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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1999
REGISTRATION NO. 333-75643-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMPASS AEROSPACE CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 3728 95-4659126
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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1501 HUGHES WAY, SUITE 400
LONG BEACH, CALIFORNIA 90810
(310) 522-0600
N. PAUL BROST
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
COMPASS AEROSPACE CORPORATION
1501 HUGHES WAY, SUITE 400
LONG BEACH, CALIFORNIA 90810
(310) 522-0600
(Name and address, including zip code, of agent for service)
------------------------------
COPIES TO:
PETER P. WALLACE, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
300 SOUTH GRAND AVENUE, 22ND FLOOR
LOS ANGELES, CALIFORNIA 90071-3132
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PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL IRS EMPLOYEE
NAME OF ADDITIONAL REGISTRANTS* INCORPORATION CLASSIFICATION NUMBER IDENTIFICATION NUMBERS
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Aeromil Engineering Company................... Delaware 3728 95-4659131
Barnes Machine, Inc........................... Washington 3728 91-1195226
Brittain Machine, Inc......................... Kansas 3728 48-0816118
Modern Manufacturing, Inc..................... Delaware 3728 91-1413338
Pacific Hills Manufacturing Co................ California 3469 95-4446681
Sea-Lect Products, Inc........................ Delaware 3728 95-4682821
Western Methods Machinery Corporation......... California 3728 95-3195940
Wichita Manufacturing, Inc.................... California 3728 33-0536613
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* Address and telephone number of the principal executive offices of the
additional registrants are the same as those of Compass Aerospace
Corporation.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effectiveness of this Registration Statement.
------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE
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10 1/8% Series B Senior Subordinated Notes due
2005............................................ $110,000,000 100% $110,000,000 $30,580
Guarantees of the 10 1/8% Series B Senior
Subordinated Notes due 2005 by Registrants other
than Compass Aerospace Corporation.............. $110,000,000 (2) (2) (2)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(n), no separate registration fee is required with
respect to the guarantees.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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EXPLANATORY NOTE
This registration statement covers the registration of an aggregate
principal amount of $110,000,000 of 10 1/8% Series B Senior Subordinated Notes
due 2005 of Compass Aerospace Corporation that may be exchanged for equal
principal amounts of our outstanding 10 1/8% Senior Subordinated Notes due 2005.
This registration statement also covers the registration of the Series B Notes
for resale by broker-dealers in market-making transactions. The complete
prospectus relating to the exchange offer follows immediately after this
Explanatory Note. Following the prospectus are certain pages of the prospectus
relating solely to such market-making transactions (the "market-making
prospectus"), including alternate front and back cover pages, a section entitled
"Risk Factors--There Is No Existing Trading Market For The Notes And Any
Market-Making Activities May Be Terminated At Any Time" to be used in lieu of
the section entitled "Risk Factors--No Public Trading Market For The Notes
Exists And You May Not Be Able To Sell Them," a "Use of Proceeds" section and an
alternate "Plan of Distribution" section. In addition, the market-making
prospectus will not include the following captions (or the information set forth
under such captions) included in the prospectus: "Summary--The Exchange Offer,"
"Summary of the Terms of the Exchange Offer," "Risk Factors--Outstanding Notes
That Are Not Exchanged will Continue To Be Subject To Transfer Restrictions,"
"The Exchange Offer," "United States Federal Income Tax Consequences" and
"United States Federal Income Tax Consequences to Non-U.S. Holders." All other
sections of the prospectus will be included in the market-making prospectus.
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SUBJECT TO COMPLETION DATED [ ], 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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COMPASS AEROSPACE CORPORATION
Offer to Exchange its
10 1/8% Series B Senior Subordinated Notes due 2005
for any and all of its outstanding
10 1/8% Senior Subordinated Notes due 2005
($110,000,000 aggregate principal amount outstanding)
Guaranteed by Aeromil Engineering Company, Barnes
Machine, Inc., Brittain Machine, Inc., Modern Manufacturing, Inc.,
Pacific Hills Manufacturing Co., Sea-Lect Products, Inc.,
Western Methods Machinery Corporation and
Wichita Manufacturing, Inc.
---------------------
TERMS OF EXCHANGE OFFER
- Expires at 5:00 p.m., New York City time, on , 1999, unless
extended
- Not subject to any condition other than that the exchange offer not
violate applicable law or any applicable interpretation of the staff of
the Securities and Exchange Commission
- Tenders of outstanding 10 1/8% Senior Subordinated Notes due 2005 may be
withdrawn any time before 5:00 p.m. on the business day prior to
expiration of the exchange offer
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes
- We will not receive any proceeds from the exchange offer
- The terms of the notes to be issued are identical in all material respects
to the outstanding notes, except they lack certain transfer restrictions
and registration rights relating to the outstanding notes
------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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THE DATE OF THIS PROSPECTUS IS , 1999
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TABLE OF CONTENTS
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Available Information...................................................................................... 3
Summary.................................................................................................... 4
Risk Factors............................................................................................... 15
Capitalization............................................................................................. 22
Unaudited Pro Forma Financial Data......................................................................... 23
Selected Historical Consolidated Financial Data............................................................ 27
Management's Discussion and Analysis of Consolidated Financial Condition and Consolidated Results of
Operations............................................................................................... 29
The Exchange Offer......................................................................................... 38
Business................................................................................................... 48
Management................................................................................................. 59
Principal Stockholders..................................................................................... 65
Description of Credit Agreement............................................................................ 66
Description of the Series B Notes.......................................................................... 67
United States Federal Income Tax Consequences.............................................................. 104
United States Federal Income Tax Consequences to Non-U.S. Holders.......................................... 104
Plan of Distribution....................................................................................... 107
Legal Matters.............................................................................................. 108
Experts.................................................................................................... 108
Index to Financial Statements.............................................................................. F-1
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AVAILABLE INFORMATION
This prospectus constitutes a part of a registration statement on Form S-4
filed by us with the Securities and Exchange Commission under the Securities Act
of 1933. As permitted by the rules and regulations of the Commission, this
prospectus does not contain all of the information contained in the registration
statement, including additional exhibits and schedules not included in this
prospectus. In this prospectus we refer to the registration statement and to the
exhibits and schedules. For further information about us and about the
securities we are offering, you should consult the registration statement,
including the exhibits and schedules. You should be aware that statements
contained in this prospectus concerning the provisions of any documents filed as
an exhibit to the registration statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
Upon the effectiveness of the registration statement, we will be subject to
the informational requirements of the Securities Exchange Act of 1934.
Accordingly, we will file periodic reports and other information with the
Commission. The registration statement, reports and other information filed by
us with the Commission will be available for inspection and copying at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Suite 1400, Northwestern Atrium Center, 14th Floor, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material will also be
available at prescribed rates by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. If you would like
information on the operation of the Public Reference Room, you may call
1-800-SEC-0330. You may also be able to access this information electronically
through the Commission's web page on the Internet at http://www.sec.gov. This
web site contains reports and other information regarding registrants such as
ourselves that have filed electronically with the Commission.
The indenture governing the notes provides that we will furnish to the
holders of the notes copies of the periodic reports required to be filed with
the Commission under the Exchange Act. Even if we are not subject to the
periodic reporting and informational requirements of the Exchange Act, we will
make such filings to the extent that such filings are accepted by the
Commission. We will make these filings regardless of whether we have a class of
securities registered under the Exchange Act. Furthermore, we will provide the
Trustee for the notes and the holders of the notes within 15 days after such
filings with annual reports containing the information required to be contained
in Form 10-K, and quarterly reports containing the information required to be
contained in Form 10-Q promulgated by the Exchange Act. From time to time, we
will also provide such other information as is required to be contained in Form
8-K promulgated by the Exchange Act. If the filing of such information is not
accepted by the Commission or is prohibited by the Exchange Act, we will then
provide promptly upon written request, and at our cost, copies of such reports
to prospective purchasers of the notes.
------------------------
This exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which this
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of that jurisdiction.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL DATA AND RELATED NOTES AND THE
SECTION ENTITLED "RISK FACTORS," BEFORE MAKING A DECISION ABOUT WHETHER TO
EXCHANGE THE OUTSTANDING NOTES YOU HOLD FOR 10 1/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2005 (THE "SERIES B NOTES"). THE TERMS "COMPASS," OUR" AND "WE" AS
USED IN THIS PROSPECTUS REFER TO COMPASS AEROSPACE CORPORATION AND ITS
SUBSIDIARIES, AS A COMBINED ENTITY, EXCEPT WHERE IT IS CLEAR THAT SUCH TERM
MEANS ONLY THE PARENT COMPANY. COMPASS' SUBSIDIARIES ARE: AEROMIL ENGINEERING
COMPANY, BARNES MACHINE, INC., BRITTAIN MACHINE, INC., MODERN MANUFACTURING,
INC. (FORMERLY KNOWN AS Y.F. AMERICAS, INC.), PACIFIC HILLS MANUFACTURING CO.
(FORMERLY KNOWN AS LAMSCO WEST, INC.), SEA-LECT PRODUCTS, INC., WESTERN METHODS
MACHINERY CORPORATION AND WICHITA MANUFACTURING, INC.
THE EXCHANGE OFFER
On April 21, 1998 we completed the private offering of $110.0 million of
outstanding notes. You are entitled to exchange in the exchange offer your
outstanding notes for registered notes with terms which are identical in all
material respects to the outstanding notes, except for certain transfer
restrictions and registration rights.
Under a registration rights agreement executed as part of the offering of
the outstanding notes, we agreed to:
- file a registration statement within 240 days after the issue date of the
outstanding notes enabling note holders to exchange the outstanding held
notes for publicly registered notes that are identical in all material
respects to the form and terms of the outstanding notes;
- use our best efforts to cause the registration statement to become
effective within 300 days after the issue date of the outstanding notes;
- consummate the exchange offer within 30 days of the effective date of our
registration date; and
- use our best efforts to file a shelf registration statement for the resale
of the notes if we cannot effect an exchange offer within the time periods
listed above and in certain other circumstances.
The interest rate on the outstanding notes has increased as a form of liquidated
damages because we did not comply with our obligations under the registration
rights agreement. As a result of the registration statement not having been
filed within 240 days after the issue date of the outstanding notes and not yet
having been declared effective by the Securities and Exchange Commission,
liquidated damages are currently accruing at the rate of $16,500 per week in the
aggregate for the $110.0 million principal amount of outstanding notes. You
should read the discussion under the headings "Summary Description of the Series
B Notes-Exchange Offer; Registration Rights" and "The Exchange Offer-Certain
Conditions of the Exchange Offer" for further information regarding the
registration rights agreement.
We believe that the Series B Notes issued in the exchange offer may be
resold by you without compliance with the registration and prospectus delivery
provisions of the Securities Act, subject to certain conditions. You should read
the discussion under the headings "Summary of the Terms of the Exchange Offer"
and "The Exchange Offer" for further information regarding the exchange offer
and resale of the Series B Notes.
COMPASS
Compass was founded in October 1997 to become a major supplier of precision
machined individual metal parts and of higher value-added sub-assemblies,
manufacturing kits and structural components ("Integrated Products") used by
aerospace manufacturers in structural frames and other metal aircraft
components. We intend to capitalize on the trends among aircraft manufacturers
which seek to increase outsourcing, concentrate supplier relationships and
encourage suppliers of individual parts to
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manage the supply chain and produce more value-added Integrated Products.
Compass commenced operations in November 1997 with the simultaneous
acquisitions of two established precision machining subcontractors. In 1998 we
acquired six additional operating companies. You should read the discussion
under the headings "Management's Discussion and Analysis of Consolidated
Financial Condition and Consolidated Results of Operations --Results of
Operations" and "The Business--Compass" for more information on Compass'
business and financial condition. The acquired companies have precision
machining and tooling capabilities which provide Compass with a diverse and
flexible manufacturing capability. We intend to leverage our subsidiaries'
consolidated capabilities, focus on supply chain management and just-in-time
delivery, expand our production of Integrated Products and acquire businesses
with complementary capabilities.
At present, we primarily manufacture individual parts for aircraft to
precise specifications from metals including aluminum, titanium and steel
through the use of precision computer numerically-controlled machine tools. We
use a variety of advanced techniques and machinery including horizontal and
vertical machining centers and state-of-the-art, high-speed precision machining
equipment such as three-spindle five-axis gantry mills. We believe that Compass'
machining capabilities are among the broadest, and that we have among the
largest number of three-spindle five-axis gantry mills of all aerospace
suppliers in the United States. We currently produce parts as original equipment
for:
- all of the commercial jet models (717, 737, 747, 757, 767, 777, MD-11,
MD-80 and MD-90) produced by The Boeing Company through its various
divisions
- certain other commercial aircraft manufacturers, including certain models
(A320, A330, A340) produced by Airbus Industrie
- and for several United States military programs.
We believe that the long-standing relationships that management has
established with our key customers, the strong name recognition of our
subsidiaries, our subsidiaries' established track records of quality
manufacturing and their consistent histories of timely deliveries are among the
key factors in our success. For the three months ended March 31, 1999 we
generated consolidated revenues of $34.4 million, EBITDA of approximately $7.6
million and net cash flow of $2.2 million. Net cash provided by operating
activities was $4.7 million. Investing activities consisting of purchases of
property and equipment used $0.7 million of cash flow. Financing activities
consisting of principal payments on long term debt used $1.8 million in cash. At
May 31, 1999 we had a total revenue backlog of approximately $150.0 million, of
which approximately $70.0 million is deliverable in the remainder of 1999.
INDUSTRY OVERVIEW
Commercial aircraft manufacturers are experiencing a sustained period of
historically high demand for new aircraft. According to the Aerospace Industries
Association of America, the annual worldwide market for aircraft was
approximately $78.0 billion in 1998. Manufacturing U.S.A., Sixth Edition,
estimates the value of aircraft equipment shipped in 1998 was approximately
$20.4 billion. In response to the increased demand for aircraft, the major
aircraft manufacturers are dramatically changing their manufacturing and
purchasing practices to increase production rates and reduce costs. More
specifically, aircraft manufacturers are increasing outsourcing and imposing
increased responsibilities, such as the production of more Integrated Products,
just-in-time deliveries and quality control inspections before shipping, on a
smaller number of qualified suppliers. Outsourcing also reduces costs because
subcontractors can produce parts at a fraction of the cost of in-house
manufacturing. At present, the aerospace supplier industry is highly fragmented,
consisting of a limited number of well-capitalized companies which offer a broad
range of products and services, and a large number of smaller, specialized
companies. As a
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result of the aircraft manufacturers' new manufacturing and purchasing
practices, the supplier industry has been consolidating at an increasing pace in
recent years. We believe that such consolidation will continue.
STRATEGY
Our principal strategic objective is to increase revenues and profits by
managing the supply chain for our customers. We also seek to increase our
operating efficiencies and to reduce our customer concentration by diversifying
our revenue mix among aerospace customers. To reach our objectives we intend to:
- consolidate our acquired businesses;
- increase operating efficiencies and asset utilization by implementing lean
manufacturing practices and through strategic coordination of production
among our manufacturing facilities to increase production runs, reduce
set-up times and utilize the most appropriate machinery for each
production job;
- maximize the production volume of our manufacturing facilities, some of
which are under-utilized;
- increase our production of Integrated Products by more effective use of
our broad, flexible manufacturing capabilities while continuing to produce
individual parts;
- continue to centralize certain administrative functions at the corporate
level including finance, accounting, purchasing, tax, sales and marketing,
payroll, employee benefits and insurance and other administrative
activities to generate economies of scale and minimize costs;
- continue to update and consolidate our management information systems to
improve internal controls and coordinate operations;
- consolidate certain of the engineering functions currently spread across
our manufacturing facilities;
- improve marketing by proactively marketing our broad, flexible
manufacturing capabilities to secure additional long-term production
contracts from existing customers;
- target customers that our subsidiaries could not significantly penetrate
individually, including Airbus, which represented less than one percent of
our 1998 consolidated revenues;
- increase outsourcing of certain production functions to small machine
shops to increase manufacturing efficiencies and capacity;
- diversify our revenue mix among aerospace customers by targeting the
Airbus and the business jet markets, and United States military programs
beyond our current participation in the C-17 transport and F-18 fighter
aircraft programs; and
- acquire additional businesses with complementary manufacturing
capabilities that will enhance our ability to produce Integrated Products,
increase our operating efficiencies and/or diversify our revenue mix.
------------------------
Compass' principal executive offices are located at 1501 Hughes Way, Suite
400, Long Beach, California 90810. Our telephone number is (310) 522-0600.
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
The exchange offer relates to the exchange of up to $110.0 million aggregate
principal amount of outstanding notes for an equal aggregate principal amount of
Series B Notes. The Series B Notes will be obligations of Compass entitled to
the benefits of the indenture governing the outstanding notes and will be fully,
irrevocably and unconditionally guaranteed by each of Compass' subsidiaries on a
joint and several basis. The form and terms of the Series B Notes are identical
in all material respects to the form and terms of the outstanding notes, except
that the Series B Notes have been registered under the Securities Act.
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Termination of Certain You are entitled to exchange your notes for registered
Rights....................... notes that are identical in all material respects to the
form and terms of the outstanding notes, except for certain
transfer restrictions and registration rights. The exchange
offer is intended to satisfy these rights. After the
exchange offer is complete, you will no longer be entitled
to any exchange or registration rights with respect to your
notes.
The Exchange Offer............. We are offering to exchange $1,000 principal amount of
Series B Notes which have been registered under the
Securities Act for each $1,000 principal amount of
outstanding notes which we issued in April 1998 in a
private offering. In order to be exchanged, an outstanding
note must be properly tendered and accepted. All
outstanding notes that are validly tendered, and not
validly withdrawn, will be exchanged. We will issue
registered notes on or promptly after the expiration of the
exchange offer.
At this date there is $110.0 million principal amount of
notes outstanding.
Resale of the Series B Notes... Based on an interpretation of the staff of the Securities
and Exchange Commission set forth in no-action letters
issued to third parties, including "Exxon Capital Holdings
Corporation" (available May 13, 1988), "Morgan Stanley &
Co. Incorporated" (available June 5, 1991), "Mary Kay
Cosmetics, Inc." (available June 5, 1991) and "Warnaco,
Inc." (available October 11, 1991), we believe that the
notes issued in the exchange offer may be offered for
resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery
provisions of the Securities Act provided that:
- the notes issued in the exchange offer are being
acquired in the ordinary course of business;
- you are not participating, do not intend to participate,
and have no arrangement or understanding with any person to
participate, in the distribution of the notes issued to
you in the exchange offer;
- you are not a broker-dealer who purchased such notes
directly from us for resale pursuant to Rule 144A or any
other available exemption under the Securities Act; and
- you are not an "affiliate" of ours.
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If our belief is inaccurate and you transfer any note
issued to you in the exchange offer without delivering a
prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your notes
from such requirements, you may incur liability under the
Securities Act. We do not assume or indemnify you against
such liability.
Expiration Date................ The exchange offer will expire at 5:00 p.m., New York City
time, on , 1999, or, at our option, at the time
that 100% of the outstanding notes have been validly
tendered and not withdrawn, unless we decide to extend the
expiration date.
Accrued Interest on the Series The Series B Notes will bear interest from their date of
B Notes and Outstanding issuance. Holders of outstanding notes whose notes are
Notes........................ accepted for exchange will be deemed to have waived the
right to receive any payment of interest on such
outstanding notes accrued on and after the date of issuance
of the Series B Notes. Consequently, holders who exchange
their outstanding notes for Series B Notes will receive the
same interest payment on October 15, 1999 (the third
interest payment date with respect to the outstanding notes
and the first interest payment date with respect to the
Series B Notes to be issued in the exchange offer) that
they would have received had they not accepted the exchange
offer.
Termination of the Exchange We may terminate the exchange offer if we determine that
Offer........................ our ability to proceed with the exchange offer could be
materially impaired due to any legal or governmental
action, new law, statute, rule or regulation or any
interpretation of the staff of the Commission of any
existing law, statute, rule or regulation. We do not expect
any of the foregoing conditions to occur, although there
can be no assurance that such conditions will not occur.
Holders of outstanding notes will have certain rights
against Compass under the registration rights agreement
executed as part of the offering of the outstanding notes
should we fail to consummate the exchange offer.
Procedures for Tendering If you are a holder of a note and you wish to tender your
Outstanding Notes............ note for exchange pursuant to the exchange offer you must
transmit to IBJ Whitehall Bank & Trust Company, as exchange
agent, on or prior to the expiration date:
either:
- a properly completed and duly executed letter of
transmittal, which accompanies this prospectus, or a
facsimile of the letter of transmittal, the certificates
for the outstanding notes being tendered, and all other
documents required by the letter of transmittal, to the
exchange agent at the address set forth on the cover
page of the letter of transmittal; or
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- a computer-generated message transmitted to The
Depository Trust Company ("DTC") by means of the Automated
Tender Offer Program ("ATOP") system and received by the
exchange agent and forming a part of a confirmation of
book entry transfer in which you acknowledge and agree
to be bound by the terms of the letter of transmittal;
and, either
- a timely confirmation of book-entry transfer of your
outstanding notes into the exchange agent's account at
DTC pursuant to the procedure for book-entry transfers
described in this prospectus under the headings "The
Exchange Offer-- Procedures for Tendering Outstanding
Notes," and "The Exchange Offer--Book-Entry Transfer;"
or
- the documents necessary for compliance with the
guaranteed delivery procedures described below, must be
received by the Exchange Agent on or prior to the
expiration date.
By executing the letter of transmittal, each holder will
represent to us that, among other things:
- the notes to be issued in the exchange offer are being
obtained in the ordinary course of business of the
person receiving such notes whether or not such person
is the holder;
- neither the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such notes; and
- neither the holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities
Act, of Compass.
Special Procedures for If you are the beneficial owner of outstanding notes and
Beneficial Owners............ your name does not appear on a security position listing of
DTC as the holder of such notes or if you are a beneficial
owner of outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender such notes in the
exchange offer, you should contact the person in whose name
your notes are registered promptly and instruct that person
to tender on your behalf. If you are a beneficial owner and
you wish to tender your outstanding notes on your own
behalf you must, prior to completing and executing the
letter of transmittal and delivering your outstanding
notes, either make appropriate arrangements to register
ownership of the outstanding notes in your name or obtain a
properly completed bond power from the registered holder.
The transfer of record ownership may take considerable
time.
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Guaranteed Delivery If you wish to tender your notes and time will not permit
Procedures................... your required documents to reach the exchange agent by the
expiration date, or the procedure for book-entry transfer
cannot be completed on time or certificates for outstanding
notes cannot be delivered on time, you may tender your
notes pursuant to the procedures set forth under the
heading "The Exchange Offer-- Guaranteed Delivery
Procedures."
Withdrawal of Tenders.......... You may withdraw the tender of your notes at any time
before 5:00 p.m., New York City time, on , 1999,
one business day prior to the expiration date, unless your
notes were previously accepted for exchange.
Acceptance of Outstanding Notes Subject to certain conditions, including those summarized
and Delivery of Series B above in "Termination of the Exchange Offer" and described
Notes........................ more fully under the heading "The Exchange
Offer--Termination," we will accept for exchange any and
all outstanding notes which are properly tendered in the
exchange offer prior to 5:00 p.m., New York City time, on
the expiration date. The notes issued pursuant to the
exchange offer will be delivered promptly following the
expiration date.
Certain Federal Income Tax We believe the exchange of the Series B Notes for the
Consequences................. outstanding notes should not be a sale or exchange for
United States federal income tax purposes and therefore,
that you will not recognize any taxable gain or loss or any
interest income as a result of such exchange.
Use of Proceeds................ We will not receive any proceeds from the issuance of notes
pursuant to the exchange offer. We will pay all expenses
incident to the exchange offer.
Exchange Agent................. IBJ Whitehall Bank & Trust Company is serving as the
exchange agent in connection with the exchange offer. The
exchange agent can be reached at P.O. Box 84, Bowling Green
Station, New York, New York, 10274-0084. For more
information with respect to the exchange offer, the
telephone number for the exchange agent is (212) 858-2103.
The facsimile for the exchange agent is (212) 858-2611.
</TABLE>
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<PAGE>
SUMMARY DESCRIPTION OF THE SERIES B NOTES
The terms of the outstanding notes and the Series B Notes are identical in
all material respects, except that the outstanding notes are subject to certain
transfer restrictions and have registration rights that the Series B Notes do
not.
<TABLE>
<S> <C>
Notes Offered................... $110.0 million aggregate principal amount of 10 1/8%
Series B Senior Subordinated Notes due 2005.
Issuer.......................... Compass Aerospace Corporation
Maturity Date................... April 15, 2005.
Interest Payment Dates.......... April 15 and October 15 of each year, commencing October
15, 1999.
Ranking......................... The Series B Notes will be unsecured senior subordinated
obligations and will be subordinated to all our existing
and future senior indebtedness. The Series B Notes will
rank senior to or equal to all our future subordinated
indebtedness. Because the Series B Notes are subordinated,
in the event of bankruptcy, liquidation or dissolution,
holders of the Series B Notes will not receive any payment
until holders of senior indebtedness have been paid in
full. The terms "senior indebtedness" and "subordinated
indebtedness" are defined in the "Description of the
Series B Notes--Subordination" and "Description of the
Series B Notes--Certain Definitions" sections of this
prospectus.
At May 31, 1999 we had outstanding $85.1 million of senior
indebtedness which will rank senior to the Series B Notes
and $110.0 million of senior subordinated indebtedness.
Guarantees...................... The Series B Notes will be jointly and severally, fully,
irrevocably and unconditionally guaranteed on a senior
subordinated basis by each of Compass' present and future
subsidiaries. The guarantees will be unsecured senior
subordinated obligations of our subsidiaries and will be
subordinated to all existing and future senior
indebtedness of our subsidiaries. At March 31, 1999 our
subsidiaries had $5.1 million of indebtedness outstanding.
Optional Redemption............. We may redeem the Series B Notes, in whole or in part, at
any time on or after April 15, 2002, at the redemption
prices set forth in this prospectus.
Public Equity Offering Optional
Redemption.................... Before April 15, 2001, we may redeem up to 35% of the
aggregate principal amount of the notes originally
outstanding with the net proceeds of a public equity
offering at 110.125% of the principal amount of the
redeemed notes, plus accrued interest, if at least 65% of
the aggregate principal amount of the notes originally
issued remains outstanding after such redemption. You
should read the discussion under the heading "Description
of the Series B Notes--Optional Redemption" for more
information on the optional redemption of the notes.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Change of Control............... Upon certain change of control events, each holder of
Series B Notes may require us to repurchase all or a
portion of its Series B Notes at a purchase price equal to
101% of the principal amount of the repurchased notes,
plus accrued interest. You should read the discussions
under the headings "Description of the Series B
Notes--Certain Covenants" and "Description of the Series B
Notes--Certain Definitions" for the a more complete
definition of "Change of Control."
Certain Covenants............... The indenture governing the Series B Notes contains
covenants that, among other things, will limit our ability
and the ability of our restricted subsidiaries to:
- incur additional indebtedness,
- issue some kinds of capital stock,
- pay dividends or make other distributions with
respect to our capital stock,
- create liens,
- sell assets,
- sell the capital stock of our subsidiaries,
- engage in transactions with affiliates, and
- effect consolidations or mergers.
These covenants are subject to important exceptions and
qualifications, which are described under the heading
"Description of the Series B Notes" in this prospectus.
Exchange Offer; Registration
Rights........................ In connection with the offering of the outstanding notes,
we entered into a registration rights agreement with
Donaldson, Lufkin & Jenrette Securities Corporation,
BancBoston Securities Inc. and Libra Investments, Inc., as
the initial purchasers of the outstanding notes. Under the
registration rights agreement, we agreed to register new
notes and exchange them for the outstanding notes. Upon
completion of this exchange offer, the Series B Notes and
the remaining outstanding notes will not be entitled to
the benefits of the registration rights granted under the
registration rights agreement. You should read the
discussion under the heading "The Exchange Offer--Certain
Conditions of the Exchange Offer" for further information
about these registration rights.
</TABLE>
12
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with summary historical consolidated
financial data of Compass. We have prepared this information using the
consolidated financial statements of Compass as of and for the period October
21, 1997, the date of incorporation through December 31, 1997 and for the year
ended December 31, 1998. These financial statements have been audited by Ernst &
Young LLP, independent auditors. We have also included data from the unaudited
consolidated financial statements of Compass as of and for the three months
ended March 31, 1998 and 1999.
When you read this summary historical consolidated financial data, it is
important that you read along with it the historical consolidated financial
statements and the related notes thereto, as well as the sections titled
"Unaudited Pro Forma Financial Data," "Selected Historical Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere in this prospectus.
<TABLE>
<CAPTION>
COMPASS
--------------------------------------------------------
YEAR 36 DAYS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1998 1997 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues............................................ $ 96,547 $ 3,057 $ 34,392 $ 8,555
Gross Profit........................................ 26,137 671 9,814 1,806
Operating Income.................................... 11,600 267 3,552 751
Other Data:
Cash flow provided by (used in):
operating activities.............................. $ (6,677) $ 269 $ 4,705 $ 196
investing activities.............................. (172,117) (23,456) (688) (727)
financing activities.............................. 186,222 23,630 (1,838) 801
Net increase in cash................................ $ 7,428 $ 443 $ 2,179 $ 270
EBITDA(1)........................................... $ 20,550 $ 486 $ 7,601 $ 1,366
EBITDA margin....................................... 21.3% 15.9% 22.1% 16.0%
Depreciation and amortization....................... $ 8,440 $ 219 $ 4,374 $ 615
Capital Expenditures................................ 5,701 25 689 727
Balance Sheet Data (at period end):
Cash and Cash Equivalents........................... $ 7,871 $ 443 $ 10,050 $ 713
Total Assets........................................ 255,505 33,789 251,053 35,274
Long-term obligations (including current
portion)(2)....................................... 196,968 20,585 195,130 21,386
Stockholders' Equity................................ 29,955 9,074 28,863 9,312
</TABLE>
- ------------------------
(1) EBITDA is defined as operating income plus depreciation, goodwill
amortization and management fees paid to an affiliate. EBITDA is not a
defined term under generally accepted accounting principles ("GAAP") and
should not be construed as an alternative to operating income or cash flows
from operating activities as determined by GAAP. EBITDA data is presented
because such data is used by certain investors to determine Compass' ability
to meet debt service requirements and is used in certain debt covenant
calculations required under the indenture and Compass' existing credit
agreement. EBITDA is not indicative of Compass' operating performance, does
not provide a measure of liquidity and does not represent available or
discretionary funds of Compass. Furthermore, EBITDA as reported by Compass
may not be comparable to EBITDA reported by other companies.
(2) Long-term obligations include long-term debt, including the current portion,
and capital leases.
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<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
In the table below, we provide you with the ratio of earnings to fixed
charges for Compass and its predecessor, Brittain Machine.
<TABLE>
<CAPTION>
COMPASS FOR THE
BRITTAIN MACHINE FOR
-------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED THE PERIOD FROM
DECEMBER 31, JULY 1, 1997 THE YEARS ENDED JUNE 30,
-------------------- THROUGH ------------------------------------------
1998 1997 APRIL 21, 1998 1997 1996 1995 1994
--------- --------- ----------------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)...... 1.3x 1.5x 20.6x 14.6x 10.9x (0.0)x 10.4x
<CAPTION>
COMPASS FOR THE
------------------------------------
<S> <C> <C>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Ratio of earnings to fixed charges(1)...... 0.6x 1.9x
</TABLE>
- ------------------------------
(1) The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges, by fixed charges. Fixed
charges consist of interest expense and 33% of operating rental expense,
which management believes is representative of the interest component of
rental expense. Earnings were insufficient to cover fixed charges for the
year ended June 30, 1995 by $815,000.
14
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the notes.
COMPASS BEGAN OPERATIONS IN NOVEMBER 1997 AND WE MAY NOT HAVE THE RESOURCES TO
SUCCESSFULLY INTEGRATE AND MANAGE OUR COMBINED ENTITY
We began operations in November 1997. Between November 1997 and January
1999, we acquired eight operating companies. Prior to our acquisition of our
subsidiaries, each of our subsidiaries operated independently. We may not be
able to integrate these businesses successfully. The combined financial results
of Compass covers periods when all of our subsidiaries were not under the common
control of our management and may not be indicative of our future financial or
operating results. In addition, our management group has been assembled only
recently, including the recent additions of our Chief Financial Officer and
Executive Vice President, Aircraft Structures North America, and our management
control structure is still in its formative stages. Our ability to continue to
achieve our goals will depend upon our ability to integrate effectively our
eight prior and any future acquisitions and to achieve operating and cost
efficiencies. Any failure by us to effectively oversee the combined entity could
have a material adverse effect on our business, financial condition, or results
of operations.
WE ARE DEPENDENT ON A KEY CUSTOMER AND COULD SUFFER FINANCIAL HARM IF WE WERE TO
LOSE THAT CUSTOMER'S BUSINESS
Our largest customer is Boeing, which directly accounted for approximately
72.0% of our combined pro forma revenues for the year ended December 31, 1998.
In addition, approximately 13.0% of the remainder of our combined pro forma
revenues for the year ended December 31, 1998 were derived from Boeing
indirectly through sales to suppliers of Boeing. Most of our sales to Boeing are
pursuant to contracts and purchase orders which may be terminated by Boeing at
any time. Boeing has announced that it will stop producing the MD-80 and MD-90
in 2000 and the MD-11 in 2001, models for which we currently produce parts, and
may stop producing other models for which we produce parts. In addition, under
certain circumstances, Boeing may enforce alternative economic terms pursuant to
such contracts, in which case the contracts could become less commercially
favorable to us. Alternatively, we may elect to terminate the applicable portion
of such contracts. We cannot assure you that Boeing will not terminate its
contracts with us, or that we will be able to maintain our current level of
sales to Boeing and Boeing's suppliers. The loss of all or a substantial portion
of our revenues from Boeing could have a material adverse effect on our
business, financial condition or results of operations.
RESTRICTIVE COVENANTS IN OUR INDENTURE AND OUR CREDIT AGREEMENT COULD CAUSE US
TO DEFAULT AND ACCELERATE OUR INDEBTEDNESS UNDER THE CREDIT AGREEMENT
The indenture governing the notes and our credit agreement contain
restrictive covenants which, among other things, restrict us and our
subsidiaries from:
- incurring additional indebtedness;
- incurring liens;
- paying dividends;
- making certain other restricted payments or investments;
- consummating certain asset sales;
- entering into certain transactions with affiliates;
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<PAGE>
- merging or consolidating with another entity;
- disposing of all or substantially all of our assets; and
- prepaying the notes, except in certain circumstances.
The credit agreement also requires us to maintain specified financial ratios
and satisfy certain financial tests. At March 31, 1999 we failed to meet certain
of the financial covenants under our credit agreement. We have retroactively
amended the credit agreement effective March 31, 1999 such that we are deemed to
have been in compliance on March 31, 1999 and we are in compliance with the
financial covenants at this time. We cannot assure you that we will be able to
continue to meet such tests. Our ability to meet such financial ratios and tests
may be affected by events beyond our control. A breach of any of these covenants
could result in an event of default under the credit agreement. If such an event
of default occurs, the lenders could accelerate our indebtedness to them under
the credit agreement. We cannot assure you that our assets would be sufficient
to repay our indebtedness in full, including the notes. You should read the
discussions under the headings "Description of the Notes-- Certain Covenants"
and "Description of Credit Agreement" for more details about our indebtedness.
WE ARE DEPENDENT ON THE COMMERCIAL AIRCRAFT INDUSTRY WHICH HAS HISTORICALLY BEEN
HIGHLY CYCLIC AND COULD SUFFER FINANCIALLY IF A DOWNWARD CYCLE CONTINUED TOO
LONG.
Our principal customers are commercial aircraft manufacturers. As a result,
our business is closely related to the financial performance of the commercial
airlines, which has historically been highly cyclical and competitive.
Consequently, demand from the aircraft industry has historically been subject to
cyclical fluctuations and has been adversely affected in the past by a number of
factors, including, but not limited to, increased fuel and labor costs and
intense price competition. Several domestic and foreign commercial airlines have
in the past encountered significant financial difficulties, resulting in several
airlines delaying aircraft orders, canceling their options to purchase aircraft,
or seeking protection under bankruptcy laws. Deferrals or cancellations in
aircraft orders could adversely affect the volume and price of orders placed for
products used to manufacture commercial aircraft, including the individual parts
and Integrated Products we manufacture. Changes in the rate of future aircraft
deliveries, including cancellations or deferrals of scheduled deliveries, could
have a material adverse effect on our business, financial condition or results
of operations. You should read the discussion under the heading
"Business--Industry Overview and Trends" for more information on the commercial
aircraft industry.
In particular, Boeing has developed a large backlog of aircraft sales to
customers in Asia. Recent financial turmoil in Asia, including currency
devaluations affecting Boeing's Asian customers, has resulted in Boeing
announcing that it will adjust its production schedule over the next several
years to adjust for delays or cancellations of orders. One Boeing customer, the
People's Republic of China, has announced that it will seek to postpone
deliveries of approximately 25 aircraft from Boeing presently scheduled for
delivery in 2000 and 2001. Boeing's changes in its production schedules may
reduce Boeing's demand for our products and could thus have a material adverse
effect on our business, financial condition or results of operations.
WE ARE DEPENDENT ON CUSTOMER CERTIFICATION OF OUR MANUFACTURING FACILITIES WHICH
COULD BE TERMINATED RESULTING IN FINANCIAL LOSS
We manufacture parts to exact specifications provided by our aerospace
customers in engineering drawings. You should read the discussions under the
headings "Business--Operations--Certification" and "Business--Sales and
Marketing" for more information on our manufacturing and operations. Our
customers require us to perform quality standards testing and certification
procedures on all manufactured parts and provide detailed records to ensure
traceability of each part. Our customers typically certify our manufacturing
facilities as meeting their quality standards. Such customer
16
<PAGE>
certification is necessary for us to manufacture parts for our aerospace
customers. From time to time, other aerospace industry subcontractors have lost
their customer certifications by reason of, among other things, problems with
product quality, manufacturing processes or documentation. We have no reason to
believe that any of our certified manufacturing facilities will lose any of
their customer certifications, but we cannot assure you that such an event will
not occur. If a significant customer were to terminate our facility
certification at one or more of our facilities, it could have a material adverse
effect on our business, financial condition or results of operations.
YOU MAY NOT BE ABLE TO RELY ON FORWARD LOOKING STATEMENTS BECAUSE UNEXPECTED
CIRCUMSTANCES COULD ALTER CONDITIONS AND HARM OUR BUSINESS
This prospectus contains forward looking statements which involve risks and
uncertainties. Those statements appear in a number of places in this prospectus.
We have based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
risks, uncertainties, and assumptions about us, including, among other things:
- Our anticipated growth strategies,
- Our expected internal growth,
- Our intention to produce integrated parts,
- Technological advances in our industry,
- Anticipated trends and conditions in our industry,
- The on-going needs of our existing customers, especially Boeing
- Our ability to integrate acquired businesses,
- Our ability to expand our customer base,
- Our future capital needs,
- Our future operating performance,
- Our ability to compete, including internationally, and
- Our ability to implement a Year 2000 readiness program.
In light of these risks, uncertainties, and assumptions, the forward-looking
events discussed in this prospectus might not occur. You should be aware that
any such forward looking statements are not guarantees of future performance and
that actual results may differ from those in the forward looking statements as a
result of various factors. The accompanying information contained in this
prospectus identifies important factors that could cause such differences.
WE MAY NOT HAVE THE RESOURCES TO SUCCESSFULLY MANAGE ADDITIONAL GROWTH
One of our key strategies is to grow by acquiring and integrating
complementary businesses. If we are unable to find suitable companies for
acquisition or adequate capital to complete our planned acquisitions, we may not
be able to achieve our goals. In addition, growth by acquisition involves risks
such as difficulties in integrating the operations and personnel of acquired
companies and the potential loss of key employees of acquired companies. Compass
acquired eight new operating companies in 1998 and is in the process of
integrating these companies. Any delays or unexpected costs incurred in
connection with the integration of additional acquired companies could have a
material adverse effect on our business, financial condition or results of
operations.
17
<PAGE>
WE HAVE A SIGNIFICANT AMOUNT OF DEBT WHICH LIMITS OUR FLEXIBILITY AND INCREASES
OUR VULNERABILITY
At March 31, 1999 we had approximately $195.1 million of consolidated
indebtedness outstanding, approximately $10.1 million of cash, approximately
$251.1 million of total assets, approximately $132.1 million of total tangible
assets and approximately $28.9 million of stockholders' equity. On a pro forma
combined basis, Compass' EBITDA for the year ended December 31, 1998 would have
equaled 2.7 times pro forma net interest expense. On a pro forma combined basis
at December 31, 1998, Compass would have had net debt equal to 3.6 times pro
forma combined 1998 EBITDA. You should read the discussions under the headings
"Capitalization," "Management's Discussion and Analysis of Consolidated
Financial Condition and Consolidated Results of Operations" and "Unaudited Pro
Forma Financial Data" for further information on the financial results of
Compass.
Our high level of indebtedness could have important consequences to note
holders such as:
- limiting our ability to obtain additional financing to fund our growth
strategy, working capital, capital expenditures, debt service requirements
or other purposes;
- limiting our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds to
make principal payments and pay interest expense;
- increasing our vulnerability to general adverse economic and industry
conditions; and
- increasing our vulnerability to interest rate increases because borrowings
under our bank credit facilities are at variable interest rates.
Pro forma interest expense for the year ended December 31, 1998 was $19.4
million which was $37.0% of pro forma EBITDA for the year ended December 31,
1998. Interest expense for the three months ended March 31, 1999 was $5.1
million which was 67.0% of EBITDA for the three months ended March 31, 1999.
Our ability to pay interest on the notes and to satisfy our other debt
obligations will depend upon, among other things, our future operating
performance and our ability to refinance indebtedness when necessary. Each of
these factors is to a large extent dependent on economic, financial, competitive
and other factors beyond our control. If, in the future, we cannot generate
sufficient cash from operations to make scheduled payments on the notes or to
meet our other obligations we will need to refinance, obtain additional
financing or sell assets. We cannot assure you that our business will generate
cash flow, or that we will be able to obtain funding sufficient to satisfy our
debt service requirements.
OUR CONTRACTS ASSOCIATED WITH OUR BACKLOG COULD BE TERMINATED, WHICH WOULD
DECREASE OUR FUTURE REVENUE
Our backlog and bookings are subject to fluctuations and are not necessarily
indicative of future revenues. Our contracts typically contain contingency
provisions permitting termination by the customer at any time without penalty.
We cannot assure you that backlog will be completed and booked as revenue.
Cancellations of pending contracts or terminations or reductions of contracts in
progress could have a material adverse effect on our business, financial
condition or results of operations. You should read the discussion under the
heading "Business--Backlog" for more information on how backlog affects our
business.
WE MAY BE EXPOSED TO ENVIRONMENTAL RISKS AT OUR MANUFACTURING FACILITIES AND ARE
SUBJECT TO ENVIRONMENTAL REGULATION
We are subject to federal, state, local and foreign laws, regulations and
ordinances establishing health and environmental quality standards, and may be
subject to liabilities or penalties for violations of those standards. We are
also subject to laws and regulations governing remediation of contamination
18
<PAGE>
at facilities currently or formerly owned or operated by us or to which we have
sent hazardous substances or wastes for treatment, recycling or disposal. We
acquire, and expect to continue to acquire, pre-existing businesses that have
historical and ongoing operations. We have and will have limited information
about the past activities of those businesses and their operations on the
acquired properties. We have acquired at least one leased property that is
currently under investigation by governmental authorities for groundwater
contamination and we have been asked to conduct certain additional
investigations. We have also been named a defendant in an action filed by an
owner of property adjacent to property we lease. At this time, we cannot
determine, in either case, what cleanup activities, if any, will be required.
Soil and groundwater contamination may also exist on our other properties as a
result of current or former operations on our properties, or operations on other
properties. We may be subject to future liabilities or obligations as a result
of new or more stringent interpretations of existing laws and regulations. In
addition, we may have liabilities or obligations in the future if we discover
any environmental contamination or liability at any of our facilities, or at
facilities we may acquire. Such matters may have a material adverse effect on
our business, financial condition or results of operations.
WE MAY BE REQUIRED TO PAY OUT OF POCKET COSTS IF AVIATION-RELATED OR PRODUCT
LIABILITY CLAIMS EXCEED INSURANCE COVERAGE
We currently carry aviation products insurance. To date, we have not
experienced any significant uninsured or insured aviation-related claims or any
material product liability claims. However, we cannot assure you that our
existing insurance coverage will be adequate to cover future claims that may
arise or we will be able to renew such coverage at commercially reasonable
rates.
FRAUDULENT TRANSFER STATUTES MAY LIMIT YOUR RIGHTS AS A NOTE HOLDER TO RECEIVE
PAYMENTS ON THE NOTES
Each of our subsidiaries is a guarantor of the notes. In the event of the
bankruptcy or other financial difficulty of a guarantor, the guarantees of the
notes by the guarantors may be subject to review under state or federal
fraudulent transfer laws. Under those laws a court could avoid a guarantor's
guarantee and direct the return of any amounts paid under its guarantee to the
guarantor or to a fund for the benefit of the guarantor's creditors. As a
result, such funds would not be available to repay the guarantor's obligations
to the note holders. A court would consider factors such as whether a guarantor
received less than fair consideration for incurring its obligations under its
guarantee, and whether:
- a guarantor was insolvent at the time it entered into the guarantee or was
rendered insolvent by entering into the guarantee;
- a guarantor's remaining unencumbered assets constituted sufficient capital
for the conduct of the guarantor's business or operations; and
- a guarantor intended to incur or believed it would incur debts beyond its
ability to pay as such debts matured.
A court could also avoid a guarantor's guarantee if it found that the
guarantor entered into the guarantee with the actual intent to hinder, delay or
defraud its creditors.
If a guarantor's liability under its guarantee exceeds the amount the
guarantor directly benefits from the proceeds of the notes, a court is likely to
find that it did not receive fair consideration or reasonably equivalent value
for its guarantee.
A court will use a different measure of insolvency for purposes of the
foregoing depending on the law of the jurisdiction being applied. Generally,
however, an entity would be considered insolvent if the sum of its debts is
greater than all of its property at a fair valuation or if the present fair
market value of its assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and mature.
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THE NOTES WILL BE SUBORDINATED TO OUR OTHER DEBT AND OUR HOLDING COMPANY
STRUCTURE MAY ADVERSELY AFFECT OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE
NOTES
The notes are subordinate to all our senior indebtedness. In addition, the
notes effectively rank junior to all liabilities of our subsidiaries. At March
31, 1999 we had outstanding $80.0 million of senior indebtedness and $110.0
million of senior subordinated indebtedness and our subsidiaries had $5.1
million in outstanding indebtedness. We may also incur additional senior
indebtedness consistent with the terms of our debt agreements, such as
borrowings in connection with future acquisitions.
In the event of our default in any payment due on our senior indebtedness,
or our bankruptcy, liquidation or dissolution, our assets would be available to
pay obligations on the notes only after all payments had been made on our senior
indebtedness. As a result, the lenders under our credit facility may receive
more ratably, and note holders may receive less ratably, than our other
creditors and may receive no compensation of any kind in the event of
bankruptcy, liquidation, reorganization, or a similar proceeding. You should
read the discussion under the heading "Description of Notes-- Subordination" for
more information on the ranking of the notes in relation to other indebtedness.
We are a holding company whose material assets consist primarily of the
capital stock of our subsidiaries. Consequently, we are dependent upon the legal
and contractual ability of our subsidiaries to pay dividends in order to make
payments on the notes and satisfy any repurchase obligations relating to the
notes, as a result of a Change of Control or a sale or other disposition of
certain assets. You should read the discussion under the heading "--Fraudulent
Transfer Considerations" and "Description of the Series B Notes" for more
information on our dependence on subsidiaries. We cannot assure you that our
subsidiaries will make sufficient dividend payments to enable us to meet our
obligations under the notes.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE
Upon the occurrence of certain specific kinds of change of control events,
we will be required by the indenture to offer to repurchase all outstanding
notes. However, it is possible that we will not have sufficient funds at the
time of the change of control to make the required repurchase of notes or that
restrictions in our credit agreement will not allow such repurchases. Our
failure to repurchase the notes could result in a default under the indenture
and could also result in a default under our credit agreement, thus restricting
our ability to make payments to the holders of the notes. You should read the
discussions under the headings "Description of the Series B Notes--Events of
Default and Remedies" and "Description of the Series B Notes--Subordination" for
more information on the remedies available to you if we are unable to repurchase
the notes upon a change of control.
In addition, the definition of change of control includes a phrase relating
to the direct or indirect sale or transfer of "all or substantially all" of the
assets of Compass on a consolidated basis. Although there is a limited body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. The interpretation of
the phrase "substantially all" will be dependent upon particular facts and
circumstances. As a result, the ability of a holder of notes to require Compass
to repurchase such notes as a result of a sale or transfer of less than all of
the assets of Compass and the Guarantors to another person or group may be
uncertain. You should read the discussion under the heading "Description of the
Series B Notes--Certain Covenants--Repurchase of Notes at the Option of the
Holder Upon a Change of Control" for more information on your ability to require
Compass to repurchase notes upon a change a control.
NO PUBLIC TRADING MARKET FOR THE NOTES EXISTS AND YOU MAY NOT BE ABLE TO SELL
THEM
There has not been an established trading market for the notes. Although two
of the initial purchasers have told us they currently make a market in the
outstanding notes, and, if issued, intend to
20
<PAGE>
make a market in the Series B Notes which will replace the outstanding notes,
they have no obligation to do so and may discontinue making a market at any time
without notice.
The notes are eligible for trading in the Private Offerings, Resale and
Trading through the Automatic Linkage ("PORTAL") market. However, we do not
intend to apply for listing of the outstanding notes, or, if issued, the Series
B Notes, on any securities exchange or for quotation through the National
Association of Securities Dealers' Automated Quotation System. The liquidity of
any market for the notes will depend upon the number of holders of the notes,
our performance, prevailing interest rates, the market for similar securities,
the interest of securities dealers in making a market for the notes, and other
factors. A liquid trading market may not develop for the notes. We cannot assure
you that a liquid trading market will develop for the notes, or that holders of
the notes will be able to sell the notes at an acceptable price, if at all.
OUTSTANDING NOTES THAT ARE NOT EXCHANGED WILL CONTINUE TO BE SUBJECT TO TRANSFER
RESTRICTIONS
Untendered outstanding notes that are not exchanged for Series B Notes
pursuant to the Exchange offer will remain restricted securities. Outstanding
notes will continue to be subject to the following restrictions on transfer:
- outstanding notes may be resold only if registered under the Securities
Act, if an exemption from registration is available thereunder, or if
neither such registration nor such exemption is required by law;
- outstanding notes will bear a legend restricting transfer in the absence
of registration or an exemption therefrom;
- a holder of outstanding notes who desires to sell or otherwise dispose of
all or any part of its outstanding notes to an institutional accredited
investor under an exemption from registration under the Securities Act,
must deliver to the trustee a signed letter containing certain
representations and agreements relating to the transfer of the outstanding
notes. If such transfer is for an aggregate principal amount of
outstanding notes less than $250,000, the holder must deliver to us, if we
so request, an opinion of counsel acceptable to us that the transfer is in
compliance with the Securities Act; and
- a holder of outstanding notes who desires to sell or otherwise dispose of
all or any part of its outstanding notes under certain exemptions to the
Securities Act must deliver to us, upon our request, an opinion of counsel
satisfactory to us that such exemption is available.
21
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and consolidated
capitalization of Compass at March 31, 1999. This table should be read in
conjunction with the consolidated financial statements of Compass and our
subsidiaries, including the notes thereto, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AT MARCH 31,
1999
--------------------
<S> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
CASH AND CASH EQUIVALENTS................................................................... $ 10,050
DEBT (INCLUDING CURRENT PORTION):
Notes..................................................................................... $ 110,000
Term Loan A............................................................................... 34,125
Term Loan B............................................................................... 44,888
Acquisition Line.......................................................................... 1,000
Capital leases and other.................................................................. 5,117
--------
Long-term obligations (including current portion) (1)................................... $ 195,130
STOCKHOLDERS' EQUITY:
Common stock.............................................................................. 248
Additional paid-in capital................................................................ 28,718
Retained earnings......................................................................... (103)
--------
TOTAL STOCKHOLDERS' EQUITY.............................................................. 28,863
--------
TOTAL CAPITALIZATION.................................................................... $ 223,993
--------
--------
</TABLE>
- ------------------------
(1) Long-term obligations include long-term debt, including the current portion,
and capital leases.
22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data are derived by the
application of pro forma adjustments to historical consolidated financial
statements included elsewhere in this prospectus. The unaudited pro forma income
statement data for the year ended December 31, 1998 give effect to acquisitions
as if such acquisitions were consummated as of January 1, 1998. The unaudited
pro forma financial data are not necessarily indicative of operating results or
financial position that would have been achieved had the events described above
been consummated at January 1, 1998 and should not be construed as
representative of Compass' future operating results or financial position. The
unaudited pro forma financial data set forth below are derived in part from the
historical consolidated financial statements and the related notes thereto
included elsewhere in this prospectus.
The pro forma adjustments are applied to the historical consolidated
financial statements to reflect and account for the acquisitions completed by
Compass in 1998 as a purchase. Accordingly, the pro forma data reflect the
preliminary allocations of purchase prices, based on estimated fair values of
the tangible and intangible assets and liabilities of the acquired businesses.
Management believes that the final allocations will not vary significantly from
such preliminary allocations.
<TABLE>
<CAPTION>
1998 ACQUISITIONS
FROM COMPASS
COMPASS JANUARY 1, 1998 COMPASS PRO FORMA
YEAR ENDED THROUGH COMBINED WITH YEAR ENDED
DECEMBER 31, THE DATE OF 1998 DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998(1) ACQUISITION(2) ACQUISITIONS(3) ADJUSTMENTS(4) 1998(5)
- ------------------------------------- ------------- ----------------- ------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA:
Revenues............................. $ 96,547 $ 86,897 $ 183,444 $ -- $ 183,444
Cost of sales........................ 70,410 50,538 120,948 852 121,800
------------- ------- -------- ------- -------------
Gross profit......................... 26,137 36,359 62,496 (852) 61,644
Selling, general and administrative
expenses........................... 14,537 17,216 31,753 (7,042) 24,711
------------- ------- -------- ------- -------------
Operating income..................... 11,600 19,143 30,743 6,190 36,933
Interest (income) expense, net(6).... 8,493 717 9,210 10,151 19,361
Other (income) expense............... 670 1,212 1,882 (50) 1,832
------------- ------- -------- ------- -------------
Income (loss) before taxes........... 2,437 17,214 19,651 (3,911) 15,740
Income taxes......................... 1,522 2,061 3,583 3,969 7,552
------------- ------- -------- ------- -------------
Net income (loss).................... $ 915 $ 15,153 $ 16,068 $ (7,880) $ 8,188
------------- ------- -------- ------- -------------
------------- ------- -------- ------- -------------
OTHER DATA:
Net cash flow provided by (used in):
operating activities............... $ (6,677) $ 14,179 $ 7,502 $ 760 $ 8,262
EBITDA(7).......................... 20,550 20,578 41,128 11,430 52,558
EBITDA margin........................ 21.3% 23.7% 22.4% 6.2% 28.7%
Depreciation and amortization........ $ 8,440 $ 1,435 $ 9,875 $ 4,772 $ 14,647
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............ $ 7,871 N/A $ 7,871 N/A $ 7,871
Total assets......................... 255,505 N/A 255,505 N/A 255,505
Long-term obligations (including
current portion) (8)............... 196,968 N/A 196,968 N/A 196,968
Stockholders' equity (deficit)....... 29,955 N/A 29,955 N/A 29,955
</TABLE>
- ------------------------
(1) Reflects the results of operations of Brittain Machine, Wichita
Manufacturing, Barnes Machine, Sea-Lect and Pacific Hills for the period
from each of their dates of acquisition by Compass through December 31,
1998. Also reflects the operations of Compass, Aeromil and Western Methods
for the year ended December 31, 1998.
23
<PAGE>
(2) Reflects the results of operations of: (a) Brittain Machine, Wichita
Manufacturing and Barnes Machine for the period from January 1, 1998 through
April 21, 1998, (b) Sea-Lect for the period from January 1, 1998 through May
11, 1998, (c) Pacific Hills for the period from January 1, 1998 through
November 20, 1998, and (d) Modern for the year ended December 31, 1998.
The 1998 results of operations for each of these companies for the period
prior to acquisition is as follows:
<TABLE>
<CAPTION>
BRITTAIN MACHINE BARNES MACHINE SEA-LECT PACIFIC HILLS MODERN
FROM FROM FROM FROM FROM
JANUARY 1, 1998 JANUARY 1, 1998 JANUARY 1, 1998 JANUARY 4, 1998 JANUARY 1, 1998
THROUGH THROUGH THROUGH THROUGH THROUGH
(DOLLARS IN THOUSANDS) APRIL 21, 1998 APRIL 21, 1998 MAY 11, 1998 NOVEMBER 20, 1998 DECEMBER 31, 1998
- --------------------------- ----------------- ----------------- ----------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Income Statement Data:
Revenues................... $ 21,344 $ 5,854 $ 5,369 $ 28,282 $ 26,048
Cost of sales.............. 14,121 3,795 4,474 10,687 17,461
------- ------ ------ ------- -------
Gross profit............... 7,223 2,059 895 17,595 8,587
Selling, general and
administrative
expenses................. 4,901 185 772 7,389 3,969
------- ------ ------ ------- -------
Operating income........... 2,322 1,874 123 10,206 4,618
Interest expense, net...... 114 34 66 -- 503
Other expense (income)..... (123) -- (4) -- 1,339
------- ------ ------ ------- -------
Income before income
taxes.................... 2,331 1,840 61 10,206 2,776
Income taxes............... 936 645 -- -- 480
------- ------ ------ ------- -------
Net income................. $ 1,395 $ 1,195 $ 61 $ 10,206 $ 2,296
------- ------ ------ ------- -------
------- ------ ------ ------- -------
Other Data:
Net cash flow provided by
(used) in operating
activities............... $ 2,739 $ (55) $ (138) $ 10,789 $ 844
EBITDA..................... 2,935 1,950 203 10,386 5,104
EBITDA margin.............. 13.8% 33.3% 3.8% 36.7% 19.6%
Depreciation and
amortization............. $ 613 $ 76 $ 80 $ 180 $ 486
</TABLE>
(3) Presents an aggregate of the first two columns reflecting historical data of
results of operations for Compass combined with results of operations from
pre-acquisition periods in 1998 of Brittain Machine, Wichita Manufacturing,
Barnes Machine, Sea-Lect, and Pacific Hills.
The purchase price for each company acquired by Compass in 1998 was as
follows:
- Brittain Machine--$46.9 million
- Wichita Manufacturing--$8.0 million
- Barnes Machine--$15.0 million
- Sea-Lect (including J&J Leasing, Inc., acquired as a subsidiary of
Sea-Lect and merged into Sea-Lect in March 1999)--$12.2 million
- Pacific Hills--$73.7 million
- Modern--$23.1 million
24
<PAGE>
The purchase price for each of Compass' subsidiaries was allocated as
follows:
<TABLE>
<CAPTION>
BARNES BRITTAIN WICHITA PACIFIC
MACHINE MACHINE MANUFACTURING SEA-LECT HILLS
----------- ----------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 687 $ 971 $ 631 $ -- $ --
Accounts receivable................................ 2,035 7,093 1,732 2,246 2,258
Inventories........................................ 1,584 7,043 1,803 2,584 2,662
Prepaid expenses and other' current assets......... 13 36 25 -- 34
----------- ----------- ------- ----------- ---------
Total current assets................................. 4,319 15,143 4,191 4,830 4,954
Property and equipment, net.......................... 6,712 19,329 4,488 4,587 1,584
Other Assets......................................... 133 637 -- -- --
Goodwill............................................. 6,768 19,258 2,359 4,155 67,920
----------- ----------- ------- ----------- ---------
Total assets......................................... $ 17,932 $ 54,367 $ 11,038 $ 13,572 $ 74,458
----------- ----------- ------- ----------- ---------
----------- ----------- ------- ----------- ---------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable................................... $ 1,162 $ 1,191 $ 1,596 $ 1,169 510
Accrued expenses................................... 242 1,917 272 240 276
Income taxes payable............................... 489 (644) 222 -- --
Current portion of long term debt.................. -- 55 -- -- --
----------- ----------- ------- ----------- ---------
Total current liabilities............................ 1,893 2.519 2,090 1,409 786
Deferred tax liability............................... 1,050 4,282 976 -- --
Other debt, less current portion..................... -- 645 -- -- --
Stockholders' equity:
Paid-in-capital...................................... 14,989 46,921 7,972 12,163 73,672
----------- ----------- ------- ----------- ---------
Total stockholders' equity........................... 14,989 46,921 7,972 12,163 73,672
----------- ----------- ------- ----------- ---------
Total liabilities and stockholders' equity........... $ 17,932 $ 54,367 $ 11,038 $ 13,572 $ 74,458
----------- ----------- ------- ----------- ---------
----------- ----------- ------- ----------- ---------
<CAPTION>
MODERN
-----------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 1,590
Accounts receivable................................ 1,294
Inventories........................................ 6,632
Prepaid expenses and other' current assets......... 358
-----------
Total current assets................................. 9,874
Property and equipment, net.......................... 6,782
Other Assets......................................... --
Goodwill............................................. 8,664
-----------
Total assets......................................... $ 25,320
-----------
-----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable................................... 892
Accrued expenses................................... 296
Income taxes payable............................... --
Current portion of long term debt.................. --
-----------
Total current liabilities............................ 1,188
Deferred tax liability............................... 1,037
Other debt, less current portion..................... --
Stockholders' equity:
Paid-in-capital...................................... 23,095
-----------
Total stockholders' equity........................... 23,095
-----------
Total liabilities and stockholders' equity........... $ 25,320
-----------
-----------
</TABLE>
(4) Includes positive and negative pro forma adjustments, as if each acquisition
were consummated as of January 1, 1998, as follows:
(a) Cost of Sales:
- Additional depreciation expense of $1.1 million from step up of asset
values related to acquisitions completed in 1998.
- Reduced expense of $0.3 million to eliminate the costs associated with
discontinued lease payments by the acquired business to an affiliate of
the former owner(s) of the acquired business. Compass will not be
continuing such payments.
(b) Selling, General and Administrative Expenses:
- Reduced expense of $6.9 million to eliminate compensation to former
owners/executives of acquired companies under obligations that existed
under the previous ownership and which Compass is not obligated to, and
will not, continue. In each case the amounts involved relate to
compensation to individuals that have no continuing association with
Compass.
- Increased expense of $3.6 million to reflect the amortization of goodwill
related to acquired businesses. Goodwill is amortized on a straight-line
basis over a period of 20 years.
- Reduced expense of $0.2 million to eliminate the cost associated with
discontinued lease payments by the acquired company to an affiliate of the
former owner(s) of the acquired businesses.
25
<PAGE>
- Reduced expense of $3.8 million related to one-time non-recurring bonus
payments by the former owner(s) of acquired companies to employees of
acquired businesses. The former owners are no longer in the employ of
Compass or the acquired businesses. Compass is under no obligation and
does not intend to make such payments in the future.
- Increased expense of $0.5 million related to increased management fees
associated with increased pro forma earnings.
(c) Interest Expense:
- Includes additional interest expense of $10.2 million based on actual debt
incurred to complete 1998 acquisitions as if the acquisitions and
additional borrowings had been completed/incurred as of January 1, 1998.
(d) Income Taxes:
- Assumes a 48.0% income tax rate.
(5) Presents an aggregate of the third and fourth columns in order to present
pro forma data for Compass for the year ended December 31, 1998.
(6) The pro forma adjustment to interest expense assumes that the $81.0 million
of senior debt and the $110.0 million of senior subordinated debt was
incurred as of January 1, 1998. The pro forma adjustment to interest expense
consists of:
- Interest expense on the senior subordinated debt of $110.0 million at
10 1/8% for the period from January 1, 1998 through April 20, 1998 of
approximately $3.4 million.
- Interest expense on the senior debt of $81.0 million at 9 1/4% for the
period from January 1, 1998 through December 31, 1998, less actual
interest on senor debt incurred during the period November 20,1998 through
December 31, 1998, of approximately $6.7 million.
The effect on interest expense of a 1/4% change in interest rate of our
variable rate debt would be approximately $0.2 million.
(7) EBITDA is defined as operating income plus depreciation, goodwill
amortization and management fees paid to an affiliate. EBITDA is not a
defined term under GAAP and should not be construed as an alternative to
operating income or cash flows from operating activities as determined by
GAAP. EBITDA data is presented because such data is used by certain
investors to determine Compass' ability to meet debt service requirements
and is used in certain debt covenant calculations required under the
indenture and Compass' existing credit agreement. EBITDA is not indicative
of Compass' operating performance, does not provide a measure of liquidity
and does not represent available or discretionary funds of Compass.
Furthermore, EBITDA as reported by Compass may not be comparable to EBITDA
reported by other companies.
(8) Long-term obligations include long-term debt, including the current portion,
and capital leases.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data are derived
from consolidated financial statements of Compass and its predecessor, Brittain
Machine. See "Management's Discussion and Analysis of Consolidated Financial
Condition and Consolidated Results of Operations--Consolidated Results of
Operations." The consolidated financial statements of Compass as of and for the
period ended October 21, 1997 (date of incorporation) through December 31, 1997
and for the year ended December 31, 1998 have been audited by Ernst & Young,
LLP, independent auditors, and are included elsewhere in this prospectus. The
consolidated financial statements of Compass for the three months ended March
31, 1999 are derived from unaudited financial statements included elsewhere in
this prospectus. The consolidated financial statements of Brittain Machine as of
and for the period from July 1, 1997 through April 21, 1998 and for the year
ended June 30, 1997 have been audited by other independent auditors and are
included elsewhere in this prospectus. The consolidated financial statements of
Brittain Machine for the year ended June 30, 1996 have been audited by Ernst &
Young, LLP, independent auditors, and are included elsewhere in this prospectus.
The following selected historical consolidated financial data for Brittain
Machine for the years ended June 30, 1994 and 1995 are derived from unaudited
financial statements which are not included herein.
The information contained in this table should be read in conjunction with
"Management's Discussion and Analysis of Consolidated Financial Condition and
Consolidated Results of Operations" and the financial statements and related
notes thereto included elsewhere in this prospectus.
27
<PAGE>
<TABLE>
<CAPTION>
BRITTAIN
MACHINE COMPASS
FOR THE FOR THE
COMPASS COMPASS PERIOD THREE
FOR THE FOR THE FROM MONTHS
YEAR 36 DAYS JULY 1, BRITTAIN MACHINE FOR THE YEARS ENDED
ENDED ENDED 1997 THROUGH ENDED JUNE 30, -----------
DECEMBER 31, DECEMBER 31, APRIL 21, ------------------------------------------ MARCH 31,
(DOLLARS IN THOUSANDS) 1998 1997 1998 1997 1996 1995 1994 1999
- ---------------------- ------------- ------------- ------------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA:
Revenues.............. $ 96,547 $ 3,057 $ 49,682 $ 35,481 $ 26,892 $ 19,244 $ 20,788 $ 34,392
Cost of sales......... 70,410 2,386 34,640 25,656 19,076 16,708 14,729 24,578
------------- ------------- ------------- --------- --------- --------- --------- -----------
Gross profit.......... 26,137 671 15,042 9,825 7,816 2,536 6,059 9,814
Selling, general and
administrative
expenses............ 14,537 404 6,798 3,229 2,953 2,654 2,632 6,262
------------- ------------- ------------- --------- --------- --------- --------- -----------
Operating income
(loss).............. 11,600 267 8,244 6,596 4,863 (118) 3,427 3,552
Interest expense,
net................. 8,493 166 386 398 403 359 293 5,074
Other (income)
expense............. 670 (16) (20) 84 77 (63) (20) 512
------------- ------------- ------------- --------- --------- --------- --------- -----------
Income (loss) before
taxes............... 2,437 117 7,878 6,114 4,383 (414) 3,154 (2,034)
Income taxes.......... 1,522 43 2,901 2,208 1,637 (194) 1,282 (942)
------------- ------------- ------------- --------- --------- --------- --------- -----------
Net income (loss)..... $ 915 $ 74 $ 4,977 $ 3,906 $ 2,746 $ (220) $ 1,872 $ (1,092)
------------- ------------- ------------- --------- --------- --------- --------- -----------
------------- ------------- ------------- --------- --------- --------- --------- -----------
OTHER DATA:
Net cash flow provided
by (used in):
operating
activities........ $ (6,677) $ 269 $ 7,978 $ (155) $ 2,381 $ 1,027 $ 2,858 $ 4,706
investing
activities........ (172,117) (23,456) (3,535) (1,244) (1,619) (2,293) (1,198) (689)
financing
activities........ 186,222 23,630 (3,215) 1,763 (835) 1,331 (1,234) (1,838)
------------- ------------- ------------- --------- --------- --------- --------- -----------
Net increase
(decrease) in
cash................ $ 7,428 $ 443 $ 1,228 $ 364 $ (73) $ 65 $ 426 $ 2,179
------------- ------------- ------------- --------- --------- --------- --------- -----------
------------- ------------- ------------- --------- --------- --------- --------- -----------
EBITDA(1)............. $ 20,550 $ 486 $ 9,755 $ 8,265 $ 6,255 $ 1,185 $ 4,544 $ 7,601
EBITDA margin......... 21.3% 15.9% 19.6% 23.3% 23.3% 6.2% 21.9% 22.1%
Depreciation and
amortization........ $ 8,440 $ 219 $ 1,511 $ 1,669 $ 1,392 $ 1,303 $ 1,117 $ 4,374
Capital
expenditures........ 5,701 25 3,559 1,072 1,519 2,575 1,056 689
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents......... $ 7,871 $ 443 $ 1,683 $ 455 $ 91 $ 164 $ 589 $ 10,050
Total assets.......... 255,505 33,789 $ 32,776 28,602 22,095 17,290 15,110 251,053
Long-term obligations
(including current
portion) (2)........ 196,968 20,585 $ 3,775 3,950 4,495 5,131 3,957 195,130
Stockholders'
equity.............. 29,955 9,074 20,243 15,266 11,360 8,614 8,834 28,863
<CAPTION>
MARCH 31,
(DOLLARS IN THOUSANDS) 1998
- ---------------------- -----------
<S> <C>
INCOME STATEMENT DATA:
Revenues.............. $ 8,555
Cost of sales......... 6,749
-----------
Gross profit.......... 1,806
Selling, general and
administrative
expenses............ 1,055
-----------
Operating income
(loss).............. 751
Interest expense,
net................. 361
Other (income)
expense............. --
-----------
Income (loss) before
taxes............... 390
Income taxes.......... 152
-----------
Net income (loss)..... $ 238
-----------
-----------
OTHER DATA:
Net cash flow provided
by (used in):
operating
activities........ $ 196
investing
activities........ (727)
financing
activities........ 801
-----------
Net increase
(decrease) in
cash................ $ 270
-----------
-----------
EBITDA(1)............. $ 1,366
EBITDA margin......... 16.0%
Depreciation and
amortization........ $ 615
Capital
expenditures........ 727
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents......... $ 713
Total assets.......... 35,274
Long-term obligations
(including current
portion) (2)........ 21,386
Stockholders'
equity.............. 9,312
</TABLE>
- ------------------------
(1) EBITDA is defined as operating income plus depreciation, goodwill
amortization and management fees paid to an affiliate. EBITDA is not a
defined term under GAAP and should not be construed as an alternative to
operating income or cash flows from operating activities as determined by
GAAP. EBITDA data is presented because such data is used by certain
investors to determine Compass' ability to meet debt service requirements
and is used in certain debt covenant calculations required under the
indenture and Compass' existing credit agreement. EBITDA is not indicative
of Compass' operating performance, does not provide a measure of liquidity
and does not represent available or discretionary funds of Compass.
Furthermore, EBITDA as reported by Compass may not be comparable to EBITDA
reported by other companies.
(2) Long-term obligations include long-term debt, including the current portion,
and capital leases.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND
CONSOLIDATED RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical Consolidated Financial Data, "Unaudited Pro Forma Financial Data" and
the consolidated financial statements and notes related thereto of Compass and
its predecessor, Brittain Machine, and other more detailed financial data
appearing elsewhere in this prospectus.
GENERAL
Compass began operations in November 1997 with the simultaneous acquisitions
of Western Methods and Aeromil. In 1998 Compass completed the following
acquisitions:
<TABLE>
<S> <C>
April:..................... Brittain Machine, Wichita Manufacturing and Barnes
Machine
May:....................... Sea-Lect
November:.................. Pacific Hills
December:.................. Modern
</TABLE>
Prior to their acquisition by Compass, each of Compass' subsidiaries had
been operating independently and were not subject to common management. Compass
intends to integrate its acquired businesses, their operations and their
administrative functions.
CONSOLIDATED RESULTS OF OPERATIONS
For accounting and financial reporting purposes, Brittain Machine is deemed
to be the predecessor of Compass based on the relative significance of Brittain
Machine's revenues, size and operating capacity. When Compass acquired Brittain
Machine on April 21, 1998, Brittain Machine represented, on a historical basis,
68% of the revenues and 87% of the pre-tax income of the combined historical
results of Aeromil, Western Methods and Brittain Machine prior to their
acquisitions by Compass. The acquisition of Brittain Machine added additional
operating capacity and manufacturing capabilities that significantly advanced
Compass' goal of producing Integrated Products. The following discussion
therefore includes the results of operations of Brittain Machine as a
predecessor of Compass for the periods shown below.
COMPASS FOR THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1998.
REVENUES. Revenues increased $25.8 million to $34.4 million for the three
months ended March 31, 1999 from $8.6 million for the three months ended March
31, 1998. While combined revenues of Western Methods and Aeromil for the three
months ended March 31, 1999 decreased by 10.6% as compared to the three months
ended March 31, 1998, consolidated revenues increased as a result of the
acquisitions of Brittain Machine, Barnes Machine, Wichita Manufacturing,
Sea-Lect, Pacific Hills and Modern.
COST OF SALES. Cost of sales increased $17.9 million to $24.6 million for
the three months ended March 31, 1999 from $6.7 million for the three months
ended March 31, 1998. The increase in cost of sales was primarily attributable
to the acquisitions completed by Compass in 1998. Cost of sales as a percentage
of revenues decreased to 71.5% for the three months ended March 31, 1999 from
78.9% for the three months ended March 31, 1998. This percentage decrease was
primarily attributable to the acquisitions completed by Compass in 1998 which
provided a higher level of average margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.2 million to $6.3 million for the three
months ended March 31, 1999 from $1.1 million for
29
<PAGE>
the three months ended March 31, 1998. This increase in selling, general and
administrative expenses was primarily attributable to the acquisitions completed
by Compass in 1998. Selling, general and administrative expenses as a percentage
of revenues increased to 18.2% for the three months ended March 31, 1999 from
12.3% for the three months ended March 31, 1998. Selling, general and
administrative expenses as a percentage of revenues for Western Methods and
Aeromil was 11.2% for the three months ended March 31, 1999 as compared to 9.4%
for the three months ended March 31, 1998. Selling, general and administrative
expenses as a percentage of revenues for the three months ended March 31, 1999
for the companies acquired by Compass in 1998 was 13.4%. Corporate office
selling, general and administrative expenses, including management fees, was
$1.8 million for the three months ended March 31, 1999 as compared to $0.3
million for the three months ended March 31, 1998. The increase in selling,
general and administrative expenses as a percentage of revenues for the three
months ended March 31, 1999 is primarily attributable to the overall growth of
Compass and the development of the corporate office.
OPERATING INCOME. Operating income increased $2.8 million to $3.6 million
for the three months ended March 31, 1999 from $0.8 million for the three months
ended March 31, 1998. The increase in operating income was primarily
attributable to the acquisitions completed by Compass in 1998. Operating income
as a percentage of revenues increased to 10.3% for the three months ended March
31, 1999 from 8.8% for the three months ended March 31, 1998.
INTEREST EXPENSE. Interest expense increased $4.7 million to $5.1 million
for the three months ended March 31, 1999 from $0.4 million for the three months
ended March 31, 1998. The increase in interest expense was primarily
attributable to the issuance of the Senior Subordinated Notes by Compass in
April 1998, to increased bank borrowings by Compass in November 1998 and to a
full year of borrowings in connection with the acquisitions completed by Compass
in 1997.
NET INCOME. Net income decreased $1.3 million to a net loss of $1.1 million
for the three months ended March 31, 1999 from net income of $0.2 million for
the three months ended March 31, 1998. The decrease in net income was primarily
attributable to increased interest associated with increased borrowings and
increased goodwill amortization.
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash flow
from operating activities increased $4.5 million to $4.7 million for the three
months ended March 31, 1999 from $0.2 million for the three months ended March
31, 1998. The increase in net cash flow provided by operating activities during
the three months ended March 31, 1999 was primarily attributable to depreciation
and amortization expense and lower accounts receivable during the three months
ended March 31, 1999 compared to the three months ended March 31, 1998, partly
offset by lower net income and accounts payable.
NET CASH FLOW USED IN INVESTING ACTIVITIES. Net cash flow used in investing
activities was related to the purchase of property, plant and equipment and was
$0.7 million for the three months ended March 31, 1999 and for the three months
ended March 31, 1998.
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash flow
used in financing activities was $1.8 million for the three months ended March
31, 1999 as compared to net cash flow provided by financing activities of $0.8
million for the three months ended March 31, 1998. The decrease in net cash flow
provided by financing activities for the three months ended March 31, 1999 was
primarily attributable to increased principal payments on debt.
EBITDA. EBITDA increased $6.2 million to $7.6 million for the three months
ended March 31, 1999 from $1.4 million for the three months ended March 31, 1998
as a result of the acquisitions completed by Compass in 1998. EBITDA as a
percentage of revenues increased to 22.1% for the three months ended March 31,
1999 from 16.0% for the three months ended March 31, 1998.
