers any individual that is not an employee of the Company, other than spouses
and dependents of employees under health and child care policies listed in
Schedule 2.19(a), true and complete copies of which have been made available to
the Investor.
Section 2.20. Transactions with Affiliates. Except as set
forth in Schedule 2.20, no current or former partner, director, officer,
stockholder or member of the Company or any associate or Affiliate thereof, or
any relative with a relationship no more remote than first cousin of any of the
foregoing, is presently, or during the 12-month period ending on the date hereof
has been, (i) a party to any transaction with the Company (including any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such director, officer or member or such associate or affiliate
or relative) or (ii) the direct or indirect owner of an interest in any
corporation, firm, association or business organization which is a competitor,
supplier or customer of the Company (except for a passive investment (direct or
indirect) in less than 5% of the common stock of a company whose securities are
traded on or quoted through a national securities exchange or on the NASDAQ
National Market System), nor does any such Person receive income from any source
other than the Company which relates to the Company's business or should
properly accrue to the Company.
Section 2.21. Disclosure. No statement by the Company
contained in this Agreement and the exhibits and schedules attached hereto or in
any certificate or schedule furnished or to be furnished by or on behalf of the
Company to the Investor or any of its representatives in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact or omits to state a material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements contained
herein or therein not misleading.
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Section 2.22. Brokers. Except as set forth in Section 16 of
the Shareholders Agreement, no agent, broker, investment banker, Person or firm
acting on behalf of the Company or any member of the Company or under the
authority of the Company is or will be entitled to any broker's or finder's fee
or any other commission or similar fee directly or indirectly from any of the
parties hereto in connection with any of the transactions contemplated hereby.
Section 2.23. Foreign Corrupt Practices Act. The Company and,
to the knowledge of the Company, its employees are in compliance in all material
respects with the U.S. Foreign Corrupt Practices Act, as amended, including
without limitation the books and records provisions thereof.
Section 2.24. Year 2000. On or before September 30, 1999, all
of the Internal MIS Systems of the Company will be Year 2000 Compliant. The
Company has furnished the Investor with true, correct and complete copies of any
customer agreements and other materials and correspondence in which Company has
furnished (or could be deemed to have furnished) assurances as to the
performance and/or functionality of the Company's Products or Services on or
after January 1, 2000. The Company has furnished the Investor with a true,
correct and complete copy of any internal investigations, memoranda, budget
plans, forecasts or reports principally concerning the Year 2000 Compliant
status of the Products, services, operations, systems, supplies and Facilities
of the Company and its vendors.
Section 2.25. Investment Company. Neither the Company nor any
Person Controlling the Company is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
Section 2.26. Small Business Matters. The Company acknowledges
that the Investor is a federally licensed SBIC under the SBIC Act. The Company,
together with its "affiliates" (as that term is defined in 13 CFR ss.121.103),
is a "small business concern" within the meaning of the SBIC Regulations
including 13 CFR ss.121.103. For a period of one year following the date hereof,
neither the Company nor any of its Subsidiaries will change its business
activity if such change would render the Company ineligible to receive financial
assistance from an SBIC under the SBA Act and the regulations thereunder (within
the meanings of 13 CFR ss.ss. 107.720 and 107.760(b)).
Section 2.27. Solvency. As of the date hereof and the Closing
Date, (i) the fair market value of the Company's assets is in excess of the
total amount of its liabilities (including, without limitation, contingent
liabilities); (ii) the present fair saleable value of the Company's assets is
greater than its probable liability on its existing debts as such debts become
absolute and matured; and (iii) the Company is able to pay its debts (including,
without limitation, contingent debts and other commitments) as they mature.
Section 2.28. Insurance. All insurance policies ("Insurance
Policies") that are currently held by the Company are in the name of the
Company, outstanding and in full force and effect and all premiums due with
respect to such policies are currently paid. The Company has not received notice
of cancellation or termination of any Insurance Policy, nor has it been denied
or had revoked or rescinded any policy of insurance, nor has it borrowed against
any Insurance Policy. Except as set forth on Schedule 2.28, to the knowledge of
the Company, there are no claims in the last five years for which an insurance
carrier has denied or threatened to deny coverage. The Company carries, or is
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covered by, insurance with companies that are financially sound and reputable in
such amounts with such deductibles and against such risks and losses as the
Company believes are reasonable for the business and assets of the Company.
Section 2.29. Books and Records. Except as set forth on
Schedule 2.29, the books of account, ledgers, order books, records and documents
of the Company reflect in all material respects, all material information
relating to the business of the Company, the nature, acquisition, maintenance,
location and collection of each of its material assets, and the nature of all
transactions giving rise to material obligations or accounts receivable of the
Company.
Section 2.30. Customers and Suppliers. Schedule 2.30 contains
true and correct information regarding the Company's customers and suppliers.
Except as set forth in Schedule 2.30, there exists no actual or, to the
knowledge of the Company, threatened termination, cancellation or material
limitation of, or any modification or change in, the business relationship of
the Company with any of the Company's ten largest customers or group of
customers or that are otherwise material to the operations of the Company, or
with any of the Company's ten largest suppliers or group of suppliers or that
are otherwise material to the operations of the Company, and no member of the
senior management team of the Company or Parent has received any report or other
information from any employee, sales representative or other person employed or
otherwise engaged by the Company regarding the existence of any present or
future condition or state of facts or circumstances involving customers,
suppliers or sales representatives (including the consummation of the
transactions contemplated in this Agreement) which would have a Material Adverse
Effect on the Company or could reasonably be expected to prevent the conduct of
the Company's business after the consummation of the transactions contemplated
in this Agreement on substantially the same terms as such business has been
conducted immediately prior to the date hereof.
ARTICLE III
THE INVESTOR'S AND SUB'S REPRESENTATIONS AND WARRANTIES
The Investor and Sub hereby represent and warrant to the
Company as follows:
Section 3.1. Organization and Authority. The Investor is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware. Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Investor and Sub have all requisite power and authority to enter into the
Operative Agreements and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by the Investor and Sub of the Operative
Agreements and the consummation by the Investor and Sub of the transactions
contemplated thereby has been duly authorized by all necessary action on the
part of the Investor and Sub. When duly executed and delivered by the Investor
and Sub, the Operative Agreements will constitute valid and binding obligations
of the Investor and Sub, enforceable against the Investor and Sub in accordance
with their terms, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or other laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the availability of equitable remedies.
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Section 3.2. Securities Act. The Investor (through Sub) is
acquiring the Shares for investment only for its own account and not with a view
to any public distribution of all or any portion thereof.
Section 3.3. Accredited Investor. The Investor is an
"accredited investor" as such term is defined in Rule 501(a) promulgated under
the Securities Act.
Section 3.4. Brokers. No agent, broker, investment banker,
Person or firm acting on behalf of the Investor or under the authority of the
Investor is or will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly from any of the parties hereto
in connection with any of the transactions contemplated hereby.
Section 3.5. Restricted Securities. The Investor and Sub
acknowledge that, because they have not been registered under the Securities Act
or any state securities laws, the Shares must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption from
such registration is available. The Investor and Sub are familiar with the
provisions of Rule 144 promulgated under the Securities Act and the resale
limitations imposed thereby and by the Securities Act. The Investor and Sub
understand that no public market now exists for the Shares and that it is
uncertain whether a public market will ever exist for the Shares.
ARTICLE IV
CONDITIONS OF THE INVESTOR'S AND SUB'S OBLIGATIONS
The obligation of the Investor and Sub to purchase the Initial
Shares at the Initial Closing is subject to the satisfaction (or waiver by the
Investor) as of the Initial Closing Date of the following conditions other than
the condition set forth in Section 4.7. The obligation of the Investor and Sub
to purchase any Additional Shares at any Additional Closing is subject to the
satisfaction (or waiver by the Investor) as of the applicable Additional Closing
Dates of the conditions set forth in Sections 4.4. 4.5, 4.7, and 4.8(d), (i) and
(j).
Section 4.1. Representations and Warranties; Covenants. The
representations and warranties of the Parent and the Company made in this
Agreement (i) shall be true and correct in all material respects, or to the
extent already qualified with respect to materiality shall be true and correct,
and (ii) taken as a whole, and without giving effect to any materiality
qualifiers therein, shall be true and correct in all material respects, in each
case, as of the date of this Agreement and as of the Closing Date with the same
effect as if made at and as of the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier time. The Parent
and the Company shall have performed each of the covenants and agreements of the
Parent or the Company contained in the Operative Agreements required to be
performed at or prior to the Closing.
Section 4.2. Consents and Approvals. The Company shall have
obtained or made all consents, approvals, orders, licenses, Permits and
authorizations of, and registrations, declarations and filings with, any
Governmental Authority or any other Person listed on Schedule 4.2.
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Section 4.3. Operative Agreements. The Parent, the Company,
the Investor, Sub and the Parent Stockholders, as the case may be, shall have
entered into each of the Operative Agreements, and each Operative Agreement
shall be in full force and effect.
Section 4.4. Injunctions, etc. No injunction or order of any
Governmental Authority shall be in effect as of the Closing, and no lawsuit,
claim, proceeding or investigation shall be pending or threatened by or before
any Governmental Authority as of the Closing, which would restrain or prohibit
the issuance and sale of the Shares or the consummation of any of the other
transactions contemplated by the Operative Agreements or invalidate or suspend
any provision of the Operative Agreements.
Section 4.5. Financial Statements. The Company shall have
filed its quarterly report on Form 10-Q for the three months ended June 30,
1999, or, in the case of any Additional Closings, any reports due to have been
filed on or prior to such Additional Closing Date, and in each case, the Company
Group shall not from the date hereof through such Initial Closing Date or
Additional Closing Date, as the case may be, have suffered a Material Adverse
Effect.
Section 4.6. Minority Drag Along Agreements. The Company shall
have requested that each of the shareholders of the Company who is not a party
to the Shareholders Agreement execute agreements providing the Company and SG
with "drag along" rights.
Section 4.7. Hart Scott Rodino. Any applicable waiting period
under the Hart Scott Rodino Anti-Trust Improvements Act of 1976, as amended
shall have expired or been terminated.
Section 4.8. Closing Documents. The Company shall have
delivered to the Investor the following:
(a) a certificate of the chief executive officer and president
of the Company, dated the Closing Date, to the effect that the
conditions specified in Section 4.1, 4.2 and 4.5 have been satisfied;
(b) incumbency certificates dated the Closing Date for the
officers of the Company executing any of the Operative Agreements and
any documents delivered in connection with the Operative Agreements and
the Closing;
(c) a certificate of the Secretary or an Assistant Secretary
of the Company, dated the Closing Date, certifying the attached copies
of the Certificate, Original Operating Agreement and resolutions
adopted by the Board of Directors of the Company authorizing the
consummation by the Company of the transactions contemplated hereby;
(d) a certificate of the Secretary of State of the State of
Delaware, dated a recent date, certifying that the Company is in good
standing in the State of Delaware and that all annual reports, if any,
have been filed as required and that all fees have been paid in
connection therewith;
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(e) an opinion dated the Closing Date of Rubin Baum Levin
Constant & Friedman, counsel to the Company, in the form attached
hereto as Exhibit D;
(f) a written certification from the Company regarding its
intended use of the proceeds of the Financing;
(g) evidence that the Indenture has been duly amended to
permit the Company to make distributions for the payment of Taxes in as
required by the Operating Agreement;
(h) evidence of the consent of the Company's senior lenders to
the consummation of the transactions contemplated hereby and by the
other Operative Agreements including consent of the Company's senior
lenders that the Purchase Price and any Additional Purchase Price may
be used to repay monies borrowed under the Existing Revolver;
(i) a certificate or certificates representing the number of
Shares being purchased at the applicable Closing; and
(j) such other certificates or documents as the Investor or
its counsel may reasonably request relating to the transactions
contemplated hereby.
Section 4.9. Proceedings. All proceedings taken by the Company
in connection with the transactions contemplated by the Operative Agreements and
all documents and papers relating to such transactions shall be reasonably
satisfactory in form and substance to the Investor and its counsel, and the
Investor shall have received all such certified or other copies of all such
documents as it shall have reasonably requested.
ARTICLE V
CONDITIONS OF COMPANY'S OBLIGATIONS
The obligation of the Company to issue and sell the Initial
Shares at the Initial Closing and any Additional Shares at any Additional
Closing to the Investor (through Sub) is subject to the satisfaction (or waiver
by the Company) as of the applicable Closing Date of the following conditions:
Section 5.1. Representations and Warranties. The
representations and warranties of the Investor and Sub made in this Agreement
shall be true and correct in all material respects (or as already qualified with
respect to materiality) as of the date of this Agreement and as of the Closing
Date with the same effect as if made at and as of the Closing Date, except to
the extent such representations and warranties expressly relate to an earlier
time.
Section 5.2. Operative Agreements. The Parent, the Company,
the Investor, Sub and the Parent Stockholders, as the case may be, shall have
entered into each of the Operative Agreements, and each Operative Agreement
shall be in full force and effect.
Section 5.3. Injunctions, etc. No injunction or order of any
Governmental Authority shall be in effect as of the Closing, and no lawsuit,
claim, proceeding or investigation shall be pending or threatened by or before
any Governmental Authority as of the Closing, which would restrain or
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prohibit the issuance and sale to the Investor (through Sub) of the Shares or
the consummation of any of the other transactions contemplated by the Operative
Agreements or invalidate or suspend any provision of the Operative Agreements.
Section 5.4. Closing Documents. The Investor shall have
delivered to the Company a certificate to the effect that the condition
specified in Section 5.1 has been satisfied or waived.
Section 5.5. Purchase Price. The Company shall have received
payment from the Investor for the Shares, net, in the case of the Initial
Closing, of the amount payable by the Company to the Investor in respect of the
Investor's expenses in accordance with Section 7.6 hereof.
ARTICLE VI
COVENANTS
The Company and Parent covenant and agree that, unless the Investor
otherwise consents in writing:
Section 6.1. Use of Proceeds. The proceeds of the sale of the
Shares shall be used to repay existing indebtedness and for working capital for
purposes of conducting the business of the Company; provided, however, that the
parties acknowledge and agree that the Company may draw on its available credit
at some later date to finance certain acquisitions (although no definitive
agreements for acquisitions have been entered into), but that such acquisitions
are not conditioned upon the consummation of the transactions contemplated
hereby and the consummation of the transactions contemplated hereby is not
conditioned on the actual or planned consummation of such acquisitions.
Section 6.2. SBA Forms. As promptly as practicable following
the Closing, the Company and Parent shall assist the SBIC Holder in preparing
SBA Form 480, Form 652 and Parts A and B of Form 1031 (or successor forms). The
information regarding the Company and its Affiliates furnished by the Company
and Parent to the SBIC Holder to be set forth in SBA Form 480, Form 652 and
Parts A and B of Form 1031 (or successor forms) will be accurate and complete.
Section 6.3. Conduct of Business. (a) From the date hereof
until the Closing Date, except as may be required to satisfy a condition to
Closing and except as otherwise consented to by the Investor in writing, the
Parent and the Company shall operate the business of the Company only in the
ordinary course of business consistent with past practice.
(b) Without limiting the generality of the foregoing, neither
the Company nor the Parent shall, without the prior written consent of the
Investor, directly or indirectly, cause any part of Section 2.16 not to be true
and correct at the Closing.
Section 6.4. Cooperation. The Company and the Parent shall
consult with the Investor, and provide the Investor with a reasonable
opportunity to review and comment, on the Indenture amendment and on the terms
of Internal Reorganization (as defined in Section 2.5 of the Disclosure
Schedule).
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ARTICLE VII
MISCELLANEOUS
Section 7.1. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service or sent by telex, graphic scanning or other
telegraphic communications equipment of the sending party, as follows:
(a) if to the Investor or Sub,
SGC Partners II LLC
c/o SG Capital Partners LLC
15th Floor
1221 Avenue of the Americas
New York, NY 10020
Attention: Christopher M. Neenan
Telecopier: (212) 278-5454
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Scott F. Smith, Esq.
Telecopier: (212) 841-1010
(b) if to the Company,
Key Components, LLC
200 White Plains Road
4th Floor
Tarrytown, NY 10591
Attention: Alan L. Rivera
Telecopier: (914) 332-1441
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael J. Emont
Telecopier: (212) 698-7825
All notices and other communications given to either party
hereto in accordance with the provisions of this Agreement shall be deemed to
have been given on the date of receipt if delivered by hand or overnight courier
service or sent by telex, graphic scanning or other telegraphic
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communications equipment of the sender, in each case delivered or sent (properly
addressed) to such party as provided in this Section 7.1 or in accordance with
the latest unrevised direction from such party given in accordance with this
Section 7.1.
Section 7.2. Indemnification. (a) The Parent and the Company
agree to jointly and severally indemnify, defend and hold harmless the Investor,
Sub and the respective successors and assigns and each of their respective
officers, managers, members, partners, directors, Affiliates, employees,
attorneys, representatives and agents (all such Persons and entities being
collectively referred to as "Indemnified Parties") from and against any and all
Losses incurred or sustained by any Indemnified Party as a result of or arising
from or in connection with any inaccuracy or breach of any representation,
warranty or covenant made by the Company pursuant to this Agreement. Section 7.2
is the exclusive remedy of the Indemnified Parties for such Losses, except that
nothing contained in this Section 7.2 shall limit in any manner any remedy at
law or in equity to which an Indemnified Party shall be entitled against Parent
or the Company as a result of fraud.
(b) The Investor agrees to indemnify, defend and hold harmless
the Company and Parent and the respective successors and assigns and each of
their respective officers, managers, members, partners, directors, Affiliates,
employees, attorneys, representatives and agents (all such Persons and entities
being also collectively referred to as "Indemnified Parties") from and against
any and all Losses incurred or sustained by any Indemnified Party as a result of
or arising from or in connection with any breach by the Investor of its
obligation to make all or part the Additional Investment in accordance with the
terms of Section 1.1(b) of this Agreement.
(c) The indemnification obligations of the parties hereunder
shall be satisfied by the delivering to the Indemnified Party by wire transfer
of immediately available funds the amount of any indemnity payment due
hereunder.
(d) The obligations and liabilities of the parties hereunder
with respect to their indemnities pursuant to this Section 7.2 shall be subject
to the following terms and conditions:
(i) If any third party shall notify any Indemnified
Party with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 7.2, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to
assume the defense of the Third Party Claim with counsel of his or its choice
reasonably satisfactory to the Indemnified Party at any time within 15 days
after the Indemnified Party has given notice of the Third Party Claim; provided,
however, that the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party Claim.
(iii) So long as the Indemnifying Party has assumed
and is conducting the defense of the Third Party Claim in accordance with
Section 7.2(d)(ii) above, (A) the Indemnifying
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Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably) unless the judgment or
proposed settlement involves only the payment of money damages by one or more of
the Indemnifying Parties and does not impose an injunction or other equitable
relief upon the Indemnified Party and (B) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without prior written consent of the Indemnifying Party (not
to be withheld unreasonably).
(iv) In the event none of the Indemnifying Parties
assumes and conducts the defense of the Third Party Claim in accordance with
Section 7.2(d)(ii) above, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner he or it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith) and (B) the
Indemnifying Parties will remain responsible for any Losses the Indemnified
Party may suffer resulting from, arising out of, relating to, in nature of, or
caused by the Third Party Claim to the fullest extent provided in this Section
7.2.
(e) The Company's and Parent's obligations under
Section 7.2(a) shall not exceed the sum of (x) the Purchase Price paid for the
Initial Shares and (y) the amount of any Additional Investment and the
Investor's indemnification obligations under Section 7.2(b) shall not exceed
$10,000,000.
(f) No party shall be entitled to indemnification
pursuant to this Section 7.2 with respect to any claim for indemnification
unless the aggregate amount of all Losses to the Indemnified Party under this
Agreement exceeds in the aggregate $100,000, whereupon the Indemnifying Party
shall be obligated to pay in full the aggregate amount of such Losses (including
such first $100,000).