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HISTORICAL RESULTS OF OPERATIONS OF COMPASS FOR THE YEAR ENDED DECEMBER 31, 1998
COMPARED TO PROFORMA RESULTS OF OPERATIONS OF COMPASS FOR THE YEAR ENDED
DECEMBER 31, 1998
REVENUES. Historical revenues were $96.5 million for the year ended
December 31, 1998 compared to pro forma revenues of $183.4 million for the same
period. The difference was primarily attributable to the timing of the
acquisitions by Compass in 1998 of Brittain Machine, Barnes Machine, Wichita
Manufacturing, Sea-Lect and Pacific Hills.
COST OF SALES. Historical cost of sales was $70.4 million for the year
ended December 31, 1998 compared to pro forma cost of sales of $121.8 million
for the same period. The difference was primarily attributable to the
acquisitions completed by Compass in 1998 and to pro forma adjustments which
increased pro forma cost of sales $0.9 million. Historical cost of sales as a
percentage of historical revenues was 73.0% for the year ended December 31, 1998
as compared to pro forma cost of sales as a percentage of pro forma revenues of
66.4% for the same period. The difference was primarily attributable to the
acquisitions by Compass in 1998 of Brittain Machine, Barnes Machine, Wichita
Manufacturing, Sea-Lect and Pacific Hills which provided a higher level of
average margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Historical selling, general
and administrative expenses were $14.5 million for the year ended December 31,
1998 compared to pro forma selling, general and administrative expenses of $24.7
million for the same period. The difference was primarily attributable to the
acquisitions completed by Compass in 1998 and to pro forma adjustments which
reduced pro forma selling, general and administrative expenses by $7.0 million.
Historical selling, general and administrative expenses as a percentage of
historical revenues was 15.0% for the year ended December 31, 1998 compared to
pro forma selling, general and administrative expenses as a percentage of pro
forma revenues of 13.5% for the same period.
OPERATING INCOME. Historical operating income was $11.6 million for the
year ended December 31, 1998 compared to pro forma operating income of $36.9
million for the same period. The difference was primarily attributable to the
acquisitions completed by Compass in 1998 and to pro forma adjustments which
increased pro forma operating income by $6.2 million. Historical operating
income as a percentage of historical revenues was 12.0% for the year ended
December 31, 1998 compared to pro forma operating income as a percentage of pro
forma revenues of 20.0% for the same period. The difference was primarily
attributable to the acquisitions completed by Compass in 1998 of Brittain
Machine, Barnes Machine, Wichita Manufacturing, Sea-Lect and Pacific Hills which
provided a higher level of operating income.
INTEREST EXPENSE. Historical interest expense was $8.5 million for the year
ended December 31, 1998 compared to pro forma interest expense of $19.4 million
for the same period. The difference was primarily attributable to pro forma
adjustments to increase interest expense related to increased borrowings
required to reflect the acquisitions completed by Compass in 1998 as if they had
occurred on January 1, 1998.
NET INCOME. Historical net income was $0.9 million for the year ended
December 31, 1998 compared to pro forma net income of $8.2 million for the same
period. The difference was primarily attributable to the acquisitions completed
by Compass in 1998 and pro forma adjustments.
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Historical net
cash flow used in operating activities was $6.7 million for the year ended
December 31, 1998 compared to pro forma net cash flow provided by operating
activities of $8.3 million for the same period. The difference was primarily
attributable to the acquisition completed by Compass in 1998 which increased pro
forma net cash flow offset by increased pro forma working capital requirements.
EBITDA. Historical EBITDA was $20.6 million for the year ended December 31,
1998 compared to pro forma EBITDA of $52.6 million for the same period. The
difference was primarily attributable
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to the acquisitions completed by Compass in 1998 and to higher margins of the
acquired companies. Historical EBITDA as a percentage of historical revenues was
21.3% for the year ended December 31, 1998 compared to pro forma EBITDA as a
percentage of pro forma revenues of 28.7% for the same period.
BRITTAIN MACHINE FOR THE PERIOD FROM JULY 1, 1997 THROUGH APRIL 21, 1998
COMPARED TO THE YEAR ENDED JUNE 30, 1997.
REVENUES. Revenues increased $14.2 million to $49.7 million for the period
from July 1, 1997 through April 21, 1998 from $35.5 million for the year ended
June 30, 1997. The increase was primarily attributable to a further increase in
capacity by the addition of two high-speed, three-spindle five-axis gantry mills
and two machining centers, as well as increased shipments to both Boeing and
Northrop Grumman Corporation ("Northrop").
COST OF SALES. Cost of sales increased $8.9 million to $34.6 million for
the period from July 1, 1997 to April 21, 1998 from $25.7 million for the year
ended June 30, 1997. Cost of sales increased primarily as a result of the
increase in sales. Cost of sales as a percentage of revenues decreased to 69.7%
for the period from July 1, 1997 to April 21, 1998 from 72.3% for the year ended
June 30, 1997. This decrease was primarily attributable to a reduction in the
level of start up costs encountered in the previous period as well as improved
productivity gains.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.6 million to $6.8 million for the period
from July 1, 1997 to April 21, 1998 from $3.2 million for the year ended June
30, 1997. Selling, general and administrative expenses for the period from July
1, 1997 to April 21, 1998 include $3.8 million of non-recurring management and
employee bonuses paid in connection with the sale of Brittain Machine to
Compass. Selling, general and administrative expenses as a percentage of
revenues increased to 13.7% for the period from July 1, 1997 to April 21, 1998
from 9.1% for the year ended June 30, 1997. Excluding non-recurring bonuses,
selling, general and administrative expenses as a percentage of revenues for the
period from July 1, 1997 to April 21, 1998 was 6.0%.
OPERATING INCOME. Operating income increased $1.6 million to $8.2 million
for the period from July 1, 1997 through April 21, 1998 from $6.6 million for
the year ended June 30, 1997 as a result of an increase in revenues. Operating
income as a percentage of revenues decreased to 16.6% for the period from July
1, 1997 through April 21, 1998 from 18.6% for the year ended June 30, 1997.
NET INCOME. Net income increased $1.1 million to $5.0 million for the
period from July 1, 1997 through April 21, 1998 from $3.9 million for the year
ended June 30, 1997. The increase in net income was primarily attributable to
increased revenues and higher gross profit margins.
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash flow
provided by operating activities increased $8.2 million to $8.0 million for the
period from July 1, 1997 through April 21, 1998 from net cash flow used in
operating activities of $0.2 million for the year ended June 30, 1997. The
primary sources of cash during the period from July 1, 1997 through April 21,
1998 related to increases in net income, accounts payable and accrued expenses,
and a decrease in inventories.
NET CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES. Net cash flow
used in investing activities was primarily related to purchases of property and
equipment. Net cash flow used in investing activities was $3.5 million for the
period from July 1, 1997 through April 21, 1998 and $1.2 million for the year
ended June 30, 1997.
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash flow
used in financing activities increased $5.0 million to net cash flow used in
financing activities of $3.2 million for the period from July 1, 1997 through
April 21, 1998 from $1.8 million of net cash flow provided by
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financing activities for the year ended June 30, 1997. The increase in net cash
flow used in financing activities was primarily attributable to the repayments
of outstanding lines of credit and principal payments on debt.
EBITDA. EBITDA increased $1.5 million to $9.8 million for the period from
July 1, 1997 through April 21, 1998 from $8.3 million for the year ended June
30, 1997. The increase was primarily the result of an increase in revenues.
EBITDA as a percentage of revenues decreased to 19.6% for the period from July
1, 1997 through April 21, 1998 from 23.3% for the year ended June 30, 1997,
primarily as a result of increased selling, general and administrative expense
related to non-recurring bonuses above paid in connection with the sale of
Brittain Machine to Compass.
BRITTAIN MACHINE FOR THE YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR ENDED
JUNE 30, 1996.
REVENUES. Revenues increased $8.6 million to $35.5 million for the year
ended June 30, 1997 from $26.9 million for the year ended June 30, 1996. The
increase was primarily attributable to the addition of four high-speed,
three-spindle five-axis gantry mills, increased sales of 747 parts to Northrop,
increased sales to Boeing-Wichita under a series of contracts relating to the
new generation 737 and increased sales of fabricated tooling and fixtures.
COST OF SALES. Cost of sales increased $6.6 million to $25.7 million for
the year ended June 30, 1997 from $19.1 million for the year ended June 30,
1996. Cost of sales as a percentage of revenues increased to 72.3% for the year
ended June 30, 1997 from 70.9% for the year ended June 30, 1996. The increase in
cost of sales was primarily attributable to the high percentage of new work
undertaken during the year ended June 30, 1997, requiring higher start up costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million to $3.2 million for the year
ended June 30, 1997 from $3.0 million for the year ended June 30, 1996. Selling,
general and administrative expense as a percentage of revenues decreased to 9.1%
for the year ended June 30, 1997 from 11.0% for the year ended June 30, 1996.
The increase in selling, general and administrative expense was primarily
attributable to increased selling activity.
OPERATING INCOME. Operating income increased $1.7 million to $6.6 million
for the year ended June 30, 1997 from $4.9 million for the year ended June 30,
1996 as a result of an increase in revenues. Operating income as a percentage of
revenues increased to 18.6% for the year ended June 30, 1997 from 18.1% for the
year ended June 30, 1996.
NET INCOME. Net income increased $1.2 million to $3.9 million for the year
ended June 30, 1997 from $2.7 million for the year ended June 30, 1996. The
increase in net income was primarily attributable to the increase of revenues.
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES. Net cash flow
provided by operating activities decreased $2.6 million to net cash flow used in
operating activities of $0.2 million for the year ended June 30, 1997 from $2.4
million of net cash flow provided by operating activities for the year ended
June 30, 1996. The primary uses of cash during the year ended June 30, 1997
related to an increase in inventories partly offset by an increase in net
income.
NET CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES. Net cash flow
used in investing activities was primarily related to purchases of property and
equipment. Net cash flow used in investing activities was $1.2 million for the
year ended June 30, 1997 compared to $1.6 million for the year ended June 30,
1996.
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES. Net cash flow
provided by financing activities increased $2.6 million to $1.8 million for the
year ended June 30, 1997 from $0.8 million net
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cash flow used in financing activities for the year ended June 30, 1996. The
increase in net cash flow provided by financing activities was primarily
attributable to increased short term borrowings.
EBITDA. EBITDA increased $2.0 million to $8.3 million for the year ended
June 30, 1997 from $6.3 million for the year ended June 30, 1996 as a result of
an increase in revenues. EBITDA as a percentage of revenues was 23.3% for the
years ended June 30, 1997 and June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Compass' principal sources of liquidity have been borrowings, proceeds from
the sale of stock and, to a lesser extent, cash flows from operating activities.
At March 31, 1999 Compass had cash of approximately $10.1 million, working
capital of approximately $38.4 million and total debt, including the current
portion of long term debt, of approximately $195.1 million.
On April 21, 1998, Compass completed the private offering of $110.0 million
of 10 1/8 Senior Subordinated Notes. After fees and expenses of $3.3 million,
the net cash proceeds of $106.7 million from the issuance and sale of the
outstanding notes were used to repay existing bank debt, to finance acquisitions
and for general corporate purposes. In April and May 1998, Compass also issued
additional shares of common stock for approximately $13.5 million in cash.
Compass entered into a credit agreement dated November 20, 1998, as amended
and restated on February 11, 1999, as amended further on June 7, 1999, with
BankBoston, N.A. as Agent, NationsBank, N.A. as Co-Agent, the lenders named
therein, including BankBoston as a lender, Royal Bank of Canada as Syndication
Agent, General Electric Capital Corporation as Documentation Agent and
BancBoston Robertson Stephens Inc., an affiliate of BankBoston, as arranger,
providing for borrowing availability of up to $140.0 million. Compass'
obligations under the credit agreement are guaranteed on a senior basis by
Compass' direct and indirect subsidiaries, and secured by a security interest in
substantially all of the assets of Compass and such subsidiaries. The credit
agreement contains customary conditions to borrowing and contains customary
restrictions and covenants. The June 7, 1999 amendment to the credit agreement
retroactively amended certain of these covenants effective as of March 31, 1999,
particularly covenants based on EBITDA targets and EBITDA ratios, to enable
Compass to maintain compliance with the terms of the credit agreement, as
amended. The June 7, 1999 amendment also increased interest rates by 0.25% and
increased certain fees which are based on leverage ratios. You should read the
discussions under the headings "Risk Factors--Restrictive Covenants In Our
Indenture And Our Credit Agreement Could Cause Us To Default And Accelerate Our
Indebtedness Under The Credit Agreement" and "The Credit Agreement" for further
information on restrictive covenants contained in the credit agreement and the
amendment to the credit agreement.
The credit agreement consists of a revolving credit facility of $25.0
million, a $35 million term loan ("Term Loan A"), a $45 million term loan ("Term
Loan B") and a $35 million acquisition line (the "Acquisition Line"). At March
31, 1999 Compass had borrowed $81.0 million under the credit agreement,
consisting of the full amount of the Term A Loan and the Term B Loan and $1.0
million of the Acquisition Line. An additional $34 million of the Acquisition
Line is currently available, subject to approval by a majority of the lenders.
You should read the discussion under the heading "Description of Credit
Agreement" for more information on the terms of the credit agreement. The credit
agreement replaced and terminated a $20.0 million senior secured revolving
credit facility with BankBoston as lender and administrative agent.
The outstanding notes call for semi-annual interest payments on April 15 and
October 15 of each year, beginning October 15, 1998. The outstanding notes are
guaranteed by all of Compass' current subsidiaries, are subordinate to
borrowings under the credit agreement and require Compass to meet certain
financial ratios, and satisfy certain financial condition tests prior to
incurring additional debt or making certain payments. The terms of the Notes and
the credit agreement include restrictive covenants that restrict Compass'
ability to pay dividends, sell certain assets and incur additional
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indebtedness. Compass' ability to pay principal and interest on its
indebtedness, including the Notes, will depend upon the future operating
performance of its subsidiaries and will require a substantial portion of
Compass' cash flow from operations.
Operating activities provided $4.7 million of cash flow during the three
months ended March 31, 1999. Net cash used in investing activities during the
three months ended March 31, 1999 related to purchases of property and equipment
and was $0.7 million. Net cash used in financing activities during the three
months ended March 31, 1999 related to principal payments on long term debt and
was $1.8 million.
The principal use of cash during the year ended December 31, 1998 was to
fund the acquisitions Compass completed during 1998 and to repay indebtedness
incurred to finance Compass' first two acquisitions in 1997. Compass used $6.7
million in net cash for operating activities for the year ended December 31,
1998. Net cash provided by financing activities was $186.2 million for the year
ended December 31, 1998. Net cash used for investing activities was $172.1
million for the year ended December 31, 1998.
Capital expenditures during the three months ended March 31, 1999 were
approximately $0.7 million for furniture and miscellaneous equipment. Capital
expenditures for the year ended December 31, 1998 were approximately $5.7
million. The capital expenditures were primarily for high-speed manufacturing
equipment. Compass believes that funds generated from operations and borrowing
availability under the credit agreement will be sufficient to finance its
current operations and planned capital expenditure requirements for the next 12
months.
Compass intends to continue to actively pursue acquisition opportunities.
Compass expects to fund future acquisitions through the issuance of additional
equity securities, incurrence of additional indebtedness, including use of
amounts available under the credit agreement, and cash flow from operations. To
the extent Compass funds a significant portion of the consideration for future
acquisitions with cash, it may have to increase the amount of the credit
agreement or obtain other sources of financing. There can be no assurance that
Compass will be able to obtain financing for potential acquisitions on
satisfactory terms and conditions.
MARKET RISK AND RISK MANAGEMENT POLICIES
Compass' results of operations are affected by numerous external factors
such as general economic conditions, domestic and foreign competition, raw
material availability and production delays by aerospace manufacturers. You
should read the discussions under the section entitled "Risk Factors" for
further information on factors that may affect Compass' results of operations.
Compass is also exposed to changes in interest rates primarily from its long
term debt issued at a fixed rate. Under its current policies Compass does not
use interest rate derivative instruments to manage exposure to interest rate
changes. A hypothetical 100 basis point decrease in interest rates along the
entire interest rate yield curve would adversely affect the net fair value of
all interest sensitive financial instruments by $0.3 million for the three
months ended March 31, 1999. Based on the current holdings of debt, Compass does
not believe its exposure to interest rate risk is material. Fixed rate debt
obligations currently issued by Compass are callable prior to maturity under
certain circumstances. You should read the discussion under the heading
"Description of the Series B Notes-Optional Redemption" for further information
regarding redemption of the notes.
INFLATION
Compass believes that inflation has not had a material impact on its results
of operations for the 36 days ended December 31, 1997, the year ended December
31, 1998 and the three months ended March 31, 1999.
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RECENT ACCOUNTING PRONOUNCEMENTS
Compass has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), effective January 1, 1998.
This Statement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. There was
no impact on the financial statements of Compass due to the adoption of SFAS No.
130.
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS" No. 131"), was also
adopted on January 1, 1998. This statement requires Compass to report financial
and descriptive information about its reportable operating segments. There was
no impact on the financial statements of Compass due to the adoption of SFAS No.
131.
Also effective January 1, 1998, Compass adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 supersedes the
disclosure requirements in Statements of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," Statements of Financial Accounting
Standards No. 88, "Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and Statements of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions." SFAS No. 132 is intended to improve and standardize
disclosures regarding pensions and post-retirement benefits. There was no impact
on the financial statements of Compass due to the adoption of SFAS No. 132.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
was issued, effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Compass does not expect the impact of SFAS No. 133 to have a
material effect on its financial reporting.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"), which is effective for fiscal years beginning after
December 15, 1998. SOP 98-1 requires capitalization and amortization of
qualified computer software costs over their estimated useful life. Compass does
not expect the adoption of SOP 98-1 to have a material impact on its financial
statements.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"), which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires costs of start-up activities, as defined in
Statement SOP 98-5, to be expenses as incurred. Compass does not expect the
adoption of SOP 98-5 to have a material impact on its financial statements.
YEAR 2000
The Year 2000 issue concerns the inability of information systems to
recognize properly and process date-sensitive information beyond January 1,
2000.
As a result of its acquisition program, Compass has acquired and operates a
number of stand-alone computer systems. Compass has completed an evaluation of
its primary computer software programs and operating systems used for business
processes to identify Year 2000 issues. Based upon this review, Compass has
determined that certain of its subsidiaries' primary systems are not Year 2000
compliant. These primary systems handle such functions as purchasing, sales
order entry, warehouse inventory management, invoicing and accounts receivable,
and accounts payable.
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Compass has developed plans to address the possible impact of the Year 2000
issue on its computer systems. In 1998 Compass decided to replace its Year 2000
non-compliant computer systems and install replacement systems. The installation
of the replacement systems is currently underway and Compass believes it will
complete its replacement program by September 30, 1999.
Compass is currently developing a plan to evaluate Year 2000 compliance for
all non-information technology systems such as telephone systems, fax machines
and security systems. Compass expects to complete its evaluation and remediation
of non-compliant non-information technology systems by September 30, 1999.
The majority of the cost incurred by Compass to become Year 2000 compliant
is related to the purchase and installation of the computer system upgrades and
the new computer systems described above. Compass is expensing all costs except
major software packages as the costs are incurred. The cost of major software
packages will be amortized over a period of three to five years. Costs to
remediate non-compliant non-information technology systems will be expensed as
incurred. At March 31, 1999 Compass had spent an estimated $0.3 million on
development and implementation of Year 2000 compliant computer systems. The
remaining system replacement or upgrade costs, which Compass estimates at
approximately $0.5 million will be incurred in 1999. Compass has not sought
independent verification by third parties of its Year 2000 risk or cost
estimates.
Compass is developing a plan to identify third parties with which it has a
significant business relationship and to survey such parties as to their Year
2000 compliance. Compass cannot ensure that all third parties significant to
Compass' operations will be compliant by December 31, 1999. Compass believes a
reasonably likely worst case scenario resulting from non-compliance by certain
of Compass' major customers or critical vendors could include adverse effects on
Compass' revenue collection, disbursements and communications, as well as the
scheduling and delivery of inventory resulting in a material adverse effect on
Compass' business, financial condition or results of operations. In addition,
loss of utility service resulting from disruptions in power generation,
transmission or distribution could adversely affect Compass' manufacturing
facilities, leading to delays in or the inability to provide products to
Compass' customers, resulting in a material adverse effect on Compass' business,
financial condition or results of operations. If it appears likely that any
major customer or critical vendor will not be compliant, Compass intends to
develop contingency plans, if possible, to mitigate the impact of
non-compliance.
While Compass expects to resolve its Year 2000 risks without a material
adverse effect on its business, financial condition or results of operations,
there can be no assurance as to the ultimate success of Compass' Year 2000
compliance program. Uncertainties exist as to Compass' ability to detect all
Year 2000 issues as well as its ability to achieve successful and timely
resolution of all Year 2000 issues. Uncertainties also exist concerning the
preparedness of Compass' major customers and critical vendors to avoid Year 2000
issue related service and delivery interruptions. Compass cannot predict the
eventual outcome associated with the possible situations that could result from
the impact of Year 2000 issues on its customers or vendors.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The outstanding notes were sold by Compass on April 21, 1998 to Donaldson,
Lufkin & Jenrette, BancBoston Securities and Libra Investments as the initial
purchasers of the outstanding notes, pursuant to a Purchase Agreement dated
April 15, 1998 by and among Compass, Aeromil, Western Methods and the initial
purchasers. The initial purchasers are qualified institutional buyers, as
defined in Rule 144A under the Securities Act. As a condition to the Purchase
Agreement, Compass and the initial purchasers entered into the Registration
Rights Agreement on April 21, 1998. Pursuant to the Registration Rights
Agreement, Compass agreed to:
- file with the Commission a registration statement under the Securities Act
with respect to the Series B Notes within 240 days after the date of the
original issuance of the outstanding notes (the "Issue Date"),
- use its best efforts to cause the registration statement covering the
exchange offer to become effective under the Securities Act within 300
days after the Issue Date, and
- use its best efforts to consummate the exchange offer within 30 days after
the registration statement covering the exchange offer is declared
effective.
Compass did not file a registration statement within the required 240 days and
increased interest is currently accruing on the outstanding notes at the rate of
$16,500 per week. The registration statement of which this prospectus is a part
is intended to satisfy such obligations of Compass under the Registration Rights
Agreement. You should read the discussion under the heading "--Certain
Conditions of the Exchange Offer" for further information regarding the
registration rights agreements.
TERMS OF THE EXCHANGE OFFER
Compass hereby offers, upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying letter of transmittal, to
exchange $1,000 in principal amount of Series B Notes for each $1,000 in
principal amount of the outstanding notes. Series B Notes will be issued only in
integral multiples of $1,000 to each tendering holder whose outstanding notes
are accepted in the exchange offer. Compass will accept any outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
expiration date, outstanding notes that are not accepted for exchange will be
returned as promptly as practicable after the expiration date. Registered
holders of outstanding notes, or their legal representative or attorney-in-fact,
as reflected on the records of the Trustee under the indenture governing the
notes (each an "Eligible Holder") may tender all or a portion of the outstanding
notes pursuant to the exchange offer.
The form and terms of the Series B Notes under the indenture will be
identical in all material respects to the form and terms of the outstanding
notes. The Series B Notes evidence the same debt as the outstanding notes which
they replace and will be issued under, and be entitled to the benefits of, the
indenture governing the outstanding notes. The Series B Notes will bear interest
from their date of issuance at the same rate and upon the same terms as the
outstanding notes. You should read the discussion under the heading "Description
of the Series B Notes" for more information on the form and terms of the Series
B Notes. Accrued and unpaid interest on the outstanding notes accepted for
exchange for the period to but not including the date of issuance of the Series
B Notes (the "Exchange Date") will be paid to the registered holders of Series B
Notes on the first interest payment date of the Series B Notes. Holders whose
outstanding notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the outstanding notes
accrued on and after the Exchange Date.
38
<PAGE>
As of the date of this prospectus, $110.0 million aggregate principal amount
of the outstanding notes are outstanding and there are registered holders
thereof. Solely for reasons of administration (and for no other purpose) Compass
has fixed the close of business of , 1999, as the record date for the
exchange offer for purposes of determining the holders of certificated
outstanding notes to whom this prospectus and the letter of transmittal will be
mailed initially. Only an Eligible Holder may participate in the exchange offer.
There will be no fixed record date for determining registered holders of
outstanding notes entitled to participate in the exchange offer.
Eligible Holders of outstanding notes do not have any appraisal or
dissenters' rights under the General Corporation Law of the State of Delaware or
the indenture governing the notes in connection with the exchange offer. Compass
intends to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission.
Compass shall be deemed to have accepted validly tendered outstanding notes
when, as, and if Compass has given oral or written notice to that effect to the
exchange agent. The exchange agent will act as agent for the tendering holders
of outstanding notes for the purposes of receiving the Series B Notes from
Compass.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, any such unaccepted outstanding notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Tendering Eligible Holders will not be required to pay broker commissions or
fees or, subject to the instructions in the letter of transmittal, transfer
taxes with respect to the exchange of outstanding notes for Series B Notes
pursuant to the exchange offer. Compass will pay all charges and expenses, other
than certain taxes which may be levied in the event of any transfer of
ownership, in connection with the exchange offer. You should read the discussion
under the heading "--Fees and Expenses" for more information on the allocation
of fees.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The "expiration date" shall be 5:00 p.m., New York City time, on ,
1999, or, at Compass' option, such earlier date upon which 100% of the
outstanding notes shall have been validly tendered pursuant to the exchange
offer and not withdrawn. Compass may, however, in its sole discretion, extend
the exchange offer, in which case the "expiration date" shall be the latest date
and time to which the exchange offer is extended.
In order to extend the exchange offer, Compass will notify the exchange
agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
Compass reserves the right, in its sole discretion:
- to delay accepting any outstanding notes,
- to extend the exchange offer,
- to terminate the exchange offer if it is determined that the exchange
offer does not meet the conditions set forth in "Certain Conditions of the
Exchange Offer" below, in each case by giving oral or written notice of
such delay, extension, or termination to the exchange agent, or
- to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by a public announcement thereof. If the
exchange offer is amended in a manner determined by Compass to constitute a
material change, Compass will promptly disclose such
39
<PAGE>
amendment by means of a prospectus supplement that will be distributed to the
registered holders of outstanding notes. Compass will then extend the exchange
offer for a period of five to ten business days, depending upon the significance
of the amendment and the manner of disclosure to the registered holders, if the
exchange offer would otherwise expire during that five to ten business day
period.
Without limiting the manner in which Compass may choose to make a public
announcement of the delay, extension, termination, or amendment of the exchange
offer, Compass shall not have an obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE SERIES B NOTES
The Series B Notes will bear interest from their date of issuance. Holders
of outstanding notes that are accepted for exchange will be entitled to receive,
in cash, accrued and unpaid interest thereon to, but not including, the date of
issuance of the Series B Notes and will be deemed to have waived the right to
receive any payment in respect of interest on the outstanding notes accrued from
and after the date of issuance of the Series B Notes. Such accrued and unpaid
interest on the outstanding notes will be paid to registered holders of the
Series B Notes with the first interest payment on the Series B Notes. Interest
on the outstanding notes accepted for exchange will cease to accrue on the day
prior to the issuance of the Series B Notes.
The Series B Notes and the outstanding notes bear interest at a rate equal
to 10 1/8% per annum. Interest on the Series B Notes is payable on each April 15
and October 15, commencing on October 15, 1999.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender by an Eligible Holder as set forth below and the acceptance
thereof by Compass will constitute a binding agreement between the tendering
Eligible Holder and Compass upon the terms and subject to the conditions set
forth in this prospectus and in the accompanying letter of transmittal. Except
as set forth below, an Eligible Holder who wishes to tender outstanding notes
for exchange pursuant to the exchange offer must transmit a properly completed
and duly executed letter of transmittal, the certificates for the outstanding
notes being tendered, and all other documents required by such letter of
transmittal, to the exchange agent at the address set forth in the letter of
transmittal on or prior to 5:00 p.m., New York City time, on the expiration
date. Eligible Holders wishing to accept the exchange offer through the
book-entry transfer procedure described below, if such procedure is available,
may transfer the outstanding notes being tendered via ATOP. In tendering the
outstanding notes via ATOP, such holder will expressly acknowledge the receipt,
and agree to be bound by, the terms of the letter of transmittal. In the case of
a tender by guaranteed delivery, a holder who tenders outstanding notes via ATOP
will acknowledge the receipt of, and agree to be bound by, the Notice of
Guaranteed Delivery. Book-Entry Confirmation must be received by the exchange
agent by 5:00 p.m., New York City time, on the expiration date. Alternatively,
an Eligible Holder may accept the exchange offer by complying with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF
OUTSTANDING NOTES, LETTERS OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS
AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT
IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE
ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
40
<PAGE>
Each signature on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution, unless the
outstanding notes surrendered for exchange pursuant thereof are tendered:
- by a registered holder of the outstanding notes who has completed either
the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" on the letter of transmittal, or
- by an eligible institution.
An eligible institution is a firm which is a member of a registered national
securities exchange or a member of the NASD, a commercial bank or trust company
having an office or correspondent in the United States or is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act. If outstanding notes are registered in the name of a person other
than a signer of the letter of transmittal, the outstanding notes surrendered
for exchange must either:
- be endorsed by the registered holder, with the signature thereon
guaranteed by an eligible institution, or
- be accompanied by a bond power, in satisfactory form as determined by
Compass in its sole discretion, duly executed by the registered holder,
with the signature thereon guaranteed by an eligible institution along
with any other documents required upon transfer.
The term "registered holder" as used with respect to the outstanding notes means
any person in whose name the outstanding notes are registered on the books of
the registrar for the outstanding notes.
Tenders may be made only in principal amounts of $1,000 and integral
multiples thereof. Subject to the foregoing, Eligible Holders may tender less
than the aggregate principal amount represented by the outstanding notes
deposited with the exchange agent provided they appropriately indicate this fact
on the letter of transmittal accompanying the tendered outstanding notes.
All questions as to the validity, form, eligibility, time of receipt,
acceptance, and withdrawal of outstanding notes tendered for exchange will be
determined by Compass in its sole, reasonable discretion, which determination
shall be final and binding on all parties. Compass reserves the absolute right
to reject any and all tenders of any particular outstanding notes not properly
tendered or to reject any particular outstanding notes whose acceptance might,
in the judgment of Compass or its counsel, be unlawful. Compass also reserves
the absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any particular outstanding notes either before or after the
expiration date. Compass reserves the right to waive the ineligibility of any
holder who seeks to tender outstanding notes in the exchange offer. The
interpretation of the terms and conditions of the exchange offer, including the
letter of transmittal and the instructions to that letter, by Compass shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of outstanding notes for exchange must be cured
within such reasonable period of time as Compass shall determine. Compass will
use reasonable efforts to give notification of defects or irregularities with
respect to tenders of outstanding notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the outstanding
notes will not be deemed to have been made until such irregularities have been
cured or waived.
If any letter of transmittal, endorsement, bond power, power of attorney, or
any other document required by the letter of transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation,
or other person acting in a fiduciary or representative capacity, such person
should so indicate when signing. Unless waived by Compass, proper evidence
satisfactory to Compass of a person's authority to act in a fiduciary or
representative capacity must be submitted.
41
<PAGE>
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender outstanding notes in the exchange offer should contact such registered
holder promptly and instruct such registered holder to tender on the beneficial
owner's behalf. If a beneficial owner wishes to tender directly, the beneficial
owner must make appropriate arrangements to register ownership of the
outstanding notes in that beneficial owner's name prior to completing and
executing the letter of transmittal and tendering outstanding notes. Beneficial
owners should be aware that the transfer of registered ownership may take
considerable time.
Each Eligible Holder accepting the exchange offer is required to make the
representations to Compass described under "--Resales of the Series B Notes"
below.
BOOK ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus. Any financial institution that
is a participant in DTC's system may make book-entry delivery of outstanding
notes by causing DTC to transfer such outstanding notes into the exchange
agent's account at DTC in accordance with DTC's procedures for transfer. A
holder tendering the outstanding notes via ATOP will expressly acknowledge the
receipt of, and agree to be bound by, the terms of the letter of transmittal. In
the case of a tender by guaranteed delivery, the holder will expressly
acknowledge the receipt of, and agree to be bound by, the Notice of Guaranteed
Delivery.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of outstanding notes desires to tender such
outstanding notes other than through book-entry transfer procedures and such
outstanding notes are not immediately available, or if time will not permit such
holder's outstanding notes or other required documents to reach the exchange
agent on or prior to the expiration date, a tender may be effected if:
- the tender is made by or through an eligible institution,
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal or facsimile thereof and Notice of Guaranteed Delivery,
substantially in the form provided by Compass, by either facsimile
transmission, mail or hand delivery.
The letter and notice should set forth:
- the name and address of the holder of outstanding notes,
- the certificate number or numbers of any outstanding notes which will not
be tendered by book-entry transfer,
- the amount of outstanding notes tendered,
- a statement that the tender is being made thereby,
- a guarantee that within three business days after the date of execution of
the Notice of Guaranteed Delivery, the certificates for all physically
tendered outstanding notes, in proper form for transfer, and any documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent, and
- the certificates for all physically tendered outstanding notes, in proper
form for transfer, and all other documents required by the letter of
transmittal, are received by the exchange agent within three business days
after the date of execution of the Notice of Guaranteed Delivery.
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<PAGE>
If a registered holder of outstanding notes desires to tender such outstanding
notes by book-entry transfer and the procedure for book-entry transfer cannot be
completed on or prior to the expiration date, a tender may be effected if:
- the tender is made by or through an eligible institution,
- the exchange agent receives confirmation from DTC of receipt by DTC of a
Notice of Guaranteed Delivery via ATOP, by which the tendering holder will
expressly acknowledge the receipt of, and agree to be bound by, the Notice
of Guaranteed Delivery, including guarantee that Book-Entry Confirmation
will be received by the exchange agent within three New York Stock
Exchange trading days after the date of the transmittal of the Notice of
Guaranteed Delivery via ATOP, and
- Book-Entry Confirmation is received by the exchange agent within three New
York Stock Exchange trading days after the date of the transmittal of the
Notice of Guaranteed Delivery via ATOP.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF SERIES B NOTES
Except as set forth under "--Certain Conditions of the Exchange Offer"
below, Compass will accept, promptly after the expiration date, all outstanding
notes properly tendered and will issue the Series B Notes promptly after
acceptance of the outstanding notes. For purposes of the exchange offer, Compass
shall be deemed to have accepted properly tendered outstanding notes for
exchange when, as, and if Compass has given oral or written notice to that
effect to the exchange agent.
In all cases, issuances of Series B Notes for outstanding notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for such outstanding notes
or a Book-Entry Confirmation of such outstanding notes into the exchange agent's
account at DTC, a properly completed and duly executed letter of transmittal,
and all other required documents; PROVIDED, HOWEVER, that Compass has given oral
or written notice thereof to the exchange agent, and PROVIDED FURTHER that
Compass reserves the absolute right to waive any defects or irregularities in
the tender or conditions of the exchange offer. If any tendered outstanding
notes are not accepted for any reason set forth in the terms and conditions of
the exchange offer or if outstanding notes are submitted for a greater principal
amount than the Eligible Holder desires to exchange, such unaccepted or
non-exchanged outstanding notes or substitute outstanding notes evidencing the
unaccepted portion, as appropriate, will be returned without expense to the
tendering Eligible Holder thereof as promptly as practicable after the
expiration or termination of the exchange offer.
WITHDRAWAL RIGHTS
Tenders of the outstanding notes may be withdrawn at any time prior to 5:00
p.m., New York City time, one business day prior to the expiration date. For a
withdrawal to be effective, a written notice of withdrawal must be received by
the exchange agent at its address set forth under "exchange agent" below. Any
such notice of withdrawal must:
- specify the name of the person having tendered the outstanding notes to be
withdrawn,
- identify the outstanding notes to be withdrawn, including the principal
amount of such outstanding notes, and
- if certificates for outstanding notes were tendered, specify the name in
which such outstanding notes were registered, if different from that of
the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent then, prior to the release of such
certificates, the withdrawing holder must also submit the serial
43
<PAGE>
numbers of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an eligible institution unless such
holder is an eligible institution. If outstanding notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn outstanding notes, and otherwise comply with the procedures of DTC.
All questions as to the validity, form, eligibility and time of receipt of such
notices will be determined by Compass in its sole, reasonable discretion. This
determination shall be final and binding on all parties. The outstanding notes
so withdrawn, if any, will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any outstanding notes that have
been tendered for exchange but which are withdrawn will be returned to the
Eligible Holder without cost to the Eligible Holder as soon as practicable after
withdrawal. Properly withdrawn outstanding notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Outstanding
Notes" above at any time on or prior to the expiration date.
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, Compass shall
not be required to accept for exchange, or to issue the Series B Notes in
exchange for, any outstanding notes. Compass may terminate or amend the exchange
offer if, prior to the exchange of the Series B Notes for the outstanding notes,
Compass determines, in its sole discretion, that any of the following situations
exist:
- there has been a commencement of any action, legal or governmental, with
respect to the exchange offer or which Compass reasonably determines would
make it inadvisable to proceed with the exchange offer,
- there has been a banking moratorium or similar event or international
calamity involving the United States,
- there has been a change in the business or prospects of Compass that may
have a material adverse effect on Compass, or
- the exchange offer violates any applicable law.
If Compass makes any of the foregoing determinations, Compass may:
- refuse to accept any outstanding notes and return all tendered outstanding
notes to the tendering holders, or
- extend the exchange offer, retain all outstanding notes tendered prior to
the expiration date, and use reasonable efforts to satisfy any such
condition, subject, however, to the rights of Eligible Holders to withdraw
such outstanding notes.
You should read the discussion under the heading "Withdrawal Rights" for further
information regarding your rights to withdraw tendered notes. In addition,
Compass will not accept for exchange any outstanding notes tendered, and no
Series B Notes will be issued in exchange for any such outstanding notes, if at
such time any stop order shall be threatened or in effect with respect to the
registration statement or the qualification of the indenture governing the notes
under the Trust Indenture Act of 1939, as in effect on the date of the
indenture.
Holders of outstanding notes may have certain rights and remedies against
Compass under the Registration Rights Agreement should Compass fail to
consummate the exchange offer, notwithstanding any nonfulfillment of the above
conditions. Such conditions are not intended to modify such rights and remedies
in any respect.
Under the Registration Rights Agreement, Compass will pay to each holder of
the outstanding notes an additional amount equal to $0.05 per week (or partial
week) per $1,000 principal amount of
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<PAGE>
the outstanding notes held by such holder, during the first 90-day period
immediately following the Filing Date, the Effectiveness Date or the
Consummation Date as liquidated damages if, other than as a result of actions by
the holders of the outstanding notes:
- the registration statement was not filed by December 17, 1998 (the "Filing
Date"),
- the registration statement filed with the Commission relating to the
exchange offer was not declared effective by the Commission by February
16, 1999 (the "Effectiveness Date"), or
- if the exchange offer has not been consummated within 30 days after the
registration statement is declared effective (the "Consummation Date").
The amount of liquidated damages will increase by an additional $0.05 per
week (or partial week), per $1,000 principal amount at the beginning of each
subsequent 90-day period to a maximum amount of liquidated damages of $0.50 per
week per $1,000 principal amount. Liquidated damages will continue to accrue
until the conditions noted above have been cured. Liquidated damages accrued as
of any interest payment date will be payable on that date. Because Compass did
not comply with certain of these provisions, liquidated damages are currently
accruing at the rate of $16,500 per week.
TERMINATION OF CERTAIN RIGHTS
Eligible Holders of the outstanding notes to whom this exchange offer is
made have certain rights under the Registration Rights Agreement and Purchase
Agreement that will terminate upon the consummation of the exchange offer. These
rights include, without limitation the right to require Compass:
- to file with the Commission the exchange offer registration statement
under the Securities Act within 240 days after the outstanding notes were
originally issued;
- to use its best efforts to cause such registration statement to become
effective under the Securities Act within 300 days after the outstanding
notes were originally issued;
- to consummate the exchange offer within 30 days after the registration
statement covering the exchange offer is declared effective; and
- if certain events described in the Registration Rights Agreement occur,
to:
- file a Shelf registration statement covering resales of the outstanding
notes,
- use its best efforts to cause such Shelf registration statement to be
declared effective under the Securities Act, and
- keep such Shelf registration statement effective for the period
described in the Registration Rights Agreement.
The right to receive liquidated damages from Compass under certain circumstances
described in the Registration Rights Agreement will also terminate upon
consummation of exchange offer.
EXCHANGE AGENT
All tendered outstanding notes, executed letters of transmittal, and other
related documents should be directed to the exchange agent at one of the
addresses set forth below. In addition, any questions
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<PAGE>
and requests for assistance and requests for additional copies of this
prospectus, the letter of transmittal, and other related documents should be
addressed to the exchange agent as follows:
<TABLE>
<S> <C> <C>
IF BY OVERNIGHT CARRIER OR BY IF BY REGISTERED OR CERTIFIED IF BY FACSIMILE:
HAND: MAIL: (212) 858-2611
IBJ Whitehall Bank & Trust IBJ Whitehall Bank & Trust CONFIRM BY TELEPHONE:
Company Company (212) 858-2103
One State Street P.O. Box 84
New York, New York 10004 Bowling Green Station
Att.: Securities Processing New York, New York 10274-0084
Window, Att.: Reorganization
Subcellar One, (SC-1) Department
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Compass. The principal
solicitation is being made by mail; however, additional solicitation may be made
by facsimile, telephone or in person by officers and regular employees of
Compass and its affiliates. Compass has not retained any dealer-manager in
connection with the exchange offer. Compass, however, will reimburse brokers,
dealers, commercial banks and trust companies for reasonable and necessary costs
and expenses incurred by them in forwarding this prospectus and the related
exchange offer documents to the beneficial owners of outstanding notes held by
them as nominee or in a fiduciary capacity. Compass also will pay the exchange
agent reasonable and customary fees for its services and will reimburse it for
its reasonable out-of-pocket expenses. The cash expenses to be incurred in
connection with the exchange offer will be paid by Compass and are estimated to
be approximately $250,000. Such expenses include fees and expenses of the
exchange agent, accounting and legal fees, filing fees and printing costs.
Compass will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of outstanding notes pursuant to
the exchange offer, then the amount of any such transfer taxes will be payable
by the tendering holder, whether imposed on the registered holder or any other
persons. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Series B Notes will be recorded at the same carrying value as the
outstanding notes, as reflected in Compass' accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the exchange offer will be amortized over the term
of the Series B Notes.
RESALES OF THE SERIES B NOTES
With respect to resales of Series B Notes, based on an interpretation by the
Staff of the Commission set forth in no-action letters issued to third parties,
Compass believes that an Eligible Holder, other than:
- an affiliate of Compass within the meaning of Rule 405 under the
Securities Act, or
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<PAGE>
- a broker-dealer, who exchanges outstanding notes for Series B Notes in the
ordinary course of its business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Series B Notes,
will be allowed to resell the Series B Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the Series B Notes a prospectus that satisfies the requirements of Section 10
of the Securities Act. However, if any Eligible Holder acquires Series B Notes
in the exchange offer for the purpose of distributing or participating in a
distribution of the Series B Notes, that Eligible Holder cannot rely on the
position of the Staff of the Commission enunciated in "Exxon Capital Holdings
Corporation" (available May 13, 1988) or similar no-action letters or any
similar interpretive letters. In that case, the holder must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder of outstanding notes accepting the exchange offer is
required to represent to Compass in the letter of transmittal that:
- any Series B Notes are to be acquired in the ordinary course of business
of the person receiving such Series B Notes,
- neither the holder of such outstanding notes nor any such other person
receiving such Series B Notes is participating, intends to participate, or
has any arrangement or understanding with any person to participate, in
the distribution of the Series B Notes, and
- except as otherwise disclosed, neither the holder of such outstanding
notes nor any such other person is an affiliate of Compass within the
meaning of Rule 405 under the Securities Act.
Further, each holder of outstanding notes accepting the exchange offer must
acknowledge that any person participating in the exchange offer for the purpose
of distributing the Series B Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Series B Notes and cannot rely on the no-action letters
discussed above.
Each broker-dealer that receives Series B Notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Series B Notes received in exchange for outstanding notes, where such
outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, for a period of up to one
year after the expiration date. Compass has agreed to make this prospectus, as
it may be amended or supplemented from time to time, available to any broker-
dealer, at no charge, for use in connection with any such resale for a period of
up to one year after the expiration date, or for such shorter period that will
terminate when such broker-dealers have sold all of such Series B Notes. You
should read the discussion under the heading "Plan of Distribution" for further
information on the continuing availability of this prospectus after the
expiration date.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their Old Notes for Series
B Notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of such outstanding notes as set forth in the legend
thereon. In general, the outstanding notes may not be offered or sold, unless
registered under the Securities Act and applicable state securities laws.
Compass does not intend to register the outstanding notes under the Securities
Act or any state securities laws.
47
<PAGE>
BUSINESS
COMPASS
Compass was founded in October 1997 to become a major supplier of precision
machined individual parts and of Integrated Products used by aerospace
manufacturers in structural frames and other metal aircraft components. Compass
intends to capitalize on the trends among aircraft manufacturers which seek to
increase outsourcing, concentrate supplier relationships and encourage suppliers
of individual parts to manage the supply chain which produces Integrated
Products. Compass' acquisitions to date and its principal manufacturing
facilities are summarized in the following table.
<TABLE>
<CAPTION>
YEAR DATE MANUFACTURING
BUSINESS BUSINESS CAPABILITIES/
BUSINESS ACQUIRED FOUNDED ACQUIRED LOCATION SPECIALITIES
- ------------------------------- ----------- ------------- ------------------- ------------------------
<S> <C> <C> <C> <C>
Aeromil........................ 1971 Nov. 1997 Santa Ana, CA Medium-sized machined
parts
Western Methods................ 1978 Nov. 1997 Gardena, CA Small to medium-sized
machined parts
Brittain Machine............... 1966 April 1998 Wichita, KS Small to large-sized
machined parts,
fabrication and tooling
Wichita Manufacturing.......... 1992 April 1998 Cerritos, CA Small to medium-sized
machined parts
Barnes Machine................. 1982 April 1998 Shelton, WA Small to medium-sized
machined parts
Sea-Lect(1).................... 1989 May 1998 Kent, WA Sheet metal and
extruded/machined parts,
assembly including
bonding/ riveting, tool
and die making
Pacific Hills.................. 1962 Nov. 1998 Valencia, CA Shim stock, laminated
Kent, WA shims,
stampings, flat patterns
Modern......................... 1966 Dec. 1998 Renton, WA Small to medium-sized
machined-parts
<CAPTION>
MAJOR
BUSINESS ACQUIRED CUSTOMERS(2)
- ------------------------------- -----------------------------
<S> <C>
Aeromil........................ Boeing, Korean Airlines,
Hughes Aircraft,
Raytheon
Western Methods................ Boeing, Northrop,
Lockheed, NASA-JPL
Brittain Machine............... Boeing, Raytheon,
Hughes Aircraft, Cessna,
Shorts Brothers
Wichita Manufacturing.......... Boeing, Northrop,
Tolo
Barnes Machine................. Boeing, Northrop,
Kawasaki
Sea-Lect(1).................... Boeing, Japan Airlines, B.F.
Goodrich, Lucas Aerospace,
Mitsubishi, Kawasaki
Pacific Hills.................. Boeing, Rohr
Modern......................... Boeing, Hawker
</TABLE>
- ------------------------
(1) Compass simultaneously acquired the assets of Sea-Lect and the stock of J&J
Leasing, Inc. as a subsidiary of Sea-Lect in May 1998. Subsequent to the
acquisition of these businesses, J&J, which had previously leased machinery
and equipment to Sea-Lect and did not conduct any manufacturing operations,
was merged into Sea-Lect.
(2) Major customers include Boeing, Northrop, Korean Airlines Co., Ltd., Hughes
Aircraft Company, Raytheon Aircraft Company, Lockheed Martin Corporation,
National Air Space Administration-Jet
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Propulsion Laboratory, Cessna Aircraft Co., Japan Airlines Co., Ltd., B.F.
Goodrich Aerospace, a division of The B.F. Goodrich Company, Lucas
Aerospace, a division of LucasVarity plc, Mitsubishi Heavy Industries Ltd.,
Kawasaki Heavy Industries, Ltd., Hawker de Havilland Inc., Shorts Brothers
PLC, Tolo Inc., a subsidiary of B.F. Goodrich and Rohr, Inc., a subsidiary
of B.F. Goodrich.
These companies have precision machining and tooling capabilities which
provide Compass with a diverse and flexible manufacturing capability. Prior to
their acquisition by Compass, Compass' subsidiaries operated under independent
management. As part of its strategy, Compass intends to leverage the
consolidated capabilities of its subsidiaries, expand production of Integrated
Products and acquire businesses with complementary capabilities.
At present, Compass is principally engaged in manufacturing individual parts
for aircraft to precise specifications from metals including aluminum, titanium
and steel through the use of precision computer numerically-controlled machine
tools and metal forming equipment. Compass uses a variety of advanced techniques
and machinery including horizontal and vertical machining centers and
state-of-the-art high-speed precision machining equipment, as well as
three-spindle five-axis gantry mills. Management believes that Compass'
machining capabilities are among the broadest, and that Compass has among the
largest number of three-spindle five-axis gantry mills, of all aerospace
suppliers in the United States.
Compass produces parts as original equipment for:
- all of the commercial jet models (717, 737, 747, 757, 767, 777, MD-11,
MD-80 and MD-90) produced by Boeing,
- Airbus (A320, A330 and A340 models),
- Bombardier Inc. Canadair Regional Jet-Registered Trademark- 700,
- Embrear Aircraft Corporation (ERJ-145),
- as well as for several United States military programs and certain
other commercial aircraft manufacturers.
Compass believes that among the key factors in its success are the
long-standing relationships that management has established with its key
customers, as well as the strong name recognition of its subsidiaries,
established track records of quality manufacturing and consistent histories of
timely deliveries by its subsidiaries. Compass generated combined pro forma
revenues and EBITDA for the year ended December 31, 1998 of approximately $183.4
million and $52.6 million, respectively.
STRATEGY
Compass' principal strategic objective is to increase revenues and profits
by managing the supply chain for its customers, by consolidating its acquired
businesses and by producing Integrated Products as well as individual parts.
Compass also seeks to increase its operating efficiencies and to reduce its
customer concentration by diversifying its revenue mix among aerospace
customers. To reach its objectives Compass intends to:
CONSOLIDATE ACQUIRED BUSINESSES; INCREASE REVENUES AND MARGINS
Management believes that there are significant opportunities to increase
revenues and margins by increasing operating efficiencies and asset utilization
through strategic coordination of production among Compass' manufacturing
facilities to increase production runs, reduce set-up times and utilize the most
appropriate machinery for each production job. Management has begun to introduce
lean management practices to reduce scrap rates, decrease direct manufacturing
time per part, increase inventory margins and improve margins. Management also
believes that some of Compass'
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manufacturing facilities are underutilized. This excess capacity gives Compass
the opportunity to shift production among its manufacturing facilities to
achieve increased operating efficiencies. Management believes that the
consolidation of the specialized and complementary manufacturing capabilities of
Compass' nine facilities, combined with Compass' strong customer relationships,
reputation for quality and ability to coordinate production among its
facilities, should allow Compass to grow internally and increase profits by
producing individual parts more efficiently.
Each of Compass' subsidiaries has substantial experience in the aerospace
industry and has experienced management and highly-skilled employees. Compass
seeks to retain the technical expertise of many of these individuals and utilize
their expertise throughout Compass' manufacturing facilities.
In addition, Compass is centralizing certain administrative functions at the
corporate level including finance, accounting, purchasing, tax, sales and
marketing, payroll, employee benefits and insurance and other administrative
activities to realize economies of scale and reduce costs. Compass is updating
and consolidating its management information systems to improve internal
controls and coordinate operations and is consolidating certain of the
engineering functions currently spread across its manufacturing facilities.
FOCUS ON SUPPLY CHAIN MANAGEMENT AND INCREASE PRODUCTION OF INTEGRATED PRODUCTS
Compass intends to increase its production of Integrated Products while
maintaining its on-going business of manufacturing individual parts. While
Compass currently produces a limited number of sub-assemblies and manufacturing
kits, Compass believes that it is capable of producing a wide range of
Integrated Products by more effective use of its broad, flexible manufacturing
capabilities without significant additional capital expenditures. Management
believes the ability to produce Integrated Products will become increasingly
important as customers such as Boeing reduce their inventories of individual
parts. Compass intends to offer its customers supply chain management services
by providing just-in-time delivery and electronic data interchange with its
customers. Compass believes that it will be able to leverage its specialized and
complementary manufacturing capabilities and marketing expertise to be awarded
production contracts for Integrated Products.
IMPROVE MARKETING
Although Compass' subsidiaries have enjoyed strong customer relationships
and repeat business as a result of strong name recognition, established track
records of quality manufacturing and consistent histories of timely deliveries,
they have not maximized marketing opportunities. Management intends to
proactively market Compass' broad, flexible manufacturing capabilities to secure
additional long-term production contracts from existing customers. Compass
intends to position itself as an outsource alternative to its customers' own
facilities by offering its customers lower part costs and increased inventory
turnover. In addition, management is targeting customers that Compass'
subsidiaries could not significantly penetrate individually, including Airbus
which represented less than one percent of Compass' 1998 consolidated revenues.
Compass has retained a former Finance Director of British Aerospace Airbus
Limited as its Vice President in Europe to develop a strong business
relationship with Airbus and to identify suitable acquisition candidates. As a
result of his efforts, Compass obtained additional contracts with Airbus in
1998. Management believes that improved marketing of Compass' ability to produce
precision machined individual parts and Integrated Products to precise
specifications with timely deliveries should allow Compass to achieve its
objectives of becoming a major supplier to the aerospace industry and
diversifying its revenue mix within the aerospace industry.
DIVERSIFY REVENUE MIX
Compass participates in all Boeing commercial jet programs, but does not
generate significant revenues from Airbus or the business jet market, two
segments targeted by Compass for greater
50
<PAGE>
penetration in the future. Compass also believes that there are opportunities to
increase revenues from regional and commercial jet manufacturers and from United
States military programs beyond its current participation in the C-17 transport
and F-18 fighter aircraft programs.
INCREASE OUTSOURCING
Compass utilizes small machine shops for certain production functions to
increase manufacturing efficiencies and capacity. Compass intends to increase
outsourcing to these small machine shops to augment its capacity and supplement
its capabilities without additional capital expenditures, thus enhancing its
ability to produce Integrated Products. The machine shops will be pre-qualified
by Compass, execute formal supply agreements and be held accountable for meeting
the quality standards of Compass' customers. To ensure that the outsourced parts
shipped under its supplier numbers and purchase order numbers meet the
requirements of Compass' customers, Compass will impose the quality requirements
in its contracts and audit its subcontractors in a similar manner to which
Compass is required to perform and is audited by its customers. Compass will
also inspect the outsourced parts in its own quality control departments.
ACQUIRE COMPLEMENTARY BUSINESSES
Compass believes that it is well positioned to take advantage of
opportunistic acquisitions of complementary businesses in the highly fragmented
aerospace supplier industry. Management believes that a lack of managerial
expertise and financial and marketing resources at many small and mid-sized
aerospace subcontractors has constrained growth, modernization and the addition
of integration capabilities. Management believes that, as a result, there is
significant potential to increase revenues and margins at many acquired
companies. Compass is actively evaluating potential acquisitions domestically
and in Europe. In evaluating potential acquisition targets, Compass focuses on
acquiring businesses with complementary manufacturing capabilities that will
enhance Compass' ability to produce higher value-added Integrated Products,
increase its operating efficiencies and/or diversify its revenue mix.
INDUSTRY OVERVIEW AND TRENDS
Commercial aircraft manufacturers are experiencing a sustained period of
historically high demand for new aircraft. According to the Aerospace Industries
Association of America, the annual worldwide market for aircraft was
approximately $78.0 billion in 1998, an 8.3% increase from $72.0 billion in
1997. Manufacturing U.S.A., Sixth Edition, estimates the value of aircraft
equipment shipped in 1998 was approximately $20.4 billion. In response to the
increased demand for aircraft, the major aircraft manufacturers are dramatically
changing their manufacturing and purchasing practices to increase production
rates and reduce costs. More specifically, aircraft manufacturers are increasing
outsourcing and imposing increased responsibilities, such as the production of
more Integrated Products, just-in-time deliveries and quality control
inspections before shipping on a smaller number of qualified suppliers.
Outsourcing also reduces costs because subcontractors can produce parts at a
fraction of the cost of in-house manufacturing. At present, the aerospace
supplier industry is highly fragmented, consisting of a limited number of
well-capitalized companies which offer a broad range of products and services,
and a large number of smaller, specialized companies. As a result of the
aircraft manufacturers' new manufacturing and purchasing practices, the supplier
industry has been consolidating at an increasing pace in recent years and
management believes that such consolidation will continue.
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<PAGE>
Significant trends currently affecting the market for parts for aircraft
manufacturers include the following:
INCREASES IN AIR TRANSIT AND AIRCRAFT PRODUCTION
Boeing's 1998 Current Market Outlook projected that, through the year 2007,
global air travel will increase by 63% and that the number of passenger and
cargo delivery aircraft in service will increase by 44%, with approximately
7,600 new airplanes delivered worldwide through the year 2007. Airbus' 1998
Global Market Forecast projected that through the year 2017, the number of
aircraft in active service should increase by 88% and over 87% of the current
passenger jet fleet should be replaced, requiring approximately 16,700
replacement passenger aircraft. At December 31, 1998 Boeing's unfilled announced
order backlog was 1,786 aircraft, with orders for 656 aircraft received as of
December 31, 1998. Boeing delivered 271, 375 and 563 airplanes (including
airplanes delivered by the former McDonnell Douglas Corporation, which was
acquired by Boeing in 1997) in 1996, 1997 and 1998, respectively, and has
publicly announced plans to increase production rates to approximately 620
airplanes in 1999.
Compass believes that the following factors, among others, are contributing
to the increase in new aircraft orders:
- a turnaround in worldwide airline operating performance from substantial
operating losses in 1992 to approximately $12.0 billion and $15.5 billion
of operating profit in 1996 and 1997, respectively;
- projected worldwide airline traffic growth of 5.0% per year and projected
cargo traffic growth of 6.4% per year over the next decade;
- increased aircraft load factors during the 1990-96 period;
- increases in the average age of commercial aircraft during the 1990-96
period; and
- the increasing importance of city pair marketing and flight frequencies to
the airline industry.
Compass believes that this trend will be driven, in part, by the anticipated
continued growth of carriers engaged in the air freight and package delivery
businesses and the expected commencement of new airlines, especially in China
and other Asian countries where air traffic was previously limited. Further,
retirement of aging aircraft and the anticipated removal of approximately 1,000
airplanes domestically from the operating fleet to comply with mandatory noise
reduction standards by December 31, 1999 should contribute to the increased
demand for new aircraft production. The number of surplus aircraft is expected
to decline significantly while new aircraft production is expected to increase
over the next several years. The expected growth in air transit and aircraft
production should increase the demand for structural parts from subcontractors
as aircraft manufacturers increase outsourcing to reduce costs and increase
production rates.
REDUCTION IN THE NUMBER OF APPROVED SUBCONTRACTORS
In order to devote additional resources to their core competencies, reduce
operating and purchasing costs and streamline purchasing decisions while
retaining control over quality, aircraft manufacturers have been reducing the
number of approved subcontractors. Additionally, aircraft manufacturers have
established quality and operating criteria to ensure that approved
subcontractors operate with the required proficiency. Compass believes that, due
to the established market presence of its subsidiaries, their ability to
manufacture precision machined parts and their track records for quality,
Compass' manufacturing facilities will continue to be approved suppliers to
Boeing and other major aircraft manufacturers.
OPERATIONS
Compass' existing manufacturing capabilities are principally centered around
the precision machining of aluminum, titanium and steel and the production of
sheet metal details. In addition, Compass engages in fabrication, metal bonding
and minor assembly.
52
<PAGE>
MANUFACTURING FACILITIES
At March 31, 1999 Compass maintained its corporate headquarters and operated
at nine manufacturing facilities comprising an aggregate of approximately
553,650 square feet of space. The following table describes the principal
manufacturing facilities and indicates the location, function, approximate size
and ownership status of each location. Compass believes that its facilities are
suitable for their present intended purposes and adequate for Compass' present
and anticipated level of operations.
<TABLE>
<CAPTION>
APPROXIMATE FACILITY
SIZE
LOCATION PRODUCTS AND FUNCTION (SQ. FEET) OWNERSHIP
- ------------------------- ----------------------------- ----------------------- -----------
<S> <C> <C> <C>
Long Beach, CA........... Corporate Headquarters 8,670
Santa Ana, CA............ Manufacturing 65,000 Leased(1)
Gardena, CA.............. Manufacturing 20,500 Leased
Wichita, KS.............. Manufacturing 153,000 Owned
Cerritos, CA............. Manufacturing 42,500 Leased
Shelton, WA.............. Manufacturing 50,000 Owned
Kent, WA................. Manufacturing 77,180 Leased
Valencia, CA............. Manufacturing 31,280 Leased
Kent, WA................. Manufacturing 10,450 Leased
Renton, WA............... Manufacturing 95,070 Owned
</TABLE>
- ------------------------
(1) Compass leases its Santa Ana facility from a former Aeromil affiliate at a
fair market rent.
Compass has a large portfolio of complex machinery which cut, fold, form and
drill metals and other materials used during the manufacturing process,
including: sheet metal forming equipment, high-speed and conventional computer
numerically-controlled horizontal and vertical machining centers and
three-spindle five-axis gantry mills, conventional and gap lathes, stretch
presses, bladder presses, and brakes and shears. These machines provide broad,
flexible manufacturing capabilities. Compass maintains in-house engineering
departments at each manufacturing facility, some of which utilize CATIA-CADAM
Solutions and Unigraphics systems, to create machine control programs from
digital parts specifications received directly from the aircraft manufacturers.
Compass is also engaged in metal bonding and assembly operations at several
of its manufacturing facilities. Western Methods has developed its own
Boeing-certified specialized bonding process which enables the assembly/bonding
department to bond composite material to aluminum and mechanical hardware to
milled parts. Brittain Machine fabricates assembly and tooling platforms and has
diversified into complex assembly production involving bonding and riveting
individual parts together. Western Methods, Brittain Machine and Barnes Machine
also participate in Boeing's Advanced Technology Assembly program under which
they manufacture parts requiring drilling precise manufacturing assembly
location holes.
PRODUCTS
Compass manufactures parts for all Boeing commercial aircraft models, as
well as for a variety of aircraft from other commercial aircraft manufacturers
and several U.S. military aircraft and other programs. Compass' products range
in size from large ribs used in wings and vertical stabilizers to engine mounts,
door stops and shims and range in value from less than $50 to more than $20,000.
Compass primarily manufactures original equipment parts from various metals such
as aluminum, titanium and steel which are used in the structural elements of
aircraft.
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<PAGE>
SOURCES AND AVAILABILITY OF RAW MATERIALS
Compass uses a variety of metals in its manufacturing processes, including
aluminum, titanium and steel. Compass generally acquires these metals from third
party suppliers. The availability and prices of these materials may fluctuate.
Any delay in our ability to obtain necessary raw materials may affect our
ability to meet our customer's needs. In some instances, Boeing may supply
Compass with the metals Compass will use in manufacturing parts under a specific
purchase order. Boeing may also require Compass to acquire metals from certain
third party suppliers identified by Boeing. If Boeing requires Compass to
acquire metals from certain third party suppliers, Boeing has agreed to
reimburse Compass for the actual cost of those metals.
CERTIFICATION
Compass manufactures parts to exact specifications provided by its aerospace
customers in engineering drawings. Compass' customers require Compass'
manufacturing facilities to perform quality standards testing and certification
procedures on all manufactured parts and provide detailed records to ensure
traceability of each part. Such customers typically certify Compass'
manufacturing facilities as meeting certain quality standards, which
certification is necessary for Compass to submit bids and manufacture parts for
such customers. You should read the discussions under the headings "Risk
Factors-Certification" and "-Sales and Marketing" for more information on the
impact of certification on Compass.
Compass' manufacturing facilities have imposed certain quality control
criteria and all of Compass' facilities have received Boeing's D1-9000
certification. Boeing's D1-9000 certification is site specific and certifies
that a facility meets certain customer satisfaction requirements, including
manufacturing parts that comply with specifications and delivery of parts on
time and at cost. Furthermore, seven out of eight of Compass' facilities have
received Boeing's D1-9000-A certification, which allows the facility to produce
more critical parts. Compass' Shelton, Washington facility has received ISO 9002
certification, which indicates that the facility has met quality standards set
by an international bureau of quality standards.
Qualified suppliers often subcontract parts to other machine shops while
still remaining responsible for quality and delivery schedules. Several of
Compass' subsidiaries have been selected as Boeing-Wichita key suppliers, which
permits them to subcontract production without Boeing's supervision. Certain of
Compass' facilities are also certified by other customers including Northrop,
Lockheed, Raytheon, Airbus, Menasco Aerospace, a division of Coltec Industries
Inc., and B.F. Goodrich. The certification process necessary to become an
aerospace supplier, combined with the aircraft manufacturers' desire to reduce
their number of approved suppliers, provide substantial barriers to entry for
machining companies from industries which have greater tolerances for production
variances and which accept parts produced to less precise specifications under
less rigorous manufacturing procedures.
QUALITY CONTROL
Compass believes that its machining and quality control equipment is among
the best of any independent aerospace supplier in the United States and
represents state-of-the-art technology. Each of Compass' nine manufacturing
facilities maintains quality control departments utilizing computer-assisted
inspections which meet or exceed customer requirements and produce required
documentation to each customer's standards.
Compass maintains the most stringent quality control of its manufactured
parts and services. Compass' customers require Compass' manufacturing facilities
to satisfy certain standards relating to the quality of its manufactured parts
and services. Compass' manufacturing facilities perform testing and
certification procedures on all manufactured parts and provide detailed records
to ensure
54
<PAGE>
traceability of parts. In addition, Compass performs quality control tests on
all parts Compass outsources to small machine shops. Compass believes that the
emphasis on quality control has enabled its manufacturing facilities to obtain
D1-9000, D1-9000-A and other customer certifications which contribute to
Compass' ability to successfully market Compass' manufacturing and production
capabilities. The expense required to institute and maintain quality control
procedures comparable to Compass' represents a barrier to entry for other
companies.
BACKLOG
The growth of orders for new aircraft has created a substantial backlog of
purchase orders and parts ordered under long term agreements. Compass operates
under a series of long term contracts with the major aircraft manufacturers
which generally cover a two-to five-year period for various part numbers. Each
long term contract includes customer estimates of the number of parts the
customer will require over the term of the contract and defines the
responsibilities of the parties, pricing formulas and product specifications for
specific parts covered by the contract. The customer generally issues purchase
orders for selected parts six to twelve months prior to the required shipping
date under the pricing terms and conditions agreed upon in the contract. Most of
Compass' shipments are made pursuant to purchase orders. The long term contracts
and purchase orders are often terminable at will by the customer with respect to
uncompleted portions of the contract or purchase order. The backlog consists of
customers' unfilled purchase orders and therefore is represented largely by
contracts and orders that may be canceled by customers. At May 31, 1999 Compass
had a total revenue backlog of approximately $150.0 million, of which
approximately $70.0 million is deliverable in the remainder of 1999.
CUSTOMERS
Compass' principal customer is Boeing, which directly accounted for
approximately 72.0% of Compass' combined pro forma revenues for the year ended
December 31, 1998. In addition, approximately 13.0% of the remainder of Compass'
combined pro forma revenues for the year ended December 31, 1998 were derived
from Boeing indirectly through sales to suppliers of Boeing. Compass supplies
parts to a number of major Boeing divisions, including Boeing-Wichita,
Boeing-Seattle, Boeing-Auburn, Boeing-Portland and Douglas Products, which
typically make independent purchasing decisions. Compass' other customers
include Northrop, Lockheed, Raytheon, Cessna, Learjet, NASA-JPL, Rockwell
International Corporation, General Dynamics Corporation, British Aerospace,
Bombardier, Inc. Canadair, Shorts Brothers PLC and Embrear Aircraft Corporation,
some of which are also Boeing suppliers.
SALES AND MARKETING
Compass' products are sold directly to aircraft manufacturers such as
Boeing, Lockheed and Raytheon, which perform final assembly of aircraft, and to
large aerospace subcontractors through both direct sales efforts and independent
sales representatives. The aircraft manufacturers and subcontractors purchase
products from qualified subcontractors under rigorous ongoing certification
programs such as Boeing's D1-9000 certification.
The sales process primarily entails relationship management to maximize new
sales from existing customers. The direct sales effort is primarily via
communication with key customers and is continually maintained by senior
management and dedicated sales professionals. Technical support for such sales,
which is a critical component of the marketing process, is provided through line
manufacturing managers, engineering and quality control personnel. Compass'
management has long-standing relationships with key customers and management
believes that its integrated capabilities will allow it to bid on Integrated
Products programs which typically offer higher contract value compared to
purchase orders for individual parts.
55
<PAGE>
Compass produces parts to the exact specifications of customer-provided
engineering drawings. Management believes a key element of Compass' competitive
strength and marketing strategy is Compass' ability to deliver parts on schedule
and maintain specifications and quality standards. Sales are generally made
under two-to five-year long term contracts in which the customer specifies the
number of parts it estimates it will require over the term of the contract and
the responsibilities of the parties, pricing formulas and product specifications
are documented. The customer generally issues purchase orders for selected parts
six to twelve months prior to the required shipping date under the pricing terms
and conditions agreed upon in the contract. The customer generally has the right
to delay shipment of placed orders or not to place orders previously forecasted.
Most of Compass' shipments are made pursuant to purchase orders.
COMPETITION
The aerospace supplier industry is highly fragmented, consisting of both a
limited number of well-capitalized companies which offer a broad range of
products and services and a large number of smaller, specialized companies.
Compass believes that the principal competitive factors in the aerospace
supplier industry are quality, precision-machining ability, timely deliveries,
overall customer service and price. Compass believes that it competes favorably
on the basis of the foregoing factors. Compass competes with third party
manufacturers, some of which are divisions or subsidiaries of aircraft
manufacturers or other large companies in the manufacture of individual parts
and Integrated Products. Some of these competitors have greater financial and
other resources than Compass.
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the
Federal Aviation Administration and in other countries by similar agencies. The
FAA regulates commercial flight operations in the United States and requires
that aircraft components meet stringent standards. FAA regulations provide that
aircraft manufacturers must operate under one or more of several different FAA
authorizations. Manufacturers holding FAA production approvals are known as
production approval holders and may engage a supplier to manufacture all or a
portion of an authorized part. If the supplier manufactures complete parts, the
production approval holder must ensure that the parts are fabricated and
inspected under the production approval holder's FAA-approved quality control
system. Compass must satisfy the requirements of its customers that are subject
to FAA regulations, and provide these customers with products and services that
comply with the government regulations. If material authorizations or approvals
held by Compass' customers were revoked or suspended, Compass' operations could
be adversely affected.
An initial parts manufacturer approval is, in general, an approval of a
manufacturing or modification facility's production quality control system. A
supplemental parts manufacturer approval authorizes the manufacture of a
particular part in accordance with the requirements of the corresponding FAA
production certificate. Compass is currently in the process of applying for a
parts manufacturer approval for certain parts produced at one of its
manufacturing facilities. Compass' FAA approvals will be owned, and may only be
used by, the manufacturing facility obtaining such approval. Compass does not
believe a parts manufacturer approval is necessary to operate its business as it
is currently being conducted. Management believes any delay or failure to obtain
the parts manufacturer approval will not have a material adverse effect on the
business, financial condition or results of operations of Compass.
Compass' manufacturing operations are also subject to a variety of worker
and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA") mandates general requirements for safe workplaces for all employees. In
addition, OSHA provides special procedures and measures for the handling of
certain hazardous and toxic substances. Specific safety standards have been
promulgated for
56
<PAGE>
workplaces engaged in the treatment, disposal or storage of hazardous waste.
Compass believes that its operations are in material compliance with OSHA's
health and safety requirements.
ENVIRONMENTAL MATTERS
Compass is subject to federal, state, local and foreign laws, regulation and
ordinances that:
- govern activities or operations that may have adverse environmental
effects, such as discharges to air and water,
- establish handling and disposal practices for solid and hazardous wastes,
and
- impose liability for the clean-up costs of, and certain damages resulting
from, past spills, disposal or other releases of hazardous substances.
Compass' operations use certain substances and generate certain wastes that are
regulated or may be deemed hazardous under applicable environmental laws.
Although Compass endeavors at each of its facilities to assure compliance with
environmental laws and regulations, from time to time operations of Compass and
its predecessors have resulted in, and may in the future result in, certain
noncompliance with applicable requirements under environmental laws for which
Compass may incur liability. Compass believes, based on currently available
information, that any such noncompliance under current environmental laws will
not have a material adverse effect on Compass' business, financial condition or
results of operations. There can be no assurance that future changes in such
laws, regulations or interpretations thereof, or the nature of Compass'
operations, will not require Compass to make significant additional capital
expenditures to ensure environmental compliance in the future.
Compass has acquired, and expects to continue to acquire, pre-existing
businesses that have historical and ongoing operations. Compass has and will
have limited information about past activities of those companies and operations
on its properties. Compass is aware that at one of its leased properties,
governmental authorities are currently investigating groundwater contamination
and Compass has been asked to conduct certain additional investigations. Compass
has also been named a defendant in an action filed by an owner of property
adjacent to property we lease. Compass is indemnified by the owner of the
property leased by Compass, and that owner has assumed the defense of this
action. At this time, Compass cannot determine, in either case, what cleanup
activities, if any, will be required. Soil and groundwater contamination may
also exist on Compass' other properties as a result of current or former
operations on Compass' properties, or operations on other properties. Based in
part on indemnities obtained in connection with Compass' past acquisitions,
Compass believes, although there can be no assurance, that such matters will not
have a material adverse effect on Compass' business, financial condition or
results of operations.
Compass may also incur liability under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 ("CERCLA"), the Resource
Conservation and Recovery Act and similar state and local laws. Some of these
laws impose strict, and in some cases, joint and several liability, for the
cleanup of contamination resulting from past disposal of waste, including
disposal at off-site locations. A pre-existing business acquired by Compass has
been named as a potentially responsible party under CERCLA at a site where it
disposed of waste in the past. Based on the information available to Compass,
including the apparent limited amount of waste sent to the site by that
business, as well as an existing indemnity from the seller of the business,
Compass believes that this matter will not have a material adverse effect on
Compass' business, financial condition or results of operation.
TRADEMARKS
Compass holds a trademark registered in the United States and nine other
countries through one of its subsidiaries. Compass believes that the
termination, expiration or infringement of its trademark would not have a
material adverse effect on its business, financial condition or results of
operation.
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EMPLOYEES
Compass had 829 employees at March 31, 1999 in three states and had no
collective bargaining agreements. Compass has not experienced any strikes or
general work stoppages and believes that its relations with its employees are
excellent.
LEGAL PROCEEDINGS
Compass is not party to litigation or other legal proceedings which Compass
believes could reasonably be expected to have a material adverse effect on
Compass' business, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to directors
and executive officers of Compass.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Douglas M. Hayes....................... 55 Chairman of the Board and Director
Alexander Hogg......................... 52 Chief Executive Officer, President and Director
Pasquale DiGirolamo.................... 59 Executive Vice President, Aircraft Structures North America
N. Paul Brost.......................... 45 Vice President, Chief Financial Officer and Treasurer
Douglas B. Solomon..................... 44 Secretary and Director
Harald H. Ludwig....................... 44 Director
James P. Angus......................... 52 Director
William R. Monkman..................... 55 Director
Michael Dritz.......................... 60 Director
Philip J. Olsson....................... 49 Director
</TABLE>
DOUGLAS M. HAYES has been a Director and Compass' Chairman of the Board
since November 1997. Mr. Hayes has been a Managing Director of Macluan Capital
Corporation, a private investment company ("Macluan") and President of Hayes
Capital Corporation, a private investment company ("Hayes Capital") since June
1997. From 1986 to June 1997, Mr. Hayes was a Managing Director of Donaldson,
Lufkin & Jenrette Securities Corporation. Mr. Hayes is a graduate of Dartmouth
College and holds an M.B.A. from the Harvard Business School. Mr. Hayes also
serves on the board of directors of GameTech International, Inc. and Reliance
Steel & Aluminum Co.
ALEXANDER HOGG has been a Director and Compass' President and Chief
Executive Officer since November 1997. Mr. Hogg has spent his entire career in
the aerospace industry and has more than 30 years of experience in manufacturing
aircraft and major systems such as landing gear, flight controls and complex
machine parts. From 1995 to 1997, Mr. Hogg was General Manager of Castle
Precision, Inc. and from 1992 to 1995, he held the position of Operating Officer
of Hydromil Co. Mr. Hogg's prior work experience includes, among other
positions, service as Vice President, General Manager of Menasco (Canada)
Aerospace, Director of Production Engineering for Boeing De Havilland and
Manager, Manufacturing Engineering, Canadair, Ltd. Mr. Hogg attended Boeing's
Senior Management Training Program and personally received Boeing's PRIDE IN
EXCELLENCE AWARD for his contributions to the 757 and 767 programs. Mr. Hogg is
a graduate of Heriot Watt University with a degree in Mechanical Engineering.
PASQUALE DIGIROLAMO has been Compass' Executive Vice President, Aircraft
Structures North America since December 1998. From 1994 to 1998, Mr. DiGirolamo
served as Operations Manager for B.F. Goodrich Aerospace, Landing Gear Division.
From 1993 to 1994, Mr. DiGirolamo served as plant manager for Kelsey-Hayes
Company, an automotive parts manufacturer. Prior to 1993, Mr. DiGirolamo's prior
work experience includes various positions with Delco Chassis and General
Motors. Mr. DiGirolamo is a graduate of the University of Dayton with a degree
in Mechanical Engineering.