Section 7.3. Survival of Agreement; Termination. All
covenants, agreements, representations and warranties made by Parent and the
Company herein and in the certificates or other documents prepared or delivered
in connection with the applicable Closing shall be considered to have been
relied upon by the Investor and shall survive the execution and delivery of this
Agreement or such certificate or other document, the sale and purchase of the
Shares and any disposition thereof, regardless of any investigation made by the
Investor or on its behalf and shall remain in full force as follows:
representations and warranties set forth in Sections 2.1 through 2.5 survive
without limitation, representations and warranties set forth in Section 2.8 and
2.19 shall survive until the expiration of the statutes of limitation relevant
to claims arising thereunder and all other representations and warranties
survive until the first anniversary of the date hereof.
Section 7.4. Assignment. This Agreement and the rights
hereunder shall not be assignable or transferable by either party (except by
operation of law in connection with a merger, consolidation or sale of
substantially all the assets of such party) without the prior written consent of
the other party hereto; provided that the Investor and Sub may assign, in their
sole discretion, any or all of their respective rights, interests and
obligations under this Agreement to any of its Affiliates or to any transferee
of Shares who is a member of the Investor's Shareholder Group (as defined in the
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Shareholders Agreement), other than a transferee who shall acquire such Shares
in a public offering pursuant to a registration statement declared effective
under the Securities Act or pursuant to Rule 144 thereunder. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective successors and
assigns.
Section 7.5. No Third-Party Beneficiaries. This Agreement is
for the sole benefit of the parties hereto and their permitted assigns and
nothing herein expressed or implied shall give or be construed to give to any
Person, other than the parties hereto and such assigns, any legal or equitable
rights hereunder.
Section 7.6. Expenses. (a) Each party shall bear its own costs
and expenses incurred in connection with this Agreement and the transactions
contemplated, except as otherwise provided in this Agreement; provided, however,
that the Company shall, at the Closing, reimburse the Investor for all of its
reasonable and documented fees and expenses, including the fees and expenses of
Howard, Smith & Levin LLP, special counsel to the Investor, and Deloitte &
Touche LLP, the Investor's accountants; provided that such fees and expenses
shall not exceed $350,000. In the event the transactions contemplated hereby are
consummated, the Company agrees to pay stamp and other transfer taxes which may
be payable in respect of the execution and delivery of this Agreement or the
issuance of the Shares. The Company further agrees that it shall indemnify the
Investor and Sub from and hold them harmless against any documentary taxes,
assessments or charges made by any Governmental Authority solely by reason of
the issuance of the Shares.
(b) The provisions of this Section 7.6 shall remain operative
and in full force and effect regardless of the expiration of the term of this
Agreement or the consummation of the transactions contemplated hereby, the
invalidity or unenforceability of any term or provision of this Agreement or the
other Operative Agreements or any investigation made by or on behalf of the
Investor. All amounts due under this Section 7.6 shall be payable on written
demand therefor. Nothing contained in this Section 7.6 shall limit in any manner
any remedy at law or in equity to which the Investor shall otherwise be
entitled.
Section 7.7. Public Announcements. The Company and the
Investor shall consult with each other before issuing any press release or
otherwise making any public statements (including as may be required by
applicable law) with respect to the transactions contemplated herein, and shall
not issue any such press release or make any such public statement that uses the
name of Investor (except as may be required by applicable law), or any of its
Affiliates without the prior written consent of the Investor, which shall not be
unreasonably withheld.
Section 7.8. Waivers; Amendment. (a) No failure or delay of
the Investor, Sub, the Parent or the Company in exercising any power or right
hereunder 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 Investor, Sub, the Parent and the Company hereunder are cumulative and are
not exclusive of any rights or remedies which the Investor, Sub, the Parent or
the Company would otherwise have. No waiver of any provision of this Agreement
or consent to any departure by the Company therefrom shall in any event be
effective unless the same shall be effected in accordance with Section 7.8(b),
and then such waiver or consent shall be effective
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<PAGE>
only in the specific instance and for the purpose for which given. No notice or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or agreements in
writing entered into by the Company and the Investor.
Section 7.9. Entire Agreement. This Agreement (including the
Exhibits and Schedules hereto) and the other Operative Agreements constitute the
entire agreement between the parties relative to the subject matter hereof. Any
previous agreement among the parties, including the term sheet and the letter of
intent, each dated May 28, 1999, between the Company and SG Capital Partners
LLC, with respect to the subject matter hereof is superseded by this Agreement.
Section 7.10. Severability. In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
Section 7.11. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall become
effective when one or more such counterparts have been signed by each of the
parties and delivered to the other party.
Section 7.12. Headings, Definitions, Interpretations. (a)
Article and Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting, this Agreement.
(b) As used in this Agreement, the following terms shall have
the meanings specified below:
"Affiliate" means, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
Person specified.
A Person shall be deemed the "beneficial owner" of, and shall
be deemed to "beneficially own", any Securities (a) which such Person or any of
its Affiliates is deemed to "beneficially own" within the meaning of Rule 13d-3
under the Exchange Act or (b) which such Person or any of its Affiliates has the
right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding or
upon the exercise of any right of conversion or exchange, warrant, option or
otherwise.
"Business Days" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
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"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response
Compensation Liability Information System List.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Group" means the Company, the Parent and each of the
Subsidiaries of the Company as of the date hereof and any other Affiliated
entities created or acquired after the date hereof.
"Control" (including, with its correlative meanings,
"controlled by", "controlling" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise).
"Environmental Laws" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) relating to public health
and safety and the protection of the environment.
"Equity-Linked Financing" means any financing which any Person
receives as consideration for its investment in any member of the Company Group
any security that consists of, is convertible into or exchangeable or
exercisable for, or is based on the value of, any equity security or equity
interest in any member of the Company Group, including, without limitation,
common stock, preferred stock, stock options, stock appreciation rights and
performance units; it being understood that such term does not include a
transaction approved in accordance with Section 5(c) of the Shareholders
Agreement in which any such equity security or equity interest is issued in
consideration for the acquisition of a trade or business or an interest in a
trade or business.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Facilities" means any facilities or equipment used by the
Parent, the Company or any Company Subsidiary in any location, including HVAC
systems, mechanical systems, elevators, security systems, fire suppression
systems, telecommunications systems, fax machines, copy machines, and equipment,
whether or not owned by the Parent, the Company, or any Company Subsidiary.
"Financing" means the purchase of the Shares by the SBIC
Holder hereunder.
"Governmental Authority" means any court, administrative
agency or commission or other governmental agency or instrumentality, domestic
or foreign, of competent jurisdiction.
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<PAGE>
"Hazardous Materials" means (a) any "hazardous substance" as
defined by CERCLA; (b) any "hazardous waste" or "petroleum," as defined by the
Resource Conservation and Recovery Act, as amended; (c) any petroleum product;
(d) any pollutant or contaminant or hazardous, dangerous or toxic chemical,
material or substance within the meaning of any other Environmental Law, as
amended or hereafter amended; or (e) any radioactive material, including any
source, special nuclear or by-product material as defined at 42 U.S.C. ss. 2011
et seq., as amended or hereafter amended.
"Internal MIS Systems" means any computer software and systems
(including hardware, firmware, operating system software, utilities, and
applications software) used in the ordinary course of business by or on behalf
of the Parent, the Company or any Company Subsidiary, including the payroll,
accounting, billing/receivables, inventory, asset tracking, customer service,
human resources, and e-mail systems.
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, charge, security interest, easement, covenant,
right of way, restriction, equity or encumbrance of any nature whatsoever in or
on such asset, (b) the interest of a vendor or a lessor under conditional sale
agreement, capital lease or title retention agreement 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.
"Losses" means any loss (including any diminution in value of
the Shares or other securities of the Company or its Affiliates hereafter
acquired by the Investor or Sub under this Agreement or the other Operative
Documents), judgments, claims, settlements, demand, action, cause of action,
assessment, damage, liability, cost or expense, including without limitation,
interest, penalties, fines, fees (including attorney's and other experts' fees
and disbursements), deficiencies, claims of damage, liens, Taxes, penalties
obligations and expenses.
Any reference to any event, change or effect being "material"
with respect to a Person means an event, change or effect which is or, insofar
as reasonably can be foreseen, in the future will be, material to the financial
condition, properties, businesses or operations of such Person taken as a whole.
"Material Adverse Effect" means any change in or effect on the
Parent, the Company or any Company Subsidiary or any of their businesses or
operations that is or could reasonably be expected to be materially adverse to
the business, operations, properties, financial condition or results of
operations of the Parent, the Company and the Company Subsidiaries taken as a
whole.
"Person" means any individual, firm, corporation, partnership,
trust, joint venture, Governmental Authority or other entity, and shall include
any successor (by merger or otherwise) of such entity.
"Products" means any products offered or furnished by the
Parent, the Company, or any Company Subsidiary or any of their predecessors in
interest, currently or at any time in the past, including without limitation
each item of componentry sold or leased by such entities, any system, equipment,
or products consisting of or containing one or more thereof, and any and all
customizations, modifications, and maintenance thereto.
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<PAGE>
"Release" means a "release," as such term is defined in
CERCLA.
"SBA" means the United States Small Business Administration,
and any successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by
an SBA under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1958, as
amended.
"SBIC Holder" means the Investor and Sub.
"SBIC Regulations" means the SBIC Act and the regulations
issued by the SBA thereunder, codified at Title 13 of the Code of Federal
Regulations ("13 CFR"), Parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Subsidiary" of any Person means a corporation, company or
other entity (i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other managing
authority) are, or (ii) which does not have outstanding shares or securities (as
may be the case in a partnership, joint venture or unincorporated association),
but more than 50% of whose ownership interest representing the right to make
decisions for such other entity is, now or hereafter owned or controlled,
directly or indirectly, by such Person, but such corporation, company or other
entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"Tax" or "Taxes" means all (i) Federal, state, local and
foreign taxes, assessments and other governmental charges, including, without
limitation, (a) taxes based upon or measured by gross receipts, income, profits,
sales, use or occupation, and (b) value added, ad valorem, transfer, franchise,
withholding, payroll, employment, excise, or property taxes, together with (ii)
(a) all interest, penalties and additions imposed with respect to such amounts
and (b) any obligations under any agreements or arrangements with any other
Person with respect to such amounts.
"Year 2000 Compliant" means that (1) the items at issue
accurately process, provide and/or receive all date/time data (including
calculating, comparing, sequencing, processing and outputting) within, from,
into, and between centuries (including the twentieth and twenty-first centuries
and the years 1999 and 2000), including leap year calculations, and (2) neither
the performance nor the functionality nor the Parent's, the Company's or any
Subsidiary's provision of the products, services, and other item(s) at issue
will be affected by any dates/times prior to, on, after, or spanning January 1,
2000.
Terms Generally. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed in accordance with generally
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accepted accounting principles, as in effect from time to time. The terms and
conditions of this Agreement shall be deemed to apply to the Parent and any
Company Subsidiary as though such entity were the Company, except where such
application would be manifestly inappropriate.
(c) Representations and warranties or other statements to the
Company's knowledge shall be deemed to be to the knowledge of Alan Rivera,
Robert Kay and Clay Lifflander after due inquiry into the subject matter of such
representation, warranty or other statement.
Section 7.13. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
Section 7.14. CONSENT TO JURISDICTION . EACH OF THE PARTIES
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF (i) THE SUPREME COURT OF
THE STATE OF NEW YORK, NEW YORK COUNTY AND (ii) THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR
OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY. EACH PARTY FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE
OR DOCUMENTS BY UNITED STATES REGISTERED MAIL TO SUCH PARTY'S RESPECTIVE ADDRESS
FOR NOTICES SET FORTH IN SECTION 7.14 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR
ANY ACTION, SUIT OR PROCEEDING IN NEW YORK WITH RESPECT TO ANY MATTERS TO WHICH
IT HAS SUBMITTED TO JURISDICTION IN THIS SECTION 7.14. EACH PARTY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION,
SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN (a) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK
COUNTY AND (b) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT
TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 7.15. Restrictive Legends. The certificates evidencing
the Shares to the extent applicable will bear legends reading substantially as
follows (unless and until such legend is no longer required):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS, AMENDED, AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH THAT ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR IN A
TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY, QUALIFIES AS AN EXEMPT TRANSACTION UNDER THAT ACT
PROMULGATED AND THE RULES AND REGULATIONS THEREUNDER.
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IN WITNESS WHEREOF, the parties have duly executed this Share
Purchase Agreement as of the day and year first above written.
KEY COMPONENTS, LLC
By:
Name: /s/ Alan Rivera
--------------------------------
Title:
KEY COMPONENTS, INC.
By: /s/ Alan Rivera
--------------------------------
Name:
Title:
SGC PARTNERS II LLC
By: /s/ Christopher M. Neenan
--------------------------------
Name: Christopher M. Neenan
Title:
KEYHOLD, INC.
By: /s/ Christopher M. Neenan
--------------------------------
Name: Christopher M. Neenan
Title: President
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of September 1,
1999, of KEY COMPONENTS, LLC, a Delaware limited liability
company ("KCLLC"), KEY COMPONENTS, INC., a New York
corporation, the sole existing member of KCLLC (the
"Company"), SGC PARTNERS II LLC, a Delaware limited
liability company ("SG") and Keyhold, Inc., a Delaware
corporation and a wholly owned subsidiary of SG (the
"Investor").
----------------------------------------------------------
INTRODUCTION
The Company, KCLLC, SG and the Investor are entering into a Share
Purchase Agreement, dated as of August 12, 1999 (the "Purchase Agreement"),
pursuant to which, among other things, KCLLC is issuing, and the Investor is
acquiring, certain shares of KCLLC (the "Shares").
Simultaneously with the execution and delivery of this Agreement,
the parties are entering into a Shareholders Agreement, dated the date hereof
(the "Shareholders Agreement") pursuant to which SG and the Investor have
rights, among other rights, to exchange the issued and outstanding capital stock
of Sub (the "SG Shares") into equity securities of a member of the Company Group
that conducts an initial public offering of equity securities the ("IPO
Vehicle"). "Company Group" means KCI, the Company and each of the Subsidiaries
of the Company as of the date hereof and any other Subsidiaries or parent
holding companies created or acquired after the date hereof.
The execution and delivery of this Agreement and the Shareholders
Agreement by the Company and KCLLC is a condition precedent to the obligations
of SG and the Investor under the Share Purchase Agreement.
Certain terms are defined in Section 15 of this Agreement.
In consideration of the foregoing, the covenants and obligations set
forth below, the parties agree as follows:
1. IPO Vehicle. The parties acknowledge and agree that the IPO
Vehicle may be an entity other than KCLLC or the Company. Each of the Company
and KCLLC covenant and agree that prior to the consummation of any initial
public offering of the equity securities of the IPO Vehicle, the Company and
KCLLC shall assign to the IPO Vehicle, and cause the IPO Vehicle to assume, all
of the obligations of the Company and KCLLC hereunder. In the event of such
assignment and assumption, all references herein to the Company or KCLLC shall
be deemed to be references to the IPO Vehicle, except where such construction
would be manifestly in error.
<PAGE>
2. Registration on Request.
(a) Request. Subject to the conditions herein set forth, at any time
after (1) the six-month anniversary of the effective date of the Company's
registration statement for an Initial Public Offering of equity securities of
the IPO Vehicle with gross proceeds to the IPO Vehicle of not less than
$50,000,000 or (2) any date subsequent to an underwritten Initial Public
Offering of equity securities of the IPO Vehicle and any subsequent offerings of
equity securities of the IPO Vehicle on which the Public Float with respect to
such equity securities of the IPO Vehicle is $75,000,000 or more, a Holder or
Holders (as defined in Section 15(b)) may require upon written notice to the
Company, the Company to effect the registration under the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder (the
"Securities Act") of all or part of the Registrable Securities (as defined in
Section 15(b)) then held by such requesting Holder or Holders; provided that
such Registrable Securities have a value, based upon the closing price of the
IPO Vehicle's Equity Securities on the day preceding the date of request, of at
least $5,000,000. The Company promptly will give written notice of such
requested registration to all other Holders of Registrable Securities who may
join pro rata in such registration, and thereupon use its reasonable best
efforts to effect, on the earliest possible date, the registration under the
Securities Act for public sale (in accordance with the method of disposition
specified in the notice from the requesting Holders), of the Registrable
Securities that the Company has been requested to register by such requesting
Holders.
(b) Limitations. Notwithstanding anything in this Section 2(a) to
the contrary, in no event shall the Company be required:
(i) to effect a registration pursuant to Section 2(a) within
60 days after the effective date of a registration statement (a "Registration
Statement") filed by the Company with the Securities and Exchange Commission
(the "Commission") for a public offering and sale of equity securities of the
Company (other than a registration of securities (A) pursuant to a Registration
Statement on Form S-8 or Form S-4, any Registration Statement covering only
securities proposed to be issued in exchange for securities or assets of another
corporation or any Registration Statement relating solely to employee stock
option, stock purchase, benefit or similar plans (a "Special Registration
Statement") or (B) effected pursuant to a Registration Statement on Form S-3);
provided that the Company shall use its best efforts to achieve effectiveness of
a registration requested hereunder promptly following such 60 day period if such
request is made during such 60 day period; and
(ii) to effect, in the aggregate, more than two registrations
pursuant to this Section 2;
(c) Effective Registration Statement. A registration requested
pursuant to this Section 2 shall not be deemed to have been effected, and shall
not be deemed a requested registration for purposes of Section 2, (i) unless a
Registration Statement covering at least 90% of the Registrable Securities
specified in the notices from the requesting Holders (and not subsequently
withdrawn from registration by the requesting Holders) has become effective and
2
<PAGE>
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
Registration Statement for the requisite time period as set forth in this
Agreement, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason not
attributable to the Holders, or (iii) if the conditions to closing specified in
the underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure on
the part of the Holders; provided, however, that if in the good faith judgment
of the managing underwriter of any underwritten offering, the inclusion of 90%
of the Registrable Securities specified in the notices from the requesting
Holder would adversely affect the successful marketing of the proposed offering,
then (i) the Holders may elect to proceed with such registration of such reduced
number of Registrable Securities in which case, subject to the conditions set
forth above, such registration shall be deemed a requested registration for the
purpose of Section 2 or (ii) the Holders may elect to withdraw such
registration, in which case, unless the Holders elect to reimburse the Company
for 100% of the expenses incurred in connection with such registration, such
registration shall also be deemed a requested registration for the purpose of
Section 2.
(d) Priority in Requested Registration. The Company shall have the
right to include in any Registration Statement initiated by the Holders pursuant
to this Section 2, for sale in accordance with the method of disposition
specified by the requesting Holders, securities to be sold by the Company for
its own account and registrable securities to be sold by any other stockholder
("Other Holders"). If, in the good-faith judgment of the managing underwriter of
any underwritten offering, if any, the inclusion of all of the Registrable
Securities requested for inclusion pursuant to Section 2(a) would adversely
affect the successful marketing of the proposed offering or a reduction in the
number of shares of equity securities of the IPO Vehicle to be sold is otherwise
advisable, then the number of shares of equity securities of the IPO Vehicle to
be included in the offering shall be reduced to the required level as follows:
(i) in the first such requested registration, on a pro rata basis, securities to
be sold by the Holders, the Company and the Other Holders, based on the total
number of shares of securities owned by such Persons; and (ii) in the second
requested registration, first, by excluding securities to be sold by the Company
for its own account, second, by reducing the participation of Other Holders of
securities in such offering pro rata among such Other Holders of securities in
such offerings based upon the total number of securities owned by such Other
Holders, and third, by reducing the participation of the Holders in such
offering pro rata among such Holders, based upon the total number of shares of
Registrable Securities owned by such Holders. Except for Special Registration
Statements, the Company shall not cause any other Registration Statement with
respect to its securities for its own account to become effective less than 120
days after the effective date of any registration requested pursuant to this
Section 2.
(e) Selection of Underwriters. The underwriter or underwriters of
each underwritten offering of the Registrable Securities so to be registered
shall be selected by the Company and shall be reasonably acceptable to the
Selling Holders of more than 50% of each class of securities to be included in
such registration.
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(f) Registration on Form S-3. Following an Initial Public Offering,
the Company shall use its best efforts to become eligible to use the
Registration Statement on Form S-3 for public offerings of its capital stock.
3. Incidental Registration.
(a) Right to Include Registrable Securities. If at any time after an
Initial Public Offering the Company proposes to register any shares of capital
stock under the Securities Act, whether or not for sale of its own account, on a
form and in the manner that would permit registration of Registrable Securities
for the sale to the public under the Securities Act (other than in connection
with Special Registration Statements), the Company shall give written notice to
all Holders of its intention to do so. Upon the written request of a Holder
given within 20 days after the giving of any such notice by the Company, the
Company shall use its reasonable best efforts to cause to be included in such
Registration Statement all of the Registrable Securities requested by Holders;
provided that if any Person other than the Company offers any Equity securities
of the IPO Vehicle for sale in connection with an Initial Public Offering, then
the Holders shall have the right to offer a pro rata portion of the Registrable
Securities for sale based on the number of shares of equity securities of the
IPO Vehicle owned by all shareholders of the Company immediately prior to the
Initial Public Offering. If the Registration Statement is to cover, in whole or
in part, any underwritten distribution, the Company shall use its reasonable
best efforts to cause the Registrable Securities requested for inclusion
pursuant to this Section to be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
(b) Priority in Incidental Registrations. If, in the good-faith
judgment of the managing underwriter of any underwritten offering, if any, the
inclusion of all of the Registrable Securities requested for inclusion pursuant
to Section 3(a) would adversely affect the successful marketing of the proposed
offering or a reduction in the number of shares of Equity Securities of the IPO
Vehicle to be sold is otherwise advisable, then the number of shares of Equity
Securities of the IPO Vehicle to be included in the offering shall be reduced to
the required level as follows: (i) no reduction shall be made in the number of
securities to be registered for the account of the Company; and (ii) each Holder
and Other Holder shall be reduced pro rata based on the total number of shares
of Registrable Securities owned by such Persons.
4. Registration Procedures. If and whenever the Company is required
by the provisions of Sections 2 or 3 to effect the registration of Registrable
Securities under the Securities Act, the Company shall, at its expense, as
expeditiously as possible:
(i) use best efforts to prepare and file with the Commission a
Registration Statement with respect to such Registrable Securities and use its
reasonable best efforts to cause such Registration Statement to become
effective; provided that the Company may discontinue any registration of its
securities which is being effected pursuant to Section 3 at any time prior to
the effective date of the Registration Statement;
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(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
a period not in excess of 120 days (except with respect to any Registration
Statement filed pursuant to Rule 415 under the Securities Act if the Company is
eligible to file a Registration Statement on Form S-3, in which case the Company
shall use its best efforts to keep such Registration Statement effective and
updated until such time as all of the Registrable Securities covered by such
Registration Statement have been disposed of in accordance with the intended
methods of disposition by the seller or sellers set forth in such Registration
Statement) and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such Registration
Statement; provided that before filing a Registration Statement or prospectus,
or any amendments or supplements thereto, the Company will furnish to one
counsel selected by the Holders of a majority of the Registrable Securities
covered by such Registration Statement to represent all Holders of Registrable
Securities covered by such Registration Statement, copies of all documents
proposed to be filed, which documents will be subject to the review of such
counsel;
(iii) furnish to each seller of such Registrable Securities
such number of copies of such Registration Statement and of each amendment and
supplement thereto (in each case including all exhibits), such number of copies
of the prospectus included in such Registration Statement (including each
preliminary prospectus and summary prospectus), and any other prospectus filed
under Rule 424 under the Securities Act in conformity with the requirements of
the Securities Act, and such other documents as such seller may reasonably
request;
(iv) use its best efforts to register or qualify such
Registrable Securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller, except that the Company shall not for any such purpose be required (a)
to qualify generally to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this clause (iv), it would not be obligated
to be so qualified or (b) to consent to general service or process in any such
jurisdiction;
(v) use its best efforts to cause such Registrable Securities
covered by such Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Registrable
Securities;
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(vi) cause senior representatives of the Company to
participate in any "road show" or "road shows" reasonably requested by any
underwriter of an underwritten or "best efforts" offering of any Registrable
Securities;
(vii) notify each seller of any such Registrable Securities
covered by such Registration Statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the Company's
becoming aware that the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller, prepare and furnish to such
seller a reasonable number of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the sellers of such
Registrable Securities, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable (but not more than 18
months) after the effective date of the Registration Statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the Securities
Act and the rules and regulations promulgated thereunder;
(ix) use its best efforts to list such Registrable Securities
on any securities exchange on which capital stock of the same class is then
listed, if such Registrable Securities are not already so listed and if such
listing is then permitted under the rules of such exchange, and to provide a
transfer agent and registrar for such Registrable Securities covered by such
Registration Statement not later than the effective date of such Registration
Statement;
(x) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions as sellers
of a majority of such Registrable Securities or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities;
(xi) obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form and covering matters
of the type customarily covered by "cold comfort" letters as the seller or
sellers of a majority of such Registrable Securities shall reasonably request;
(xii) obtain an opinion of counsel for the Company in
customary form and covering matters of the type customarily covered in opinions
of issuer's counsel as the Sellers shall reasonably request; and
(xiii) make available for inspection by any seller of such
Registrable Securities covered by such Registration Statement, by any
underwriter participating in any disposition to be effected pursuant to such
Registration Statement and by any attorney,
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accountant or other agent retained by any such seller or any such underwriter,
all pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause all of the Company's officers, directors
and employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
5. Expenses. With respect to each registration effected pursuant to
Sections 2 or 3, all Registration Expenses (defined below) in connection with
such registration and the public offering in connection therewith shall be borne
by the Company; provided that security holders participating in any such
registration shall bear their pro rata share of the underwriting discounts and
selling commissions (on the basis of the number of Registrable Securities of
each such person included and sold in such registration). "Registration
Expenses" means any and all expenses incident to performance of or compliance
with this Agreement, including, without limitation, (i) all registration and
filing fees of the Commission, a stock exchange or the National Association of
Securities Dealers, Inc., (ii) all fees and expenses of complying with
securities or blue sky laws (including fees and disbursements of counsel for the
underwriters in connection with blue sky qualifications of the Registrable
Securities) unless paid by the underwriters, (iii) all printing, messenger and
delivery expenses, (iv) all fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange pursuant to
Section 4(ix), (v) the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, (vi) the reasonable fees and disbursements of one counsel selected
by the Holders of a majority of the Registrable Securities being registered to
represent all Holders of the Registrable Securities being registered in
connection with each such registration, (vii) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities, including
fees and disbursements of counsel for the underwriters, but excluding
underwriting discounts and commissions, (viii) liability insurance if the
Company so desires or if the underwriters so require, and (ix) the reasonable
fees and expenses of any special experts retained by the Company in connection
with the requested registration.
6. Indemnification and Contribution.
(a) Indemnification by the Company. In the event of a registration
of any shares of Registrable Securities pursuant to Section 2 or 3, the Company,
to the extent permitted by law, will indemnify and hold harmless each Holder of
such shares of Registrable Securities included in a Registration Statement
pursuant to the provisions of this Agreement and any underwriter (as defined in
the Securities Act) of such Registrable Securities and each other person, if
any, who controls such Holder or such underwriter within the meaning of the
Securities Act, and their respective directors, officers, partners, members,
agents and affiliates (the "Holders' Affiliates") , and each of their successors
from and against, and will reimburse such Holder and each such underwriter,
controlling person and Holders' Affiliate with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs and expenses to which such
Holder, underwriter, controlling person or Holders' Affiliate may become subject
under the Securities Act or otherwise, including, without limitation, the
reasonable fees and expenses of
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legal counsel (including those incurred in connection with any claim for
indemnity hereunder) insofar as such claims, actions, demands, losses, damages,
liabilities, costs or expenses (or actions, or proceedings, whether commenced or
threatened in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
Registration Statement under which securities were registered under the
Securities Act, any prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or arise out of any violation by the
Company of any rule or regulation under the Securities Act or any state
securities laws applicable to the Company and relating to action or inaction
required of the Company in connection with such registration; provided that the
Company will not be liable in any case to the extent, but only to the extent,
that any such claim, action, demand, loss, damage, liability, cost or expense
arises out of or is based upon an untrue statement or omission so made in
reliance upon and in strict conformity with information furnished in writing by
such Holder or such underwriter specifically for use in the preparation thereof
and provided, further, that the Company shall not be liable to any person who
participates as a underwriter in the offering or sale of Registrable Securities
or any other person, if any, who controls such underwriter within the meaning of
the Securities Act, in any such case to the extent that any such loss, claim,
action, demand, loss, damage, liability, cost or expense arises out of such
person's failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended and furnished to such person for distribution in
accordance with the terms of this Agreement, to the person asserting an untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if such
statement or omission was corrected in such final prospectus which was furnished
to such person for distribution in accordance with the terms of this Agreement.
It is agreed that this indemnity shall not apply to amounts paid in settlement
of any such claim, action, demand, loss, damage, liability, cost or expense if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld). This indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such Holder,
underwriter, controlling person or Holders' Affiliate and shall survive the
transfer of such securities by such Holder.
(b) Indemnification by the Holders. Each Holder of shares of
Registrable Securities, severally and not jointly, which shares are included in
a registration pursuant to the provisions of this Agreement, to the extent
permitted by law, will indemnify and hold harmless the Company, each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who signs the Registration Statement including such
Registrable Securities, each director of the Company, each underwriter and any
person who controls the underwriter and each of their successors from and
against, and will reimburse the Company and such officer, director, underwriter
or controlling person with respect to, any and all claims, actions, demands,
losses, damages, liabilities, costs or expenses to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such claims, actions, demands,
losses, damages, liabilities, costs or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such Registration Statement, any prospectus contained therein or any
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amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading; provided that such Holder
will be liable in any such case to the extent, but only to the extent, that any
such claim, action, demand, loss, damage, liability, cost or expense arises out
of or is based upon an untrue statement or omission made in reliance upon and in
strict conformity with written information furnished by such Holder specifically
for use in the preparation thereof. The liability of each Holder under this
Section shall be limited to the proportion of any such claim, action, demand,
loss, damage, liability, cost or expense which is equal to the proportion that
the public offering price of the shares of Registrable Securities sold by such
Holder under such Registration Statement bears to the total offering price of
all securities sold thereunder, but not, in any event, to exceed the proceeds
received by such Holder from the sale of shares of Registrable Securities
covered by the Registration Statement. It is agreed that this indemnity shall
not apply to amounts paid in settlement of any such claim, action, demand, loss,
damage, liability, cost or expense if such settlement is effected without the
consent of the Holder (which consent shall not be unreasonably withheld). This
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder, underwriter or any such director, officer,
partner, member, agent or controlling person and shall survive the transfer of
such securities by such Holder.
(c) Notices of Claims, etc. Promptly after receipt by a party to be
indemnified pursuant to the provisions of this Section 6(a) or (b) (an
"indemnified party") of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party
will, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of this Section 6(a) or (b), notify the indemnifying party of
the commencement thereof, but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to an indemnified party
otherwise than under this Section and shall not relieve the indemnifying party
from liability under this Section unless such indemnifying party is prejudiced
by such omission. In case such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after the notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party pursuant to the
provisions of this Section 6(a) and (b) for any legal expense subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided that, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded on advice of counsel that
there may be reasonable defenses available to it that are different from or
additional to those available to the indemnifying party or if the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of not more than one
such separate counsel
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and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred. No indemnifying party shall be liable to an
indemnified party for any settlement of any action or claim without the consent
of the indemnifying party and no indemnifying party may unreasonably withhold
its consent to any such settlement. No indemnifying party will, except with the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(d) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, any underwriter or
controlling person of any such Holder or underwriter, or any Holders' Affiliate,
makes a claim for indemnification pursuant to this Section but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section provides for indemnification in such
case, or (ii) contribution under the Securities Act may be required on the part
of any such Holder, underwriter, controlling person or Holders' Affiliate in
circumstances for which indemnification is provided under this Section 6, then,
and in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion as is appropriate to reflect
the relative fault of the Company on the one hand and of the Holder of
Registrable Securities on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the holder of Registrable Securities on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company on the one
hand or by the Holder of Registrable Securities on the other, and each party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided that, in any such case, (A) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation and (B)
no such Holder will be required to contribute any amount in excess of the
proceeds received by such Holder from the sales of Registrable Securities
covered by the Registration Statement.
(e) Other Indemnification. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten public
offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
7. Reporting Requirements Under Securities Exchange Act of 1934.
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(a) Exchange Act Reporting. When it is first legally required to do
so, the Company shall register its capital stock under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and shall keep
effective such registrations and shall timely file such information, documents
and reports as the Commission may require or prescribe under Section 13 of the
Exchange Act. From and after the effective date of the first Registration
Statement filed by the Company, the Company shall (whether or not it shall then
be required to do so) timely file such information, documents and reports as the
Commission may require or prescribe under Section 13 or 15(d)(whichever is
applicable) of the Exchange Act.
(b) Furnishing Information to Holders. Immediately upon becoming
subject to the reporting requirements of either Section 13 or 15(d) of the
Exchange Act, the Company shall forthwith upon request furnish any Holder of
Registrable Securities (a) a written statement by the Company that it has
complied with such reporting requirements, (b) a copy of the most recent annual
or quarterly report of the Company, and (c) such other reports and documents
filed by the Company with the Commission as such Holder may reasonably request
in availing itself of an exemption for the sale of Registrable Securities
without registration under the Securities Act.
(c) Rule 144 and Form S-3. The Company acknowledges and agrees that
the purposes of the requirements contained in this Section 7 are (i) to enable
any such Holder to comply with the current public information requirement
contained in paragraph (c) of Rule 144 under the Securities Act should such
Holder ever wish to dispose of any of the securities of the Company acquired by
it without registration under the Securities Act in reliance upon Rule 144 (or
any other similar or successor exemptive provision), and (ii) to qualify the
Company for the use of Registration Statements on Form S-3. In addition, the
Company shall take such other measures and file such other information,
documents and reports as shall hereafter be required by the Commission as a
condition to the availability of Rule 144 under the Securities Act (or any
similar or successor exemptive provision hereafter in effect) and the use of
Form S-3. The Company also covenants to use its reasonable best efforts, to the
extent that it is reasonably within its power to do so, to qualify for the use
of Form S-3. From and after the effective date of the first Registration
Statement filed by the Company, the Company agrees to use its reasonable best
efforts to facilitate and expedite transfers of Registrable Securities by
Holders pursuant to Rule 144 under the Securities Act (or any similar or
successor exemptive provision hereafter in effect), which efforts shall include
timely notice to its transfer agent to expedite such transfers of Registrable
Securities.
8. Other Registration Rights.
(a) The Company may grant to subsequent investors in the Company
rights of incidental registration (such as those rights provided in Section 3);
provided, that such rights are consistent with the limitations set forth in
Section 3.
(b) If the Company at any time grants to any other holders of equity
securities of the IPO Vehicle any rights more favorable to such holders than the
terms set forth in this
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Agreement, the terms of this Agreement shall be deemed amended or supplemented
to the extent necessary to provide the Holders such more favorable rights and
benefits.
9. Blackout Periods. Notwithstanding any other provision in this
Agreement to the contrary, the Company's obligation to file a Registration
Statement, or cause such Registration Statement to become and remain effective,
shall be suspended for not more than one period not to exceed an aggregate of 90
days in any 12-month period if the Company shall furnish to Holders a
certificate signed by the president of the Company stating that in reasonable
judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such registration to be
effected at such time due to pending Company events.
10. Stockholder Information. The Company may require each Holder of
Registrable Securities as to which any registration is to be effected pursuant
to this Agreement to, and as a condition to the obligations of the Company
hereunder, such Holder shall, furnish the Company in a timely manner such
information with respect to such Holder and the distribution of such Registrable
Securities as the Company may from time to time reasonably request in writing
and as shall be required by law or by the Commission in order to facilitate the
disposition of the Registrable Securities owned by them that are included in
such registration.
11. Calculation of Percentage Interests in Registrable Securities.
For purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated based upon the number of shares of
Registrable Securities outstanding at the time such calculation is made.
12. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
Without limiting the generality of the foregoing, the Company will not hereafter
enter into any agreement with respect to its securities that grants, or modify
any existing agreement with respect to its securities to grant, to the holder of
its securities in connection with an incidental registration of such securities
higher priority to the rights granted to the Investors under Section 2(e).
13. Certain Distributions. The Company shall not at any time make a
distribution on or with respect to the equity securities of the IPO Vehicle
(including any such distribution made in connection with a consolidation or
merger in which the Company is the resulting or surviving corporation and such
Registrable Securities are not changed or exchanged) of securities of another
issuer if Holders of Registrable Securities are entitled to receive such
securities in such distribution as Holders of Registrable Securities and any of
the securities so distributed are registered under the Securities Act, unless
the securities to be distributed to the Holders of Registrable Securities are
also registered under the Securities Act.
14. Specific Enforcement. All of the parties acknowledge that the
parties will be irreparably damaged in the event that this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants or conditions of this Agreement by any of the
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parties hereto, the other parties shall, in addition to all other remedies, be
entitled to a temporary or permanent injunction, without showing any actual
damage, or a decree for specific performance, in accordance with the provisions
of this Agreement.
15. Descriptive Headings; Definitions; Certain Interpretations. (a)
Descriptive headings are for convenience only and shall not control or affect
the meaning or construction of any provision of this Agreement.
(b) As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" means, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.
"Holder" means (a) the Investor and (b) any other person to which
the rights of registration under this Agreement have been transferred or
assigned by the Investors or their transferees.
"Initial Public Offering" means the initial public offering of
shares of common stock pursuant to a registration under The Securities Act.
"MCM Parties" means John S. Dyson, Clay B. Lifflander, Alan L.
Rivera, David H. Bova, George M. Scherer, Robert B. Kay, each of the members of
such Person's Shareholder Group, and, with respect to such executives of MCM who
are not Shareholders of the Company, related parties and Affiliates.
"Public Float" means the product of (x) the market price (based on
the average closing price for any fifteen trading days within any thirty trading
day period as reported on a national securities exchange) of the publicly traded
equity securities of the IPO Vehicle and (y) the aggregate number of shares of
equity securities of the IPO Vehicle beneficially owned by Persons other than
the Investor and its Affiliates and Affiliates of the Company Group (including
the MCM Parties).
"Registrable Securities" means shares of equity securities of the
IPO Vehicle beneficially owned by SG or any Affiliate, and any shares of equity
securities of the IPO Vehicle issued in respect of such shares by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger or consolidation or reorganization; provided that any
such shares shall cease to be Registrable Securities when such securities have
been sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction.
"SEC" means the Securities and Exchange Commission or any successor
commission or agency having similar powers.
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"Shareholder Group" means with respect to a particular Person (i)
such Person, and to the extent applicable, each of the following: (ii) the
spouse, ancestors, siblings and lineal descendants of such Person, (iii) a trust
for the benefit of any of the foregoing, (iv) any corporation (other than the
Company), limited liability company or partnership controlled by such Person,
members of such Person's immediate family and lineal descendants or trusts for
the benefit of any of the foregoing, (v) the general partners, members and
principals of such Person and their respective Affiliates, (vi) upon the death,
dissolution or liquidation of such Person, such Person's estate, executors,
administrators and personal representatives, and heirs, legatees and
distributees, and (vii) with respect to the MCM Parties, each other MCM Party.
"Subsidiary" of any Person means a corporation, company or other
entity (i) more than 50% of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or securities (as may be the
case in a partnership, joint venture or unincorporated association), but more
than 50% of whose ownership interest representing the right to make decisions
for such other entity is, now or hereafter owned or controlled, directly or
indirectly, by such Person, but such corporation, company or other entity shall
be deemed to be a Subsidiary only so long as such ownership or control exists.