N. PAUL BROST has been Compass' Vice President, Chief Financial Officer and
Treasurer since September 1998. From 1993 to 1998, Mr. Brost served as Segment
Financial Executive for Textron Inc. responsible for the Systems and Component
Segment, and as Vice President-Finance and Administration for HR Textron, a
division of Textron Inc. From 1976 to 1993, Mr. Brost was with Ernst & Young
LLP, most recently as a partner, with responsibility for numerous manufacturing,
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<PAGE>
aerospace and defense clients. Mr. Brost is a graduate of Southern Illinois
University and is a Certified Public Accountant.
DOUGLAS B. SOLOMON has been a Director and Compass' Secretary since November
1997. Mr. Solomon has been a Managing Director of Macluan since December 1998
and a Managing Director of Hayes Capital since August 1997. From August 1997 to
December 1998, Mr. Solomon served as a Senior Vice President of Macluan. Since
1992, Mr. Solomon has been President of The Woodland Company, which provides
financial advisory and consulting services. Mr. Solomon was a Managing Director
of The Chase Manhattan Investment Bank from 1989 to 1991. Mr. Solomon is a
graduate of the University of California-Davis and holds an M.B.A. from the
University of California-Los Angeles.
HARALD H. LUDWIG has been a Director of Compass since November 1997. Mr.
Ludwig co-founded and has been President of Macluan since 1985. He is a graduate
of Simon Fraser University and holds an L.L.B. from Osgoode Hall Law School. An
entity controlled by Mr. Ludwig controls Compass Holdings, LLC, which is the
majority stockholder of Compass. Mr. Ludwig also serves on the board of
directors for Lions Gate Entertainment Corp. and for West Fraser Timber Limited.
JAMES P. ANGUS has been a Director of Compass since March 1998. Mr. Angus is
a co-founder of Macluan and has been President of Angroup Holdings Limited, a
private investment company with interests in marine transportation, real estate
development and other industries, since 1986. Mr. Angus is a graduate of the
University of Victoria and holds an M.B.A. from the University of Western
Ontario.
WILLIAM R. MONKMAN has been a Director of Compass since March 1998. Mr.
Monkman is also the Chief Executive Officer and President of Precision Aerospace
Corporation, which manufactures fuel control systems and carburetors for
aerospace customers and fuel control systems for industrial engines at plants in
Washington, California and Virginia. Mr. Monkman has been affiliated with
Precision Aerospace Corporation since 1981. Between 1981 and 1997 Mr. Monkman
was also affiliated with Suntree Industries Limited, most recently as Chief
Executive Officer. Mr. Monkman is a graduate of the University of Alberta and
holds an M.B.A. from the University of Western Ontario.
MICHAEL DRITZ has been a Director of Compass since March 1998. Mr. Dritz is
also the Chairman of Dritz Enterprises LLC which provides consulting services
for the financial industry, serving in that capacity since 1997. From 1995 to
1996, Mr. Dritz was a Managing Director for Merrill Lynch and Chairman of the
Smith Brothers International Advisory Division. Mr. Dritz was the President and
Chief Executive Officer of Smith New Court, Inc. and an Executive Director of
Smith New Court PLC from 1985 to 1995. Mr. Dritz is a graduate of Syracuse
University.
PHILIP J. OLSSON has been a Director of Compass since March 1999. Mr. Olsson
is also a Managing Director of Royal Bank Equity Partners Limited, having served
in such a capacity since 1997. From 1986 to 1997, Mr. Olsson served in various
positions at RBC Dominion Securities, including as Vice Chairman. Mr. Olsson is
a graduate of and holds an M.B.A. from Vanderbilt University. Mr. Olsson also
serves on the board of directors of Anchor Lamina, Inc.
Compass' directors will serve until their respective successors are elected
or until death, resignation or removal. Executive Officers are appointed by, and
serve at the pleasure of, the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Compass' Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of Compass' books and
60
<PAGE>
records, reviewing the proposed scope of such audit and approving the audit fees
to be paid, reviewing Compass' accounting and financial controls with the
independent public accountants and Compass' financial and accounting staff and
reviewing and approving transactions between Compass and its directors, officers
and affiliates. Messrs. Angus, Monkman and Solomon are the members of the Audit
Committee.
The Compensation Committee provides a general review of Compass'
compensation plans and policies to ensure that they meet corporate objectives.
Compass' existing plans with respect to executive compensation are largely based
upon contractual commitments set forth in employment and consulting agreements.
You should read the discussion under the heading "--Employment Agreements" for
further information on the terms and conditions of existing employment contracts
with Compass' executive officers. The Compensation Committee's responsibilities
also include administering the 1998 Stock Incentive Plan, including selecting
the officers and salaried employees to whom awards will be granted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Hayes, Ludwig and Dritz served as the members of the Compensation
Committee in 1998. Mr. Hayes served as Chairman of the Board for Compass and for
each of its subsidiaries in 1998. Mr. Hayes did not receive any compensation for
such service.
Mr. Hayes and Mr. Ludwig are affiliates of Hayes Capital and Dunhill Bank
Caribbean Ltd. ("Dunhill"), respectively, which are parties to a management
consulting agreement with Compass. You should read the discussion under
"--Certain Relationships and Related Party Transactions" for further information
on the terms of the management consulting agreement.
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers,
employees or consultants of Compass are entitled to receive an annual retainer
fee of $12,000, plus reimbursement of expenses for each Board of Directors'
meeting and each committee meeting that they attend in person.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Compass to its Chief
Executive Officer and the two other most highly compensated executive officers
for the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS/SARS (#) COMPENSATION ($)
- ----------------------------------------- --------- ---------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Alexander Hogg........................... 1998 $ 250,000 $ 200,000(1) 346,291 $ --
Chief Executive Officer and President
Pasquale DiGirolamo...................... 1998 16,154(2) 50,000 40,000 16,817(4)
Executive Vice President, Aircraft
Structures North America
N. Paul Brost............................ 1998 35,577(3) 5,000 25,000 --
Vice President, Chief Financial Officer
and Treasurer
</TABLE>
- ------------------------
(1) Pursuant to the terms of his employment agreement, Mr. Hogg may be granted
certain stock options based on Compass' 1998 performance. You should read
the discussion under the heading "--Employment Agreement" for more
information on the terms of Mr. Hogg's employment.
(2) Represents Mr. DiGirolamo's salary for the partial year from December 1,
1998 when Mr. DiGirolamo began his employment with Compass. Mr. DiGirolamo's
annual salary is presently $200,000. You should read the discussion under
the heading "-Employment Agreements" for more information on the terms of
Mr. DiGirolamo's employment.
(3) Represents Mr. Brost's salary for the partial year from September 21, 1998
when Mr. Brost began his employment with Compass. Mr. Brost's annual salary
is presently $150,000. You should read the discussion under the heading
"-Employment Agreements" for more information on the terms of Mr. Brost's
employment.
(4) Represents relocation expenses incurred by Mr. DiGirolamo and paid by
Compass.
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ANNUAL
RATES OF
PERCENT OF STOCK
TOTAL PRICE
NUMBER OF OPTIONS/ APPRECIATION
SECURITIES SARS FOR OPTION
UNDERLYING GRANTED TO EXERCISE OF TERM
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION ----------
NAME GRANTED (#) IN 1998 ($/SH) DATE 5% ($)
- ----------------------------------------------- ------------- ------------- ------------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
Alexander Hogg................................. 346,291 42.1% $ 1.00 March 10, 2008 $ 564,000
Pasquale DiGirolamo............................ 40,000 4.9 $ 1.47 November 30, 2008 96,000
N. Paul Brost.................................. 25,000 3.0 $ 1.47 October 14, 2008 60,000
<CAPTION>
NAME 10%($)
- ----------------------------------------------- ----------
<S> <C>
Alexander Hogg................................. $ 898,000
Pasquale DiGirolamo............................ 153,000
N. Paul Brost.................................. 95,000
</TABLE>
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<PAGE>
1998 STOCK INCENTIVE PLAN
In March 1998 Compass' Board of Directors adopted, and the shareholders
approved, the Compass Aerospace Corporation 1998 Stock Incentive Plan. The 1998
Stock Incentive Plan will be administered by the Compensation Committee of the
Board of Directors. All officers, directors, employees and independent
contractors of Compass are eligible for discretionary awards under the 1998
Stock Incentive Plan. The 1998 Stock Incentive Plan provides for stock-based
incentive awards, including incentive stock options, non-qualified stock options
and restricted stock. The 1998 Stock Incentive Plan permits the Compensation
Committee to select eligible persons to receive awards and to determine certain
terms and conditions of such awards, including the vesting schedule and exercise
price of each award, PROVIDED, that the option exercise price may not be less
than 85% of the fair market value per share of Compass' common stock on the date
of the grant. Under the 1998 Stock Incentive Plan, no participant may be granted
incentive stock options that are first exercisable in any one calendar year with
fair market value in excess of $100,000. 2,000,000 shares of Compass' common
stock have been reserved for issuance under the 1998 Stock Incentive Plan.
The 1998 Stock Incentive Plan may be amended, suspended or terminated at any
time. However, neither the maximum number of shares that may be sold or issued
under the 1998 Stock Incentive Plan, nor the benefits accruing to participants
thereunder may be increased, nor may the class of persons eligible to
participate in the 1998 Stock Incentive Plan be altered, without the approval of
Compass' shareholders; PROVIDED, HOWEVER, that adjustments to the number of
shares subject to the 1998 Stock Incentive Plan and to individual awards
thereunder and/or to the exercise price of awards previously granted are
permitted without shareholder approval upon the occurrence of certain events
affecting the capital structure of Compass.
EMPLOYMENT AGREEMENTS
Effective November 26, 1997 Compass entered into an employment agreement
with Alexander Hogg, pursuant to which Compass agreed to employ Mr. Hogg as
President and Chief Executive Officer for a term of five years at an annual base
salary of $250,000, beginning January 2, 1998. Mr. Hogg also received $21,000 in
salary for the period from the agreement's effective date through January 1,
1998. In addition, the agreement provides that Mr. Hogg shall be granted an
option to purchase 346,291 shares of Compass' common stock at an exercise price
equal to $1.00 per share, which shall vest and become exercisable on November
26, 1999. Mr. Hogg's option will also fully vest and become immediately
exercisable if:
- any entity other than Compass Holdings, LLC or its successors acquires
51% or more of the common stock of Compass or if Compass sells all or
substantially all of its assets, or
- Mr. Hogg's employment is terminated without cause.
Mr. Hogg will also be granted stock options to purchase an additional 62,500
shares, on each of March 1, 1999, 2000, 2001 and 2002, respectively, if Compass
meets certain EBITDA targets. Mr. Hogg will also be entitled to receive his base
salary to the end of the term of the agreement if he is terminated without
cause.
Effective December 1, 1998 Compass entered into an employment agreement with
Pasquale DiGirolamo, pursuant to which Compass agreed to employ Mr. DiGirolamo
as Executive Vice President, Aircraft Structures North America for a term of
three years at an annual base salary of $200,000 and an annual bonus of $50,000
to be paid on each of December 15, 1998, 1999 and 2000. In addition, the
agreement provides that Mr. DiGirolamo will be granted stock options to purchase
40,000 shares of Compass' common stock at an exercise price equal to $1.47 per
share. Such options will vest
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<PAGE>
at the rate of 10,000 shares per year on December 1 of each year, beginning on
December 1, 1999. Mr. DiGirolamo's options will fully vest and become
immediately exercisable:
- in the event of a sale of 81% or more of Compass' voting common stock in
a single transaction or a related series of transactions within a six
month period, or
- Mr. DiGirolamo's employment is terminated due to death or permanent
disability.
Mr. DiGirolamo will also be granted stock options to purchase an additional
10,000 shares per annum, at an exercise price to be determined which shares
shall vest over a four-year period at 25% per year if Compass meets certain
EBITDA targets. Mr. DiGirolamo will also be entitled to receive up to six months
of his then current base salary if he is terminated without cause.
Effective September 21, 1998 Compass entered into an employment agreement
with N. Paul Brost, pursuant to which Compass agreed to employ Mr. Brost as Vice
President and Chief Financial Officer for a term of three years at an annual
base salary of $125,000, which has been adjusted to $150,000, and a minimum
$15,000 bonus payable in 1999. In addition, the agreement provides that Mr.
Brost will be granted stock options to purchase 25,000 shares of Compass' common
stock at an exercise price equal to $1.47 per share. Such options will vest at
the rate of 6,250 shares per year on September 21 of each year, beginning
September 21, 1999. Mr. Brost's options will fully vest and become immediately
exercisable:
- in the event of a sale of 81% or more of Compass' voting common stock in
a single transaction or a related series of transactions within a six
months period, or
- Mr. Brost's employment is terminated due to death or permanent
disability.
Mr. Brost will also be granted stock options to purchase an additional
10,000 shares per annum, at an exercise price to be determined which shall vest
over a four year period at 25% per year if Compass meets certain EBITDA targets.
Mr. Brost will also be entitled to receive up to six months of his then current
base salary if he is terminated without cause.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Compass is a party to a management consulting agreement with Dunhill and
Hayes Capital, which provides for the payment of management fees from Compass to
Dunhill and Hayes Capital in an annual aggregate amount equal to $200,000 plus
1.5% of Compass' EBITDA plus expenses, payable quarterly in arrears. 50% of this
management fee is payable to Dunhill and 50% is payable to Hayes Capital. Mr.
Ludwig is the beneficial owner of Dunhill. Mr. Hayes and Mr. Solomon are the
President and a Managing Director of Hayes Capital, respectively. Payment of the
management fee is subordinated to the notes and is subject to the limitation on
restricted payments set forth in the indenture governing the notes to the extent
that such fees exceed $500,000 in any fiscal year. You should read the
discussion under the heading "Description of Notes-Limitation on Restricted
Payments" for further information on the subordination of, and limitations on,
the management fee under the indenture. In addition to the management fee
described above, Compass typically also pays advisory fees to Dunhill and Hayes
Capital in an amount equal to an aggregate of 1% of the consideration paid for
each business acquired by Compass. Compass believes that the management fees and
the advisory fees are on terms no less favorable to it than those that could be
obtained from independent third-parties in arms-length negotiations.
BankBoston, a lender and the administrative agent under the credit
agreement, and BancBoston Robertson Stephens, the arranger under the credit
agreement, are affiliates of BancBoston Securities, an initial purchaser of the
outstanding notes, and are affiliates of BancBoston Ventures Inc. which holds
17.6% of Compass' voting common stock.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Compass' capital stock as of the date of this prospectus of:
- each person known to Compass to beneficially own more than 5% of Compass'
voting securities;
- each director and each of the executive officers of Compass; and
- the directors and executive officers of Compass as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
NUMBER OF OF CLASS A
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES COMMON STOCK (1)
- --------------------------------------------------------------------------------- ------------ ---------------------
<S> <C> <C>
Compass Holdings, L.L.C. (2)..................................................... 15,000,000 77.6%
RBC Equity Investments, Inc. (3)................................................. 5,447,853 22.0%
BancBoston Ventures, Inc. (5).................................................... 3,404,908 17.6%
Douglas M. Hayes (4)(7).......................................................... 256,000 1.3%
Alexander Hogg (4)............................................................... 70,376 *
Pasquale DiGirolamo (4).......................................................... -- *
N. Paul Brost (4)................................................................ -- *
Douglas B. Solomon (4)........................................................... 256,000 1.3%
Harald H. Ludwig (2)(6).......................................................... 15,000,000 77.6%
James P. Angus (2)............................................................... -- *
William R. Monkman............................................................... -- *
Michael Dritz.................................................................... -- *
Philip J. Olsson................................................................. -- *
All directors and officers as a group............................................ 15,582,376 80.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) Compass has outstanding certain shares of non-voting Series B common stock.
None of the directors or officers of Compass is the beneficial owner of any
Series B common stock.
(2) The stockholder's address is 940-1040 W. Georgia Street, Vancouver, British
Columbia, Canada V6E 4H1.
(3) The stockholder's address is 200 Bay Street, Royal Bank Plaza, 4th Floor,
North Tower, Toronto, Ontario M51 2W7. Represents 5,447,853 shares of
non-voting Class B common stock, convertible to Class A common stock. Mr.
Olsson is an officer of RBC Equity Investments, Inc.
(4) The stockholder's address is 1501 Hughes Way, Suite 400, Long Beach, CA
90815.
(5) The stockholder's address is 175 Federal Street, M/S75-10-01, Boston,
Massachusetts 02110.
(6) Represents shares owned by Compass Holdings, LLC. Under the terms of the
Operating Agreement of Compass Holdings, Mr. Ludwig has sole voting power
and investment power with respect to the shares held by Compass Holdings.
Messrs. Hayes, Dritz, Monkman and Angus hold membership interests in Compass
Holdings or its affiliates.
(7) Represents shares owned by the D&C Hayes Living Trust. Mr. Hayes is a
co-trustee of the trust and shares voting power and investment power with
respect to the Class A Common Stock held by the trust.
65
<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
Compass entered into the credit agreement consisting of a $140.0 million
senior revolving credit facility on November 20, 1998, as amended and restated
February 11, 1999, as amended further June 7, 1999. The proceeds of the credit
agreement will be used for working capital and general corporate purposes and to
finance permitted acquisitions. The credit agreement consists of a $25 million
revolving credit facility, a $35 million Acquisition Line, a $35 million "Term
Loan A" and a $45 million "Term Loan B". Availability under the revolving credit
facility is limited to 85.0% of eligible accounts receivable, plus 50.0% of the
net book value of eligible inventory, plus 25.0% of the orderly liquidation
value of machinery and equipment, subject to reserves that may be established by
BankBoston from time to time. Availability under the Acquisition Line is subject
to approval by a majority of the lenders.
On June 7, 1999 the credit agreement was amended, including amendments to
the covenants entitled "Minimum Consolidated EBITDA," "Minimum Interest Coverage
Ratio," "Maximum Leverage Ratio," "Minimum Debt Service Coverage" and "Maximum
Capital Expenditures." The amendment also set the Acquisition Line to $35
million, increased certain fees and increased interest rates under the credit
agreement.
Each of the facilities other than Term Loan B will mature five years
following its inception. Term Loan B will mature on February 1, 2005. Amounts
outstanding under Term Loan A will bear interest at the agent bank's base rate
plus a margin between 1.00% and 1.75%, or the Eurocurrency rate plus a margin
between 2.50% and 3.25% based on the leverage ratio. Amounts outstanding under
Term Loan B will bear interest at the agent bank's base rate plus a margin
between 2.00% and 2.25%, or the Eurocurrency rate plus a margin between 3.50%
and 3.75% based on the leverage ratio. For the period from March 31, 1999
through June 30, 1999, the interest rate for Term Loan A, Term Loan B and the
revolving credit facility is fixed at the March 31, 1999 Eurocurrency rate of
5.00% plus a margin of 3.25% for Term Loan A, the Acquisition Line and the
revolving Credit facility and a margin of 3.75% for Term Loan B. Compass is
permitted to prepay the indebtedness evidenced by the credit agreement in whole
or in part at any time without penalty (subject to reimbursement of the lenders'
breakage and redeployment costs actually incurred in the case of prepayment of
Eurodollar borrowings).
Repayment of the indebtedness evidenced by the credit agreement is secured
by a security interest in all accounts receivable, inventory, property,
machinery and equipment, intangibles, contract rights and other personal
property of Compass and its subsidiaries. In addition, repayment is guaranteed
by all of Compass' subsidiaries. The credit agreement allows Compass to incur up
to an additional $8.0 million of mortgage indebtedness and allows for capital
expenditures and purchase money indebtedness of up to $10.0 million in the
aggregate.
The loan documents also contain representations, indemnification and other
provisions that are usual and customary for credit facilities of this type. The
credit agreement requires Compass to meet customary financial maintenance and
other covenants.
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<PAGE>
DESCRIPTION OF THE SERIES B NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Compass"
refers only to Compass Aerospace Corporation and not to any of its subsidiaries.
The outstanding notes were issued under an indenture dated as of April 21,
1998 by and among Compass, Western Methods, Aeromil, Brittain Machine, Barnes
Machine and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"). Upon
the issuance of the Series B Notes the indenture will be subject to and governed
by the Trust Indenture Act of 1939. The following description is a summary of
the material provisions of the indenture. It does not restate that agreement in
its entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the notes. Any outstanding notes
that remain outstanding after the consummation of the exchange offer, together
with the Series B Notes, will be treated as a single class of securities under
the indenture. The outstanding notes and the Series B Notes are collectively
referred to herein as the "notes."
BRIEF DESCRIPTION OF THE SERIES B NOTES AND THE SUBSIDIARY GUARANTEES
THE SERIES B NOTES
The Series B Notes will be:
- senior subordinated, unsecured, general obligations of Compass ;
- limited in aggregate principal amount to $110.0 million;
- subordinated in right of payment to certain other debt obligations of
Compass;
- senior or PARI PASSU in right of payment to all existing and future
subordinated indebtedness of Compass; and
- jointly and severally, fully, irrevocably and unconditionally guaranteed
on a senior subordinated basis by each of Compass' present and future
Subsidiaries (the "Guarantors").
THE SUBSIDIARY GUARANTEES
The Subsidiary guarantees of these notes will be:
- unsecured, general obligations of each of the Guarantors;
- subordinated in right of payment to all Senior Debt of each of the
Guarantors; and
- senior or PARI PASSU in right of payment to all existing and future
subordinated indebtedness of each of the Guarantors.
The term "Subsidiaries" as used in this description of the Series B Notes
does not include Unrestricted Subsidiaries. Our Unrestricted Subsidiaries will
not guarantee the notes. You should read the discussion under the heading
"--Certain Bankruptcy Limitations" for further information regarding the
guarantees.
PRINCIPAL, MATURITY AND INTEREST
The Series B Notes will be issued solely in exchange for an equal principal
amount of outstanding notes pursuant to the exchange offer. The form and terms
of the Series B Notes will be identical in all material respects to the form and
terms of the outstanding notes except that:
- the Series B Notes will have been registered under the Securities Act, and
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<PAGE>
- the Registration Rights and Liquidated Damages applicable to the
outstanding notes will not be applicable to the Series B Notes.
The Series B Notes will be issued only in fully registered form without
coupons in denominations of $1,000 and integral multiples thereof. The notes
will mature on April 15, 2005. The notes will bear interest at 10 1/8% per annum
from the date of issuance or from the most recent Interest Payment Date to which
interest has been paid or provided for. Interest will be payable semi-annually
on April 15 and October 15 of each year, commencing October 15, 1998, to the
persons in whose names such notes are registered at the close of business on the
April 1 or October 1 immediately preceding such Interest Payment Date. Interest
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months.
METHODS OF RECEIVING PAYMENT ON THE NOTES
Principal of, premium, if any, and interest on the notes will be payable,
and the notes may be presented for registration of transfer or exchange, at the
office or agency maintained by Compass for such purpose in the Borough of
Manhattan, The City of New York. Except as set forth below, at the option of
Compass, payment of interest may be made by check mailed to the holders of the
notes at the addresses set forth upon the registry books of Compass. No service
charge will be made for any registration of transfer or exchange of notes, but
Compass may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with a transfer or exchange. Until
otherwise designated by Compass, Compass' office or agency will be the corporate
trust office of the Trustee presently located in the Borough of Manhattan, The
City of New York.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the notes will
be subordinated to the prior payment in full of all Senior Debt of Compass and
each of the Guarantors. At March 31, 1999 Compass and the Guarantors had
outstanding an aggregate of approximately $85.1 million of secured Senior Debt.
If any of the Senior Debt of Compass or the Guarantors has matured, the
holders of Senior Debt will be entitled to receive payment in full in cash or
cash equivalents of all obligations due in respect of Senior Debt before the
holders of the notes will be entitled to receive any payment, other than with
Junior Securities, with respect to the notes, including:
- the principal of, premium if any, or interest accrued on the notes;
- payments to repurchase any of the notes; or
- payments to redeem any of the notes.
Compass or a Guarantor, as applicable, may also not make any payment with
respect to the notes, other than with Junior Securities, if:
- a payment default on Senior Debt of Compass or such Guarantor occurs and
is continuing beyond any applicable grace period; or
- any other default occurs and is continuing on Senior Debt that permits the
holders of that Senior Debt to accelerate its maturity and Compass and the
Trustee receive written notice of such default (a "Payment Notice") from
the holders of the Senior Debt.
Payments on the notes may and shall be resumed:
- in the case of a payment default, upon the date on which such default is
cured or waived; and
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- in the case of a default other than a payment default, the earlier of the
date on which such default is cured or waived or 179 days after the date
on which the applicable Payment Notice is received (the "Payment Blockage
Period"), unless the maturity of the Senior Debt has been accelerated.
Any number of Payment Notices may be given, provided that :
- no more than one Payment Notice may be given within a period of any 360
consecutive days; and
- no default that existed upon the date of a Payment Notice or the
commencement of a Payment Blockage Period shall be made the basis for the
commencement of any other Payment Blockage Period.
Any subsequent action, or any subsequent breach of any financial covenant
for a period commencing after the expiration of a Payment Blockage Period that
would give rise to a new event of default, even though it is an event that would
also have been a separate breach pursuant to any provision under which a prior
event of default previously existed, shall constitute a new event of default.
In the event of any distribution of assets of Compass or the Guarantors in:
- a total or partial liquidation, dissolution, winding up or reorganization
of Compass or a Guarantor, whether voluntary or involuntary;
- a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Compass or its property;
- an assignment for the benefit or creditors; or
- any marshalling of Compass' assets or liabilities ;
the holders of all Senior Debts of Compass or the Guarantors will be entitled to
receive payment in full in cash or Cash Equivalents of all amounts due in
respect of Senior Debt before the holders of notes will be entitled to receive
any payment, other than with Junior Securities, with respect to the notes.
Any payment or distribution of assets of Compass or any Guarantor whether in
cash, property or securities (other than Junior Securities) to which the holders
or the Trustee on behalf of the holders would be entitled except for the
subordination provisions in the indenture, will be paid by the liquidating
trustee or agent or other person making such a payment or distribution directly
to the holders of the Senior Debt or their representative to the extent
necessary to make payment in full on all the Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of the
Senior Debt.
In the event that any payment or distribution of assets of Compass or any
Guarantor (other than Junior Securities) shall be received by the Trustee or the
holders of the notes at a time when that payment or distribution is prohibited
by the foregoing provisions, such payment or distribution shall be held in trust
for the benefit of the holders of the Senior Debt, and shall be paid or
delivered by the Trustee or the holders of the notes, as the case may be to the
holders of the Senior Debt remaining unpaid or to their representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any of unpaid Senior Debt may have been issued. The payment or
distribution shall be paid to the holders of Senior Debt ratably according to
the aggregate principal amounts remaining unpaid on account of such Senior Debt
and shall be applied to the payment of all unpaid Senior Debt to the extent
necessary to pay or to provide for the payment of all such Senior Debt in full
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
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No provision contained in the indenture or the notes will affect the
obligation of Compass and the Guarantors, which is absolute and unconditional,
to pay, when due, principal of, premium, if any, and interest on the notes. The
subordination provisions of the indenture and the notes will not prevent the
occurrence of any Default or Event of Default under the indenture or limit the
rights of the Trustee or any holder to pursue any other rights or remedies with
respect to the notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors or Compass or a
marshalling of assets or liabilities of Compass, holders of the notes may
receive ratably less than other creditors. You should read the discussion under
the heading "Risk Factors-Subordination" for further information on the risk
that you may receive ratably less than other creditors under certain
circumstances.
CERTAIN BANKRUPTCY LIMITATIONS
Compass is a holding company which conducts its business through its
Subsidiaries. The Subsidiaries have guaranteed or will guarantee Compass'
Obligations with respect to the notes. Compass' Unrestricted Subsidiaries will
not guarantee the notes. Holders of the notes will be direct creditors of each
Guarantor by virtue of its guarantee. Nonetheless, in the event of the
bankruptcy or financial difficulty of a Guarantor, such Guarantor's obligations
under its guarantee may be subject to review and avoidance under state and
federal fraudulent transfer laws. Among other things, a Guarantor may avoid
itsobligations if a court concludes that the obligations were incurred for less
than reasonably equivalent value or fair consideration at a time when the
Guarantor was insolvent, was rendered insolvent, or was left with inadequate
capital to conduct its business. A court would likely conclude that a Guarantor
did not receive reasonably equivalent value or fair consideration to the extent
that the aggregate amount of its liability on its guarantee exceeds the economic
benefits it receives in the Offering. The obligations of each Guarantor under
its guarantee are limited in a manner intended to cause it not to be a
fraudulent conveyance under applicable law, although we cannot assure you that a
court would give the holder the benefit of such a provision. You should read the
discussion under the heading "Risk Factors-Fraudulent Transfer Considerations"
for further discussion of the risk that the Guarantors may avoid their
obligations under their guarantees.
If the obligations of a Guarantor under its guarantee were avoided, holders
of notes would have to look to the assets of any remaining Guarantors for
payment. We cannot assure you that the assets of the remaining Guarantors would
suffice to pay the outstanding principal and interest on the notes.
OPTIONAL REDEMPTION
At any time prior to April 15, 2001, upon an Initial Public Equity Offering
of common stock for cash, up to 35% of the aggregate principal amount of the
notes originally issued under the indenture may be redeemed at the option of
Compass with cash from the Net Cash Proceeds of the Initial Public Equity
Offering at a redemption price equal to 110.125% of principal; PROVIDED HOWEVER
that:
- immediately following such redemption not less than 65% of the original
aggregate principal amount of the notes remain outstanding;
- Compass must give at least 30 days, but no more than 60 days, notice to
each holder of notes to be redeemed; and
- the redemption must occur within 90 days of the Initial Public Equity
Offering.
Except pursuant to the preceding paragraphs, Compass may not redeem the
notes prior to April 15, 2002.
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At any time on or after April 15, 2002, Compass may redeem all or a part of
the notes for cash upon not less than 30 days nor more than 60 days notice to
each holder of notes, at the following redemption prices (expressed as
percentages of the principal amount) if redeemed during the 12-month period
commencing April 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2002.................................................................................. 105.063%
2003.................................................................................. 102.531%
2004.................................................................................. 100.000%
</TABLE>
Any optional redemption of the notes will in each case be subject to the
rights of holders of record on a Record Date to receive the interest due on an
Interest Payment Date corresponding to that Record Date that occurs prior to the
Redemption Date, together with accrued and unpaid interest on the notes prior to
the Redemption Date.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
shall select the notes for redemption on a PRO RATA basis, by lot or in such
other manner it deems appropriate and fair. The notes may be redeemed in part in
multiples of $1,000 only.
The notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days before the Redemption Date to each holder of notes to
be redeemed at the holder's registered address. If any note is to be redeemed in
part only, the notice of redemption that relates to that note must state the
portion of the principal amount that will not be redeemed and must state that on
and after the date of redemption, upon surrender of the note, a new note or
notes, in a principal amount equal to the unredeemed portion of the note will be
issued. On and after the date of redemption, interest will cease to accrue on
the notes or portions of them called for redemption, unless Compass defaults in
the payment thereof.
CERTAIN COVENANTS
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes has the right to require
Compass to repurchase all or any part of such holder's notes (equal to $1,000 or
an aggregate amount thereof) pursuant to a Change of Control Offer. In the
Change of Control Offer, Compass will offer a Change of Control Payment in cash
equal to 101% of the aggregate principal amount of notes repurchased plus
accrued and unpaid interest thereon, if any, to the date of purchase. Within 10
days following any Change of Control, Compass will mail a notice to each holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase notes on the Change of Control Purchase Date which
must occur no later than 35 days after the occurrence of the Change of Control.
The Change of Control Offer must remain open for 20 business days after Compass
mails a Change in Control Offer to the holders of the notes (the "Change in
Control Offer Period").
Upon expiration of the Change of Control Offer Period, Compass promptly
shall purchase all notes properly tendered in response to the Change of Control
Offer.
On or before the Change of Control Purchase Date, Compass will:
- accept for payment notes or portions thereof properly tendered pursuant to
the Change of Control Offer;
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- deposit with the Paying Agent cash sufficient to pay the Change of Control
Purchase Price (together with accrued and unpaid interest and Liquidated
Damages, if any), of all notes so tendered; and
- deliver to the Trustee notes so accepted together with an Officers'
Certificate listing the notes or portions thereof being purchased by
Compass.
The Paying Agent will promptly pay the holders of notes so accepted an
amount equal to the Change of Control Purchase Price (together with accrued and
unpaid interest and Liquidated Damages, if any), and the Trustee will promptly
authenticate and deliver to such holders a new note equal in principal amount to
any unpurchased portion of the note surrendered. Any notes not so accepted will
be delivered promptly by Compass to the holder thereof. Compass will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
The Change of Control purchase feature of the notes may make more difficult
or discourage a takeover of Compass, and, thus, the removal of incumbent
management.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale or transfer of "all or substantially all" of the assets of
Compass on a consolidated basis. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. The interpretation of the phrase
"substantially all" will be dependent upon particular facts and circumstances.
As a result, the ability of a holder of notes to require Compass to repurchase
such notes as a result of a sale or transfer of less than all of the assets of
Compass and the Guarantors to another person or group may be uncertain. In
addition, we cannot assure you that Compass will be able to acquire notes
tendered upon the occurrence of a Change of Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this paragraph, compliance by
Compass or any of the Guarantors with such laws and regulations shall not in and
of itself cause a breach of its obligations under the indenture.
If the Change of Control Purchase Date is on or after an interest payment
Record Date and on or before the associated Interest Payment Date, any accrued
and unpaid interest, due on such Interest Payment Date will be paid to the
person in whose name a note is registered at the close of business on such
Record Date. Such interest will not be payable to holders who tender the notes
pursuant to the Change of Control Offer.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND DISQUALIFIED CAPITAL
STOCK
Compass and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(collectively, "incur") any Indebtedness or any Disqualified Capital Stock
(including Acquired Indebtedness), other than Permitted Indebtedness.
Notwithstanding the foregoing, Compass may incur such Indebtedness or
Disqualified Capital Stock and the Guarantors may incur such Indebtedness (other
than Disqualified Capital Stock) if:
- no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to,
such incurrence of Indebtedness or Disqualified Capital Stock; and
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- on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of Compass for the Reference Period immediately preceding
the Incurrence Date, after giving effect on a pro forma basis to such
incurrence of such Indebtedness or Disqualified Capital Stock and, as
defined in the Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to 1 (as applicable, each the "Debt Incurrence
Ratio").
In addition, the foregoing limitations will not apply:
(1) to the incurrence by Compass or any Guarantor of Purchase Money
Indebtedness, PROVIDED, that:
(a) the aggregate principal amount of such Indebtedness incurred on or after
the Issue Date and outstanding at any time pursuant to this paragraph
(including any Refinancing Indebtedness and other Indebtedness issued to
refinance, replace, defease or refund such Indebtedness) shall not exceed
$2.0 million; and
(b) in each case, such Indebtedness shall not constitute more than 100% of
the cost (determined in accordance with GAAP) to Compass or such
Guarantor, as applicable, of the property so purchased or leased;
(2) if no Event of Default shall have occurred and be continuing, the incurrence
by Compass or any Guarantor of Indebtedness in an aggregate principal amount
outstanding at any time (including Refinancing Indebtedness and other
Indebtedness incurred to refinance, replace, defease or refund such
Indebtedness) of up to $5.0 million;
(3) to the incurrence by Compass or any Guarantor of Mortgage Indebtedness or
Indebtedness pursuant to the credit agreement up to an aggregate principal
amount outstanding under the credit agreement or of Mortgage Indebtedness
collectively (in each case including any Refinancing Indebtedness and other
Indebtedness incurred to refinance, replace, defease or refund such
Indebtedness) not to exceed in the aggregate $12.0 million; PROVIDED, THAT:
(a) in the case of Indebtedness pursuant to the credit agreement minus the
amount of any such Indebtedness retired with the Net Cash Proceeds from
any Asset Sale applied to permanently reduce the outstanding amounts or
the commitments with respect to such Indebtedness pursuant the covenant
"Limitation on Sale of Assets and Subsidiary Stock," or
(b) assumed by a transferee in an Asset Sale, and
(c) in the case of Mortgage Indebtedness such Indebtedness shall not
constitute more than 100% of the cost (determined in accordance with
GAAP) to Compass or such Guarantor, as applicable, of such mortgaged real
estate asset.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of Compass or is merged
with or into or consolidated with Compass or a Subsidiary of Compass shall be
deemed to have been incurred at the time such Person becomes such a Subsidiary
of Compass or is merged with or into or consolidated with Compass or a
Subsidiary of Compass.
Upon each incurrence of Indebtedness, Compass may designate under which
provision of this covenant such Indebtedness is being incurred and such
Indebtedness will be deemed to have been incurred under that provision and no
other provision of this covenant, except as specifically provided otherwise.
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LIMITATION ON RESTRICTED PAYMENTS
Compass and the Guarantors will not, and will not permit any of their
Subsidiaries directly or indirectly to make any Restricted Payment if, after
giving effect to such Restricted Payment on a pro forma basis:
(1) a Default or an Event of Default shall have occurred and be continuing;
(2) Compass is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock ;" or
(3) the aggregate amount of all Restricted Payments made by Compass and its
Subsidiaries, including after giving effect to such proposed Restricted
Payment, from and after the Issue Date, would exceed, without duplication,
the sum of:
(a) 50% of the aggregate Consolidated Net Income of Compass for the period
(taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and
including the last day of the fiscal quarter ended immediately prior to
the date of each such calculation (or, in the event Consolidated Net
Income for such period is a deficit, then minus 100% of such deficit);
plus
(b) the aggregate Net Cash Proceeds received by Compass from a Capital
Contribution or the sale of its Qualified Capital Stock (other than to a
Subsidiary of Compass, to the extent applied in connection with a
Qualified Exchange and to the extent credited in accordance with the
following paragraph), after the Issue Date, plus
(c) other than amounts credited pursuant to clauses 1 and 2 of the next
following paragraph, the net amount of any Restricted Investments (not to
exceed the original amount of such Investment) made after the Issue Date
that are returned to Compass or the Guarantor that made such prior
Investment, without restriction in cash on or prior to the date of any
such calculation.
So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, the preceding provisions will not prohibit:
(1) Restricted Investments in a Related Business, PROVIDED, that, after giving
pro forma effect to such Investment, the aggregate amount of all such
Investments made on or after the Issue Date that are outstanding (after
giving effect to any such Investments that are returned to Compass or the
Subsidiary Guarantor that made such prior Investment, without restriction,
in cash on or prior to the date of any such calculation) at any time does
not exceed $4.0 million, or
(2) repurchases of Capital Stock from employees of Compass or its Subsidiaries
upon the death, disability or termination of employment in an aggregate
amount to all employees not to exceed $300,000 in any fiscal year or $1.5
million in the aggregate on and after the Issue Date, net of the Net Cash
Proceeds received by Compass from subsequent reissuances of such Qualified
Capital Stock to new employees that are not Excluded Persons.
Even if a Default or Event of Default shall have occurred and is continuing
or would be caused thereby, the preceding provisions against making Restricted
Payments will not apply to:
(3) a Qualified Exchange,
(4) the payment of any dividend on Qualified Capital Stock within 60 days after
the date of its declaration if such dividend could have been made on the
date of such declaration in compliance with the foregoing provisions, or
(5) Permitted Payments to Parent.
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The full amount of any Restricted Payment made pursuant to the foregoing
clauses (1), (2), (4) and (5) of the immediately preceding sentences, however,
will be deducted in the calculation of the aggregate amount of Restricted
Payments available to be made.
In addition, Compass and the Guarantors will not, and will not permit any of
their Subsidiaries to, directly or indirectly, make any Management Fee Payment
or similar payment to Affiliates (other than Subsidiaries) other than Permitted
Payments to Parent if, on a pro forma basis after giving effect to such
Management Fee Payments or similar payments, a Default or an Event of Default
shall have occurred and be continuing.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of the Board of Directors of Compass.
Additionally, on the date of each Restricted Payment, Compass shall deliver an
Officers' Certificate to the Trustee:
- describing in reasonable detail the nature of such Restricted Payment,
- stating the amount of such Restricted Payment,
- stating in reasonable detail the provisions of the indenture pursuant to
which such Restricted Payment was made, and
- certifying that such Restricted Payment was made in compliance with the
terms of the indenture.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES
Compass and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, create, assume or suffer to exist any
consensual restriction on the ability of any Subsidiary of Compass to:
(1) pay dividends or make other distributions to or on behalf of, or
(2) pay any obligation to or on behalf of, or
(3) otherwise to transfer assets or property to or on behalf of, or
(4) make or pay loans or advances to or on behalf of, Compass or any Subsidiary
of Compass.
However, the preceding restrictions will not apply to:
(1) restrictions imposed by the notes or the indenture or by other indebtedness
of Compass (which may also be guaranteed by the Guarantors) ranking senior
or PARI PASSU with the notes or the guarantees, provided such restrictions
are no more restrictive than those imposed by the indenture and the notes;
(2) restrictions imposed by applicable law;
(3) existing restrictions under Indebtedness outstanding on the Issue Date,
including pursuant to the credit agreement;
(4) restrictions under any Acquired Indebtedness not incurred in violation of
the indenture or any agreement relating to any property, asset, or business
acquired by Compass or any of its Subsidiaries, which restrictions in each
case existed at the time of acquisition, were not put in place in connection
with or in anticipation of such acquisition and are not applicable to any
person, other than the person acquired, or to any property, asset or
business, other than the property, assets and business so acquired;
(5) any such restriction or requirement imposed by Indebtedness incurred under
the credit agreement pursuant to the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified
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Capital Stock," provided such restriction or requirement is no more
restrictive than that imposed by the credit agreement as of the Issue Date;
(6) restrictions with respect solely to a Subsidiary of Compass imposed pursuant
to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Subsidiary, provided such restrictions apply solely to the Equity
Interests or assets of such Subsidiary which are being sold;
(7) restrictions on transfer contained in Purchase Money Indebtedness or
Mortgage Indebtedness incurred pursuant to the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
provided such restrictions relate only to the transfer of the property
acquired with the proceeds of such Purchase Money Indebtedness or Mortgage
Indebtedness, as applicable; and
(8) in connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clauses (1), (3) or (4) of this paragraph
that are not more restrictive than those being replaced and do not apply to
any other person or assets than those that would have been covered by the
restrictions in the Indebtedness so refinanced.
Notwithstanding the foregoing, neither:
- customary provisions restricting subletting or assignment of any lease
entered into in the ordinary course of business, consistent with industry
practice, nor
- Liens permitted under the terms of the indenture on assets securing Senior
Debt, Purchase Money Indebtedness, or Mortgage Indebtedness incurred in
accordance with the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock,"
shall in and of themselves be considered a restriction on the ability of the
applicable Subsidiary to transfer such agreement or assets.
LIMITATIONS ON LAYERING INDEBTEDNESS
Compass and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, incur, or suffer to exist any
Indebtedness that is subordinate in right of payment to any other Indebtedness
of Compass or a Guarantor unless, by its terms, such Indebtedness is subordinate
in right of payment to, or ranks PARI PASSU with, the notes or the guarantees,
as applicable.
LIMITATION ON LIENS SECURING INDEBTEDNESS
Unless Compass provides, and causes its Subsidiaries to provide that the
notes are equally and ratably secured, Compass and the Guarantors will not, and
will not permit any of their Subsidiaries to, create, incur, assume or suffer to
exist any Lien of any kind, other than Permitted Liens, upon any of their
respective assets now owned or acquired on or after the date of the indenture or
upon any income or profits therefrom securing any Indebtedness of Compass or any
Guarantor other than Senior Indebtedness, PROVIDED that:
- if such Indebtedness is Subordinated Indebtedness, the Lien securing such
Subordinated Indebtedness shall be subordinate and junior to the Lien
securing the notes with the same relative priority as such Subordinated
Indebtedness shall have with respect to the notes, and
- that this clause shall not be applicable to any Liens securing any such
Indebtedness which became Indebtedness of Compass pursuant to a
transaction subject to the provisions of the indenture described below
under "Limitation on Merger, Sale or Consolidation" or which constitutes
Acquired Indebtedness and which in either case were in existence at the
time of such transaction (unless such Indebtedness was incurred or such
Lien created in connection with or in contemplation of, such transaction),
so long as such Liens do not extend to or cover any property or assets of
Compass or any Subsidiary of Compass other than property or assets
acquired in such transaction.
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LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
Compass and the Guarantors will not, and will not permit any of their
Subsidiaries to convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger, or
consolidation of a Subsidiary of Compass and including any sale or other
transfer or issuance of any Equity Interests of any Subsidiary, whether by
Compass or a Subsidiary and including any sale and leaseback transaction (any of
the foregoing, an "Asset Sale"), unless:
(1) (a) the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are
applied:
- within 270 days after the date of such Asset Sale to the optional
redemption of the notes in accordance with the terms of the
indenture and other Indebtedness of Compass ranking on a parity
with the notes and with similar provisions requiring Compass to
redeem such Indebtedness with the proceeds for asset sales, pro
rata in proportion to the respective principal amounts of the notes
and such other Indebtedness then outstanding, or
- within 300 days after the date of such Asset Sale to the repurchase
of the notes and such other Indebtedness on a parity with the notes
and with similar provisions requiring Compass to make an offer to
purchase such Indebtedness with the proceeds for asset sales
pursuant to a cash offer (pro rata in proportion to the respective
principal amounts of the notes and such other Indebtedness then
outstanding) (the "Asset Sale Offer") at a purchase price of 100%
of principal amount (the "Asset Sale Offer Price") together with
accrued and unpaid interest and Liquidated Damages, if any, to the
date of payment, made within 270 days of such Asset Sale, or
(b) within 270 days following such Asset Sale, the Asset Sale Offer
Amount is:
- invested, or committed to be invested, and is invested, within an
additional 90 days in tangible assets and property other than
notes, bonds, obligations and securities which in the good faith
reasonable judgment of the Board will immediately constitute or be
a part of a Related Business of Compass or such Subsidiary
immediately following such transaction, or
- used to retire Purchase Money Indebtedness, Mortgage Indebtedness
or Senior Debt and, to permanently reduce the amount of such
Indebtedness, incurred under the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock,"
(c) at least 90% of the consideration for such Asset Sale or series of
related Asset Sales consists of cash or Cash Equivalents,
(d) no Default or Event of Default shall have occurred and be continuing
at the time of, or would occur after giving effect, on a pro forma basis,
to, such Asset Sale, and
(e) the Board of Directors of Compass determines in good faith that
Compass or such Subsidiary, as applicable, receives fair market value for
such Asset Sale.
An acquisition of notes pursuant to an Asset Sale Offer may be deferred
until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses
set forth in (1)(a) or (b) above (the "Excess Proceeds") exceeds $5.0 million.
Each Asset Sale Offer shall remain open for 20 Business Days following its
commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset Sale
Offer Period, Compass shall apply the Asset Sale Offer Amount plus an amount
equal to accrued and unpaid interest and Liquidated Damages, if any, to the
purchase of all Indebtedness properly tendered at the Asset Sale Offer Price
(together with accrued interest and Liquidated Damages, if any. The Asset Sale
Offer Amount shall be applied on a PRO RATA basis if the Asset Sale Offer Amount
is insufficient to
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purchase all Indebtedness so tendered. To the extent that the aggregate amount
of notes and such other PARI PASSU Indebtedness tendered pursuant to an Asset
Sale Offer is less than the Asset Sale Offer Amount, Compass may use any
remaining Net Cash Proceeds for general corporate purposes as otherwise
permitted by the indenture. Following each Asset Sale Offer the Excess Proceeds
amount shall be reset to zero.
For purposes of determining the percentage of the consideration for the
Asset Sale received in cash or Cash Equivalents, total consideration received
means the total consideration received for such Asset Sales minus the amount of:
- Purchase Money Indebtedness or Mortgage Indebtedness secured solely by the
assets sold and assumed by a transferee, and
- property that within 30 days of such Asset Sale is converted into cash or
Cash Equivalents, PROVIDED that such cash and Cash Equivalents shall be
treated as Net Cash Proceeds attributable to the original Asset Sale for
which such property was received.
Notwithstanding, and without complying with, the provisions of this
covenant, Compass and its Subsidiaries may:
(1) in the ordinary course of business:
(a) convey, sell, transfer, assign or otherwise dispose of inventory and
other assets acquired and held for resale in the ordinary course of
business, and
(b) liquidate Cash Equivalents;
(2) convey, sell, transfer, assign or otherwise dispose of assets pursuant
to and in accordance with the covenant "Limitation on Merger, Sale or
Consolidation;"
(3) sell or dispose of damaged, worn out, scrap or other obsolete property
in the ordinary course of business so long as such property is no longer
necessary for the proper conduct of the business of Compass or such
Subsidiary, as applicable; and
(4) convey, sell, transfer, assign or otherwise dispose of assets to Compass
or any of its wholly owned Guarantors;
(5) in the ordinary course of business, convey, sell, transfer, assign, or
otherwise dispose of assets (or related assets in related transactions)
with a fair market value of less than $250,000; and
(6) surrender or waive contract rights or settle, release or surrender of
contract, tort or other claims of any kind or grant Liens not prohibited
by the indenture.
All Net Cash Proceeds from an Event of Loss relating to a Material Facility
shall be invested, used for prepayment of Senior Indebtedness or used to
repurchase notes, all within the period and as otherwise provided above in
clauses (1)(a) or (b) of the first paragraph of this covenant plus 90 days.
In addition to the foregoing and notwithstanding anything herein to the
contrary, Compass will not, and will not permit any of its Subsidiaries to,
directly or indirectly make any Asset Sale of any of the Equity Interests of any
Subsidiary of Compass (other than Compass or a Wholly Owned Subsidiary
Guarantor) except pursuant to an Asset Sale of all the Equity Interests of such
Subsidiary.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this paragraph, compliance
by Compass or any of its subsidiaries with such laws and regulations shall not
in and of itself cause a breach of its obligations under such covenant.
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If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest will be paid to the
person in whose name a note is registered at the close of business on such
Record Date, and such interest will not be payable to holders who tender notes
pursuant to such Asset Sale Offer.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
Neither Compass nor any of its Subsidiaries will be permitted to enter into
or suffer to exist any contract, agreement, arrangement or transaction with any
Affiliate (an "Affiliate Transaction"), or any series of related Affiliate
Transactions, (other than Exempted Affiliate Transactions), unless:
- it is determined that the terms of such Affiliate Transaction are fair and
reasonable to Compass, and no less favorable to Compass than could have
been obtained in an arm's length transaction with a non-Affiliate,
- if involving consideration to either party in excess of $1.0 million, the
Affiliate Transaction(s) is evidenced by an Officers' Certificate
addressed and delivered to the Trustee certifying that such Affiliate
Transaction (or Transactions) has been approved by a majority of the
members of the Board of Directors that are disinterested in such
transaction, and
- if involving consideration to either party in excess of $5.0 million,
Compass, prior to the consummation of an Affiliate Transaction, obtains a
written favorable opinion as to the fairness of the transaction to Compass
from a financial point of view from an independent investment banking firm
of national reputation or, if pertaining to a matter for which such
investment banking firms do not customarily render such opinions, an
appraisal or valuation firm of national reputation.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
Compass will not consolidate with or merge with or into another person or,
directly or indirectly, sell, lease, convey or transfer all or substantially all
of its assets (computed on a consolidated basis), whether in a single
transaction or a series of related transactions, to another Person or group of
affiliated Persons unless:
(1) Compass is the continuing entity;
(2) the resulting, surviving or transferee entity is a corporation organized
under the laws of the United States, any state thereof or the District of
Columbia and expressly assumes by supplemental indenture all of the
obligations of Compass in connection with the notes and the indenture;
(3) no Default or Event of Default shall exist or shall occur immediately
after giving effect on a pro forma basis to such transaction; and
(4) unless such transaction is solely the merger of Compass and one of its
previously existing Wholly-owned Subsidiaries which is also a Guarantor
and which transaction is not in connection with any other transaction,
immediately after giving effect to such transaction on a pro forma basis,
the consolidated resulting, surviving or transferee entity would
immediately thereafter be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio set forth in the
covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of Compass in accordance with the foregoing, the successor
corporation formed by such consolidation or into which Compass is merged or to
which such transfer is made shall succeed to and be substituted
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for, and may exercise every right and power of, Compass under the indenture with
the same effect as if such successor corporation had been named therein as
Compass, and Compass shall be released from the obligations under the notes and
the indenture except with respect to any obligations that arise from, or are
related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, Compass' interest in which constitutes all or substantially
all of the properties and assets of Compass shall be deemed to be the transfer
of all or substantially all of the properties and assets of Compass.
LIMITATION ON LINES OF BUSINESS
Neither Compass nor any of its Subsidiaries shall directly or indirectly
engage to any substantial extent in any line or lines of business activity other
than that which, in the reasonable good faith judgment of the Board of Directors
of Compass, is a Related Business.
FUTURE SUBSIDIARY GUARANTORS
All present and future Subsidiaries of Compass will jointly and severally,
fully, irrevocably and unconditionally guarantee all principal, premium, if any,
and interest on the notes on a senior subordinated basis. The term Subsidiary
does not include Unrestricted Subsidiaries.
RELEASE OF GUARANTORS
The indenture provides that no Guarantor shall consolidate or merge with or
into (whether or not such Guarantor is the surviving person) another person
unless:
- subject to the provisions of the following paragraph and certain other
provisions of the indenture, the person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such person
shall unconditionally guarantee, on a senior subordinated basis, all of
such Guarantor's obligations under such Guarantor's guarantee, on the
terms set forth in the indenture; and
- immediately before and immediately after giving effect to such transaction
on a pro forma basis, no Default or Event of Default shall have occurred
or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Guarantor or all of its assets to an entity which is not a
Guarantor or the designation of a Subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with the indenture,
that Guarantor will be deemed released from its obligations under its guarantee
of the notes; PROVIDED, HOWEVER, that any such termination shall occur only in
the event that all obligations of that Guarantor under all of its guarantees of,
and under all of its pledges of assets or other security interests which secure
any Indebtedness of Compass or any other Subsidiary of Compass shall also
terminate upon such release, sale or transfer.
LIMITATION ON STATUS AS INVESTMENT COMPANY
Compass and its Subsidiaries may not be required to register as an
"investment company" (as that term is defined in the Investment Company Act of
1940), or may not otherwise become subject to regulation under the Investment
Company Act.
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REPORTS
Whether or not Compass is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, Compass shall deliver to the Trustee and to
each holder within 15 days after the time period specified in the Securities and
Exchange Commission's rules and regulations:
- all annual and quarterly financial statements substantially equivalent to
financial statements that would have been included in reports filed with
the Commission on Forms 10-K and 10-Q, including, with respect to annual
information only, a report thereon by Compass' certified independent
public accountants as such would be required in such reports to the
Commission; and
- all current reports that would be required to be filed with the Commission
on Form 8-K if Compass were required to file such reports.
In each case, Compass shall include a management's discussion and analysis
of financial condition and results of operations which would be so required.
Unless the Commission will not accept such reports, Compass will file with the
Commission the annual, quarterly and other reports which it is or would have
been required to file with the Commission.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
- the failure by Compass to pay any installment of interest (or Liquidated
Damages, if any) on the notes as and when the same becomes due and payable
and the continuance of any such failure for 30 days;
- the failure by Compass to pay all or any part of the principal, or
premium, if any, on the notes when and as the same becomes due and payable
at maturity, redemption, by acceleration or otherwise, including, without
limitation, payment of the Change of Control Purchase Price or the Asset
Sale Offer Price;
- the failure by Compass or any Subsidiary of Compass to observe or perform
any other covenant or agreement contained in the notes or the indenture
and, subject to certain exceptions, the continuance of such failure for a
period of 30 days after written notice is given to Compass by the Trustee
or to Compass and the Trustee by the holders of at least 25% in aggregate
principal amount of the notes outstanding;
- certain events of bankruptcy, insolvency or reorganization in respect of
Compass or any of its Significant Subsidiaries;
- a default in any issue of Indebtedness of Compass or any of its
Subsidiaries with an aggregate principal amount in excess of $5.0 million
(a) resulting from the failure to pay principal at maturity or (b) as a
result of which the maturity of such Indebtedness has been accelerated
prior to its stated maturity; and
- final unsatisfied judgments not covered by insurance aggregating in excess
of $5.0 million at any one time, rendered against Compass or any of its
Subsidiaries and not stayed, bonded or discharged within 60 days.
If a Default occurs and is continuing, the Trustee must, within 90 days
after the occurrence of such default, give the holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization relating to Compass or any of its Significant Subsidiaries,) then
in every such case, unless the principal of all of the notes shall have already
become
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due and payable, either the Trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding, by notice in writing to Compass
(and to the Trustee if given by holders) (an "Acceleration Notice"), may declare
all principal, determined as set forth below, and accrued interest (and
Liquidated Damages, if any) thereon to be due and payable immediately. If any
Senior Debt is outstanding pursuant to the credit agreement, upon a declaration
of such acceleration, such principal and interest shall be due and payable upon
the earlier of:
- the third Business Day after the sending to Compass and the Representative
of such written notice, unless such Event of Default is cured or waived
prior to such date; and
- the date of acceleration of any Senior Debt under the credit agreement.
If an Event of Default resulting from certain events of bankruptcy,
insolvency or reorganization relating to Compass or any of its Significant
Subsidiaries occurs, all principal and accrued interest (and Liquidated Damages,
if any) thereon will be immediately due and payable on all outstanding notes
without any declaration or other act on the part of Trustee or the holders. The
holders of a majority in aggregate principal amount of notes generally are
authorized to rescind such acceleration if all existing Events of Default have
been cured or waived, other than:
- the non-payment of the principal of, premium, if any, and interest on the
notes which have become due solely by such acceleration, and
- except on default with respect to any provision requiring a supermajority
approval to amend, which default may only be waived by such a
supermajority.
Prior to the declaration of acceleration of the maturity of the notes, the
holders of a majority in aggregate principal amount of the notes at the time
outstanding may waive on behalf of all the holders any default, except:
- a default with respect to any provision requiring a supermajority approval
to amend, which default may only be waived by such a supermajority,
- a default in the payment of principal of or interest on any note not yet
cured, or
- a default with respect to any covenant or provision which cannot be
modified or amended without the consent of the holder of each outstanding
note affected.
Subject to the provisions of the indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the indenture and applicable law, the
holders of a majority in aggregate principal amount of the notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Compass may, at its option, elect to have its obligations and the
obligations of the Guarantors discharged with respect to the outstanding notes
("Legal Defeasance"). Such Legal Defeasance means that Compass shall be deemed
to have paid and discharged the entire indebtedness represented, and the
indenture shall cease to be of further effect as to all outstanding notes and
guarantees, except as to:
- rights of holders to receive payments in respect of the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such
notes when such payments are due from the trust funds;
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- Compass' obligations with respect to such notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes, and the maintenance of an office or agency for payment and
money for security payments held in trust;
- the rights, powers, trust, duties, and immunities of the Trustee, and
Compass' obligations in connection therewith; and
- the Legal Defeasance provisions of the indenture.
In addition, Compass may, at its option and at any time, elect to have the
obligations of Compass and the Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, guarantees,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, Compass
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the notes:
(1) U.S. legal tender, U.S. Government Obligations or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on such notes on the stated date for
payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such notes,
and
(2) the holders of notes must have a valid, perfected, exclusive security
interest in such trust;
(3) in the case of Legal Defeasance, Compass shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that:
(a) Compass has received from, or there has been published by the
Internal Revenue Service, a ruling, or
(b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that
the holders of such notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred.
(4) in the case of Covenant Defeasance, Compass shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to such Trustee confirming that the holders of such notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(5) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit;
(6) Compass shall have delivered to the Trustee an Officer's Certificate
acceptable to the Trustee, to the effect that, assuming no intervening
bankruptcy of Compass between the date of deposit and the 91st day
following the deposit and that no holder of the notes is an insider of
Compass, after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors rights generally;
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(7) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the indenture or
any other material agreement or instrument to which Compass or any of its
Subsidiaries is a party or by which Compass or any of its Subsidiaries is
bound;
(8) Compass shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by Compass with the intent of
preferring the holders of such notes over any other creditors of Compass
or with the intent of defeating, hindering, delaying or defrauding any
other creditors of Compass or others;
(9) Compass shall have delivered to the Trustee an Officers' Certificate
stating that the conditions precedent set forth above in the first eight
clauses of this paragraph have been complied with; and
(10) Compass shall have delivered to the Trustee an opinion of counsel,
stating that the conditions precedent set forth above in the first clause
of this paragraph with respect to the validity and perfection of the
security interest, and in the second, third and fifth clauses of this
paragraph have been complied with.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest on the notes
when due, then the obligations of Compass and the Guarantors under the indenture
and the Collateral Agreement will be revived and no such defeasance will be
deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
Compass, the Guarantors and the Trustee may enter into a supplemental
indenture for certain limited purposes without the consent of the holders. With
the consent of the holders of not less than a majority in aggregate principal
amount of the notes at the time outstanding, Compass, the Guarantors and the
Trustee are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders. No such modification may,
however, without the consent of holders of at least 66 2/3% in aggregate
principal amount of notes at the time outstanding, modify the provisions
(including the defined terms used therein) of the covenant "Repurchase of Notes
at the Option of the Holder Upon a Change of Control" in a manner adverse to the
holders; and no such modification may, without the consent of each holder
affected thereby:
- change the Stated Maturity on any note;
- reduce the principal amount thereof or the rate (or extend the time for
payment) of interest thereon or any premium payable upon the redemption at
the option of Compass thereof;
- change the place of payment where, or the coin or currency in which, any
note or any premium or the interest thereon is payable;
- impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption at
the option of Compass, on or after the Redemption Date);
- reduce the Change of Control Purchase Price or the Asset Sale Offer Price;
- alter the provisions (including the defined terms used therein) regarding
the right of Compass to redeem the notes as a right, or at the option of
Compass in a manner adverse to the holders;
- reduce the percentage in principal amount of the outstanding notes, the
consent of whose holders is required for any such amendment, supplemental
indenture or waiver provided for in the indenture; or
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- modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the indenture
cannot be modified or waived without the consent of the holder of each
outstanding note affected thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
No past, present or future direct or indirect stockholder, employee, officer
or director, as such, of Compass, the Guarantors or any successor entity shall
have any personal liability for any obligations of Compass or the Guarantors
under the indenture or the notes solely by reason of his or its status as such
stockholder, employee, officer or director. This provision shall not limit the
obligation of any Guarantor pursuant to any guarantee of the notes.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of Compass,
including by designation, or is merged or consolidated into or with Compass or
one of its Subsidiaries.
"ACQUISITION" means the purchase or other acquisition of any person or all
or substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"AFFILIATE" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with Compass. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, PROVIDED, THAT, with respect to ownership interest in Compass and
its Subsidiaries, a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"AVERAGE LIFE" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing:
(1) the sum of the products:
(a) of the number of years from the date of determination to the date or
dates of each successive scheduled principal (or redemption) payment
of such security or instrument and
(b) the amount of each such respective principal (or redemption) payment;
(2) by the sum of all such principal (or redemption) payments.
"BENEFICIAL OWNER" or "BENEFICIAL OWNER" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"BOARD OF DIRECTORS" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
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"CAPITAL CONTRIBUTION" means any contribution to the equity of Compass from
a direct or indirect parent of Compass for which no consideration other than the
issuance of common stock with no redemption rights and no special preferences,
privileges or voting rights is given.
"CAPITALIZED LEASE OBLIGATION" means, as to any person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"CASH EQUIVALENT" means any of the following which matures within one year
after the date of acquisition:
- securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America
is pledged in support thereof);
- time deposits and certificates of deposit and commercial paper issued by
the parent corporation of any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million; or
- commercial paper issued by others rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) prior to consummation of an Initial Public Equity Offering, the Excluded
Persons shall cease to own beneficially and of record at least 51% of the
total voting power in the aggregate of all classes of Capital Stock of
Compass then outstanding normally entitled to vote in elections of
directors; or
(2) on or following the consummation of an Initial Public Equity Offering;
(a) any merger or consolidation of Compass with or into any person or any
direct or indirect sale, transfer or other conveyance, in one
transaction or a series of related transactions, of all or
substantially all of the assets of Compass, on a consolidated basis
if, immediately after giving effect to such transaction(s):
- any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act) other than any of the
Excluded Persons, is or becomes the "beneficial owner," directly or
indirectly, of more than 35% of the total voting power in the
aggregate normally entitled to vote in the election of directors,
managers, or trustees of the transferee(s) or surviving entity or
entities; and
- any such person or group becomes, directly or indirectly, the
beneficial owner of a greater percentage of such total voting power,
than beneficially owned by the Excluded Persons;
(b) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act) other than any of the
Excluded Persons:
- is or becomes the "beneficial owner," directly or indirectly, of more
than 35% of the total voting power in the aggregate of all classes of
Capital Stock of Compass then outstanding normally entitled to vote
in elections of directors; and
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- any such person or group becomes, directly or indirectly, the
beneficial owner of a greater percentage of such total voting power,
than beneficially owned by the Excluded Persons; or
(c) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period
constituted the Board of Directors of Compass, together with any new
directors whose election by such Board of Directors or whose
nomination for election by the shareholders of Compass was approved
by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute a majority of the Board of Directors of
Compass then in office.
"CONSOLIDATION" means, with respect to Compass, the consolidation of the
accounts of the Subsidiaries with those of Compass, all in accordance with GAAP;
PROVIDED that "consolidation" will not include consolidation of the accounts of
any Unrestricted Subsidiary with the accounts of Compass. The term
"consolidated" has a correlative meaning to the foregoing.
"CONSOLIDATED COVERAGE RATIO" of any person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of:
(1) the aggregate amount of Consolidated EBITDA of such person attributable
to continuing operations and businesses (exclusive of amounts
attributable to operations and businesses permanently discontinued or
disposed of) for the Reference Period
(2) to the aggregate Consolidated Fixed Charges of such person (exclusive of
amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations
giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such person's Consolidated Fixed Charges
subsequent to the Transaction Date) during the Reference Period;
PROVIDED, that for purposes of such calculation:
- Acquisitions which occurred during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be
assumed to have occurred on the first day of the Reference Period;
- transactions giving rise to the need to calculate the Consolidated
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period;
- the incurrence of any Indebtedness or issuance of any Disqualified Capital
Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the
proceeds therefrom to the extent used to refinance or retire other
Indebtedness) shall be assumed to have occurred on the first day of the
Reference Period; and
- the Consolidated Fixed Charges of such person attributable to interest on
any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma
basis as if the average rate in effect from the beginning of the Reference
Period to the Transaction Date had been the applicable rate for the entire
period, unless such Person or any of its Subsidiaries is a party to an
Interest Swap or Hedging Obligation (which shall remain in effect for the
12-month period immediately following the Transaction Date) that has the
effect of fixing the interest rate on the date of computation, in which
case such rate (whether higher or lower) shall be used.
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"CONSOLIDATED EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication:
(1) the sum of:
(a) Consolidated income tax expense,
(b) Consolidated depreciation and amortization expense, and
(c) Consolidated Fixed Charges,
(2) less the amount of all cash payments made by such person or any of its
Subsidiaries during such period to the extent such payments relate to
non-cash charges that were added back in determining Consolidated EBITDA
for such period or any prior period, provided that consolidated income
tax expense and depreciation and amortization of a Subsidiary that is a
less than wholly owned Subsidiary shall only be added to the extent of
the equity interest of Compass in such Subsidiary.
"CONSOLIDATED FIXED CHARGES" of any person means, for any period, the
aggregate amount, determined in each case in accordance with GAAP and without
duplication, of:
(1) interest expensed or capitalized, paid, accrued, or scheduled to be paid
or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person
and its Consolidated Subsidiaries during such period, including:
(a) original issue discount and non-cash interest payments or accruals on
any Indebtedness,
(b) the interest portion of all deferred payment obligations, and
(c) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to
the extent attributable to such period, and
(2) the amount of dividends accrued or payable (or guaranteed) by such
person or any of its Consolidated Subsidiaries in respect of Preferred
Stock (other than by Subsidiaries of such person to such person or such
person's wholly owned Subsidiaries), except if such Preferred Stock is a
payment-in-kind ("PIK") security, issuance of such additional PIK
securities would not count as dividends for purposes of this definition.
For purposes of this definition:
- interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined in good faith by Compass to be the
rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP, and
- interest expense attributable to any Indebtedness represented by the
guaranty by such person or a Subsidiary of such person of an obligation of
another person shall be deemed to be the interest expense attributable to
the Indebtedness guaranteed.
"CONSOLIDATED NET INCOME" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries for
such period, determined on a consolidated basis in accordance with GAAP and
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication):
- all gains (but not losses) which are either extraordinary (as determined
in accordance with GAAP) or are either unusual or nonrecurring (including
any gain from the sale or other disposition of assets outside the ordinary
course of business or from the issuance or sale of any capital stock);
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- the net income, if positive, of any person, other than a Consolidated
Subsidiary, in which such person or any of its Consolidated Subsidiaries
has an interest, except to the extent of the amount of any dividends or
distributions actually paid in cash to such person or a Consolidated
Subsidiary of such person during such period, but in any case not in
excess of such person's PRO RATA share of such person's net income for
such period;
- the net income or loss of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition; and
- the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the
terms of its charter or bylaws or any other agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Consolidated Subsidiary.
"CONSOLIDATED SUBSIDIARY" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"CREDIT AGREEMENT" means the credit agreement entered into by and among
Compass, certain of its subsidiaries, certain financial institutions and,
BancBoston Securities as arranger, BankBoston as a lender and administrative
agent, and Donaldson, Lufkin & Jenrette Capital Funding as documentation agent,
providing a revolving credit facility, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Credit Agreement"
shall include agreements in respect of Interest Swap and Hedging Obligations
with lenders party to the credit agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any credit agreement and all refundings, refinancings and
replacements of any credit agreement, including any agreement:
- extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
- adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of Compass and its Subsidiaries
and their respective successors and assigns,
- increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder, PROVIDED that on the date such Indebtedness is
incurred in accordance with the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," or
- otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the indenture.
"DISQUALIFIED CAPITAL STOCK" means:
- with respect to any person, Equity Interests of such person that, by its
terms or by the terms of any security into which it is convertible,
exercisable or exchangeable, is, or upon the happening of an event or the
passage of time or both would be, required to be redeemed or repurchased
(including at the option of the holder thereof) by such person or any of
its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the notes, and
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- with respect to any Subsidiary of such person (including with respect to
any Subsidiary of Compass), any Equity Interests other than any common
equity with no preference, privileges, or redemption or repayment
provisions.
"EQUITY INTEREST" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"EVENT OF LOSS" means, with respect to any property or asset, any:
- loss, destruction or damage of such property or asset or
- any condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such property or asset, or confiscation or
requisition of the use of such property or asset.
"EXCLUDED PERSON" means officers and directors of Compass and those persons
who beneficially own membership interests in Compass Holdings LLC, in each case,
as of the Issue Date.
"EXEMPTED AFFILIATE TRANSACTION" means:
- customary employee compensation arrangements approved by a majority of
independent (as to such transactions) members of the Board of Directors of
Compass;
- dividends permitted under the terms of the covenant discussed above under
"Limitation on Restricted Payments" above and payable, in form and amount,
on a pro rata basis to all holders of common stock of Compass;
- Management Fee Payments up to $500,000 in any fiscal year and the
reimbursement by Compass of reasonable out-of-pocket costs and expenses
incurred in connection with the rendering of management services to or on
behalf of Compass;
- Permitted Payments to Parent;
- transactions solely between Compass and any of its wholly owned
Consolidated Subsidiaries or solely among wholly owned Consolidated
Subsidiaries of Compass; and
- the payment of $750,000 to Parent for reimbursement of the nonrefundable
deposit against the purchase price for the acquisition of Barnes Machine.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"GUARANTOR" means each Subsidiary of Compass that executes a guarantee
guaranteeing the notes in accordance with the provisions of the indenture.
"INDEBTEDNESS" of any person means, without duplication
(1) all liabilities and obligations, contingent or otherwise, of such any
person, to the extent such liabilities and obligations would appear as a
liability upon the consolidated balance sheet of such person in
accordance with GAAP:
(a) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a
portion thereof),
(b) evidenced by bonds, notes, debentures or similar instruments,
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(c) representing the balance deferred and unpaid of the purchase price of
any property or services, except (other than accounts payable or
other obligations to trade creditors which have remained unpaid for
greater than 60 days past their original due date) those incurred in
the ordinary course of its business that would constitute ordinarily
a trade payable to trade creditors;
(2) all liabilities and obligations, contingent or otherwise, of such person
(a) evidenced by bankers' acceptances or similar instruments issued or
accepted by banks,
(b) relating to any Capitalized Lease Obligation, or
(c) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit;
(3) all net obligations of such person under Interest Swap and Hedging
Obligations;
(4) all liabilities and obligations of others of the kind described in the
preceding clauses that such person has guaranteed or that is otherwise
its legal liability or which are secured by any assets or property of
such person and all obligations to purchase, redeem or acquire any Equity
Interests;
(5) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the
preceding clauses, or this clause, whether or not between or among the
same parties; and
(6) all Disqualified Capital Stock of such Person (measured at the greater
of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"INITIAL PUBLIC EQUITY OFFERING" means an initial underwritten offering of
common stock of Compass or Parent for cash pursuant to an effective registration
statement under the Securities Act as a consequence of which the common stock of
Compass or Parent is listed on a national securities exchange or quoted on the
national market system of the Nasdaq stock market.
"INTEREST SWAP AND HEDGING OBLIGATION" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"INVESTMENT" by any person in any other person means (without duplication):
- the acquisition (whether by purchase, merger, consolidation or otherwise)
by such person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes,
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debentures, partnership or other ownership interests or other securities,
including any options or warrants, of such other person or any agreement
to make any such acquisition;
- the making by such person of any deposit with, or advance, loan or other
extension of credit to, such other person (including the purchase of
property from another person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other person) or
any commitment to make any such advance, loan or extension (but excluding
accounts receivable, endorsements for collection or deposits arising in
the ordinary course of business);
- other than guarantees of Indebtedness of Compass or any Guarantor to the
extent permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," the entering into by such
person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
person;
- the making of any capital contribution by such person to such other
person; and
- the designation by the Board of Directors of Compass of any person to be
an Unrestricted Subsidiary.
Compass shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any subsidiary (or, if neither Compass nor any
of its Subsidiaries has theretofore made an Investment in such subsidiary, in an
amount equal to the Investments being made), at the time that such subsidiary is
designated an Unrestricted Subsidiary, and any property transferred to an
Unrestricted Subsidiary from Compass or a Subsidiary of Compass shall be deemed
an Investment valued at its fair market value at the time of such transfer.
"ISSUE DATE" means the date of first issuance of the notes under the
indenture.
"JUNIOR SECURITY" means any Qualified Capital Stock and any Indebtedness of
Compass or a Guarantor, as applicable, that is subordinated in right of payment
to Senior Debt at least to the same extent as the notes or the guarantee, as
applicable, and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
notes; PROVIDED, that in the case of subordination in respect of Senior Debt
under the credit agreement, "Junior Security" shall mean any Qualified Capital
Stock and any Indebtedness of Compass or the Guarantor, as applicable, that:
- has a final maturity date occurring after the final maturity date of, all
Senior Debt outstanding under the credit agreement on the date of issuance
of such Qualified Capital Stock or Indebtedness,
- is unsecured,
- has an Average Life longer than the security for which such Qualified
Capital Stock or Indebtedness is being exchanged, and
- by their terms or by law are subordinated to Senior Debt outstanding under
the credit agreement on the date of issuance of such Qualified Capital
Stock or Indebtedness at least to the same extent as the notes.
"LIEN" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"MANAGEMENT FEE PAYMENTS" means payments from Compass to Dunhill and Hayes
Capital under that certain Management Consulting Agreement, dated March 9, 1998,
as amended, by and between Compass, Dunhill Bank Caribbean Ltd. and Hayes
Capital, in accordance with the terms and provisions
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of such Management Consulting Agreement on the Issue Date, PROVIDED, HOWEVER,
that the obligation of Compass to make such payments will be subordinated to the
payment of all Obligations with respect to the notes (and any guarantee
thereof).
"MATERIAL FACILITY" means a facility that has a customer certification
including without limitation D1-9000.
"MORTGAGE INDEBTEDNESS" of any person means any Indebtedness of such person
secured by real property of such person which in the reasonable good faith
judgment of the Board of Directors is directly related to a Related Business of
Compass.
"NET CASH PROCEEDS" means:
(1) the aggregate amount of cash or Cash Equivalents received by Compass in
the case of a sale of Qualified Capital Stock and by Compass and its
Subsidiaries in respect of an Asset Sale;
(2) plus, in the case of an issuance of Qualified Capital Stock upon any
exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable debt) of Compass that
were issued for cash on or after the Issue Date the amount of cash
originally received by Compass upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable
debt);
(3) less:
(a) in each case, the sum of all payments, fees, commissions and (in the
case of Asset Sales, reasonable and customary), expenses (including,
without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with
such Asset Sale or sale of Qualified Capital Stock, and
(b) in the case of an Asset Sale only, the amount (estimated reasonably
and in good faith by Compass) of income, franchise, sales and other
applicable taxes (the computation of which shall take into account
any available net operating losses and other tax attributes of
Parent, and Compass and their Subsidiaries) required to be paid by
Compass or any of its respective Subsidiaries in the taxable year of
such sale in connection with such Asset Sale.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness of Compass or its
Subsidiaries to the extent that:
- under the terms thereof or pursuant to law, no personal recourse may be
had against Compass or its Subsidiaries for the payment of the principal
of or interest or premium on such Indebtedness, and enforcement of
obligations on such Indebtedness (except with respect to fraud, willful
misconduct, misrepresentation, misapplication of funds, reckless damage to
assets and undertakings with respect to environmental matters or
construction defects) is limited only to recourse against interests in
specified assets and property (the "Special Assets"), accounts and
proceeds arising therefrom, and rights under purchase agreements or other
agreements with respect to such Subject Assets;
- such Indebtedness is incurred concurrently with the acquisition by Compass
or its Subsidiaries of such Subject Assets or a Person (or interests in a
Person) holding such Subject Assets, or constitutes Refinancing
Indebtedness with respect to Indebtedness so incurred; and
- the Subject Assets are not existing assets and no existing assets or
proceeds from the sale, transfer or other disposition of existing assets
were used to acquire such Subject Assets.