(c) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" or "any" are
not exclusive and "include" and "including" are not limiting; (iii) a reference
to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; (vi) a reference to
generally accepted accounting principles refers to United States generally
accepted accounting principles; and (vii) a reference in this Agreement to an
Section or Schedule is to the Section or Schedule of this Agreement. All
references to the Company herein shall mean the Company or the IPO Vehicle, as
appropriate.
16. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service
or sent by telex, graphic scanning or other telegraphic communications equipment
of the sending party, as follows:
(a) if to the Investor,
SGC Partners II LLC
c/o SG Capital Partners LLC
15th Floor
1221 Avenue of the Americas
New York, NY 10020
Attention: Christopher M. Neenan
Telecopier: (212) 278-5454
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<PAGE>
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Scott F. Smith, Esq.
Telecopier: (212) 841-1010
(b) if to the Company,
Key Components, Inc.
200 White Plains Road
4th Floor
Tarrytown, NY 10591
Attention: Alan L. Rivera
Telecopier: (914) 332-1441
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael J. Emont
Telecopier: 212-698-7825
All notices and other communications given to either party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telex, graphic scanning or other telegraphic communications equipment of the
sender, in each case delivered or sent (properly addressed) to such party as
provided in this Section 17 or in accordance with the latest unrevised direction
from such party given in accordance with this Section 17.
17. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
18. Benefits of Agreement. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. This Agreement is for the sole
benefit of the parties hereto and not for the benefit of any third party.
19. Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
15
<PAGE>
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
21. CONSENT TO JURISDICTION. EACH OF THE PARTIES IRREVOCABLY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF (i) THE SUPREME COURT OF THE STATE OF NEW YORK,
NEW YORK COUNTY AND (ii) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY
FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENTS BY
UNITED STATES REGISTERED MAIL TO SUCH PARTY'S RESPECTIVE ADDRESS FOR NOTICES SET
FORTH IN SECTION 10.13 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION,
SUIT OR PROCEEDING IN NEW YORK WITH RESPECT TO ANY MATTERS TO WHICH IT HAS
SUBMITTED TO JURISDICTION IN THIS SECTION 22. EACH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT
OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY IN (a) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY AND
(b) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
22. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. The rights and obligations of the Company and KCLLC hereunder shall
be binding on and inure to the benefit of the IPO Vehicle, if the IPO Vehicle is
not the Company or any successor entity. The Investors' rights hereunder are
assignable only to an assignee or transferee of all or a portion of the shares
of Registrable Securities held by the Investors to the extent of such assignment
or transfer, provided, the Investor gives the Company prior written notice
thereof, and, provided further that such right shall not be assigned or
transferred if the share of shares of Registrable Securities are sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent Holder of any Registrable Securities, subject
to the provisions contained herein. In no event shall Investor
16
<PAGE>
transfer any rights under this Agreement without a corresponding transfer of all
or a portion of the Registrable Securities.
23. Underwriting Agreement. In connection with each registration
pursuant to Sections 2 or 3 covering an underwritten public offering, the
Company and each selling Holder agree to enter into a written agreement with the
managing underwriter selected in the manner herein provided in such form
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature; provided, however, that no selling Holder shall be required
to make any representations, warranties or covenants relating to the Company and
that the Company shall make such representations, warranties and covenants.
24. Aircraft Carrier Release. The parties agree that if Release No.
33-7606A, or a similar release, is adopted by the SEC, the parties shall make
amendments to this Agreement necessary to preserve the intent of this Agreement.
All references to SEC forms in this Agreement include successor forms thereto.
25. Entire Agreement. This Agreement, the Purchase Agreement and the
Shareholder Agreement contain the entire agreement and understanding between the
parties hereto with respect to matter covered hereby and supersede all prior
agreements and understandings, written or oral, among the parties with respect
to the subject matter hereof.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
KEY COMPONENTS, INC.
By: /s/ Alan Rivera
--------------------------------------
Name:
Title:
KEY COMPONENTS, LLC
By: /s/ Alan Rivera
--------------------------------------
Name:
Title:
SGC PARTNERS II, LLC
By:
--------------------------------------
Name:
Title:
KEYHOLD, INC.
By:
--------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
KEY COMPONENTS, INC.
By:
--------------------------------------
Name:
Title:
KEY COMPONENTS, LLC
By:
--------------------------------------
Name:
Title:
SGC PARTNERS II, LLC
By: /s/ [ILLEGIBLE]
--------------------------------------
Name:
Title:
KEYHOLD, INC.
By: /s/ [ILLEGIBLE]
--------------------------------------
Name:
Title:
<PAGE>
SHAREHOLDERS AGREEMENT, dated as of September 1, 1999 (the
"Agreement"), among KEY COMPONENTS, LLC, a Delaware
limited liability company ("KCLLC"), KEY COMPONENTS, INC.,
a New York corporation and the sole existing member of
KCLLC (the "Company"), the shareholders of the Company
listed on the signature pages hereto (the "KCI
Shareholders"), SGC PARTNERS II LLC, a Delaware limited
liability company ("SG"), and KEYHOLD, INC., a Delaware
corporation and a wholly owned subsidiary of SG ("Sub").
-----------------------------------------------------------
Pursuant to a Share Purchase Agreement dated August 12, 1999 (the
"Purchase Agreement"), among KCLLC, the Company, SG and Sub, KCLLC has agreed to
sell newly issued shares of KCLLC to Sub in exchange for payment of the Purchase
Price (as defined in the Purchase Agreement) (the "Shares").
As a condition to the purchase and sale of the Shares under the
Purchase Agreement, KCLLC, the Company and Sub have agreed to enter into the
Amended and Restated Operating Agreement of KCLLC dated the date hereof (the
"Operating Agreement") and KCLLC, the Company, the KCI Shareholders, SG and Sub
have agreed to enter into this Agreement and the Registration Rights Agreement,
dated the date hereof (the "Registration Rights Agreement").
The parties agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the meanings specified below:
"Affiliate" means, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the Person
specified.
A Person shall be deemed the "beneficial owner" of, and shall be
deemed to "beneficially own", any securities (a) which such Person or any of its
Affiliates is deemed to "beneficially own" within the meaning of Rule 13d-3
under the Exchange Act or (b) which such Person or any of its Affiliates has the
right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding or
upon the exercise of any right of conversion or exchange, warrant, option or
otherwise.
"Change of Control" of the Company shall mean such time as:
(i) The MCM Parties shall collectively cease to beneficially own
outstanding shares of capital stock of the Company entitling the MCM Parties to
exercise more than 50% of the total votes entitled to be cast at a regular or
special meeting, or by action by written consent, of shareholders of the
Company;
<PAGE>
(ii) A majority of the Board of Directors of the Company shall
consist of Persons other than Continuing Directors. The term "Continuing
Director" shall mean any member of the Board of Directors of the Company on the
date of this Agreement and any member of the Board of Directors elected or
appointed to the Board of Directors in accordance with the terms of this
Agreement;
(iii) The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or similar transaction,
in each case, with respect to which all or substantially all the Persons who
were the respective beneficial owners of the outstanding shares of capital stock
of the Company immediately prior to such recapitalization, reorganization,
merger or consolidation, will directly or indirectly beneficially own less than
50% of the combined voting power of the then outstanding shares of capital stock
of the Company resulting from such recapitalization, reorganization, merger,
consolidation or similar transaction;
(iv) any Person or group of Affiliated Persons who are not
shareholders of the Company as of the date of this Agreement directly or
indirectly beneficially own more than 40% of the combined voting power of the
then outstanding shares of capital stock of the Company; or
(v) The shareholders of the Company shall have approved, directly or
indirectly, the sale or other disposition of all or substantially all the
capital stock of the Company or substantially all of the assets of the Company
Group in one transaction or in a series of related transactions.
"Company Group" means the Company and each of the Subsidiaries of
the Company, as of the date hereof and any other Subsidiaries or parent holding
companies created or acquired after the date hereof.
"EBITDA" means, for any period, the sum, without duplication, for
such period, of
(a) Net Income for such period;
PLUS
(b) the amounts deducted, in determining Net Income for such period,
for
(i) provision for taxes based on the income or profits of the
Company and its Subsidiaries,
PLUS
(ii) interest expense (determined in accordance with GAAP),
PLUS
(iii) Management Fees (but not transaction related fees) payable
under the Management Agreement, dated May 28, 1998, between the Company
and MCM (the "Management Agreement")
PLUS
(c) the amount deducted, in determining Net Income for such period,
for amortization and depreciation of assets of the Company and its Subsidiaries
during such period
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<PAGE>
(as determined in accordance with GAAP);
PLUS
(iv) an amount, calculated as provided in clauses (a), (b) and (c)
of this definition, with respect to Valley Forge Corporation and G& H
Technologies, Inc. for the period commencing on the first day of such period and
ending immediately prior to the date such acquisition was consummated;
PLUS
(d) non-recurring transaction expenses deducted in determining Net
Income for such period in connection with (i) the Acquisition of Valley Forge
Corporation, (ii) entering into the in the Amended and Restated Credit and
Guaranty Agreement dated January 19, 1999 (the "Credit Agreement"), and (iii)
the transactions contemplated by this Agreement; and
MINUS
(e) distributions made to the Company to satisfy obligations to the
employees of KCLLC that are due and payable by the Company under the terms of
the stock appreciation rights ("SARs") outstanding on the date hereof.
Capitalized terms used in this definition of EBITDA and not otherwise defined
have the meanings set forth in the Credit Agreement.
"Equity-Linked Financing" means any financing which any Person
receives as consideration for its investment in any member of the Company Group
any security that consists of, is convertible into or exchangeable or
exercisable for, or is based on the value of, any equity security or equity
interest in any member of the Company Group, including, without limitation,
common stock, preferred stock, stock options, stock appreciation rights and
performance units; it being understood that such term does not include a
transaction approved in accordance with Section 5(c) hereof in which any such
equity security or equity interest is issued in consideration for the
acquisition of a trade or business or an interest in a trade or business.
"Equity Securities" means equity securities, partnership interests
or membership interests of any member of the Company Group or of Sub.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Freely Marketable Securities" means securities listed or traded on
a national securities exchange or the Nasdaq National Market System with an
average daily trading volume expressed in dollars (based on the trading volume
for such securities for any thirty consecutive trading days within the two
calendar month period preceding such sale) of at least $1,000,000.
"Governmental Authority" means any court, administrative agency or
commission or other governmental agency or instrumentality, domestic or foreign,
of competent jurisdiction.
3
<PAGE>
"IPO Vehicle" means any member of the Company Group or any successor
entity of the foregoing that conducts an initial public offering of equity
securities.
"MCM Shares" means, as of any date, all of the capital stock of the
Company, or other equity securities issued by any member of the Company Group,
then beneficially owned by the MCM Parties.
"MCM Parties" means John S. Dyson, Clay B. Lifflander, Alan L.
Rivera, David H. Bova, George M. Scherer, Robert B. Kay, each of the members of
such Person's Shareholder Group, and, with respect to such executives of MCM who
are not Shareholders, related parties and Affiliates.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, Governmental Authority or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"Public Float" means the product of (x) the market price (based on
the average closing price for any thirty consecutive trading days as reported on
a national securities exchange or on the Nasdaq National Market System) of the
publicly traded equity securities of the IPO Vehicle and (y) the aggregate
number of shares of such equity securities beneficially owned by Persons other
than SG and its Affiliates and Affiliates of the Company Group (including the
MCM Parties).
"Qualified IPO" means (1) an underwritten initial public offering of
the equity securities of the IPO Vehicle with gross proceeds to the IPO Vehicle
of not less than $50,000,000 or (2) subsequent to an underwritten initial public
offering of such equity securities and any subsequent offerings of such equity
securities, the Public Float with respect to such equity securities is
$75,000,000 or more.
"Regulatory Problem" means any set of facts or circumstances wherein
it has been asserted by any Governmental Authority (or the SBIC Holder believes
that there is a substantial risk of such assertion) that the SBIC Holder is not
entitled to hold, or exercise any significant right with respect to, the SG
Shares.
"SBA" means the United States Small Business Administration, and any
successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by an SBA
under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1958, as
amended.
"SBIC Holder" means SG.
"SBIC Regulations" means the SBIC Act and the regulations issued by
the SBA thereunder, codified at Title 13 of the Code of Federal Regulations ("13
CFR"), Parts 107 and 121.
4
<PAGE>
"SG Shares" means, as of any date, all Shares, or other equity
securities issued by any member of the Company Group, then beneficially owned by
SG.
"Shareholder Group" means with respect to a particular Person (i)
such Person, and to the extent applicable, each of the following: (ii) the
spouse, ancestors, siblings and lineal descendants of such Person, (iii) a trust
for the benefit of any of the foregoing, (iv) any corporation (other than the
Company), limited liability company or partnership controlled by such Person,
members of such Person's immediate family and lineal descendants or trusts for
the benefit of any of the foregoing, (v) the general partners, members and
principals of such Person and their respective Affiliates, (vi) upon the death,
dissolution or liquidation of such Person, such Person's estate, executors,
administrators and personal representatives, and heirs, legatees and
distributees, and (vii) with respect to the MCM Parties, each other MCM Party.
"Subsidiary" of any Person means a corporation, company or other
entity (i) more than 50% of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or securities (as may be the
case in a partnership, joint venture or unincorporated association), but more
than 50% of whose ownership interest representing the right to make decisions
for such other entity is, now or hereafter beneficially owned or controlled,
directly or indirectly, by such Person, but such corporation, company or other
entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"Total Equity Interest in the Company" shall mean all equity
interests in the Company (assuming full conversion, exchange (including in
accordance with the Exchange Right set forth in Section 14) or exercise of all
securities convertible into, exchangeable for, or exercisable for common stock
of the Company, par value $.001 per share ("Common Stock")). In determining the
percentage of Total Equity Interest in Company represented by the Equity
Securities beneficially owned by any party hereto, any rights of conversion,
exercise or exchange relating to Common Stock (whether or not presently
exercisable or exchangeable) shall be deemed to be exercised and all Common
Stock subject to such rights shall be deemed to be outstanding.
2. Current Holdings. All outstanding Equity Securities, and all
existing rights and options respecting any Equity Securities (including any
existing SARs and excluding the outstanding capital stock of Sub), are set forth
on Schedule I hereto together with the beneficial owners thereof. It is
understood and agreed among the parties that although the outstanding stock
appreciation rights and options set forth on Schedule I (the "Equity Based
Rights") hereto are obligations of the Company as of the date hereof, it is the
intention of the parties that SG shall share on a pro rata basis any dilution or
expense created by the exercise or retirement of such Equity Based Rights, as if
such Equity Based Rights were obligations of KCLLC as of the date hereof.
Notwithstanding the forgoing, SG shall have the right to approve, which approval
shall not be unreasonably withheld, any structure, agreement, plan or other
documentation proposed to be used to achieve such pro rata sharing; provided,
however, that SG shall not be required to approve any such proposed structure,
agreement, plan or other documentation that would cause SG to incur any cost or
expense, or forgo any gain, other than its pro rata share of dilution or stock
appreciation right payment.
5
<PAGE>
3. Voting Matters. (a) Any time at which the shareholders of the
Company or the Members of KCLLC shall have the right to, or shall, vote or shall
have the right to, or shall, act by written consent, with respect to any matter,
including the election of directors, each party hereto agrees to vote all Equity
Securities of any member of the Company Group then beneficially owned by such
party in the manner so as to give effect to the provisions of this Agreement.
(b) If SG gives written notice to the KCI Shareholders that it
desires to remove a Company director designated by it, the parties hereto agree
to vote all Equity Securities then beneficially owned by such parties in favor
of removing such director if a vote of holders of such Equity Securities shall
be required to remove the director.
(c) Each KCI Shareholder represents that such KCI Shareholder has
not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this Section 3,
and no KCI Shareholder shall grant any proxy or become party to any voting trust
or other agreement which is inconsistent with or conflicts with the provisions
of this Section 3.
4. Additional Investment. Prior to the expiration of SG's obligation
to make the Additional Investment (as defined in the Share Purchase Agreement),
(a) no member of the Company Group may obtain any Equity-Linked Financing from
any Person other than SG or Sub unless SG (through Sub) has made at least one
installment of the Additional Investment in the amount of $5,000,000, and (b) no
member of the Company Group may obtain any Equity-Linked Financing at a price
less than the equivalent of $93.00 per share of Common Stock from any Person
other than SG or Sub unless SG (through Sub) has made the maximum Additional
Investment of $10,000,000.
5. Board of Directors (a) Board Composition. (i) Subject to clause
(ii) below, the Board of Directors of the Company shall consist of seven
directors. The MCM Parties shall have the right to designate five directors (the
"MCM Directors"), SG shall have the right to designate one director (the "SG
Director") and the remaining director shall be an independent director (the
"Independent Director") not affiliated with the MCM Parties or any party to this
Agreement. The Company shall propose up to three individuals to serve as the
Independent Director, one of which shall be approved by SG; provided, however,
that SG shall not be required to approve any such candidate that is not
reasonably qualified to serve as a director of the Company. Initially the MCM
Directors will be John S. Dyson, Clay B. Lifflander, Alan L. Rivera, George M.
Scherer and Robert B. Kay and the SG Director will be Christopher M. Neenan.
(ii) The SG Director shall be one of the six persons whose names are
set forth on Schedule II hereto (the "Approved SG Nominees"). If none of
the Approved SG Nominees is available to serve as the SG Director, the MCM
Parties shall have the right to approve, in their sole discretion, a
suitable replacement SG Director proposed by SG. If the MCM Parties do not
approve a prospective SG Director proposed by SG within 30 days of the
date on which no Approved SG Nominee is available to serve as the SG
Director (a "SGCP Event"), then the approval rights of SG set forth in
Section 5(c) below
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<PAGE>
(the "Approval Rights") shall be canceled and Section 5(c) of this
Agreement shall be of no further force and effect.
(b) The Act of the Board. A quorum for meetings of the Board of
Directors will consist of four of the seven directors, including the SG
Director; provided that, if (i) the SG Director is given at least ten business
days' proper written notice of such meeting, (ii) the Company uses its best
efforts to enable the SG Director to attend such meeting telephonically, and
(iii) the SG Director fails to attend such meeting, any four of the remaining
six directors shall constitute a quorum. Assuming a quorum is present, the act
of a majority of the directors present shall be the act of the Board of
Directors.
(c) SG Approval Rights. Until the consummation of a Qualified IPO or
the occurrence of an SGCP Event, SG shall have the right to approve any
Significant Action prior to such action being taken.
(i) "Significant Action" means any one or more of the following:
(A) any sale of all or substantially all the assets of the
Company Group (by sale of Equity Securities (including Common Stock)
or assets, merger or otherwise); provided that, after three years,
SG's approval shall not be required so long as (1) (x) the Company
or the KCI Shareholders purchase all of the capital stock of Sub
prior to the consummation of such sale or (y) any purchaser in such
sale is required by the terms of the definitive purchase agreement
to purchase all of the capital stock of Sub and (2) SG is given a
good faith, reasonable opportunity to bid for the purchase of the
Company Group's business;
(B) any purchases or sales of assets comprising or having a
value equal to, in any twelve month period, in excess of 10% of the
Company Group's consolidated tangible assets at the beginning of
such twelve month period, other than purchases and sales of
inventory and equipment made in the ordinary course of business,
consistent with past practice;
(C) any issuance of any Equity Securities (other than
issuances (1) to management of the Company Group at a price equal to
or greater than fair market value as determined by the Board of
Directors in good faith under the Company's benefit plans, (2) in a
Qualified IPO, or (3) in connection with the Additional Investment);
and any decreases in the outstanding capital stock, or other
material matter affecting the capital structure, of any member of
the Company Group; provided, however, that "management of the
Company Group" shall not include the MCM Parties for the purposes of
clause (1) of this Section;
(D) liquidation, recapitalization or dissolution of any member
of the Company Group or the filing of a bankruptcy petition by any
member of the Company Group;
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<PAGE>
(E) any increase in consolidated indebtedness of the Company
Group, in any twelve month period, in excess of 5% of the Company
Group's existing committed consolidated indebtedness at the
beginning of such period (including existing availability under the
existing revolving loan commitment pursuant to Section 2.1.1 of the
Credit Agreement (the "Existing Revolver")), or any amendment to
material terms of any indebtedness of any member of the Company
Group including any amendment effecting an increase in the Company
Group's maximum allowable amount of capital expenditures in effect
on the date hereof. The amount of the Company's existing committed
consolidated indebtedness as of the date of this Agreement is $[ ].
For the purposes of this paragraph, "consolidated indebtedness"
shall not include trade debt incurred in ordinary course of
business;
(F) any amendment to the Certificate of Incorporation or
Bylaws of the Company or the Operating Agreement which would
adversely affect the rights of SG (including amendments relating to
the size of the Board of Directors of the Company);
(G) any changes in the Chief Executive Officer or Chief
Financial Officer of the Company (it being understood and agreed
that, as of the date hereof, the Company intends to hire a full-time
President or Chief Operating Officer and that SG shall not
unreasonably withhold its approval of the selection of such officer)
or any material change in management compensation, or creation of or
material change to any existing management incentive plans, in each
case, for any member of the Company Group (which approval may not be
unreasonably withheld);
(H) any transactions between or among any member of the
Company Group on the one hand and any Affiliate of the Company Group
or the MCM Parties on the other hand, excluding the payment of
management fees and transaction-related fees to MCM consistent with
that which is permitted under the Indenture of KCLLC and Key
Components Finance Corp., dated May 28, 1998 (the "Indenture") and
written agreements entered into prior to the date hereof, or in the
absence of the Indenture, such management fees and
transaction-related fees consistent with those that would have been
permitted thereunder;
(I) the entering into, or amending any material term of, any
transaction outside the ordinary course of business or in excess of
$2,500,000 (which approval may not be unreasonably withheld);
(J) any capital contribution to any Subsidiary of the Company
in excess of $5,000,000 in any year; provided that approval will not
be required if such contribution is being made as part of a
transaction that does not otherwise constitute a Significant Action;
(K) a material change in the nature of the Company Group's
business, taken as a whole;
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<PAGE>
(L) any other matters affecting SG's status as a licensee
under the SBIC Act, or any other matters that could reasonably be
expected to cause any member of the Company Group, as constituted on
the date hereof, to cease to be a pass-through entity for federal
income tax purposes, or any other matter that could reasonably be
expected to result in the Company ceasing to be an entity in which
equity holders do not generally have liability for its obligations;
and
(M) any decisions of the Tax Matters Partner (as defined in
the Operating Agreement) or any matters to be determined in the
discretion of the board of directors of KCLLC, in each case,
relating to allocations or distributions of income, gain, loss or
expense or distributions of cash or property to the members of
KCLLC; provided however, that nothing in this subsection M shall
give SG approval rights over (i) distributions in accordance with
the Operating Agreement to pay taxes of the members and shareholders
of members of KCLLC or (ii) the method of making Section 704(c)
allocations under Section 1.704-3(b) of the Treasury Regulations.
(ii) If SG fails to approve a Significant Action for which approval
has been requested within five business days after such request, the parties
hereto shall (A) submit the matter to the dispute resolution procedure set forth
in Section 6 below (the "Dispute Resolution Procedure") to determine if the
relevant Significant Action should be carried out, or (B) if mutually agreed by
the parties hereto, implement the buyout procedure set forth in Section 8 below
(the "Buyout Procedure"); provided, however that if the Significant Action that
SG fails to approve involves an event described in subsection (i)(A) of this
Section 5(c) or if SG fails to approve more than one Significant Action for
which approval has been requested, SG on the one hand or the Company on the
other hand may invoke the Buyout Procedure. It is understood and agreed by the
parties that from the time the Buyout Procedure is invoked pursuant to this
Section 5(c)(ii) until the ultimate disposition of the Company in accordance
with the Buyout Procedure, the Company may not take any Significant Action,
including any Significant Action or Significant Actions that SG failed to
approve prior to the invocation of the Buyout Procedure without SG's approval
other than any action (whether or not a Significant Action) that is expressly
contemplated by the terms of the Buyout Procedure.
(d) Visitation Rights. In addition to the other rights granted pursuant to
this Section 5, Brad Yates or another representative of SG shall have the right
to attend all regular and special meetings of the Board of Directors of the
Company and any committees thereof, and in addition to such representative, the
SG Director shall have the right to attend all regular and special meetings of
any committees of the Board, in each case, as an observer. The visitation rights
set forth above shall include the right to receive the same notice and materials
provided to Board and committee members.
(e) Inconsistency with Organizational Documents. In the event that any
provision of the Company's Certificate of Incorporation or Bylaws or any
provision of the Operating Agreement is inconsistent with any provision of this
Section 5, the Company shall take such action as may be necessary to amend any
such provision to remedy such inconsistency.
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6. Dispute Resolution Procedure. Promptly, but not later than five
days following the invocation of the Dispute Resolution Procedure, a dispute
resolution committee shall be formed consisting of one representative designated
by each of SG and the Company and a third committee member selected by mutual
agreement of SG's and the Company's representatives; provided that if either
party shall fail to designate a representative to serve on such committee within
such five-day period, the dispute shall be resolved by the representatives that
have then been designated. No member of the dispute resolution committee may be
Affiliated with any party to this Agreement. The dispute resolution committee
shall determine by majority vote the outcome of any matter submitted to it by
parties hereto in accordance with this Agreement. The decision of the dispute
resolution committee with respect to any matter properly submitted to it will be
final and binding on the parties. With respect to any particular matter for
which the Dispute Resolution Procedure is invoked, the procedure (including the
selection of the committee members and the formation of the committee) must be
completed within 30 days from the date on which the procedure is first invoked
in accordance with this Agreement; provided, that if the procedure is invoked in
connection with the selection of an investment banking firm pursuant to Section
7 below, the procedure (including the selection of the committee members and the
formation of the committee) must be completed within five business days from the
date on which the procedure is first invoked.
7. Valuation Procedure. Promptly following invocation of this
procedure (the "Valuation Procedure") in connection with the Buyout Procedure or
the repurchase right set forth in Section 9 (the "Repurchase Right"), SG and the
Company shall mutually agree on the selection of, and the Company shall retain,
at its expense, an investment banking firm for the purpose of determining the
fair market value of the Company Group and the common equity of the Company
based on customary enterprise valuation methodologies with no liquidity or
minority discounts. If the parties are unable to agree upon the selection of an
investment banking firm, then the decision shall be submitted to the Dispute
Resolution Procedure. The terms of the engagement of any investment banking firm
selected shall provide that such bank shall complete its valuation of the
Company Group within 30 days of the bank's engagement. The date on which the
investment banking firm submits its valuation report in accordance with this
Section 7 shall be the "Valuation Date".
8. Buyout Procedure. (a) Within 15 business days after the Valuation
Date, the Company shall give written notice (the "Buyout Notice") to SG that the
Company elects either (x) to purchase all of the outstanding capital stock of
Sub at a pro rata price per share based upon the fair market value of the
Company Group as set forth in the valuation report of the investment banking
firm with no liquidity or minority discounts (the "Buyout Price") or (y) to use
its best efforts to sell the Company Group or all or substantially all of the
assets of the Company Group, subject to Section 12, to a third party in a manner
consistent with achieving the highest possible price per share in such sale. SG
shall have the right within three business days of receipt of the Buyout Notice
to offer, in its sole discretion, by written notice to the Company, to purchase
the MCM Shares at a price per share higher than the Buyout Price. In the event
of such higher offer by SG, the Company shall elect by written notice to SG
within two business days after such notice by SG either (1) to purchase all of
the outstanding capital stock of Sub at a pro rata price per share based on such
higher price per share offered by SG or (2) to sell the MCM Shares to SG at such
higher price per share offered by SG. Notwithstanding the foregoing,
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if the Company is proceeding with a sale to a third party, the Company shall use
its best efforts to allow SG to participate in such sale process as a bidder on
the same basis as any other bidder and shall provide SG with the same
information about the bidding process, the Company's financial condition and any
other material information provided to any other bidder in such sale.
(b) If the Company is purchasing all of the outstanding capital
stock of Sub, the closing of such sale must take place not later than three
calendar months from the Buyout Notice. At closing, the Company shall pay the
aggregate purchase price for Sub as follows: (A) as much as reasonably
practicable in the Company's best business judgement but at least 25% shall be
paid in cash and (B) the remainder shall be paid in the form of a junior
subordinated promissory note substantially in the form of Exhibit A hereto.
(c) If SG is purchasing the MCM Shares, the closing of such sale
must take place not later than four calendar months from the Buyout Notice. At
closing, SG shall pay the aggregate purchase price for the MCM Shares as
follows: (A) as much as reasonably practicable in the Company's best business
judgement but at least 50% shall be paid in cash and (B) the remainder shall be
paid in the form of a junior subordinated promissory note substantially in the
form of Exhibit A hereto.
(d) If the result of the Buyout Procedure is, subject to Section 12,
a sale of the Company Group or all or substantially all of the Company Group's
assets, the Company shall cause the closing of such a sale to take place not
later than the six-month anniversary of the Buyout Notice and such sale shall be
subject to the terms and conditions applicable to such sale set forth in Section
12. If such sale shall not have been consummated on or before the six-month
anniversary of the Buyout Notice, the Company shall purchase all of the issued
and outstanding capital stock of Sub at the Buyout Price on such six-month
anniversary and the Company shall pay the aggregate purchase price for the
capital stock of Sub on the terms set forth in Section 8(b), provided that if
the Company shall have failed to make a good faith effort to sell the Company,
the aggregate purchase price for the capital stock of Sub shall be paid in cash
on such six-month anniversary.
(e) (i) If SG or the MCM Parties, as the case may be, fails to make
any cash payment due (other than for payment of the promissory note), in
accordance with subsections (b), (c) and (d) above, the defaulting party shall
immediately take such actions (including voting all of the Common Stock of the
Company then held by such party) to replace a majority of the Board of Directors
of the Company with representatives of the non-defaulting party, which
representatives shall hold such office until such time as the cash payment is
paid in full; provided, however, that on the six-month anniversary of such
event, if the non-defaulting party remains in control of the Board of Directors,
the defaulting party shall be granted the same rights of approval over
Significant Actions that SG has hereunder.
(ii) If any Shareholder fails or refuses to vote its Common Stock of
the Company as required by this Section 8(e), SG shall have an IRREVOCABLE PROXY
of indefinite duration pursuant to the provisions of Section 212 of the Delaware
General Corporate Law, coupled with an interest, so to vote such Common Stock in
accordance with this Section 8(e) and each Shareholder hereby grants to SG such
irrevocable proxy.
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9. Repurchase Right. (a) On the date of the earlier to occur of (x)
the fifth anniversary of the date hereof and (y) a Change of Control, SG may
require the Company to purchase all of the outstanding capital stock of Sub (the
"Repurchase Right") at a pro rata price per share of Sub (with no minority or
liquidity discounts) based on the fair market value of the shares of KCLLC owned
by Sub (with no minority or liquidity discounts) and the fair market value of
the Company Group determined in accordance with the Valuation Procedure (the
"Repurchase Option Price"); provided, however, that if SG intends to exercise
the Repurchase Right on the fifth anniversary pursuant to clause (x) above, SG
must give the Company written notice (the "Repurchase Election Notice") of such
election not later than six calendar months before such fifth anniversary.
(b) Notwithstanding the foregoing, if, within 30 calendar days of
receipt of a Repurchase Election Notice, the Company shall give written notice
to SG of its intent to use its best efforts to sell the Company Group or all or
substantially all of its assets in a manner consistent with achieving a
reasonable price for the business of the Company Group in such sale, then (x)
the Company shall not be obligated to purchase all of the capital stock of Sub
until three calendar months after the fifth anniversary of the date hereof and
(y) SG shall agree to sell the outstanding capital stock of Sub to a third party
on or before such date in any sale in which (i) the purchase price paid to SG is
paid in cash or in Freely Marketable Securities or in a combination of both,
(ii) all of the outstanding capital stock of Sub is purchased, and (iii)
includes the terms and conditions applicable to such sale set forth in Section
12. Notwithstanding the foregoing, if the Company is proceeding with a sale to a
third party, the Company shall use its best efforts to allow SG to participate
in such sale process as a bidder on the same basis as any other bidder and shall
provide SG with the same information about the bidding process, the Company's
financial condition and any other material information provided to any other
bidder in such sale.
10. Drag-Along Obligation. Subject to the right of first refusal set
forth in Section 11 below, in the event that any Person or Persons (as such term
is defined in Section 13(d) of the Exchange Act) desires to acquire at least 51%
of the Total Equity Interest in the Company at such date, whether directly or
indirectly, and the MCM Parties approve of such acquisition, at the election of
the MCM Parties, SG agrees to sell a pro rata portion of Sub's outstanding
capital stock (based on the portion of the MCM Shares being sold in such sale)
to such Person or Persons and to execute and deliver all such documents and
instruments and take all such other actions as may be reasonably necessary to
effectuate such sale; provided that such sale shall be subject to the terms and
conditions applicable to such sale set forth in Section 12.
11. Transfers of Equity Securities. (a) Except as provided in
paragraph (b) of this Section 11, and in Section 15, no holder of any Equity
Securities who is party to this Agreement (each a "Shareholder") may sell,
assign, pledge or otherwise transfer in whole or in part ("Transfer") its Equity
Securities except in accordance with the terms of this Agreement or to a member
of such Person's Shareholder Group. All buyers, assignees and other transferees
shall be subject to the requirements of becoming a party to this Agreement. Any
sale, assignment or other transfer that is not in compliance with this Section
shall be null and void.
(b) Transfers to Non Shareholders. Until the occurrence of a Change
of Control, if any Shareholder receives and intends to accept a bona fide offer
from a person who is
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not a party to this Agreement (a "Purchaser") to purchase all or part of such
Shareholder's Equity Securities (the "Offered Shares"), such Shareholder (each,
in the circumstances of this Section 11(b), a "Selling Shareholder") may
Transfer all or a part of such Selling Shareholder's Equity Securities in
accordance with the following procedures:
(i) Right of First Refusal. The Selling Shareholder shall deliver to
the other Shareholders (the "Other Shareholders") a written notice
offering the Offered Shares to the Other Shareholders at the purchase
price and on the terms specified in the written notice. Each Other
Shareholder shall have the first right and option, for a period of 30 days
after delivery of such written notice, to purchase such Other
Shareholder's pro rata portion of the Offered Shares at the purchase price
and on the terms specified in the notice. Each Other Shareholder shall
initially have the right to purchase a number of the Offered Shares which
shall not exceed the product of (x) the number of Offered Shares and (y)
such Shareholder's percentage of the Total Equity Interest in the Company
(without giving effect to any rights of conversion, exercise or exchange
relating to Common Stock other than the Exchange Right). Such acceptance
shall be made by delivering a written notice to the Selling Shareholder
within such 30-day period. If any Other Shareholder does not elect to
purchase all of such Other Shareholder's pro rata share of the Offered
Shares, then the remaining Other Shareholders shall have the option for 10
days after the expiration of such 30-day period to elect to purchase, on a
pro rata basis, any Offered Shares not purchased by such Other
Shareholder. Unless the Other Shareholders agree, in the aggregate, to
purchase all and not less than all of the Offered Shares, the Selling
Shareholder, subject to the tag along right set forth in Section
11(b)(ii), may sell the Offered Shares to such third party at a price not
less than the price, and on terms not more favorable to the Purchaser than
the terms, stated in the original written notice of intention to sell sent
by the Selling Shareholder to the Other Shareholders.
(ii) Tag Along Rights. (A) If (1) the Other Shareholders do not
elect to purchase the Offered Shares and (2) the Offered Shares represent
5% or more of the Total Equity Interest in the Company then the Selling
Shareholder shall cause the Purchaser's offer to be reduced to a writing
containing all of the material terms and conditions thereof including an
offer to purchase a pro rata portion of the Other Shareholders' Equity
Securities from the Other Shareholders on the terms and subject to the
conditions set forth in Section 12, (the "Offer"). The Selling Shareholder
shall give written notice of the Offer and a copy of the Offer to the
Other Shareholders, which Offer shall be irrevocable for a period of 30
days after delivery. The Other Shareholders may accept the Offer to
purchase a pro rata portion of their Equity Securities (determined in
accordance with Section 11(b)(ii)(B)) by furnishing within such 30-day
period to the Selling Shareholder written notice of such acceptance and
any other instrument necessary to effect the sale (each such Other
Shareholder, an "Accepting Offeree").
(B) Each Accepting Offeree shall have the right to sell to the
Purchaser a number shares of Equity Securities of the member of the
Company Group being purchased by the Purchaser (or, in the case of
Sub, a pro rata number of shares of the outstanding capital stock of
Sub based on the number of Shares of KCLLC
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then owned by Sub) which shall not exceed the product of (x) the
number of Offered Shares and (y) such Accepting Offeree's percentage
of the Total Equity Interest in the Company (without giving effect
to any rights of conversion, exercise or exchange relating to Common
Stock other than the Exchange Right). The Selling Shareholder shall
reduce the Offered Shares to be sold by it accordingly to allow for
the sale of the Accepting Offerees' Equity Securities, and thereupon
take such steps on its own behalf and on behalf of the Accepting
Offerees to consummate the sale pursuant to the terms thereof. The
Selling Shareholder shall not sell all or any portion of its Equity
Securities to any Purchaser unless such Purchaser also purchases the
pro rata portion of the Equity Securities of the Accepting Offerees
at the same price and pursuant to the same terms and conditions as
offered to the Selling Shareholder except as set forth in Section
12.
(C) The Selling Shareholder may deduct from the sales price payable
to the Accepting Offerees such Accepting Offerees' pro rata share of
the out-of-pocket fees and expenses payable in respect of the
completion of such sale, including reasonable brokers', legal and
accounting fees and expenses.
(D) If any Other Shareholder has not accepted the Offer by the end
of the 30-day period, such Other Shareholder shall be deemed to have
waived any and all rights with respect to the Offer and the Selling
Shareholder shall have 45 days in which to sell the Offered Shares
on the same terms and subject to the same conditions as were set
forth in the Offer. If, at the end of such 45-day period, the
Selling Shareholder has not completed a sale pursuant to the Offer,
the Selling Shareholder shall return to the Other Shareholders any
instruments delivered by such Other Shareholders, and the
obligations of this Section 11(b) shall be reinstated.
12. Terms and Conditions of Sale. In the event of any sale of Equity
Securities or of the Company or all or substantially all of the assets of the
Company Group pursuant to Section 8(d), 9(b), 10 or 11(b), it shall be a
condition to the consummation of any such sale that:
(a) in each case, (i) such sale shall be structured so that (x) the
Company or the KCI Shareholders purchase all or, in the case of a partial sale
pursuant to Section 10 or 11(b)(ii), a pro rata portion of the outstanding
capital stock of Sub based on the number of Shares of KCLLC then owned by Sub,
prior to the consummation of such sale or (y) any purchaser in such sale is
required by the terms of the definitive purchase agreement to purchase all or
the relevant portion of the outstanding capital stock of Sub and (ii) SG shall
receive the same price per share of the Sub (pro rata based on the number of
Shares of KCLLC then owned by Sub) and form of consideration in such sale as is
received by the MCM Parties (including any consideration allocated to
non-competition agreements or to consulting agreements in which the compensation
is not commensurate with the nature of the consulting services to be provided,
but excluding consideration allocated to employment agreements and other
consulting agreements) on a pro rata basis (without regard to any control
premium or minority discount that may be applied); and
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(b) (i) in the case of such sale pursuant to Section 10, SG shall
not be required to (A) make any representations and warranties to any Person in
connection with such sale, except as to (1) good title to the securities being
sold, (2) absence of claims with respect to the securities being sold, (3) its
valid existence and good standing (if applicable), (4) the authority and
authorization for, and validity, binding effect and enforceability of (as
against such holder), any agreement entered into by such Person in connection
with such sale and (5) customary representations and warranties regarding the
operations and liabilities of Sub, or (B) provide any indemnities in connection
with such sale except for breaches of the representations and warranties
specifically required under clause (A) above and (ii) in the case of such sale
pursuant to Section 8(d), 9(b) or 11(b)(ii), such sale shall be subject, on a
several and not joint basis, to the same representations and warranties,
covenants, indemnities, holdbacks and escrow provisions, if any, and any similar
components of the agreement to which the MCM Parties are subject; provided, that
(x) to the extent SG is required to provide indemnities in connection with the
transfer of the capital stock of Sub, SG shall not be required to provide
indemnification that would result in an aggregate liability to SG in excess of
SG's proceeds from the sale of the capital stock of Sub in such sale, (y) such
indemnities shall be made by SG severally and not jointly and (z) SG shall make
customary representations and warranties regarding the operations and
liabilities of Sub.