"OBLIGATION" means any principal, premium or interest payment, or monetary
penalty, or damages, due by Compass or any Guarantor under the terms of the
notes or the indenture, including any liquidated damages due pursuant to the
terms of the Registration Rights Agreement.
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"PARENT" means Compass Holdings LLC or its successor, so long as such entity
owns at least 51% of the Capital Stock of Compass.
"PERMITTED INDEBTEDNESS" means that:
- Compass and the Guarantors may incur Indebtedness evidenced by the notes
and represented by the indenture up to the amounts specified therein as of
the date thereof;
- Compass and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital
Stock, as applicable, described in the foregoing clause of this definition
or incurred under the Debt Incurrence Ratio test of the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," or which is outstanding on the Issue Date (after giving
effect to the transactions contemplated in this Offering Memorandum, and
$3.5 million of Mortgage Indebtedness to be incurred in connection with
the acquisition of Brittain Machine and within six months after the Issue
Date, which will be considered outstanding on the Issue Date for purposes
of this clause, provided that in each case such Refinancing Indebtedness
is secured only by the assets that secured the Indebtedness so refinanced;
- Compass and its Subsidiaries may incur Indebtedness solely in respect of
bankers acceptances, and performance bonds (to the extent that such
incurrence does not result in the incurrence of any obligation to repay
any obligation relating to borrowed money of others), all in the ordinary
course of business in accordance with customary industry practices, in
amounts and for the purposes customary in Compass' industry; PROVIDED,
that the aggregate principal amount outstanding of such Indebtedness
(including any Refinancing Indebtedness and any other Indebtedness issued
to refinance, refund, defease or replace such Indebtedness) shall at no
time exceed $250,000;
- Compass may incur Indebtedness to any Subsidiary Guarantor, and any
Subsidiary Guarantor may incur Indebtedness to any other Subsidiary
Guarantor or to Compass; PROVIDED, that, in the case of Indebtedness of
Compass, such obligations shall be unsecured and subordinated in all
respects to Compass' obligations pursuant to the notes and the date of any
event that causes such Subsidiary Guarantor no longer to be a Subsidiary
Guarantor shall be an Incurrence Date; and
- any Guarantor may guaranty any Indebtedness of Compass or another
Guarantor that was permitted to be incurred pursuant to the indenture,
substantially concurrently with such incurrence or at the time such person
becomes a Guarantor.
"PERMITTED INVESTMENT" means:
- Investments in any of the notes;
- Investments in Cash Equivalents;
- intercompany notes to the extent permitted under the definition of
"Permitted Indebtedness;" and
- any Investment by Compass or any Subsidiary Guarantor in a Person if as a
result of such Investment such Person immediately becomes a Wholly Owned
Subsidiary Guarantor or such Person is immediately merged with or into
Compass or a Wholly Owned Subsidiary Guarantor.
"PERMITTED LIEN" means:
(1) Liens existing on the Issue Date;
(2) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being contested in
good faith and by appropriate proceedings,
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if adequate reserves with respect thereto are maintained on the books of
Compass in accordance with GAAP;
(3) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law in
the ordinary course of business provided that:
(a) the underlying obligations are not overdue for a period of more than
30 days, or
(b) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained
on the books of Compass in accordance with GAAP;
(4) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(5) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not
in any case materially detract from the value of the property, subject
thereto (as such property is used by Compass or any of its Subsidiaries)
or interfere with the ordinary conduct of the business of Compass or any
of its Subsidiaries;
(6) Liens arising by operation of law in connection with judgments, only to
the extent, for an amount and for a period not resulting in an Event of
Default with respect thereto;
(7) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(8) Liens securing the notes;
(9) Liens securing Indebtedness of a Person existing at the time such Person
becomes a Subsidiary or is merged with or into Compass or a Subsidiary or
Liens securing Indebtedness incurred in connection with an Acquisition,
PROVIDED that such Liens were in existence prior to the date of such
acquisition, merger or consolidation, were not incurred in anticipation
thereof, and do not extend to any other assets;
(10) Liens arising from Purchase Money Indebtedness or Mortgage Indebtedness
permitted to be incurred pursuant to the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock"
PROVIDED such Liens relate solely to the property which is subject to
such Purchase Money Indebtedness or Mortgage Indebtedness, as applicable;
(11) Leases or subleases granted to other persons in the ordinary course of
business not materially interfering with the conduct of the business of
Compass or any of its Subsidiaries or materially detracting from the
value of the relative assets of Compass or any Subsidiary;
(12) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by Compass or
any of its Subsidiaries in the ordinary course of business;
(13) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse
to the holders of the notes than the terms of the Liens securing such
refinanced Indebtedness, and provided that the Indebtedness secured is
not increased and the lien is not extended to any additional assets or
property that would not have been security for the Indebtedness
refinanced; and
(14) Liens securing Indebtedness incurred under the credit agreement in
accordance with the terms of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
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"PERMITTED PAYMENTS TO PARENT" means without duplication:
- payments to Parent in an amount sufficient to permit Parent to pay
reasonable and necessary operating expenses and other general corporate
expenses to the extent such expenses relate or are fairly allocable to
Compass and its Subsidiaries, provided such expenses do not exceed
$250,000 in any fiscal year; and
- payments to Parent to enable Parent to pay foreign, federal, state or
local tax liabilities ("Tax Payment"), not to exceed the amount of any tax
liabilities that would be otherwise payable by Compass and its
Subsidiaries and Unrestricted Subsidiaries to the appropriate taxing
authorities if they filed separate tax returns to the extent that Parent
has an obligation to pay such tax liabilities relating to the operations,
assets or capital of Compass or its Subsidiaries and Unrestricted
Subsidiaries;
PROVIDED, HOWEVER, that, notwithstanding the foregoing:
- in the case of determining the amount of a Tax Payment that is permitted
to be paid by Compass and any of its United States subsidiaries in respect
of their Federal income tax liability, such payment shall be determined on
the basis of assuming that all payments made to Parent pursuant to the
immediately preceding clause shall be treated as a deductible expense of
Compass in the taxable year during which the obligation to make such
payment accrues; and
- any Tax Payments shall either be used by Parent to pay such tax
liabilities within 90 days of Parent's receipt of such payment or refunded
to the payee.
"PURCHASE MONEY INDEBTEDNESS" of any person means any Non-Recourse
Indebtedness of such person to any seller or other person incurred solely to
finance the acquisition (including in the case of a Capitalized Lease
Obligation, the lease) of any after acquired tangible property which, in the
reasonable good faith judgment of the Board of Directors of Compass, is directly
related to a Related Business of Compass and which is incurred substantially
concurrently with such acquisition and is secured only by the assets so
financed.
"QUALIFIED CAPITAL STOCK" means any Capital Stock of Compass that is not
Disqualified Capital Stock.
"QUALIFIED EXCHANGE" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or of Indebtedness of Compass
issued on or after the Issue Date with the Net Cash Proceeds received by Compass
from the substantially concurrent sale of Qualified Capital Stock or any
exchange of Qualified Capital Stock for any Capital Stock or for Indebtedness of
Compass issued on or after the Issue Date.
"REFERENCE PERIOD" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the notes or the indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital Stock:
(1) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or
in part, or constituting an amendment, modification or supplement to, or
a deferral or renewal of (a "Refinancing"), any Indebtedness or
Disqualified Capital Stock in a principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing plus the amount of any premium paid in
connection with such Refinancing in accordance with the terms of the
documents governing
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the Indebtedness refinanced without giving effect to any modification
thereof made in connection with or in contemplation of such refinancing)
the lesser of:
(a) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital
Stock so Refinanced, and
(b) if such Indebtedness being Refinanced was issued with an original
issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such Refinancing;
(2) PROVIDED, that:
(a) such Refinancing Indebtedness of any Subsidiary of Compass shall only
be used to Refinance outstanding Indebtedness or Disqualified Capital
Stock of such Subsidiary,
(b) such Refinancing Indebtedness shall not have an Average Life shorter
than the Indebtedness or Disqualified Capital Stock to be so
refinanced at the time of such Refinancing and in all respects, be no
less subordinated or junior, if applicable, to the rights of holders
of the notes than was the Indebtedness or Disqualified Capital Stock
to be refinanced,
(c) such Refinancing Indebtedness shall have a final stated maturity or
redemption date, as applicable, no earlier than the final stated
maturity or redemption date, as applicable, of the Indebtedness or
Disqualified Capital Stock to be so refinanced, and
(d) such Refinancing Indebtedness shall be secured (if secured) in a
manner no more adverse to the holders of the notes than the terms of
the Liens (if any) securing such refinanced Indebtedness, including,
without limitation, the amount of Indebtedness secured shall not be
increased.
"RELATED BUSINESS" means the business conducted (or proposed to be
conducted) by Compass and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of Compass
are materially related businesses.
"RESTRICTED INVESTMENT" means, in one or a series of related transactions,
any Investment, other than other Permitted Investments.
"RESTRICTED PAYMENT" means, with respect to any person:
- the declaration or payment of any dividend or other distribution in
respect of Equity Interests of such person or any parent or Subsidiary of
such person;
- any payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such person or any Subsidiary
or parent of such person;
- other than with the proceeds from the substantially concurrent sale of, or
in exchange for, Refinancing Indebtedness any purchase, redemption, or
other acquisition or retirement for value of, any payment in respect of
any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such person or a parent or
Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may
be, of such Indebtedness;
- any Restricted Investment by such person, and
- any Management Fee Payments or similar payments to any Affiliates (other
than Subsidiaries) in excess of an aggregate of $500,000 in any fiscal
year; PROVIDED, HOWEVER, that the obligation of Compass to pay such
Management Fee Payments will be subordinated to the payment of all
Obligations with respect to the notes (and any guarantee thereof).
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The term "Restricted Payment" shall not include:
- any dividend, distribution or other payment on or with respect to Equity
Interests of an issuer to the extent payable solely in shares of Qualified
Capital Stock of such issuer;
- any dividend, distribution or other payment to Compass, or to any of its
Guarantors, by Compass or any of its Subsidiaries; or
- the payment of $750,000 to Parent for reimbursement for the down payment
on the purchase price of Barnes Machine.
"SENIOR DEBT" of Compass or any Guarantor means Indebtedness (including any
monetary obligation in respect of the credit agreement, and interest, whether or
not allowable, accruing on Indebtedness incurred pursuant to the credit
agreement after the filing of a petition initiating any proceeding under any
bankruptcy, insolvency or similar law) of Compass or such Guarantor arising
under the credit agreement or that, by the terms of the instrument creating or
evidencing such Indebtedness, is expressly designated Senior Debt and made
senior in right of payment to the notes or the applicable guarantee; PROVIDED,
that in no event shall Senior Debt include:
- Indebtedness to any Subsidiary of Compass or any officer, director or
employee of Compass or any Subsidiary of Compass;
- Indebtedness incurred in violation of the terms of the indenture;
- Indebtedness to trade creditors;
- Disqualified Capital Stock;
- Capitalized Lease Obligations; and
- any liability for taxes owed or owing by Compass or such Guarantor.
"SIGNIFICANT SUBSIDIARY" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"STATED MATURITY," when used with respect to any note, means April 15, 2005.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of Compass or a Guarantor
that is subordinated in right of payment by its terms or the terms of any
document or instrument relating thereto to the notes or such guarantee, as
applicable, in any respect or has a stated maturity after the Stated Maturity.
"SUBSIDIARY," with respect to any person, means:
- a corporation a majority of whose Equity Interests with voting power,
under ordinary circumstances, to elect directors is at the time, directly
or indirectly, owned by such person, by such person and one or more
Subsidiaries of such person or by one or more Subsidiaries of such person;
- any other person (other than a corporation) in which such person, one or
more Subsidiaries of such person, or such person and one or more
Subsidiaries of such person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest; or
- a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of Compass or of any Subsidiary of Compass. Unless the context
requires otherwise, Subsidiary means each direct and indirect Subsidiary of
Compass.
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"UNRESTRICTED SUBSIDIARY" means any subsidiary of Compass that does not own
any Capital Stock of, or own or hold any Lien on any property of, Compass or any
other Subsidiary of Compass and that, at the time of determination, shall be an
Unrestricted Subsidiary (as designated by the Board of Directors of Compass);
PROVIDED, that:
- such subsidiary shall not engage, to any substantial extent, in any line
or lines of business activity other than a Related Business;
- neither immediately prior thereto nor after giving pro forma effect to
such designation would there exist a Default or Event of Default; and
- immediately after giving pro forma effect thereto, Compass could incur at
least $1.00 of Indebtedness pursuant to the Debt Incurrence Ratio of the
covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock."
The Board of Directors of Compass may designate any Unrestricted Subsidiary to
be a Subsidiary, PROVIDED, that:
- no Default or Event of Default is existing or will occur as a consequence
thereof; and
- immediately after giving effect to such designation, on a pro forma basis,
Compass could incur at least $1.00 of Indebtedness pursuant to the Debt
Incurrence Ratio of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Each such designation shall be evidenced by filing with the Trustee a certified
copy of the resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary all the Equity Interests of
which are owned by Compass or one or more Wholly-owned Subsidiaries of Compass.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Series B Notes will be issued in the form of one or more registered
global notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the Trustee, as custodian for
DTC, in New York, New York, and registered in the name of DTC or its nominee for
credit to the accounts of DTC's Direct and Indirect Participants (as defined
below).
Beneficial interests in all Global Notes and all Certificated Notes (as
defined below), if any, will be subject to certain restrictions on transfer and
will bear a restrictive legend as described under "Notice to Investors." In
addition, transfer of beneficial interests in any Global Notes will be subject
to the applicable rules and procedures of DTC and its Direct or Indirect
Participants (including, if applicable, those of Euroclear and CEDEL), which may
change from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for notes in certificated form in certain limited circumstances. You should read
the discussion under the heading "--Transfer of Interests in Global Notes for
Certificated Notes" for further information regarding such an exchange.
Initially, the Trustee will act as Paying Agent and Registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
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DEPOSITORY PROCEDURES
DTC has advised Compass that DTC is a limited-purpose trust company created
to hold securities for its participating organizations (collectively, the
"Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, including Euroclear and Cedel. Access to DTC's
system is also available to other entities that clear through or maintain a
direct or indirect, custodial relationship with a Direct Participant
(collectively, the "Indirect Participants").
DTC has also advised Compass that, pursuant to procedures established by it:
- upon deposit of the Global Notes for exchange, DTC will credit the
accounts of the Direct Participants with such portions of the principal
amount of the Global Notes as determined based on the portion of
outstanding notes deposited by such Direct Participant as designated by
the exchange agent, and
- DTC will maintain records of the ownership interests of such Direct
Participants in the Global Notes and the transfer of ownership interests
by and between Direct Participants.
DTC will not maintain records of the ownership interests of, or the transfer
of ownership interests by and between, Indirect Participants or other owners of
beneficial interests in the Global Notes. Direct Participants and Indirect
Participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, Indirect Participants and
other owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. All ownership interests in
any Global Notes may be subject to the procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. You should read the
discussion under the heading "--Transfers of Interests in Global Notes for
Certificated Notes" for further information on certain other restrictions on the
transferability of the notes.
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the indenture, Compass, the Guarantors and the Trustee
will treat the persons in whose names the notes are registered (including notes
represented by Global Notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal, premium, and interest on Global Notes registered in the name of
DTC or its nominee will be payable by the Trustee to DTC or its nominee as the
registered holder under the
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indenture. Consequently, neither Compass, the Trustee nor any agent of Compass
or the Trustee has or will have any responsibility or liability for:
- any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's
or Indirect Participant's records relating to the beneficial ownership
interests in any Global Note, or
- any other matter relating to the actions and practices of DTC or any of
its Direct Participants or Indirect Participants.
DTC has advised Compass that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the Trustee,
Compass or the Guarantors. Neither Compass, the Guarantors nor the Trustee will
be liable for any delay by DTC or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the notes, and Compass and
the Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the notes for
all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes
described herein, cross-market transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants who hold interests in the notes through
Euroclear or CEDEL, on the other hand, will be effected by Euroclear's or
CEDEL's respective Nominee through DTC in accordance with DTC's rules on behalf
of Euroclear or CEDEL. Delivery of instructions relating to crossmarket
transactions must be made directly to Euroclear or CEDEL, as the case may be, by
the counterparty in accordance with the rules and procedures of Euroclear or
CEDEL and within their established deadlines (Brussels time for Euroclear and
U.K. time for CEDEL). Indirect Participants who hold interest in the notes
through Euroclear and CEDEL may not deliver instructions directly to Euroclear's
or CEDEL's Nominee. Euroclear or CEDEL will, if the transaction meets its
settlement requirements, deliver instructions to its respective Nominee to
deliver or receive interests on Euroclear's or CEDEL's behalf in the relevant
Global Note in DTC, and make or receive payment in accordance with normal
procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as
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a result of a sale of an interest in a Global Note to a DTC Participant until
the European business day for Euroclear or CEDEL immediately following DTC's
settlement date.
DTC has advised Compass that it will take any action permitted to be taken
by a holder of notes only at the direction of one or more Direct Participants to
whose account interests in the Global Notes are credited and only in respect of
such portion of the aggregate principal amount of the notes to which such Direct
Participant or Direct Participants has or have given direction. However, if
there is an Event of Default under the notes, DTC reserves the right to exchange
Global Notes (without the direction of one or more of its Direct Participants)
for legended notes in certificated form, and to distribute such certificated
forms of notes to its Direct Participants. You should read the discussion under
the heading "--Transfers of Interests in Global Notes for Certificated Notes"
for further information regarding such transfers.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Direct Participants,
including Euroclear and CEDEL, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. None of Compass, the Guarantors or the Trustee shall have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that Compass believes to
be reliable, but Compass takes no responsibility for the accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if:
- DTC notifies Compass that it is unwilling or unable to continue as
depositary for the Global Notes and Compass thereupon fails to appoint a
successor depositary within 90 days, or DTC has ceased to be a clearing
agency registered under the Exchange Act,
- Compass, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Certificated Notes, or
- there shall have occurred and be continuing a Default or an Event of
Default with respect to the notes.
In any such case, Compass will notify the Trustee in writing that, upon
surrender by the Direct and Indirect Participants of their interest in such
Global Note, Certificated Notes will be issued to each person that such Direct
and Indirect Participants and DTC identify as being the beneficial owner of the
related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless Compass
determines otherwise in compliance with applicable law.
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Neither Compass, the Guarantors nor the Trustee will be liable for any delay
by the holder of any Global Note or DTC in identifying the beneficial owners of
notes, and Compass and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or DTC
for all purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
Payments in respect of the notes represented by the Global Notes (including
principal, premium, if any, interest and Liquidated Damages, if any) shall be
made by wire transfer of immediately available same day funds to the accounts
specified by the holder of interests in such Global Note. With respect to
Certificated Notes, Compass will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available same day funds to the accounts specified by the holders thereof or, if
no such account is specified, by mailing a check to each such holder's
registered address. Compass expects that secondary trading in the Certificated
Notes will also be settled in immediately available funds.
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UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material United States federal income tax
consequences of the exchange offer to holders of notes. This summary is based
upon existing United States federal income tax law and interpretation thereof,
which is subject to change, possibly retroactively. Compass has not and will not
seek any rulings or opinions from the Internal Revenue Service or counsel with
respect to the matters discussed below. There can be no assurance that the IRS
will not take positions concerning the tax consequences of the exchange offer
which are different from those discussed herein. This summary does not discuss
all aspects of United States federal income taxation which may be important to
particular holders in light of their individual investment circumstances, such
as:
- notes held by investors subject to special tax rules, including financial
institutions, insurance companies, broker-dealers, and tax-exempt
organizations, or
- to persons that will hold the notes as a part of a straddle, hedge, or
synthetic security transaction for United States federal income tax
purposes, or
- that have a functional currency other than the United States dollar.
All of these persons may be subject to tax rules that differ significantly from
those summarized below. In addition, this summary does not discuss any foreign,
state, or local tax considerations. This summary assumes that investors will
hold their notes as "capital assets" (generally, property held for investment)
under the United States Internal Revenue Code of 1986, as amended. HOLDERS OF
OUTSTANDING NOTES SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSIDERATIONS OF THE
EXCHANGE OFFER IN LIGHT OF THEIR PARTICULAR SITUATIONS.
The exchange of outstanding notes for Series B Notes under the terms of the
exchange offer should not constitute a taxable exchange. As a result:
- a holder should not recognize taxable gain or loss as a result of
exchanging outstanding notes for Series B Notes under the terms of the
exchange offer,
- the holding period of the Series B Notes should include the holding period
of the outstanding notes exchanged for the Series B Notes, and
- the adjusted tax basis of the Series B Notes should be the same as the
adjusted tax basis of the outstanding notes exchanged therefor immediately
before the exchange.
UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of material United States federal income tax
consequences of the purchase, ownership, and disposition of Notes by an initial
purchaser of notes that, for United States federal income tax purposes, is not a
"United States person" as defined below (a "Non-U.S. Holder"). This summary is
based upon existing United States federal income tax law and interpretations
thereof, which is subject to change, possibly retroactively. This summary does
not discuss all aspects of United States federal income taxation which may be
important to particular Non-U.S. Holders in light of their individual investment
circumstances, such as:
- notes held by investors subject to special tax rules, including financial
institutions, insurance companies, broker-dealers, and tax-exempt
organizations, or
- to persons that will hold the notes as a part of a straddle, hedge, or
synthetic security transaction for United States federal income tax
purposes, or
- that have a functional currency other than the United States dollar.
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All of these persons may be subject to tax rules that differ significantly from
those summarized below. In addition, this summary does not discuss any foreign,
state, or local tax considerations. This summary assumes that investors will
hold their notes as "capital assets" (generally, property held for investment)
under the United States Internal Revenue Code of 1986, as amended (the "Code").
Prospective investors are urged to consult their tax advisors regarding the
United States federal, state, local, and foreign income and other tax
considerations of the purchase, ownership, and disposition of the notes.
For purposes of this summary, a "United States person" is:
- an individual who is a citizen or resident of the United States,
- a corporation, partnership, or other entity created or organized under the
laws of the United States or any state or political subdivision thereof,
- an estate that is subject to United States federal income taxation without
regard to the source of its income, or
- a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
WITHHOLDING TAX. Under present United States federal income tax law,
payments of principal, premium (if any) and interest on the notes by Compass to
a Non-U.S. Holder, will be exempt from United States federal income or
withholding tax (the "Portfolio Interest Exemption"), provided that:
- such holder does not own, actually or constructively, 10 percent or more
of the total combined voting power of all classes of stock of Compass
entitled to vote, is not a controlled foreign corporation related to
Compass through stock ownership and is not a bank receiving interest
described in section 881(c)(3)(A) of the Code, and
- the Owner's Statement Requirement discussed below has been satisfied by or
with respect to the beneficial owner.
Notwithstanding the above, a Non-U.S. Holder that is engaged in the conduct of a
United States trade or business will be subject to:
- United States federal income tax on interest that is effectively connected
with the conduct of such trade or business, and
- if the Non-U.S. Holder is a corporation, a United States branch profits
tax equal to 30% of its "effectively connected earnings and profits" as
adjusted for the taxable year, unless the holder qualifies for an
exemption from such tax or a lower tax rate under an applicable treaty.
GAIN ON DISPOSITION. A Non-U.S. Holder will generally not be subject to
United States federal income tax on gain recognized on a sale, redemption, or
other disposition of a note unless:
- the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder, or
- in the case of a Non-U.S. Holder who is a nonresident alien individual,
such holder is present in the United States for 183 or more days during
the taxable year and certain other requirements are met. Any such gain
that is effectively connected with the conduct of a United States trade or
business by a Non-U.S. Holder will be subject to United States federal
income tax on a net income basis in the same manner as if such holder were
a United States person and, if such Non-U.S. Holder is a corporation, such
gain may also be subject to the 30% United States branch profits tax
described above.
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FEDERAL ESTATE TAXES. A note held by an individual who at the time of death
is not a citizen or resident of the United States will not be subject to United
States federal estate taxation as a result of such individual's death, provided
that:
- the individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Compass entitled to
vote, and
- the interest accrued on the note was not effectively connected with the
conduct of a United States trade or business.
OWNER'S STATEMENT REQUIREMENT. Section 871(h) and 881(c) of the Code
require that, in order to obtain the Portfolio Interest Exemption, either the
beneficial owner of the note, or a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business and that holds the note on behalf of such
beneficial owner, file a statement with the withholding agent to the effect that
the beneficial owner of the note is not a United States person within the
meaning of section 7701(a)(30) of the Code. Under temporary United States
Treasury regulations, which apply to stated interest paid on a note on or before
December 31, 2000, and to payments on or before such date of the proceeds from a
sale or exchange of a note, the statement requirement of sections 871(h) and
881(c) will be satisfied if:
- the beneficial owner of a note certifies on Internal Revenue Service Form
W-8, under penalties of perjury, that it is not a United States person and
provides its name and address, and
- any financial institution holding the note on behalf of the beneficial
owner files a statement with the withholding agent to the effect that it
has received such a statement from the beneficial owner and furnishes the
withholding agent with a copy thereof.
Recently issued final United States Treasury regulations, which apply to
stated interest paid on a note after December 31, 2000, and to payments made
after such date of the proceeds from a sale or exchange of a note, also provide
that the statement requirement of sections 871(h) and 881(c) will be satisfied
if the two conditions set forth in the preceding sentence are met. However, a
beneficial owner that is a foreign estate or trust or fiduciary thereof, a
foreign partnership that has entered into a withholding agreement with the
Internal Revenue Service or a Non-U.S. Holder holding a note through its United
States branch will be required to provide its taxpayer identification number in
addition to its name and address, on the statement described in the first clause
of the preceding sentence.
In the case of a Non-U.S. Holder who is engaged in a United States trade or
business and receives interest on a note that is effectively connected with the
conduct of such trade or business, the holder will be required to provide
Compass, in lieu of certificate described above, a properly executed Internal
Revenue Service Form 4224 (or, after December 31, 2000, an Internal Revenue
Service Form W-8) in order to establish an exemption from United States federal
withholding taxes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
will not apply to payments made by Compass on a note if the Owner's Statement
Requirement has been satisfied, PROVIDED that Compass does not have actual
knowledge (and, with respect to payments made after December 31, 2000, does not
have reason to know) that the payee is a United States person.
Payments of proceeds from the sale or exchange of a note generally will not
be subject to backup withholding tax if they are made to or through a foreign
office of a broker. Information reporting will be required if such broker is:
- a United States person,
- a controlled foreign corporation for United States federal income tax
purposes,
- a foreign person 50 percent or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period, or,
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- in the case of payments made after December 31, 2000, a foreign
partnership at least 50 percent of the capital or profits interests in
which are owned by United States persons or that has a United States trade
or business.
Information reporting will not be required if the broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain other conditions are met or the beneficial owner otherwise establishes
an exemption.
Payments to or through the United States office of a broker will be subject
to backup withholding tax and information reporting unless the beneficial owner
certifies, under penalties of perjury, that it is not a United States person or
otherwise establishes an exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Series B Notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities. Compass has agreed that it will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resales for a period of up to one year after the
expiration date, or for such shorter period that will terminate when such
broker-dealers have sold all of such Series B Notes.
Compass will not receive any proceeds from any sale of Series B Notes by
broker-dealers. Series B Notes received by broker-dealers for their own accounts
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Series B Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Series B Notes. Any
broker-dealer that resells Series B Notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
Compass has been advised by two of the initial purchasers of the outstanding
notes that following completion of the exchange offer they intend to make a
market in the Series B Notes to be issued in the exchange offer. However, such
entities are under no obligation to do so and any such market-making activities
with respect to the Series B Notes may be discontinued at any time.
107
<PAGE>
LEGAL MATTERS
The validity of the Series B Notes offered hereby will be passed upon for
Compass by Morgan, Lewis & Bockius LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Compass, the financial statements
of Aeromil, the consolidated financial statements of Brittain Machine, the
financial statements of Barnes Machine, the combined financial statements of
Sea-Lect and the consolidated financial statements of Y.F. Americas, Inc. and
Subsidiary appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, to the extent indicated in
their reports thereon also appearing elsewhere herein and in the registration
statement. Such financial statements have been included herein in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Brittain Machine appearing in this
prospectus and registration statement have been audited by Grant Thornton LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein and in the registration statement. Such consolidated
financial statements have been included herein in reliance upon such reports
given on the authority of such firm as experts in accounting and auditing.
The financial statements of Lamsco West, Inc. appearing in this prospectus
and registration statement have been audited by McGladrey & Pullen, LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein and in the registration statement. Such financial
statements have been included herein in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.
108
<PAGE>
COMPASS AEROSPACE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMPASS AEROSPACE CORPORATION
For the three months ended March 31, 1999 and March 31, 1998
Consolidated Condensed Balance Sheets at March 31, 1999 (unaudited) and December 31, 1998................ F-3
Consolidated Condensed Statements of Income (unaudited).................................................. F-4
Consolidated Condensed Statements of Cash Flows (unaudited).............................................. F-5
Notes to Unaudited Interim Consolidated Condensed Financial Statements................................... F-6
For the year ended December 31, 1998 and for the period from October 21, 1997 (date of incorporation)
through December 31, 1997
Report of Independent Auditors........................................................................... F-8
Consolidated Balance Sheets.............................................................................. F-9
Consolidated Statements of Income........................................................................ F-10
Consolidated Statements of Stockholders' Equity.......................................................... F-11
Consolidated Statements of Cash Flows.................................................................... F-12
Notes to Consolidated Financial Statements............................................................... F-13
AEROMIL ENGINEERING COMPANY
For the period from January 1, 1997 through November 25, 1997
Report of Independent Auditors........................................................................... F-24
Balance Sheet............................................................................................ F-25
Statement of Operations and Retained Earnings............................................................ F-26
Statement of Cash Flows.................................................................................. F-27
Notes to Financial Statements............................................................................ F-28
BRITTAIN MACHINE, INC.
For the period from July 1, 1997 through April 21, 1998
Report of Independent Certified Public Accountants....................................................... F-34
Consolidated Balance Sheet............................................................................... F-35
Consolidated Statement of Earnings and Retained Earnings................................................. F-36
Consolidated Statement of Cash Flows..................................................................... F-37
Notes to Consolidated Financial Statements............................................................... F-38
For the years ended June 30, 1997 and June 30, 1996
Report of Independent Certified Public Accountants....................................................... F-45
Report of Independent Auditors........................................................................... F-46
Consolidated Balance Sheets.............................................................................. F-47
Consolidated Statements of Earnings and Retained Earnings................................................ F-49
Consolidated Statements of Cash Flows.................................................................... F-50
Notes to Consolidated Financial Statements............................................................... F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
BARNES MACHINE, INC.
For the period from October 1, 1997 through April 21, 1998 and for the year ended September 30, 1997
Report of Independent Auditors........................................................................... F-59
Balance Sheets........................................................................................... F-60
Statements of Income and Retained Earnings............................................................... F-61
Statements of Cash Flows................................................................................. F-62
Notes to Financial Statements............................................................................ F-63
SEA-LECT PRODUCTS, INC.
For the period from January 1, 1998 through May 11, 1998 and for the year ended December 31, 1997
Report of Independent Auditors........................................................................... F-68
Combined Balance Sheets.................................................................................. F-69
Combined Statements of Income............................................................................ F-70
Combined Statements of Shareholders' Equity.............................................................. F-71
Combined Statements of Cash Flows........................................................................ F-72
Notes to Combined Financial Statements................................................................... F-73
LAMSCO WEST, INC.
For the period from January 4, 1998 through November 20, 1998 and for the years ended January 3, 1998 and
December 28, 1996
Independent Auditor's Report............................................................................. F-76
Balance Sheets........................................................................................... F-77
Statements of Income..................................................................................... F-78
Statements of Retained Earnings.......................................................................... F-79
Statements of Cash Flows................................................................................. F-80
Notes to Financial Statements............................................................................ F-81
Y.F. AMERICAS, INC. (now known as Modern Manufacturing, Inc.)
For the years ended December 31, 1998, December 31, 1997 and December 31, 1996
Report of Independent Auditors........................................................................... F-85
Consolidated Balance Sheets.............................................................................. F-86
Consolidated Statements of Income........................................................................ F-87
Consolidated Statements of Shareholders' Equity.......................................................... F-88
Consolidated Statements of Cash Flows.................................................................... F-89
Notes to Consolidated Financial Statements............................................................... F-90
</TABLE>
F-2
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................................................ $ 10,050 $ 7,871
---------- ------------
---------- ------------
Accounts receivable, net............................................................. 15,406 19,553
Inventories.......................................................................... 32,749 32,631
Prepaid expenses and other current assets............................................ 3,924 3,407
---------- ------------
Total current assets................................................................... 62,129 63,462
---------- ------------
---------- ------------
Property and equipment, net............................................................ 57,216 58,914
Goodwill, net.......................................................................... 118,915 120,412
Other assets........................................................................... 12,793 12,717
---------- ------------
Total assets........................................................................... $ 251,053 $ 255,505
---------- ------------
---------- ------------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable..................................................................... $ 8,669 $ 10,827
Accrued expenses..................................................................... 10,546 9,910
Current portion of long-term debt and capital leases................................. 4,511 4,632
---------- ------------
Total current liabilities.............................................................. 23,726 25,369
Deferred income taxes.................................................................. 7,845 7,845
Long-term debt and capital leases, less current portion................................ 190,619 192,336
Stockholders' equity:
Common stock......................................................................... 248 248
Paid-in capital...................................................................... 28,718 28,718
Retained earnings.................................................................... (103) 989
---------- ------------
Total stockholders' equity............................................................. 28,863 29,955
---------- ------------
Total liabilities and stockholders' equity............................................. $ 251,053 $ 255,505
---------- ------------
---------- ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net sales.................................................................................... $ 34,392 $ 8,555
Cost of sales................................................................................ 24,578 6,749
--------- ---------
9,814 1,806
Selling, general and administrative expenses................................................. 4,765 600
Amortization of goodwill..................................................................... 1,497 455
--------- ---------
6,262 1,055
Operating income............................................................................. 3,552 751
Interest expense, net........................................................................ 5,074 361
Other expense................................................................................ 512
--------- ---------
Income (loss) before income taxes............................................................ (2,034) 390
Income tax expense (benefit)................................................................. (942) 152
--------- ---------
Net income (loss)............................................................................ $ (1,092) $ 238
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Operating activities
Net income (loss)............................................................................. $ (1,092) $ 238
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization............................................................... 4,374 615
Changes in operating assets and liabilities:
Accounts receivable....................................................................... 4,147 (1,310)
Inventories............................................................................... (118) 43
Prepaid expenses and other assets......................................................... (1,083) 41
Accounts payable.......................................................................... (2,158) 1,108
Accrued expenses and other liabilities.................................................... 636 (539)
--------- ---------
Net cash (used in) provided by operating activities........................................... 4,706 196
Investing activities
Purchase of property and equipment............................................................ (689) (727)
--------- ---------
Net cash used in investing activities......................................................... (689) (727)
Financing activities
Proceeds from long-term debt.................................................................. -- 801
Principal payments on long-term debt.......................................................... (1,838) --
--------- ---------
Net cash (used in) provided by financing activities........................................... (1,838) 801
--------- ---------
Net increase in cash.......................................................................... 2,179 270
Cash and cash equivalents at beginning of period.............................................. 7,871 443
--------- ---------
Cash and cash equivalents at end of period.................................................... $ 10,050 $ 713
--------- ---------
--------- ---------
EBITDA........................................................................................ $ 7,601 $ 1,366
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-5
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for fair
presentation, with respect to the interim financial statements have been
included. The results of operations for the three-month period ended March 31,
1999 is not necessarily indicative of the results for the full year ending
December 31, 1999. For further information, refer to the Compass Aerospace
Corporation consolidated financial statements and footnotes thereto for the year
ended December 31, 1998.
The accompanying consolidated financial statements include the accounts of
Compass Aerospace Corporation and its wholly owned subsidiaries, Western Methods
Machinery Corporation, Aeromil Engineering Company, Barnes Machine, Inc.,
Brittain Machine, Inc., Wichita Manufacturing, Inc., Sea-Lect Products, Inc.,
Pacific Hills Manufacturing Co., and Modern Manufacturing, Inc. (collectively,
the Company). All significant intercompany accounts have been eliminated in
consolidation.
2. OTHER FINANCIAL INFORMATION
Earnings before interest, income taxes, depreciation, goodwill amortization
and management fees for the periods ended March 31, 1999 and March 31, 1998 are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Operating Income........................................................... $ 3,552 $ 751
Plus:
Depreciation............................................................. 2,387 455
Amortization............................................................. 1,497 160
Management Fees.......................................................... 165 --
--------- ---------
EBITDA..................................................................... $ 7,601 $ 1,366
--------- ---------
--------- ---------
</TABLE>
3. YEAR 2000 COMPLIANCE
The Year 2000 issue concerns the inability of information systems to
recognize properly and process date-sensitive information beyond January 1,
2000.
The Company has developed plans to address the possible impact of the Year
2000 issue on its computer systems. In 1998, the Company decided to replace its
Year 2000 non-compliant systems and install replacement systems. The
installation of the replacement systems is currently underway and the Company
believes it will complete its replacement program by September 30, 1999.
The Company is currently developing a plan to evaluate Year 2000 compliance
for all non-information technology systems such as telephone systems, fax
machines, security systems, etc. The Company expects to
F-6
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
3. YEAR 2000 COMPLIANCE (CONTINUED)
complete its evaluation and remediation of non-compliant, non-information
technology systems by September 30, 1999.
The Company is developing a plan to identify third parties with which it has
a significant business relationship and to survey such parties as to their Year
2000 compliance. The Company cannot ensure that all third parties significant to
the Company's operations will be compliant by December 31, 1999. The Company
believes a reasonably likely worst case scenario resulting from non-compliance
by certain of the Company's major customers or critical vendors could include
adverse effects on the Company's revenue collection, disbursements and
communications, as well as the scheduling and delivery of inventory resulting in
a material adverse effect on the Company's business, financial condition or
results of operations. In addition, loss of utility service resulting from
disruptions in power generation, transmission or distribution could adversely
affect the Company's manufacturing facilities, leading to delays in or the
inability to provide products to the Company's customers, resulting in a
material adverse effect on the Company's business, financial condition or
results of operations. If it appears likely that any major customer or critical
vendor will not be compliant, the Company intends to develop contingency plans,
if possible, to mitigate the impact of non-compliance.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Compass Aerospace Corporation
We have audited the accompanying consolidated balance sheets of Compass
Aerospace Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related statements of income, stockholders' equity, and cash flows for the year
ended December 31, 1998 and the period October 21, 1997 (date of incorporation)
through December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 21(b). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Compass
Aerospace Corporation and subsidiaries at December 31, 1998 and 1997 and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1998 and the period October 21, 1997 (date of incorporation)
through December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presented fairly, in all material respects the information set forth
therein.
Long Beach, California
March 15, 1999
F-8
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
<S> <C> <C>
1998 1997
---------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 7,871 $ 443
Accounts receivable less allowance for doubtful accounts of $756 in 1998 and $31 in
1997................................................................................... 19,553 2,168
Inventories.............................................................................. 32,631 5,559
Deferred income taxes.................................................................... 2,100 123
Refundable income taxes.................................................................. 889 --
Prepaid expenses and other current assets................................................ 418 350
---------- ---------
Total current assets..................................................................... 63,462 8,643
Property and equipment, net.............................................................. 58,914 11,947
Goodwill, net of accumulated amortization of $2,519 in 1998 and $53 in 1997.............. 120,412 13,199
Other assets............................................................................. 12,717 --
---------- ---------
Total assets............................................................................. $ 255,505 $ 33,789
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 10,827 $ 2,084
Accrued liabilities...................................................................... 9,910 742
Income taxes payable..................................................................... -- 889
Current portion of long-term debt and capital leases..................................... 4,632 2,104
Line of credit........................................................................... -- 4,034
---------- ---------
Total current liabilities................................................................ 25,369 9,853
Deferred income taxes.................................................................... 7,845 415
Long-term debt and capital leases, less current portion.................................. 192,336 8,447
Mezzanine debt with related party........................................................ -- 6,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares:
36,000,000 at December 31, 1998
20,000,000 at December 31, 1997
Issued and Outstanding:
24,775,628 at December 31, 1998
9,000,000 at December 31, 1997....................................................... 248 90
Paid-in capital.......................................................................... 28,718 8,910
Retained earnings........................................................................ 989 74
---------- ---------
Total stockholders' equity............................................................... 29,955 9,074
---------- ---------
Total liabilities and stockholders' equity............................................... $ 255,505 $ 33,789
---------- ---------
---------- ---------
</TABLE>
See accompanying notes.
F-9
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
Net sales............................................................................. $ 96,547 $ 3,057
Cost of sales......................................................................... 70,410 2,386
------------ ------
Gross profit.......................................................................... 26,137 671
Selling, general and administrative expenses.......................................... 14,537 404
------------ ------
Operating income...................................................................... 11,600 267
Interest expense...................................................................... 8,493 166
Other (expense) income................................................................ (670) 16
------------ ------
Income before income taxes............................................................ 2,437 117
Income tax expense.................................................................... 1,522 43
------------ ------
Net income............................................................................ $ 915 $ 74
------------ ------
------------ ------
</TABLE>
F-10
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------- ----------- ----------- ----------- ------------
COMMON STOCK
--------------------------
<S> <C> <C> <C> <C> <C>
Balance at October 21, 1997 (date of
incorporation)................................... $ -- $ -- $ -- $ -- $ --
Proceeds from initial private placement of stock... 9,000,000 90 8,910 -- 9,000
Net income......................................... -- -- 74 74
------------- ----- ----------- ----- ------------
Balance at December 31, 1997....................... 9,000,000 90 8,910 74 9,074
Issuance of stock.................................. 582,376 6 460 -- 466
Conversion of mezzanine debt to stock.............. 6,000,000 60 5,940 -- 6,000
Issuance of stock.................................. 9,193,252 92 13,408 -- 13,500
Net income......................................... -- -- -- 915 915
------------- ----- ----------- ----- ------------
Balance at December 31, 1998....................... 24,775,628 $ 248 $ 28,718 $ 989 $ 29,955
------------- ----- ----------- ----- ------------
------------- ----- ----------- ----- ------------
</TABLE>
See accompanying notes.
F-11
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21
YEAR ENDED THROUGH
DECEMBER 31 DECEMBER 31
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................................... $ 915 $ 74
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation........................................................................ 5,974 166
Amortization........................................................................ 2,466 53
Stock issued for compensation....................................................... 466 --
Deferred taxes...................................................................... (317) --
Changes in operating assets and liabilities:
Accounts receivable............................................................... (681) 249
Inventories....................................................................... (5,253) 308
Prepaid expenses and other assets................................................. (14,829) (136)
Accounts payable.................................................................. 2,432 (530)
Accrued expenses and other liabilities............................................ 2,150 85
------------ ------------
Net cash (used in) provided by operating activities................................. (6,677) 269
INVESTING ACTIVITIES
Purchase of property and equipment.................................................. (5,701) (25)
Acquired businesses, net of cash acquired........................................... (166,416) (23,431)
------------ ------------
Net cash used in investing activities............................................... (172,117) (23,456)
FINANCING ACTIVITIES
Proceeds from note offering......................................................... 110,000 --
Proceeds from long-term debt........................................................ 81,000 10,262
Proceeds from mezzanine debt........................................................ -- 6,000
Proceeds from sale of stock......................................................... 13,500 9,000
Payments on long-term debt and capital leases....................................... (14,244) (5,666)
Net (decrease) increase in line of credit........................................... (4,034) 4,034
------------ ------------
Net cash provided by financing activities........................................... 186,222 23,630
------------ ------------
Net increase in cash................................................................ 7,428 443
Cash and cash equivalents at beginning of period.................................... 443 --
------------ ------------
Cash and cash equivalents at end of period.......................................... $ 7,871 $ 443
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest............................................................................ $ 6,600 $ 33
------------ ------------
------------ ------------
Income taxes........................................................................ $ 2,100 $ 110
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Conversion of mezzanine debt to stock............................................... $ 6,000 $ --
------------ ------------
------------ ------------
Assets acquired under capital leases................................................ $ 4,672 $ --
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-12
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Compass Aerospace Corporation and its wholly owned subsidiaries, Western Methods
Machinery Corporation (Western), Aeromil Engineering Company (Aeromil), Barnes
Machine, Inc. (Barnes), Brittain Machine Inc. (Brittain), Wichita Manufacturing
Inc. (Wichita), Sea-Lect Products Inc. (Sea-Lect), Lamsco West, Inc. (Lamsco),
and Modern Manufacturing, Inc. (Modern) (collectively, the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
BUSINESS
The Company was founded in October 1997 to become a major supplier of
precision machined individual parts, and of higher value-added sub-assemblies,
manufacturing kits and structural components used by aerospace manufacturers in
structural frames and other metal aircraft components. Customers include
domestic and foreign entities.
The Company manufactures its products using various metals including
aluminum, titanium and steel through the use of precision computer numerically
controlled machine tools. The Company uses a variety of advanced techniques and
machinery including horizontal and vertical machining centers and
state-of-the-art high-speed precision machining equipment, as well as
three-spindle five-axis gantry mills.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash and
cash equivalents are held by major financial institutions. The Company is
subject to risk for amounts in excess of federal deposit insurance limits.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company conducts a major portion of its business with a limited number of
customers. Credit is extended based upon an evaluation of each customer's
financial condition, with terms consistent with those present throughout the
industry. Typically, the Company does not require collateral from customers.
Sales to the Boeing Company accounted for 72% and 77% of total consolidated
sales for the year ended December 31, 1998 and for the period October 21, 1997
through December 31, 1997, respectively. Trade accounts receivable from the
Boeing Company accounted for 63% and 76% of total consolidated accounts
receivable as of December 31, 1998 and 1997, respectively.
F-13
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents approximate cost due to the short
period of time to maturity. Fair values of long-term debt, which have been
determined based on borrowing rates currently available to the Company for loans
with similar terms of maturity, approximate the carrying amounts in the
consolidated financial statements.
INVENTORIES
Inventories are valued under methodologies that approximate the first-in
first-out method of cost, and are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The provision for depreciation
of property and equipment, which includes amortization of assets under capital
leases, is generally computed on the straight-line method over the following
useful lives:
<TABLE>
<S> <C>
Buildings and improvements...... 5-40 years
Machinery and equipment......... 2-10 years
Furniture and fixtures.......... 5-10 years
Lease term or life of asset, whichever is
Leasehold improvements.......... shorter
</TABLE>
GOODWILL
Goodwill represents the excess of the purchase price over the estimated fair
value of the net assets acquired in connection with business combinations.
Amortization is provided for on a straight-line basis over 20 years.
Amortization expense related to goodwill was $2,466,000 for the year ended
December 31, 1998 and $53,000 for the period October 21, 1997 through December
31, 1997.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying values of long-lived assets are reviewed periodically and if
future cash flows are believed insufficient to recover the remaining carrying
value of the related assets, the carrying value is written down to its estimated
fair value in the period the impairment is identified.
STOCK-BASED COMPENSATION
The Company elected to continue to account for stock-based compensation
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees," and related interpretations. Under the provisions of APB
25, compensation expense is measured at the grant date for the difference
between the fair value of the stock and the exercise price.
F-14
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are damaged
or defective. Provisions are made currently for estimated returns.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income," effective January 1, 1998. This Statement
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. There was no impact on the financial
statements of the Company due to the adoption of SFAS No. 130.
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," was also adopted on January 1, 1998, which requires the Company to
report financial and descriptive information about its reportable operating
segments. There was no impact on the financial statements of the Company due to
the adoption of SFAS No. 131.
Also effective January 1, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
statement supersedes the disclosure requirements in Statements of Financial
Accounting Standards 87, "Employers' Accounting for Pensions," 88, "Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans for
Termination Benefits," and 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." The objective of SFAS No. 132 is to improve and
standardize disclosures regarding pensions and postretirement benefits. There
was no impact on the financial statements of the Company due to the adoption of
SFAS No. 132.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. The Company
believes that there will be no impact due to the adoption of Statement No. 133.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which is effective for fiscal years beginning after December 15,
1998. SOP 98-1 requires capitalization of qualified computer software costs with
amortization recognized over their estimated useful lives. The Company believes
that there will be no impact due to the adoption of SOP 98-1.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities," which is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires costs of
start-up activities, as defined in the Statement, to be expensed as incurred.
The Company believes that there will be no impact due to the adoption of SOP
98-5.
2. ACQUISITIONS
Each of the following transactions has been accounted for under the purchase
method of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations include
F-15
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. ACQUISITIONS (CONTINUED)
revenues and expenses related to these entities since their respective closing
dates. The financial statements reflect the preliminary allocations of the
purchase price, though the purchase price allocation has not been finalized on
certain of the Company's business combinations.
During 1997, the Company funded the November 26, 1997 acquisitions of
Western and Aeromil under its then existing credit facility. The purchase prices
for Western and Aeromil were $16.8 million and $13.2 million, respectively.
During 1998, the Company paid down the debt related to the 1997 acquisitions and
funded its 1998 acquisitions through the proceeds provided by the $110 million
Offering and the $170 million Credit Agreement (see Notes 5 and 7).
Each of the businesses discussed below, acquired during 1998, manufactures
parts for aerospace customers, including precision machined parts from titanium,
aluminum, and steel.
On April 21, 1998, the Company acquired all of the outstanding common stock
of Barnes Machine, Inc., located in Shelton, Washington. The Company also
acquired certain land and buildings owned by the stockholders and used in the
operation of the business. The purchase price was $15.0 million. The Company
also retired debt of approximately $0.8 million upon acquisition.
On April 21, 1998, the Company acquired all of the outstanding stock of
Brittain Machine, Inc. and its wholly-owned subsidiary, Wichita Manufacturing,
Inc. Brittain is located in Wichita, Kansas, and Wichita is located in Cerritos,
California. The purchase price was $54.9 million. The Company also retired debt
of approximately $3.0 million upon acquisition.
On May 11, 1998, the Company acquired certain assets and liabilities of
Sea-Lect Products, Inc. and all of the outstanding common stock of its affiliate
J&J Leasing (collectively Sea-Lect). Sea-Lect is located in Kent, Washington.
The purchase price was $12.2 million. The Company also retired debt of $0.9
million upon acquisition.
On November 20, 1998, the Company purchased all of the outstanding stock of
Lamsco West, Inc. Lamsco's operations are located in Santa Clarita, California,
and Kent, Washington. The purchase price was $73.7 million. At December 31,
1998, $2.5 million is held for the seller in escrow pending fulfillment of
provisions in the purchase agreement.
On December 31, 1998, the Company acquired all of the outstanding common
stock of Modern Manufacturing, Inc. (formerly Y.F. Americas, Inc.), located in
Renton, Washington. The purchase price was $23.1 million. At December 31, 1998,
$2.5 million is held in escrow for the seller pending fulfillment of certain
provisions in the purchase agreement.
The following unaudited consolidated supplemental pro forma information
includes the accounts of Compass Aerospace Corporation and its wholly owned
subsidiaries, Western, Aeromil, Barnes, Brittain, Wichita Manufacturing,
Sea-Lect, Lamsco and Modern. The pro forma information assumes that all the
acquisitions were consummated on January 1, 1997 (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Net sales............................................................. $ 183,444 $ 150,785
---------- ----------
---------- ----------
Net income............................................................ $ 8,188 $ 5,745
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
2. ACQUISITIONS (CONTINUED)
The pro forma consolidated results of operations included adjustments to
give effect to amortization of goodwill, interest on acquisition debt,
additional depreciation expense based on the fair market value of the property,
plant and equipment acquired and certain other adjustments, together with the
income tax effects. The unaudited consolidated pro forma information is not
necessarily indicative of the combined results that would have occurred had the
acquisitions and borrowings occurred on those dates, nor is it indicative of the
results that may occur in the future.
3. INVENTORY
The following is a summary of inventory (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Raw materials............................................................ $ 10,048 $ --
Work in process.......................................................... 16,970 5,356
Finished goods........................................................... 5,613 203
--------- ---------
$ 32,631 $ 5,559
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, which is recorded at
cost (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Land.................................................................... $ 1,991 $ --
Building and improvements............................................... 6,098 --
Furniture and fixtures.................................................. 1,376 264
Leasehold improvements.................................................. 547 301
Machinery and equipment................................................. 55,042 11,548
--------- ---------
65,054 12,113
Accumulated depreciation................................................ (6,140) (166)
--------- ---------
$ 58,914 $ 11,947
--------- ---------
--------- ---------
</TABLE>
Included in machinery and equipment is approximately $2,565,000 of equipment
under capital lease arrangements (see Note 12).
5. DEBT OFFERING
On April 21, 1998, the Company completed a $110 million debt offering of
10 1/8% Senior Subordinated Notes (the Notes) due 2005 (the Offering). The Notes
are unconditionally guaranteed on a senior subordinated basis by the Company's
existing subsidiaries and all future subsidiaries. The net proceeds from the
Offering were used to repay all outstanding bank debt, to finance the
acquisitions, and for general corporate purposes. The transaction costs of $7.3
million incurred in connection with the Offering were recorded as a deferred
charge and are amortized over the seven-year life of the Notes using the
straight-line method.
F-17
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. DEBT OFFERING (CONTINUED)
The Notes mature on April 15, 2005, unless redeemed prior to that time.
Interest on the Notes is payable semiannually on April 15 and October 15 of each
year, commencing October 15, 1998, to holders of record. The Notes will be
redeemable at the option of the Company, in whole or in part, on or after April
15, 2002 at the redemption price as defined in the agreement. In addition, on or
before April 15, 2001 the Company may redeem up to 35% of the Notes at a
redemption price of 110.125% of the principal amount with the net proceeds of
one or more public equity offerings as defined and provided for in the
agreement.
Under provisions of the indenture applicable to the Notes, the Company may,
under certain circumstances, be limited in its ability to incur additional
indebtedness or issue Disqualified Capital Stock (as defined), pay dividends or
make other distributions, create certain liens on assets, sell certain assets
and stock of subsidiaries, enter into certain transactions with affiliates, and
effect certain mergers and consolidations. The Company is also subject to
certain restrictive covenants and is required to maintain certain financial
ratios in connection with the Notes.
6. MEZZANINE DEBT
In connection with the acquisitions of Western Methods and Aeromil, the
Company entered into a subordinated note with its largest stockholder for $6
million bearing interest at 11%, payable quarterly. On March 18, 1998, the Note
and related accrued interest was exchanged for 6 million shares of the Company's
common stock.
7. BANK BORROWINGS
Long-term debt and capital leases consist of the following (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Senior subordinated notes.............................................. $ 110,000 $ --
Term Loan A............................................................ 35,000 --
Term Loan B............................................................ 45,000 --
Acquisition line of credit............................................. 1,000 --
Capital leases and other............................................... 5,968 10,551
---------- ---------
$ 196,968 $ 10,551
---------- ---------
---------- ---------
</TABLE>
On November 20, 1998, the Company entered into a $170 million credit
agreement (Credit Agreement) with BankBoston, N.A. and its participants. This
credit agreement, as amended and restated on February 11, 1999, replaced a prior
revolving credit facility with BankBoston. The credit agreement includes a $25
million revolving credit note (Revolver), Term Loan A with available lending of
up to $35 million, Term Loan B with available lending of up to $45 million, and
an acquisition line of credit (Acquisition Line) for up to $65 million. The
transaction costs of $5.2 million incurred in connection with the credit
agreement were recorded as a deferred charge and are amortized over the life of
the credit agreement using the straight-line method. The credit agreement
accrues interest at variable rates based upon the bank's prime rate or
Eurocurrency rate and is payable quarterly. The interest rate in effect at
F-18
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. BANK BORROWINGS (CONTINUED)
December 31, 1998, was approximately 10.1%. The Revolver matures November 2003.
Term Loan A is payable in equal quarterly installments, totaling 10% of the
outstanding principal in 1999, 15% of the outstanding principal in 2000 and
2001, 23.75% of the outstanding principal in 2002, and the remainder in 2003.
Term Loan B is payable in equal quarterly installments totaling 1% of the
outstanding principal in 1999 through 2003, and 47.5% of the outstanding
principal in 2004 and 2005. Payments on the Acquisition Line begin at December
31, 2000 and are payable in 13 equal quarterly installments. The credit
agreement contains certain restrictive covenants and requires the maintenance of
certain financial ratios.
As prescribed by and defined in the credit agreement, availability under the
Revolver is limited to 85% of eligible accounts receivable, plus 50% of the net
book value of eligible inventory, plus 25% of the orderly liquidation value of
machinery and equipment, subject to reserves that may be established by the
lender. Subject to these provisions, the Company has $25 million available under
the Revolver and an initial availability of $35 million under the Acquisition
Line. The remaining $30 million of the Acquisition Line will become available
provided the Company raises one dollar of equity for every additional dollar of
borrowings over the initial $35 million of availability.
As of December 31, 1997, the Company had a note payable to a bank for $10.3
million. The note was secured by substantially all of the Company's assets and
accrued interest at 9.5%. Interest and principal payments were due monthly. The
note had a maturity date of November 2000. At December 31, 1997, the Company
also had outstanding an installment loan with a bank for $300,000 that was
payable monthly with 8.6% interest and an original maturity of October 2002.
Both of these loans were paid in full during 1998 and there are no outstanding
balances under either credit facility at the end of 1998.
Maturities of long-term debt, excluding capital lease payments (see Note 12)
as of December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 4,304
2000.............................................................. 6,159
2001.............................................................. 6,422
2002.............................................................. 9,509
2003.............................................................. 13,633
Thereafter........................................................ 154,376
---------
194,403
Less current portion.............................................. 4,304
---------
Long-term debt.................................................... $ 190,099
---------
---------
</TABLE>
8. INCOME TAXES
Deferred income taxes are computed using the liability method and reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
income tax purposes. The provision for income taxes reflects the taxes
F-19
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. INCOME TAXES (CONTINUED)
to be paid for the period and the change during the period in the deferred tax
assets and liabilities. Significant components of the Company's deferred tax
assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accrued expenses not deductible for tax............................... $ 735 $ 62
Inventories........................................................... 1,365 61
--------- ---------
Total deferred tax assets............................................. 2,100 123
Deferred tax liabilities:
Depreciation and amortization......................................... (7,645) --
Other................................................................. (200) (415)
--------- ---------
Total deferred tax liabilities........................................ (7,845) (415)
--------- ---------
Net deferred tax liability............................................ $ (5,745) $ (292)
--------- ---------
--------- ---------
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21,
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -----------------
<S> <C> <C>
Current:
Federal........................................................ $ 1,770 $ 36
State.......................................................... 69 7
------ ---
1,839 43
Deferred:
Federal........................................................ (270) --
State.......................................................... (47) --
------ ---
(317)............................................................ --
------ ---
$ 1,522 $ 43
------ ---
------ ---
</TABLE>
F-20
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
8. INCOME TAXES (CONTINUED)
The reconciliation of income tax at the U.S. federal statutory rate to
income tax expense is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21,
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Income tax at U.S. statutory rates............................... 34% 34%
State income tax, net of federal benefit......................... 3 3
Goodwill......................................................... 27 --
Other............................................................ (2) --
-- --
62% 37%
-- --
-- --
</TABLE>
9. STOCKHOLDERS' EQUITY
In October 1997, the Company was incorporated with the issuance of 9 million
shares of common stock in a private placement, generating net proceeds of $9
million. The proceeds from this placement were primarily used to acquire Western
and Aeromil.
In April 1998, the Company amended its articles of incorporation to increase
the number of authorized shares from 20 million to 36 million and to establish a
second class of common stock, Class B. All rights remain the same as Class A,
except Class B stock is nonvoting and contains conversion rights based upon
certain criteria.
In connection with the Offering, the Company issued approximately 5.4
million shares of Class B and 3.7 million shares of Class A shares for $13.5
million in cash. Additionally, 582,376 shares of stock were issued to board
members and the president as compensation for services related to the
acquisitions. Shares outstanding as of December 31, 1998, under Class A and
Class B, amounted to 19,327,775 and 5,447,853, respectively.
10. STOCK OPTION PLAN
In March 1998, the Company's Board of Directors adopted, and the
shareholders approved, the Compass Aerospace Corporation 1998 Stock Incentive
Plan (the Plan). The Plan will be administered by the Compensation Committee of
the Board of Directors (the Committee). All officers, directors, employees and
independent contractors of the Company are eligible for discretionary awards
under the Plan. The Plan provides for stock-based incentive awards, including
incentive stock options, non-qualified stock options and restricted stock. The
Plan permits the Committee to select eligible persons to receive awards and to
determine certain terms and conditions of such awards, including the vesting
schedule and exercise price of each award, provided, that the option exercise
price may not be less than 85% of the fair market value per share of the
Company's Common Stock on the date of the grant. Under the Plan, no participant
may be granted incentive stock options that are first exercisable in any one
calendar year with fair market value in excess of $100,000. 2,000,000 shares of
the Company's Common Stock have been reserved for issuance under the Plan.
F-21
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
10. STOCK OPTION PLAN (CONTINUED)
No options were granted as of December 31, 1997. The status of the Company's
stock option plan during 1998 is summarized as follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTIONS
-----------
<S> <C>
Outstanding at January 1, 1998.................................................... --
Granted........................................................................... 888,291
Exercised......................................................................... --
Canceled.......................................................................... --
-----------
Outstanding at December 31, 1998.................................................. 888,291
-----------
-----------
Options Exercisable at December 31, 1998.......................................... 60,000
-----------
-----------
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options, as allowed for
under FASB Statement No. 123, "Accounting for Stock-Based Compensation." Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma net income, as required to be disclosed by SFAS No. 123,
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement, would be $840,000. The fair value for
these options was estimated at the date of grant using a binomial option pricing
model with the following weighted-average assumptions for December 31, 1998:
dividend yield of 0.0%; volatility of 36.30%; risk-free interest rates ranging
from 4.58% to 4.66% depending on a weighted-average expected life ranging from
two to four years.
The weighted average fair value of options granted during 1998 is $.37 per
option. The weighted average exercise price for 1998 was $1.22. The weighted
average remaining contractual life of options outstanding is 9.5 years.
During 1998, the Company approved several stock option agreements to
purchase 888,291 shares of the Company's common stock at an exercise price
ranging from $1.00 to $1.47 per share. All options granted have 10-year terms.
One option for 60,000 shares is fully vested and immediately exercisable. The
remainder of the options vest and become exercisable at various dates through
December 1, 2002.
11. RELATED PARTY TRANSACTIONS
The Company has entered into a management fee agreement with certain
entities controlled by directors of the Company. Under this agreement, the
Company is required to pay an annual aggregate amount equal to $200,000 plus
1.5% of the Company's earnings before income taxes, depreciation, amortization,
and management fees. The Company also typically pays advisory fees to these
affiliates in an amount equal to an aggregate of 1% of the consideration paid
for each business acquired by the Company. Management and advisory fees paid to
these affiliates were $3,165,000 and $282,000 in 1998 and 1997.
F-22
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
12. COMMITMENTS AND CONTINGENCIES
The Company leases certain machinery and equipment under capital leases
expiring at various dates through 2007. The Company also leases office spaces
under operating leases with terms expiring at various dates through 2008. Rent
expense for operating leases amounted to $1,125,000 and $53,000 for the year
ended December 31, 1998 and the period October 21 through December 31, 1997,
respectively.
Future minimum payments by year and in the aggregate under all
non-cancelable operating and capital leases with terms in excess of one year at
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31 LEASES LEASES
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
1999..................................................................... $ 1,205 $ 494
2000..................................................................... 1,110 494
2001..................................................................... 1,122 494
2002..................................................................... 1,126 494
2003..................................................................... 1,036 484
Thereafter............................................................... 3,574 725
----------- ---------
$ 9,173 3,185
-----------
-----------
Less amount representing interest........................................ 620
---------
Present value of net minimum lease payments.............................. 2,565
Less current portion..................................................... 328
---------
Long-term leases payable................................................. $ 2,237
---------
---------
</TABLE>
During the normal course of business, the Company is involved in various
lawsuits. Management, in consultation with legal counsel, does not believe that
the outcome of these lawsuits will have a materially adverse impact on the
financial position or future operations of the Company.
13. PROFIT SHARING PLANS
As a result of the acquisitions of the subsidiaries, the Company has
maintained the profit-sharing plans covering all of its eligible employees for
those entities acquired. Contributions to the plans are at the discretion of the
Board of Directors and may not exceed the maximum amount permitted by the
Internal Revenue Code. During the year ended December 31, 1998 and the period
from October 21, 1997 through December 31, 1997, the Company charged $1,078,000
and $26,000, respectively, to expense pursuant to the Plans.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Aeromil Engineering Company
We have audited the accompanying balance sheet of Aeromil Engineering
Company as of November 25, 1997, and the related statements of operations and
retained earnings and cash flows for the period January 1, 1997 through November
25, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aeromil Engineering Company
at November 25, 1997, and the results of its operations and its cash flows for
the period January 1, 1997 through November 25, 1997, in conformity with
generally accepted accounting principles.
Long Beach, California
March 19, 1998
F-24
<PAGE>
AEROMIL ENGINEERING COMPANY
BALANCE SHEET
NOVEMBER 25, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 182
Accounts receivable.............................................................. 1,680
Inventories...................................................................... 3,213
Related party receivables........................................................ 32
Prepaid expenses and other assets................................................ 52
---------
Total current assets............................................................... 5,159
Property and equipment, net........................................................ 4,860
---------
Total assets....................................................................... $ 10,019
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 1,310
Accrued expenses................................................................. 276
Loan payable, shareholder........................................................ 677
Current portion of long-term debt................................................ 600
Line of credit................................................................... 1,445
---------
Total current liabilities.......................................................... 4,308
Long-term debt, less current portion............................................... 1,556
Commitments........................................................................ --
---------
Stockholders' equity:
Capital stock, $100 par value:
Authorized shares-750
Issued and outstanding shares-300.............................................. 30
Retained earnings.................................................................. 4,125
---------
Total stockholders' equity......................................................... 4,155
---------
Total liabilities and stockholders' equity......................................... $ 10,019
---------
---------
</TABLE>
See accompanying notes.
F-25
<PAGE>
AEROMIL ENGINEERING COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH NOVEMBER 25, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales.......................................................................... $ 11,077
Cost of sales...................................................................... 11,095
---------
Gross loss......................................................................... (18)
Selling, general and administrative expenses....................................... 499
---------
Operating loss..................................................................... (517)
Interest expense................................................................... (229)
Other income, net.................................................................. 48
---------
Loss before income taxes........................................................... (698)
---------
Income taxes....................................................................... 1
Net loss........................................................................... (699)
Retained earnings at beginning of period........................................... 4,824
---------
Retained earnings at end of period................................................. $ 4,125
---------
---------
</TABLE>
See accompanying notes.
F-26
<PAGE>
AEROMIL ENGINEERING COMPANY
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH NOVEMBER 25, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss............................................................................ $ (699)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation...................................................................... 681
Changes in operating assets and liabilities:
Accounts receivables............................................................ (549)
Inventories..................................................................... (283)
Prepaid expenses and other assets............................................... (7)
Accounts payable................................................................ (441)
Accrued expenses................................................................ 159
-----------
Net cash used in operating activities............................................... (1,139)
INVESTING ACTIVITIES
Increase in related party receivables............................................... (29)
Purchase of property and equipment.................................................. (1,665)
-----------
Net cash used in investing activities............................................... (1,694)
-----------
FINANCING ACTIVITIES
Proceeds from long-term debt........................................................ 2,420
Payments on long-term debt.......................................................... (343)
Net increase in line of credit...................................................... 935
-----------
Net cash provided by financing activities........................................... 3,012
-----------
Net increase in cash................................................................ 179
Cash at beginning of period......................................................... 3
-----------
Cash at end of period............................................................... $ 182
-----------
-----------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.......................................................................... $ 229
</TABLE>
See accompanying notes.
F-27
<PAGE>
AEROMIL ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 25, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Aeromil Engineering Company (the "Company"), a closely held California
corporation, manufactures medium-sized parts for aerospace customers,
specializing in the precision machining of hard metals such as titanium, as well
as the high-speed precision machining of aluminum.
Effective on the close of business on November 25, 1997 the Company sold
substantially all of its net assets to Compass Aerospace Corporation for
$7,985,000 in cash. The Company's financial statements have been prepared on a
historical basis and, as such, do not reflect any adjustments that may result
from the sale.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to limited number of customers within the aerospace
and defense industry. Credit is extended based upon an evaluation of each
customer's financial condition, with terms consistent in the industry and no
collateral required. The Company has historically incurred minimal credit
losses.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value of cash and cash equivalents, short-term borrowings and the
current portion of long-term debt approximate cost due to the short period of
time to maturity. Fair values of long-term debt, which have been determined
based on borrowing rates currently available to the Company for loans with
similar terms or maturity, approximate the carrying amounts in the financial
statements.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash and
cash equivalents are held by major financial institutions.
INVENTORIES
Inventories which consist primarily of work-in-process, are valued at
average cost, which approximates first-in first-out cost, and finished goods and
are stated at the lower of cost or market. Finished goods amounted to
approximately $192,000 at November 25, 1997.
F-28
<PAGE>
AEROMIL ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 25, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
The provision for depreciation of property and equipment is generally
computed on the straight-line method over the following useful lives:
<TABLE>
<S> <C>
Machinery and equipment.............. 8 - 10 years
Furniture and fixtures............... 5 years
Automotive equipment................. 3 - 5 years
Leasehold improvements............... Term of lease or life of asset,
whichever is shorter
</TABLE>
INCOME TAXES
The Company adopted S corporation status for both federal and state income
tax purposes. Accordingly, the Company has no current liability or provision for
federal taxes based on income. The provision for California franchise tax is at
the statutory rate applicable to S corporations.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are damaged
or defective. The effect of these programs is estimated and current period sales
and cost of sales are adjusted accordingly.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income," which is effective for
financial statements for periods beginning after December 15, 1997. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. The Company believes
there will be no impact on its financial statements due to the adoption of
Statement 130.
In June 1997 the FASB also issued Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
financial statements for periods beginning after December 15, 1997. At that
time, the Company will be required to report financial and descriptive
information about its reportable operating segments. The Company believes there
will be no impact on its financial statements due to the adoption of Statement
131.
F-29
<PAGE>
AEROMIL ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 25, 1997
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, which is recorded at
cost (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 25,
1997
------------
<S> <C>
Automotive equipment............................................................ $ 85
Furniture and fixtures.......................................................... 421
Leasehold improvements.......................................................... 450
Machinery and equipment......................................................... 12,030
------------
12,986
Allowance for depreciation...................................................... (8,126)
------------
$ 4,860
------------
------------
</TABLE>
3. LOAN PAYABLE, STOCKHOLDER
During 1996, the Company received an advance of $677,000 from a Company
stockholder. The loan is unsecured, non-interest bearing and payable on demand.
4. LINE OF CREDIT
The Company has a line of credit with National Bank of Southern California
which provides for borrowings up to $1,500,000. Interest is payable monthly at
1% over the Wall Street Journal's prime interest rate. The balance outstanding
was $1,445,000 at November 25, 1997. The line of credit is guaranteed by the
Company's stockholders and is secured by substantially all of the Company's
assets.
5. LONG-TERM DEBT
The following is a summary of long-term debt at November 25, 1997 (in
thousands):
<TABLE>
<S> <C>
Note payable to National Bank of Southern California, payable in
monthly installments of $25,000 including interest at 1% over
prime, maturity date January 3, 2001, secured by one Cincinnati
Milacron milling machine and attachments.......................... $ 750
Note payable to National Bank of Southern California, payable in
monthly installments of $25,000 plus interest at 1% over prime,
maturity July 30, 2002, secured by assets of the Company.......... 1,406
---------
2,156
Long-term Debt, less current portion................................ (600)
---------
$ 1,556
---------
---------
</TABLE>
F-30
<PAGE>
AEROMIL ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 25, 1997
5. LONG-TERM DEBT (CONTINUED)
Future minimum payments of long-term debt are (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 600
1999................................................................ 558
2000................................................................ 537
2001................................................................ 300
2002................................................................ 161
---------
$ 2,156
---------
---------
</TABLE>
6. PROFIT SHARING PLANS
The Company has a profit-sharing plan covering all of its employees.
Contributions to the plan are at the discretion of the Board of Directors and
may not exceed the maximum amount permitted by the Internal Revenue Code. The
Company did not make a contribution to the plan during the period from January
1, 1997 through November 25, 1997.
The Company has also adopted a profit sharing plan which qualifies under
Section 401(k) of the Internal Revenue Code. The plan covers all eligible
employees who may elect to contribute a percentage of their gross earnings to
the plan. Contributions to the plan by the Company equal up to a maximum of 6%
of each participating employee's annual salary. The Company's contribution to
the plan for the period from January 1, 1997 through November 25, 1997 was
$50,000.
7. PROVISION FOR CALIFORNIA FRANCHISE TAX
Deferred income taxes are computed using the liability method and reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
state income tax purposes. The provision for California franchise tax consists
of $800 California minimum franchise tax. Significant components of the
Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
NOVEMBER 25,
1997
---------------
<S> <C>
Deferred tax assets:
Net Operating Loss carryforward............................................... $ 9
Tax credit carryforward....................................................... 37
---
$ 46
Deferred tax liabilities:
Tax depreciation in excess of book............................................ (15)
---
31
Valuation allowance............................................................. (31)
---
Net deferred taxes.............................................................. --
---
---
</TABLE>
The Company is providing for deferred taxes using a rate of 1.5% for
California purposes.
F-31
<PAGE>
AEROMIL ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 25, 1997
7. PROVISION FOR CALIFORNIA FRANCHISE TAX (CONTINUED)
For California purposes, the Company has a net operating loss carryforward
of $1,097,000 available to offset its state taxable income in future years,
expiring through 2012. The Company also has an enterprise zone sales tax credit
carryforward of $36,900 available to offset its state income tax in future
years, expiring in 2010.
8. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases its manufacturing and office facility and its warehouse
space from a shareholder under ten-year noncancelable operating leases expiring
on November 25, 2007. The leases provide for periodic adjustments to the monthly
rent payments based on changes in the consumer price index. The leases also
require the Company to pay property taxes. Rent expense under these leases
amounted to $354,000 during the period from January 1, 1997 through November 25,
1997.
Future minimum lease payments by year under these leases consisted of the
following as of November 26, 1997 (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 467
1999................................................................ 471
2000................................................................ 513
2001................................................................ 513
2002................................................................ 513
Thereafter.......................................................... 2,523
---------
$ 5,000
</TABLE>
9. REVENUES FROM MAJOR CUSTOMERS
Due to the nature of the aerospace industry, the Company conducts a major
portion of its business with a limited number of customers. For the period from
January 1, 1997 through November 25, 1997, revenues from one major customer
amounted to 79% of sales. The total accounts receivable from this customer at
November 25, 1997 amounted to 70% of the total trade accounts receivable
balance.
10. IMPACT ON YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will replace
its software so that its computer systems will function properly with respect to
dates in the year 2000 and thereafter. The Company presently believes that with
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such conversions are
not made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
F-32
<PAGE>
AEROMIL ENGINEERING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 25, 1997
10. IMPACT ON YEAR 2000 (UNAUDITED) (CONTINUED)
The Company will initiate formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 issues. However, there can be no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems. The Company has
determined it has no exposure to contingencies related to the Year 2000 issue
for the products it has sold.
The Company anticipates completing the Year 2000 project no later than
December 31, 1998, which is prior to any anticipated impact on its operating
systems. Company management is currently working with outside consultants to
estimate the costs associated with replacing or modifying its operating systems.
The total cost of the project is expected to be funded through operating cash
flows and will be capitalized or expensed based upon generally accepted
accounting principles and corporate policy. To date, the Company has not
incurred any costs related to the assessment of, and preliminary efforts on, its
Year 2000 project and the development of a modification plan, purchase of new
systems and systems modifications.
F-33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Brittain Machine, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Brittain
Machine, Inc. and Subsidiary as of April 21, 1998, and the related consolidated
statements of earnings and retained earnings and cash flows for the period July
1, 1997 through April 21, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brittain
Machine, Inc. and Subsidiary as of April 21, 1998, and the consolidated results
of their operations and their consolidated cash flows for the period July 1,
1997 through April 21, 1998 in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Wichita, Kansas
July 9, 1998
F-34
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
APRIL 21, 1998
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................. $1,683,235
Accounts receivable
Trade accounts receivable........................................................... 7,672,400
Other............................................................................... 46,955
Inventories........................................................................... 8,845,527
Refundable income taxes............................................................... 401,691
Prepaid expenses and other............................................................ 73,147
Deferred income taxes................................................................. 606,936
----------
Total current assets.............................................................. 19,329,891
PROPERTY AND EQUIPMENT, AT COST
Land.................................................................................. $ 200,604
Buildings............................................................................. 3,691,276
Machinery and equipment............................................................... 20,828,710
Vehicles.............................................................................. 148,425
Office equipment...................................................................... 730,218
Construction in progress.............................................................. 2,892,234
----------
28,491,467
Less accumulated depreciation......................................................... 15,134,005 13,357,462
----------
INVESTMENTS AND OTHER ASSETS
Funds held by trustee................................................................. 55,408
Bond issuance costs................................................................... 33,682 89,090
---------- ----------
$32,776,443
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable...................................................................... $1,784,819
Accrued payroll, bonuses and employee benefits........................................ 3,992,423
Payable to affiliate.................................................................. 1,600,000
Other accrued liabilities............................................................. 233,937
Current maturities of capital lease obligations....................................... 428,757
Current maturities of long-term debt.................................................. 508,151
Current maturities of industrial revenue bonds........................................ 55,000
----------
Total current liabilities......................................................... 8,603,087
LONG-TERM LIABILITIES
Capital lease obligations............................................................. 1,585,953
Long-term debt........................................................................ 551,809
Industrial revenue bonds.............................................................. 645,000
Deferred income taxes................................................................. 1,147,273
----------
3,930,035
STOCKHOLDERS' EQUITY
Common stock, Class A, voting, par value $1 Authorized-300,000 shares Issued and
outstanding-90,000 shares........................................................... $ 90,000
Common stock, Class B, nonvoting, par value $1 Authorized-300,000 shares Issued and
outstanding-90,000 shares........................................................... 90,000
Additional paid-in capital............................................................ 55,004
Retained earnings..................................................................... 20,008,317 20,243,321
---------- ----------
$32,776,443
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-35
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
PERIOD JULY 1, 1997 THROUGH APRIL 21, 1998
<TABLE>
<S> <C>
Sales.......................................................................... $49,682,444
Cost of sales.................................................................. 34,640,582
----------
Gross margin on sales.......................................................... 15,041,862
General, administrative and selling expenses................................... 2,966,547
Nonrecurring management and employee bonuses paid in connection with sale of
Company...................................................................... 3,831,472
----------
Earnings from operations....................................................... 8,243,843
Other income (expense)
Interest income.............................................................. 13,327
Interest expense............................................................. (398,808)
Loss on sale of assets....................................................... (59,184)
Other........................................................................ 79,410
----------
(365,255)
----------
Earnings before income taxes................................................... 7,878,588
Income taxes................................................................... 2,901,353
----------
NET EARNINGS............................................................... 4,977,235
Retained earnings at July 1, 1997.............................................. 15,031,082
----------
Retained earnings at April 21, 1998............................................ $20,008,317
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-36
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD JULY 1, 1997 THROUGH APRIL 21, 1998
<TABLE>
<S> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings.................................................................. $4,977,235
Adjustments to reconcile net earnings to net cash provided by operating
activities
Depreciation and amortization............................................... 1,510,526
Deferred income taxes....................................................... 72,078
Loss on disposal of property and equipment.................................. 59,184
Change in assets and liabilities
Increase in accounts receivable........................................... (2,618,103)
Increase in income taxes receivable....................................... (294,205)
Decrease in inventories................................................... 2,132,289
Increase in accounts payable.............................................. 172,920
Increase in accrued payroll, bonuses and employee benefits................ 2,273,572
Other..................................................................... (307,565)
----------
Net cash provided by operating activities............................... 7,977,931
Cash flows from investing activities
Purchase of property and equipment............................................ (3,558,952)
Proceeds from disposal of property and equipment.............................. 24,418
----------
Net cash used in investing activities................................... (3,534,534)
Cash flows from financing activities
Net increase in payable to affiliate.......................................... 1,600,000
Net decrease in line of credit................................................ (3,855,000)
Repayments of long-term debt and industrial revenue bonds..................... (702,314)
Repayments of capital lease obligations....................................... (258,125)
----------
Net cash used in financing activities................................... (3,215,439)
----------
Net increase in cash and cash equivalents....................................... 1,227,958
Cash and cash equivalents at July 1, 1997....................................... 455,277
----------
Cash and cash equivalents at April 21, 1998..................................... $1,683,235
----------
----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-37
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 21, 1998
NOTE A--SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. BUSINESS ACTIVITY, BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Brittain Machine, Inc. manufactures parts according to customer
specification primarily for use in the aerospace industry. The Company also
designs, manufactures and sells tooling, machinery and equipment for use in the
aerospace industry.
Wichita Manufacturing, Inc., a wholly-owned subsidiary, is located in
Cerritos, California, and is engaged in the same line of business as Brittain
Machine, Inc.
The consolidated financial statements include the consolidated accounts of
Brittain Machine, Inc. and its wholly-owned subsidiary, Wichita Manufacturing,
Inc. immediately prior to the sale of the Company to Compass Aerospace
Corporation (see Note L). All significant intercompany accounts have been
eliminated.
2. ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
3. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. INVENTORIES
Inventories are stated at the lower of weighted average cost or net
realizable value.
5. PROPERTY AND EQUIPMENT
Land, buildings and equipment are carried at cost. Major additions and
betterments are charged to the property accounts while replacements, maintenance
and repairs which do not improve or extend the life of the respective assets are
expensed currently. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
10-30
Buildings....................................................... years
Machinery and equipment......................................... 7-10 years
Vehicles........................................................ 4- 6 years
Office equipment................................................ 5- 7 years
</TABLE>
F-38
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
6. INCOME TAXES
The Company files a consolidated income tax return with its subsidiary.
Deferred income tax assets and liabilities are determined based on the
temporary differences between the financial accounting and tax basis of assets
and liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the currently enacted tax rate expected to apply to taxable
income in the periods in which the deferred tax asset or liability is expected
to be realized or settled.
7. SELF INSURANCE
The Company participates in various self-insurance programs for medical and
workers' compensation risks. In connection with these programs the Company has
mitigated its exposure through the purchase of stipulated stop-loss coverage
with insurance companies. The Company estimates and accrues its liability for
the self-insurance portions of the risks covered by such programs.
8. CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with maturities of less than three
months to be cash equivalents.
9. REVENUE RECOGNITION
The Company's sales contracts are generally of a short-term nature and are
billed upon delivery. Revenue from such contracts is recognized upon passage of
title to the customer which, in most cases, coincides with shipments of the
related products to customers. Provisions for anticipated losses on contracts,
if any, are made currently as the amount of the loss is determinable.
NOTE B--INVENTORIES
Inventories consist of the following at April 21, 1998:
<TABLE>
<S> <C>
Raw material and supplies....................................... $2,889,886
Work in progress................................................ 5,306,881
Finished goods.................................................. 648,760
---------
$8,845,527
---------
---------
</TABLE>
NOTE C--LINE OF CREDIT
At April 21, 1998, the Company had available a line of credit with a bank
for up to $5,000,000. There were no borrowings outstanding at April 21, 1998.
Interest is payable monthly on the outstanding balance at a variable rate equal
to the bank's base rate (9.5% at April 21, 1998). There are no compensating
balance or commitment fee requirements. Borrowings under the line of credit are
collateralized by substantially all assets of the Company.
F-39
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
9. REVENUE RECOGNITION (CONTINUED)
NOTE D--INCOME TAXES
Income tax expense for the period July 1, 1997 through April 21, 1998
consists of the following:
<TABLE>
<S> <C>
Current......................................................... $2,829,275
Deferred........................................................ 72,078
---------
$2,901,353
---------
---------
</TABLE>
The principal reason for the variation between income taxes computed at the
federal tax rate of 34% and actual income taxes is state income tax expense.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at April 21, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets
Inventory valuation differences............................... $ 438,819
Accrued expenses not deductible until paid.................... 168,117
---------
606,936
Deferred tax liabilities
Depreciation of property and equipment........................ 891,579
Capital leases treated as operating leases for tax purposes... 255,694
---------
1,147,273
---------
Net deferred tax liability.................................. $ 540,337
---------
---------
</TABLE>
NOTE E--LONG-TERM DEBT
Long-term debt consists of the following at April 21, 1998:
<TABLE>
<S> <C>
Note payable to bank, payable in monthly installments including
variable interest at the bank's base interest rate adjusted
annually (effective rate 9.25% April 21, 1998), due in 2000
and collateralized by certain equipment and machinery......... $ 906,452
Note payable to bank, payable in monthly installments including
variable interest, due in 1998 and collateralized by a
$250,000 real estate mortgage................................. 7,458
Note payable to former stockholder, payable in equal monthly
installments including fixed interest at 9%, due in 2007-not
collateralized................................................ 146,050
---------
1,059,960
Less current maturities......................................... 508,151
---------
$ 551,809
---------
---------
</TABLE>
F-40
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
9. REVENUE RECOGNITION (CONTINUED)
In connection with the sale of the Company (see Note K), all notes payable
were paid in full subsequent to April 21, 1998.
NOTE F--INDUSTRIAL REVENUE BONDS
The Company financed $2,500,000 for the purchase of certain equipment and
the construction of a building through industrial revenue bonds issued by the
City of Wichita, Kansas and maturing through 2006. The principal and interest
(6% to 8%) on the bonds are serviced by biannual payments by the Company to a
trustee who then remits the funds to the City on the scheduled interest payment
and bond maturity dates. Certain of the proceeds from the bonds and the biannual
payments made by the Company have been and are deposited with the trustee.
The total amount of bonds outstanding at April 21, 1998 was $700,000.
Aggregate annual maturities are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 55,000
2000.............................................................. 60,000
2001.............................................................. 65,000
2002.............................................................. 70,000
2003.............................................................. 75,000
Thereafter........................................................ 375,000
---------
$ 700,000
---------
---------
</TABLE>
NOTE G--RELATED PARTY TRANSACTIONS
LEASING ACTIVITIES
The Company has entered into several agreements with an entity, affiliated
by common stockholders, to lease a building and certain machinery and equipment.
Due to the related party relationship with the affiliate and based upon the
underlying economic substance of the leasing arrangements, the leases have been
recorded as capital lease obligations. The recorded lease obligations represent
the outstanding principal balance on the loans incurred by the affiliated entity
to finance that entity's purchase of the building and machinery and equipment
(the "underlying debt"). In addition, the Company is the guarantor of such debt.
A summary of lease payments made during the period July 1, 1997 through
April 21, 1998 under these capital leases is as follows:
<TABLE>
<S> <C>
Total lease payments............................................. $ 653,100
Amount representing interest..................................... (105,401)
Amount representing excess lease payments........................ (289,574)
---------
Principal payments............................................... $ 258,125
---------
---------
</TABLE>
F-41
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
9. REVENUE RECOGNITION (CONTINUED)
In connection with the leases, property, plant and equipment at April 21,
1998 included the following:
<TABLE>
<S> <C>
Machinery and equipment......................................... $2,293,024
Building........................................................ 347,561
---------
2,640,585
Less accumulated depreciation................................... (566,142)
---------
$2,074,443
---------
---------
</TABLE>
Depreciation expense for the property under lease was $307,270 for the
period July 1, 1997 through April 21, 1998.
The following is a schedule by years of future minimum lease payments under
capital leases:
<TABLE>
<S> <C>
1999............................................................ $ 975,720
2000............................................................ 975,720
2001............................................................ 751,720
2002............................................................ 551,720
2003............................................................ 311,720
Thereafter...................................................... 1,005,480
----------
Total minimum lease payments.................................... 4,572,080
Amount representing interest.................................... (521,176)
Amount representing excess lease payments....................... (2,036,194)
----------
Total capital lease obligations................................. 2,014,710
Less current maturities......................................... 428,757
----------
$1,585,953
----------
----------
</TABLE>
In connection with the sale of the Company (see Note K), all capital leases
were paid in full subsequent to April 21, 1998.
In addition, the Company leased equipment under an operating lease from this
affiliated entity which expired March 1, 1998. The lease which began March 1996
provided for monthly payments of $14,000 per month.
The Company also has a month-to-month rental agreement with a stockholder
for two warehouses. In connection with such agreement rental expense charged to
operations by the Company for the period July 1, 1997 through April 21, 1998 was
$33,500.
OTHER TRANSACTIONS
The Company purchased goods from an entity controlled by the spouse of a
stockholder in the amount of $2,956,000 during the period July 1, 1997 through
April 21, 1998. An amount of $204,000 was due to such affiliate at April 21,
1998 and was included in accounts payable in the accompanying consolidated
balance sheet. The Company also paid $344,000 to an individual related to the
Company's
F-42
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
9. REVENUE RECOGNITION (CONTINUED)
principal stockholders during the period July 1, 1997 through April 21, 1998 for
debarring services performed.
NOTE H--RETIREMENT PLAN
All employees who have completed one year of service and who have attained
21 years of age are eligible to participate in the Company's Profit Sharing
Retirement Plan. Contributions to the Plan are discretionary and made by the
Company for amounts that are determined by the Board of Directors based on a
percentage of each participant's annual compensation. Employees may also
contribute a portion of their compensation to the Plan. The Company charged
$864,000 to expense pursuant to the plan during the period July 1, 1997 through
April 21, 1998.
NOTE I--COMMITMENTS
The Company provides group medical insurance for its employees through a
self-insured medical plan. The Company has purchased a stop-loss insurance
policy that will pay claims in excess of $30,000 per year per individual and in
excess of annual aggregate claims of $420,000.
The Company is self-insured for workers' compensation claims. The Company
has purchased a stop-loss insurance policy that pays workers' compensation
claims in excess of $175,000 per occurrence and aggregate annual claims in
excess of $430,292. The Company has obtained a $655,000 letter of credit from a
bank in favor of the State of Kansas in connection with a self-insurance
program.
Wichita Manufacturing, Inc. leases its facility located in Cerritos,
California at a rental cost of $12,000 per month through October 31, 1998 for a
total commitment of $72,000.
NOTE J--CONTINGENCY
In January 1996, the Company was found liable in a civil action for, inter
alia, breach of contract and termination of joint venture/partnership associated
with a relationship the Company had with another entity. A judgment was recorded
against the Company in the amount of $600,000. The Company secured a $750,000
letter of credit in favor of the plaintiffs and filed a Notice of Appeal. The
plaintiffs filed a Notice of Cross-Appeal seeking damages of approximately
$1,500,000. Through April 21, 1998 the Company recorded a liability for the
$600,000 judgment plus $116,000 of post-judgment interest. On April 21, 1998,
the Company's principal owner assumed the liability. In connection with the
assumption of the liability, the Company transferred life insurance policies
with recorded cash surrender values of $614,000 to the principal owner. The
Company recorded a gain of $102,000 in connection with the transaction.
NOTE K--CONCENTRATION OF SALES
Substantially all of the Company's sales are made to a very few customers.
These customers are typically large companies in the aerospace industry. If the
Company were to lose one or more of these customers and were unable to find
replacement customers, sales would be adversely affected. Two customers
accounted for 73% and 13% of sales for the period July 1, 1997 through April 21,
1998. Amounts due from these customers accounted for 68% and 12% of total
accounts receivable at April 21, 1998.
F-43
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
9. REVENUE RECOGNITION (CONTINUED)
NOTE L--SALE OF COMPANY
Effective April 21, 1998, the Company was sold and became a subsidiary of
Compass Aerospace Corporation (Compass). At April 21, 1998, Compass had advanced
the Company $1,600,000 which is shown as due to affiliate in the accompanying
balance sheet.
In anticipation of and in connection with the sale of the Company, certain
nonrecurring management and employee bonuses were declared. Bonuses totaling
$1,600,000 were paid to management/minority stockholders of the Company. Bonuses
and related payroll taxes totaling $2,231,472 were accrued to other employees of
the Company.
NOTE M--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<S> <C>
Cash paid during the period for
Interest...................................................... $ 407,788
Income taxes.................................................. 3,286,467
Noncash investing and financing activity
Acquisition of property and equipment under capital lease
obligations................................................. 785,061
Transfer of life insurance policies and assumption of
litigation
liability by the Company's principal owner.................. 614,000
</TABLE>
F-44
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Brittain Machine, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Brittain
Machine, Inc. and Subsidiary as of June 30, 1997, and the related consolidated
statements of earnings and retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brittain Machine, Inc. and Subsidiary as of June 30, 1997, and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Wichita, Kansas
October 17, 1997
F-45
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Brittain Machine, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Brittain
Machine, Inc. and Subsidiary as of June 30, 1996, and the related consolidated
statements of earnings and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Brittain Machine, Inc. and Subsidiary at June 30, 1996, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Wichita, Kansas
September 3, 1996
F-46
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................. $ 455 $ 91
Accounts receivable
Trade accounts receivable........................................... 4,913 5,386
Other............................................................... 188 109
Income tax receivable................................................. 107 --
Inventories........................................................... 10,978 4,878
Note receivable from affiliate........................................ -- 207
Prepaid expenses and other............................................ 50 56
Deferred income taxes................................................. 694 608
--------- ---------
Total current assets................................................ 17,385 11,335
PROPERTY AND EQUIPMENT, AT COST
Land.................................................................. 201 199
Buildings............................................................. 3,603 2,812
Machinery and equipment............................................... 19,754 18,669
Vehicles.............................................................. 180 175
Office equipment...................................................... 775 679
Construction in progress.............................................. 99 6
--------- ---------
24,612 22,540
Less accumulated depreciation......................................... 14,007 12,357
--------- ---------
10,605 10,183
INVESTMENTS AND OTHER ASSETS
Funds held by trustee................................................. 56 52
Cash surrender value of life insurance................................ 520 486
Bond issuance costs................................................... 36 39
--------- ---------
612 577
--------- ---------
$ 28,602 $ 22,095
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving note payable to bank........................................ $ 3,855 $ 525
Accounts payable...................................................... 1,612 923
Accrued payroll and employee benefits................................. 1,719 1,388
Litigation judgment payable........................................... 672 600
Income taxes payable.................................................. -- 1,621
Other accrued liabilities............................................. 366 187
Current maturities of capital lease obligations....................... 285 156
Current maturities of long-term debt.................................. 741 972
Current maturities of industrial revenue bonds........................ 50 400
--------- ---------
Total current liabilities........................................... 9,300 6,772
LONG-TERM LIABILITIES
Capital lease obligations............................................. 1,203 507
Long-term debt........................................................ 971 1,710
Industrial revenue bonds.............................................. 700 750
Deferred income taxes................................................. 1,162 996
--------- ---------
4,036 3,963
STOCKHOLDERS' EQUITY
Common stock, Class A, voting, par value $1
Authorized--300,000 shares
Issued and outstanding--90,000 shares............................... 90 90
Common stock, Class B, nonvoting, par value $1
Authorized--300,000 shares
Issued and outstanding--90,000 shares............................... 90 90
Additional paid-in capital............................................ 55 55
Retained earnings..................................................... 15,031 11,125
--------- ---------
15,266 11,360
--------- ---------
$ 28,602 $ 22,095
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
YEAR ENDED JUNE 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Sales................................................................... $ 35,481 $ 26,892
Cost of sales........................................................... 25,656 19,076
--------- ---------
Gross margin on sales................................................... 9,825 7,816
General, administrative and selling expenses............................ 2,770 2,353
Write off note receivable from affiliate................................ 386 --
Litigation expense...................................................... 73 600
--------- ---------
Earnings from operations................................................ 6,596 4,863
Other income (expense)
Interest income....................................................... 11 28
Interest expense...................................................... (409) (431)
Gain (loss) on sale of assets......................................... 5 (8)
Other............................................................... (89) (69)
--------- ---------
(482) (480)
--------- ---------
Earnings before income taxes............................................ 6,114 4,383
Income taxes............................................................ 2,208 1,637
--------- ---------
NET EARNINGS...................................................... 3,906 2,746
Retained earnings at beginning of year.................................. 11,125 8,379
--------- ---------
Retained earnings at end of year........................................ $ 15,031 $ 11,125
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
YEAR ENDED JUNE 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net earnings................................................................................. $ 3,906 $ 2,746
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities
Depreciation and amortization.............................................................. 1,669 1,392
Deferred income taxes...................................................................... 80 (280)
(Gain) loss on disposal of property and equipment.......................................... (5) 8
Write-off uncollectible note receivable from affiliate..................................... 386 --
Change in assets and liabilities
(Increase) decrease in accounts receivable............................................... 393 (2,384)
Increase in income taxes receivable...................................................... (107) --
Increase in inventories.................................................................. (6,099) (2,240)
Increase in accounts payable............................................................. 688 302
Increase (decrease) in accrued payroll and employee benefits............................. 331 (28)
Increase in litigation judgment payable.................................................. 73 600
Increase (decrease) in income taxes payable.............................................. (1,621) 2,404
Other.................................................................................... 151 (139)
--------- ---------
Net cash provided by (used in) operating activities.................................... (155) 2,381
Cash flows from investing activities
Decrease in marketable securities............................................................ -- 12
Purchase of property and equipment........................................................... (1,072) (1,519)
Proceeds from disposal of property and equipment............................................. 7 17
Increase in note receivable from affiliate................................................... (179) (129)
--------- ---------
Net cash used in investing activities...................................................... (1,244) (1,619)
Cash flows from financing activities
Net change in funds held by trustee.......................................................... (3) 377
Net change in line of credit................................................................. 3,331 165
Repayments of long-term debt and industrial revenue bonds.................................... (1,370) (1,299)
Repayments of capital lease obligations...................................................... (195) (78)
--------- ---------
Net cash provided by (used in) financing activities........................................ 1,763 (835)
--------- ---------
Net increase (decrease) in cash and cash equivalents........................................... 364 (73)
Cash and cash equivalents at beginning of year................................................. 91 164
--------- ---------
Cash and cash equivalents at end of year....................................................... $ 455 $ 91
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-50
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
1. BUSINESS ACTIVITY AND PRINCIPLES OF CONSOLIDATION
Brittain Machine, Inc. manufactures parts according to customer
specification primarily for use in the aerospace industry. The Company also
designs, manufactures and sells tooling, machinery and equipment for use in the
aerospace industry.
Wichita Manufacturing, Inc., a wholly-owned subsidiary, is located in
Cerritos, California, and is engaged in the same line of business as Brittain
Machine, Inc.
The consolidated financial statements include the consolidated accounts of
Brittain Machine, Inc. and its wholly-owned subsidiary, Wichita Manufacturing,
Inc. All significant intercompany accounts have been eliminated.
2. ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
3. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4. INVENTORIES
Inventories are stated at the lower of weighted average cost or net
realizable value.
5. PROPERTY AND EQUIPMENT
Land, buildings and equipment are carried at cost. Major additions and
betterments are charged to the property accounts while replacements, maintenance
and repairs which do not improve or extend the life of the respective assets are
expensed currently. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
10-30
Buildings....................................................... years
Machinery and equipment......................................... 7-10 years
Vehicles........................................................ 4-6 years
Office equipment................................................ 5-7 years
</TABLE>
F-51
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
6. INCOME TAXES
The Company files a consolidated income tax return with its subsidiary.
Deferred income tax assets and liabilities are determined based on the
temporary differences between the financial accounting and tax basis of assets
and liabilities. Deferred tax assets or liabilities at the end of each period
are determined using the currently enacted tax rate expected to apply to taxable
income in the periods in which the deferred tax asset or liability is expected
to be realized or settled.
7. CASH SURRENDER VALUE OF LIFE INSURANCE
The Company pays the premiums on certain life insurance policies insuring
the lives of two of its stockholders. The cumulative value of net premiums paid
by the Company on behalf of the beneficiary of such life insurance policies is
recorded as an asset as this amount is payable by the policy owner to the
Company upon death of the insured.
The cash surrender values of certain other life insurance contracts owned by
the Company are recorded as assets. The change in such cash surrender values is
accounted as an adjustment of premiums paid in determining the expense or income
to be recognized under the contract for the period.
8. SELF INSURANCE
The Company participates in various self-insurance programs for medical and
workers' compensation risks. In connection with these programs the Company has
mitigated its exposure through the purchase of stipulated stop-loss coverage
with insurance companies. The Company estimates its liability for the
self-insured portions of the risks covered by such programs and accrues
appropriate reserves.
9. CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments with maturities of less than three
months to be cash equivalents.
10. REVENUE RECOGNITION
The Company's sales contracts are generally of a short-term nature and are
billed upon delivery. Revenue from such contracts is recognized upon passage of
title to the customer which, in most cases, coincides with shipments of the
related products to customers. Provisions for anticipated losses on contracts,
if any, are made currently as the amount of the loss is determinable.
F-52
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE B--INVENTORIES
Inventories consist of the following at June 30 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Raw material and supplies................................................ $ 3,108 $ 1,155
Work in progress......................................................... 7,260 3,445
Finished goods........................................................... 610 278
--------- ---------
$ 10,978 $ 4,878
--------- ---------
--------- ---------
</TABLE>
NOTE C--LINE OF CREDIT
At June 30, 1997, the Company had available a line of credit with a bank for
up to $5,000,000, of which $3,855,000 and $524,519 was outstanding at June 30,
1997 and 1996, respectively. Interest is payable monthly on the outstanding
balance at a variable rate equal to the bank's base rate (9.25% at June 30,
1997). There are no compensating balance or commitment fee requirements.
Borrowings under the line of credit are collateralized by substantially all
assets of the Company.
NOTE D--INCOME TAXES
Income tax expense for the years ended June 30 consists of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current.................................................................... $ 2,128 $ 1,917
Deferred................................................................... 80 (280)
--------- ---------
$ 2,208 $ 1,637
--------- ---------
--------- ---------
</TABLE>
The principal reason for the variation between income taxes computed at the
federal tax rate of 34% and actual income taxes is state income tax expense.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at June 30 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets
Inventory valuation differences............................................ $ 317 $ 393
Accrued expenses not deductible until paid................................. 458 377
--------- ---------
775 770
Deferred tax liabilities
Depreciation of property and equipment..................................... 1,026 1,009
Capital leases treated as operating leases for tax purposes................ 136 68
Other...................................................................... 81 81
--------- ---------
1,243 1,158
--------- ---------
Net deferred tax liability............................................... $ 468 $ 388
--------- ---------
--------- ---------
</TABLE>
F-53
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE E--LONG-TERM DEBT
Long-term debt consists of the following at June 30 (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Note payable to bank, payable in monthly installments including variable interest at the bank's
base interest rate adjusted annually (effective rate 9.125% and 9.0% at June 30, 1997 and
1996, respectively), due in 2000 and collateralized by certain equipment and machinery....... $ 1,280 $ 1,692
Equipment loans payable to a finance company, payable in monthly installments including
interest at a fixed rate of 7.95% changing to a variable rate during the final year of the
loan, which will range from the index rate (a) to the index rate plus 1.5% maturing at
various dates through 1998 and collateralized by the equipment financed and the personal
guarantees of two stockholders............................................................... 238 751
Note payable to bank, payable in monthly installments including variable interest, due in 1998
and collateralized by a $250,000 real estate mortgage........................................ 40 77
Unsecured note payable to former stockholder, payable in equal monthly installments including
fixed interest at 9%, due in 2007............................................................ 154 162
--------- ---------
1,712 2,682
Less current maturities........................................................................ 741 972
--------- ---------
$ 971 $ 1,710
--------- ---------
--------- ---------
</TABLE>
(a) The index rate is a rate equal to the highest of (i) the Prime Rate of
Chemical Bank, (ii) the Wall Street Journal prime rate or (iii) the
commercial paper rate in effect from time to time.
Aggregate annual maturities are as follows for the years ending June 30
(dollars in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 741
1999................................................................ 506
2000................................................................ 343
2001................................................................ 12
2002................................................................ 13
Thereafter.......................................................... 97
---------
$ 1,712
---------
---------
</TABLE>
Interest capitalized during the years ended June 30, 1997 and 1996 was
$17,000 and $125,000 respectively.
NOTE F--INDUSTRIAL REVENUE BONDS
The Company financed $2,500,000 for the purchase of certain equipment and
the construction of a building through industrial revenue bonds issued by the
City of Wichita, Kansas and maturing through 2006. The principal and interest
(6% to 8%) on the bonds are serviced by biannual payments by the Company to a
trustee who then remits the funds to the City on the scheduled interest payment
and bond maturity dates. Certain of the proceeds from the bonds and the biannual
payments made by the Company have been and are deposited with the trustee.
F-54
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE F--INDUSTRIAL REVENUE BONDS (CONTINUED)
The total amount of bonds outstanding at June 30, 1997 and 1996 was $750,000
and $1,150,000, respectively. Aggregate annual maturities are as follows for the
years ended June 30 (dollars in thousands):
<TABLE>
<S> <C>
1998................................................................. $ 50
1999................................................................. 55
2000................................................................. 60
2001................................................................. 65
2002................................................................. 70
Thereafter........................................................... 450
---------
$ 750
---------
---------
</TABLE>
NOTE G--RELATED PARTY TRANSACTIONS
LEASING ACTIVITIES
The Company has entered into several agreements with an entity, affiliated
by common stockholders, to lease a building and certain machinery and equipment.
Due to the related party relationship with the affiliate and based upon the
underlying economic substance of the leasing arrangements, the leases have been
recorded as capital lease obligations. The recorded lease obligation represents
the outstanding principal balance on the loans incurred by the affiliated entity
to finance that entity's purchase of the building and machinery and equipment
(the "underlying debt"). In addition, the Company is the guarantor of such debt.
A summary of lease payments made during the years ended June 30 under these
capital leases is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Total lease payments.......................................................... $ 483 $ 192
Amount representing interest.................................................. (72) (29)
Amount representing excess lease payments..................................... (216) (85)
--------- ---------
Principal payments............................................................ $ 195 $ 78
--------- ---------
--------- ---------
</TABLE>
In connection with the leases, property, plant and equipment at June 30
included the following (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Machinery and equipment...................................................... $ 1,508 $ 836
Building..................................................................... 348 --
--------- ---------
1,856 836
Less accumulated depreciation................................................ (259) (16)
--------- ---------
$ 1,597 $ 820
--------- ---------
--------- ---------
</TABLE>
F-55
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
Depreciation expense for the property under lease was $242,474 and $16,398
for the years ended June 30, 1997 and 1996, respectively.
The following is a schedule by years of future minimum lease payments under
capital leases (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
- -------------------------------------------------------------------------------------
<S> <C>
1998................................................................................. $ 736
1999................................................................................. 736
2000................................................................................. 736
2001................................................................................. 448
2002................................................................................. 272
Thereafter........................................................................... 1,098
---------
Total minimum lease payments......................................................... 4,026
Amount representing interest......................................................... (457)
Amount representing excess lease payments............................................ (2,081)
---------
Total capital lease obligations...................................................... 1,488
Less current maturities.............................................................. 285
---------
$ 1,203
---------
---------
</TABLE>
In addition, the Company leases equipment under an operating lease from this
affiliated entity which expires March 1, 1998. The lease which began March 1996
provides for monthly payments of $14,000 per month.
The Company also has a month-to-month rental agreement with a stockholder
for two warehouses. In connection with such agreement rental expense charged to
operations by the Company for the years ended June 30, 1997 and 1996 was $60,000
annually.
OTHER TRANSACTIONS
The Company pays the premiums on certain policies insuring the lives of two
of its stockholders. The aggregate amount of such premiums paid during the years
ended June 30, 1997 and 1996 was $103,000 and $87,000, respectively.
The Company purchased goods from an entity controlled by the spouse of a
stockholder in the amount of $4,117,000 and $2,331,000 during 1997 and 1996,
respectively. Additionally, an amount of $502,000 and $285,000 was due to such
affiliate at June 30, 1997 and 1996, respectively, and was included in accounts
payable in the accompanying consolidated balance sheets. The Company also paid
to an individual related to the Company's principal stockholders $310,000 and
$186,000 during 1997 and 1996, respectively, for debarring services performed.
NOTE H--RETIREMENT PLAN
All employees who have completed one year of service and who have attained
age 21 years of age are eligible to participate in the Company's Profit Sharing
Retirement Plan. Contributions to the Plan are
F-56
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE H--RETIREMENT PLAN (CONTINUED)
made by the Company for amounts that are determined by the Board of Directors
based on a percentage of each participant's annual compensation. Employees may
also contribute a portion of their compensation to the Plan. During the years
ended June 30, 1997 and 1996, the Company charged $842,000 and $834,000 to
expense pursuant to the Plan.
NOTE I--COMMITMENTS
The Company provides group medical insurance for its employees through a
self-insured medical plan. The Company has purchased a stop-loss insurance
policy that will pay claims in excess of $30,000 per year per individual and in
excess of annual aggregate claims of $420,000.
The Company is self-insured for workers' compensation claims. The Company
has purchased a stop-loss insurance policy that pays workers' compensation
claims in excess of $175,000 per occurrence and aggregate annual claims in
excess of $430,292. The Company has obtained a $655,000 letter of credit from a
bank in favor of the State of Kansas in connection with a self-insurance
program.
Wichita Manufacturing, Inc. leases its facility located in Cerritos,
California at a rental cost of $12,000 per month through October 31, 1998. The
lease provides an option for an extension of a three-year period. Future
noncancelable lease commitments are as follows (dollars in thousands):
<TABLE>
<S> <C>
1998................................................................. $ 144
1999................................................................. 48
---------
$ 192
---------
---------
</TABLE>
The Company had at June 30, 1997 a commitment to purchase additional
equipment costing $1,748,000. The equipment is scheduled to be delivered in
December 1997.
NOTE J--CONTINGENCY
In January 1996, the Company was found liable in a civil action for, inter
alia, breach of contract and termination of joint venture/partnership associated
with a relationship the Company had with another entity. A judgment was recorded
against the Company in the amount of $600,000. However, the Company has filed a
Notice of Appeal. The plaintiffs have filed a Notice of Cross-Appeal seeking
damages of approximately $1,500,000. While the ultimate outcome of the
disposition of the matter is presently difficult to estimate, the Company
recorded a provision during 1996 of $600,000 and believes that the ultimate
outcome will not have a material adverse effect on its financial position. An
additional provision of $72,500 was recorded in 1997 for post-judgment interest.
NOTE K--CONCENTRATION OF SALES
Nearly all of the Company's sales are made to a very few customers. These
customers are typically large companies in the aerospace industry. If the
Company were to lose one or more of these customers and were unable to find
replacement customers, sales would be adversely affected. One customer accounted
for 67% and 56% of sales for 1997 and 1996, respectively. Amounts due from this
customer accounted for 60% and 64% of total accounts receivable at June 30, 1997
and 1996, respectively.
F-57
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE L--SUPPLEMENTAL CASH FLOW INFORMATION (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash paid during the year for
Interest.................................................................... $ 405 $ 586
Income taxes................................................................ 3,852 --
Noncash investing and financing activity
Acquisition of property and equipment under capital lease obligations....... 1,019 741
</TABLE>
F-58
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Barnes Machine, Inc.
We have audited the accompanying balance sheets of Barnes Machine, Inc. as
of April 21, 1998 and September 30, 1997, and the related statements of income
and retained earnings and cash flows for the period from October 1, 1997 to
April 21, 1998 and for the year ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepting auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barnes Machine, Inc. at
April 21, 1998 and September 30, 1997, and the results of its operations and its
cash flows for the period from October 1, 1997 to April 21, 1998 and the year
ended September 30, 1997, in conformity with generally accepted accounting
principles.
Long Beach, California
August 12, 1998
F-59
<PAGE>
BARNES MACHINE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 21, SEPTEMBER 30,
1998 1997
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 687 $ 655
Accounts receivable less allowance for doubtful accounts of $39
in 1998 and 1997.................................................................... 1,951 1,250
Inventories........................................................................... 1,861 1,005
Prepaid expenses...................................................................... 26 27
Deferred assets....................................................................... 41 25
----------- ------
Total current assets.................................................................... 4,566 2,962
Property and equipment, net............................................................. 2,106 1,401
Other assets............................................................................ 217 427
----------- ------
Total assets............................................................................ $ 6,889 $ 4,790
----------- ------
----------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 1,161 $ 711
Accrued expenses...................................................................... 808 660
Loan payable-stockholders............................................................. -- 209
Current portion of long-term debt..................................................... 153 147
----------- ------
Total current liabilities............................................................... 2,122 1,727
Long-term debt, less current portion.................................................... 631 722
Commitments
Deferred taxes.......................................................................... 66 39
Stockholders' equity:
Common stock, par value $1 per share:
Authorized shares 50,000
Issued and outstanding shares 2,500..................................................... 3 3
Capital in excess of par.............................................................. 247 7
Retained earnings..................................................................... 3,820 2,292
----------- ------
Total stockholders' equity.............................................................. 4,070 2,302
----------- ------
Total liabilities and stockholders' equity.............................................. $ 6,889 $ 4,790
----------- ------
----------- ------
</TABLE>
See accompanying notes.
F-60
<PAGE>
BARNES MACHINE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1, 1997
TO YEAR ENDED
APRIL 21, 1998 SEPTEMBER 30, 1997
--------------- -------------------
<S> <C> <C>
Net sales..................................................................... $ 8,809 $ 7,693
Cost of sales................................................................. 6,057 4,854
------ ------
Gross profit.................................................................. 2,752 2,839
Selling, general and administrative expenses.................................. 362 1,587
------ ------
Operating income.............................................................. 2,390 1,252
Interest expense.............................................................. 50 9
Other (income) expense, net................................................... (4) (21)
------ ------
Income before income taxes.................................................... 2,344 1,264
Income tax expense............................................................ 816 438
------ ------
Net income.................................................................... 1,528 826
Retained earnings at beginning of period...................................... 2,292 1,466
------ ------
Retained earnings at end of period............................................ $ 3,820 $ 2,292
------ ------
------ ------
</TABLE>
See accompanying notes.
F-61
<PAGE>
BARNES MACHINE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1, 1997 YEAR ENDED
TO SEPTEMBER 30,
APRIL 21, 1998 1997
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................................ $ 1,528 $ 826
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Deferred taxes.................................................................. 11 (1)
Depreciation.................................................................... 171 208
Changes in operating assets and liabilities:
Accounts receivable........................................................... (701) (339)
Inventories................................................................... (856) (937)
Prepaid expenses and other assets............................................. 211 (425)
Accounts payable.............................................................. 450 450
Accrued expenses.............................................................. 148 113
------ -----
Net cash provided by (used in) operating activities............................... 962 (105)
INVESTING ACTIVITIES
Purchase of property and equipment................................................ (636) (931)
FINANCING ACTIVITIES
(Payments on) proceeds from long-term debt........................................ (85) 868
Payment of loan payable to stockholder............................................ (209) (28)
------ -----
Net cash (used in) provided by financing activities............................... (294) 840
------ -----
Net increase (decrease) in cash................................................... 32 (196)
Cash and cash equivalents at beginning of period.................................. 655 851
------ -----
Cash and cash equivalents at end of period........................................ $ 687 $ 655
------ -----
------ -----
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................................ $ 50 $ 9
Income taxes.................................................................... $ 220 $ 361
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Donation of machinery and equipment by owners................................... $ 240 $ --
</TABLE>
See accompanying notes.
F-62
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 21, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Barnes Machine, Inc. (the Company) manufactures small to medium-sized
structural parts for aerospace customers, specializing in precision machining of
titanium and steel and the high-speed precision machining of aluminum.
At the close of business on April 21, 1998, 100% of the issued and
outstanding common stock of the Company and land and buildings owned by the
stockholders were sold to Compass Aerospace, Inc. for a total sales price of
$13,620,000. Transactions related to the sale have been treated as subsequent
events and are not reflected in the accompanying financial statements. These
transactions include the repayment of the Company's interest bearing note, as
well as purchase price allocations which affect the carrying value of the
Company's assets and liabilities.
CONCENTRATION OF RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to a limited number of customers within the aerospace
and defense industry. Revenues from one major customer amounted to 96% of sales
for the seven months ended April 21, 1998 and 90% for the year ended September
30, 1997. Total accounts receivable from this customer amounted to 98% and 95%
of total trade accounts receivable at April 21, 1998 and September 30, 1997,
respectively. Credit is extended based upon an evaluation of each customer's
financial condition, with terms consistent in the industry and no collateral
required. The Company has historically incurred minimal credit losses.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents and the current portion of
long-term debt approximate cost due to the short period of time to maturity.
Fair values of long-term debt, which have been determined based on borrowing
rates currently available to the Company for loans with similar terms of
maturity, approximate the carrying amounts in the financial statements.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. Cash and
cash equivalents are held by major financial institutions.
INVENTORIES
Inventories consist primarily of work-in-process which are recorded on a
weighted average basis, which approximates first-in first-out, and are stated at
the lower of cost or market.
F-63
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
The provision for depreciation of property and equipment is generally
computed on the straight-line method over the following useful lives:
<TABLE>
<S> <C>
Machinery and equipment.............. 3--10 years
Furniture and fixtures............... 5--7 years
Automotive equipment................. 5 years
Leasehold improvements............... Term of lease or life of asset,
whichever is shorter
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are damaged
or defective. The effect of these programs is estimated and current period sales
and cost of sales are adjusted accordingly.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for financial
statements for fiscal years beginning after June 15, 1999, and which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. There will be no impact due to the adoption
of SFAS No. 133.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosures about
Pensions and Other Postretirement Benefits," which is effective for financial
statements for periods beginning after December 15, 1997, and which revises and
standardizes disclosure requirements for pensions and other postretirement
benefits. The Company will revise its disclosures as necessary upon adoption of
SFAS No. 132.
In March 1998, Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed for or Obtained for Internal Use," was issued,
which is effective for fiscal years beginning after December 15, 1998. SOP 98-1
requires capitalization and amortization of qualified computer software costs
over its estimated useful life. There will be no impact due to the adoption of
SOP 98-1.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform to the current
year presentation.
F-64
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
2. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment, which is recorded at
cost (in thousands):
<TABLE>
<CAPTION>
APRIL 21, SEPTEMBER 30,
1998 1997
--------- -------------
<S> <C> <C>
Automotive equipment................................................ $ 122 $ 121
Furniture and fixtures.............................................. 487 403
Leasehold improvements.............................................. 309 281
Machinery and equipment............................................. 3,017 2,279
--------- -------------
3,935 3,084
Allowance for depreciation.......................................... (1,829) (1,683)
--------- -------------
$ 2,106 $ 1,401
--------- -------------
--------- -------------
</TABLE>
3. INCOME TAXES
Deferred income taxes are computed using the liability method and reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
income tax purposes. The provision for income taxes reflects the taxes to be
paid for the respective periods ended and the change during each period in the
deferred tax assets and liabilities. Significant components of the Company's
deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
APRIL 21, SEPTEMBER 30,
1998 1997
----------- ---------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses not deductible for tax........................... $ 41 $ 25
Deferred tax liabilities:
Tax depreciation over book........................................ (66) (39)
--- ---
Net deferred tax liability.......................................... $ (25) $ (14)
--- ---
--- ---
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
OCTOBER 1, 1997 YEAR ENDED
THROUGH SEPTEMBER 30,
APRIL 21, 1998 1997
----------------- ---------------
<S> <C> <C>
Federal:
Current..................................................... $ 805 $ 439
Deferred.................................................... 11 (1)
----- -----
$ 816 $ 438
----- -----
----- -----
</TABLE>
F-65
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
4. DEBT
The Company has a promissory note with Keybank National Association, payable
in monthly installments of $17,936 plus interest at 8.50% with a maturity date
of October 15, 2002. The promissory note is secured by a milling machine.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................. $ 153
2000................................................................. 167
2001................................................................. 182
2002................................................................. 198
2003................................................................. 84
---------
Total................................................................ $ 784
---------
---------
</TABLE>
The Company has an unsecured line of credit with Key Bank, which provides
for borrowings up to $500,000 under a revolving line of credit that bears
interest at 1% over prime. There was no balance outstanding at April 21, 1998 or
September 30, 1997.
5. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company rents office, plant and warehouse space on a monthly basis from
its stockholders. Property rent expense amounted to $193,000 for the seven
months ended April 21, 1998 and $251,000 for the year ended September 30, 1997.
The Company also leases machinery and equipment from its stockholders. The
machinery and equipment lease has a one-year term and may be cancelled with
sixty days' advance notice. Rent expense under this arrangement amounted to
$78,000 for the seven months ended April 21, 1998 and $139,000 for the year
ended September 30, 1997. The leases require the Company to pay property taxes.
The Company had outstanding notes payable to its stockholders for $209,000
at September 30, 1997. These notes were repaid during the period ended April 21,
1998. Interest expense was $3,000 and $6,000 for the period ended April 21, 1998
and the year ended September 30, 1997, respectively.
The Company is a defendant in various legal proceedings arising in the
normal course of business. In consultation with legal counsel, management has
reviewed these proceedings and, based upon current information, believes that
the ultimate disposition thereof will have no material effect on the Company's
consolidated financial position.
6. PROFIT SHARING PLAN
The Company has adopted a profit sharing plan which qualifies under Section
401(k) of the Internal Revenue Code. The plan covers all eligible employees who
may elect to contribute a percentage of their gross earnings to the Plan.
Contributions to the plan by the Company are discretionary. Contributions to the
profit sharing plan for the period from October 1, 1997 to April 21, 1998 and
the year ended September 30, 1997 were $10,000 and $150,000, respectively.
F-66
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
7. IMPACT OF YEAR 2000 (UNAUDITED)
The Company does not anticipate that there would be a material impact on the
results of operations or cash flows of the Company related to the Year 2000
issue. The Year 2000 issue addresses computer programs which have time-sensitive
software that recognizes a date using "00" as the year 1900 rather than the year
2000. The Company converted to a new computer system in 1998 and is currently
seeking a Year 2000 compliant certification from the Company's software vendor.
In addition, the Company has an ongoing program to test its systems for such
compliance. The major business systems of the Company are not vulnerable to
third parties failure to remediate their own Year 2000 issues, as the Company's
interface with third parties, including customers and vendors, does not involve
date-dependent computer communication systems. The Company believes that with
the conversions to new software and modifications to other existing software,
the Year 2000 issue will not pose significant operational problems for its
computer system. In the event the remaining conversions and modifications are
not made, or are not completed timely, the Year 2000 issue is not expected to
have a material impact on the operations of the Company, as the products sold by
the Company and the processing and delivery equipment used are not
date-dependent, minimizing the impact of any Year 2000 issues related to meeting
customer requirements.
As the Company has been incurring costs related to this project since 1997
and no significant additional costs have been identified, the Company does not
anticipate a material impact on the results of operations related to the Year
2000 issue.
F-67
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sea-Lect Products Inc. and Affiliate
We have audited the accompanying combined balance sheets of Sea-Lect
Products Inc. and Affiliate as of May 11, 1998 and December 31, 1997 and the
related combined statements of income, shareholders' equity, and cash flows for
the period from January 1, 1998 through May 11, 1998 and for the year ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Sea-Lect Products
Inc. and Affiliate at May 11, 1998 and December 31, 1997, and the combined
results of their operations and their cash flows for the period from January 1,
1998 through May 11, 1998, and for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Long Beach, California
September 25, 1998
F-68
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 11, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 6,260 $ 70,915
Accounts receivable net of an allowance of $100,000 in 1998 and $54,000 in 1997... 2,245,912 1,531,163
Inventories:
Raw materials................................................................... 729,505 513,165
Work in process................................................................. 1,334,515 1,322,138
Finished goods.................................................................. 518,591 729,572
------------- -------------
Total current assets................................................................ 4,834,783 4,166,953
Property and equipment:
Machinery and equipment........................................................... 3,582,271 3,582,271
Automobiles....................................................................... 132,902 132,902
Office equipment.................................................................. 98,167 98,167
Leasehold improvements............................................................ 93,843 93,843
------------- -------------
3,907,183 3,907,183
Less accumulated depreciation....................................................... (2,750,366) (2,670,659)
------------- -------------
Total property and equipment........................................................ 1,156,817 1,236,524
------------- -------------
Total assets........................................................................ $ 5,991,600 $ 5,403,477
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit.................................................................... $ 1,316,422 $ 701,755
Shareholders' notes payable....................................................... 348,257 375,182
Accounts payable.................................................................. 1,165,825 713,179
Wage and related accruals......................................................... 421,705 304,808
Other accrued liabilities......................................................... 69,847 187,304
Due to shareholders............................................................... -- 200,000
Current portion of long-term debt................................................. 258,252 384,165
------------- -------------
Total current liabilities........................................................... 3,580,308 2,866,393
Long-term debt, less current portion................................................ 665,398 665,399
Commitments and contingencies
Shareholders' equity:
Sea-Lect common stock, $1 par value; authorized 50,000 shares; issued and
outstanding 10,200 shares....................................................... 10,200 10,200
J&J Leasing, Inc. common stock, no par value; authorized 1,000,000 shares; issued
and outstanding 2,000 shares, stated capital.................................... 113,350 113,350
Retained earnings................................................................. 1,622,344 1,748,135
------------- -------------
Total shareholders' equity.......................................................... 1,745,894 1,871,685
------------- -------------
Total liabilities and shareholders' equity.......................................... $ 5,991,600 $ 5,403,477
------------- -------------
------------- -------------
</TABLE>
See notes to combined financial statements.
F-69
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998
THROUGH YEAR ENDED
MAY 11, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Sales......................................................................... $ 5,368,737 $ 14,162,416
Cost of goods sold............................................................ 4,393,686 10,437,350
-------------- -----------------
Gross profit.................................................................. 975,051 3,725,066
Selling, general and administrative expenses.................................. 772,173 1,905,679
-------------- -----------------
202,878 1,819,387
Other income (expenses):
Interest expense............................................................ (65,811) (275,084)
Miscellaneous (expense) income.............................................. 3,651 137,915
-------------- -----------------
Other expenses, net........................................................... (62,160) (137,169)
-------------- -----------------
-------------- -----------------
Net income.................................................................... $ 140,718 $ 1,682,218
-------------- -----------------
-------------- -----------------
</TABLE>
See notes to combined financial statements.
F-70
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEA-LECT J&J LEASING, INC.
COMMON STOCK COMMON STOCK
-------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
--------- --------- ----------- ---------- ------------ -------------------
Balance at January 1, 1997.................... 10,200 $ 10,200 2,000 $ 113,350 $ 875,917 $ 999,467
Net income.................................. -- -- -- -- 1,682,218 1,682,218
Distributions to shareholders............... -- -- -- -- (810,000) (810,000)
--------- --------- ----- ---------- ------------ -------------------
Balance at December 31, 1997.................. 10,200 10,200 2,000 113,350 1,748,135 1,871,685
Net income.................................. -- -- -- -- 140,718 140,718
Distributions to shareholders............... -- -- -- -- (266,509) (266,509)
--------- --------- ----- ---------- ------------ -------------------
Balance at May 11, 1998....................... 10,200 $ 10,200 2,000 $ 113,350 $ 1,622,344 $ 1,745,894
--------- --------- ----- ---------- ------------ -------------------
--------- --------- ----- ---------- ------------ -------------------
</TABLE>
See notes to combined financial statements.
F-71
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1998
THROUGH YEAR ENDED
MAY 11, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................... $ 140,718 $ 1,682,218
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization............................................... 79,707 228,466
Gain on sale of equipment................................................... -- (13,000)
Changes in operating assets and liabilities:
Accounts receivable....................................................... (714,749) (479,769)
Inventories............................................................... (17,736) (418,412)
Accounts payable and accrued liabilities.................................. 452,086 253,170
Prepaid expenses.......................................................... -- 36,000
-------------- -----------------
Net cash (used in) provided by operating activities........................... (59,974) 1,288,673
INVESTING ACTIVITIES
Purchase of equipment......................................................... -- (813,277)
Proceed from sale of equipment................................................ -- 13,000
-------------- -----------------
Net cash used in investing activities......................................... -- (800,277)
FINANCING ACTIVITIES
Distributions to shareholders................................................. (466,509) (610,000)
Repayments on short-term borrowings........................................... (4,678,252) (14,231,408)
Advances on short-term borrowings............................................. 5,292,919 13,970,352
Repayments on long-term debt.................................................. (125,914) (363,143)
Advances on long-term debt.................................................... -- 782,440
Repayment on shareholders' note............................................... (26,925) (283,360)
Advances made from shareholders............................................... -- 259,713
-------------- -----------------
Net cash used in financing activities......................................... (4,681) (475,406)
-------------- -----------------
Net (decrease) increase in cash............................................... (64,655) 12,990
Cash at beginning of period................................................... 70,915 57,925
-------------- -----------------
Cash at end of period......................................................... $ 6,260 $ 70,915
-------------- -----------------
-------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest...................................... $ 65,811 $ 267,762
-------------- -----------------
-------------- -----------------
</TABLE>
See notes to combined financial statements.
F-72
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MAY 11, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF COMBINATION AND ORGANIZATION
The accompanying combined financial statements include the accounts of the
Sea- Lect Products, Inc. (Sea-Lect) and its affiliate, J&J Leasing (J&J) (the
Company). These financial statements have been combined due to their common
ownership and management. Significant intercompany accounts and transactions
have been eliminated in combination.
Sea-Lect is a Washington S corporation, which operates a manufacturing
facility in Kent, Washington, for the purpose of metal fabrication. A
significant portion of its business is with customers in the aerospace business,
primarily in North America. J&J is a Washington S corporation that primarily
leases machinery and equipment to Sea-Lect. Some of the shareholders of J&J are
also shareholders in Sea-Lect.
At the close of business on May 11, 1998, the net assets of Sea-Lect and
100% of J&J's issued and outstanding common stock were sold to SLP Acquisition
Co., a subsidiary of Compass Aerospace Corporation for a total sales price of
$10,500,000. Transactions related to the sale have been treated as subsequent
events and are not reflected in the accompanying financial statements. These
transactions include the repayment of the Company's interest bearing note, as
well as purchase price allocations which affect the carrying value of the
Company's assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost being
determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over five to seven years.
INCOME TAXES
The shareholders of Sea-Lect and J&J have elected, under Subchapter S of the
Internal Revenue Code, to include each company's income in their own income for
federal income tax purposes. Accordingly, no provision has been made for federal
income taxes.
2. LINE OF CREDIT
The Company has an operating line of credit agreement with a bank that
provides for borrowings up to $1.3 million with interest at the bank's prime
rate plus 1% on an individual promissory note basis with no expiration date. At
May 11, 1998, the Company had $1,316,422 outstanding under this agreement with
interest at 9.5%. The borrowings under this agreement are secured by the
Company's accounts receivable and inventory.
F-73
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MAY 11, 1998
3. SHAREHOLDERS' NOTES PAYABLE
The Company has unsecured notes payable to its shareholders that bear
interest at 12% per annum. The notes are payable on demand and $300,000 of the
balance is subordinated to the line of credit. Interest expense on these notes
was approximately $32,000 and $46,000 for the period from January 1, 1998
through May 11, 1998 and the year ended December 31, 1997, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 11, 1998 1997
------------ ------------
<S> <C> <C>
Note payable, due in monthly installments of $9,727 including interest at 9.25%, due
July 25, 2000...................................................................... $ 209,732 $ 266,587
Note payable, due in monthly installments of $8,655 including interest at 9.25%, due
July 25, 2000...................................................................... 10,933 237,291
Note payable, due in monthly installments of $5,060 including interest at 9.25%, due
April 25, 2000..................................................................... 34,253 126,684
Note payable, due in monthly installments of $2,656 including interest at 9.5%, due
April 25, 2002..................................................................... 235,612 112,523
Note payable, due in monthly installments of $3,732 including interest at 9.25%, due
March 25, 2000..................................................................... 24,806 90,346
Note payable, due in monthly installments of $2,619 including interest at 9.25%, due
April 25, 2000..................................................................... 78,087 65,611
Various other notes payable, due in monthly installments of $6,859 including interest
at 9.75%, due starting June 25, 1998 through December 25, 2000..................... 330,227 150,522
------------ ------------
923,650 1,049,564
Less current portion................................................................. 258,252 384,165
------------ ------------
$ 665,398 $ 665,399
------------ ------------
------------ ------------
</TABLE>
The above notes payable are secured by certain equipment, machinery and
automobiles and guaranteed by shareholders of J&J.
The aggregate maturities of the above notes payable are as follows as of May
11:
<TABLE>
<S> <C>
1998.............................................................. $ 258,252
1999.............................................................. 410,428
2000.............................................................. 215,693
2001.............................................................. 29,414
2002.............................................................. 9,863
---------
$ 923,650
---------
---------
</TABLE>
F-74
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MAY 11, 1998
5. COMMITMENTS AND RELATED-PARTY TRANSACTIONS
The Company has several noncancelable operating leases for buildings and
equipment. Buildings are leased from an affiliated joint venture, Building Joint
Venture (JV), that is owned by the shareholders of J&J. Future minimum lease
payments under noncancelable operating leases are as follows as of May 11:
<TABLE>
<CAPTION>
BUILDING EQUIPMENT
(JV) (NON-AFFILIATE) TOTAL
------------ ------------- ------------
<S> <C> <C> <C>
1998.............................................. $ 244,599 $ 456,973 $ 701,572
1999.............................................. 389,916 704,952 1,094,868
2000.............................................. 396,024 439,540 835,564
2001.............................................. 14,090 87,322 101,412
------------ ------------- ------------
$1,044,629 $ 1,688,787 $ 2,733,416
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
Rent expense to affiliated parties for the period from January 1, 1998
through May 11, 1998 and the year ended December 31, 1997 was $137,163 and
$293,532, respectively. Rent expense to a non-affiliated party for the period
from January 1, 1998 through May 11, 1998 and the year ended December 31, 1997
was $24,839 and $49,500, respectively.
6. CONCENTRATIONS
Approximately 42% and 43% of sales for the period from January 1, 1998
through May 11, 1998 and the year ended December 31, 1997, respectively, were
made to one customer. Accounts receivable from this customer amounted to
$777,165 at May 11, 1998 and $676,428 at December 31, 1997.
The Company's borrowings under the line of credit agreement and long-term
debt are made from the same bank.
7. 401(K) PLAN
The Company has a defined contribution plan (401(k)) covering substantially
all permanent employees who have completed six months of services and are at
least 18 years of age. Under the plan, the Company has agreed to contribute to
each eligible participant's account an amount equal to 50% of the amount
contributed by each participant, up to 6% of each participant's annual salary.
The 401(k) expense was $7,518 for the period from January 1, 1998 through May
11, 1998 and $21,000 for the year ended December 31, 1997.
8. YEAR 2000 ISSUE--UNAUDITED
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has begun converting critical data processing
systems. The Company substantially completed the project during 1997. The
Company does not expect the remaining project to have a significant effect on
operations. The Company will continue to implement systems with strategic value,
although some projects may be delayed due to resource constraints.
F-75
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Lamsco West, Inc.
Milford, Connecticut
We have audited the accompanying balance sheets of Lamsco West, Inc., a
wholly-owned subsidiary of Alinabal Holdings Corporation, as of November 20,
1998, January 3, 1998 and December 28, 1996, and the related statements of
income, retained earnings and cash flows for the period January 4, 1998 to
November 20, 1998 and the years ended January 3, 1998 and December 28, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lamsco West, Inc. as of
November 20, 1998, January 3, 1998 and December 28, 1996, and the results of its
operations and its cash flows for the period January 4, 1998 to November 20,
1998 and the years ended January 3, 1998 and December 28, 1996 in conformity
with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
New Haven, Connecticut
March 5, 1999
F-76
<PAGE>
LAMSCO WEST, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 20, JANUARY 3, DECEMBER 28,
1998 1998 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Accounts receivable, less allowance for doubtful accounts 1998
$100,000; 1997 $75,000; 1996 $30,000 (Note 2)..................... $2,258,948 $ 4,190,653 $1,195,504
Inventories......................................................... 2,662,332 2,223,305 1,267,825
Prepaid expenses.................................................... 33,580 47,989 21,079
------------ ------------ ------------
Total current assets.............................................. 4,954,860 6,461,947 2,484,408
------------ ------------ ------------
Equipment and Leasehold Improvements
Machinery and equipment............................................. 1,804,692 1,596,146 920,908
Leasehold improvements.............................................. 275,908 146,629 114,297
------------ ------------ ------------
2,080,600 1,742,775 1,035,205
Less accumulated depreciation and amortization...................... 711,132 530,923 380,195
------------ ------------ ------------
1,369,468 1,211,852 655,010
------------ ------------ ------------
$6,324,328 $ 7,673,799 $3,139,418
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Excess of outstanding checks over bank balances..................... $ $ 37,400 $ 168,415
Accounts payable.................................................... 509,838 905,978 400,540
Accrued liabilities................................................. 275,910 984,547 193,033
------------ ------------ ------------
Total current liabilities......................................... 785,748 1,927,925 761,988
------------ ------------ ------------
Commitments and Contingency (Notes 3 and 4)
Stockholder's Equity
Common stock, $.01 par value; 20,000 shares authorized, 100 shares
issued and outstanding............................................ 1 1 1
Paid-in capital..................................................... 99 99 99
Retained earnings................................................... 5,538,480 5,745,774 2,377,330
------------ ------------ ------------
5,538,580 5,745,874 2,377,430
------------ ------------ ------------
$6,324,328 $ 7,673,799 $3,139,418
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-77
<PAGE>
LAMSCO WEST, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 4, FISCAL YEAR ENDED
1998 TO ----------------------------
NOVEMBER 20, JANUARY 3, DECEMBER 28,
1998 1998 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net Sales
Commercial sales (Note 2)......................................... $ 28,095,863 $ 33,382,982 $ 10,593,249
Intercompany sales................................................ 186,453 151,715 221,922
------------- ------------- -------------
Total net sales................................................. 28,282,316 33,534,697 10,815,171
Cost of Goods Sold.................................................. 10,686,881 12,644,551 5,134,677
------------- ------------- -------------
Gross profit.................................................... 17,595,435 20,890,146 5,680,494
Selling, General and Administrative Expenses (Notes 3 and 4)........ 7,388,484 12,030,687 2,017,970
------------- ------------- -------------
Income before provision in lieu of income taxes................. 10,206,951 8,859,459 3,662,524
Provision in lieu of income taxes................................... 1,282,000
------------- ------------- -------------
Net income...................................................... $ 10,206,951 $ 8,859,459 $ 2,380,524
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
F-78
<PAGE>
LAMSCO WEST, INC.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM FISCAL YEAR ENDED
JANUARY 4, 1998 ---------------------------------
TO JANUARY 3,
NOVEMBER 20, 1998 1998 DECEMBER 28, 1996
----------------- -------------- -----------------
<S> <C> <C> <C>
Balance, beginning........................................ $ 5,745,774 $ 2,377,330 $ 1,187,193
Net income.............................................. 10,206,951 8,859,459 2,380,524
Cash transfers to parent, net........................... (10,414,245) (5,491,015) (1,190,387)
----------------- -------------- -----------------
Balance, ending........................................... $ 5,538,480 $ 5,745,774 $ 2,377,330
----------------- -------------- -----------------
----------------- -------------- -----------------
</TABLE>
See Notes to Financial Statements.
F-79
<PAGE>
LAMSCO WEST, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM FISCAL YEAR ENDED
JANUARY 4, 1998 --------------------------
TO NOVEMBER 20, JANUARY 3, DECEMBER 28,
1998 1998 1996
--------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income........................................................ $ 10,206,951 $ 8,859,459 $2,380,524
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 180,209 152,250 76,412
Provision for doubtful accounts................................. 25,000 75,000 5,000
Changes in working capital components:
Decrease (increase) in accounts receivable.................... 1,906,705 (3,070,149) (800,651)
Increase in inventories....................................... (439,027) (955,480) (424,968)
Decrease (increase) in prepaid expenses....................... 14,409 (26,910) (12,955)
(Decrease) increase in accounts payable....................... (433,540) 374,423 361,945
(Decrease) increase in accrued liabilities.................... (708,637) 791,514 112,270
--------------- ------------ ------------
Net cash provided by operating activities................... 10,752,070 6,200,107 1,697,577
--------------- ------------ ------------
Cash Flows From Investing Activities
Purchases of equipment and leasehold improvements................. (337,825) (709,092) (507,190)
--------------- ------------ ------------
Cash Flows From Financing Activities
Cash transfers to parent, net..................................... (10,414,245) (5,491,015) (1,190,387)
--------------- ------------ ------------
Net increase in cash........................................
Cash
Beginning.........................................................
--------------- ------------ ------------
Ending............................................................ $ $ $
--------------- ------------ ------------
--------------- ------------ ------------
</TABLE>
See Notes to Financial Statements.
F-80
<PAGE>
LAMSCO WEST, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 20, 1998
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Until November 20, 1998, Lamsco West, Inc. (the "Company") was a
wholly-owned subsidiary of Alinabal Holdings Corporation ("Alinabal" or
"Parent"). On November 20, 1998, the Company was sold to Compass Aerospace
Corporation. The Company is engaged in the manufacturing of shims for the
aerospace, defense and industrial markets. The Company's sales are primarily to
customers located throughout the United States to whom they extend credit on an
unsecured basis on terms it establishes for each individual customer.
THESE STATEMENTS HAVE BEEN PREPARED ON A STAND-ALONE BASIS FOR THE COMPANY
AND THEREFORE INTERCOMPANY SALES TO OTHER AFFILIATES OF ALINABAL HAVE NOT BEEN
ELIMINATED.
ACCOUNTING PERIOD
The Company utilizes a fiscal year that ends on the Saturday nearest to
December 31. Fiscal years ended on January 3, 1998 ("fiscal year 1997") and
December 28, 1996 ("fiscal year 1996") included 53 weeks and 52 weeks of
activity, respectively. The accounting period, which ended on November 20, 1998,
began on January 4, 1998 and included 46 weeks of activity.
ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
The Company provides its customers the right to return products that are damaged
or defective. The provision for such returns is estimated and current period
sales and cost of sales are adjusted accordingly.
INVENTORIES
Inventories, consisting principally of raw materials, are stated at the
lower of cost (first-in, first-out method) or market.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost. Depreciation is
provided primarily utilizing the straight-line method over the estimated useful
lives of the respective assets which range from four to ten years. Leasehold
improvements are amortized over the shorter of the remaining lease period or
useful life of the respective asset.
F-81
<PAGE>
LAMSCO WEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 20, 1998
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company participates in Alinabal's defined benefit pension plan. To be
eligible, an employee must have completed one year of service and attained the
age of twenty-one. The plan provides benefits based on years of service and the
employee's compensation during their last five years of employment.
PROFIT SHARING AND SAVINGS PLAN
Employees of the Company are included in Alinabal's 401(k) employee profit
sharing and savings plan. Participants can make salary reduction contributions
to the plan equal to the lesser of 15% of their earnings or the maximum
allowable by the Internal Revenue Code. Company contributions are discretionary
and determined annually.
INCOME TAXES
Through fiscal year 1996, the Company filed a consolidated tax return with
its Parent; accordingly, for fiscal year 1996, the Company recognized a
provision in lieu of income taxes for its proportionate share of the Parent's
income tax provision.
Effective December 29, 1996, the Parent elected to be taxed under provisions
of Subchapter S of the Internal Revenue Code (S Corporation Status), which
provides that, in lieu of corporate income taxes, the stockholders separately
account for their pro rata share of the income, deductions, losses and credits
of the Company. State income taxes are generally insignificant to the Company
due to state allocations and low tax rates. As a result, no provision for
federal or state income taxes is made in these financial statements for the
period from January 4, 1998 to November 20, 1998 and for fiscal year 1997.
When the Parent elected S Corporation Status, the Parent became contingently
liable for income taxes (built in gains tax) at the maximum corporate rate if
certain assets are sold at a gain for a ten year period following the election.
As a result of the sale of the Company, the Parent will be responsible for
approximately $3,300,000 of built-in gains tax.
NOTE 2. MAJOR CUSTOMER
During the period from January 4, 1998 to November 20, 1998 and during
fiscal years 1997 and 1996, one customer accounted for approximately $20,807,000
(74%); $28,938,000 (86%); and $8,150,000 (75%), respectively, of the Company's
net sales and approximately $2,000,000 (89%); $3,921,000 (94%); and $1,066,000
(89%), of the Company's accounts receivable at November 20, 1998, January 3,
1998 and December 28, 1996, respectively. If the Company were to lose this
customer and was unable to find replacement customers, sales would be adversely
affected.
In March 1998, the Company signed an agreement in which the Company will be
the sole source supplier of certain defined parts, primarily shims, to this
customer in exchange for a 10% price reduction. The agreement contains certain
circumstances in which the customer can elect not to purchase from the Company.
F-82
<PAGE>
LAMSCO WEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 20, 1998
NOTE 3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 3,
NOVEMBER 30, 1998 1998 DECEMBER 28, 1996
----------------- -------------- -----------------
<S> <C> <C> <C>
Customer advances......................................... $ $ 613,531 $
Accrued profit sharing.................................... 110,000 176,680 130,700
Accrued payroll........................................... 41,886 40,376 23,559
Other..................................................... 124,024 153,960 38,774
-------- -------------- --------
$ 275,910 $ 984,547 $ 193,033
-------- -------------- --------
-------- -------------- --------
</TABLE>
NOTE 4. LEASES
The Company leases equipment and certain manufacturing facilities under
operating leases. Future annual lease commitments under these operating leases
are summarized as follows:
<TABLE>
<CAPTION>
LEASE
FISCAL YEAR ENDING COMMITMENT
- --------------------------------------------------------------------------- -----------------
<S> <C>
January 2, 1999............................................................ $ 266,651
January 1, 2000............................................................ 266,149
December 30, 2000.......................................................... 33,695
December 29, 2001.......................................................... 24,429
December 28, 2002.......................................................... 1,834
--------
$ 592,758
--------
--------
</TABLE>
Rent expense was approximately $216,000, $278,000 and $121,000 during the
period from January 4, 1998 to November 20, 1998 and during fiscal years 1997
and 1996, respectively.
NOTE 5. EMPLOYEE BENEFIT PLANS
PENSION PLAN
Contributions to the Alinabal sponsored defined benefit pension plan, which
were derived through application of various actuarial assumptions to the
Company's employee group, approximated $37,000, $24,500 and $19,500 during the
period from January 4, 1998 to November 20, 1998 and during fiscal years 1997
and 1996, respectively.
PROFIT-SHARING PLAN
For the period from January 4, 1998 to November 20, 1998 and during fiscal
years 1997 and 1996, the Company made contributions on behalf of its employees
to Alinabal's profit-sharing and savings plan of approximately $16,000, $12,000
and $6,000, respectively.
NOTE 6. IMPACT OF YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems will be unable to interpret dates beyond the year
F-83
<PAGE>
LAMSCO WEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 20, 1998
NOTE 6. IMPACT OF YEAR 2000 (CONTINUED)
1999, which could cause a system failure or other computer errors, leading to
disruptions in operations. The Company and its Parent have developed a
three-phase program for Y2K information systems compliance. Phase I is to
identify those systems with which the Company has exposure to Y2K issues. Phase
II is the development and implementation of action plans to be Y2K compliant in
all areas by mid 1999. Phase III, to be completed by late 1999, is the final
testing of each major area of exposure to ensure compliance. The Company has
identified three major areas determined to be critical for successful Y2K
compliance: (1) financial and informational system applications, (2)
manufacturing applications, and (3) third-party relationships.
The Company, in accordance with Phase I of the program, is in the process of
conducting an internal review of all systems and contacting all software
suppliers to determine major areas of exposure to Y2K issues. In the financial
and information system area, a number of applications have been identified as
being Y2K compliant due to their recent implementation. The Company's core
financial and reporting systems are not Y2K compliant but were already scheduled
for replacement by early 1999. In the manufacturing area, the Company is in the
process of identifying areas of exposure, however, it does not believe that
there is material exposure in this area. In the third-party area, the Company
has contacted most of its major third parties. Most of these parties state that
they intend to be Y2K compliant by 2000.
The Company currently believes the cost to replace the core financial and
reporting systems will not be significant. The Company is interviewing outside
consultants to undertake a portion of the work and expects most of the cost to
be incurred during 1999. The Company has yet to determine what costs, if any,
will be incurred in connection with the manufacturing area and the third-party
area.
NOTE 7. SUBSEQUENT EVENT
The Company's new parent, Compass Aerospace Corporation, is registering $110
million of debt securities with the Securities and Exchange Commission. This
registration is expected to be filed on or about March 29, 1999. Effective
November 20, 1998, the Company became a corporate guarantor of these debt
securities.
F-84
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Compass Aerospace Corporation
We have audited the accompanying consolidated balance sheets of YF Americas,
Inc. and Subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of YF Americas,
Inc. and Subsidiary at December 31, 1998 and 1997 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Long Beach, California
April 27, 1999
F-85
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 1,590 $ 2,134
Accounts receivable less allowance for doubtful accounts of $117 in 1998
and $80 in 1997......................................................................... 1,294 2,002
Inventories............................................................................... 6,631 5,856
Deferred tax assets....................................................................... 397 1,051
Prepaid expenses and other assets......................................................... 185 148
--------- ---------
Total current assets........................................................................ 10,097 11,191
Property and equipment, net................................................................. 4,842 4,410
Goodwill, net of accumulated amortization of $364 in 1998 and $329 in 1997.................. 130 165
--------- ---------
Total assets................................................................................ $ 15,069 $ 15,766
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 892 $ 1,276
Accrued expenses.......................................................................... 382 470
Current portion of long-term debt and capital leases...................................... -- 158
Line of credit............................................................................ 1,389 2,189
--------- ---------
Total current liabilities................................................................... 2,663 4,093
Deferred tax liability...................................................................... 127 131
Payable to affiliate, long-term............................................................. -- 3,613
Long-term debt and capital leases, less current portion..................................... 2,329 3,458
Commitments and contingencies
Shareholder's equity:
Common stock, 1,000 shares authorized, issued and outstanding shares 94.4191 in 1998 and
100 in 1997, $.01 par value............................................................. -- --
Paid-in capital........................................................................... 11,726 8,100
Accumulated deficit....................................................................... (1,776) (3,629)
--------- ---------
Total shareholder's equity.................................................................. 9,950 4,471
--------- ---------
Total liabilities and shareholder's equity.................................................. $ 15,069 $ 15,766
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-86
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales........................................................................ $ 26,967 $ 22,470 $ 11,401
Cost of sales.................................................................... 17,965 15,416 7,797
--------- --------- ---------
Gross profit..................................................................... 9,002 7,054 3,604
Selling, general and administrative expenses..................................... 5,679 3,729 2,094
--------- --------- ---------
Operating income................................................................. 3,323 3,325 1,510
Interest expense, net............................................................ 502 854 370
Other income..................................................................... -- -- (12)
--------- --------- ---------
Income before income taxes....................................................... 2,821 2,471 1,152
Income tax expense............................................................... 968 881 414
--------- --------- ---------
Net income....................................................................... $ 1,853 $ 1,590 $ 738
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-87
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED SHAREHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.......................... 100 $ -- $8,100 $ (5,957) $ 2,143
Net income........................................ -- -- -- 738 738
--------- --------- ---------- ------------ ------
Balance at December 31, 1996........................ 100 -- 8,100 (5,219) 2,881
Net income........................................ -- -- -- 1,590 1,590
--------- --------- ---------- ------------ ------
Balance at December 31, 1997........................ 100 -- 8,100 (3,629) 4,471
Conversion of debt to equity...................... -- -- 3,626 -- 3,626
Treasury stock transferred by shareholder to
Company and retired............................. (5.5809) -- -- -- --
Net income........................................ -- -- -- 1,853 1,853
--------- --------- ---------- ------------ ------
Balance at December 31, 1998........................ 94.4191 $ -- $11,726 $ (1,776) $ 9,950
--------- --------- ---------- ------------ ------
--------- --------- ---------- ------------ ------
</TABLE>
See accompanying notes.
F-88
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................... $ 1,853 $ 1,590 $ 738
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation..................................................................... 457 375 359
Amortization..................................................................... 35 35 35
Deferred taxes................................................................... 650 846 414
Gain on sale of property and equipment........................................... (34) -- (102)
Changes in operating assets and liabilities:
Accounts receivable............................................................ 708 (682) (393)
Inventories.................................................................... (775) (915) (1,340)
Prepaid expenses and other assets.............................................. (37) (119) 22
Accounts payable............................................................... (384) 372 462
Accrued expenses and other liabilities......................................... (88) (132) 560
--------- --------- ---------
Net cash provided by operating Activities.......................................... 2,385 1,370 755
INVESTING ACTIVITIES
Proceeds from the sale of property and equipment................................... 100 -- 344
Purchases of property and equipment................................................ (953) (142) (103)
--------- --------- ---------
Net cash (used in) provided by investing activities................................ (853) (142) 241
FINANCING ACTIVITIES
Proceeds from long-term debt....................................................... -- 2,415 --
Payments on long-term debt and capital leases...................................... (1,287) (380) (206)
Net increase (decrease) in long-term payable to affiliate.......................... 11 (376) (97)
Net decrease in line of credit..................................................... (800) (2,171) --
--------- --------- ---------
Net cash used in financing activities.............................................. (2,076) (512) (303)
--------- --------- ---------
Net (decrease) increase in cash.................................................... (544) 716 693
Cash and cash equivalents at beginning of period................................... 2,134 1,418 725
--------- --------- ---------
Cash and cash equivalents at end of period......................................... $ 1,590 $ 2,134 $ 1,418
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest......................................................................... $ 547 $ 856 $ 678
--------- --------- ---------
--------- --------- ---------
Income taxes..................................................................... $ 480 $ 20 $ --
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
Assets acquired under capital leases............................................... $ -- $ 325 $ 653
--------- --------- ---------
--------- --------- ---------
Conversion of debt to equity....................................................... $ 3,624 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-89
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Y.F. Americas, Inc. owns 100% of the shares of Modern Holdings, Inc., which
owns 100% of the shares of Modern Manufacturing, Inc. The accompanying
consolidated financial statements include the accounts of Y.F. Americas, Inc.,
Modern Holdings, Inc. and Modern Manufacturing, Inc. (collectively, Y.F.
Americas, Inc. and Subsidiary or the Company). All significant intercompany
balances and transactions have been eliminated in consolidation.
Y.F. Americas, Inc. is a Delaware corporation and is a wholly-owned
subsidiary of Y.F. International Ltd., a Hong Kong corporation. Modern Holdings,
Inc. and Modern Manufacturing, Inc. are Washington corporations.
Effective with the close of business on December 31, 1998, Y.F.
International Ltd. sold the Company to Compass Aerospace Corporation. The
accompanying financial statements have been prepared on a historical basis and,
as such, do not reflect any adjustments that may result from the sale of the
Company.
DESCRIPTION OF BUSINESS
The Company is located in Renton, Washington, and is a supplier of precision
machined small to medium-sized structural parts and structural components used
by aerospace manufacturers in structural frames and other metal aircraft
components. Customers include domestic and foreign entities.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are held by major financial institutions. The Company is subject to
risk for amounts in excess of federal deposit insurance limits.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company conducts a major portion of its business with a limited number of
customers. Credit is extended based upon an evaluation of each customer's
financial condition, with terms consistent with those present throughout the
industry. Typically, the Company does not require collateral from customers.
Sales to the Boeing Company accounted for 82%, 83%, and 82% of total
consolidated sales for the years ended December 31, 1998, 1997 and 1996,
respectively. Trade accounts receivable from the Boeing Company accounted for
69% and 70% of total consolidated accounts receivable as of December 31, 1998
and 1997, respectively.
F-90
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of cash and cash equivalents approximate cost due to the short
period of time to maturity. Fair values of long-term debt, which have been
determined based on borrowing rates currently available to the Company for loans
with similar terms of maturity, approximate the carrying amounts in the
consolidated financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The provision for depreciation
of property and equipment is generally computed on the straight-line method over
the following useful lives:
<TABLE>
<S> <C>
27.5-31.5
Buildings and improvements................................... years
Furniture and fixtures....................................... 5-7 years
Vehicles, machinery and equipment............................ 3-10 years
</TABLE>
GOODWILL
Goodwill represents the excess of the purchase price over the estimated fair
value of the net assets acquired in connection with business combinations.
Amortization is provided on a straight-line basis over 14 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying values of long-lived assets are reviewed periodically and if
future cash flows are believed insufficient to recover the remaining carrying
value of the related assets, the carrying value is written down to its estimated
fair value in the period the impairment is identified.