13. Preemptive Rights. (a) Except with respect to Exempt Issuances
(as defined in Section 13(c)), as long as any Equity Securities are outstanding
and until the occurrence of a Qualified IPO, before any issuance of (x) any
Equity Securities ("New Shares") or (y) any warrants, options or other rights to
acquire Equity Securities ("Rights") or notes, debentures or other securities
convertible into or exchangeable for Equity Securities ("Convertible
Securities"), the Company will deliver to SG a written notice (the "New Issuance
Notice") not more than 45 days, and not less than 30 days, prior to the date of
completion of such issuance (the "New Issuance") or, if earlier, the date of
execution of definitive documentation with respect thereto, stating the price
and other terms and conditions thereof. SG shall have the right (the "Preemptive
Right"), exercisable within 20 days of the receipt by SG of the New Issuance
Notice, to purchase (or be issued without consideration if the New Shares,
Rights or Convertible Securities to be issued in the New Issuance (the "New
Issuance Securities") are to be issued without consideration), in each case
through Sub, all or any part of its Pro Rata Share of the New Issuance
Securities at the price and on the terms on which the Company proposes to make
the New Issuance; provided, however, that if the Company proposes to issue any
notes, debentures or other debt securities of the Company to which are attached
any Rights exercisable for a nominal exercise price, SG may purchase (through
Sub) all or any part of its Pro Rata Share of such Rights by purchasing the
note, debenture or other debt security to which such Right is attached, in the
time period and at the price and terms (including payment therefor) specified
above for New Issuance Securities. Pro Rata Share means a number New Issuance
Securities such as will enable SG to maintain, on a fully diluted basis after
giving effect to such New Issuance, its percentage of the Total Equity Interest
in the Company represented by the SG Shares immediately prior to such issuance.
(b) If SG has not accepted the offer to purchase such New Issuance
Securities by the end of the 20-day period after receipt of the New Issuance
Notice, SG shall be deemed to have waived the Preemptive Right and the Company
may issue and sell such New Issuance
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Securities on the same terms, subject to the same conditions, and by the closing
date of such New Issuance, each as was set forth in the New Issuance Notice. If,
by such closing date the Company has not completed the New Issuance, the
obligations of this Section 13 shall be reinstated.
(c) Notwithstanding Section 13(a), SG shall have no rights to
subscribe for New Issuance Securities issued by any member of the Company Group
in accordance with Section 5(c) (i) upon conversion or exercise of any
Convertible Securities or Rights set forth on Schedule I hereto, (ii) to
directors, officers, employees, advisors or consultants of the Company Group
pursuant to an incentive compensation, bonus, stock option, stock grant, stock
purchase or other similar plan or arrangement approved by the Board of Directors
of the Company, (iii) to equipment lessors, banks, financial institutions,
manufacturers, vendors, suppliers or similar entities in transactions approved
by the Board of Directors, the principal purpose of which is other than the
raising of capital, (iv) as consideration in connection with an acquisition by
the Company or one of its Subsidiaries on an arm's-length basis, (v) in a Change
of Control or merger involving the Company that is approved by the Board of
Directors, the principal purpose of which is other than the raising of capital,
(vi) that are issued with any debt securities of the Company, so long as the New
Issuance Securities represent in the aggregate less than 5% of the outstanding
equity of the Company Group, (vii) pursuant to an Initial Public Offering or
(viii) pursuant to a stock split, stock dividend, reclassification or other
distribution made on a pro rata basis to all holders of such Equity Securities
(each, an "Exempt Issuance").
14. Exchange and Veto Right. (a) Without the prior written consent
of SG, no initial public offering of Equity Securities shall be consummated if
immediately after such offering (i) Sub will hold directly or indirectly through
one or more intermediate entities equity securities in the IPO Vehicle and (ii)
SG will hold a direct or indirect equity interest in Sub (except to the extent
that such interest in Sub is held indirectly through SG's interest in the IPO
Vehicle).
(b) In the event of a proposed (i) initial public offering of Equity
Securities, or (ii) sale, exchange, or transfer (including by merger,
consolidation or otherwise) of any Equity Securities, SG shall have the right to
exchange shares of Sub for Equity Securities of the IPO Vehicle or the member of
the Company Group whose Equity Securities are proposed to be sold, exchanged or
transferred, as the case may be (the "Exchange Right"). The Company and the KCI
Shareholders covenant and agree that if, in the sole discretion of SG's
independent tax advisor, there is a substantial risk that the exercise by SG of
its Exchange Right could result in an SG Tax Detriment in connection with any
such proposed public offering, sale, exchange or transfer, then the Company and
the KCI Shareholders will use their commercially reasonable efforts to
restructure such proposed transaction so that the Exchange Right may be
exercised, in the opinion of SG's independent tax advisors, without an SG Tax
Detriment. Upon exercise by SG of the Exchange Right in the case of either a
proposed initial public offering of Equity Securities or a proposed sale,
exchange or transfer of all the Equity Securities of a member of the Company
Group, SG shall be issued in exchange for all the outstanding shares of Sub
pursuant to the Exchange Right, a number of Equity Securities of the IPO Vehicle
or of the member of the Company Group whose Equity Securities are proposed to be
sold, exchanged or transferred, as the case may be, such that the ratio (by
value) of the Equity Securities so issued to SG to all
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Equity Securities outstanding (on a fully diluted basis) of the issuer of such
Equity Securities equals the Percentage Interest of Sub in KCLLC on a fully
diluted basis.
(c) For purposes of this Section 14, an "SG Tax Detriment" is any of
the following federal income tax consequences: (i) the recognition of gross
income by Sub, SG or any of SG's members, (ii) diminution in the tax basis of
assets in the hands of SG or (iii) failure of the holding period of property
received by SG to include the holding period of property transferred or
exchanged by SG therefor.
15. SBIC Regulatory Provisions. (a) Number of Shareholders As long
as the SBIC Holder holds Equity Securities, the Company shall notify the SBIC
Holder (a) at least 15 days prior to taking any action after which the number of
record holders of the Equity Securities would be increased from fewer than 50 to
50 or more, and (b) of any other action or occurrence after which the number of
record holders of the Equity Securities was increased (or would increase) from
fewer than 50 to 50 or more, as soon as practicable after the Company becomes
aware that such other action or occurrence has occurred or is proposed to occur.
(b) Access. In addition to any other rights granted hereunder, the
SBIC Holder and the SBA shall have reasonable access to the books and records of
the Company Group for the purposes enumerated in 13 CFR Section 107.620 of the
SBA Regulations.
(c) Economic Impact Information. As and when reasonably requested by
the SBIC Holder, the Company shall deliver to the SBIC Holder information
reasonably obtainable by the Company that would assist the SBIC Holder in
preparing a written assessment of the economic impact of the SBIC Holder's
investment in the Company, including as to the full-time equivalent jobs created
or retained in connection with the investment, the impact of such SBIC Holder's
capital contributions on the revenues Group and profits of the Company Group,
and on taxes paid by the Company and its employees.
(d) Regulatory Compliance Cooperation. In the event that the SBIC
Holder determines that it has a Regulatory Problem, the SBIC Holder shall have
the right to transfer the SG Shares without regard to any restriction on
transfer set forth in this Agreement other than the securities laws restrictions
(provided that the transferee agrees to become a party to this Agreement) and
the Company and the KCI Shareholders shall take all such actions as are
reasonably requested by the SBIC Holder in order to (a) effectuate and
facilitate any transfer by the SBIC Holder of the SG Shares to any Person
designated by the SBIC Holder, (b) permit the SBIC Holder (or any of its
Affiliates) to exchange all or any portion of the SG Shares on a share-for-share
basis for shares of a nonvoting security of the Company, which nonvoting
security shall be identical in all respects to the SG Shares exchanged for it,
except that it shall be nonvoting and shall be convertible into the SG Shares
exchanged for it on such terms as are requested by the SBIC Holder in light of
regulatory considerations then prevailing, (c) continue and preserve the
respective allocations of the voting interests with respect to the Company
arising out of the SBIC's ownership of Shares and/or provided in this Agreement
before the transfers and amendments referred to above (including entering into
such additional agreements as are requested by the SBIC Holder to permit any
Person(s) designated by the SBIC Holder reasonably acceptable to the Company to
exercise any voting power which is relinquished by the SBIC
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Holder, and (d) amend this Agreement, and the other related agreements and
instruments to effectuate and reflect the forgoing.
16. Fees. (a) The Company shall pay SG an annual fee (the "SG Fee")
equal to the Applicable Percentage of the sum of (x) the excess of the annual
management fee paid to MCM under the Management Agreement over $500,000 and (y)
the SG Fee. The "Applicable Percentage" means 20% until the first anniversary of
the date hereof and thereafter SG's Percentage Interest (as defined in the
Operating Agreement) in KCLLC on the date such fee is accrued.
(b) If in any twelve-month period MCM is entitled to
transaction-related fees from the Company Group in excess of $200,000, the
Company shall pay SG a fee (the "SG Transaction Fee") in an amount equal to the
Applicable Percentage of the sum of such transaction related fee payable to MCM
and the SG Transaction Fee; provided, however, that, if the Company believes
that SG is not entitled to the full amount of such transaction fee (based upon
reasonable contribution by SG's staff to the work effort required for the
successful consummation of such transaction), the amount of the fee will be
determined using the Dispute Resolution Procedure. Notwithstanding the
foregoing, SG shall not be entitled to transaction fees for transactions
initiated by MCM prior to the date hereof.
(c) If after the receipt of the Company's unaudited financial
statements for the nine months ended September 30, 1999, the Company's EBITDA is
at least $26,200,000, MCM will receive a fee of $500,000 and SG will receive a
fee of $100,000.
17. Additional Equity Securities. In the event additional Equity
Securities are issued to any Shareholder at any time during the term of this
Agreement, either directly or upon the exercise or exchange of securities
exercisable for or exchangeable into Equity Securities, such additional Equity
Securities shall, as a condition to such issuance, become subject to the terms
and provisions of this Agreement.
18. Legend on Certificates. Each certificate representing shares of
Common Stock beneficially owned by the parties hereto shall bear the following
legend, until such time as the shares represented thereby are no longer subject
to the provisions hereof:
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A SHAREHOLDER AGREEMENT, DATED AUGUST 31, 1999,
AMONG THE ISSUER AND THE OTHER SIGNATORIES THERETO, AND NO TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IN CONTRAVENTION
OF SUCH AGREEMENT SHALL BE VALID OR EFFECTIVE. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER."
18
<PAGE>
19. Term and Termination. This Agreement shall terminate (a) with
respect to all parties, upon the consummation of a Qualified IPO and (b) with
respect to any Shareholder, at the time such party ceases to own beneficially or
of record any Equity Securities (other than by reason of a breach of this
Agreement). Upon termination pursuant to clause (a) hereof, no party hereto
shall have any right or obligation hereunder in respect of any other party
hereto, except for breaches prior to such termination. Upon termination pursuant
to clause (b) hereof, no party who shall remain as a Shareholder shall have any
obligation to a party who ceases to hold any Equity Securities with respect to
the subject matter of this Agreement or the transactions contemplated hereby.
Notwithstanding the foregoing, Section 8(e) of this Agreement shall survive any
termination of this Agreement and remain enforceable in accordance with its
terms.
20. Reports to SG. The Company shall provide to SG as soon as such
information is available but not later than such information is provided to the
Company Group's senior lenders, quarterly and audited annual financial
statements, annual budgets and any other information provided to the Company
Group's senior lenders and other equity or debt investors (including copies of
monthly information).
21. Confidentiality. Without the written consent of the other
parties hereto, no party hereto shall disclose to any person any information
relating to the terms and conditions of the Operative Documents; provided,
however that this Section shall not prevent the disclosure of any information
that is required or compelled to be disclosed by law; and provided further that
the disclosing party shall provide prior notice of such requirement to the
non-disclosing party so that the non-disclosing party has a reasonable
opportunity to seek an appropriate protective order.
22. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service
or sent by telex, graphic scanning or other telegraphic communications equipment
of the sending party, as follows:
(a) if to SG,
SGC Partners II LLC
c/o SG Capital Partners LLC
15th Floor
1221 Avenue of the Americas
New York, NY 10020
Attention: Christopher M. Neenan
Telecopier: (212) 278-5454
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, NY 10019
Attention: Scott F. Smith, Esq.
Telecopier: (212) 841-1010
19
<PAGE>
(b) if to the Company or the KCI Shareholders,
Key Components, Inc.
200 White Plains Road
4th Floor
Tarrytown, NY 10591
Attention: Alan L. Rivera
Telecopier: (914) 332-1441
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael J. Emont
Telecopier: (212) 698-7825
All notices and other communications given to either party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt if delivered by hand or overnight courier service
or sent by telex, graphic scanning or other telegraphic communications equipment
of the sender, in each case delivered or sent (properly addressed) to such party
as provided in this Section 22 or in accordance with the latest unrevised
direction from such party given in accordance with this Section 22.
23. Entire Agreement. This Agreement, the Purchase Agreement and the
Registration Rights Agreement contain the entire agreement among the parties
with respect to the transactions contemplated by this Agreement and supersede
all prior agreements and understandings among the parties with respect to the
subject matter hereof and thereof.
24. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of NEW YORK without regard
to conflicts of law principles.
25. CONSENT TO JURISDICTION. EACH OF THE PARTIES IRREVOCABLY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF (i) THE SUPREME COURT OF THE STATE OF NEW YORK,
NEW YORK COUNTY AND (ii) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. EACH PARTY
FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENTS BY
UNITED STATES REGISTERED MAIL TO SUCH PARTY'S RESPECTIVE ADDRESS FOR NOTICES SET
FORTH IN SECTION 25 SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT
OR PROCEEDING IN NEW YORK WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED
TO JURISDICTION IN THIS SECTION 25. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY
20
<PAGE>
ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY IN (a) THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK
COUNTY AND (b) THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT
TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
26. Descriptive Headings; Certain Interpretations.
(a) Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of the provisions of this
Agreement.
(b) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) a word importing
the masculine gender includes the feminine or neuter, (ii) the singular includes
the plural and the plural includes the singular; (iii) "or" and "any" are not
exclusive and "include" and "including" are not limiting; (iv) a reference to
any agreement or other contract includes permitted supplements and amendments;
(v) a reference to a law includes any amendment or modification to such law and
any rules or regulations issued thereafter; (vi) any reference to a person
includes its permitted successors and assigns; and (vii) a reference in this
Agreement to a Section is to the Section of this Agreement.
27. Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Agreement shall be adjudicated to be invalid or unenforceable,
such provision shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
28. Waivers; Rights and Remedies Cumulative. (i) The parties to this
Agreement acknowledge that damages at law would be an inadequate remedy for the
breach of any provision contained in this Agreement, and agree in the event of
such breach or threatened breach that the non-breaching party may (i) obtain
temporary and permanent injunctive relief restraining the breaching party from
such breach or threatened breach, and, to the extent permissible under the
applicable statutes and rules of procedure, that a temporary injunction may be
granted immediately upon the commencement of a proceeding commenced under this
Section 29 and (ii) enforce specifically such provisions in any legal
proceeding. Nothing contained in the preceding sentence shall be construed as
prohibiting any party from pursuing any other remedies available at law or in
equity for such breach or threatened breach of any such provision of this
Agreement.
(ii) The failure of any party to pursue any remedy for breach, or to
insist upon the strict performance, of any covenant or condition contained in
this Agreement shall not constitute a waiver thereof or of any other right with
respect to any subsequent breach. Except as
21
<PAGE>
otherwise expressly set forth herein, rights and remedies under this Agreement
are cumulative, and the pursuit of any one right or remedy by any party shall
not preclude, or constitute a waiver of, the right to pursue any or all other
rights or remedies. All rights and remedies provided under this Agreement are in
addition to any other rights or remedies the parties may have by law, in equity
or otherwise.
29. Amendment and Waiver. No modification, amendment or waiver of
any provision of, or consent required by, this Agreement, nor any consent to any
departure from the terms of this Agreement, shall be effective unless it is in
writing and signed by the parties hereto. Such modification, amendment, waiver
or consent shall be effective only in the specific instance and for the purpose
given.
30. Further Assurances. Each party hereto hereby agrees to execute
and deliver all such other and additional instruments and documents and do all
such other acts and things as may be necessary to effectuate more fully this
Agreement and carry on the business contemplated herein.
31. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
KEY COMPONENTS, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEY COMPONENTS, LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
SGC PARTNERS II LLC
By:
-------------------------------------
Name:
Title:
KEYHOLD, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
KEY COMPONENTS, INC.
By:
-------------------------------------
Name:
Title:
KEY COMPONENTS, LLC
By:
-------------------------------------
Name:
Title:
SGC PARTNERS II LLC
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
KEYHOLD, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
<PAGE>
KCI Shareholders:
/s/ John S. Dyson
----------------------------------------
John S. Dyson
CHARLES H. DYSON 1976 TRUST
By: /s/ John S. Dyson
-------------------------------------
Name:
Trustee:
CHARLES H. DYSON 1968 TRUST
By: /s/ John S. Dyson
-------------------------------------
Name:
Trustee:
MARGARET DYSON 1968 TRUST
By: /s/ John S. Dyson
-------------------------------------
Name:
Trustee:
________________________________________
Clay B. Lifflander
24
<PAGE>
KCI Shareholders:
----------------------------------------
John S. Dyson
CHARLES H. DYSON 1976 TRUST
By:
-------------------------------------
Name:
Trustee:
CHARLES H. DYSON 1968 TRUST
By:
-------------------------------------
Name:
Trustee:
MARGARET DYSON 1968 TRUST
By:
-------------------------------------
Name:
Trustee:
/s/ Clay B. Lifflander
----------------------------------------
Clay B. Lifflander
24
<PAGE>
/s/ Clay B. Lifflander
----------------------------------------
Clay B. Lifflander as custodian for
Olivia Lee Lifflander under the
New York Uniform Gift to Minors Act
/s/ Clay B. Lifflander
----------------------------------------
Clay B. Lifflander as custodian for
Hudson Bennett Lifflander under the New
York Uniform Gift to Minors Act
________________________________________
Alan L. Rivera
________________________________________
David H. Bova
________________________________________
George Scherer
________________________________________
Robert B. Kay
25
<PAGE>
----------------------------------------
Clay B. Lifflander as custodian for
Olivia Lee Lifflander under the
New York Uniform Gift to Minors Act
----------------------------------------
Clay B. Lifflander as custodian for
Hudson Bennett Lifflander under the New
York Uniform Gift to Minors Act
/s/ Alan L. Rivera
----------------------------------------
Alan L. Rivera
________________________________________
David H. Bova
________________________________________
George Scherer
________________________________________
Robert B. Kay
25
<PAGE>
----------------------------------------
Clay B. Lifflander as custodian for
Olivia Lee Lifflander under the
New York Uniform Gift to Minors Act
----------------------------------------
Clay B. Lifflander as custodian for
Hudson Bennett Lifflander under the New
York Uniform Gift to Minors Act
________________________________________
Alan L. Rivera
/s/ David H. Bova
----------------------------------------
David H. Bova
________________________________________
George Scherer
________________________________________
Robert B. Kay
25
<PAGE>
----------------------------------------
Clay B. Lifflander as custodian for
Olivia Lee Lifflander under the
New York Uniform Gift to Minors Act
----------------------------------------
Clay B. Lifflander as custodian for
Hudson Bennett Lifflander under the New
York Uniform Gift to Minors Act
________________________________________
Alan L. Rivera
________________________________________
David H. Bova
/s/ George Scherer
----------------------------------------
George Scherer
________________________________________
Robert B. Kay
25
<PAGE>
----------------------------------------
Clay B. Lifflander as custodian for
Olivia Lee Lifflander under the
New York Uniform Gift to Minors Act
----------------------------------------
Clay B. Lifflander as custodian for
Hudson Bennett Lifflander under the New
York Uniform Gift to Minors Act
________________________________________
Alan L. Rivera
________________________________________
David H. Bova
________________________________________
George Scherer
/s/ Robert B. Kay
----------------------------------------
Robert B. Kay
25
<PAGE>
[EXECUTION COPY]
AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT,
dated as of August 31, 1999
among
KEY COMPONENTS, LLC,
as Borrower,
CERTAIN OF ITS SUBSIDIARIES,
as Guarantors,
CERTAIN FINANCIAL INSTITUTIONS,
as Lenders,
and
SOCIETE GENERALE,
as Agent for the Lenders.
<PAGE>
AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AND GUARANTY AGREEMENT
THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AND GUARANTY
AGREEMENT, dated as of August 31, 1999 (this "Amendment"), among the following:
(a) KEY COMPONENTS, LLC, a Delaware limited liability company (the
"Borrower"),
(b) each of the Subsidiaries of the Borrower identified under the
caption "GUARANTORS" on the signature pages hereto (individually, a
"Guarantor" and, collectively, the "Guarantors" and, together with the
Borrower, the "Obligors"),
(c) the various financial institutions as are parties hereto
(collectively, the "Lenders"), and
(d) SOCIETE GENERALE, as agent (in such capacity, the "Agent") for
the Lenders,
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, certain of the Lenders and the
Agent have heretofore entered into a certain Amended and Restated Credit and
Guaranty Agreement, dated as of January 19, 1999 (as amended from time to time,
the "Credit Agreement"); and
WHEREAS, the Borrower, the Guarantors, the Lenders and the Agent now
desire to amend the Credit Agreement in certain respects, as hereinafter
provided;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1.Certain Defined Terms. The following terms (whether or not
underscored) when used in this Amendment, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Agent" is defined in the preamble.
"Amendment" is defined in the preamble.
"Borrower" is defined in the preamble.
"Credit Agreement" is defined in the first recital.
"Force 10 Disposition" means the sale by the Borrower of all of its
ownership interests in Force 10 Marine Ltd.
"Guarantors" is defined in the preamble.
"IP Acquisition" means any acquisition by the Borrower of rights with
respect to copyrights, patents, trademarks or other forms of intellectual
property which are, or could reasonably be expected to be, useful in a Permitted
Business.
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<PAGE>
"Lenders" is defined in the preamble.
"Multiplex Disposition" means the sale by the Borrower of all of its
ownership interests in Multiplex Technology, Inc.
"New LLC Obligors" is defined in Section 3.1.
"Obligors" is defined in the preamble.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in the Credit
Agreement shall have such meanings when used in this Amendment.
ARTICLE II
AMENDMENTS
SECTION 2.1. Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
SECTION 2.1.1. Definition of "EBITDA". The proviso of clause (d) of the
definition of "EBITDA" in Section 1.1 of the Credit Agreement is amended to read
as follows:
"provided that (x) the amounts provided for in this clause (d) shall not
be included in calculating 'EBITDA' for purposes of the definition of
'Excess Cash Flow' and (y) for purposes of this clause (d), the term
'Permitted Acquisition' shall not include any IP Acquisition."
SECTION 2.1.2. Definition of "Force 10 Disposition". Section 1.1 of the
Credit Agreement is amended by adding the following definition in the
appropriate alphabetical sequence:
"'Force 10 Disposition' means the sale by the Borrower of all of its
ownership interests in Force 10 Marine Ltd."
SECTION 2.1.3. Definition of "IP Acquisition". Section 1.1 of the Credit
Agreement is amended by adding the following definition in the appropriate
alphabetical sequence:
"'IP Acquisition' means any acquisition by the Borrower of rights
with respect to copyrights, patents, trademarks or other forms of
intellectual property which are, or could reasonably be expected to be,
useful in a Permitted Business."
SECTION 2.1.4. Definition of "Multiplex Disposition". Section 1.1 of the
Credit Agreement is amended by adding the following definition in the
appropriate alphabetical sequence:
"'Multiplex Disposition' means the sale by the Borrower of all of
its ownership interests in Multiplex Technology, Inc."
SECTION 2.1.5. Definition of "Permitted Acquisition". The definition of
"Permitted Acquisition" in Section 1.1 of the Credit Agreement is amended in its
entirety to read as follows:
"'Permitted Acquisition' means
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<PAGE>
(x) any acquisition by the Borrower of all of the capital
stock of, or all or substantially all of the assets of, any Person
(or of all of a line of business or business segment of any Person)
that was, immediately prior to such acquisition, in a Permitted
Business, or
(y) any IP Acquisition,
provided that the following conditions are met:
(a) at least ten Business Days prior to such Permitted
Acquisition, the Borrower shall have furnished the Agent with the
following:
(i) a description (in detail reasonably satisfactory to
the Agent) of such Permitted Acquisition;
(ii) a certificate of the chief financial officer of the
Borrower demonstrating pro forma compliance with, and
projected compliance with, the covenants set forth in Article
VII for the term hereof (including a reasonably detailed
financial model supporting such certificate), which
demonstration of projected compliance (and reasonably detailed
financial model) shall not, in the case of any Permitted
Acquisition that is an IP Acquisition, give effect to any
anticipated cost savings from, or operating results generated
as a result of, such IP Acquisition;
(iii) in the case of an IP Acquisition, a reasonably
detailed financial model of the Company giving effect to any
anticipated cost savings or operating results arising from
such IP Acquisition;
(iv) such other information relating to such Permitted
Acquisition as the Agent or any Lender may reasonably request
(including, as applicable, audited financial information for
the prior three fiscal years regarding the business to be
acquired or, if no audited financial statements are available,
financial statements certified by a senior financial officer
of the relevant entity); and
(v) if a due diligence report is obtained by the
Borrower with respect to such Permitted Acquisition, a copy of
such due diligence report (in scope and form reasonably
acceptable to the Agent);
(b) after giving effect to such Permitted Acquisition, the
Borrower shall be in compliance with its obligations under Sections
7.1.7, 7.1.9 and 7.1.12, and, if such Permitted Acquisition consists
in whole or in part of a stock acquisition or other acquisition of
equity interests, after giving effect thereto, the Borrower shall be
in compliance with the provisions of Section 7.1.8;
(c) after giving effect to such Permitted Acquisition, the
aggregate consideration paid or to be paid by the Obligors with
respect to all Permitted Acquisitions made on or after the date of
Amendment No. 2 hereto (including the aggregate amount of all
Indebtedness assumed in connection with all such Permitted
Acquisitions) shall not exceed the sum of the following:
(i) $10,000,000, plus
(ii) the aggregate amount of Net Equity Proceeds
received by the Obligors on and after the date of Amendment
No. 2 hereto (other than any Compliance Capital), plus
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<PAGE>
(iii) the aggregate amount of Net Disposition Proceeds
and Net Debt Proceeds received by the Obligors on and after
the date of Amendment No. 2 hereto (other than any Net
Disposition Proceeds or Net Debt Proceeds used to acquire
assets other than in connection with a Permitted Acquisition),
to the extent that the same are permitted to be reinvested in
a Permitted Acquisition pursuant to Section 3.1.2(c)(C), plus
(iv) the aggregate amount of Indebtedness assumed in
connection with all such Permitted Acquisitions (so long as
such Indebtedness is permitted to be incurred under Section
7.2.2(d) or Section 7.2.2(i));
(d) immediately prior to such Permitted Acquisition and after
giving effect thereto, no Default shall be continuing; and
(e) after giving effect to such Permitted Acquisition, the sum
of (x) the Borrowing Base Amount as then in effect, minus (y) the
aggregate outstanding amount of Revolving Loans and Letter of Credit
Outstandings is greater than $5,000,000."
SECTION 2.1.6. Definition of "Taxpayer(s)". The definition of
"Taxpayer(s)" in Section 1.1 of the Credit Agreement is amended in its entirety
to read as follows:
"'Taxpayer(s)' means:
(a) with respect to any member of the Parent for any period
during which such member is a pass through entity for federal income
tax purposes, the stockholders, members or partners of such pass
through entity, and
(b) with respect to any member of the Parent for any period
during which such member is not a pass through entity for federal
income tax purposes, such member."
SECTION 2.1.7. Use of Proceeds. Section 4.10(a)(iii) of the Credit
Agreement is amended in its entirety to read as follows:
"(iii) to finance Permitted Acquisitions."
SECTION 2.1.8. Application of Voluntary Prepayments of Term Loans. The
penultimate sentence of Section 3.1.1 of the Credit Agreement is hereby amended
to read as follows:
"Each voluntary prepayment of any Term Loans made pursuant to this Section
shall be applied, to the extent of such prepayment, as follows:
first, to the payment of the next scheduled installment of
principal of the Term Loans as set forth in Section 3.1.2(b), and
then, to the remaining installments of principal of the Term
Loans ratably in accordance with the respective unpaid principal
amounts thereof."
SECTION 2.1.9. Mandatory Prepayments from Net Equity Proceeds. Section
3.1.2(c) of the Credit Agreement shall be amended to read as follows:
"(c) the Borrower shall,
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<PAGE>
(i) on the date of receipt by it or any of its Subsidiaries of
any Net Disposition Proceeds, Net Equity Proceeds or Net Debt
Proceeds, apply 100% of all such Net Disposition Proceeds, Net
Equity Proceeds or Net Debt Proceeds,
(ii) on the fifth Business Day following the receipt by it or
any of its Subsidiaries of any Excess Insurance Proceeds, apply 100%
of all such Excess Insurance Proceeds, and
(iii) on the date of delivery of the audited financial
statements pursuant to clause (b) of Section 7.1.1 for each Fiscal
Year, commencing with the Fiscal Year ending December 31, 1999 (but
not later than the date such financial statements are required to be
furnished to the Lenders), apply 75% of Excess Cash Flow for such
Fiscal Year,
as follows: (x) first, to make a mandatory prepayment of the Term Loans to
be applied in the inverse order of the scheduled installments thereof, and
(y) second, to make a mandatory prepayment of the Revolving Loans;
provided, however, that no prepayment shall be required pursuant to
subparagraph (c)(i) so long as:
(A) no Default or Event of Default has occurred and is
occurring, and
(B) in the case of Net Equity Proceeds, such Net Equity
Proceeds are reinvested or are planned to be reinvested by the
Borrower or any of its Subsidiaries in a Permitted Acquisition, and
(C) in the case of Net Disposition Proceeds or Net Debt
Proceeds, such Net Disposition Proceeds or Net Debt Proceeds are
reinvested by the Borrower or any of its Subsidiaries in a Permitted
Acquisition or in other assets no later than 180 days (or, in the
case of Net Disposition Proceeds received in respect of the Force 10
Disposition or the Multiplex Disposition, 360 days) after their
receipt; and"
SECTION 2.1.10. Monthly Compliance Certificate. Section 7.1.1(a) of the
Credit Agreement is hereby amended in its entirety to read as follows:
"(a) as soon as available and in any event within 30 days after the
end of each month of each Fiscal Year of the Borrower, a monthly financial
report and consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries as of the end of such month and consolidated and
consolidating statements of earnings of the Borrower and its Subsidiaries
for such month and for the period commencing at the end of the previous
Fiscal Year and ending with the end of such month, setting forth in each
case in comparative form (x) the consolidated and consolidating figures
for the corresponding date and periods of the previous Fiscal Year (giving
pro forma effect to any consummated acquisitions) and (y) the
corresponding consolidated and consolidating figures from the applicable
budget referred to in Section 7.1.1(i) certified by the chief financial
Authorized Officer of the Borrower in a manner acceptable to the Agent;
SECTION 2.1.11. Basket for Purchase Money Indebtedness/Capitalized Lease
Liabilities. Section 7.2.2(d) of the Credit Agreement is hereby amended in its
entirety to reads as follows:
"(d) Indebtedness (other than Indebtedness described in the
immediately preceding clause (c)) in an aggregate principal amount not to
exceed $10,000,000 at any one time outstanding consisting of either:
(i) Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including the cost of construction)
of any property or asset of any Obligor that is either
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<PAGE>
(x) permitted to be acquired pursuant to Section 7.2.7 or (y)
acquired in a Permitted Acquisition, or
(ii) Capitalized Lease Liabilities that are either (x)
permitted to be incurred pursuant to Section 7.2.7 or (y) assumed in
connection with a Permitted Acquisition;"
SECTION 2.1.12. Basket for Other Indebtedness. Section 7.2.2(i) of the
Credit Agreement is hereby amended by deleting the dollar amount "$2,000,000"
appearing therein and substituting in its place the dollar amount "$5,000,000."
SECTION 2.1.13. Restricted Payments. Section 7.2.6(a)(i)(A) of the Credit
Agreement is hereby amended in its entirety to reads as follows:
"(A) during the period that the Borrower is disregarded or is
treated as a pass through entity for U.S. federal income tax
purposes and after such period to the extent relating to liability
for such period, the Borrower may make cash distributions to the
Taxpayers, or to the Parent for the benefit of the Taxpayers, in
respect of each Estimation Period, in an aggregate amount not to
exceed the Permitted Quarterly Tax Distribution; provided, that the
amount of distributions made pursuant to this clause (A) will be
excluded in the calculation of the amount of distributions pursuant
to clause (B) below; and provided, further, that (1) within ten days
following the Parent's filing of its required federal income tax
return for the immediately preceding taxable year, the Tax Amounts
CPA shall file with the Agent a written statement indicating in
reasonable detail the calculation of the True-up Amount, (2) in the
case of a True-up Amount due to the Taxpayers, the Permitted
Quarterly Tax Distribution payable in respect of such Estimation
Period shall be increased by such True-up Amount and (3) in the case
of a True-up Amount due to the Borrower, the Permitted Quarterly Tax
Distribution payable in respect of the immediately following
Estimation Period shall be reduced by such True-up Amount and the
excess, if any, of the True-up Amount over such Permitted Quarterly
Tax Distribution shall be applied to reduce the immediately
following Permitted Quarterly Tax Distributions until such True-up
Amount is entirely offset;"
SECTION 2.1.14. Permitted Acquisitions. Section 7.2.10(d) of the Credit
Agreement is hereby amended to read as follows:
"(d) the Borrower and its Subsidiaries may make Permitted
Acquisitions."
SECTION 2.1.15. Further Assurances. Section 7.1.12 of the Credit Agreement
is hereby amended by deleting the last sentence thereof and replacing it with
the following sentence:
"Anything in this Section 7.1.12 to the contrary notwithstanding, so long
as no Default shall be continuing, the Borrower and its Subsidiaries will
not be obligated to:
(i) file any Uniform Commercial Code financing statements:
(A) with respect to equipment (as that term is used in
the U.C.C.) that is not located at a place of business of the
Borrower or any of its Subsidiaries, so long as (x) the
aggregate value of all such equipment as to which no such
financing statements have been filed does not exceed
$1,000,000 and (y) the aggregate value of all such equipment
at any one location does not exceed $200,000; or
(B) with respect to inventory (as that term is used in
the U.C.C.) that is work-in-process that is not located at a
place of business of the Borrower or any of its Subsidiaries,
so long as (x) the aggregate value of all such inventory as to
which no such
-7-
<PAGE>
financing statements have been filed does not exceed $700,000
and (y) the aggregate value of all such inventory at any one
location does not exceed $200,000; or
(ii) take any action to perfect the security interest created
under the Guarantor Security Agreement in any equipment or inventory
(as that term is used in the U.C.C.) that is located at a place of
business of the Borrower or any of its Subsidiaries in the Kingdom
of Thailand, so long as the aggregate value of all such equipment
and inventory as to which the Lenders do not have a fully perfected
security interest does not exceed $1,200,000."
SECTION 2.2. Amendment to the Amended and Restated Pledge Agreement.
Attachment I to the Amended and Restated Pledge Agreement is hereby amended in
its entirety to read as Attachment I set forth in Schedule B hereto.
SECTION 2.3. Guarantor Security Agreement. Schedules I, II, III, IV and V
to the Guarantor Security Agreement are hereby amended by incorporating therein
the information set forth in Schedules I, II, III, IV and V, respectively, of
Schedule C hereto.
ARTICLE III
CONSENT
SECTION 3.1. Consent to Reorganization. Subject to the satisfaction of the
conditions precedent in Article IV hereof, the Lenders hereby consent to the
merger of any or all of the Obligors listed in Schedule A hereto into the
respective limited liability companies listed opposite their names on said
Schedule A (the "New LLC Obligors"), with such limited liability companies being
the successor entities of such mergers.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1. Conditions to Effectiveness. The effectiveness of this
Amendment shall be subject to the prior or concurrent satisfaction of each of
the conditions precedent set forth in this Article IV.
SECTION 4.1.1. Execution of Amendment No. 2. The Agent shall have received
this Amendment duly executed by the Borrower, each Guarantor, Lenders
constituting Required Lenders and the Agent.
SECTION 4.1.2. LLC Reorganization. The Agent shall have received the
following:
(a) each Organic Document of each New LLC Obligor, together with
each of the items described in Section 5.1.1 of the Credit Agreement with
respect to each New LLC Obligor,
(b) certificates evidencing the membership interests of each of the
New LLC Obligors, duly delivered in pledge under the Pledge Agreements,
together with all appropriate instruments of transfer necessary or
desirable to effect the transfer thereof,
(c) to the extent requested by the Agent, Uniform Commercial Code
Financing Statements, naming the respective New LLC Obligors as "debtors,"
to be filed in such jurisdictions as the Agent shall reasonably request,
-8-
<PAGE>
(d) an instrument signed by each New LLC Obligor pursuant to which
it agrees to assume all of the Obligations and to be a "Guarantor" and an
"Obligor" under the Credit Agreement and the Guarantor Security Agreement,
and
(e) an opinion of Rubin Baum Levin Constant & Friedman, counsel to
the Borrower, the Guarantors and the New LLC Obligors, substantially in
the form of Exhibit M to the Credit Agreement, but solely with respect to
the New LLC Obligors.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this Amendment,
each Obligor hereby reaffirms, as of the date hereof, its representations and
warranties contained in Article VI of the Credit Agreement and in each other
Loan Document, and additionally represents and warrants unto the Agent and each
Lender as set forth in this Article V.
SECTION 5.1. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by each Obligor of this Amendment and any other Loan
Document to be executed by it in connection with this Amendment are within such
Obligor's corporate powers, have been duly authorized by all necessary corporate
action, and do not
(a) contravene such Obligor's Organic Documents;
(b) contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting such Obligor;
or
(c) result in, or require the creation or imposition of, any Lien on
any of such Obligor's properties.
SECTION 5.2. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by any Obligor of this Amendment or any other Loan
Document to be executed by it in connection with this Amendment.
SECTION 5.3. Validity, etc. This Amendment constitutes and each other Loan
Document executed by the Obligors in connection with this Amendment will, on the
due execution and delivery thereof, constitute, the legal, valid and binding
obligations of each Obligor enforceable in accordance with their respective
terms.
SECTION 5.4. No Default. As of the date hereof and after giving effect
hereto, no Default exists.