REVENUE RECOGNITION
The Company recognizes revenue from product sales at the time of shipment.
Customers typically have the right to return products that are damaged or
defective. Provisions are made currently for estimated returns.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which is effective for fiscal years beginning after December 15,
1998. SOP 98-1 requires capitalization of qualified computer software costs with
amortization recognized over their estimated useful lives. The Company believes
that there will be no impact due to the adoption of SOP 98-1.
F-91
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities," which is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires costs of
start-up activities, as defined in the Statement, to be expensed as incurred.
The Company believes that there will be no impact due to the adoption of SOP
98-5.
2. INVENTORIES
The following is a summary of inventories (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Raw materials.............................................................. $ 1,770 $ 1,608
Work in process............................................................ 2,137 2,338
Finished goods............................................................. 2,724 1,910
--------- ---------
$ 6,631 $ 5,856
--------- ---------
--------- ---------
</TABLE>
3. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Land....................................................................... $ 1,474 $ 1,474
Building and improvements.................................................. 2,421 2,421
Furniture and fixtures..................................................... 537 543
Vehicles, machinery and equipment.......................................... 3,927 3,128
Machinery under capital leases............................................. 1,340 1,340
--------- ---------
9,699 8,906
Less accumulated depreciation.............................................. 4,857 4,496
--------- ---------
$ 4,842 $ 4,410
--------- ---------
--------- ---------
</TABLE>
4. LINE OF CREDIT
The Company has a revolving credit facility agreement with the Bank of China
for $3.5 million. The Company had availability of approximately $2.1 million at
December 31, 1998. Interest is due quarterly at prime (7.75% at December 31,
1998) plus 0.25%. The line of credit expires October 15, 1999, and is secured by
substantially all of the assets of the Company.
5. LONG-TERM DEBT
Long-term debt includes a note payable to the Bank of China. The note
totaled $2.5 million and $2.3 million as of December 31, 1998 and 1997,
respectively. Interest on the note is set at the London Inter-Bank Offered Rate
(5.2% at December 31, 1998) plus 2.25%, and is due monthly. The note matures
F-92
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. LONG-TERM DEBT (CONTINUED)
in January 2003, at which time the principal is due in full. This loan is
secured by real property owned by the Company.
At December 31, 1997, the Company had a mortgage loan payable to U.S.
Bancorp Mortgage Company for $0.5 million. The Company had obligations under
capital lease agreements of approximately $0.8 million at December 31, 1997.
Though the original maturity dates under these agreements extended beyond 1998,
the Company paid these obligations in full during 1998.
6. INCOME TAXES
Deferred income taxes are computed using the liability method and reflect
the net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
income tax purposes. The provision for income taxes reflects the taxes to be
paid for the period and the change during the period in the deferred tax assets
and liabilities.
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Deferred tax assets:
Net operating losses........................................................ $ -- $ 470
Inventory reserves.......................................................... 285 233
Management fees............................................................. -- 231
Accrued expenses not deductible for tax..................................... 112 51
Other....................................................................... -- 66
--------- ---------
Total deferred tax assets..................................................... 397 1,051
Deferred tax liabilities:
Depreciation and amortization............................................... 83 50
Other....................................................................... 44 81
--------- ---------
Total deferred tax liabilities................................................ 127 131
--------- ---------
Net deferred tax asset........................................................ $ 270 $ 920
--------- ---------
--------- ---------
</TABLE>
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Current:
Federal.......................................................... $ 318 $ 35 $ 20
Deferred:
Federal.......................................................... 650 846 394
--------- --------- ---------
$ 968 $ 881 $ 414
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-93
<PAGE>
YF AMERICAS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
6. INCOME TAXES (CONTINUED)
The reconciliation of income tax at the U.S. federal statutory rate to
income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Income tax at U.S. statutory rates.................................. 34.0% 34.0% 34.0%
Book expenses not deductible for tax purposes....................... 0.3 1.7 1.9
--- --- ---
34.3% 35.7% 35.9%
--- --- ---
--- --- ---
</TABLE>
7. RELATED PARTY TRANSACTIONS
During 1998, the Company's parent, Y.F. International, Ltd., contributed
advances previously made to the Company totaling $3.6 million as additional
equity. This balance is recorded as additional paid-in capital at December 31,
1998.
8. CONTINGENCIES
During the normal course of business, the Company is involved in various
lawsuits and other legal matters. Management, in consultation with legal
counsel, does not believe that the outcome of these matters will have a
materially adverse impact on the financial position or future operations of the
Company.
9. SALARY DEFERRAL PLAN AND TRUST
The Company has a qualified retirement plan and trust covering substantially
all full-time employees with more than one year of service. Company
contributions to the defined contribution plan are made at the discretion of the
board of directors. During the years ended December 31, 1998, 1997, and 1996,
the Company charged $29,000, $31,000, and $16,000, respectively, to expense
pursuant to the Plans.
10. SUBSEQUENT EVENT
Modern Holdings, Inc. and Modern Manufacturing, Inc. merged with Y.F.
Americas, Inc. on January 15, 1999 and January 19, 1999, respectively, to form a
single corporation. After the mergers, Y.F. Americas, Inc. changed its name to
Modern Manufacturing, Inc.
11. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue concerns the inability of information systems to
recognize properly and process date-sensitive information beyond January 1,
2000.
The Company has developed a plan to modify its information technology to be
ready for the year 2000 and has completed converting critical data processing
systems. The Company substantially completed the project during 1999. The
Company does not expect the remaining project to have a significant effect on
operations. The Company will continue to implement systems with strategic value,
although some projects may be delayed due to resource constraints.
F-94
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$110,000,000
EXCHANGE OFFER
COMPASS AEROSPACE CORPORATION
[LOGO]
10 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2005
------------------------
PROSPECTUS
, 1999
------------------------
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
COMPASS
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation or were or are serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, if such directors, officers, employees or agents acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. In a derivative
action, i.e., one by or in the right of the corporation, indemnification may be
made only for expenses actually and reasonably incurred by directors, officers,
employees or agents in connection with the defense or settlement of an action or
suit, and only with respect to a matter as to which they shall have acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, unless and only to the extent that the
court in which the action or suit was brought shall determine upon application
that the defendant directors, officers, employees, or agents are fairly and
reasonably entitled to indemnification for such expenses despite such
adjudication of liability.
Compass' By-laws provide that Compass shall, to the full extent authorized
or permitted by law, indemnify any current or former director or officer of
Compass. Subject to applicable law, Compass may indemnify an employee or agent
of Compass to the extent that the Board of Directors may determine in its
discretion.
Article Seven of Compass' Certificate of Incorporation, as amended, provides
that a director of Compass shall not be personally liable to Compass or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent provided by applicable law for liability (a) for any breach
of the duty of loyalty to Compass or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) pursuant to Section 174 of the General Corporation Law of the State
of Delaware, or (d) for any transaction from which a director derived an
improper personal benefit.
Compass' directors and officers are covered by insurance policies
indemnifying them against certain civil liabilities, including liabilities under
the federal securities laws, which might be incurred by them in such capacity.
THE GUARANTORS
The Guarantors are incorporated under the laws of the States of California
(Pacific Hills, Western Methods and Wichita Manufacturing), Delaware (Aeromil,
Modern and Sea-Lect), Kansas (Brittain Machine) and Washington (Barnes Machine).
As with the General Corporation Law of the State of Delaware, the California
Corporations Code, the Kansas General Corporation Code and the Washington
Business Corporation Act authorize a corporation, under certain circumstances,
to indemnify its directors and officers (including to reimburse them for
expenses incurred).
As with Compass' Certificate of Incorporation, as amended, and its By-Laws,
each of the Guarantor's organizational documents and bylaws generally provide
for the indemnification of officers and directors to the full extent permitted
by law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
**3.1 Certificate of Incorporation of Compass Aerospace Corporation ("Compass"), as amended to date.
3.2 Amended and Restated By-Laws of Compass
3.3 Certificate of Incorporation of AOM Acquisition Co. (which later changed its name to "Aeromil
Engineering Company"), as amended to date.
3.4 Amended and Restated By-laws of Aeromil Engineering Company
3.5 Articles of Incorporation of Western Methods Machinery Corporation.
3.6 Amended and Restated Bylaws of Western Methods Machinery Corporation.
3.7 Articles of Incorporation of Brittain Machine, Inc.
3.8 Amended and Restated Bylaws of Brittain Machine, Inc.
3.9 Articles of Incorporation of Wichita Manufacturing, Inc.
3.10 Amended and Restated Bylaws of Wichita Manufacturing, Inc.
3.11 Articles of Incorporation of Barnes Machine, Inc.
3.12 Amended and Restated Bylaws of Barnes Machine, Inc.
3.13 Certificate of Incorporation of SLP Acquisition Co. (which later changed its name to Sea-Lect Products,
Inc.), as amended to date.
3.14 By-Laws of SLP Acquisition Co.
3.15 Restated Articles of Incorporation of Pacific Hills Manufacturing Co.
3.16 Amended and Restated Bylaws of Pacific Hills Manufacturing Co.
3.17 Certificate of Incorporation of W.S.I. Inc. (which later changed its name first to Y.F. Americas, Inc.,
and then to Modern Manufacturing, Inc.), as amended to date.
3.18 By-Laws of W.S.I. Inc.
**4.1 Indenture, dated April 21, 1998, by and among Compass, the Guarantors listed therein and IBJ Whitehall
Bank & Trust Company (formerly IBJ Schroder Bank & Trust Company) as Trustee, relating to the 10 1/8%
Series B Senior Subordinated Notes due 2005 of Compass (the "Series B Notes") and the 10 1/8% Senior
Subordinated Notes due 2005 of Compass (the "outstanding notes").
**4.2 Amended and Restated Credit Agreement, dated as of November 20, 1998 and amended and restated as of
February 11, 1999, by and among Compass, BankBoston, N.A. as agent and a lender, NationsBank, N.A. as
Co-Agent, the Lenders named therein, Royal Bank of Canada as Syndication Agent, General Electric Capital
Corporation as Documentation Agent and BancBoston Robertson Stephens, Inc. as arranger
**4.3 Security Agreement, dated November 20, 1998, by and among Compass, Compass' subsidiaries named therein,
BankBoston, N.A. as agent and the lenders identified therein.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
**4.4 Stock Pledge Agreement, dated as of November 20, 1998 by and among Compass, Brittain Machine, Inc.,
Sea-Lect Products, Inc. and BankBoston, N.A. as agent.
4.5 Amendment No. 1 to Credit Agreement, dated as of June 7, 1999 by and among Compass, Bank Boston, N.A. as
Issuing Bank, as Agent and as a lender, NationsBank, N.A. as Co-Agent, the Lenders named therein, Royal
Bank of Canada as Syndication Agent, General Electric Capital Corporation as Documentation Agent.
*5.1 Opinion of Morgan, Lewis & Bockius, LLP, counsel to Compass.
**10.1 Employment Agreement, dated as of November 26, 1997, by and between Compass and Alexander Hogg.
10.2 Employment Agreement, dated as of September 21, 1998, by and between Compass and N. Paul Brost.
10.3 Employment Agreement, dated as of December 1, 1998, by and between Compass and Pasquale DiGirolamo.
**10.4 Compass Aerospace Corporation 1998 Stock Incentive Plan.
**10.5 Management Agreement, dated November 26, 1997, by and among Compass, Dunhill Bank Caribbean Ltd. and
Hayes Capital Corporation, as amended to date.
12.1 Statements regarding the computation of ratio of earnings to fixed charges for Compass.
21.1 Subsidiaries of Compass.
*23.1 Consent of Ernst & Young, LLP.
23.2 Consent of Grant Thornton LLP.
*23.3 Consent of McGladrey & Pullen, LLP.
*23.4 Consent of Morgan, Lewis & Bockius LLP, counsel to Compass (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
25.1 Statement of Eligibility on Form T-1 of IBJ Whitehall Bank & Trust Company, as Trustee under the
Indenture relating to the Series B Notes.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(b) Financial Statement Schedules:
Schedule II-Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because the information is not
applicable or is not material or because the information required is set forth
in the financial statements on the notes thereto.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrants are foreign private issuers, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, PROVIDED, that
the registrants include in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the From F-3.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person of
the Registrants in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrants will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification
II-4
<PAGE>
by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail
or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Los Angeles, State of
California, on June 25, 1999.
COMPASS AEROSPACE CORPORATION
BY: /S/ DOUGLAS M. HAYES
-----------------------------------------
Douglas M. Hayes
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ DOUGLAS M. HAYES Chairman of the Board of June 25, 1999
- ------------------------------ Directors
Douglas M. Hayes
/s/ ALEXANDER HOGG* Director, President and June 25, 1999
- ------------------------------ Chief Executive Officer
Alexander Hogg
/s/ N. PAUL BROST* Vice President, Chief June 25, 1999
- ------------------------------ Financial Officer and
N. Paul Brost Treasurer (Principal
Financial and Accounting
Officer)
/s/ DOUGLAS B. SOLOMON Director and Secretary June 25, 1999
- ------------------------------
Douglas B. Solomon
/s/ JAMES P. ANGUS* Director June 25, 1999
- ------------------------------
James P. Angus
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL DRITZ* Director June 25, 1999
- ------------------------------
Michael Dritz
/s/ HARALD H. LUDWIG* Director June 25, 1999
- ------------------------------
Harald H. Ludwig
/s/ WILLIAM R. MONKMAN* Director June 25, 1999
- ------------------------------
William R. Monkman
/s/ PHILIP J. OLSSON* Director June 25, 1999
- ------------------------------
Philip J. Olsson
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: /s/ DOUGLAS M. HAYES
-------------------------
Douglas M. Hayes
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each Additional
Registrant listed on the cover page of this registration statement has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Los Angeles, State of
California, on June 25, 1999.
<TABLE>
<S> <C> <C>
AEROMIL ENGINEERING COMPANY
BARNES MACHINE, INC.
BRITTAIN MACHINE, INC.
PACIFIC HILLS MANUFACTURING CO.
MODERN MANUFACTURING, INC.
SEA-LECT PRODUCTS, INC.
WESTERN METHODS MACHINERY CORPORATION
WICHITA MANUFACTURING, INC.
By: /s/ DOUGLAS M. HAYES
------------------------------------------
Douglas M. Hayes
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ DOUGLAS M. HAYES Chairman of the Board of June 25, 1999
- ------------------------------ Directors of each
Douglas M. Hayes Additional Registrant
/s/ ALEXANDER HOGG* Director, and Chief June 25, 1999
- ------------------------------ Executive Officer of each
Alexander Hogg Additional Registrant
/s/ N. PAUL BROST* Vice President, Chief June 25, 1999
- ------------------------------ Financial Officer and
N. Paul Brost Treasurer (Principal
Financial and Accounting
Officer) of each
Additional Registrant
/s/ DOUGLAS B. SOLOMON Director and Secretary of June 25, 1999
- ------------------------------ each Additional
Douglas B. Solomon Registrant
/s/ HARALD H. LUDWIG* Director of each Additional June 25, 1999
- ------------------------------ Registrant
Harald H. Ludwig
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By /s/ DOUGLAS M. HAYES
-------------------------
Douglas M. Hayes
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
COMPASS AEROSPACE CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES EXPENSES (1) PERIOD
- ---------------------------------------------------- ------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
As Compass Aerospace Corporation
YEAR ENDED DECEMBER 31, 1997
Reserve and allowance deducted from asset accounts
Allowance for uncollectible accounts................ $ -- $ -- $ 49 $ 18 $ 31
YEAR ENDED DECEMBER 31, 1998
Reserve and allowance deducted from asset accounts
Allowance for uncollectible accounts................ $ 31 $ 3 $ 776 $ 54 $ 756
As Brittain Machine, Inc.(2)
YEAR ENDED JUNE 30, 1996
Reserve and allowances deducted from asset accounts
Allowance for uncollectible accounts................ $ -- $ -- $ -- $ -- $ --
YEAR ENDED JUNE 30, 1997
Reserve and allowance deducted from asset accounts
Allowance for uncollectible accounts................ $ -- $ -- $ -- $ -- $ --
YEAR ENDED APRIL 21, 1998
Reserve and allowances deducted from asset accounts
Allowance for uncollectible accounts................ $ -- $ -- $ -- $ -- $ --
</TABLE>
- ------------------------
(1) Net of recoveries.
(2) Brittain Machine, Inc. is included as the predecessor of Compass Aerospace
Corporation.
S-1
<PAGE>
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION DATED [ ], 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
COMPASS AEROSPACE CORPORATION
10 1/8% Series B Senior Subordinated Notes due 2005
------------------------
- The Series B Notes were issued in exchange for our 10 1/8% Senior
Subordinated Notes due 2005
- The Series B Notes will mature on April 15, 2005
- Interest on the Series B Notes is payable on April 15 and October 15 of
each year, commencing October 15, 1999
- We may redeem the Series B Notes, in whole or in part, at any time on or
after April 15, 2002, at the redemption prices set forth on page [ ],
plus accrued interest
- Before April 15, 2001, we may redeem up to 35% of the aggregate principal
amount of the notes originally outstanding with the net proceeds of a
public equity offering at 110.125% of the principal amount of the redeemed
notes, plus accrued interest, if at least 65% of the aggregate principal
amount of the notes originally issued remains outstanding after such
redemption
- You have the right to require us to purchase the Series B Notes upon the
occurrence of certain change of control events at a purchase price equal
to 101% of the principal amount of the repurchased notes, plus accrued
interest
- The Series B Notes are unsecured senior subordinated obligations and rank
junior to all our existing and future senior indebtedness. The Series B
Notes rank senior to or equal to all our future subordinated indebtedness
- The Series B Notes are jointly and severally, fully, irrevocably and
unconditionally guaranteed on a senior subordinated basis by each of
Compass' present and future subsidiaries and rank junior to all existing
and future senior indebtedness of our subsidiaries
- We will not receive the proceeds of the sale of the notes but will bear
the expenses of registration
- The terms of the Series B notes are identical in all material respects to
the 10 1/8% Senior Subordinated Notes due 2005, except the Series B Notes
lack certain transfer restrictions and registration rights relating to the
10 1/8% Senior Subordinated Notes due 2005
------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS.
---------------------
This prospectus is to be used by broker-dealers in connection with offers
and sales in market-making transactions at negotiated prices related to
prevailing market prices. We do not intend to list the notes on any securities
exchange. Certain broker-dealers have informed us that they intend to make a
market in the notes, however, they are under no obligation to do so and may stop
at any time.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be distributed in the
exchange offer or determined that this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
[ALTERNATE RISK FACTOR FOR MARKET-MAKING PROSPECTUS]
THERE IS NO EXISTING TRADING MARKET FOR THE NOTES AND ANY MARKET-MAKING
ACTIVITIES MAY BE TERMINATED AT ANY TIME
There is no existing trading market for the notes. We cannot assure you that
any market for the notes will develop, or about your ability to sell the notes
or the price at which you may be able to sell them. If such a market were to
develop, the notes could trade at prices that may be higher or lower than their
initial offering price. That trading price could depend on many factors,
including prevailing interest rates, our operating results and the market for
similar securities. We have also been advised by certain broker-dealers that,
subject to applicable laws and regulations, they currently intend to make a
market in the notes. However, they are under no obligation to do so and they may
discontinue or interrupt any such market-making at any time without notice.
BancBoston Securities Inc., one such broker-dealer who has notified us it
intends to make a market in the notes may be deemed to be our "affiliate" (as
defined in the Securities Act) and, as such, may be required to deliver a
prospectus in connection with its market-making activities in the notes.
Pursuant to the registration rights agreement we signed with the initial
purchasers of the notes in connection with our initial offering of the 10 1/8%
Senior Subordinated Notes, we have agreed to use our best efforts to file and
maintain a registration statement that would allow a broker-dealer who may be
deemed to be an affiliate of ours to engage in market-making transactions in the
notes for up to one year from the date on which we consummate the offer to
exchange the Series B Notes for 10 1/8% Senior Subordinated Notes. We have
agreed to bear substantially all the costs and expenses related to that
registration.
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes by a
broker-dealer in market-making transactions. We will not receive any of the
proceeds from such transactions.
<PAGE>
[ALTERNATE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus is to be used by broker-dealers in connection with offers
and sales of Series B Notes in market-making transactions effected from time to
time. Compass has agreed that it will make this prospectus, as amended or
supplemented, available to any broker-dealer for a period of up to one year
after the date of issuance of the Series B Notes.
Compass will not receive any proceeds from any sale of Series B Notes by
broker-dealers. Series B Notes received by broker-dealers for their own accounts
pursuant to market-making transactions may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Series B Notes or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or negotiated prices. Any such sale may
be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any Series B Notes. A broker-dealer may
act as a principal or agent for one party when acting as principal or as agent
for both parties, and may receive compensation in the form of discounts and
commissions, including from both parties when it acts as agent for both.
Compass has been advised by certain broker-dealers that, subject to
applicable laws and regulations, they currently intend to make a market in the
Series B Notes following completion of the exchange offer. However, no
broker-dealer is under any obligation to do so and they may discontinue or
interrupt any such market-making activities at any time without notice. Any such
market-making activity also will be subject to the limits imposed by the
Securities Act and the Securities Exchange Act of 1934, as amended. We cannot
assure you that any market for the notes will develop, or about your ability to
sell the notes you hold or the price at which you may be able to sell them.
<PAGE>
[ALTERNATE BACK COVER FOR MARKET-MAKING PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$110,000,000
COMPASS AEROSPACE CORPORATION
[LOGO]
10 1/8% Series B Senior Subordinated Notes due 2005
---------------------
PROSPECTUS
, 1999
------------------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENT OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
**3.1 Certificate of Incorporation of Compass Aerospace Corporation ("Compass"), as amended to date.
3.2 Amended and Restated By-Laws of Compass
3.3 Certificate of Incorporation of AOM Acquisition Co. (which later changed its name to "Aeromil
Engineering Company"), as amended to date.
3.4 Amended and Restated By-laws of Aeromil Engineering Company
3.5 Articles of Incorporation of Western Methods Machinery Corporation.
3.6 Amended and Restated Bylaws of Western Methods Machinery Corporation.
3.7 Articles of Incorporation of Brittain Machine, Inc.
3.8 Amended and Restated Bylaws of Brittain Machine, Inc.
3.9 Articles of Incorporation of Wichita Manufacturing, Inc.
3.10 Amended and Restated Bylaws of Wichita Manufacturing, Inc.
3.11 Articles of Incorporation of Barnes Machine, Inc.
3.12 Amended and Restated Bylaws of Barnes Machine, Inc.
3.13 Certificate of Incorporation of SLP Acquisition Co. (which later changed its name to Sea-Lect Products,
Inc.), as amended to date.
3.14 By-Laws of SLP Acquisition Co.
3.15 Restated Articles of Incorporation of Pacific Hills Manufacturing Co.
3.16 Amended and Restated Bylaws of Pacific Hills Manufacturing Co.
3.17 Certificate of Incorporation of W.S.I. Inc. (which later changed its name first to Y.F. Americas, Inc.,
and then to Modern Manufacturing, Inc.), as amended to date.
3.18 By-Laws of W.S.I. Inc.
**4.1 Indenture, dated April 21, 1998, by and among Compass, the Guarantors listed therein and IBJ Whitehall
Bank & Trust Company (formerly IBJ Schroder Bank & Trust Company) as Trustee, relating to the 10 1/8%
Series B Senior Subordinated Notes due 2005 of Compass (the "Series B Notes") and the 10 1/8% Senior
Subordinated Notes due 2005 of Compass (the "outstanding notes").
**4.2 Amended and Restated Credit Agreement, dated as of November 20, 1998 and amended and restated as of
February 11, 1999, by and among Compass, BankBoston, N.A. as agent and a lender, NationsBank, N.A. as
Co-Agent, the Lenders named therein, Royal Bank of Canada as Syndication Agent, General Electric Capital
Corporation as Documentation Agent and BancBoston Robertson Stephens, Inc. as arranger
**4.3 Security Agreement, dated November 20, 1998, by and among Compass, Compass' subsidiaries named therein,
BankBoston, N.A. as agent and the lenders identified therein.
**4.4 Stock Pledge Agreement, dated as of November 20, 1998 by and among Compass, Brittain Machine, Inc.,
Sea-Lect Products, Inc. and BankBoston, N.A. as agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.5 Amendment No. 1 to Credit Agreement, dated as of June 7, 1999 by and among Compass, Bank Boston, N.A. as
Issuing Bank, as Agent and as a lender, NationsBank, N.A. as Co-Agent, the Lenders named therein, Royal
Bank of Canada as Syndication Agent, General Electric Capital Corporation as Documentation Agent.
*5.1 Opinion of Morgan, Lewis & Bockius, LLP, counsel to Compass.
**10.1 Employment Agreement, dated as of November 26, 1997, by and between Compass and Alexander Hogg.
10.2 Employment Agreement, dated as of September 21, 1998, by and between Compass and N. Paul Brost.
10.3 Employment Agreement, dated as of December 1, 1998, by and between Compass and Pasquale DiGirolamo.
**10.4 Compass Aerospace Corporation 1998 Stock Incentive Plan.
**10.5 Management Agreement, dated November 26, 1997, by and among Compass, Dunhill Bank Caribbean Ltd. and
Hayes Capital Corporation, as amended to date.
12.1 Statements regarding the computation of ratio of earnings to fixed charges for Compass.
21.1 Subsidiaries of Compass.
*23.1 Consent of Ernst & Young, LLP.
23.2 Consent of Grant Thornton LLP.
*23.3 Consent of McGladrey & Pullen, LLP.
*23.4 Consent of Morgan, Lewis & Bockius LLP, counsel to Compass (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page).
25.1 Statement of Eligibility on Form T-1 of IBJ Whitehall Bank & Trust Company, as Trustee under the
Indenture relating to the Series B Notes.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
COMPASS AEROSPACE CORPORATION
****
INCORPORATED UNDER THE LAWS
OF THE
STATE OF DELAWARE
ON
OCTOBER 21, 1997
****
LAW OFFICES
OF
MORGAN, LEWIS & BOCKIUS LLP
300 SOUTH GRAND AVENUE
22nd Floor
LOS ANGELES, CALIFORNIA 90071-3132
-1-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
COMPASS AEROSPACE CORPORATION
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided in these
Bylaws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of
a majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such
-2-
<PAGE>
class vote unless the representation of a larger number of shares of such class
shall be required by law, by the Certificate of Incorporation or by these
Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board and the President, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to
-3-
<PAGE>
corporate action in writing without a meeting may authorize another person or
persons to act for him or her by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. When directed by the presiding officer or upon the demand of any
stockholder, the vote upon any matter before a meeting of stockholders shall be
by ballot. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall be elected by a plurality of the votes cast at a
meeting of stockholders by the stockholders entitled to vote in the election
and, whenever any corporate action, other than the election of Directors is to
be taken, it shall be authorized by a majority of the votes cast at a meeting of
stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be
-4-
<PAGE>
elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the state
of Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by facsimile, telegram or telephone at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is
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one of the purposes of the meeting. At any meeting at which every Director shall
be present, even though without any notice, any business may be transacted,
including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors. If at any meeting
of the Board there is less than a quorum present, a majority of those present
may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Board of Directors. In the absence of the Chairman of the Board and the
President, a Chairman shall be elected from the Directors present. The Secretary
of the Corporation shall act as Secretary of all meetings of the Directors; but
in the absence of the Secretary, the Chairman may appoint any person to act as
Secretary of the meeting.
SECTION 8. COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
approving or adopting; or recommending to the stockholders, any action or matter
expressly required by law to be submitted to stockholders for approval, or
adopting, amending or repealing these Bylaws.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation or by these Bylaws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING.
Unless otherwise restricted by the Certificate of Incorporation or by these
Bylaws, any action required or
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permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board or committee, as
the case may be.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer, and such additional officers, if any, as shall be elected by the
Board of Directors pursuant to the provisions of Section 7 of this Article III.
The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these Bylaws, the officers shall have such authority
and shall perform such duties as from time to time may be determined by the
Board of Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board, subject to the control of the Board of Directors, shall
have general charge and control of all its business and affairs and shall have
all powers and shall perform all duties incident to the office of Chairman of
the Board. The Chairman shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these Bylaws
or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. The President, subject
to the control of the Board of Directors and the Chairman of the Board, shall
have general charge and
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control of all its operations and shall have all powers and shall perform all
duties incident to the office of President. In the absence of the Chairman of
the Board, the President shall preside at all meetings of the stockholders and
at all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these Bylaws
or by the Board of Directors or the Chairman of the Board.
SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these Bylaws or by the Board of
Directors, the Chairman of the Board or the President.
SECTION 5. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors or the President shall authorize and direct; shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors or the President shall direct, all of which
shall at all reasonable times be open to the examination of any Director, upon
application, at the office of the Corporation during business hours; and
whenever required by the Board of Directors or the President shall render
statements of such accounts. The Secretary shall have all powers and shall
perform all duties incident to the office of Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned by these Bylaws or by the Board of Directors, the Chairman of the Board
or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors or the President
shall render statements of such accounts. The Treasurer shall, at all reasonable
times, exhibit the books and accounts to any Director of the Corporation upon
application at the office of the Corporation during business hours; and shall
have all powers and shall perform all duties incident to the office of Treasurer
and shall also have such other powers and shall perform such other duties as may
from time to time be assigned by these Bylaws or by the Board of Directors, the
Chairman of the Board or the President.
SECTION 7. ADDITIONAL OFFICERS. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant
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Treasurers, Assistant Secretaries and Assistant Controllers, as the Board may
deem advisable and such officers shall have such authority and shall perform
such duties as may from time to time be assigned by the Board of Directors, the
Chairman of the Board or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 8. GIVING OF BOND BY OFFICERS. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such amounts
and with such conditions and security as the Board shall require.
SECTION 9. VOTING UPON STOCKS. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the President or any Vice President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote, or in the name of the Corporation to execute proxies to
vote, at any meeting of stockholders of any corporation in which the Corporation
may hold stock, and at any such meeting shall possess and may exercise, in
person or by proxy, any and all rights, powers and privileges incident to the
ownership of such stock. The Board of Directors may from time to time, by
resolution, confer like powers upon any other person or persons.
SECTION 10. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
----------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 1. NATURE OF INDEMNITY. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or on his or her behalf in
connection with such
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action, suit or proceeding and any appeal therefrom, if the person acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by a majority vote of the Directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
Section 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final
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disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the Director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Corporation as authorized in this Article IV. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate. The Board of Directors may authorize
the Corporation's legal counsel to represent such Director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. SEVERABILITY. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. SUBROGATION. In the event of payment of indemnification to
a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including
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the execution of such documents necessary to enable the Corporation effectively
to enforce any such recovery.
Section 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
---------
STOCK-SEAL-FISCAL YEAR
----------------------
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate
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so issued shall be noted the fact of such issue and the number, date and the
name of the registered owner of the lost, stolen or destroyed certificate in
lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall
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upon a legal holiday, then the dividend payable on such date shall be paid on
the next day not a legal holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
----------
MISCELLANEOUS PROVISIONS
------------------------
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
Section 3. CONTRACTS. Except as otherwise provided in these Bylaws or
by law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the President or any Vice President shall be authorized to execute and
deliver, in the name and on behalf of the Corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and the seal of the
Corporation, if appropriate, shall be affixed thereto by any of such officers or
the Secretary or an Assistant Secretary. The Board of Directors, the Chairman of
the Board, the President or any Vice President designated by the Board of
Directors, the Chairman of the Board or the President may
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authorize any other officer, employee or agent to execute and deliver, in the
name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required
to be given by law, by the Certificate of Incorporation or by these Bylaws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors or the Chairman of the Board.
ARTICLE VII
-----------
AMENDMENTS
----------
These Bylaws and any amendment thereof may be altered, amended or
repealed, or new Bylaws may be adopted, by the Board of Directors at any regular
or special meeting by the affirmative vote of a majority of all of the members
of the Board, provided in the case of any special meeting at which all of the
members of the Board are not present, that the notice of such meeting shall have
stated that the amendment of these Bylaws was one of the purposes of the
meeting; but these Bylaws and any amendment thereof, may be altered, amended or
repealed or new Bylaws may be adopted by the holders of a majority of the total
outstanding stock of the Corporation entitled to vote at any annual meeting or
at any special meeting, provided, in the case of any special meeting, that
notice of such proposed alteration, amendment, repeal or adoption is included in
the notice of the meeting.
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CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BY-LAWS
OF
COMPASS AEROSPACE CORPORATION
This is to certify:
That I am the duly elected, qualified and acting Secretary of COMPASS
AEROSPACE CORPORATION (the "Corporation") and the attached amended and restated
by-laws were adopted as the by-laws of the Corporation on April 30, 1999 by the
Unanimous Written Consent of the Board of Directors of the Corporation.
Dated effective the 30th day of April, 1999.
/s/ Douglas B. Solomon
---------------------------------
Douglas B. Solomon, Secretary
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EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
AOM ACQUISITION CO.
----------------------------------
FIRST: The name of the corporation shall be:
AOM Acquisition Co.
SECOND: The address of the corporation's registered office in the State of
Delaware is to be located at 1013 Centre Road, in the City of Wilmington, County
of New Castle and its registered agent at such address is Corporation Service
Company.
THIRD: The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which this corporation is
authorized to issue is:
Three Thousand (3,000) shares without par value.
FIFTH: The name and address of the incorporator is as follows:
Takako Muramatsu
Morgan, Lewis & Bockius LLP
801 South Grand Avenue, 22nd Floor
Los Angeles, California 90017.
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE>
SEVENTH: No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions no in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this 3rd day of November, 1997.
/s/ Takako Muramatsu
---------------------
Takako Muramatsu
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AOM ACQUISITION CO.
Pursuant to Section 242 of the Delaware
General Corporation Law
AOM ACQUISITION CO., a Delaware corporation, hereby certifies as
follows:
FIRST: The Certificate of Incorporation of the Corporation was filed
in the Office of the Secretary of State of Delaware on November 3, 1997 and a
certified copy was recorded in the Office of the Recorder of Kent County,
Delaware. The Certificate of Incorporation has to date not been amended.
SECOND: The Certificate of Incorporation is amended to change the name
of the Corporation by striking ARTICLE FIRST of the Certificate of Incorporation
in its entirety and inserting the following new ARTICLE FIRST as follows:
"FIRST. The name of this corporation shall be:
AEROMIL ENGINEERING COMPANY"
THIRD: This Amendment to the Certificate of Incorporation was duly
adopted by the unanimous written consent of the Board of Directors and by the
written consent of the holder of all outstanding stock of the Corporation
entitled to vote in accordance with Sections 141(f), 228 and 242 of the Delaware
General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of its Certificate of Incorporation to be executed by its Secretary
this 26th day of November, 1997.
----
By: /s/ Douglas B. Solomon
------------------------
Douglas B. Solomon
Secretary
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
AEROMIL ENGINEERING COMPANY
****
INCORPORATED UNDER THE LAWS
OF THE
STATE OF DELAWARE
ON
NOVEMBER 3, 1997
****
LAW OFFICES
OF
MORGAN, LEWIS & BOCKIUS LLP
300 SOUTH GRAND AVENUE
22ND FLOOR
LOS ANGELES, CALIFORNIA 90071-3132
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
AEROMIL ENGINEERING COMPANY
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided in these
Bylaws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of
a majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote
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separately as a class, the holders of a majority in number of the total
outstanding shares of such class, present in person or represented by proxy,
shall constitute a quorum for purposes of such class vote unless the
representation of a larger number of shares of such class shall be required by
law, by the Certificate of Incorporation or by these Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board and the President, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the
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Corporation registered in the name of such stockholder upon the books of the
Corporation. Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him or her by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. When directed by the presiding officer
or upon the demand of any stockholder, the vote upon any matter before a meeting
of stockholders shall be by ballot. Except as otherwise provided by law or by
the Certificate of Incorporation, Directors shall be elected by a plurality of
the votes cast at a meeting of stockholders by the stockholders entitled to vote
in the election and, whenever any corporate action, other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of
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<PAGE>
Directors. The Directors shall, except as hereinafter otherwise provided for
filling vacancies, be elected at the annual meeting of stockholders, and shall
hold office until their respective successors are elected and qualified or until
their earlier resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the state
of Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by facsimile, telegram or telephone at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
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<PAGE>
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors. If at any meeting
of the Board there is less than a quorum present, a majority of those present
may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Board of Directors. In the absence of the Chairman of the Board and the
President, a Chairman shall be elected from the Directors present. The Secretary
of the Corporation shall act as Secretary of all meetings of the Directors; but
in the absence of the Secretary, the Chairman may appoint any person to act as
Secretary of the meeting.
SECTION 8. COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
approving or adopting; or recommending to the stockholders, any action or matter
expressly required by law to be submitted to stockholders for approval, or
adopting, amending or repealing these Bylaws.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation or by these Bylaws, the members of the Board
of Directors or any committee designated by the Board, may participate in a
meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
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<PAGE>
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING.
Unless otherwise restricted by the Certificate of Incorporation or by these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer, and such additional officers, if any, as shall be elected by the
Board of Directors pursuant to the provisions of Section 8 of this Article III.
The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his contract rights, if any.
The election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these Bylaws, the officers shall have such authority
and shall perform such duties as from time to time may be determined by the
Board of Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board, subject to the control of the Board of Directors, shall
have general charge and control of all its business and affairs and shall have
all powers and shall perform all duties incident to the office of Chairman of
the Board. The Chairman shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these Bylaws
or by the Board of Directors.
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<PAGE>
SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. The President, subject
to the control of the Board of Directors and the Chairman of the Board, shall
have general charge and control of all its operations and shall have all powers
and shall perform all duties incident to the office of President. In the absence
of the Chairman of the Board, the President shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
by these Bylaws or by the Board of Directors or the Chairman of the Board.
SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these Bylaws or by the Board of
Directors, the Chairman of the Board or the President.
SECTION 5. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors or the President shall authorize and direct; shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors or the President shall direct, all of which
shall at all reasonable times be open to the examination of any Director, upon
application, at the office of the Corporation during business hours; and
whenever required by the Board of Directors or the President shall render
statements of such accounts. The Secretary shall have all powers and shall
perform all duties incident to the office of Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned by these Bylaws or by the Board of Directors, the Chairman of the Board
or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors or the President
shall render statements of such accounts. The Treasurer shall, at all reasonable
times, exhibit the books and accounts to any Director of the Corporation upon
application at the office of the Corporation during business hours; and shall
have all powers and shall perform all duties incident to the office of Treasurer
and shall also have such other powers and shall perform such other duties as may
from time to time be assigned by these Bylaws or by the Board of Directors, the
Chairman of the Board or the President.
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SECTION 7. ADDITIONAL OFFICERS. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors, the Chairman of the Board or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 8. GIVING OF BOND BY OFFICERS. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such amounts
and with such conditions and security as the Board shall require.
SECTION 9. VOTING UPON STOCKS. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the President or any Vice President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote, or in the name of the Corporation to execute proxies to
vote, at any meeting of stockholders of any corporation in which the Corporation
may hold stock, and at any such meeting shall possess and may exercise, in
person or by proxy, any and all rights, powers and privileges incident to the
ownership of such stock. The Board of Directors may from time to time, by
resolution, confer like powers upon any other person or persons.
SECTION 10. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. NATURE OF INDEMNITY. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise,
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against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person or on his or her
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if the person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful; except that in the
case of an action or suit by or in the right of the Corporation to procure a
judgment in its favor (1) such indemnification shall be limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in
the defense or settlement of such action or suit, and (2) no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
Section 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by a majority vote of the Directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
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Section 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article IV. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's legal
counsel to represent such Director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
Section 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. SEVERABILITY. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. SUBROGATION. In the event of payment of indemnification to
a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of
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receiving indemnification from the Corporation, shall execute all documents and
do all things that the Corporation may deem necessary or desirable to perfect
such right of recovery, including the execution of such documents necessary to
enable the Corporation effectively to enforce any such recovery.
Section 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the
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Corporation may cause to be issued to such person a new certificate in
replacement for the certificate alleged to have been lost, stolen or destroyed.
Upon the stub of every new certificate so issued shall be noted the fact of such
issue and the number, date and the name of the registered owner of the lost,
stolen or destroyed certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of
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Directors shall determine. If the date fixed for the payment of any dividend
shall in any year fall upon a legal holiday, then the dividend payable on such
date shall be paid on the next day not a legal holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
Section 3. CONTRACTS. Except as otherwise provided in these Bylaws or
by law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the President or any Vice President shall be authorized to execute and
deliver, in the name and on behalf of the Corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and the seal of the
Corporation, if appropriate, shall be affixed thereto by any of such officers or
the Secretary or an Assistant Secretary. The Board of Directors, the Chairman of
the Board, the President or any Vice
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President designated by the Board of Directors, the Chairman of the Board or the
President may authorize any other officer, employee or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and, if appropriate, to affix
the seal of the Corporation thereto. The grant of such authority by the Board or
any such officer may be general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required
to be given by law, by the Certificate of Incorporation or by these Bylaws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors or the Chairman of the Board.
ARTICLE VII
AMENDMENTS
These Bylaws and any amendment thereof may be altered, amended or
repealed, or new Bylaws may be adopted, by the Board of Directors at any regular
or special meeting by the affirmative vote of a majority of all of the members
of the Board, provided in the case of any special meeting at which all of the
members of the Board are not present, that the notice of such meeting shall have
stated that the amendment of these Bylaws was one of the purposes of the
meeting; but these Bylaws and any amendment thereof, may be altered, amended or
repealed or new Bylaws may be adopted by the holders of a majority of the total
outstanding stock of the Corporation entitled to vote at any annual meeting or
at any special meeting, provided, in the case of any special meeting, that
notice of such proposed alteration, amendment, repeal or adoption is included in
the notice of the meeting.
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CERTIFICATE OF ADOPTION
OF
AMENDED AND RESTATED BY-LAWS
OF
AEROMIL ENGINEERING COMPANY
This is to certify:
That I am the duly elected, qualified and acting Secretary of AEROMIL
ENGINEERING COMPANY (the "Corporation") and the attached amended and restated
by-laws were adopted as the by-laws of the Corporation on April 30, 1999 by the
Unanimous Written Consent of the Board of Directors of the Corporation.
Dated effective the 30th day of April, 1999.
/s/ Douglas B. Solomon
-----------------------------
Douglas B. Solomon, Secretary
(Seal)
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EXHIBIT 3.5
ARTICLES OF INCORPORATION
OF
WESTERN METHODS MACHINERY CORPORATION
I
The name of the corporation is WESTERN METHODS MACHINERY CORPORATION.
II
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business, or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The name and address in this state of the corporation's initial agent for
service of process are:
Donald J. Rumsey
3757 Overland Avenue
Los Angeles, California 90034
IV
The corporation is authorized to issue only one class of shares, having a
total number of One Million (1,000,000) shares.
<PAGE>
IN WITNESS WHEREOF, the undersigned, who are the incorporators of this
corporation, have executed these Articles of Incorporation on January 13, 1978.
/s/ Ira J. Miller
---------------------------
IRA J. MILLER, Incorporator
/s/ Lon R. Clearwaters
--------------------------------
LON R. CLEARWATERS, Incorporator
/s/ Melvin J. Ruland
------------------------------
MELVIN J. RULAND, Incorporator
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On January 13, 1978, before me, Lennie E. Jobe, a Notary Public in and for
said State, personally appeared IRA J. MILLER, LON R. CLEARWATERS and MELVIN J.
RULAND, known to me to be the persons whose names are subscribed to the
foregoing Articles of Incorporation, and acknowledged to me that they executed
the same.
WITNESS my hand and official seal.
/s/ Notary Public
--------------------
Notary Public
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<PAGE>
EXHIBIT 3.6
AMENDED AND RESTATED BYLAWS
OF
WESTERN METHODS MACHINERY CORPORATION
(A California corporation, (the "Corporation"))
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. TIME. An annual meeting for the election of directors and for the
transaction of any other proper business and any special meeting shall be held
on the date and at the time as the Board of Directors shall from time to time
fix.
SECTION 2. PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the Corporation.
SECTION 3. CALL. Annual meetings may be called by the Directors, by the Chairman
of the Board, if any, Vice Chairman of the Board, if any, the President, if any,
the Secretary, or by any officer instructed by the Directors to call the
meeting. Special meetings may be called in like manner and by the holders of
shares entitled to cast not less than ten percent of the votes at the meeting
being called.
SECTION 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an Annual Meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall be given not less than ten days
(or not less than any such other minimum period of days as may be prescribed by
the General Corporation Law) or more than sixty days (or more than any such
maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written communication, charges prepaid by or at the direction of the Directors,
the President, if any, the Secretary or the officer or persons calling the
meeting addressed to each shareholder at his address appearing on the books of
the Corporation or given by him to the Corporation for the purpose of notice,
or, if no such address appears or is given, at the place where the principal
executive office of the Corporation is located or by publication at least once
in a newspaper of general circulation in the county in which the said principal
executive office is located. Such notice shall be deemed to be delivered when
deposited in the United States mail with first class postage therein prepaid, or
sent by other means of written communication addressed to the shareholder at his
address as it appears on the stock transfer
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books of the Corporation. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of notice to be
presented by management for election. At an annual meeting of shareholders, any
matter relating to the affairs of the Corporation, whether or not stated in the
notice of the meeting, may be brought up for action except matters which the
General Corporation Law requires to be stated in the notice of the meeting. The
notice of any annual or special meeting shall also include, or be accompanied
by, any additional statements, information, or documents prescribed by the
General Corporation Law. When a meeting is adjourned to another time or place,
notice of the adjourned meeting need not be given if the time and place thereof
are announced at the meeting at which the adjournment is taken; provided that,
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting.
SECTION 5. CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the shareholders or his proxy signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting constitutes a waiver of notice of such meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting shall not constitute a waiver of any right to object to
the consideration of matters required by the General Corporation Law to be
included in the notice if such objection is expressly made at the meeting.
Except as otherwise provided in subdivision (f) of Section 601 of the General
Corporation Law, neither the business to be transacted at nor the purpose of any
regular or special meeting need be specified in any written waiver of notice.
SECTION 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board of Directors, if any, the Chief Executive
Officer, if any, the President, if any, a Vice President, if any, or, if none of
the foregoing is in office and present and acting, by a chairman to be chosen by
the shareholders. The Secretary of the Corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but, if neither
the Secretary nor an Assistant Secretary is present, the Chairman of the meeting
shall appoint a secretary of the meeting.
SECTION 7. PROXY REPRESENTATION. Every shareholder may authorize another
person or persons to act as his proxy at a meeting or by written action. No
proxy shall be valid after the expiration of eleven months from the date of
its execution unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the person executing it prior to the vote or
written action pursuant thereto, except as otherwise provided by the General
Corporation Law. As used herein, a "proxy" shall be deemed to mean a written
authorization signed by a shareholder or a shareholder's attorney in fact
giving another person or persons power to vote or consent in writing with
respect to the shares of such shareholder, and "signed" as used herein
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shall be deemed to mean the placing of such shareholder's name on the proxy,
whether by manual signature, typewriting, telegraphic transmission or
otherwise by such shareholder or such shareholder's attorney in fact. Where
applicable, the form of any proxy shall comply with the provisions of Section
604 of the General Corporation Law.
SECTION 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the Chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election, or persons to replace
any of those who so fail or refuse, at the meeting. The number of inspectors
shall be either one or three. If appointed at a meeting on the request of one or
more shareholders or proxies, the majority of shares represented shall determine
whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum, the authenticity, validity, and effect of proxies, receive votes,
ballots, if any, or consents, hear and determine all challenges and questions in
any way arising in connection with the right to vote, count and tabulate all
votes or consents, determine when the polls shall close, determine the result,
and do such acts as may be proper to conduct the election or vote with fairness
to all shareholders. If there are three inspectors of election, the decision,
act, or certificate of a majority shall be effective in all respects as the
decision, act, or certificate of all.
SECTION 9. SUBSIDIARY CORPORATIONS. Shares of this Corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a Corporation, the shares of which possessing more than
25% of the total combined voting power of all classes of shares entitled to
vote, are owned directly or indirectly through one or more subsidiaries.
SECTION 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less
than a quorum if any action taken, other than adjournment, is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented thereat, but no other business
may be transacted except as hereinbefore provided.
In the election of directors, a plurality of the votes cast shall elect. No
shareholder shall be entitled to exercise the right of cumulative voting at a
meeting for the election of directors unless the candidate's name or the
candidates' names have been placed in nomination prior to the voting
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and the shareholder has given notice at the meeting prior to the voting of
the shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes
for such candidates in nomination.
Except as otherwise provided by the General Corporation Law, the Articles of
Incorporation or these Bylaws, any action required or permitted to be taken at a
meeting at which a quorum is present shall be authorized by the affirmative vote
of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in lieu of a meeting, and
except as may otherwise be provided by the General Corporation Law, the Articles
of Incorporation or these Bylaws, any action which may be taken at any annual or
special meeting may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by
holders of shares having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Directors may not be elected by
written consent except by unanimous written consent of all shares entitled to
vote for the election of directors. Notice of any shareholder approval pursuant
to Section 310, 317, 1201 or 2007 without a meeting by less than unanimous
written consent shall be given at least ten days before the consummation of the
action authorized by such approval, and prompt notice shall be given of the
taking of any other corporate action approved by shareholders without a meeting
by less than unanimous written consent to those shareholders entitled to vote
who have not consented in writing.
SECTION 11. BALLOT. Elections of directors at a meeting need not be by ballot
unless a shareholder demands election by ballot at the election and before the
voting begins. In all other matters, voting need not be by ballot.
SECTION 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions in
the event this Corporation elects to become a close corporation, an agreement
between two or more shareholders thereof, if in writing and signed by the
parties thereof, may provide that in exercising any voting rights the shares
held by them shall be voted as provided therein or in Section 706, and may
otherwise modify these provisions as to shareholders' meetings and actions.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. FUNCTIONS. The business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the Corporation to a management
company or other person, provided that the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised under
the
4
<PAGE>
ultimate direction of the Board of Directors. The Board of Directors shall have
authority to fix the compensation of directors for services in any lawful
capacity.
Each director shall exercise such powers and otherwise perform such duties in
good faith, in the manner such director believes to be in the best interests of
the Corporation, and with care, including reasonable inquiry, using ordinary
prudence, as a person in a like position would use under similar circumstances.
SECTION 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of
Section 1, in the event that this Corporation shall elect to become a close
corporation as defined in Section 186, its shareholders may enter into a
Shareholders' Agreement as provided in Section 300 (b). Said Agreement may
provide for the exercise of corporate powers and the management of the business
and affairs of this Corporation by the shareholders, provided however such
agreement shall, to the extent and so long as the discretion or the powers of
the Board in its management of corporate affairs is controlled by such
agreement, impose upon each shareholder who is a party thereof, liability for
managerial acts performed or omitted by such person pursuant thereto otherwise
imposed upon Directors as provided in Section 300 (d).
SECTION 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the Corporation, a citizen of the United States, or a resident of the State of
California. The authorized number of directors constituting the Board of
Directors until further changed shall be four (4). Thereafter, the authorized
number of directors constituting the Board shall be at least three provided
that, whenever the Corporation shall have only two shareholders, the number of
directors may be at least two, and, whenever the Corporation shall have only one
shareholder, the number of directors may be at least one. Any amendment reducing
the number of directors to fewer than five cannot be adopted if the votes cast
against its adoption at a meeting or the shares not consenting in writing in the
case of action by written consent are equal to more than sixteen and two-thirds
percent of the outstanding shares. No decrease in the authorized number of
directors shall have the effect of shortening the term of any incumbent
director.
SECTION 4. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the incorporator, all of whom shall hold
office until the first annual meeting of shareholders and until their successors
have been elected and qualified, or until their earlier resignation or removal
from office. Thereafter, directors who are elected to replace any or all of the
members of the initial Board of Directors or who are elected at an annual
meeting of shareholders, and directors who are elected in the interim to fill
vacancies, shall hold office until the next annual meeting of shareholders and
until their successors have been elected and qualified, or until their earlier
resignation, removal from office, or death. In the interim between annual
meetings of shareholders or of special meetings of shareholders called for the
election of directors, any vacancies in the Board of Directors, including
vacancies resulting from an increase in the authorized number of directors which
have not been filled by the shareholders, including any other vacancies which
the General Corporation Law authorizes directors to fill, and including
vacancies resulting from the removal of directors which are not filled at the
meeting of
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shareholders at which any such removal has been effected, if the Articles of
Incorporation or a By-Law adopted by the shareholders so provides, may be filled
by the vote of a majority of the directors then in office or of the sole
remaining director, although less than a quorum exists. Any director may resign
effective upon giving written notice to the Chairman of the Board, if any, the
President, the Secretary or the Board of Directors, unless the notice specifies
a later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to the office when the
resignation becomes effective.
The shareholders may elect a director at any time to fill any vacancy which the
directors are entitled to fill, but which they have not filled. Any such
election by written consent shall require the consent of a majority of the
shares.
SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
Corporation may indemnify any Director, Officer, agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317.
In any event, the Corporation shall have the right to purchase and maintain
insurance on behalf of any such persons whether or not the Corporation would
have the power to indemnify such person against the liability insured against.
SECTION 6. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
PLACE. Meetings may be held at any place, within or without the State of
California, which has been designated in any notice of the meeting, or, if not
stated in said notice, or, if there is no notice given, at the place designated
by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if any and
acting, by the Vice Chairman of the Board, if any, by the President, if any, by
any Vice President or Secretary, or by any two directors.
NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings
for which the time and place have been fixed by the Board of Directors. Special
meetings shall be held upon at least four days' notice by mail or upon at least
forty-eight hours' notice delivered personally or by telephone or telegraph.
Notice of a meeting need not be given to any director who signs a waiver of
notice, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. A notice or waiver of notice need not specify the purpose of any
regular or special meeting of the Board of Directors.
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SECTION 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one director is required by the Bylaws or Articles of Incorporation, then
any reference herein to notices, waivers, consents, meetings or other actions by
a majority or quorum of the directors shall be deemed to refer to such notice,
waiver, etc., by such sole director, who shall have all the rights and duties
and shall be entitled to exercise all of the powers and shall assume all the
responsibilities otherwise herein described as given to a Board of Directors.
SECTION 8. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least either one-third of the
authorized number of directors or at least two directors, whichever is larger,
or unless the authorized number of directors is only one. A majority of the
directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. if the meeting is adjourned for more than twenty-four
hours, notice of any adjournment to another time or place shall be given prior
to the time of the adjourned meeting to the directors, if any, who were not
present at the time of the adjournment. Except as the Articles of Incorporation,
these Bylaws and the General Corporation Law may otherwise provide, the act or
decision done or made by a majority of the directors present at a meeting duly
held at which a quorum is present shall be the act of the Board of Directors.
Members of the Board of Directors may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another, and participation by such
use shall be deemed to constitute presence in person at any such meeting.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, provided that any action
which may be taken is approved by at least a majority of the required quorum for
such meeting.
SECTION 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the President, if any and
present and acting, or any director chosen by the Board, shall preside.
SECTION 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed from office without cause by approval of the
holders of at least a majority of the shares provided that unless the entire
Board is removed, an individual director shall not be removed when the votes
cast against such removal, or not consenting in writing to such removal, would
be sufficient to elect such director if voted cumulatively at an election of
directors at which the same total number of votes were cast, or, if such action
is taken by written consent, in lieu of a meeting, all shares entitled to vote
were voted, and the entire number of directors authorized at the time of the
director's most recent election were then being elected. If any or all directors
are so removed, new directors may be elected at the same meeting or by such
written consent. The Board of Directors may declare vacant the office of any
director who has been declared of unsound mind by an order of court or convicted
of a felony.
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SECTION 11. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one or more
committees, each consisting of two or more directors to serve at the pleasure of
the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any such committee, who may replace any absent
member at any meeting of such committee. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
SECTION 12. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 13. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of the
Board or a President or both, a Secretary and a Chief Financial Officer. The
Corporation may also have, at the discretion of the Board of Directors, one or
more Vice Presidents, one or more Assistant Secretaries and such other officers
as may be appointed in accordance with the provisions of Section 3 of this
Article. One person may hold two or more offices.
SECTION 2. ELECTION. The officers of the Corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
SECTION 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
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SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors, or to the President, or to the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. He shall preside at all meetings of the shareholders and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a Corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
SECTION 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
SECTION 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
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The Secretary shall keep, or cause to be kept, at the principal office or at the
office of the Corporation's transfer agent, a share register, or duplicate share
register, showing the names of the shareholders and their addresses; the number
and classes of shares held by each; the number and date of certificates issued
for the same; and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings of
the shareholders and of the Board of Directors required by the Bylaws or by law
to be given, and he shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or by the Bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all monies and other valuables in the name and to the
credit of the Corporation with such depositaries as may be designated by the
Board of Directors. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, shall render to the President and directors,
whenever they request it, an account of all his transactions and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or the
Bylaws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
SECTION 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
Corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416 - 419,
inclusive, and other relevant Sections of the General Corporation Law of the
State of California (the "General Corporation Law") and such other statements,
as applicable, which may be prescribed by the Corporate Securities Law of the
State of California and any other applicable provision of the law. Each such
certificate issued shall be signed in the name of the Corporation by the
Chairman of the Board of Directors, if any, or the Chief Executive Officer, if
any, the President, if any, or a Vice President, if any, and by the Chief
Financial Officer or Treasurer or Assistant Treasurer or the Secretary or an
Assistant Secretary. Any or all of the signatures on a certificate for shares
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate for
shares shall have ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be
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issued by the Corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
In the event that the Corporation shall issue the whole or any part of its
shares as partly paid and subject to call for the remainder of the consideration
to be paid therefor, any such certificate for shares shall set forth thereon the
statements prescribed by Section 409 of the General Corporation Law.
SECTION 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The Corporation may issue
a new certificate for shares or for any other security in the place of any other
certificate theretofore issued by it, which is alleged to have been lost, stolen
or destroyed. As a condition to such issuance, the Corporation may require any
such owner of the allegedly lost, stolen or destroyed certificate or any such
owner's legal representative to give the Corporation a bond, or other adequate
security, sufficient to indemnify it against any claim that may be made against
it, including any expense or liability, on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the Corporation shall be
made only on the record of shareholders of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
SECTION 4. RECORD DATE FOR SHAREHOLDERS. In order that the Corporation may
determine the shareholders entitled to notice of any meeting or to vote or be
entitled to receive payment of any dividend or other distribution or allotment
of any rights or entitled to exercise any rights in respect of any other lawful
action, the Board of Directors may fix, in advance a record date, which shall
not be more than sixty days or fewer than ten days prior to the date of such
meeting or more than sixty days prior to any other action.
If the Board of Directors shall not have fixed a record date as aforesaid, the
record date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held; the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given; and the record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the sixtieth day
prior to the day of such other action, whichever is later.
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A determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned meeting, but the
Board of Directors shall fix a new record date if the meeting is adjourned for
more than forty-five days from the date set for the original meeting.
Except as may be otherwise provided by the General Corporation Law, shareholders
on the record date shall be entitled to notice and to vote or to receive any
dividend, distribution or allotment of rights or to exercise the rights, as the
case may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date.
SECTION 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this Corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
Corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
SECTION 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the term "share" or "shares" or
"shareholder" or "shareholders" refers to or outstanding share or shares and to
a holder or holders of record or outstanding shares when the Corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights where there are two or more classes or
series of shares or upon which or upon whom the General Corporation Law confers
such rights notwithstanding that the Articles of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
SECTION 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares
of this Corporation, in the event it shall elect to become a close corporation,
shall contain the legend required by Section 418 (c).
ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT-CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300 (b) shall only be
effective to modify the terms of these Bylaws if this Corporation elects to
become a close corporation with appropriate filing of or amendment to its
Articles as required by Section 202 and shall terminate when this Corporation
ceases to be a close corporation. Such or agreement cannot waive or alter
Sections 158 (defining close corporations), 202 (requirements of Articles of
Incorporation), 500 and 501 relative to distributions, 111 (merger), 1201(e)
(reorganization) or Chapters 15 (Records and Reports),16 (Rights of Inspection),
18 (Involuntary Dissolution) or 22 (Crimes and Penalties).
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Any other provisions of the Code or these Bylaws may be altered or waived
thereby, but to the extent they are not so altered or waived, these Bylaws shall
be applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENTS-HOW EXECUTED
The Board of Directors, except as in the Bylaws otherwise provided, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the Board of Directors, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or agreement, or to pledge its
credit, or to render it liable for any purposes or any amount, except as
provided in Section 313 of the Corporations Code.
ARTICLE VII
CONTROL OVER BYLAWS
After the initial Bylaws of the Corporation shall have been adopted by the
incorporator or incorporators of the Corporation, the Bylaws may be amended
or repealed or new Bylaws may be adopted by the Board of Directors; provided,
however, that any control over the Bylaws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the Bylaws or to adopt new Bylaws; and provided further that
any Bylaw amendment or new Bylaw which changes the minimum number of
directors to fewer than five shall require authorization by the greater
proportion of voting power of the shareholders as hereinbefore set forth.
ARTICLE VIII
BOOKS AND RECORDS
SECTION 1. RECORDS: STORAGE AND INSPECTION. The Corporation shall keep at its
principal executive office in the State of California, or, if its principal
executive office is not in the State of California, the original or a copy of
the Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the Corporation is outside the State of California, and, if
the Corporation has no principal business office in the State of California, it
shall upon request of any shareholder furnish a copy of the Bylaws as amended to
date.
The Corporation shall keep adequate and correct books and records of account and
shall keep minutes of the proceedings of its shareholders, Board of Directors
and committees, if any, of the Board of Directors. The Corporation shall keep at
its principal executive office, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of shares held by each. Such minutes shall
be in
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written form. Such other books and records shall be kept either in written form
or in any other form capable of being converted into written form.
SECTION 2. RECORD OF PAYMENTS. All checks, drafts or other orders for payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 3. ANNUAL REPORT. Whenever the Corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the Corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
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SECRETARY'S CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
WESTERN METHODS MACHINERY CORPORATION
I, the undersigned, do hereby certify:
1. That I am the duly elected, qualified, and acting Secretary of the
above-named Corporation.
2. That the foregoing Amended and Restated Bylaws were adopted by the
Board of Directors as the Bylaws of said Corporation effective as
of the 30th day of April, 1999.
3. That the foregoing Amended and Restated Bylaws were also adopted
by the shareholder of said Corporation effective as of the 30th
day of April, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 30th day
of April 1999.
/s/ Douglas B. Solomon
-----------------------
Douglas B. Solomon
Secretary
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EXHIBIT 3.7
ARTICLES OF INCORPORATION
OF
BRITTAIN MACHINE, INC.
We, the undersigned incorporators, hereby associate ourselves together to
form and establish a corporation FOR PROFIT under the laws of the State of
Kansas , and hereby make and issue these Articles of Incorporation this day and
year last below written.
FIRST: The name of the corporation is:
BRITTAIN MACHINE, INC.
SECOND: The location of its principal place
of business is:
5211 East Pawnee
Wichita, Sedgwick County, Kansas.
THIRD: The location of its registered
office in this state is :
1041 North Waco
Wichita, Sedgwick County, Kansas.
FOURTH: The name and address of its resident
agent in this state is:
Richard H. Rumsey
1041 North Waco
Wichita, Sedgwick County, Kansas.
FIFTH: The corporation is organized FOR
PROFIT and the nature of its business is :
To manufacture, fabricate, buy, sell, process, exchange, trade, adapt,
alter, prepare and deal in and with any and all wares and merchandise of any
kind. This corporation may acquire,
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buy, sell, trade, rent, deal or process all such merchandise, supplies,
materials and other articles as shall be necessary and incidental to such
business.
To purchase, contract for, acquire , sell , convey, lease , mortgage,
dispose of, and otherwise deal in and with, within or outside the State of
Kansas, property, real or personal, tangible or intangible, or any interest
therein, for investment or otherwise, and to purchase, erect and maintain
buildings or other improvements, including the real estate upon which the same
are or may be situated.
To lease, rent, buy, sell , transfer and otherwise use and deal in and with
real and personal property of any and all kinds and natures.
To improve, manage, develop, sell, assign, transfer, lease, mortgage,
pledge or otherwise dispose of or turn to account or deal with all or any part
of the property of the corporation and, from time to time, vary any investment
or employment of capital of the corporation.
To engage in the loan and investment business. Without limitation of the
foregoing, the corporation shall have the power to borrow and loan money,
secured or unsecured, and to take and give notes, open accounts, debentures and
other evidences of debt, or property, real or personal, tangible or intangible,
or rights, interests or shares therein, as collateral security therefor. The
corporation may buy, sell, hold, and deal in and with all types of notes,
mortgages and other documents of any kind.
To buy, sell, deal in and with real estate of all kinds and natures, both
directly and indirectly, and as broker and agent.
To apply for, obtain, register, purchase, lease or otherwise to hold, use,
develop, operate, introduce and to sell, assign, grant licenses or territorial
rights in respect to, or to otherwise turn
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to account or dispose of or deal in copyrights, trade names, trademarks, brands,
labels, patent rights of the United States Government or of any other country or
government, inventions, improvements, designs, proceeds licenses and privileges
of any kind or nature. This corporation may engage, without limitation, in the
buying, selling and holding of any and all kinds of insurance and any and all
acts related or incidental thereto.
To have one or more offices, and to exercise any or all of its corporate
powers and rights, in the State of Kansas and in the various other states ,
territories , colonies and dependencies of the United States, in the District of
Columbia, and in all or any foreign countries.
The enumeration herein of the objects and purposes of this corporation
shall be construed as powers as well as objects and purposes, and shall not be
deemed to exclude by inference any powers, objects or purposes which this
corporation is empowered to exercise, whether expressly or by force of the laws
of the State of Kansas, now or hereafter in effect, or implied by the reasonable
construction of laws.
To do all and every thing necessary, suitable and proper for the
accomplishment of any of the business or any of the objects, or the furtherance
of any of the powers herein set forth, either alone or in association with any
other corporations, firms or individuals, and to do every other act or acts,
thing or things, incident or appurtenant to, or growing out of or connected with
the aforesaid business or powers or any part or parts thereof provided the same
be not inconsistent with the laws under which this corporation is organized.
In addition, the purpose of the corporation is to engage in any lawful act
or activity for which the corporation may be organized under the Kansas
Corporation Code.
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SIXTH: The total amount of capital of this corporation is Three Hundred
Thousand Dollars ($300,000.00) , and is divided into three hundred thousand
(300,000) shares, at One Dollar ($1 .00) per share.
STATEMENT OF THE POWERS, PREFERENCES, RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS IN RESPECT TO ANY CLASS OF STOCK:
(a) Any and all dividends shall be based upon the corporation's net profits
as determined by the Board of Directors, and may be paid within sixty (60) days
after the end of each fiscal year, and at such other times as the Board of
Directors may direct.
(b) The voting power of the capital stock of the corporation shall be
vested wholly in the holders of the shares of common capital stock. Each
common stockholder shall, except as herein specifically provided, at every
meeting of the stockholders be entitled to one vote, in person or by proxy,
for each full share of eligible voting capital stock held by such stockholder.
(c) The rules, regulations, forms and limitations relating to proxies, the
closing of stock transfer books, fixing of record dates, and notice and voting
lists may be determined by the Board of Directors.
(d) Unless specifically waived by the directors at either a special or
annual meeting, in the event any stockholder desires to dispose of any of his
stock during his lifetime, he shall first give written notice to that effect to
the other stockholders and to the corporation. Thereafter, the stockholders
shall have twenty-five (25) days after receipt of such notice to purchase such
stock. Each stockholder shall have the right within such time to purchase such
portion of the stock offered for sale as the number of shares owned by him at
such time shall bear to the total number
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of shares owned by all of the other stockholders; provided, however, that if any
stockholder does not purchase his full proportionate allotment of the stock, the
unaccepted stock may be purchased by the other stockholders. If all of the
offered stock is not purchased before the expiration of the said period, the
offering stockholder may dispose of any remaining offered shares in any lawful
manner, except that he shall not sell any such shares to any other person
without first giving the corporation and the other stockholders the right to
purchase them at the price and on the terms offered by such other person. Any
shares not purchased within the above period by the stockholders shall be
offered to the corporation at the price established by the directors, and the
corporation shall have the right within thirty days thereafter to purchase such
stock.
(e) The private property of the stockholders shall not be subject to the
payment of debts of this corporation.
(f) The stockholders may approve stock option purchase plans, stock
incentive or investment plans or other like arrangements for existing
stockholders, officers or any other persons, and upon such terms and with such
rights and subject to such limitations as the stockholders, in their absolute
discretion, may determine to be fair. Once such a plan has been approved by the
stockholder, paragraph SIXTH (d) shall not apply to stock issued under said
plan.
(g) Whenever a compromise or arrangement is proposed between this
corporation and its creditors, or any class of them, secured or unsecured, or
between this corporation and its stockholders, or any class of them, any Court,
State or Federal, of competent jurisdiction within the State of Kansas may, on
the application (in a summary way) of this corporation, or of any creditors,
secured or unsecured, or stockholders thereof, or upon the application of
trustees in
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dissolution, or on the application of any receiver or receivers appointed for
this corporation by any Court, State or Federal, of competent jurisdiction,
order a meeting of the creditors, or class of creditors, secured or unsecured,
or of the stockholders, or class of stockholders of this corporation, as the
case may be, to be summoned in such manner as said Court directs. If a majority
in number representing three-fourths in value of the creditors, or class of
creditors or of the common stockholders, or class of stockholders, of this
corporation, as the case may be, agree to any compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if sanctioned
by the Court to which the application has been made, be binding on all of the
creditors, or class of creditors, or on all the stockholders, or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
AUTHORITY GIVEN TO THE BOARD OF DIRECTORS:
(a) All elections of directors may be had by ballot or by viva voce, or by
the showing of hands, as the Board of Directors may by resolution, from time to
time, determine, unless a stockholder requests in writing at least five (5) days
prior to the date of any meeting for the election of directors that the election
be held by written ballot.
(b) All meetings of stockholders may be held within or outside the State of
Kansas, as the Board of Directors may from time to time determine, unless
otherwise fixed by the bylaws.
(c) The power to amend, alter, or repeal the bylaws shall be vested, in the
Board of Directors. In addition, the Board of Directors may and they are hereby
authorized to place such qualifications, restrictions and limitations upon
voting powers and upon stock to be issued hereunder as the Board, in its
absolute discretion, may consider to be in the best interests of the existing
stockholders and the corporation.
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(d) The Board of Directors is empowered to authorize issuance of the stock
as set forth in paragraph numbered SIXTH at any time, and from time to time, in
such amounts and for such consideration and in such series and subject to the
limitations, herein contained, and with such special rights and qualifications,
limitations or restrictions thereof as shall by resolution of the Board of
Directors be adopted.
(e) The Board of Directors may enter into such agreements, hire such
employees and agents and approve, ratify and take such action, not specifically
limited herein, as may, in their absolute discretion, be necessary to manage,
operate, run, and further the purposes of this corporation. Directors and
officers of this corporation may act in a like capacity with any other
corporation.
SEVENTH: The amount of capital with which this corporation shall commence
business is a sum in excess of TEN THOUSAND DOLLARS ($10,000.00).
EIGHTH: The names and addresses of the incorporators are:
Dewey L. Brittain
1815 Anita
Wichita, Sedgwick County, Kansas;
Charles D. Brittain
3402 Everett
Wichita, Sedgwick County, Kansas.
NINTH: The number of directors shall be not less than two nor more than
fifteen (15).
IN TESTIMONY WHEREOF, we have hereunto subscribed our names of these
Articles of Incorporation this 28th day of June, 1974.
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/s/ DEWEY L. BRITTAIN
---------------------------
Dewey L. Brittain
/s/ CHARLES D. BRITTAIN
---------------------------
Charles D. Brittain
STATE OF KANSAS )
) ss.
SEDGWICK COUNTY )
BE IT REMEMBERED, that on this 28th day of June, 1974, before me, a Notary
Public in and for the county and state aforesaid, personally appeared Dewey L.
Brittain and Charles D. Brittain, known to me to be the same persons who
executed the above and foregoing Articles of Incorporation of Brittain Machine,
Inc., and such persons duly acknowledged the execution of the same as their free
and voluntary act and deed for the uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
notarial seal the day and year last above written.
/s/ NOTARY PUBLIC
---------------------------
Notary Public
My commission expires:
8/28/77
- ----------------------
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EXHIBIT 3.8
AMENDED AND RESTATED
BYLAWS OF
BRITTAIN MACHINE, INC.
A Kansas corporation (the "Corporation")
ARTICLE I
GOVERNMENT
SECTION 1. The government and control of the Corporation shall be vested in
a Board of Directors.
ARTICLE II
OFFICES
SECTION 1. The address of the principal offices of the Corporation shall be
the address of its corporate offices from time to time in the State of Kansas.
The Corporation may also have offices at such other places as the Board of
Directors may from time to time designate even outside the State of Kansas, as
the business of the Corporation may require.
ARTICLE III
CORPORATE SEAL
SECTION 1. The corporate seal of the Corporation shall contain the full
corporate name of the Corporation, the location of its principal office and the
word "SEAL."
ARTICLE IV
CONVEYANCES
SECTION 1. Any and all instruments of conveyance, deeds, assignments,
mortgages, pledges, releases, trust indentures, or other instruments of
conveyance, transfer, mortgage or pledge shall be deemed to be valid and
sufficient when the same are signed and executed in the name of the Corporation
(and acknowledged where required) by either the President or the Secretary, and
when the same are attested by the Secretary or Secretary-Treasurer or Assistant
Secretary of the Corporation, under the corporate seal thereof.
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ARTICLE V
STOCKHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the stockholders shall be held
at the principal place of business in this state, or at such places as may be
designated by the Board of Directors, either within or without the State of
Kansas.
SECTION 2. DATE OF ANNUAL MEETING. An annual meeting of stockholders shall
be held each year on a date and at a time designated in writing by the Board of
Directors.
SECTION 3. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote, present in person or represented by proxy,
shall be requisite and shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
law, or by these bylaws; if, however, such majority shall not be personally
present or represented at any meeting of the stockholders, the stockholders
present in person and by proxy shall have the power to adjourn the meeting from
time to time without notice other than announcement of the meeting, until the
requisite amount of voting stock shall be present at such adjourned meeting, and
any business may be transacted at the meeting as originally notified.
SECTION 4. VOTING POWER AND WHO MAY VOTE. Each stockholder shall be
entitled to one vote in person, or by proxy for each share of the corporate
stock held by said stockholder. No stockholder shall be entitled to vote at any
election for directors unless the records of the Corporation show he has been
the owner of capital stock of the Corporation, and such stock has been
transferred on the books of the Corporation within twenty (20) days next
preceding such election of directors.
SECTION 5. VOTE BY BALLOT, VIVA VOCE, OR BY SHOWING OF HANDS. All elections
of directors and vote upon any other question, except as otherwise provided by
law or unless otherwise provided by resolution of the Board of Directors, may be
had by ballot, viva voce, or by showing of hands unless a stockholder, at least
five (5) days prior to the date of any meeting or the election of directors,
requests in writing a vote by ballot, and then the election of directors shall
be by ballot.
SECTION 6. NOTICE OF ANNUAL MEETING. Written notice of the annual meeting
shall be mailed by the Secretary, or an Assistant Secretary, to each stockholder
entitled to vote thereat, at such address as appears on the stock book of the
Corporation, at least ten (10) days prior to the date of the meeting, unless
such notice is waived in writing.
SECTION 7. VOTING LIST OF STOCKHOLDERS; PREPARATION; INSPECTION. It shall
be the duty of the Secretary who shall have charge of the stock ledger of the
Corporation to prepare a list of the stockholders who may be eligible to vote
(at least ten days before the time set for said stockholders' meeting, and said
list shall be produced and kept at the time and place of election during the
whole time thereof and subject to the inspection of any stockholder who may be
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present. The original or duplicate stock ledger shall be the only evidence as to
who are the stockholders who are entitled to examine such list or the books of
the Corporation or to vote in person or by proxy at such election. The original
or duplicate stock ledger containing the names and addresses of the stockholders
and their respective number of shares shall, at all times during the usual hours
of business, be open to the examination of every stockholder, at its registered
office in this state.
SECTION 8. SPECIAL MEETING. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President or a majority of the Board of Directors, and shall be called by
the President or Secretary at the written request of a majority of the
stockholders entitled to vote. Such request shall state the purpose or purposes
of the proposed meeting.
SECTION 9. BUSINESS TRANSACTED. Business transacted at all special meetings
shall be confined to the object stated in the call.
SECTION 10. NOTICE OF SPECIAL MEETINGS. Written notice of all special
meetings of the stockholders, stating the time, place and object thereof, shall
be mailed, postage prepaid, at least five (5) days before such meeting, to each
stockholder entitled to vote thereat, at such address as appears on the books of
the Corporation, unless notice is waived in writing.
SECTION 11. INSPECTION OF RECORDS. Every stockholder shall have the right
to examine in person, or by agent or attorney, at any reasonable time and for
any reasonable purpose, the bylaws, stock register, books of account and records
of the proceedings of the stockholders and directors, and to make copies or
extracts of the same at his sole expense.
ARTICLE VI
DIRECTORS
SECTION 1. NUMBER AND QUALIFICATION. The number of directors of the
Corporation shall be not less than one nor more than fifteen.
Directors shall be elected at the annual meeting of the stockholders, and
each director shall be elected to serve for one year and until his successor
shall be elected and qualified. A director need not be a stockholder and shall
be deemed qualified as such when he shall have filed written acceptance of his
election to the office.
SECTION 2. QUORUM. A majority of the directors shall constitute a quorum
for the transaction of business. The act of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
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SECTION 3. PLACE OF MEETING. The directors may hold their meeting at the
principal place of business of the Corporation or at such other place or places
as they may from time to time determine, either within or without the State of
Kansas.