-9-
<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Ratification of and References to the Credit Agreement. This
Amendment shall be deemed to be an amendment to the Credit Agreement, and the
Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed
in each and every respect. All references to the Credit Agreement in any other
document, instrument, agreement or writing shall hereafter be deemed to refer to
the Credit Agreement as amended hereby.
SECTION 6.2. Headings. The various headings of this Amendment are inserted
for convenience only and shall not affect the meaning or interpretation of this
Amendment or any provisions hereof.
SECTION 6.3. Execution in Counterparts. This Amendment may be executed by
the parties hereto in several counterparts, each of which shall be executed by
each Obligor and the Agent and be deemed to be an original and all of which
shall constitute together but one and the same agreement.
SECTION 6.4. Governing Law; Entire Agreement. THIS AMENDMENT AND EACH
OTHER LOAN DOCUMENT EXECUTED IN CONNECTION HEREWITH SHALL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
BORROWER:
KEY COMPONENTS, LLC,
as the Borrower
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
GUARANTORS:
B.W. ELLIOTT MANUFACTURING CO., INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
HUDSON LOCK, INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
ESP LOCK PRODUCTS, INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
VALLEY FORGE CORPORATION,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
<PAGE>
CRUISING EQUIPMENT COMPANY,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
GITS MANUFACTURING COMPANY, INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
GLENDINNING MARINE PRODUCTS, INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
ATLANTIC GUEST, INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
HEART INTERFACE CORPORATION,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
MARINE INDUSTRIES COMPANY,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
<PAGE>
TURNER ELECTRIC CORPORATION,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
VFC ACQUISITION COMPANY, INC.,
as a Guarantor
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
GLENDINNING BUILDING, L.L.C.,
as a Guarantor,
by GLENDINNING MARINE PRODUCTS, INC.,
its sole member,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
GUEST BUILDING, L.L.C., as a Guarantor,
by ATLANTIC GUEST, INC.,
its sole member,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
B.W. ELLIOTT MANUFACTURING CO., LLC,
as a Guarantor,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
<PAGE>
HUDSON LOCK, LLC,
as a Guarantor,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
ESP LOCK PRODUCTS, LLC,
as a Guarantor,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
GITS MANUFACTURING COMPANY, LLC,
as a Guarantor,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
TURNER ELECTRIC, LLC,
as a Guarantor,
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Assistant Secretary
<PAGE>
AGENT:
SOCIETE GENERALE,
as Agent
By: /s/ Steven J. Pischel
-------------------------------------
Name: Steven J. Pischel
Title: Assistant Secretary
<PAGE>
LENDERS:
SOCIETE GENERALE
By: /s/ Steven J. Pischel
-------------------------------------
Title: Steven J. Pischel
Assistant Secretary
THE BANK OF NEW YORK
By: ____________________________________
Title:
STATE STREET BANK AND TRUST COMPANY
By: ____________________________________
Title:
EUROPEAN AMERICAN BANK
By: ____________________________________
Title:
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: ____________________________________
Title:
FIRST UNION NATIONAL BANK
By: ____________________________________
Title:
<PAGE>
LENDERS:
SOCIETE GENERALE
By:
-------------------------------------
Title:
THE BANK OF NEW YORK
By: /s/ Geraldine J. Turkington
-------------------------------------
Title: Vice President
Geraldine J. Turkington
STATE STREET BANK AND TRUST COMPANY
By: ____________________________________
Title:
EUROPEAN AMERICAN BANK
By: ____________________________________
Title:
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: ____________________________________
Title:
FIRST UNION NATIONAL BANK
By: ____________________________________
Title:
<PAGE>
LENDERS:
SOCIETE GENERALE
By: /s/
-------------------------------------
Title:
THE BANK OF NEW YORK
By: ____________________________________
Title:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Sh Patel
-------------------------------------
Title: V.P.
EUROPEAN AMERICAN BANK
By: ____________________________________
Title:
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: ____________________________________
Title:
FIRST UNION NATIONAL BANK
By: ____________________________________
Title:
<PAGE>
LENDERS:
SOCIETE GENERALE
By:
-------------------------------------
Title:
THE BANK OF NEW YORK
By: ____________________________________
Title:
STATE STREET BANK AND TRUST COMPANY
By: ____________________________________
Title:
EUROPEAN AMERICAN BANK
By: /s/ Kristen Burke
-------------------------------------
Title: Vice President
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: ____________________________________
Title:
FIRST UNION NATIONAL BANK
By: ____________________________________
Title:
<PAGE>
LENDERS:
SOCIETE GENERALE
By: /s/
-------------------------------------
Title:
THE BANK OF NEW YORK
By: ____________________________________
Title:
STATE STREET BANK AND TRUST COMPANY
By: ____________________________________
Title:
EUROPEAN AMERICAN BANK
By: ____________________________________
Title:
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: /s/ John P. Thacker
-------------------------------------
Title: John P. Thacker
Senior Vice President
FIRST UNION NATIONAL BANK
By: ____________________________________
Title:
<PAGE>
LENDERS:
SOCIETE GENERALE
By:
-------------------------------------
Title:
THE BANK OF NEW YORK
By: ____________________________________
Title:
STATE STREET BANK AND TRUST COMPANY
By: ____________________________________
Title:
EUROPEAN AMERICAN BANK
By: ____________________________________
Title:
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
its Agent/Manager
By: ____________________________________
Title:
FIRST UNION NATIONAL BANK
By: /s/ John Anderson
-------------------------------------
Title: Vice President
<PAGE>
FLEET BUSINESS CREDIT CORPORATION
(formerly Sanwa Business Credit
Corporation)
By: /s/ Peter L. Skavia
-------------------------------------
Title: Peter L. Skavia
Senior Vice President
IBJ WHITEHALL BANK & TRUST COMPANY
By: ____________________________________
Title:
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By: ____________________________________
Title:
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Jeffrey M. Goodwill
-------------------------------------
Title: Director
<PAGE>
SCHEDULE A
Existing Corporate Obligor Limited Liability Company
- -------------------------- -------------------------
B.W. Elliott Manufacturing Co., Inc. B.W. Elliott Manufacturing Co., LLC
Hudson Lock, Inc. Hudson Lock, LLC
ESP Lock Products, Inc. ESP Lock Products, LLC
Gits Manufacturing Company, Inc. Gits Manufacturing Company, LLC
Marine Industries Company Marine Industries Company, LLC
Turner Electric Company Turner Electric Company, LLC
Valley Forge Corporation Key Components, LLC
-18-
<PAGE>
SCHEDULE B
-19-
<PAGE>
SCHEDULE C
-20-
<PAGE>
ATTACHMENT 1
Pledged Interests by Borrower:
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------------
% of Shares % of Shares
Total of Pledged of Pledged
Pledged Authorized Outstanding Interest Interest
Interest Issuer Shares Shares Issuer Owned Issuer Pledged
- -------------------------------- ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
B.W. Elliott Manufacturing, Co.,
LLC 1,000 1,000 100% 100%
Hudson Lock, LLC 1,000 1,000 100% 100%
ESP Lock Products, LLC 1,000 1,000 100% 100%
Key Components Finance Corp. 1,000 100 100% 100%
Marine Industries Company,
LLC 1,000 1,000 100% 100%
Heart Interface Corporation 50,000 19,922 100% 100%
Cruising Equipment Co. 50,000 1,000 100% 100%
Glendinning Marine Products,
Inc. 2,500 100 100% 100%
Gits Manufacturing Company,
LLC 1,000 1,000 100% 100%
Turner Electric, LLC 1,000 1,000 100% 100%
Atlantic Guest, Inc. 3,000 1,046.50(1) 93% 100%
VEC Acquisition Company, Inc. 3,000 1000 100% 100%
Valley Forge International
Corporation 1000 1000 100% 100%
</TABLE>
- ----------
(1) Valley Forge owns 973.25 shares.
<PAGE>
ATTACHMENT 1
Pledged Interests by Atlantic Guest. Inc.:
100% of the membership interests of Guest Building, L.L.C.
Pledged Interests by Glendinning Marine Products, Inc.:
100% of the membership interests of Glendinning Building, L.L.C.
- 2 -
<PAGE>
SCHEDULE C
-20-
<PAGE>
SCHEDULE I
to
Security Agreement
Item A. Location of Equipment
Hudson Lock, LLC
81 Apsley Street, Hudson, MA 01749
Hudsonville, Michigan
B.W. Elliott Manufacturing Co., LLC
11 Beckwith Avenue, Binghamton, NY 13902
ESP Lock Products, LLC
375 Harvard Street, Leominster, MA 01453
Marine Industries Company, LLC
2655 Napa Valley Corporation Drive, Napa, CA 94558
Placerville, CA (Pre Plastics)
Long Beach, CA (Medway)
Gits Manufacturing Company, LLC
1739 Commerce Drive, Creston, IA 50801
Somersworth, NH (Dowty Palmer Chenard)
Bensenville, IL (Alu Bra Foundry; Chicago Metal Casting)
Eldora, IA (Eldora Plastics)
Prairie City, IA (Streeter Machine)
Minneapolis, MN (Dle Products)
Skokie, IL (Scherer)
Omaha, NE (Dlmatic)
Bettendorf, IA (Le Claire Mfg.)
Chicago, IL (Laystorm)
Huntington Beach, CA (Aranda)
Merrifield, MN (Clow Stamping)
Boston, MA (RPP Corp.)
Amherst, NH (Dia Com)
Winona, MN (Midwest Metal)
<PAGE>
Turner Electric, LLC
9510 St. Clair Avenue, Fairview Heights, IL 62208
512 and 512A South Breese, Milstadt, IL
1200 B&H Industrial City, Milstadt, IL
1101 N. Illinois St., Belleville, IL (Century Brass)
210 Kaskaskid, Red Bud, IL (G&S Foundry)
Item B. Location of Inventory
Hudson Lock, LLC
81 Apsley Street, Hudson, MA 01749
Hudsonville, Michigan
B.W. Elliott Manufacturing Co., LLC
11 Beckwith Avenue, Binghamton, NY 13902
ESP Lock Products, LLC
375 Harvard Street, Leominster, MA 01453
Marine Industries Company, LLC
2655 Napa Valley Corporation Drive, Napa, CA 94558
11815 Burke St., Santa Fe Springs, CA
385 Glen Cove Road, Greenvale, N.Y. 11548
Gits Manufacturing Company, LLC
1739 Commerce Drive, Creston, IA 50801
Los Angeles, CA (Garrett)
Lincoln, NE (WIP)
Thailand
<PAGE>
Turner Electric, LLC
9510 St. Clair Avenue, Fairview Heights, IL 62208
512 and 512A South Breese, Milstadt, IL
1200 B&H Industrial City, Milstadt, IL
1205 Hayes industrial Drive, Marietta, GA (Equity Utility Service)
P.O. Box 26566, Richmond, VA 23230 (WESCO)
Item C. Location of Bank Account
Bank Name and Address Account Number Contact Person
--------------------- -------------- --------------
Hudson Lock, LLC
Community National Bank 120111
17 Pope Street
Hudson, MA 01749
Same 206040
BSB Bank & Trust 340088665 Dana Lustic
68 Exchange Street
Binghamton, NY 13901
B.W. Elliott Manufacturing Co., LLC
BSB Bank & Trust 340048214 Dana Lustic
68 Exchange Street
Binghamton, NY 13901
Same 340048206 Same
Same 410361410 Same
Same 325056232 Same
Chase Manhattan Bank 585-002134 Customer Service
2 Court Street
Binghamton, NY 13901
<PAGE>
Bank Name and Address Account Number Contact Person
--------------------- -------------- --------------
ESP Lock Products, LLC
BSB Bank & Trust 340093285 Lara Hurley-Wood
68 Exchange Street
Binghamton, NY 13901
First Mass. Bank 0302250095 Ann Fowler
339 Main Street
Worcester, MA 01609
First Mass. Bank 0302250105 Ann Fowler
339 Main Street
Worcester, MA 01609
Marine Industries Company, LLC
WestAmerica Bank 514-62178-8
Commercial Blvd. 508-27716-7
Novato, CA 94949
Gits Manufacturing Company, LLC
First National Bank 398651
101 W. Adams 398669
Creston, IA 50801
Turner Electric, LLC
Magna Bank 192457
19 Public Square
Belleville, IL 62222
Boatmen's Bank 51-0100-993727
P.O. Box 236
St. Louis, MO 63166
Boatmen's Bank 35-0119-028265
2200 Westport Plaza Drive
St. Louis, MO 63146
<PAGE>
SCHEDULE II
to
Security Agreement
Item A. Patents
Hudson Lock, LLC
See Exhibit A attached hereto.
B.W. Elliott Manufacturing Co., LLC
See Exhibit B attached hereto.
ESP Lock Products, LLC
See Exhibit C attached hereto.
Marine Industries Company, LLC
Drop-In Grill Design Patent D379,001 Issued 4/29/97
Drinkholder 5,603,477 Issued 2/18/97
Drop-In Horn 5,703,335 Issued 12/30/97
Ornamental design D301,210 05/23/89
for marine horn(1)
Marine horn installation(2) 4,825,800 05/02/89
Contour Grip
Electrical Connector Des 411,170 06/22/99
Solar Power Ventilator Des 281,274 10/05/95
Motor for Boat
Windshield Wiper Des 363,264 10/17/95
- ----------
(1) In the name of American Foreign Industries, Inc., a predecessor to Marine
Industries Company.
(2) In the name of American Foreign Industries, Inc., a predecessor to Marine
Industries Company.
<PAGE>
Turner Electric, LLC
914,254 Canadian Patent Torque Impact Converter
4,894,988 Issued 1/23/90 (U.S.) Hydraulic System for operating
switching devices
1,317,529 Issued 4/11/93 (Canada) Hydraulic System for operating
switching devices
4,492,835 Issued 1/8/85 Load Interrupting Device
Gits Manufacturing Company, LLC
See Exhibit D attached hereto.
Item B. Patent Licenses
Hudson Lock, LLC
[None]
B.W. Elliott Manufacturing Co., LLC
[None]
ESP Lock Products, LLC
[None]
Marine Industries Company, LLC
[None]
Gits Manufacturing Company, LLC
[None]
Turner Electric, LLC
[None]
<PAGE>
SCHEDULE III
to
Security Agreement
Item A. Trademarks
Hudson Lock, LLC
[None]
B.W. Elliott Manufacturing Co., LLC
[None]
ESP Lock Products, LLC
See Exhibit C attached hereto.
Marine Industries Company, LLC
MARINCO 997,946 11/12/74 Electronic cables and electrical
hull fittings in international
class 9
SALTWATER WIRE 1,793,275 9/14/93 electrical wire and cable in
international class 9 on the
Supplemental Register
SEATEAK(3) 1,292,887 09/04/84 game and utilitarian marine
furniture and fittings, and
household racks for marine use
in international class 20
Gits Manufacturing Company, LLC
[None]
Turner Electric, LLC
Battery Use Gauge (BUG)
Managed Outlet (Little off)
- ----------
(3) In the name of American Foreign Industries, Inc., a predecessor to Marine
Industries Company, LLC.
<PAGE>
Item B. Trademark Licenses
Hudson Lock, LLC
[None]
B.W. Elliott Manufacturing Co., LLC
[None]
ESP Lock Products, LLC
[None]
Marine Industries Company, LLC
[None]
Gits Manufacturing Company, LLC
[None]
Turner Electric, LLC
[None]
<PAGE>
SCHEDULE IV
to
Security Agreement
Item A. Conyrights/ Mask Works
Hudson Lock, LLC
[None]
B.W. Elliott Manufacturing Co., LLC
[None]
ESP Lock Products, LLC
[None]
Marine Industries Company, LLC
[None]
Cruising Equipment Co.
[None]
Gits Manufacturing Company, LLC
[None]
Turner Electric, LLC
[None]
Item B. Copyright/ Mask Work Licenses
Hudson Lock, LLC
[None]
<PAGE>
B.W. Elliott Manufacturing Co., LLC [None]
ESP Lock Products, LLC
[None]
Marine Industries Company, LLC
[None]
Gits Manufacturing Company, LLC
[None]
Turner Electric, LLC
[None]
<PAGE>
SCHEDULE V
to
Security Agreement
Trade Secret or Know-How Licenses
Hudson Lock, LLC
[None]
B.W. Elliott Manufacturing Co., LLC
[None]
ESP Lock Products, LLC
[None]
Marine Industries Company, LLC
[None]
Gits Manufacturing Company, LLC
[None]
Turner Electric, LLC
[None]
<PAGE>
[EXECUTION COPY]
JOINDER AGREEMENT
This JOINDER AGREEMENT (this "Joinder"), dated as of August 31, 1999, by
B.W. ELLIOTT MANUFACTURING CO., LLC, a limited liability company organized under
the laws of the State of New York, HUDSON LOCK, LLC, a limited liability company
organized under the laws of the State of Delaware, ESP LOCK PRODUCTS, LLC, a
limited liability company organized under the laws of the State of Delaware,
GITS MANUFACTURING COMPANY, LLC, a limited liability company organized under the
laws of the State of Delaware, MARINE INDUSTRIES COMPANY, LLC, a limited
liability company organized under the laws of the State of Delaware, and TURNER
ELECTRIC, LLC, a limited liability company organized under the laws of the State
of Delaware (each a "Joining Party" and, collectively, the "Joining Parties"),
is delivered to SOCIETE GENERALE, as Agent (the "Agent") for the Lenders
referred to below, pursuant to the Credit Agreement, dated as of January 19,
1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among KEY COMPONENTS, LLC, as Borrower, each of the
Subsidiaries of the Borrower identified as Guarantors in the Credit Agreement
(the "Guarantors"), the various financial institutions from time to time party
thereto (the "Lenders") and the Agent. Terms used herein but not defined herein
shall have the meanings provided for in the Credit Agreement unless otherwise
specified.
Each Joining Party has been created by the Borrower, and as such each
Joining Party is required, pursuant to Section 7.1.8 of the Credit Agreement, to
become a Guarantor and an Obligor under the Credit Agreement and, accordingly,
agrees as follows:
1. By this Joinder, such Joining Party becomes a Guarantor and an
Obligor under the Credit Agreement for all purposes under the Credit
Agreement.
2. By this Joinder, such Joining Party becomes a Grantor (as such
term is defined in the Security Agreement defined below) under the Amended
and Restated Guarantor Security Agreement, dated as of January 19, 1999
(the "Security Agreement"), for all purposes under the Security Agreement.
<PAGE>
IN WITNESS WHEREOF, each Joining Party has caused this Joinder to be duly
executed as of the date first above written.
JOINING PARTIES
B.W. ELLIOTT MANUFACTURING CO., LLC
By: /s/ Alan L. Rivera
-------------------------------------
Name: Alan L. Rivera
Title: Assistant Secretary
HUDSON LOCK, LLC
By: /s/ Alan L. Rivera
-------------------------------------
Name: Alan L. Rivera
Title: Assistant Secretary
ESP LOCK PRODUCTS, LLC
By: /s/ Alan L. Rivera
-------------------------------------
Name: Alan L. Rivera
Title: Assistant Secretary
GITS MANUFACTURING COMPANY, LLC
By: /s/ Alan L. Rivera
-------------------------------------
Name: Alan L. Rivera
Title: Assistant Secretary
-2-
<PAGE>
TURNER ELECTRIC, LLC
By: /s/ Alan L. Rivera
-------------------------------------
Name: Alan L. Rivera
Title: Assistant Secretary
Accepted and Acknowledged by:
SOCIETE GENERALE,
as Agent for the Lenders
By:________________________________
Name:
Title:
-3-
<PAGE>
TURNER ELECTRIC, LLC
By:
-------------------------------------
Name:
Title:
Accepted and Acknowledged by:
SOCIETE GENERALE,
as Agent for the Lenders
By: /s/ Steven J. Pischel
--------------------------------
Name: Steven J. Pischel
Title: Vice President
-3-
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<NAME> KEY COMPONENTS, LLC
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<NAME> KEY COMPONENTS FINANCE CORP
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