SECTION 4. COMPENSATION OF DIRECTORS. Directors, as such, shall not receive
any stated salary for their services; however, by resolution of the Board of
Directors, a fixed sum and expense of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors;
provided, that nothing herein shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 5. ANNUAL MEETINGS OF THE BOARD. The annual meeting of the Board of
Directors shall be held immediately following the annual stockholders' meeting,
or at such other time as may be fixed by the consent in writing of all the
directors, and at such place as may be fixed by consent in writing of all the
directors; provided, however, that in the event the written consent is not
obtained of all the directors, the annual meeting shall be held at the same
place as the annual meeting of the stockholders, and immediately following the
annual stockholders' meeting.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held, without notice, at such time and place as shall from time to time be
determined by the Board of Directors.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the President, or by a majority of the Board of Directors, on two
(2) days' notice to each director, to be served personally, by mail, or by
telegram.
SECTION 8. RESIGNATION OF DIRECTORS AND FILLING VACANCIES. Any director or
officer of the Corporation may resign upon filing written resignation with the
Secretary of the Corporation, and such resignation shall become effective when
so filed unless some other effective date is set forth in the resignation.
Vacancies in the Board of Directors shall be filled by a majority of the
remaining directors, although less than a quorum remains, and any directors so
chosen to fill vacancies shall hold office until the next annual election or
until their successors have been duly elected and qualified, or unless sooner
displaced, or unless their term of office is terminated by resignation.
ARTICLE VII
COMMITTEES
SECTION 1. EXECUTIVE COMMITTEE, HOW APPOINTED. By the affirmative vote of a
majority of the directors, the Board of Directors may appoint from their number
an executive committee of not less than two (2) members which may make its own
rules of procedure and may meet at such place or places provided by such rules,
or by a resolution of the Board of
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Directors. A majority shall constitute a quorum and in every case the
affirmative vote of a majority of all the members of the committee shall be
necessary to the adoption of any resolution.
SECTION 2. EXECUTIVE COMMITTEE, POWERS. During the intervals between the
meetings of the Board of Directors, the executive committee shall have, and may
exercise, all the powers of the Board of Directors in the management of the
business and affairs of the Corporation, including power to authorize the seal
of the Corporation to be affixed to all instruments and documents which may
require it, in such manner as such committee shall deem best for the interests
of the Corporation, in all cases in which specific directions shall not have
been given by the Board of Directors.
SECTION 3. OTHER COMMITTEES. The Board of Directors, by the affirmative
vote of a majority of directors, may appoint any other committees which shall
have, and may exercise, such powers as shall be conferred or authorized by the
resolutions appointing them, subject to such regulations as may be made by
resolution of the Board of Directors. A majority of such committees, composed of
two (2) or more members, may determine its action and fix the time and place of
its meetings.
SECTION 4. COMMITTEES, COMPENSATION. Members of either standing or special
committees may be allowed such compensation as the Board of Directors may from
time to time determine.
ARTICLE VIII
OFFICERS
SECTION 1. DESIGNATED OFFICERS. The officers of the Corporation shall be
chosen by the Board of Directors, and shall be a Chairman of the Board, Chief
Executive Officer, Chief Financial Officer, President, one or more Vice
Presidents, Secretary and Treasurer. All officers shall hold office at the
pleasure of the Board of Directors. Any officer may resign at any time upon
written notice to the Corporation. Officers may, but need not, be directors. Any
number of offices may be held by the same person.
SECTION 2. OTHER OFFICERS. The Corporation may have such other officers and
agents as may from time to time be determined and appointed by the Board of
Directors, and for such terms as the Board of Directors may determine.
SECTION 3. TERM AND QUALIFICATION OF OFFICERS. The officers of the
Corporation, except as provided in Section 2 of this article, shall hold their
office until the next annual meeting of the Board of Directors, or until their
successors are chosen and qualified, unless their respective terms of office
have been terminated by resignation in writing, duly filed in the office of the
Secretary of the Corporation.
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SECTION 4. SALARIES. The salaries of the officers of the Corporation shall
be fixed by the Board of Directors.
SECTION 5. REMOVAL OF OFFICERS. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the whole Board of Directors.
SECTION 6. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board, subject to the control of the Board of Directors, shall have general
charge and control of all its business and affairs and shall have all powers and
shall perform all duties incident to the office of Chairman of the Board. The
Chairman shall preside at all meetings of the stockholders and at all meetings
of the Board of Directors and shall have such other powers and perform such
other duties as may from time to time be assigned by these Bylaws or by the
Board of Directors.
SECTION 7. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer, subject to the control of the Board of Directors and the
Chairman of the Board, shall have general charge and control of all its
operations and shall have all powers and shall perform all duties incident to
the office of Chief Executive Officer. In the absence of the Chairman of the
Board, the Chief Executive Officer shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
by these Bylaws or by the Board of Directors or the Chairman of the Board.
SECTION 8. PRESIDENT. The President shall have general and active
management of the business of the Corporation, subject to control by the Board
of Directors, the Chairman of the Board and the Chief Executive Officer and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
SECTION 9. VICE PRESIDENT. The Vice President shall, in the absence or
disability of the President, perform the duties and exercise the powers of the
President, and shall perform such other duties as the Board of Directors may
prescribe.
SECTION 10. SECRETARY. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the stockholders, and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for the Board of Directors. He shall give, or cause to be
given, notice of all meetings of the stockholders and of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors, or President, under whose supervision he shall be.
SECTION 11. TREASURER. The Treasurer shall have such duties as may be
prescribed by the Board of Directors, and he shall give bond indemnifying the
Corporation against larceny, theft, embezzlement, forgery, misappropriation,
wrongful abstraction, willful misappropriation, or other acts of fraud or
dishonesty, in such sum, and with such sureties, as may be determined
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from time to time by the Board of Directors. Such bond shall, if issued by other
than a corporate surety, be renewed at least every three (3) years.
SECTION 12. VACANCIES WORK NO DISSOLUTION - FILLING OF VACANCIES. The
failure to elect any officers or directors shall not dissolve the Corporation.
In the event of the failure to annually elect any officers or directors, or in
the event of any vacancy occurring, either by death, resignation, removal or
otherwise, in the Board of Directors, or of any officer, the remaining directors
or officers shall have the power to act and carry on the business of the
Corporation until such time as the vacancy is filled, as provided in Section 8
of Article VI, as pertains to vacancies in the Board of Directors. In the event
of one or more vacancies occurring as to any officer or registered agent, by
reason of death, resignation, retirement, disqualification, removal from office
or otherwise, the remaining members of the Board of Directors, by a majority
vote, may choose a successor, or successors, who shall hold office for the
unexpired term in respect to which such vacancy occurred.
ARTICLE IX
CAPITAL STOCK
SECTION 1. CERTIFICATES. The certificates of stock of the Corporation shall
have the name of the Corporation and the authorized capital stock of the
Corporation thereon. They shall be numbered consecutively and shall be entered
on the books of the Corporation as they are issued. They shall exhibit the
holder's name, and his number of shares, and shall be signed by the Chairman of
the Board, Chief Executive Officer, President, or a Vice President, and
Secretary or Treasurer, under the seal of the Corporation.
SECTION 2. TRANSFER OF STOCK. The shares of stock shall be deemed personal
property and transferable on the books of the Corporation only by the person
named in the certificate, or by attorney lawfully constituted in writing, and
upon surrender of the certificate therefor. Whenever any transfer of shares
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of the transfer.
SECTION 3. CLOSING OF TRANSFER BOOKS. The Board of Directors may close the
stock transfer books of the Corporation for a period not exceeding fifty (50)
days preceding the effective date of: (a) any meeting of the stockholders; or
(b) any payment of any dividends; or (c) any allotment of rights; or (d) any
change or conversion or exchange of capital stock; provided that, in lieu of
closing the transfer books, the Board of Directors are authorized to fix, in
advance, a date not exceeding fifty (50) days preceding the effective date of
any of the above enumerated transactions and, in such case, such stockholders,
and only such stockholders as shall be stockholders of record on the date so
fixed, shall be entitled to receive notice of any such transactions or to
participate in any such transactions, notwithstanding any transfer of any stock
on the books of the Corporation after such record date fixed as aforesaid.
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SECTION 4. LOST OR DESTROYED STOCK CERTIFICATES. New certificates of stock
may be issued in the place of any certificates heretofore issued and alleged to
have been lost or destroyed, upon the holder thereof, or his legal
representative, giving to the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss of any such certificates; such bond to be in an amount as may be
authorized or approved by the Board of Directors; provided, however, that such
new certificate may be issued without requiring any bond when, in the judgment
of the directors, it is proper so to do.
ARTICLE X
MISCELLANEOUS
SECTION 1. ORDER OF BUSINESS AT STOCKHOLDERS MEETING. At any and all
meetings of stockholders, whether annual or special, the following order of
business shall be substantially observed insofar as is consistent with the
purpose of the meeting:
(a) Proof of notice of meeting
(b) Report as to quorum
(c) Reading of minutes of preceding meeting
(d) Report of President
(e) Report of Treasurer
(f) Election of directors
(g) Unfinished business
(h) New business
Provided, however, that the order of business may be changed by an affirmative
vote of a majority of the stockholders present.
SECTION 2. ORDER OF BUSINESS AT BOARD OF DIRECTORS MEETING. The order of
business at any meeting of the Board of Directors shall be substantially as
follows, insofar as is consistent with the purpose of the meeting:
(a) Proof of notice (if a special meeting)
(b) Reading of minutes of last meeting
(c) Report of officers or committees
(d) Election of officers
(e) Unfinished business
(f) New business
provided, however, that the order of business may be changed by an affirmative
vote of a majority of the directors present.
SECTION 3. EXECUTION OF CHECK, DEMANDS FOR MONEY OR NOTES. All funds of the
Corporation shall be deposited in a bank or financial institution designated by
the Board of
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Directors, and all checks or demands for money or notes of the Corporation shall
be signed by such officer or officers of the Corporation as the Board of
Directors may from time to time designate.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be such as
may from time to time be determined by the Board of Directors.
SECTION 5. DIVIDENDS. Dividends upon the capital stock of the Corporation,
when earned, may be declared by the Board of Directors at any regular or special
meeting in accordance with the laws of the State of Kansas.
SECTION 6. NOTICES. Whenever, under the provisions of these bylaws, notice
is required to be given to any director, officer or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, by depositing the same in the post office in a postpaid sealed wrapper,
addressed to such stockholder, officer or director, at such address as appears
on the books of the Corporation, or, in default of other address, to such
director, officer or stockholder, at the general post office in the city of
Wichita, Kansas, and such notice shall be deemed to be given at the time when
the same shall be thus mailed. Notice to be given to directors may likewise be
given as otherwise provided in these bylaws.
Any stockholder, director or officer may waive any notice required to be
given under these bylaws.
ARTICLE XI
AMENDMENTS
SECTION 1. These bylaws may be altered, repealed or amended by the Board of
Directors, subject to the power of the stockholders to amend, alter or repeal
the bylaws.
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CERTIFICATE OF ADOPTION
OF AMENDED AND RESTATED BYLAWS
OF
BRITTAIN MACHINE, INC.
I, the undersigned, do hereby certify:
That I am the duly elected, qualified and acting Secretary of BRITTAIN
MACHINE, INC. (the "Company") and the attached amended and restated bylaws were
adopted as the bylaws of the Company on April 30, 1999 by the Board of Directors
of the Company pursuant to a resolution adopted by the Unanimous Written Consent
of the Board of Directors of the Company.
Dated effective the 30th day of April, 1999.
/s/ DOUGLAS B. SOLOMON
-----------------------------
Douglas B. Solomon, Secretary
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EXHIBT 3.9
ARTICLES OF INCORPORATION
OF
WICHITA MANUFACTURING, INC.
* * * * *
FIRST: That the name of the corporation is
WICHITA MANUFACTURING, INC.
SECOND: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD: The name of this corporation's initial agent for service of process
in the State of California is:
C T CORPORATION SYSTEM
FOURTH: This corporation is authorized to issue only one class of shares of
stock; and the total number of shares which this corporation is authorized to
issue is fifty thousand (50,000).
FIFTH: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
IN WITNESS WHEREOF, the undersigned has executed these Articles this 10th
day of November, 1992.
/s/ G. COFER
----------------------------------
G. Cofer, Sole Incorporator
<PAGE>
EXHIBIT 3.10
AMENDED AND RESTATED
BYLAWS
OF
WICHITA MANUFACTURING, INC.
(A California corporation, (the "Corporation"))
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1. ANNUAL AND SPECIAL MEETINGS. An annual meeting of the shareholders
for the election of directors and for the transaction of any other proper
business shall be held within 180 days following the end of the fiscal year of
the Corporation on the date and at the time as the Board of Directors shall from
time to time fix. Special Meetings shall be held on the date and time as fixed
by the person or persons calling the meeting pursuant to the provisions of
Sections 3 and 4 herein.
SECTION 2. PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of California, as the Directors may, from
time to time, fix. Whenever the Directors shall fail to fix such place, the
meetings shall be held at the principal executive office of the Corporation.
SECTION 3. CALL. Annual meetings may be called by the Directors, by the Chairman
of the Board, if any, Vice Chairman of the Board, if any, the President, if any,
the Secretary, or by any officer instructed by the Directors to call the
meeting. Special meetings may be called in like manner and by the holders of
shares entitled to cast not less than ten percent of the votes at the meeting
being called.
SECTION 4. NOTICE. Written notice stating the place, day and hour of each
meeting, and, in the case of a special meeting, the general nature of the
business to be transacted or, in the case of an Annual Meeting, those matters
which the Board of Directors, at the time of mailing of the notice, intends to
present for action by the shareholders, shall by given not less than ten days
(or not less than any such other minimum period of days as may be prescribed by
the General Corporation Law) or more than sixty days (or more than any such
maximum period of days as may be prescribed by the General Corporation Law)
before the date of the meeting, by mail, personally, or by other means of
written communication charges prepaid by or at the direction of the Directors,
the President, if any, the Secretary or the officer or persons calling the
meeting, addressed to each shareholder at his address appearing on the books of
the Corporation or given by him to the Corporation for the
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purpose of notice, or, if no such address appears or is given, at the place
where the principal executive office of the Corporation is located or by
publication at least once in a newspaper of general circulation in the county in
which the said principal executive office is located.
Such notice shall be deemed to be delivered when deposited in the United
States mail with first class postage therein prepaid, or sent by other means of
written communication addressed to the shareholder at his address as it appears
on the stock transfer books of the Corporation. The notice of any meeting at
which directors are to be elected shall include the names of nominees intended
at the time of notice to be presented by management for election. At an annual
meeting of shareholders, any matter relating to the affairs of the Corporation,
whether or not stated in the notice of the meeting, may be brought up for action
except matters which the General Corporation Law requires to be stated in the
notice of the meeting. The notice of any annual or special meeting shall also
include, or be accompanied by, any additional statements, information, or
documents prescribed by the General Corporation Law. When a meeting is adjourned
to another time or place, notice of the adjourned meeting need not be given if
the time and place thereof are announced at the meeting at which the adjournment
is taken; provided that, if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting.
SECTION 5. CONSENT. The transaction of any meeting, however called and noticed,
and wherever held, shall be as valid as though had a meeting duly held after
regular call and notice, if a quorum is present and if, either before or after
the meeting, each of the shareholders or his proxy signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. Attendance of a
person at a meeting constitutes a waiver of notice of such meeting, except when
the person objects at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting shall not constitute a waiver of any right to object to
the consideration of matters required by the General Corporation Law to be
included in the notice if such objection is expressly made at the meeting.
Except as otherwise provided in subdivision (f) of Section 601 of the General
Corporation Law, neither the business to be transacted at nor the purpose of any
regular or special meeting need be specified in any written waiver of notice.
SECTION 6. CONDUCT OF MEETING. Meetings of the shareholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board, the Chief Executive Officer, the
President, a Vice-President, or, if none of the foregoing is in office and
present and acting, by a chairman to be chosen by the shareholders. The
Secretary of the Corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but, if neither the Secretary nor an
Assistant Secretary is present, the Chairman of the meeting shall appoint a
secretary of the meeting.
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SECTION 7. PROXY REPRESENTATION. Every shareholder may authorize another person
or persons to act as his proxy at a meeting or by written action. No proxy shall
be valid after the expiration of eleven months from the date of its execution
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the person executing it prior to the vote or written action pursuant
thereto, except as otherwise provided by the General Corporation Law. As used
herein, a "proxy" shall be deemed to mean a written authorization signed by a
shareholder or a shareholder's attorney in fact giving another person or persons
power to vote or consent in writing with respect to the shares of such
shareholder, and "signed" as used herein shall be deemed to mean the placing of
such shareholder's name on the proxy, whether by manual signature, typewriting,
telegraphic transmission or otherwise by such shareholder or such shareholder's
attorney in fact. Where applicable, the form of any proxy shall comply with the
provisions of Section 604 of the General Corporation Law.
SECTION 8. INSPECTORS - APPOINTMENT. In advance of any meeting, the Board of
Directors may appoint inspectors of election to act at the meeting and any
adjournment thereof. If inspectors of election are not so appointed, or, if any
persons so appointed fail to appear or refuse to act, the Chairman of any
meeting of shareholders may, and on the request of any shareholder or a
shareholder's proxy shall, appoint inspectors of election, or persons to replace
any of those who so fail or refuse, at the meeting. The number of inspectors
shall be either one or three. If appointed at a meeting on the request of one or
more shareholders or proxies, the majority of shares represented shall determine
whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, the authenticity, validity, and effect of proxies,
receive votes, ballots, if any, or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count,
and tabulate all votes or consents, determine when the polls shall close,
determine the result, and do such acts as may be proper to conduct the election
or vote with fairness to all shareholders. If there are three inspectors of
election, the decision, act, or certificate of a majority shall be effective in
all respects as the decision, act, or certificate of all.
SECTION 9. SUBSIDIARY CORPORATIONS. Shares of this Corporation owned by a
subsidiary shall not be entitled to vote on any matter. A subsidiary for these
purposes is defined as a corporation, of which more than 25% of the total of all
classes of shares entitled to vote, are owned directly or indirectly by the
Corporation through one or more of its subsidiaries.
SECTION 10. QUORUM; VOTE; WRITTEN CONSENT. The holders of a majority of the
voting shares shall constitute a quorum at a meeting of shareholders for the
transaction of any business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less
than a quorum if any action taken, other than adjournment is approved by at
least a majority of the shares required to constitute a quorum. In the absence
of a quorum, any meeting of shareholders
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may be adjourned from time to time by the vote of a majority of the shares
represented thereat, but no other business may be transacted except as
hereinbefore provided.
In the election of directors, a plurality of the votes cast shall elect. No
shareholder shall be entitled to exercise the right of cumulative voting at a
meeting for the election of directors unless the candidate's name or the
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
such candidates in nomination.
Except as otherwise provided by the General Corporation Law, the Articles
of Incorporation or these Bylaws, any action required or permitted to be taken
at a meeting at which a quorum is present shall be authorized by the affirmative
vote of a majority of the shares represented at the meeting.
Except in the election of directors by written consent in lieu of a
meeting, and except as may otherwise be provided by the General Corporation Law,
the Articles of Incorporation or these Bylaws, any action which may be taken at
any annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by holders of shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Directors may not be
elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors. Notice of any shareholder
approval pursuant to Section 310, 317, 1201 or 2007 without a meeting by less
than unanimous written consent shall be given at least ten days before the
consummation of the action authorized by such approval, and prompt notice shall
be given of the taking of any other corporate action approved by shareholders
without a meeting by less than unanimous written consent to those shareholders
entitled to vote who have not consented in writing.
SECTION 11. BALLOT. Elections of directors at a meeting need not be by ballot
unless a shareholder demands election by ballot at the election and before the
voting begins. In all other matters, voting need not be by ballot.
SECTION 12. SHAREHOLDERS' AGREEMENTS. Notwithstanding the above provisions, in
the event this Corporation elects to become a close corporation, an agreement
between two or more shareholders thereof, if in writing and signed by the
parties thereof, may provide that in exercising any voting rights the shares
held by them shall be voted as provided therein or in Section 706, and may
otherwise modify these provisions as to shareholders' meetings and actions.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. FUNCTIONS. The business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
its Board of Directors. The Board of Directors may delegate the management of
the day-to-day operation of the business of the Corporation to a management
company or other person, provided that the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board of Directors. The Board of Directors shall
have authority to fix the compensation of directors for services in any lawful
capacity.
Each director shall exercise such powers and otherwise perform such duties
in good faith, in the manner such director believes to be in the best interests
of the Corporation, and with care, including reasonable inquiry, using ordinary
prudence, as a person in a like position would use under similar circumstances.
SECTION 2. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the provisions of
Section 1, in the event that this Corporation shall elect to become a close
corporation as defined in Section 186, its shareholders may enter into a
Shareholders' Agreement as provided in Section 300(b). Said Agreement may
provide for the exercise of corporate powers and the management of the business
and affairs of this Corporation by the shareholders, provided however such
agreement shall, to the extent and so long as the discretion or the powers of
the Board in its management of corporate affairs is controlled by such
agreement, impose upon each shareholder who is a party thereof, liability for
managerial acts performed or omitted by such person pursuant thereto otherwise
imposed upon Directors as provided in Section 300(d).
SECTION 3. QUALIFICATIONS AND NUMBER. A director need not be a shareholder of
the Corporation, a citizen of the United States, or a resident of the State of
California. The authorized number of directors constituting the Board of
Directors until further changed shall be not less than three (3) nor more than
five (5). The exact number of directors shall be set within the limits specified
above, by a resolution duly adopted by the Board of Directors or by the
shareholders. Thereafter, the authorized number of directors constituting the
Board shall be at least three provided that, whenever the Corporation shall have
only two shareholders, the number of directors may be at least two, and,
whenever the Corporation shall have only one shareholder, the number of
directors may be at least one. Any amendment reducing the number of directors to
fewer than five cannot be adopted if the votes cast against its adoption at a
Shareholders' meeting, or the shares not consenting in writing in the case of an
action by written consent, are equal to more than sixteen and two-thirds percent
(16-2/3%) of the outstanding shares entitled to vote thereon. No decrease in the
authorized number of directors shall have the effect of shortening the term of
any incumbent director.
SECTION 4. ELECTION AND TERM. The initial Board of Directors shall consist of
the persons elected at the meeting of the incorporator, all of whom shall hold
office until the first annual meeting of shareholders and until their successors
have been elected and qualified, or until their earlier
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resignation or removal from office. Thereafter, directors who are elected to
replace any or all of the members of the initial Board of Directors or who are
elected at an annual meeting of shareholders, and directors who are elected in
the interim to fill vacancies, shall hold office until the next annual meeting
of shareholders and until their successors have been elected and qualified, or
until their earlier resignation, removal from office, or death. In the interim
between annual meetings of shareholders or of special meetings of shareholders
called for the election of directors, any vacancies in the Board of Directors,
including vacancies resulting from an increase in the authorized number of
directors which have not been filled by the shareholders, including any other
vacancies which the General Corporation Law authorizes directors to fill, and
including vacancies resulting from the removal of directors which are not filled
at the meeting of shareholders at which any such removal has been effected, if
the Articles of Incorporation or a Bylaw adopted by the shareholders so
provides, may be filled by the vote of a majority of the directors then in
office or of the sole remaining director, although less than a quorum exists.
Any director may resign effective upon giving written notice to the Chairman of
the Board, if any, the President, the Secretary or the Board of Directors,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to the office when the resignation becomes effective.
The shareholders may elect a director at any time to fill any vacancy which
the directors are entitled to fill, but which they have not filled. Any such
election by written consent shall require the consent of a majority of the
shares.
SECTION 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The
Corporation may indemnify any Director, Officer, agent or employee as to those
liabilities and on those terms and conditions as are specified in Section 317.
In any event, the Corporation shall have the right to purchase and maintain
insurance on behalf of any such persons whether or not the Corporation would
have the power to indemnify such person against the liability insured against.
SECTION 6. MEETINGS.
TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
PLACE. Meetings may be held at any place, within or without the State of
California, which has been designated in any notice of the meeting, or, if not
stated in said notice, or, if there is no notice given, at the place designated
by resolution of the Board of Directors.
CALL. Meetings may be called by the Chairman of the Board, if any and
acting, by the Vice Chairman of the Board, if any, by the President, if any, by
any Vice President or Secretary, or by any two directors.
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NOTICE AND WAIVER THEREOF. No notice shall be required for regular meetings
for which the time and place have been fixed by the Board of Directors. Special
meetings shall be held upon at least four days' notice by mail or upon at least
forty-eight hours' notice delivered personally or by telephone or telegraph.
Notice of a meeting need not be given to any director who signs a waiver of
notice, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. A notice or waiver of notice need not specify the purpose of any
regular or special meeting of the Board of Directors.
SECTION 7. SOLE DIRECTOR PROVIDED BY ARTICLES OF INCORPORATION. In the event
only one director is required by the Bylaws or Articles of Incorporation, then
any reference herein to notices, waivers, consents, meetings or other actions by
a majority or quorum of the directors shall be deemed to refer to such notice,
waiver, etc., by such sole director, who shall have all the rights and duties
and shall be entitled to exercise all of the powers and shall assume all the
responsibilities otherwise herein described as given to a Board of Directors.
SECTION 8. QUORUM AND ACTION. A majority of the authorized number of directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided such majority shall constitute at least either one-third of the
authorized number of directors or at least two directors, whichever is larger,
or unless the authorized number of directors is only one. A majority of the
directors present, whether or not a quorum is present, may adjourn any meeting
to another time and place. If the meeting is adjourned for more than twenty-four
hours, notice of any adjournment to another time or place shall be given prior
to the time of the adjourned meeting to the directors, if any, who were not
present at the time of the adjournment. Except as the Articles of Incorporation,
these Bylaws and the General Corporation Law may otherwise provide, the act or
decision done or made by a majority of the Directors present at a meeting duly
held at which a quorum is present shall be the act of the Board of Directors.
Members of the Board of Directors may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another, and participation by such
use shall be deemed to constitute presence in person at any such meeting.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, provided that any action
which may be taken is approved by at least a majority of the required quorum for
such meeting.
SECTION 9. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, the Vice Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the Chief Executive Officer or
the President, if any and present and acting, or any director chosen by the
Board, shall preside.
SECTION 10. REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed from office without cause by approval of the
holders of at least a majority of the shares provided, that unless the entire
Board is removed, an individual director shall not be
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removed when the votes cast against such removal, or not consenting in writing
to such removal, would be sufficient to elect such director if voted
cumulatively at an election of directors at which the same total number of votes
were cast, or, if such action is taken by written consent, in lieu of a meeting,
all shares entitled to vote were voted, and the entire number of directors
authorized at the time of the director's most recent election were then being
elected. If any or all directors are so removed, new directors may be elected at
the same meeting or by such written consent. The Board of Directors may declare
vacant the office of any director who has been declared of unsound mind by an
order of court or convicted of a felony.
SECTION 11. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the authorized number of directors, may designate one or more
committees, each consisting of two or more directors to serve at the pleasure of
the Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any such committee, who may replace any absent
member at any meeting of such committee. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have all the
authority of the Board of Directors except such authority as may not be
delegated by the provisions of the General Corporation Law.
SECTION 12. INFORMAL ACTION. The transactions of any meeting of the Board of
Directors, however called and noticed or wherever held, shall be as valid as
though had at a meeting, duly held after regular call and notice, if a quorum is
present and if, either before or after the meeting each of the directors not
present signs a written waiver of notice, a consent to holding the meeting, or
an approval of the minutes thereof. All such waivers, consents, or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 13. WRITTEN ACTION. Any action required or permitted to be taken may be
taken without a meeting if all of the members of the Board of Directors shall
individually or collectively consent in writing to such action. Any such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of the
Board or a Chief Executive Officer, President or both, a Secretary and a Chief
Financial Officer. The Corporation may also have, at the discretion of the Board
of Directors, one or more Vice Presidents, one or more Assistant Secretaries and
such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article. One person may hold two or more offices.
SECTION 2. ELECTION. The officers of the Corporation, except such officers as
may be appointed in accordance with the provisions of Section 3 or Section 5 of
this Article shall be chosen annually by the Board of Directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve, or his successor shall be elected and qualified.
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SECTION 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint such
other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors, or to the President, or to the Secretary of the Corporation. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in the Bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be
such an officer, shall, if present, preside at all meetings of the Board of
Directors, and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by the
Bylaws.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the Chief Executive Officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. He shall preside at all meetings of the shareholders and in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the Executive Committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a Corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws.
SECTION 8. VICE PRESIDENT. In the absence or disability of the President, the
Vice Presidents, in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to, all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or the Bylaws.
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SECTION 9. SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes at the principal office or such other place as the Board of Directors
may order, of all meetings of Directors and Shareholders, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Directors' meetings, the
number of shares present or represented at Shareholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office or
at the office of the Corporation's transfer agent, a share register, or
duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the Board of Directors required by the Bylaws or by
law to be given, and he shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by the Bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER. This officer shall keep and maintain, or
cause to be kept and maintained in accordance with generally accepted accounting
principles, adequate and correct accounts of the properties and business
transactions of the Corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, earnings (or surplus) and
shares. The books of account shall at all reasonable times be open to inspection
by any director.
This officer shall deposit all monies and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board of Directors. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, shall render to the President and directors,
whenever they request it, an account of all his transactions and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or the
Bylaws.
ARTICLE IV
CERTIFICATES AND TRANSFERS OF SHARES
SECTION 1. CERTIFICATES FOR SHARES. Each certificate for shares of the
Corporation shall set forth therein the name of the record holder of the shares
represented thereby, the number of shares and the class or series of shares
owned by said holder, the par value, if any, of the shares represented thereby,
and such other statements, as applicable, prescribed by Sections 416-419,
inclusive, and other relevant Sections of the General Corporation Law of the
State of California (the "General Corporation Law") and such other statements,
as applicable, which may be prescribed by the Corporate Securities Law of the
State of California and any other applicable provision of the law. Each such
certificate issued shall be signed in the name of the Corporation by the
Chairman of the Board of Directors, if any, or the Vice Chairman of the Board of
Directors, if any, the President, if any, or a Vice President, if any, and by
the Chief Financial Officer or an Assistant Treasurer or the
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Secretary or an Assistant Secretary. Any or all of the signatures on a
certificate for shares may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate for shares shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
In the event that the Corporation shall issue the whole or any part of its
shares as partly paid and subject to call for the remainder of the consideration
to be paid therefor, any such certificate for shares shall set forth thereon the
statements prescribed by Section 409 of the General Corporation Law.
SECTION 2. LOST OR DESTROYED CERTIFICATES FOR SHARES. The Corporation may issue
a new certificate for shares or for any other security in the place of any other
certificate theretofore issued by it, which is alleged to have been lost, stolen
or destroyed. As a condition to such issuance, the Corporation may require any
such owner of the allegedly lost, stolen or destroyed certificate or any such
owner's legal representative to give the Corporation a bond, or other adequate
security, sufficient to indemnify it against any claim that may be made against
it, including any expense or liability, on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
SECTION 3. SHARE TRANSFERS. Upon compliance with any provisions of the General
Corporation Law and/or the Corporate Securities Law of 1968 which may restrict
the transferability of shares, transfers of shares of the Corporation shall be
made only on the record of shareholders of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the Corporation or with a transfer
agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of all taxes, if
any, due thereon.
SECTION 4. RECORD DATE FOR SHAREHOLDERS. In order that the Corporation may
determine the shareholders entitled to notice of any meeting or to vote or be
entitled to receive payment of any dividend or other distribution or allotment
of any rights or entitled to exercise any rights in respect of any other lawful
action, the Board of Directors may fix, in advance a record date, which shall
not be more than sixty days or fewer than ten days prior to the date of such
meeting or more than sixty days prior to any other action.
If the Board of Directors shall not have fixed a record date as aforesaid,
the record date for determining shareholders entitled to notice of or to vote at
a meeting of shareholders shall be at the close of business on the business day
next preceding the day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held; the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors has been taken, shall be the day on which the first
written consent is given; and the record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors
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adopts the resolution relating thereto, or the sixtieth day prior to the day of
such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five days from the date set for the original
meeting.
Except as may be otherwise provided by the General Corporation Law,
shareholders on the record date shall be entitled to notice and to vote or to
receive any dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date.
SECTION 5. REPRESENTATION OF SHARES IN OTHER CORPORATIONS. Shares of other
corporations standing in the name of this Corporation may be voted or
represented and all incidents thereto may be exercised on behalf of the
Corporation by the Chairman of the Board, the President or any Vice President or
any other person authorized by resolution of the Board of Directors.
SECTION 6. MEANING OF CERTAIN TERMS. As used in these Bylaws in respect of the
right to notice of a meeting of shareholders or a waiver thereof or to
participate or vote thereat or to assent or consent or dissent in writing in
lieu of a meeting, as the case may be, the term "share" or "shares" or
"shareholder" or "shareholders" refers to an outstanding share or shares and to
a holder or holders record or outstanding shares when the Corporation is
authorized to issue only one class of shares, and said reference is also
intended to include any outstanding share or shares and any holder or holders of
record of outstanding shares of any class upon which or upon whom the Articles
of Incorporation confer such rights where there are two or more classes or
series of shares or upon which or upon whom the General Corporation Law confers
such rights notwithstanding that the Articles of Incorporation may provide for
more than one class or series of shares, one or more of which are limited or
denied such rights thereunder.
SECTION 7. CLOSE CORPORATION CERTIFICATES. All certificates representing shares
of this Corporation, in the event it shall elect to become a close corporation,
shall contain the legend required by Section 418(c).
ARTICLE V
EFFECT OF SHAREHOLDERS' AGREEMENT - CLOSE CORPORATION
Any Shareholders' Agreement authorized by Section 300(b) shall only be effective
to modify the terms of these Bylaws if this Corporation elects to become a close
corporation with appropriate filing of or amendment to its Articles as required
by Section 202 and shall terminate when this Corporation ceases to be a close
corporation. Such an agreement cannot waive or alter Sections 158 (defining
close corporations), 202 (requirements of Articles of Incorporation) , 500 and
501 relative to distributions, 111 (merger), 1201(e) (reorganization) or
Chapters 15 (Records and Reports), 16
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(Rights of Inspection), 18 (Involuntary Dissolution) or 22 (Crimes and
Penalties). Any other provisions of the Code or these Bylaws may be altered or
waived thereby, but to the extent they are not so altered or waived, these
Bylaws shall be applicable.
ARTICLE VI
CORPORATE CONTRACTS AND INSTRUMENTS - HOW EXECUTED
The Board of Directors, except as in the Bylaws otherwise provided, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the Board of Directors, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or agreement, or to pledge its
credit, or to render it liable for any purposes or any amount, except as
provided in Section 313 of the Corporations Code.
ARTICLE VII
CONTROL OVER BYLAWS
After the initial Bylaws of the Corporation shall have been adopted by the
incorporator or incorporators of the Corporation, the Bylaws may be amended or
repealed or new Bylaws may be adopted by the Board of Directors; provided,
however, that any control over the Bylaws herein vested in the Board of
Directors shall be subject to the authority of the aforesaid shareholders to
amend or repeal the Bylaws or to adopt new Bylaws; and provided further that any
Bylaw amendment or new Bylaw which changes the minimum number of directors to
fewer than five shall require authorization by the greater proportion of voting
power of the shareholders as hereinbefore set forth.
ARTICLE VIII
BOOKS AND RECORDS
SECTION 1. RECORDS: STORAGE AND INSPECTION. The Corporation shall keep at its
principal executive office in the State of California, or, if its principal
executive office is not in the State of California, the original or a copy of
the Bylaws as amended to date, which shall be open to inspection by the
shareholders at all reasonable times during office hours. If the principal
executive office of the Corporation is outside the State of California, and, if
the Corporation has no principal business office in the State of California, it
shall upon request of any shareholder furnish a copy of the Bylaws as amended to
date.
The Corporation shall keep adequate and correct books and records of
account and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committees, if any, of the Board of Directors. The Corporation
shall keep at its principal executive office, or at the office of its transfer
agent or registrar, a record of its shareholders, giving the names and addresses
of all shareholders and the number and class of shares held by each. Such
minutes shall be in written
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form. Such other books and records shall be kept either in written form or in
any other form capable of being converted into written form.
SECTION 2. RECORD OF PAYMENTS. All checks, drafts or other orders or payment of
money, notes or other evidences of indebtedness, issued in the name of or
payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 3. ANNUAL REPORT. Whenever the Corporation shall have fewer than one
hundred shareholders, the Board of Directors shall not be required to cause to
be sent to the shareholders of the Corporation the annual report prescribed by
Section 1501 of the General Corporation Law unless it shall determine that a
useful purpose would be served by causing the same to be sent or unless the
Department of Corporations, pursuant to the provisions of the Corporate
Securities Law of 1968, shall direct the sending of the same.
-14-
<PAGE>
SECRETARY'S CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
WICHITA MANUFACTURING, INC.
I, the undersigned, do hereby certify:
1. That I am the duly elected, qualified, and acting Secretary of the
above-named Corporation.
2. That the foregoing Amended and Restated Bylaws were adopted by the Board
of Directors as the Bylaws of said Corporation effective as of the 30th day of
April, 1999.
3. That the foregoing Amended and Restated Bylaws were also adopted by the
shareholder of said Corporation effective as of the 30th day of April, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 30th day of
April 1999.
/s/ DOUGLAS B. SOLOMON
------------------------
Douglas B. Solomon
Secretary
-15-
<PAGE>
EXHIBIT 3.11
ARTICLES OF INCORPORATION
OF
BARNES MACHINE, INC.
I, the undersigned person, of the age of eighteen years or more, as
incorporator of a corporation under the Washington Business Corporation Act,
adopt the following Articles of Incorporation for such corporation:
ARTICLE 1. NAME
The name of this corporation is BARNES MACHINE, INC.
ARTICLES 2. DURATION
The period of its duration is perpetual.
ARTICLE 3. PURPOSES
The corporation is organized for the following purposes:
(a) To operate a general machine shop and small manufacturing business for
the public and other businesses.
(b) To engage in any other business, trade or activity which may lawfully
be conducted by a corporation organized under the Washington Business
Corporation Act.
(c) To engage in all activities and to exercise any and all powers
authorized or permitted to be done by a corporation under any laws that may be
now or hereafter applicable or available to this corporation.
The foregoing clauses of this Article 3 shall each be construed as purposes
and powers, and the matters expressed in each clause shall be in no way limited
or restricted by reference to or inference from the terms of any other clauses,
but shall be regarded as independent purposes and powers; and nothing contained
in these clauses shall be deemed in any way to limit or exclude any power, right
or privilege given to this corporation by law or otherwise.
ARTICLE 4. SHARES
This corporation shall have authority to issue 50,000 shares of common
stock, and each share shall have a par value of $1.00.
1
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ARTICLES 5. DIRECTORS
The number of directors of this corporation shall be fixed by the bylaws
and may be increased or decreased from time to time in the manner specified
therein. The initial Board of Directors shall consist of two directors, and the
names and addresses of the persons who shall serve as directors until the first
annual meeting of shareholders and until their successors are elected and
qualify unless they resign or are removed are:
ROBERT E. BARNES E. 161 Woodland Dr.
Shelton, WA 98584
J. JOY BARNES E. 161 Woodland Dr.
Shelton, WA 98584
ARTICLE 6. CONTRACTS IN WHICH DIRECTORS HAVE INTEREST
Any contract or transaction between this corporation and one or more of its
directors or any corporation, firm, association or other entity of which one or
more of its directors are stockholders, members, directors, officers or
employees or in which they are interested, shall be valid for all purposes,
notwithstanding the presence of such director or directors at the meeting of the
Board of Directors which acts in reference to such contract or transaction and
notwithstanding his or their participation in such action, by voting or
otherwise, even though his or their presence or vote, or both, might have been
necessary to obligate this corporation upon such contract or transaction;
provided, that the fact of such interest shall be disclosed to or known by the
Directors acting on such contract or transaction.
ARTICLE 7. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
bylaws for this corporation, subject to the power of the shareholders to amend
or repeal such bylaws.
ARTICLE 8. REGISTERED OFFICE AND AGENT
The address of the initial registered office of this corporation is E. 161
Woodland Drive, Shelton, Mason County, WA 98584, and the name of its initial
registered agent at the same address is ROBERT E. BARNES.
ARTICLE 9. PREEMPTIVE RIGHTS
Preemptive rights shall not exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
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<PAGE>
ARTICLE 10. CUMULATIVE VOTING
The right to cumulate votes in the election of directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE 11. AMENDMENTS OF ARTICLES OF INCORPORATION
The corporation reserves the right to amend or repeal any provisions
cotnained in these Articles of Incorporation in any manner now or hereafter
prescribed by law and the rights of the shareholders of this corporation are
granted subject to this reservation.
ARTICLE 12. INCORPORATORS
The name and address of the incorporator is as follows:
J. JOY BARNES E. 161 Woodland Drive
Shelton, WA 98584
IN WITNESS WHEREOF, the incorporator has signed these Articles of
Incorporation this 19 day of JANUARY, 1982.
J. JOY BARNES /s/ J. JOY BARNES
------------------
STATE OF WASHINGTON )
COUNTY OF MASON ) SS.
On this day personally appeared before me J. JOY BARNES, to me known to be
the individual described in and who executed the within and foregoing instrument
and acknowledged that she signed the same as her free and voluntary act and
deed, for the uses and purposes therein mentioned.
GIVEN UNDER MY HAND AND OFFICIAL SEAL THIS 19TH day of JANUARY, 1982.
/s/ CONNIE L. BEIN
---------------------
Notary Public in and for the State of Washington,
residing at Shelton.
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<PAGE>
EXHIBIT 3.12
AMENDED AND RESTATED
BYLAWS
OF
BARNES MACHINE, INC.
ARTICLE 1. OFFICES
The address of the principal office of the corporation shall be the address
of its corporate offices from time to time in the State of Washington. The
corporation may have other offices, either within or without the State of
Washington, as the Board of Directors (the "Board") may designate or as the
business of the corporation may require.
ARTICLE 2. SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of the shareholders shall be held
the third Thursday in May in each year at 7:00 p.m. for electing directors and
transacting other business. If the day fixed for the annual meeting is a legal
holiday at the place of the meeting, the meeting shall be held on the next
succeeding business day. If the election of directors is not held on the day
designated for the annual meeting, or at any adjournment thereof, the election
shall be held at a special meeting of the shareholders called as soon thereafter
as practicable.
2.2 SPECIAL MEETINGS. The Chairman of the Board, President or the Board may
call a special meeting of the shareholders for any purpose. At the request of
the holders of not less than one-tenth of all of the outstanding shares entitled
to vote at the meeting, the Chairman of the Board or President shall call a
special meeting of the shareholders.
2.3 PLACE OF MEETING. All meetings shall be held at the principal office of
the corporation or at such other place within or without the State of Washington
designated by the Board or by a waiver of notice signed by all of the
shareholders entitled to vote at the meeting.
2.4 NOTICE OF MEETING. The Chairman of the Board, President or Board when
calling an annual or special meeting of shareholders shall cause to be delivered
to each shareholder entitled to vote at the meeting either personally or by mail
not less than 10 nor more than 50 days before the meeting written notice stating
the place, day and hour of the meeting, and in the case of a special meeting,
the purpose or purposes for which the meeting is called.
2.5 QUORUM. A majority of the outstanding shares entitled to vote shall
constitute a quorum at a shareholders' meeting. If less than such a majority is
represented, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At an
1
<PAGE>
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally notified. The
shareholders present at any duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.6 PROXIES. At all shareholders' meetings a shareholder may vote by proxy
executed in writing by the shareholder or by his attorney in fact. Such proxy
shall be filed with the corporate Secretary before or at the time of the
meeting. A proxy shall be invalid eleven months after its execution, unless
otherwise provided in the proxy.
2.7 VOTING OF SHARES. Each outstanding share shall be entitled to one vote
upon each matter submitted to a vote of the shareholders.
ARTICLE 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS. The business of the corporation shall be managed by the
board.
3.2 NUMBER, TENURE AND QUALIFICATIONS. The Board shall be composed of four
(4) directors, who need not be shareholders. Each director shall hold office
until the next annual meeting and until his successor is elected and qualified,
unless he resigns or is removed. The number of directors may be changed by
amending the bylaws, but no decrease shall shorten the term of any incumbent
director.
3.3 REGULAR MEETINGS. A regular Board meeting shall be held without notice
immediately after and at the same place as the annual meeting of shareholders.
By amending these Bylaws, the Board may provide for holding additional regular
meetings either within or without the State of Washington without notice other
than such amendment.
3.4 SPECIAL MEETINGS. Special Board meetings may be called by the President
or any two directors and any place may be fixed as the place for holding such
special Board meeting.
3.5 NOTICE. Written notice of each special Board meeting shall be delivered
personally, telegraphed or mailed to each director at his business address at
least 2 days before the meeting. It shall be deemed to be delivered when the
notice is delivered to the telegraph company or is properly mailed in the United
States Mails. The attendance of a director shall constitute a waiver of notice
except where a director attends to expressly object to any business because the
meeting is not lawfully convened. Neither the business nor the purpose of any
regular or special Board meeting need be specified in the notice or waiver of
notice.
2
<PAGE>
3.6 QUORUM. A majority of the directors shall constitute a quorum at any
Board meeting, unless otherwise provided herein. If less than such majority be
present, a majority of the directors present may adjourn the meeting from time
to time without further notice.
3.7 MANNER OF ACTING. A majority vote of the directors present at a meeting
at which there is a quorum shall be the act of the Board, unless otherwise
provided herein.
3.8 COMPENSATION. By Board resolution, directors may be paid their expenses
or a fixed sum for attending each Board meeting or a salary as a director or any
combination thereof. No such payment shall preclude a director from serving in
another capacity and receiving compensation therefor.
3.9 VACANCIES. Any vacancy on the Board may be filled by the majority vote
of the remaining directors, even if less than a quorum. A director so elected
shall serve for the unexpired term of his predecessor in office. Any
directorship from an increase in the number of directors shall be filled by
election at an annual or a special shareholders' meeting called for that
purpose.
ARTICLE 4. OFFICERS
4.1 NUMBER. The officers of the corporation shall be a Chairman of the
Board; President; none, one, or more Vice Presidents as the Board may decide to
elect; a Secretary; and a Treasurer; each of whom shall be elected by the Board.
Other necessary officers and assistant officers may be elected or appointed by
the Board. Any two or more offices may be held by the same person.
4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation shall be
elected annually at the Board meeting held after the annual meeting of the
shareholders or as soon thereafter as a Board meeting may conveniently be held.
Each officer shall hold office until the next annual meeting and until his
successor is elected and qualified, unless he resigns or is removed.
4.3 SALARIES. Officers' salaries and other fringe benefits, if any, shall
be fixed by the Board. An officer may receive a salary and also be a director.
4.4 CHAIRMAN OF THE BOARD. The Chairman of the Board, subject to the
control of the Board of Directors, shall have general charge and control of all
its business and affairs and shall have all powers and shall perform all duties
incident to the office of Chairman of the Board. The Chairman shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors
and shall have such other powers and perform such other duties as may from time
to time be assigned by these Bylaws or by the Board of Directors.
3
<PAGE>
4.5 PRESIDENT. The President, subject to the control of the Board of
Directors shall supervise and control the corporation's operations and shall
have all powers and perform all duties incident to the office of President. In
the absence of the Chairman of the Board, the President shall preside at all
meetings of shareholders and at all meetings of the Board of Directors and shall
have such other powers and perform such other duties as may from time to time be
assigned by these Bylaws or by the Board of Directors or the Chairman of the
Board.
4.6 THE SECRETARY. The Secretary shall: (a) keep the minutes of
Shareholders' and Board meetings; (b) see that all notices are duly given in
accordance with these Bylaws or as required by law; (c) be custodian of the
corporate records seal of and affix the corporate seal on duly authorized
documents; (d) sign duly authorized certificates for shares of the corporation;
(e) maintain the stock transfer books and a register of the post office address
of each shareholder; and (f) perform all duties incident to the office and such
other duties as may be assigned by the President or the Board.
4.7 THE TREASURER. The Treasurer shall have custody of and be responsible
for all funds and securities of the corporation; receive and give receipts for
any moneys payable to the corporation and deposit all such moneys in the name of
the corporation in such banks or other depositories as shall be selected in
accordance with these Bylaws, and generally perform the duties incident to the
office and such other duties as may be assigned by the President or the Board.
The Board may require the Treasurer to give a bond for the faithful discharge of
his duties.
ARTICLE 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS. The Board may authorize any officer or agent to enter into
any contract or execute and deliver any Instrument in the name of and on behalf
of the corporation, and such authority may be general or confined to specific
instances.
5.2 LOANS. No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 LOANS TO OFFICERS AND DIRECTORS. No loans shall be made by the
corporation to its officers or directors, unless first approved by the holders
of two-thirds of the shares, and no loans shall be made by the corporation
secured by its shares.
4
<PAGE>
ARTICLE 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 CERTIFICATES FOR SHARES. Certificates representing shares shall be
signed by the President or the Vice President and by the Secretary and shall
include on their face written notice of any restrictions imposed by the Board on
the transfer of such shares.
6.2 RECORDS OF CERTIFICATES. All certificates shall be consecutively
numbered or otherwise identified. The name and address of each shareholder, the
number of shares and date of issue shall be entered on the stock transfer books.
All the certificates surrendered for transfer shall be canceled and no new
certificate shall be issued until the former certificate is surrendered and
canceled, except upon such terms and indemnity to the corporation as the Board
may require.
6.3 TRANSFER OF SHARES. Transfer of shares shall be made only on the stock
transfer books by the holder of record or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney in fact
authorized by power of attorney duly executed and filed with the corporation.
ARTICLE 7. FISCAL YEAR
The fiscal year of the corporation shall be established when the
corporation files its first income tax return with the Internal Revenue Service.
ARTICLE 8. SEAL
The seal of this corporation shall consist of its name and the state and
year of its incorporation.
ARTICLE 9. WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
under these Bylaws or the Articles of Incorporation or is required by law, a
written waiver thereof, signed by the persons entitled to such notice either
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice.
ARTICLE 10. ACTION WITHOUT A MEETING
Any action which may be taken at a meeting of the shareholders or of the
Board may be taken without a meeting if a written consent setting forth the
action to be taken is signed by all the shareholders entitled to vote on such
action (for an action by the shareholders) or by each of the directors (for an
action by the Board).
5
<PAGE>
ARTICLE 11. INDEMNIFICATION
To the full extent permitted by law the corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any civil,
criminal, administrative or investigative action, suit or proceeding (whether
brought by or in the right of the corporation or otherwise) by reason of the
fact that he is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding; and the Board of Directors may, at any
time, approve indemnification of any other person which the corporation has the
power to indemnify by law. The indemnification provided by this section shall
not be deemed exclusive of any other rights to which a person may be entitled as
a matter of law or by contract.
ARTICLE 12. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board.
6
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SECRETARY'S CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
BARNES MACHINE, INC.
I, the undersigned, do hereby certify:
1. That I am the duly elected, qualified, and acting Secretary of
the above-named Corporation.
2. That the foregoing Amended and Restated Bylaws were adopted by
the Board of Directors as the Bylaws of said Corporation
effective as of the 30 th day of April, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 30th
day of April 1999.
/s/ DOUGLAS B. SOLOMON
-----------------------
Douglas B. Solomon
Secretary
7
<PAGE>
EXHIBIT 3.13
CERTIFICATE OF INCORPORATION
OF
SLP ACQUISITION CO.
----------------------------
FIRST: The name of the corporation shall be:
SLP Acquisition Co.
SECOND: The address of the corporation's registered office in the State of
Delaware is to be located at 1013 Centre Road, in the City of Wilmington, County
of New Castle and its registered agent at such address is Corporation Service
Company.
THIRD: The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which this corporation is
authorized to issue is:
Three Thousand (3,000) shares without par value.
FIFTH: The name and address of the incorporator is as follows:
Heidi J. Kobrin
Morgan, Lewis & Bockius LLP
300 South Grand Avenue, 22nd Floor
Los Angeles, California 90071.
SIXTH: The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE>
SEVENTH: No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this Certificate of Incorporation
this 15th day of April, 1998.
/s/ HEIDI J. KOBRIN
--------------------
Heidi J. Kobrin
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SLP ACQUISITION CO.
Pursuant to Section 242 of the Delaware
General Corporation Law
SLP ACQUISITION CO., a Delaware corporation, hereby certifies as
follows:
FIRST: The Certificate of Incorporation of the Corporation was filed
in the Office of the Secretary of State of Delaware on April 15, 1998 and a
certified copy was recorded in the Office of the Recorder of New Castle County,
Delaware. The Certificate of Incorporation has to date not been amended.
SECOND: The Certificate of Incorporation is amended to change the name
of the Corporation by striking ARTICLE FIRST of the Certificate of Incorporation
in its entirety and inserting the following new ARTICLE FIRST as follows:
"FIRST. The name of this corporation shall be:
SEA-LECT PRODUCTS, INC."
THIRD: This Amendment to the Certificate of Incorporation was duly
adopted by the unanimous written consent of the Board of Directors and by the
written
<PAGE>
consent of the holder of all outstanding stock of the Corporation entitled to
vote in accordance with Sections 141(f), 228 and 242 of the Delaware General
Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of its Certificate of Incorporation to be executed by its Secretary
this 11th day of May, 1998.
By: /s/ DOUGLAS B. SOLOMON
-----------------------
Douglas B. Solomon
Secretary
<PAGE>
EXHIBIT 3.14
BY-LAWS
OF
SLP ACQUISITION CO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I Stockholders ...........................................................1
SECTION 1. Annual Meeting......................................................1
SECTION 2. Special Meetings....................................................1
SECTION 3. Notice of Meetings..................................................1
SECTION 4. Quorum..............................................................1
SECTION 5. Adjourned Meetings..................................................2
SECTION 6. Organization........................................................2
SECTION 7. Voting..............................................................2
SECTION 8. Inspectors..........................................................3
SECTION 9. Consent of Stockholders in Lieu of Meeting..........................3
ARTICLE II Board of Directors ....................................................3
SECTION 1. Number and Term of Office...........................................3
SECTION 2. Removal, Vacancies and Additional Directors.........................4
SECTION 3. Place of Meeting....................................................4
SECTION 4. Regular Meetings....................................................4
SECTION 5. Special Meetings....................................................4
SECTION 6. Quorum..............................................................5
SECTION 7. Organization........................................................5
SECTION 8. Committees..........................................................5
SECTION 9. Conference Telephone Meetings.......................................5
SECTION 10. Consent of Directors or Committee in Lieu of Meeting................5
ARTICLE III Officers ...............................................................6
SECTION 1. Officers............................................................6
SECTION 2. Powers and Duties of the Chairman of the Board.....................6
SECTION 3. Powers and Duties of the President..................................6
SECTION 4. Powers and Duties of the Vice Presidents............................7
SECTION 5. Powers and Duties of the Secretary..................................7
SECTION 6. Powers and Duties of the Treasurer..................................7
SECTION 7. Additional Officers.................................................7
SECTION 8. Giving of Bond by Officers..........................................8
SECTION 9. Voting Upon Stocks..................................................8
SECTION 10. Compensation of Officers............................................8
ARTICLE IV Indemnification of Directors and Officers ..............................8
SECTION 1. Nature of Indemnity.................................................8
SECTION 2. Successful Defense..................................................9
SECTION 3. Determination that Indemnification is Proper........................9
SECTION 4. Advance Payment of Expenses........................................10
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5. Survival; Preservation of Other Rights.............................10
SECTION 6. Severability.......................................................10
SECTION 7. Subrogation........................................................10
SECTION 8. No Duplication of Payments.........................................11
ARTICLE V Stock-Seal-Fiscal Year ................................................11
SECTION 1. Certificates For Shares of Stock...................................11
SECTION 2. Lost, Stolen or Destroyed Certificates.............................11
SECTION 3. Transfer of Shares.................................................12
SECTION 4. Regulations........................................................12
SECTION 5. Record Date........................................................12
SECTION 6. Dividends..........................................................12
SECTION 7. Corporate Seal.....................................................13
SECTION 8. Fiscal Year........................................................13
ARTICLE VI Miscellaneous Provisions ..............................................13
SECTION 1. Checks, Notes, Etc.................................................13
SECTION 2. Loans..............................................................13
SECTION 3. Contracts..........................................................13
SECTION 4. Waivers of Notice..................................................14
SECTION 5. Offices Outside of Delaware........................................14
ARTICLE VII Amendments ............................................................14
</TABLE>
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<PAGE>
BY-LAWS
OF
SLP ACQUISITION CO.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President. Any special meeting of the stockholders shall be
held on such date, at such time and at such place within or without the State of
Delaware as the Board of Directors or the officer calling the meeting may
designate. At a special meeting of the stockholders, no business shall be
transacted and no corporate action shall be taken other than that stated in the
notice of the meeting unless all of the stockholders are present in person or by
proxy, in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided in these
By-laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of
a majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such
-1-
<PAGE>
class vote unless the representation of a larger number of shares of such class
shall be required by law, by the Certificate of Incorporation or by these
By-laws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board and the President, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting shall elect a
Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to
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corporate action in writing without a meeting may authorize another person or
persons to act for him or her by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period. When directed by the presiding officer or upon the demand of any
stockholder, the vote upon any matter before a meeting of stockholders shall be
by ballot. Except as otherwise provided by law or by the Certificate of
Incorporation, Directors shall be elected by a plurality of the votes cast at a
meeting of stockholders by the stockholders entitled to vote in the election
and, whenever any corporate action, other than the election of Directors is to
be taken, it shall be authorized by a majority of the votes cast at a meeting of
stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be
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elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the state
of Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by facsimile, telegram or telephone at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-laws
may be transacted at any special meeting, and an amendment of these By-laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-laws is
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one of the purposes of the meeting. At any meeting at which every Director shall
be present, even though without any notice, any business may be transacted,
including the amendment of these By-laws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the majority
of the Directors present at any meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors. If at any meeting
of the Board there is less than a quorum present, a majority of those present
may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board or, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Board of Directors. In the absence of the Chairman of the Board and the
President, a Chairman shall be elected from the Directors present. The Secretary
of the Corporation shall act as Secretary of all meetings of the Directors; but
in the absence of the Secretary, the Chairman may appoint any person to act as
Secretary of the meeting.
SECTION 8. COMMITTEES. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation. The Board may designate one or more Directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and the affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to
approving or adopting; or recommending to the stockholders, any action or matter
expressly required by law to be submitted to stockholders for approval, or
adopting, amending or repealing these By-laws.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted
by the Certificate of Incorporation or by these By-laws, the members of the
Board of Directors or any committee designated by the Board, may participate in
a meeting of the Board or such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-laws, any action required
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or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board or committee, as
the case may be.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer, and such additional officers, if any, as shall be elected by the
Board of Directors pursuant to the provisions of Section 7 of this Article III.
The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of
an officer without cause shall be without prejudice to his contract rights,
if any. The election or appointment of an officer shall not of itself create
contract rights. All agents and employees other than officers elected by the
Board of Directors shall also be subject to removal, with or without cause,
at any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The
Chairman of the Board, subject to the control of the Board of Directors, shall
have general charge and control of all the Corporation's business and affairs
and shall have all powers and shall perform all duties incident to the office of
Chairman of the Board. The Chairman shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
by these By-laws or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE PRESIDENT. The President, subject
to the control of the Board of Directors and the Chairman of the Board, shall
have general charge and
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control of all the Corporation's operations and shall have all powers and shall
perform all duties incident to the office of President. In the absence of the
Chairman of the Board, the President shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
by these By-laws or by the Board of Directors or the Chairman of the Board.
SECTION 4. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-laws or by the Board of
Directors, the Chairman of the Board or the President.
SECTION 5. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors or the President shall authorize and direct; shall have charge of the
stock certificate books, transfer books and stock ledgers and such other books
and papers as the Board of Directors or the President shall direct, all of which
shall at all reasonable times be open to the examination of any Director, upon
application, at the office of the Corporation during business hours; and
whenever required by the Board of Directors or the President shall render
statements of such accounts. The Secretary shall have all powers and shall
perform all duties incident to the office of Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned by these By-laws or by the Board of Directors, the Chairman of the
Board or the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors or the President
shall render statements of such accounts. The Treasurer shall, at all reasonable
times, exhibit the books and accounts to any Director of the Corporation upon
application at the office of the Corporation during business hours; and shall
have all powers and shall perform all duties incident to the office of Treasurer
and shall also have such other powers and shall perform such other duties as may
from time to time be assigned by these By-laws or by the Board of Directors, the
Chairman of the Board or the President.
SECTION 7. ADDITIONAL OFFICERS. The Board of Directors may from time
to time elect such other officers (who may but need not be Directors), including
a Chief Executive
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Officer, Chief Financial Officer, Controller, Assistant Treasurers, Assistant
Secretaries and Assistant Controllers, as the Board may deem advisable and such
officers shall have such authority and shall perform such duties as may from
time to time be assigned by the Board of Directors, the Chairman of the Board or
the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 8. GIVING OF BOND BY OFFICERS. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 9. VOTING UPON STOCKS. Unless otherwise ordered by the Board
of Directors, the Chairman of the Board, the President or any Vice President
shall have full power and authority on behalf of the Corporation to attend and
to act and to vote, or in the name of the Corporation to execute proxies to
vote, at any meeting of stockholders of any corporation in which the Corporation
may hold stock, and at any such meeting shall possess and may exercise, in
person or by proxy, any and all rights, powers and privileges incident to the
ownership of such stock. The Board of Directors may from time to time, by
resolution, confer like powers upon any other person or persons.
SECTION 10. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he or she is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
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actually and reasonably incurred by such person or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if the
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by a majority vote of the Directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
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SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation as authorized in this
Article IV. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's legal
counsel to represent such Director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any By-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
SECTION 6. SEVERABILITY. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. SUBROGATION. In the event of payment of indemnification to
a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of
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such payment to any right of recovery such person may have and such person, as a
condition of receiving indemnification from the Corporation, shall execute all
documents and do all things that the Corporation may deem necessary or desirable
to perfect such right of recovery, including the execution of such documents
necessary to enable the Corporation effectively to enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, By-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board or the
President or a Vice President, and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of
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any such certificate or the issuance of a new certificate in replacement
therefor. Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article V.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting, prior to, or more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
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Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. CONTRACTS. Except as otherwise provided in these By-laws or
by law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the President or any Vice President shall be authorized to execute and
deliver, in the name and on behalf of the Corporation, all agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and the seal of the
Corporation,
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<PAGE>
if appropriate, shall be affixed thereto by any of such officers or the
Secretary or an Assistant Secretary. The Board of Directors, the Chairman of the
Board, the President or any Vice President designated by the Board of Directors,
the Chairman of the Board or the President may authorize any other officer,
employee or agent to execute and deliver, in the name and on behalf of the
Corporation, agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and, if appropriate, to affix the seal of the Corporation thereto. The
grant of such authority by the Board or any such officer may be general or
confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required
to be given by law, by the Certificate of Incorporation or by these By-laws to
any person or persons, a waiver thereof in writing, signed by the person or
persons entitled to the notice, whether before or after the time stated therein,
shall be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors or the Chairman of the Board.
ARTICLE VII
AMENDMENTS
These By-laws and any amendment thereof may be altered, amended or
repealed, or new By-laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board, provided in the case of any special meeting at which all
of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-laws was one of the purposes of
the meeting; but these By-laws and any amendment thereof, may be altered,
amended or repealed or new By-laws may be adopted by the holders of a majority
of the total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
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<PAGE>
CERTIFICATE OF ADOPTION OF BY-LAWS
OF
SLP ACQUISITION CO.
This is to certify:
That I am the duly elected, qualified and acting Secretary of SLP
Acquisition Co. (the "Corporation") and the attached By-laws were adopted as the
By-laws of the Corporation on April 16, 1998 by the Unanimous Written Consent of
the Board of Directors.
Dated effective the 16th day of April, 1998.
/s/ DOUGLAS B. SOLOMON
-----------------------------
Douglas B. Solomon, Secretary
(Seal)
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<PAGE>
EXHIBIT 3.15
RESTATED ARTICLES OF INCORPORATION
OF
PACIFIC HILLS MANUFACTURING CO.
DOUGLAS M. HAYES and DOUGLAS B. SOLOMON certify that:
1. They are the Chairman of the Board and the Secretary, respectively, of
PACIFIC HILLS MANUFACTURING CO., a California corporation.
2. The Articles of Incorporation of this corporation are restated to read as
follows:
FIRST: The name of this corporation is PACIFIC HILLS MANUFACTURING CO.
SECOND: The existence of the corporation is perpetual.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California, other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
FOURTH: The total number of shares which the corporation is authorized to
issue is 20,000, all of which are of one class and a par value of $.01
each, and all of which are common shares. The Board of Directors of the
corporation may issue any or all of the aforesaid authorized shares of the
corporation from time to time for such consideration as it shall determine
and may determine from time to time the amount of such consideration, if
any, to be credited to paid-in surplus.
FIFTH: In the interim between meetings of shareholders held for the
election of directors or for the removal of one or more directors and the
election of the replacement or replacements thereat, any vacancy which
results by reason of the removal of a director or directors by the
shareholders entitled to vote in an election of directors, and which has
not been filled by said shareholders, may be filled by a majority of the
directors then in office, whether or not less than a quorum, or by the sole
remaining director, as the case may be.
SIXTH: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
SEVENTH: The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty to
the corporation and its stockholders through bylaw provisions or through
agreements with the agents, or both, in
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excess of the indemnification otherwise permitted by Section 317 of the
Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the Corporations Code.
3. The foregoing restatement of Articles of Incorporation has been duly
approved by the Board of Directors alone pursuant to Section 910(b) of the
Corporations Code.
We further declare under the penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: May 11, 1999
/s/ Douglas M. Hayes
-------------------------
Douglas M. Hayes
Chairman of the Board
/s/ Douglas B. Solomon
-------------------------
Douglas B. Solomon
Secretary
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<PAGE>
EXHIBIT 3.16
AMENDED AND RESTATED
BYLAWS
OF
PACIFIC HILLS MANUFACTURING CO.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The address of the principal office of the
Corporation shall be the address of its corporate offices from time to time in
the State of California.
Section 2. OTHER OFFICES. The corporation may also have other offices at
such places within or without the State of California as the Board of Directors
may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of shareholders, for the
purpose of electing a Board of Directors, electing officers and for the
transaction of any other business relating to the affairs of the Corporation
which may come before the meeting, shall be held annually on such date as shall
be designated by the Board of Directors or, in the absence of action by the
Board of Directors, by the Chairman of the Board of Directors (if one there be)
or by the President.
Section 2. SPECIAL MEETINGS. Special meetings of shareholders may be called
at any time by the Chairman of the Board of Directors (if one there be), or by
the President, or in the absence or disability of the President by a Vice
President, and shall be called by the president upon the written request of a
majority of Directors. Upon the written request of not less than one-tenth of
the voting power of all shares entitled to vote at the meeting, the President
shall call a special shareholders' meeting for the purposes specified in such
request and cause notice thereof to be given. If the President shall not, within
fifteen days after the receipt of such request, so call such meeting, such
shareholders may call the same.
Section 3. PLACE OF MEETING. Each annual or special meeting of shareholders
shall be held at such place within or without the State of California, as the
Board of Directors, or in the absence of action by the Board of Directors, the
Chairman of the Board of Directors (if one there be), or the President may
designate. In the absence of such designation with respect to any such meeting,
it shall be held at the principal office of the Corporation in the State of
California.
<PAGE>
Section 4. NOTICE OF MEETING. A notice in writing of each meeting of
shareholders, stating the place, day and hour of the meeting and the general
purpose or purposes for which it is called, shall be given by or at the
direction of the Secretary or the officer or persons calling the meeting to each
shareholder of record entitled to vote at the meeting, by leaving such notice
with him or at his residence or usual place of business, or by mailing a copy
thereof addressed to him at his last known post office address as last shown on
the stock records of the Corporation, postage prepaid, not less than seven (7)
days nor more than fifty (50) days before the date of the meeting. If notice is
duly given by mail, the day on which the notice is deposited in the mail shall
be deemed the day on which the notice is given.
Section 5. QUORUM. At any meeting of shareholders the holders of a majority
of the voting power of all shares entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum, except where otherwise provided
by law, the Certificate of Incorporation or these By-laws. In the absence of a
quorum, the holders of a majority of the voting power of the shares entitled to
vote, present at the meeting in person or by proxy, may adjourn the meeting from
time to time without further notice until a quorum shall be present, and
thereupon any business may be transacted which might have been transacted at the
meeting as originally called.
At any duly held meeting of shareholders at which a quorum is present, the
holders of the shares entitled to vote at the meeting, present in person or by
proxy, may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum,.
Section 6. VOTING. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, unless and except to the extent that voting rights of shares of
any class are increased, limited or denied by the Certificate of Incorporation.
All voting at meetings of shareholders shall be by voice vote, except where a
vote by ballot is required by law or is determined to be appropriate by the
officer presiding at such meeting.
When a quorum is present at any duly held meeting of shareholders, the
affirmative vote of the holders of a majority of the voting power of the shares
entitled to vote on the subject matter, present in person or by proxy, shall be
the act of the shareholders, except where otherwise provided by law, the
Certificate of Incorporation or these By-laws.
Every shareholder entitled to vote may do so in person or by one or more
agents authorized by a written proxy executed by him.
Section 7. ACTION WITHOUT MEETING. Any action which may be taken at a
meeting of shareholders may be taken without a meeting by consent in writing,
setting forth the action so taken or to be taken, signed by all of the persons
who would be entitled to vote upon such action at a meeting, or by their duly
authorized attorneys. Such consent shall be filed in the corporate minute book
and shall have the same effect as a unanimous vote at a shareholders' meeting.
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<PAGE>
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business, property and affairs of the
Corporation shall be managed by its Board of Directors, which may exercise all
the powers of the Corporation except such as are by law, the Certificate of
Incorporation or these By-laws expressly conferred on or reserved to the
shareholders.
The Board of Directors shall have authority to fix the fees of Directors,
including reasonable allowance for expenses actually incurred in connection with
their duties.
Section 2. NUMBER AND TERM OF OFFICE. The number of Directors of the
Corporation shall be not less than three (3) nor more than five (5), except
that, where all the issued and outstanding shares are owned beneficially and of
record by less than three (3) shareholders, the number may be less than three
(3), but not less than the number of shareholders. The number of Directors
within these limits shall be fixed by resolution of the shareholders, such
number of directors being referred to in these By-laws as the number of
directorships. Directors shall be elected at each annual meeting of shareholders
or the next regular meeting of the Board of Directors and until their successors
have been elected and shall qualify.
Section 3. RESIGNATION OF DIRECTORS. The resignation of a Director shall be
effective immediately upon its receipt by the Corporation if no time is
specified, or at such later time as may be specified in the resignation. In the
case of a resignation to take effect at a date later than the receipt thereof by
the Corporation, appropriate action to elect a successor to take office when the
resignation becomes effective may be taken at any time after such receipt in the
same manner as though such resignation were effective on receipt.
Section 4. REMOVAL OF DIRECTORS. At any special meeting of shareholders
called for that purpose any Director may be removed from office with or without
cause at any time, regardless of the term for which he had been elected, by the
affirmative vote of the holders of a majority of the voting power of all shares
then having the right to vote for the election of Directors.
Section 5. VACANCIES. In case of any vacancy in the Board of Directors by
reason of death, resignation, removal or failure of the shareholders to elect as
many Directors as the number of directorships fixed by them, the remaining
Directors, though less than a quorum, by the concurring vote of a majority of
such remaining Directors may elect a successor to hold office until his
successor has been elected.
Section 6. ORGANIZATION MEETINGS. The Board of Directors may meet for the
purpose of organization, for the election of officers and for the transaction of
other business immediately following the adjournment of the annual meeting of
shareholders, and, if a quorum be then present, no prior notice of such meeting
shall be required; provided, that the organization meeting of the Board of
Directors may be called in the same manner as a special meeting.
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<PAGE>
Section 7. REGULAR AND SPECIAL MEETINGS. Regular meetings of the Board of
Directors may be held at such time and places within or without the State of
Connecticut as the Board of Directors may determine.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors (if one there be) or by the President, and shall be
called upon the written request of a majority of the Directors. Each special
meeting shall be held at such time and place within or without the State of
Connecticut as shall be designated in the call of the meeting.
Section 8. NOTICE OF MEETINGS. No notice need be given of regular meetings
of the Board of Directors held at the time and place designated by the Board of
Directors. Special meetings of the Board of Directors may be held on such
notice, written or oral, as may be reasonable under the circumstances. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice of such
meeting unless required by law, the Certificate of Incorporation or these
By-laws.
Section 9. QUORUM. A majority of the number of directorships fixed by the
shareholders shall constitute a quorum for the transaction of business;
PROVIDED, HOWEVER, that if there be an even number of directorships, one-half of
the number of directorships shall constitute a quorum; and PROVIDED, FURTHER,
that if there are less than three directorships, the entire board shall
constitute a quorum. The act of a majority of the Directors present at any
meeting at which a quorum is present at the time of the act shall be the act of
the Board of Directors, unless the act of a greater number is required by law,
the Certificate of Incorporation or these By-laws. In the absence of a quorum a
majority of the Directors present at any meeting may adjourn the meeting from
time to time without further notice until a quorum shall be present.
Section 10. ACTION WITHOUT MEETING. If all of the Directors severally or
collectively consent in writing to any action taken or to be taken by the
Corporation, and the number of such Directors constitutes a quorum for such
action, such action shall be as valid corporate action as though it had been
authorized at a meeting of the Board of Directors. The Secretary shall file such
consent or consents with the minutes of the meetings of the Board of Directors.
ARTICLE IV
OFFICERS, AGENTS AND ATTORNEYS
Section 1. OFFICERS. The officers of the Corporation shall be a Chairman of
the Board of Directors, if the Board of Directors so determines, and a
President, a Secretary and a Treasurer, all of whom shall be elected by the
shareholders or by the Board of Directors. The shareholders or the Board of
Directors may also elect or may authorize the appointment of such additional
officers, including but not limited to one or more Vice Presidents, Assistant
Secretaries, and Assistant Treasurers, as in its judgment may be necessary or
advisable. Any number of offices may be held by the same person. The election or
appointment of an officer for a given term shall not of itself create contract
rights.
4
<PAGE>
Section 2. POWERS AND DUTIES OF OFFICERS. The Chairman of the Board of
Directors (if one there be) when present shall preside at all meetings of
shareholders and of the Board of Directors. In the absence of the Chairman of
the Board of Directors, or if there shall be no Chairman of the Board of
Directors, the President shall preside at all such meetings.
The officers of the Corporation shall have such powers and duties as
customarily appertain or are incident to their respective offices and, in
addition, such powers and duties as the shareholders or the Board of Directors
may from time to time confer and designate.
Section 3. BONDS. Every officer, agent or employee of the Corporation may
be required, in the discretion of the shareholders or the Board of Directors, to
give bond, in such sum and with such sureties as shall be satisfactory to the
shareholders or the Board of Directors, for the faithful performance of his
duties.
Section 4. RESIGNATION OF OFFICERS. The resignation of an officer shall be
effective immediately upon its receipt by the Corporation if no time is
specified, or at such later time as may be specified in the resignation. In the
case of a resignation to take effect at a date later than the receipt thereof by
the Corporation, appropriate action to elect a successor to take office when the
resignation becomes effective may be taken at any time after such receipt in the
same manner as though such resignation were effective on receipt.
Section 5. REMOVAL OF OFFICERS. Offices may be removed from office, with or
without cause, by the affirmative vote of a majority of all of the shareholders
or the Directors, but without prejudice to their contract rights, if any.
Section 6. VACANCIES. All vacancies among the officers from whatsoever
cause may be filled by the shareholders or the Board of Directors.
Section 7. AGENTS AND ATTORNEYS. The Board of Directors may appoint such
agents and attorneys with such powers and to perform such acts and duties on
behalf of the Corporation as the Board of Directors may determine.
ARTICLE V
SHARES AND SHAREHOLDERS
Section 1. CERTIFICATES. Every shareholder shall be entitled to a
certificate or certificates certifying the number and class of shares owned by
him in the Corporation. Each such certificate may be under seal, or facsimile
seal, of the Corporation and shall be signed by the Chairman of the Board or the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Corporation.
Section 2. HOLDERS OF RECORD. The Corporation shall be entitled to treat
the holder of record of any share or shares as the owner and holder thereof in
fact, and shall not be bound to
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recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it has actual or other notice
thereof, except as and to the extent otherwise provided by law.
Section 3. TRANSFERS. Shares shall be transferable on the records of the
Corporation by the holder of record thereof, or by his attorney thereunto duly
authorized, upon the surrender and cancellation of a certificate or certificates
f or a like number of shares of the same class with such proof of the
authenticity of the signature of such holder or of such attorney and such proof
of the authority of such attorney as the Corporation or its transfer agent,
transfer clerk or registrar may reasonably require.
Section 4. RECORD DATE. The Board of Directors by resolution may fix a date
as the record date for the purpose of determining the shareholders entitled to
notice of and to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution, or for any
other purpose, such date in any case to be not earlier than the date such action
is taken by the Board of Directors and not more than seventy days (70), and in
case of a meeting of shareholders not less than ten (10) full days, immediately
preceding the date on which the particular event requiring such determination of
shareholders is to occur. If no record date is so fixed, the date on which
notice of a meeting is mailed shall be the record date for the determination of
shareholders entitled to notice of and to vote at such meeting and the date on
which the resolution of the Board of Directors declaring such dividend or other
distribution is adopted shall be the record date for the determination of
shareholders entitled to receive payment of such dividend or other distribution.
Shareholders actually of record at a record date shall be the only shareholders
entitled to receive notice of or to vote at the meeting, or receive the dividend
or other distribution, or otherwise participate in respect of the event or
transaction, to which such date relates, except as otherwise provided by law.
Section 5. LOST CERTIFICATES. If a share certificate be lost or destroyed,
another may be issued in its stead upon proof of such loss or destruction, upon
the giving of a bond of indemnity satisfactory to the Corporation, unless these
requirements be dispensed with by the Board of Directors, and upon compliance
with such other conditions as the Board of Directors may reasonably require.
ARTICLE VI
MISCELLANEOUS
Section 1. SEAL. The seal of the Corporation shall be circular in form and
shall bear the name of the Corporation and indicate the state of incorporation.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall begin on
January first and shall end on the last day of December in each year.
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Section 3. WAIVER OF NOTICE. Whenever any notice of time, place, purpose or
any other matter, including any special notice or form of notice, is required or
permitted to be given to any person by law, the Certificate of Incorporation,
these By-laws or a resolution of shareholders or Directors, a written waiver of
notice signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be equivalent to the giving of such
notice. The Secretary shall cause any such waiver to be filed with or entered
upon the records of the Corporation or, in the case of a waiver of notice of a
meeting, the records of the meeting. The attendance of any person at a meeting
without protesting, prior to or at the commencement of the meeting, the lack of
proper notice shall be deemed to be a waiver by him of notice of such.
ARTICLE VII
AMENDMENTS
These bylaws may be altered, repealed or amended by the Board of Directors,
subject to the power of the stockholders to amend, alter or repeal the bylaws.
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<PAGE>
SECRETARY'S CERTIFICATE OF ADOPTION OF
AMENDED AND RESTATED BYLAWS
OF
PACIFIC HILLS MANUFACTURING CO.
I, the undersigned, do hereby certify:
1. That I am the duly elected, qualified, and acting Secretary of
the above-named Corporation.
2. That the foregoing Amended and Restated Bylaws were adopted by
the Board of Directors as the Bylaws of said Corporation
effective as of the 30th day of April, 1999.
3. That the foregoing Amended and Restated Bylaws were also adopted
by the shareholder of said Corporation effective as of the 30th
day of April, 1999.
IN WITNESS WHEREOF, I have hereunto set my hand effective this 30th
day of April 1999.
/s/ Douglas B. Solomon
-------------------------
Douglas B. Solomon
Secretary
<PAGE>
EXHIBIT 3.17
CERTIFICATE OF INCORPORATION
OF
W.S.I. Inc.
FIRST: The name of the Corporation is W.S.I. Inc.
SECOND: The address of the Corporation's registered office and registered
agent in the State of Delaware is The Corporation Trust Company, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is 1,000 shares, par value $.01 per share, designated Common
Stock.
FIFTH: The name and mailing address of the incorporator is:
NAME ADDRESS
Alice B. Ambler Prickett, Jones, Elliott,
Kristol & Schnee
1310 King Street
P.O. Box 1328
Wilmington, Delaware 19801
SIXTH: The Corporation is to have perpetual existence.
<PAGE>
SEVENTH: The board of directors of the Corporation is expressly authorized
to adopt, amend or repeal by-laws of the Corporation but the stockholders may
make additional by-laws and may amend or repeal and by-law whether or not
adopted by them.
EIGHTH: Elections of directors need not be by written ballot unless the
by-laws so provide.
NINTH: No contract or transaction between the Corporation and one or more
of its directors, officers, or stockholders or between the Corporation and any
person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if: (l) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and the
Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (2)
the material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (3) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be
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counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he (i) is or was a director or officer of the Corporation or
(ii) while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the Delaware General Corporation Law, as the same exists or may hereafter
be amended. Such right shall be a contract right and shall include the right to
be paid by the Corporation expenses incurred in defending any such proceeding in
advance of its final disposition to the maximum extent permitted under the
Delaware General Corporation Law, as the same exists or may hereafter be
amended. If a claim for indemnification or advancement of expenses hereunder is
not paid in full by the Corporation within 90 days after a written claim has
been received by the corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, the claimant shall also be entitled to be paid
the expenses of prosecuting such claim. It shall be a defense to any such action
that such indemnification or advancement of costs of defense are not permitted
under the Delaware General Corporation Law, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) to have made its determination prior to the
commencement of such action that indemnification of, or advancement
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<PAGE>
of costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his heirs, executors, administrators, and personal representatives.
The rights conferred above shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, by-law, resolution of
stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
ELEVENTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
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TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, I have hereunto signed by name and affirm that the
statements made herein are true under penalty of perjury this 2nd day of May,
1988.
/s/ Alice B. Ambler
-------------------------
Alice B. Ambler
Incorporator
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
W.S.I. Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware, does hereby certify:
1. A resolution setting forth the following amendment to the corporation's
Certificate of Incorporation and declaring the advisability of such amendment
was duly adopted by the corporation's Board of Directors by the unanimous
written consent of its members, filed with the minutes of the Board, in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware:
Article First of the Certificate of Incorporation is amended to read as
follows:
"The name of this corporation is Y.F. Americas, Inc."
2. In lieu of a meeting of the stockholders, unanimous written consent has
been given for the adoption of said amendments in accordance with the applicable
provisions of Section 228 and Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, W.S.I. Inc. has caused this Certificate to be signed
and attested by its duly authorized officers this 17th day of March, 1991.
W.S.I. INC.
By /s/ Wei Wen Lie
-------------------------
Wei Wen Lie, President
ATTEST:
/s/ He Shi Ming
- ------------------------
He Shi Ming, Secretary
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
MODERN MANUFACTURING, INC..
INTO
Y.F. AMERICAS, INC.
Pursuant to Section 253
of the
General Corporation Law of Delaware
**********************
Y.F. Americas, Inc., a corporation incorporated on the 2nd day of May,
1988 pursuant to the provisions of the General Corporation Law of the State of
Delaware (the "Company"),
DOES HEREBY CERTIFY:
FIRST: That this corporation owns all of the outstanding shares of the
stock of Modern Manufacturing, Inc., a corporation incorporated on the 30th day
of December, 1966, pursuant to the provisions of the Business Corporation Act of
the State of Washington.
SECOND: That this corporation, by the following resolutions of its
Board of Directors, duly adopted by unanimous written consent as of January 18,
1999 determined to and did merge into itself Modern Manufacturing, Inc.:
MERGER BETWEEN THE COMPANY AND MODERN MANUFACTURING, INC.
WHEREAS, the Company lawfully owns all of the issued and outstanding
stock of Modern Manufacturing, Inc., a Washington corporation ("Modern
Manufacturing");
RESOLVED, that it is desirable and in the best interests of the
Company that the Company merge Modern Manufacturing into itself
(the "Merger") as set forth in the Agreement and Plan of Merger attached
hereto as Exhibit "A" (the "Agreement and Plan of Merger") and that the
execution and delivery of the Agreement and Plan of Merger by an Authorized
Officer of the Company be, and it hereby is, authorized and approved;
<PAGE>
RESOLVED, FURTHER, that the terms of the Merger shall be
effective upon the date of filing a Certificate of Ownership and Merger
with the Secretary of State of Delaware;
RESOLVED, FURTHER, that the President and Secretary of the
Company, or either of them, (each an "Authorized Officer") are each
hereby authorized and directed, for and on behalf of the Company, to
make and execute a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge Modern Manufacturing, Inc. and assume
its liabilities and obligations pursuant to the Agreement and Plan of
Merger, and to cause the same to be filed with the Secretary of State
of Delaware, with such amendments and modifications thereto as the
Authorized Officer executing it shall approve as necessary, desirable
or appropriate in his sole judgment, such approval to be conclusively
evidenced by such Authorized Officer's execution thereof;
RESOLVED, FURTHER, that the Company hereby approves,
authorizes and ratifies any action taken by the Authorized Officers of
the Company for and on behalf of the Company to (i) incur such costs
and expenses, and (ii) do any and all acts and things that one or more
of the Authorized Officers of the Company deem in the exercise of his
sole discretion, necessary, desirable or appropriate in connection with
the Merger, the Certificate of Ownership and Merger and these resolutions.
CHANGE OF CORPORATE NAME
WHEREAS, the Board of Directors of the Company has proposed
to amend the Amended Certificate of Incorporation of the Company to
change the name of the Company to "Modern Manufacturing, Inc."
effective upon the effective date of the Merger.
RESOLVED, that, upon the effective date of the Merger, Article
First of the Amended Certificate of Incorporation of the Company be,
and it hereby is, amended to read as follows:
FIRST: The name of this corporation is "Modern
Manufacturing, Inc."
RESOLVED, that the Authorized Officers of the Company are each
hereby authorized to execute any documents and to take such other
action as the Authorized Officer executing it shall approve as
necessary, desirable or appropriate in his/her sole judgment to effect
the change of corporate name of the Company, such approval to be
conclusively evidenced by such Authorized Officer's execution thereof.
<PAGE>
THIRD: Pursuant to Section 253 of the General Corporation Law of the
State of Delaware and Section 23B.11.050 of the Business Corporation Act
of the State of Washington, no approval was required from the stockholders
of the Company or the shareholders of Modern Manufacturing.
FOURTH: Anything herein or elsewhere to the contrary notwithstanding,
this merger may be amended or terminated and abandoned by the Board of
Directors of the Company at any time prior to the date of filing the merger
with the Secretary of State.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Ownership to be signed by Douglas B. Solomon, its Secretary, as of January
18, 1999.
By: /s/ Douglas B. Solomon
-------------------------
Douglas B. Solomon
Secretary
<PAGE>
EXHIBIT 3.18
BY-LAWS
OF
W.S.I. INC.
SECTION 1
Offices
Section 1.1 PRINCIPAL OFFICE. The principal office for the transaction
of the business of the Corporation shall be located at 4900 Columbia Center, 701
Fifth Avenue, Seattle, Washington 98104. The Board of Directors is hereby
granted full power and authority to change said principal office to another
location within or without the State of Delaware.
Section 1.2 OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
SECTION 2
Meetings of Stockholders
Section 2.1 ANNUAL MEETINGS. Annual meetings of stockholders shall be
held on or prior to 10:00 o'clock in the morning on the last Monday in March, if
not a legal holiday, and if a legal holiday, then on the next succeeding
business day not a legal holiday, in each year for the purpose of electing
directors and transacting such other proper business as may come before the
meeting.
<PAGE>
Section 2.2 SPECIAL MEETINGS. Special meetings shall be held solely for
the purpose or purposes specified in the notice of hearing. Special meetings of
the stockholders may be called by the Board of Directors, the Chairman of the
Board, or the President.
Section 2.3 TIME AND PLACE OF MEETINGS. Subject to the provisions of
Section 2.1, each meeting of stockholders shall be held on such date, at such
hour and at such place, either within or without the State of Delaware, as shall
be fixed by the Board of Directors or in the notice of the meeting or, in the
case of an adjourned meeting, as announced at the meeting at which the
adjournment is taken.
Section 2.4 NOTICE OF MEETINGS. A written notice of each meeting of
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given either personally or by mail to each stockholder entitled to vote
at the meeting. Unless otherwise provided by statute, the notice shall be given
not less than ten nor more than sixty days before the date of the meeting and,
if mailed, shall be deposited in the United States mail, postage prepaid,
directed to the stockholder at his address as it appears on the records of the
Corporation. No notice need be given to any person with whom communication is
unlawful, nor shall there be any duty to apply for any permit or license to give
notice to any such person. If the time and place of an adjourned meeting of
stockholders are announced at the meeting at which the adjournment is taken, no
notice need be given of the adjourned meeting unless that adjournment is for
more than thirty days or unless, after the adjournment, a new record date is
fixed for the adjourned meeting.
Section 2.5 WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, notice of any meeting of stockholders need not be given to any
stockholder who in person or by proxy
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shall have waived in writing notice of the meeting, either before or after such
meeting, or who shall attend the meeting in person or by proxy, unless he
attends for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 2.6 ADVANCE NOTICE OF STOCKHOLDER BUSINESS. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the names and address,
as they appear on the Corporation's books, of the
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stockholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in the By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 2.6.
The Chairman of the annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this Section 2.6, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2.7 QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS. Subject to
the provisions of these By-laws, the certificate of incorporation and statutes
as to the vote that is required for a specified action, the presence in person
or by proxy of the holders of a majority of the outstanding shares of the
Corporation entitled to vote at any meeting of stockholders shall constitute a
quorum for the transaction of business. The vote in person or by proxy of the
holders of a majority of the shares constituting such quorum shall be binding on
all stockholders of the Corporation, unless the vote of a greater number or
voting by classes is required by law or the Certificate of Incorporation or
these By-laws. A majority of the shares present in person or by proxy and
entitled to vote may, regardless of whether or not they constitute a quorum,
adjourn the meeting to another time and place. Any business which might have
been transacted at the original meeting may be transacted at any adjourned
meeting at which a quorum is present. Meetings of the stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
4
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his absence by a Vice President, or in the absence of the foregoing persons by a
chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The order of business at
all meetings of the stockholders shall be determined by the chairman. The order
of business so determined, however, may be changed by vote of the holders of
shares entitled to cast a majority of the votes at the meeting present in person
or represented by proxy.
Section 2.8 VOTING. At each annual meeting, the stockholders entitled
to vote shall by plurality vote elect a board of directors, and they may
transact such other corporate business as shall be stated in the notice of the
meeting. Stockholders may vote by proxy but no proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period. Except as provided in the Certificate of Incorporation or in any
statute relating to the election of directors or to other particular matters,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote of stockholders. Any holder of shares entitled
to vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or vote them against the proposal,
other than elections to office, but, if the stockholder fails to specify the
number of shares such stockholder is voting affirmatively, it will be
conclusively presumed that the stockholder's approving vote is with respect to
all shares such stockholder is entitled to vote.
Section 2.9 INSPECTOR OF ELECTION. (a) The Board of Directors shall
appoint an inspector of election to act at each meeting of stockholders and any
adjournment thereof. If an
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inspector of election is not so appointed, or the person appointed as inspector
fails or refuses to act, the chairman of the meeting shall appoint an inspector
of election.
(b) The inspector of election shall determine the outstanding stock
of the Corporation and the voting power of each class and series, the stock
represented at the meeting and the existence of a quorum, shall receive votes,
ballots or consents, shall count and tabulate all votes and shall determine the
result; and in connection therewith, the inspector shall determine the
authority, validity and effect of proxies, hear and determine all challenges and
questions, and do such other acts as may be proper to conduct the election or
vote with fairness to all stockholders.
(c) The inspector of election shall make a report in writing of any
challenge or question or other matter determined by him and shall execute a
certificate of any fact found in connection therewith. Any such report or
certificate shall be filed with the record of the meeting.
Section 2.10 ACTION WITHOUT A MEETING. Any action required to be taken
at any annual or special meeting of stockholders, or any action which may be
taken at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
6
<PAGE>
Section 2.11 REVOCATION OF CONSENT. Any stockholder giving a written
consent, or the stockholder's proxyholders, or a transferee of the shares or a
personal representative of the stockholder or their respective proxyholders, may
revoke the consent by a writing received by the Corporation prior to the time
that written consents of the number of shares required to authorize the proposed
action have been filed with the secretary of the Corporation, but may not do so
thereafter. Such revocation is effective upon its receipt by the secretary of
the Corporation.
SECTION 3
Board of Directors
Section 3.1 NUMBER. The number of directors of the Corporation shall be
not less than one (l) nor more than Seven (7), the exact number of which shall
be fixed within the limits herein specified by approval of the Board of
Directors or by approval of the stockholders, in the manner provided in these
By-laws.
Section 3.2 ORGANIZATION MEETINGS. As promptly as practicable after
each annual meeting of stockholders, an organizational meeting of the Board of
Directors shall be held for the purpose of organization and the transaction of
other business.
Section 3.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such place and time as may be designated by the Board.
Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman, the President, any two directors, or,
if less than two, the remaining director.
7
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Section 3.5 BUSINESS OF MEETINGS. Except as otherwise expressly
provided in these By-laws, any and all business may be transacted at any meeting
of the Board of Directors; provided, that if so stated in the notice of meeting,
the business transacted at a special meeting shall be limited to the purpose or
purposes specified in the notice.
Section 3.6 TIME AND PLACE OF MEETINGS. Subject to the provisions of
Section 3.4, each meeting of the Board of Directors shall be held on such date,
at such hour and in such place as fixed by the Board or in the notice or waivers
of notice of the meeting or, in the case of an adjourned meeting, as announced
at the meeting at which the adjournment is taken.
Section 3.7 NOTICE OF MEETINGS. No notice need be given of any
organization or regular meeting of the Board of Directors for which the date,
hour and place have been fixed by the Board. Notice of the date, hour and place
of all other organization and regular meetings, and of all special meetings,
shall be given to each director personally, by telephone or telegraph or by
mail. If by mail, the notice shall be deposited in the United States mail,
postage prepaid, directed to the director at his residence or usual place of
business as the same appear on the books of the Corporation not later than 2
days before the meeting. If given by telegraph, the notice shall be directed to
the director at his residence or usual place of business as the same appear on
the books of the Corporation not later than at any time during the day before
the meeting. If given personally or by telephone, the notice shall be given not
later than the day before the meeting. If the address of a director is not
shown on the records and is not readily ascertainable, notice shall be addressed
to him at the city or place in which the meetings of the directors are regularly
held.
Section 3.8 WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, notice of any meeting of the Board of Directors need not be
given to any director who shall have
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waived in writing notice of the meeting, either before or after the meeting, or
who shall attend such meeting, unless he attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Section 3.9 ATTENDANCE BY TELEPHONE. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear one another, and such participation shall constitute presence
in person in the meeting.
Section 3.10 QUORUM AND MANNER OF ACTING. A majority of the total number
of directors at the time provided for pursuant to Section 3.1 shall constitute a
quorum for the transaction of business at any meeting of the Board of Directors
and, except as otherwise provided in these By-laws, in the certificate of
incorporation or by statute, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of Directors if any action taken is approved by
at least a majority of the required quorum for such meeting. A majority of the
directors present at any meeting, regardless of whether or not they constitute a
quorum, may adjourn the meeting to another time or place. Any business which
might have been transacted at the original meeting may be transacted at any
adjourned meeting at which a quorum is present.
Section 3.11 ACTION WITHOUT A MEETING. Any action which could be taken
at a meeting of the Board of Directors may be taken without a meeting if all of
the directors consent to the
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action in writing and the writing or writings are filed with the minutes of
proceedings of the Board.
Section 3.12 RESIGNATION OF DIRECTORS. Any director may resign at any
time upon written notice to the Corporation. The resignation shall become
effective at the time specified in the notice and, unless otherwise provided in
the notice, acceptance of the resignation shall not be necessary to make it
effective.
Section 3.13 REMOVAL OF DIRECTORS. Any reduction of the authorized
number of directors does not remove any director prior to the expiration of such
director's term of office.
Section 3.14 FILLING OF VACANCIES. A vacancy or vacancies in the Board
of Directors shall exist when any authorized position of director is not then
filled by a duly elected director, whether caused by death, resignation,
removal, change in the authorized number of directors (by the Board or the
stockholders) or otherwise. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony.
Vacancies and newly created directorships resulting from an increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and shall qualify, unless sooner displaced.
Section 3.15 COMPENSATION OF DIRECTORS. The Directors shall be paid
their expenses, if any, for attendance at each meeting of the Board of Directors
and any Committee thereof. Directors who are not in the regular employment of
the Company shall be paid an annual retainer
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and a per meeting fee according to rates established by the Board from time to
time. Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 4
Committees of the Board of Directors
Section 4.1 EXECUTIVE COMMITTEE. By resolution adopted by an
affirmative vote of the majority of the whole Board of Directors, the Board may
appoint an Executive Committee consisting of three or more other directors and,
if deemed desirable, one or more directors as alternate members who may replace
any absentee or disqualified member at any meeting of the Executive Committee.
If so appointed, the Executive Committee shall, when the Board is not in
session, have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation not reserved to the
Board by the Delaware General Corporation Law, including, but not limited to,
the power and authority to declare a dividend, to authorize the issuance of
stock, to adopt a certificate of ownership and merger under Section 253 of the
Delaware General Corporation Law. The Executive Committee shall keep a record
of its acts and proceedings and shall report the same from time to time to the
Board of Directors.
Section 4.2 OTHER COMMITTEES. By resolution adopted by an affirmative
vote of the majority of the whole Board of Directors, the Board may from time to
time appoint such other committees of the Board, consisting of one or more
directors and, if deemed desirable, one or more directors who shall act as
alternate members and who may replace any absentee or disqualified member at any
meeting of the committee, and may delegate to each such committee
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any of the powers and authority of the Board in the management of the business
and affairs of the Corporation not reserved to the Board. Each such committee
shall keep a record of its acts and proceedings and shall report the same from
time to time to the Board of Directors.
Section 4.3 ELECTION OF COMMITTEE MEMBERS; VACANCIES. So far as
practicable, members of the committees of the Board and their alternates (if
any) shall be appointed at each organization meeting of the Board of Directors
and, unless sooner discharged by an affirmative vote of a majority of the Board
members present at any meeting at which a quorum is present. Committee members
shall hold office until the next organization meeting of the Board and until
their respective successors are appointed. Vacancies in committees of the Board
created by death, resignation or removal may only be filled by an affirmative
vote of a majority of the Board members present at any meeting at which a quorum
is present.
Section 4.4 MEETINGS. Each committee of the Board may provide for
regular meetings of such committee. Special meetings of each committee may be
called by any two members of the committee (or, if there is only one member, by
that member in concert with the President) or by the President of the
Corporation. The provisions of Section 3 regarding the business, time and
place, notice and waivers of notice of meetings, attendance at meetings and
action without a meeting shall apply to each committee of the Board, except that
the references in such provisions to the directors and the Board of Directors
shall be deemed respectively to be references to the members of the committee
and to the committee. Each committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required.
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Section 4.5 QUORUM AND MANNER OF ACTING. The majority of the members of
any committee of the Board shall constitute a quorum for the transaction of
business at meetings of the committee, and the act of a majority of the members
present at any meeting at which a quorum is present shall be the act of the
committee. A majority of the members present at any meeting, regardless of
whether or not they constitute a quorum, may adjourn the meeting to another time
or place. Any business which might have been transacted at the original meeting
may be transacted at any adjourned meeting at which a quorum is present.
SECTION 5
Officers
Section 5.1 ELECTION AND APPOINTMENT. The elected officers of the
Corporation shall consist of a Chairman, a President, one or more Vice
Presidents, a Treasurer, a Secretary and such other elected officers as shall
from time to time be designated by the Board of Directors. The Board shall
designate from among such elected officers a chief executive officer and a
treasurer, and may from time to time make, or provide for, other designations it
deems appropriate. The Board may also appoint, or provide for the appointment
of, such other officers and agents as may from time to time appear necessary or
advisable in the conduct of the affairs of the Corporation. Any number of
offices may be held by the same person. Any Vice President, Assistant Treasurer
or Assistant Secretary, respectively, may exercise any of the powers of the
President, the Treasurer, or the Secretary, respectively, as directed by the
Board of Directors and shall perform such other duties as are imposed upon such
officer by the By-Laws or the Board of Directors.
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Section 5.2 CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if there be one, shall have the power to preside at all meetings of
the stockholders and of the Board of Directors, and to call meetings of the
stockholders and of the Board of Directors to be held within the limitations
prescribed by law or by these By-Laws, at such times and at such places as the
Chairman of the Board shall deem proper. The Chairman of the Board shall have
such other powers and shall be subject to such other duties as the Board of
Directors may from time to time prescribe.
Section 5.3 PRESIDENT. The powers and duties of the President are:
(a) To act as the chief executive officer of the Corporation
and, subject to the control of the Board of Directors, to have general
supervision, direction and control of the business and affairs of the
Corporation.
(b) In the absence of the Chairman of the Board, or if there be
none, to preside at all meetings of the Board of Directors.
(c) To call meetings of the stockholders and also of the Board
of Directors to be held, subject to the limitations prescribed by law or by
these By-Laws, at such times and at such places as the President shall deem
proper.
(d) Subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
Section 5.4 PRESIDENT PRO TEM. If neither the Chairman of the Board,
the President, nor any Vice President is present at any meeting of the Board of
Directors, a President pro tem may be chosen to preside and act at such meeting.
If neither the President nor any Vice President
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is present at any meeting of the stockholders, a President pro tem may be chosen
to preside at such meeting.
Section 5.5 VICE PRESIDENT. In case of the absence, disability or death
of the President, the Vice President, or one of the Vice Presidents, shall
exercise all the powers and perform all the duties of the President. If there
is more than one Vice President, the order in which the Vice Presidents shall
succeed to the powers and duties of the President shall be as fixed by the Board
of Directors. The Vice President or Vice Presidents shall have such other
powers and perform such other duties as may be granted or prescribed by the
Board of Directors.
Section 5.6 SECRETARY. The powers and duties of the Secretary are:
(a) To keep a book of minutes at the principal office of the
Corporation, or such other place as the Board of Directors may order, of all
meetings of its directors and stockholders with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at stockholders' meetings and the proceedings thereof.
(b) To keep the seal of the Corporation and to affix the same to
all instruments which may require it.
(c) To keep or cause to be kept at the principal office of the
Corporation, or at the office of the transfer agent or agents, a share register,
or duplicate share registers, showing the names of the stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for shares, and the number and date of cancellation of every
certificate surrendered for cancellation.
15
<PAGE>
(d) To keep a supply of certificates for shares of the
Corporation, to fill in all certificates issued, and to make a proper record of
each such issuance; provided, that so long as the Corporation shall have one or
more duly appointed and acting transfer agents of the shares, or any class or
series of shares, of the Corporation, such duties with respect to such shares
shall be performed by such transfer agent or transfer agents.
(e) To transfer upon the share books of the Corporation any and
all shares of the Corporation; provided, that so long as the Corporation shall
have one or more duly appointed and acting transfer agents of the shares, or any
class or series of shares, of the Corporation, such duties with respect to such
shares shall be performed by such transfer agent or transfer agents, and the
method of transfer of each certificate shall be subject to the reasonable
regulations of the transfer agent to which the certificate is presented for
transfer, and also, if the Corporation then has one or more duly appointed and
acting registrars, to the reasonable regulations of the registrar to which the
new certificate is presented for registration; and provided, further, that no
certificate for shares of stock shall be issued or delivered or, if issued or
delivered, shall have any validity whatsoever until and unless it has been
signed or authenticated in the manner provided in Section 6.1 hereof.
(f) To make service and publication of all notices that may be
necessary or proper, and without command or direction from anyone. In case of
the absence, disability, refusal or neglect of the Secretary to make service or
publication of any notices, then such notices may be served and/or published by
the President or a Vice President, or by any person thereunto authorized by
either of them or by the Board of Directors or by the holders of a majority of
the outstanding shares of the Corporation.
16
<PAGE>
(g) Generally to do and perform all such duties as pertain to
the office of Secretary and as may be required by the Board of Directors.
Section 5.7 TREASURER. The powers and duties of the Treasurer are:
(a) To supervise and control the keeping and maintaining of
adequate and correct accounts of the Corporation's properties and business
transactions, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
(b) To have the custody of all funds, securities, evidence of
indebtedness and other valuable documents of the Corporation, and, at the
Treasurer's discretion, to cause any or all thereof to be deposited for the
account of the Corporation with such depositary as may be designated from time
to time by the Board of Directors.
(c) To receive or cause to be received, and to give or cause to
be given, receipts and acquittances for moneys paid in for the account of the
Corporation.
(d) To disburse, or cause to be disbursed, all funds of the
Corporation as may be directed by the Board of Directors, taking proper vouchers
for such disbursements.
(e) To render to the President and to the Board of Directors,
whenever they may require, accounts of all transactions and of the financial
condition of the Corporation.
(f) Generally to do and perform all such duties as pertain to
the office of Treasurer and as may be required by the Board of Directors.
Section 5.8 TERM OF OFFICE AND VACANCY. So far as practicable, the
elected officers shall be elected at each organization meeting of the Board, and
shall hold office until the next organization meeting of the Board and until
their respective successors are elected and qualified.
17
<PAGE>
If a vacancy shall occur in any elected office, the Board of Directors may elect
a successor for the remainder of the term. Appointed officers shall hold office
at the pleasure of the Board. Any officer may resign by written notice to the
Corporation.
Section 5.9 REMOVAL OF ELECTED OFFICERS. Elected officers may be
removed at any time, either for or without cause, by the affirmative vote of a
majority of the whole Board of Directors.
Section 5.10 COMPENSATION OF ELECTED OFFICERS. The compensation of all
elected officers of the Corporation shall be fixed from time to time by the
Board of Directors.
SECTION 6
Shares and Transfer of Shares
Section 6.1 CERTIFICATES. Every stockholder shall be entitled to a
certificate signed by the Chairman or Vice Chairman of the Board of Directors,
or the President or a Vice President, and by the Treasurer, or the Secretary or
an Assistant Secretary of the Corporation, certifying the class and number of
shares owned by him in the Corporation; provided that, any and all signatures on
a certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or it were such officer, transfer agent or registrar at the
date of issue.
Section 6.2 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may,
in its discretion, appoint one or more responsible banks or trust companies as
the Board may deem
18
<PAGE>
advisable, from time to time, to act as transfer agents and registrars of shares
of the Corporation; and, when such appointments shall have been made, no
certificate for shares of the Corporation shall be valid until countersigned by
one of such transfer agents and registered by one of such registrars.
Section 6.3 TRANSFERS OF SHARES. Shares of the Corporation may be
transferred by delivery of the certificates therefor, accompanied either by an
assignment in writing on the back of the certificates or by written power of
attorney to sell, assign and transfer the same, signed by the record holder
thereof; but no transfer shall affect the right of the Corporation to pay any
dividend upon the shares to the holder of record thereof, or to treat the holder
of record as the holder in fact thereof for all purposes, and no transfer shall
be valid, except between the parties thereto, until such transfer shall have
been made upon the books of the Corporation.
Section 6.4 STOCKHOLDERS' ADDRESSES. Every stockholder or transferee
shall furnish the Secretary or a transfer agent with the address to which notice
of meetings and all other notices may be served upon or mailed to said
stockholder or transferee, and in default thereof, said stockholder or
transferee shall not be entitled to service or mailing of any such notice.
Section 6.5 LOST CERTIFICATES. In case any certificate for shares of
the Corporation shall be lost, stolen or destroyed, the Board of Directors, in
its discretion, or any transfer agent thereunto duly authorized by the Board,
may authorize the issue of a substitute certificate in place of the certificate
so lost, stolen or destroyed, and may cause such substitute certificate to be
countersigned by the appropriate transfer agent (if any) and registered by the
appropriate registrar (if any); provided that, in each such case, the applicant
for a substitute certificate shall furnish to the Corporation and to such of its
transfer agents and registrars as may require the same,
19
<PAGE>
evidence to their satisfaction, in their discretion, of the loss, theft or
destruction of such certificate and of the ownership thereof, and also such
security or indemnity as may by them be required. The Board of Directors may
adopt such other provisions and restrictions with reference to lost
certificates, not inconsistent with applicable law, as it shall in its
discretion deem appropriate.
Section 6.6 RECORD DATES. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, or to express consent to action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of shares or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date which shall be not more than sixty nor less than ten days before
the date of any meeting of stockholders, and not more than sixty days prior to
any other action. In such case, those stockholders, and only those
stockholders, who are stockholders of record on the date fixed by the Board of
Directors shall, notwithstanding any subsequent transfer of shares on the books
of the Corporation, be entitled to notice of and to vote at such meeting of
stockholders, or any adjournment thereof, or to express consent to such
corporate action in writing without a meeting, or entitled to receive payment of
such dividend or other distribution or allotment of rights, or entitled to
exercise rights in respect of any such change, conversion or exchange of shares
or to participate in any such other lawful action.
Section 6.7 SHARES HELD BY THE CORPORATION. Shares in other
corporations standing in the name of this Corporation may be voted or
represented and all rights incident thereto may be
20
<PAGE>
exercised on behalf of this Corporation by the President or by any other officer
of this Corporation authorized to do so by resolution of the Board of Directors.
SECTION 7
Miscellaneous
Section 7.1 FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 7.2 SIGNATURE ON NEGOTIABLE INSTRUMENTS. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned in such manner as from time to time may be prescribed by
resolution of the Board of Directors.
Section 7.3 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES, AGENTS
AND FIDUCIARIES; INSURANCE. (a) The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of
21
<PAGE>
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of
the Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceedings
22
<PAGE>
referred to in Subsections (a) and (b) above, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under Subsections (a) and (b) above
(unless ordered by a court) shall be made by the Corporation only in the
specific case upon a determination that the indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors or the Executive
Committee by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (2) or if such quorum is not
obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding shall be paid by the Corporation as
incurred by the officer or director in advance of the final disposition of such
action, suit or proceeding upon receipt of a written undertaking or agreement in
a form satisfactory to the Corporation by such officer or director to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Section 7.3. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this Section 7.3 shall not be
deemed exclusive of any other
23
<PAGE>
rights to which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
(g) The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation, as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Section 7.3.
(h) For purposes of this Section 7.3, references to the
"Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under and subject to the provisions of this
Section 7.3 (including, without limitation the provisions of Subsection 7.3(d)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
24
<PAGE>
(i) For purposes of this Section 7.3, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Section 7.3.
(j) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 7.3 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7.4 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time.
Section 7.5 CERTIFICATION AND INSPECTION OF BY-LAWS. The Corporation
shall keep at its principal office the original or a copy of these By-Laws as
amended to date, which shall be open
25
<PAGE>
to inspection by the stockholders at all reasonable times during office hours.
It shall upon the written request of any stockholder furnish to such stockholder
a copy of the By-Laws as amended to date.
Section 7.6 NOTICES. Any reference in these By-Laws to the time a
notice is given or sent means, unless otherwise expressly provided, the time a
written notice by mail is deposited in the United States mails, postage prepaid;
or the time any other written notice is personally delivered to the recipient or
is delivered to a common carrier for transmission, or actually transmitted by
the person giving the notice by electronic means, to the recipient; or the time
any oral notice is communicated, in person or by telephone or wireless, to the
recipient or to a person at the office of the recipient who the person giving
the notice has reason to believe will promptly communicate it to the recipient.
SECTION 8
By-Law Amendments
Section 8.1 BY THE STOCKHOLDERS. These By-laws may be adopted, amended
or repealed by the stockholders at a meeting called for the purpose in any
manner not inconsistent with any provision of law or of the certificate of
incorporation.
26
<PAGE>
Section 8.2 BY THE DIRECTORS. These By-laws may be adopted, amended or
repealed by the affirmative vote of a majority of the whole Board of Directors
in any manner not inconsistent with any provision of law or of the certificate
of incorporation.
/s/ Xiaoyun An
---------------------------
Secretary
Dated: 8-30-88
---------------
27
<PAGE>
EXHIBIT 4.5
[Execution Copy]
COMPASS AEROSPACE CORPORATION
AND ITS UNDERSIGNED SUBSIDIARIES
2029 Century Park East
Suite 1112
Los Angeles, California 90067
Dated as of June 7, 1999
BankBoston, N.A., as Agent, and
the Lenders referred to in the Credit
Agreement (as defined below)
100 Federal Street
Boston, Massachusetts 02110
Re: AMENDMENT NO. 1 TO CREDIT AGREEMENT
Ladies and Gentlemen:
We refer to the Amended and Restated Credit Agreement, dated as of November
20, 1998, as amended and restated as of February 11, 1999 (the "CREDIT
AGREEMENT"), among (a) Compass Aerospace Corporation (the "BORROWER"), (b)
Aeromil Engineering Company ("AEROMIL"), (c) Western Methods Machinery
Corporation ("WESTERN METHODS"), (d) Barnes Machine Incorporated ("BARNES"), (e)
Brittain Machine, Inc. ("BRITTAIN"), (f) Wichita Manufacturing, Inc.
("WICHITA"), (g) Sea-lect Products, Inc. ("SEA-LECT"), (h) CWE Acquisition Co.
("CWE"), (i) Pacific Hills Manufacturing Co. (formerly known as Lamsco West,
Inc.) ("LAMSCO"), (j) Modern Manufacturing, Inc. ("MODERN MANUFACTURING" and,
together with Aeromil, Western Methods, Barnes, Brittain, Wichita, J&J,
Sea-lect, CWE and Lamsco, collectively, the "GUARANTORS"), (l) BankBoston, N.A.
("BANKBOSTON") and the other lending institutions listed on SCHEDULE 1 thereto
as Lenders (the "LENDERS"), (m) BankBoston, as Issuing Bank and as Agent, (n)
Royal Bank of Canada, as Syndication Agent, (o) General Electric Capital
Corporation, as Documentation Agent, and (p) NationsBank, N.A., as Co-Agent.
Capitalized terms used but not defined in this Agreement (this "AGREEMENT") have
the same meanings herein as in the Credit Agreement.
The Borrower has requested that the Required Lenders and the Agent join
with the Transactions Parties in amending the Credit Agreement to, among other
things, amend and restate the financial covenants of the Borrower in Sections
11.1, 11.2, 11.3, 11.4 and 11.5 of the Credit Agreement. The undersigned
Required Lenders and the Agent have advised the Borrower that they are prepared
to so amend
<PAGE>
-2-
the Credit Agreement, on the terms, subject to the conditions and in reliance on
the representations contained herein.
SECTION 1. AMENDMENT OF CREDIT AGREEMENT. Subject to the conditions
set forth in Section 2 below, each of the Transaction Parties, the Agent and the
undersigned Required Lenders agrees to amend the Credit Agreement as set forth
below. Each of the following amendments shall be effective as of the Effective
Date (other than clauses (d), (e), (f), (g) and (h) below which shall be
effective as of March 31, 1999):
(a) REDUCTION OF TOTAL ACQUISITION COMMITMENT. The Total
Acquisition Commitment is hereby reduced from $65,000,000 to $35,000,000.
As of the date of this Agreement, the Total Acquisition Loan Commitment
shall be $17,500,000, the Total UK Acquisition Loan Commitment shall be
$17,500,000 and the Acquisition Loan Commitments and the UK Acquisition
Loan Commitments of the Acquisition Loan Lenders shall be reallocated PRO
RATA in accordance with their respective Acquisition Loan Commitment
Percentages and UK Acquisition Loan Commitment Percentages of such amounts.
(b) DEFINITIONS. Section 1.1 of the Credit Agreement is hereby
amended as set forth below:
(i) the definitions of "ADDITIONAL ACQUISITION LOANS" and
"PERMITTED ADDITIONAL ACQUISITION LOAN" appearing therein are deleted
in their entirety;
(ii) Clause (b) of the definition of "PERMITTED ACQUISITION"
is amended and restated in its entirety to read as follows:
(b) the Acquisition is on friendly terms and, if all or
any portion of the purchase price to be paid by the Borrower or
any other Transaction Party in connection with such Acquisition
is funded with the proceeds of any Acquisition Loan or UK
Acquisition Loan, the Required Lenders have given their written
consent to such Acquisition;
(iii) each reference to the number "(vi)" appearing before the
phrase "Letter of Credit Exposure" in the definition of "REQUIRED
LENDERS" is deleted;
(iv) the definition of "TOTAL ACQUISITION COMMITMENT"
appearing therein is amended and restated in its entirety to read as
follows:
<PAGE>
-3-
TOTAL ACQUISITION COMMITMENT. The sum of the Total
Acquisition Loan Commitments and Total UK Acquisition Loan
Commitments of the Lenders, as in effect from time to time.
The Total Acquisition Commitment was $65,000,000 as of the
Restatement Effective Date and was reduced to $35,000,000 as of
the Amendment No. 1 Effective Date.
(v) the following new definitions are inserted therein in
proper alphabetical sequence:
AMENDMENT NO. 1 TO CREDIT AGREEMENT. Amendment No. 1 to
Credit Agreement, dated as of June 7, 1999, among the
Transaction Parties, the Required Lenders and the Agent.
AMENDMENT NO. 1 EFFECTIVE DATE. The date on which all
of the conditions to the effectiveness of Amendment No. 1 to
Credit Agreement are satisfied and Amendment No. 1 to Credit
Agreement becomes effective.
(c) ACQUISITION LOANS AND UK ACQUISITION LOANS. Section 2.1(d) of
the Credit Agreement is hereby amended as set forth below:
(i) the proviso at the end of the second sentence of Section
2.1(d) is deleted in its entirety; and
(ii) the next to the last sentence of Section 2.1(d) is
amended and restated in its entirety to read as follows:
The Total Acquisition Commitment was $65,000,000 as of the
Restatement Effective Date and was reduced to $35,000,000 as of
the Amendment No. 1 Effective Date.
(d) MAXIMUM LEVERAGE RATIO. Section 11.1 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:
11.1. MAXIMUM LEVERAGE RATIO. The Leverage Ratio as of the
end of any Reference Period ending on any date or during any period
set forth in the table below to be greater than the ratio set forth
opposite such date or period:
<PAGE>
-4-
<TABLE>
<CAPTION>
Date or Period Ratio
-------------- -----
<S> <C>
March 31, 1999 4.72 to 1
June 30, 1999 6.00 to 1
September 30, 1999 6.25 to 1
December 31, 1999 6.00 to 1
March 31, 2000 5.75 to 1
June 30, 2000 5.50 to 1
September 30, 2000 5.25 to 1
December 31, 2000 5.25 to 1
January 1, 2001 through September 30, 2001 4.00 to 1
October 1, 2001 through September 30, 2002 3.75 to 1
October 1, 2002 through September 30, 2003 3.50 to 1
October 1, 2003 through February 1, 2005 3.25 to 1
</TABLE>
(e) MINIMUM CONSOLIDATED EBITDA. Section 11.2 of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:
11.2. MINIMUM CONSOLIDATED EBITDA. Consolidated EBITDA of the
Borrower and its Subsidiaries for any Reference Period ending on any
date or during any period set forth in the table below to be less than
the amount set forth opposite such date or period:
<TABLE>
<CAPTION>
Minimum
Date or Period Consolidated
-------------- ------------
EBITDA
------
<S> <C>
March 31, 1999 $41,300,000
June 30, 1999 $35,000,000
September 30, 1999 $32,000,000
December 31, 1999 $32,500,000
March 31, 2000 $35,000,000
June 30, 2000 $37,000,000
September 30, 2000 $37,000,000
December 31, 2000 $37,000,000
January 1, 2001 through December 31, 2001 $48,500,000
January 1, 2002 through December 31, 2002 $50,500,000
January 1, 2003 through December 31, 2003 $53,000,000
January 1, 2004 through December 31, 2004 $55,000,000
January 1, 2005 through February 1, 2005 $57,500,000
</TABLE>
<PAGE>
-5-
(f) MINIMUM INTEREST COVERAGE RATIO. Section 11.3 of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:
11.3. MINIMUM INTEREST COVERAGE RATIO. The ratio of (a)
Consolidated EBITDA of the Borrower and its Subsidiaries for any
Reference Period ending on any date or during any period set forth in
the table below to (b) Consolidated Total Interest Expense of the
Borrower and its Subsidiaries for such Reference Period, to be less
than the ratio set forth below opposite such date or period:
<TABLE>
<CAPTION>
Minimum Interest
Date or Period Coverage Ratio
-------------- --------------
<S> <C>
March 31, 1999 2.10 to 1
June 30, 1999 1.75 to 1
September 30, 1999 1.60 to 1
December 31, 1999 1.60 to 1
March 31, 2000 1.75 to 1
June 30, 2000 1.75 to 1
September 30, 2000 2.00 to 1
December 31, 2000 2.00 to 1
January 1, 2001 through February 1, 2005 2.50 to 1
</TABLE>
(g) MINIMUM DEBT SERVICE COVERAGE RATIO. Section 11.4 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:
11.4. MINIMUM DEBT SERVICE COVERAGE RATIO. The ratio of (a)
Consolidated Operating Cash Flow of the Borrower and its Subsidiaries
for any Reference Period ending on any date or during any period set
forth in the table below to (b) Consolidated Debt Service of the
Borrower and its Subsidiaries for such Reference Period, to be less
than the ratio set forth below opposite such date or period:
<TABLE>
<CAPTION>
Minimum Debt
Service
Date or Period Coverage Ratio
-------------- --------------
<S> <C>
March 31, 1999 1.17 to 1
June 30, 1999 1.05 to 1
September 30, 1999 1.05 to 1
December 31, 1999 1.10 to 1
January 1, 2000 through February 1, 2005 1.15 to 1
</TABLE>
<PAGE>
-6-
(h) MAXIMUM CAPITAL EXPENDITURES. Section 11.5 of the Credit
Agreement is hereby amended and restated in its entirety to read as
follows:
11.5. MAXIMUM CAPITAL EXPENDITURES. The aggregate amount of Capital
Expenditures of the Borrower and its Subsidiaries (other than Capital
Expenditures made (a) with the proceeds of Indebtedness permitted by
paragraphs (c) of Section 10.1 or (b) as a result of the acquisition of
Capital Assets in any Permitted Acquisition) (i) to exceed $6,000,000 in
the 1999 calendar year and (ii) for any Reference Period ending on any date
or during any period set forth in the table below to exceed the amount set
forth in the table below opposite such date or period:
<TABLE>
<CAPTION>
Date or Period Amount
-------------- ------
<S> <C>
January 1, 2000 through December 31, 2000 $ 6,000,000
January 1, 2001 through December 31, 2001 $10,500,000
January 1, 2002 through December 31, 2003 $11,500,000
January 1, 2004 through December 31, 2004 $12,000,000
January 1, 2005 through February 1, 2005 $12,500,000
</TABLE>
(i) PERMITTED ACQUISITIONS. Section 13.8(c) of the Credit
Agreement is hereby deleted in its entirety.
(j) SCHEDULE 1 TO CREDIT AGREEMENT (COMMITMENTS; BANK'S OFFICES).
Schedule 1 to the Credit Agreement is hereby amended and restated in its
entirety to read as set forth on SCHEDULE 1 hereto.
(k) SCHEDULE 1.2 TO CREDIT AGREEMENT (APPLICABLE MARGINS).
SCHEDULE 1.2 to the Credit Agreement is hereby amended and restated in its
entirety to read as set forth on SCHEDULE 1.2 hereto.
(l) OTHER SCHEDULES TO CREDIT AGREEMENT. SCHEDULES 2, 8.8, 8.17
and 8.19 to the Credit Agreement are hereby amended and restated in their
entirety to read as set forth on SCHEDULES 2, 8.8, 8.17, and 8.19 hereto,
respectively.
<PAGE>
-7-
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Agreement shall become
effective if, and only if, on or before June 7, 1999, each of the following
conditions precedent shall have been satisfied:
(a) EXECUTION AND DELIVERY OF THIS AGREEMENT. The Agent shall have
received duly executed counterparts of this Agreement which, when taken
together bear the authorized signatures of each of the Transaction Parties
and the Required Lenders.
(b) AMENDMENT FEE. The Borrower shall have paid to the Agent, for
the account of each Lender who executes and delivers this Agreement to the
Agent on or prior to the Effective Date, a non-refundable amendment fee
equal to 0.25% of the sum of such Lender's outstanding (i) Revolving Credit
Commitment, (ii) Acquisition Loan Commitment (after giving effect to this
Agreement), (iii) U.K. Acquisition Loan Commitment (after giving effect to
this Agreement), (iv) Term Loans A and (v) Terms Loans B.
(c) FEES AND EXPENSES. The Borrower shall have paid or reimbursed
the Agent for all of the fees and disbursements of Bingham Dana LLP, the
Agent's special counsel, which shall have been incurred by the Agent in
connection with the preparation, negotiation, execution and delivery of
this Agreement and the implementation of the transactions contemplated
thereby, or which otherwise are required to be paid under the Credit
Agreement.
(d) LEGAL OPINION. The Agent shall have received from Morgan,
Lewis & Bockius, counsel to the Transaction Parties, a favorable legal
opinion addressed to the Agent and the Lenders, dated as of the Effective
Date and in form, scope and substance satisfactory to the Agent. The
Transaction Parties shall have instructed such counsel to deliver such
opinion to the Agent.
(e) CERTIFIED COPIES OF CHARTER DOCUMENTS. The Agent shall have
received from each of the Transaction Parties a certificate of a duly
authorized officer of such Person, dated as of the Effective Date,
certifying that no amendments to its Governing Documents have occurred
since the Restatement Effective Date. Such certificate shall be in form
and substance reasonably satisfactory to the Agent.
(f) PROOF OF CORPORATE ACTION. The Agent shall have received from
each of the Transaction Parties copies, certified by a duly authorized
officer of such Person to be true and complete on and as of the Effective
Date, of the records of all corporate action taken by such Person to
authorize (i) such Person's execution and delivery of this Agreement, and
(ii) such Person's
<PAGE>
-8-
performance of all of its agreements and obligations under this Agreement
and the Credit Agreement, as amended hereby (collectively, the "AMENDMENT
DOCUMENTS"). Such certified copies shall be in form and substance
reasonably satisfactory to the Agent.
(g) INCUMBENCY CERTIFICATE. The Agent shall have received
incumbency certificates, dated the Effective Date, signed respectively by a
duly authorized officer of each of the Transaction Parties, and giving the
name and bearing a specimen signature of each individual who shall be
authorized (x) to sign, in the name and on behalf of such Person this
Agreement, and (y) to give notices and to take other action on behalf of
such Person under this Agreement. Such certified copies or certificate
shall be in form and substance reasonably satisfactory to the Agent.
(h) CLOSING CERTIFICATE. The Agent shall have received a
certificate, dated the Effective Date, signed by the Chief Financial
Officer of the Borrower, to the effect that (i) each of the representations
and warranties of the Transaction Parties contained in Section 3 hereof are
true and correct as of the Effective Date and (ii) no Default or Event of
Default exists on the Effective Date (after giving effect to this
Agreement).
(i) REPRESENTATIONS AND WARRANTIES. The Agent shall be satisfied
that the representations and warranties set forth in Section 3 hereof are
true and correct on and as of the Effective Date.
The first date as of which all of the foregoing conditions precedents shall be
satisfied is referred to herein as the "EFFECTIVE DATE".
SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Transaction
Parties hereby represents and warrants to the Agent and the Lenders that:
(a) This Agreement has been duly executed and delivered by such
Transaction Party. The execution and delivery by such Transaction Party of
this Agreement has been duly authorized by proper proceedings by such
Transaction Party, and each Amendment Document constitutes the legal, valid
and binding obligation of such Transaction Party, enforceable against such
Transactions Party in accordance with its terms.
(b) The execution and delivery by such Transaction Party of this
Agreement and the performance by such Transaction Party of each Amendment
Document (i) are within the corporate or other legal authority of such
Person, (ii) have been duly authorized by all necessary corporate or other
proceedings and
<PAGE>
-9-
(iii) do not and will not conflict with or result in any breach or
contravention of any Applicable Law or any Contractual Obligation or
Governing Document of any of the Transaction Parties.
(c) Each of the representations and warranties of each of the
Transaction Parties contained in the Loan Documents or in any Instrument
delivered pursuant to or in connection with the Credit Agreement was true
in all respects as of the date as of which it was made and is true in all
respects on the date hereof (except to the extent that such representations
and warranties relate expressly to an earlier date).
(d) After giving effect to this Agreement, no Default or Event of
Default has occurred and is continuing.
SECTION 4. ACQUISITION NOTES. At any time following the Effective Date,
upon the request of the Borrower, each Acquisition Loan Lender shall deliver to
the Agent (for delivery and cancellation by the Borrower) the Acquisition Note
then held by such Lender after such Lender receives a duly executed and properly
completed new Acquisition Note in the form of EXHIBIT A-4 to the Credit
Agreement in a principal amount equal to such Lender's Acquisition Loan
Commitment (after giving effect to this Agreement).
SECTION 5. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. EXPENSES. The Borrower shall pay all reasonable out-of-pocket
expenses incurred by the Agent and the Lenders in connection with the
preparation, negotiation, execution, delivery and enforcement of this Agreement,
including, but not limited to, the reasonable fees and disbursements of Bingham
Dana LLP.
SECTION 7. MISCELLANEOUS. From and after the date hereof, this Agreement
shall be deemed a Loan Document for all purposes of the Credit Agreement and the
other Loan Documents and each reference to Loan Documents in the Credit
Agreement and the other Loan Documents shall be deemed to include this
Agreement. Except as expressly provided herein, this Agreement shall not, by
implication or otherwise, limit, impair, constitute a waiver of or otherwise
affect any rights or remedies of the Agent or the Lenders under the Credit
Agreement or the other Loan Documents, nor alter, modify, amend or in any way
affect any of the obligations or covenants contained in the Credit Agreement or
any of the other Loan Documents, all of which are ratified and confirmed in all
respects and shall continue in full force and effect. This Agreement may be
executed in any number of counterparts, but all of such counterparts shall
together constitute but
<PAGE>
-10-
one and the same agreement. Delivery of an executed counterpart of a signature
page by facsimile transmission shall be effective as delivery of a manually
executed counterpart of this Agreement. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
[Remainder of this page intentionally left blank]
<PAGE>
-11-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the date first above
written.
Very truly yours,
BORROWER: COMPASS AEROSPACE
CORPORATION
By: /s/ N. Paul Brost
---------------------------
Name:
Title:
GUARANTORS: AEROMIL ENGINEERING
COMPANY
WESTERN METHODS MACHINERY
CORPORATION
BARNES MACHINE INCORPORATED
BRITTAIN MACHINE, INC.
WICHITA MANUFACTURING, INC.,
SEA-LECT PRODUCTS, INC.,
CWE ACQUISITION CO.
PACIFIC HILLS MANUFACTURING CO.
MODERN MANUFACTURING, INC.
By: /s/ N. Paul Brost
---------------------------
Name:
Title:
<PAGE>
-12-
Agreed to and Accepted By:
BANKBOSTON, N.A., as Lender, as
Agent and as Issuing Bank
By: /s/ Richard D. Hill, Jr.
---------------------------------
Name: Richard D. Hill, Jr.
Title: Managing Director
BANKBOSTON, N.A., (London Branch),
as Lender and UK Fronting Lender
By: /s/ Richard D. Hill, Jr.
---------------------------------
Name: Richard D. Hill, Jr.
Title: Managing Director
GENERAL ELECTRIC CAPITAL
CORPORATION, as Lender
By: /s/ Frederick J. Maurice
---------------------------------
Name: Frederick J. Maurice
Title: Risk Manager
ROYAL BANK OF CANADA, as Lender
By: /s/ John Crawford
---------------------------------
Name: John Crawford
Title: Senior Manager
<PAGE>
-13-
NATIONSBANK, N.A., as Lender
By: /s/ Gary K. Peterson
---------------------------------
Name: Gary K. Peterson
Title: Senior Vice President
PARIBAS, as Lender
By: /s/ Robert N. Pinkerton
---------------------------------
Name: Robert N. Pinkerton
Title: Managing Director
By: /s/ Lee S. Buckner
---------------------------------
Name: Lee S. Buckner
Title: Managing Director
WESTERN FINANCIAL BANK, as Lender
By:
---------------------------------
Name:
Title:
HELLER FINANCIAL, INC., as Lender
By: /s/ K. Craig Gallehugh
---------------------------------
Name: K. Craig Gallehugh
Title: Vice President
<PAGE>
-14-
CYPRESSTREE INVESTMENT FUND,
LLC, as Lender
By: CypressTree Investment Management
Company Inc., its Managing Member
By: /s/ Jeffrey W. Heuer
---------------------------------
Name: Jeffrey W. Heuer
Title: Principal
CYPRESSTREE INSTITUTIONAL
FUND, LLC, as Lender
By: CypressTree Investment Management
Company Inc., its Managing Member
By: /s/ Jeffrey W. Heuer
---------------------------------
Name: Jeffrey W. Heuer
Title: Principal
KZH CYPRESSTREE-1 LLC, as Lender
By: /s/ Virginia Conway
---------------------------------
Name: Virginia Conway
Title: Authorized Agent
FIRST SOURCE FINANCIAL LLP, as Lender
By: First Source Financial, Inc.,
its Agent/Manager
By: /s/ Pamela D. Eskra
---------------------------------
Name: Pamela D. Eskra
Title: Vice President
<PAGE>
-15-
SRV-HIGHLAND, INC. , as Lender
By: /s/ Kelly C. Walker
---------------------------------
Name: Kelly C. Walker
Title: Vice President
<PAGE>
SCHEDULE 1.2
APPLICABLE MARGINS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Revolving Acquisition Loan
Base Base Credit Commitment Fees
Rate A Eurocurrency Rate B Eurocurrency Commitment Fees
Level Leverage Ratio Loans Rate A Loans Loans Rate B Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I Greater than 4.0:1.0 1.75% 3.25% 2.25% 3.75% 0.50% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
II Less than or equal to 1.50% 3.00% 2.00% 3.50% 0.50% 0.75%
4.0:1.0 but greater than
3.5:1.0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
III Less than or equal to
3.5:1.0 but greater than 1.25% 2.75% 2.00% 3.50% 0.50% 0.75%
3.0:1.0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
IV Less than or equal to 1.00% 2.50% 2.00% 3.50% 0.375% 0.50%
3.0:1.0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
21st day of September, 1998 by and between Compass Aerospace Corporation, a
Delaware corporation (the "Company") and N. Paul Brost (the "Executive").
RECITALS
--------
WHEREAS, Company wishes to employ the Executive and Executive wishes to
accept employment subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the parties hereto agree as
follows:
1. EMPLOYMENT.
Company hereby employs and engages the services of Executive in the
position of Chief Financial Officer for the Term of Employment set forth in
Section 2. Executive agrees to serve the Company for the Term of Employment
as provided herein.
2. TERM OF EMPLOYMENT.
Executive's "Term of Employment" shall be for a period of three (3)
years commencing on the effective date hereof and ending three (3) years
thereafter (the " Term" or "Term of Employment").
3. POSITION AND DUTIES.
During the Term of Employment:
(a) Executive shall perform services as Vice President and Chief
Financial Officer of the Company subject to the direction and control of the
President of the Company (the "President"). Executive shall perform such
services and duties to the best of his abilities, and shall perform such
services and duties at such of the Company's facilities as may be requested
by the Company. Executive shall also provide such services and duties to any
of the Company's subsidiaries and affiliates as shall be directed from time
to time by the President.
(b) Executive agrees to devote his full business time to the
business and affairs of the Company, and to use his best efforts to promote
the interests of Company and to perform faithfully and efficiently the
responsibilities assigned to him in accordance with the terms of this
Agreement to the extent necessary to satisfactorily discharge such
responsibilities. Executive shall not, without the President's prior written
consent, render to others services of any
<PAGE>
kind for compensation, or engage in any other business activity that would
materially interfere with the performance of his responsibilities under this
Agreement. It is expressly understood and agreed that it shall not be a
violation of this Agreement for Executive to serve on corporate, civic or
charitable boards or committees, so long as such activities do not materially
interfere with the performance of such responsibilities or reflect adversely
on Company to any material extent.
4. RESULTS AND PROCEEDS.
As Executive's employer, Company shall, by virtue of such relationship,
own all rights in and to the results and proceeds directly or indirectly
connected with, or arising out of, Executive's services hereunder.
5. COMPENSATION AND BENEFITS.
5.1 BASE SALARY. During the Term, Company shall compensate Executive
for the services to be rendered hereunder at an annual rate of One Hundred
and Twenty-five Thousand Dollars ($125,000) (the "Base Salary"), increased to
One Hundred and Fifty Thousand Dollars ($150,000) after six months of service
with an annual review each year thereafter. Executive understands and agrees
that Company has no obligation to increase his Base Salary as a result of
such annual reviews. Such Base Salary shall be payable to Executive in equal
bi-weekly installments or at such other intervals as salary is normally paid
by Company to its executive employees (except during any unpaid vacation),
subject to the usual or required employee payroll deductions and withholdings.
5.2 REIMBURSEMENT OF EXPENSES. During the Term of Employment,
Executive shall be entitled to receive prompt reimbursement for all
reasonable and necessary business expenses incurred by Executive in
connection with his performance of services under this Agreement in
accordance with Company's then prevailing policies and procedures (which
requirements shall include appropriate itemization and substantiation of all
such expenses incurred). Executive shall be personally liable for any
violation of these terms.
5.3 PERSONAL PAID TIME. Executive shall be entitled to Personal Paid
Time (including, without limitation four (4) weeks paid vacation and holidays
specified by the Company) in accordance with the policy applicable to Company
employees and shall not be entitled to paid vacation or sick time other than
Personal Paid Time. Personal Paid Time shall consist solely of a
continuation of Executive's Base Salary, and Executive shall be entitled to
no additional compensation during Personal Paid Time. Executive shall only
be allowed to carry over into the next fiscal year ten (10) days of unused
Personal Paid Time. All remaining unused Personal Paid Time will be cashed
out.
5.4 STOCK OPTIONS. Executive shall be granted a stock option to
purchase 25,000 shares of common stock of the Company (the "Common Stock")
with an exercise price equal to $1.47 per share. Such option will vest 25%
per year in each of four (4) years beginning on the
-2-
<PAGE>
first anniversary of the effective date hereof (no part thereof vesting prior
thereto) and will be subject to standard repurchase and exercise provisions
as stated in the Plan, including without limitation (i) customary
antidilution protection as relates to the number of shares subject to such
option (e.g., in the event of stock splits) but excluding antidilution
protection as relates to the percentage of Common Stock subject to such
option (e.g., in the event of new stock issuances) and (ii) immediate vesting
in the event that Executive dies or becomes disabled.
5.5 EXECUTIVE'S REPRESENTATIONS REGARDING STOCK. Executive represents
that he will retain and consult with his own professional advisors to review
and evaluate the economic, tax and other consequences of the Stock Options.
Executive further represents that any interest he may acquire will be
acquired for investment purposes only and that he understands that there is
no public market for any of the securities comprising the Stock Options and
that the securities he will receive are subject to restrictions on both
transferability and resale, and may not be transferred or resold except as
permitted under the Securities Act of 1933, as amended, and the applicable
state securities laws, pursuant to registration or exemption therefrom. The
shares of stock issuable to Executive shall bear an appropriate legend
setting out restrictions on transfer and the fact that the securities have
not been registered.
5.6 WITHHOLDING ON STOCK OPTIONS. The Company shall deduct from all
stock issued under the Stock Options any federal, state, or local taxes
required by law to be withheld with respect to such payments. In the
alternative, Executive may pay to the Company the amount of any such taxes
which the Company is required to withhold with respect to the grant or
delivery of stock.
5.7 RESTRICTIONS ON TRANSFER OF SHARES. The shares issued to Executive
will be transferable only in accordance with the terms of this Agreement and
the Stockholders Agreement (in the form and substance set forth in Exhibit A
attached hereto). The Company is hereby granted an option to purchase
Executive's shares if Executive terminates employment, other than by death or
permanent disability, or elects to sell or otherwise transfer title to the
shares. The purchase price shall be fair market value as agreed by the
parties or, if the parties cannot agree, it shall be the last price paid for
Company's Common Stock in an arm's-length transaction, including by way of
conversion of any of Company's other securities. The option granted in this
Section 5.7 shall terminate if and when Company's Common Stock is publicly
traded.
5.8 BENEFITS. In addition to the other benefits provided herein,
Executive shall be entitled to participate in such medical, dental,
prescription drug, vision, health care spending account, 401(k) saving and
retirement, short-term disability insurance, long-term disability insurance,
or other employee welfare benefit plans as the Company may offer to and
maintain for the benefit of its Corporate officers and as changed from
time-to-time, subject to Executive's fulfilling all applicable eligibility
requirements of each such plan. No statement concerning benefits or
compensation to which Executive is entitled alters in any way the Term of
Employment or the termination of this Agreement.
-3-
<PAGE>
6. COVENANTS. Executive covenants in favor of Company as follows:
6.1 TRADE SECRETS OF OTHERS. Executive represents that Executive's
performance of all the terms of this Agreement does not and will not breach
any agreement to keep in confidence proprietary information, material or
trade secrets acquired by Executive in confidence or in trust prior to
Executive's rendering of services to Company. Executive agrees not to enter
into any agreement either written or oral in conflict herewith.
6.2 CONFIDENTIALITY; TRADE SECRETS. Executive acknowledges that his
position with Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the
trade secrets and confidential and proprietary business information of
Company. Executive agrees that during the Term of Employment and thereafter:
(a) He shall protect and safeguard the trade secrets and
confidential and proprietary information of Company, including (by way of
illustration and not limitation) its arrangements with vendors, customers and
joint venture partners (referred to collectively as Company's
"contractors"); its data, records, patents, licenses, trademarks, copyrights,
compilations of information, processes, programs, know-how, improvements,
discoveries, marketing plans, strategies, forecasts, unpublished financial
statements, budgets, projections, licenses, prices, costs, files, documents,
drawings, memoranda, notes, or other documents, whether maintained
electronically or in hard copy (all such information is hereinafter called
the "Proprietary Information"); other than information known to him\her
before the date hereof and learned from third parties without breach of any
obligation of confidentiality or otherwise to Company, or in the public
domain;
(b) He shall not disclose any of such Proprietary Information,
except as may be required in the ordinary course of performing his duties as
an employee of Company; and
(c) He shall not use, directly or indirectly, for his own benefit
or for the benefit of another, any of such Proprietary Information, other
than for the benefit of Company as may be required in the ordinary course of
performing his duties as an employee of Company.
The Proprietary Information shall be the exclusive property of Company.
Executive agrees that he shall deliver to Company all files, records,
documents, drawings, memoranda, and other materials, whether electronic or
hard copy, relating to the Proprietary Information or pertaining to his work
with Company in the event of either Company's request or the termination of
his employment for any reason, and that he will not take with him any of the
foregoing or any reproduction of any of the foregoing.
6.3 INDUCEMENT. Executive shall not during the Term of Employment and
for a period of two (2) years thereafter, directly or indirectly, employ,
cause others to employ, or attempt to induce others to employ any employees
of the Company or attempt to induce said employees to gain or seek other
employment.
-4-
<PAGE>
6.4 REMEDIES FOR BREACH OF COVENANTS OF EXECUTIVE. The covenants set
forth in Section 6 of this Agreement shall continue to be binding upon
Executive, notwithstanding the termination of his employment with Company for
any reason whatsoever. Such covenants shall be deemed and construed as
separate agreements independent of any other provisions of this Agreement and
any other agreement between Company and Executive. The existence of any
claim or cause of action by Executive against Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of any or all of such covenants. If Executive
breaches or threatens to breach any of the covenants in Section 6 of this
Agreement, the Parties acknowledge and agree that the damage or imminent
damage to Company's business and/or its goodwill would be irreparable and
extremely difficult to estimate, making any remedy at law or in damages
inadequate. Accordingly, Company shall be entitled to injunctive relief
against Executive in the event of any breach or threatened breach of the
covenants set forth in Section 6, in addition to any other relief (including
damages) available to Company under this Agreement or under law.
6.5 LITIGATION. Executive agrees that during the Term of Employment
and thereafter Executive shall do all things, including the giving of
evidence in suits and other proceedings, which Company shall deem necessary
to obtain, maintain, defend, or assert rights accruing to Company during the
Term of Employment and in connection with which Executive has knowledge,
information, or expertise. All reasonable expenses incurred by Executive
during the Term of Employment or thereafter in fulfilling the duties set
forth in this Section, shall be reimbursed by Company to the full extent
legally appropriate, including without limitation a reasonable payment for
Executive's time in the event this Agreement has terminated prior to the time
Executive renders such duties.
6.6 FUTURE COOPERATION. The Parties hereto agree to cooperate with
each other without additional compensation from and after the date hereof, to
supply any information and to execute documents reasonably required for the
purposes of giving effect to this Agreement, or in connection with the
consummation of any actions contemplated hereby.
7. TERMINATION OF EMPLOYMENT. This Agreement and the employment of
Executive hereunder shall terminate upon the occurrence of the first to occur
of the following events or conditions, and the Parties shall remain subject
to the following conditions and covenants after termination:
7.1 EXPIRATION OF TERM. This Agreement shall terminate upon expiration
of the term specified in Section 2 hereof.
7.2 DEATH OR INCAPACITY. This Agreement shall automatically terminate
upon the death or Incapacity of Executive. Subject to the Americans with
Disabilities Act and applicable state law, "Incapacity" shall mean
Executive's inability by reason of mental or physical condition to perform
substantially all of his duties and responsibilities hereunder for a
continuous period of three (3) months or more, or for any aggregate period of
four (4) months or more in any
-5-
<PAGE>
twelve-month period whether or not continuous. In the event of a dispute as
to the existence of any such disability, Executive agrees to submit to
medical or psychiatric examinations conducted by physicians mutually agreed
upon by Company and Executive and to be bound by any determination made by
such physicians.
7.3 CAUSE. Company may terminate Executive's employment for Cause.
"Cause" shall mean a determination by Company in its sole discretion
exercised in good faith that there has been (i) an act of dishonesty, fraud,
embezzlement, breach of trust, misappropriation, acceptance of a bribe or
kickback or other similar activity on Executive's part; (ii) an act by
Executive in bad faith and to the detriment of Company or a refusal or
failure by Executive to act in accordance with any specific direction of
order of Company; (iii) neglect by Executive of such Executive's duties,
chronic absenteeism, unacceptable performance, or any material breach or
violation of Executive's obligations (including, without limitation, any
failure to implement material policies or procedures established by Company
for the transaction of business by Company) or covenants pursuant to this
Agreement, any of which is not rectified to the satisfaction of Company by
Executive within a reasonable time after notification to Executive of such
conduct; or (iv) the conviction, or a plea of nolo contendere, of Executive
of a felony or a crime involving fraud, dishonesty or moral turpitude.
Executive's termination for Cause shall be effective immediately upon notice
to Executive. If Executive's employment is terminated for Cause, or if
Executive voluntarily terminates his employment, Company shall pay Executive
his prorated Base Salary through the effective date of the termination of
employment (which shall be no earlier than the date of notice thereof to
Executive) at the rate in effect at the time of such termination, and Company
shall have no further obligations to Executive under this Agreement.
Executive shall forfeit all benefits, rights, and Stock Options which have
not vested as of the effective date of termination.
7.4 OTHER THAN FOR CAUSE. Company may terminate Executive's employment
other than for Cause. If Company terminates Executive's employment other
than for Cause, Company shall pay Executive the following amounts, according
to that portion of the Term of Employment which has elapsed, such payments to
be payable in installments at such time as Executive would have been paid the
Base Salary had the Term of Employment continued:
<TABLE>
<CAPTION>
EMPLOYMENT TERM ELAPSED SEVERANCE PAY
----------------------- -------------
<S> <C>
Less than 180 days Nothing
More than 180 days but less than five (5) years Base Salary (prorated to a
monthly sum) multiplied by
six (6) months
</TABLE>
All amounts which are vested benefits or to which Executive is otherwise
entitled under any employee benefits plan of Company shall be payable in
accordance with the terms of such
-6-
<PAGE>
plan. Executive's termination other than for Cause shall be effective
immediately upon notice to Executive.
7.5 TERMINATION BY EMPLOYEE Executive may terminate his employment by
Company at any time, with or without cause, by providing Company thirty (30)
days' advance written notice. Company will have the option, in its complete
discretion, to make Executive's termination of employment effective at any
time after receipt of such notice and prior to the end of such notice period,
provided Company pays Executive all compensation due and owing through the
last day actually worked plus an amount equal to the Base Salary Executive
would have earned through the balance of the notice period, and thereafter
all of Company's obligations under this Agreement terminate.
7.6 CONTINUATION OF COVENANTS. Notwithstanding termination of his
employment pursuant to the provisions of this Section 7, the obligations of
Executive set forth in Sections 5.2, 5.7, 6, 10 and 11 herein shall survive
the termination of this Agreement.
8. ASSIGNMENT.
8.1 BY EXECUTIVE. This Agreement is personal to Executive and without
the prior written consent of Company (which consent may be withheld in
Company's sole discretion) shall not be assignable by Executive. Executive
shall not have the right to sell, transfer, or assign the right to receive
payments or benefits hereunder, and any such attempted assignment or transfer
shall terminate this Agreement for Cause at the option of Company.
8.2 BY COMPANY. The provisions of this Agreement shall inure to the
benefit of and be binding upon Company, its successors and assigns, including
without limitation any corporation which may acquire all or substantially all
of Company's assets and business, or with or into which Company may be
consolidated, merged, or reorganized. Upon any such merger, consolidation or
reorganization, the term "Company" as used herein shall be deemed to refer to
such successor corporation.
9. SEVERABILITY. In case one or more provisions of this Agreement shall
for any reason be held by an arbitrator or court of competent jurisdiction to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement, and this Agreement
shall be construed in all respects as if such invalid, illegal or
unenforceable provision or clause were omitted and had never been contained
herein. In the event any provision of this Agreement is determined by an
arbitrator or court to be unenforceable by reason of its being extended for
too great a period of time or over too great a range of activities, the
parties hereto agree that the affected provision shall be interpreted to
extend only over the maximum period of time or range of activities as to
which it may be enforceable.
-7-
<PAGE>
10. ARBITRATION OF DISPUTES. Except as otherwise provided herein, any
dispute or controversy arising from or relating to this Agreement, or from
any other aspect of Executive's employment or the termination thereof,
including but not limited to alleged violations of federal, state, and/or
local statutes (for example, claims for discrimination including but not
limited to discrimination based on race, sex, sexual orientation, religion,
national origin, age, marital status, medical condition as defined under
California law, handicap, or disability, and claims relating to leaves of
absence mandated by state or federal law), breach of any contract or covenant
(express or implied), tort claims, violation of public policy, or any other
alleged violation of Executive's statutory, contractual, or common law rights
(and including claims against Company's officers, directors, employees, and
agents), which Executive and Company or other party are unable to resolve
through direct discussion, regardless of the kind or type of dispute
(excluding claims for workers' compensation or unemployment insurance,
administrative charges of employment discrimination or retaliation, and any
solely monetary dispute within the jurisdiction of small claims court) shall
be decided by final and binding arbitration in the County of Los Angeles,
State of California in accordance with the American Arbitration Association's
("AAA") National Rules for the Resolution of Employment Disputes (the
"Rules"). Executive and Company each have the right to be represented by
counsel with respect to arbitration of any dispute pursuant to this
paragraph. The arbitrator shall be selected by agreement between Executive
and Company, but if they do not agree on the selection of an arbitrator
within 30 days after the date of the request for arbitration, the arbitrator
shall be selected pursuant to the Rules. At the request of either Company or
Executive, arbitration proceedings shall be conducted in the utmost secrecy,
and, in such case, all documents, testimony and records shall be received,
heard, and maintained by the arbitrator in secrecy, available for inspection
only by Company and Executive and their respective attorneys and experts who
shall agree, in advance and in writing, to receive all such information
confidentially and to maintain the secrecy of such information until such
information shall become generally known. The arbitrator shall have
authority to award equitable relief, damages, costs, and fees to the greatest
extent permitted by law, including but not limited to any remedy or relief
that a court may order. The fees of the arbitrator shall be split equally
between the Parties. Except for a breach or threatened breach of Section 6
of this Agreement, the arbitrator shall have exclusive authority to resolve
all claims between the Parties, including but not limited to whether any
particular claim is arbitrable and whether all or any part of this Agreement
is void or unenforceable.
11. LEGAL FEES. Without implying consent to or agreeing to any legal
proceeding other than arbitration as provided in Section 10 herein, in the
event of any arbitration proceeding, administrative proceeding, or litigation
between the Parties relating to or arising from this Agreement, the
prevailing Party in such proceeding or litigation shall be entitled to
recover all reasonable attorney's fees and costs.
12. GOVERNING LAW. This Agreement, and each and every related document, are
to be governed by and construed in accordance with the laws of the State of
California.
-8-
<PAGE>
13. NOTICES. All notices, requests, demands or other communications
hereunder given by the Executive to Company shall be sent by certified mail
to the following address:
Compass Aerospace Corporation
1501 Hughes Way, Suite 400
Long Beach, Califiornia 90815
Attention: Alexander Hogg
Fax: 310-522-0601
All notices, requests, demands or other communications hereunder given
by Company to Executive shall be personally delivered to him or sent by
certified mail to the following address:
N. Paul Brost
23373 Beaumont St.
Valencia, California 91354
or such other addresses as a party may from time to time specify in writing
to the other in accordance with this notice provision. All notices hereunder
sent by certified mail shall be effective when mailed.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
among the Parties, and supersedes any and all prior agreements, arrangements
and understandings, both written and oral. No change, supplement, amendment,
modification, waiver or termination of this Agreement or any provisions
contained herein shall be binding unless executed in writing by the President
of Company.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
COMPASS AEROSPACE CORPORATION,
a Delaware corporation
By: /S/ ALEXANDER HOGG
------------------------------------------
Its: CHIEF EXECUTIVE OFFICER AND PRESIDENT
N. PAUL BROST
"Executive"
/S/ N. PAUL BROST
------------------------------------------
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<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
1st day of December, 1998 by and between Compass Aerospace Corporation, a
Delaware corporation (the "Company") and Pasquale DiGirolamo (the
"Executive").
RECITALS
WHEREAS, Company wishes to employ the Executive and Executive wishes
to accept employment subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the parties hereto agree as
follows:
1. EMPLOYMENT.
Company hereby employs and engages the services of Executive in the
position of Executive Vice President, Aircraft Structures North America, for
the Term of Employment set forth in Section 2. Executive agrees to serve the
Company for the Term of Employment as provided herein.
2. TERM OF EMPLOYMENT.
Executive's "Term of Employment" shall be for a period of three (3)
years commencing on the effective date hereof and ending three (3) years
thereafter (the " Term" or "Term of Employment").
3. POSITION AND DUTIES.
During the Term of Employment:
(a) Executive shall perform services as Executive Vice
President, Aircraft Structures North America, of the Company subject to the
direction and control of the President of the Company (the "President").
Executive shall perform such services and duties to the best of his
abilities, and shall perform such services and duties at such of the
Company's facilities as may be requested by the Company. Executive shall
also provide such services and duties to any of the Company's subsidiaries
and affiliates as shall be directed from time to time by the President.
(b) Executive agrees to devote his full business time to the
business and affairs of the Company, and to use his best efforts to promote
the interests of Company and to perform faithfully and efficiently the
responsibilities assigned to him in accordance with the
<PAGE>
terms of this Agreement to the extent necessary to satisfactorily discharge
such responsibilities. Executive shall not, without the President's prior
written consent, render to others services of any kind for compensation, or
engage in any other business activity that would materially interfere with
the performance of his responsibilities under this Agreement. It is
expressly understood and agreed that it shall not be a violation of this
Agreement for Executive to serve on corporate, civic or charitable boards or
committees, so long as such activities do not materially interfere with the
performance of such responsibilities or reflect adversely on Company to any
material extent.
4. RESULTS AND PROCEEDS.
As Executive's employer, Company shall, by virtue of such
relationship, own all rights in and to the results and proceeds directly or
indirectly connected with, or arising out of, Executive's services hereunder.
5. COMPENSATION AND BENEFITS.
5.1 BASE SALARY. During the Term, Company shall compensate
Executive for the services to be rendered hereunder at an annual rate of Two
Hundred Thousand Dollars ($200,000) (the "Base Salary"), with an annual
review each year. Executive understands and agrees that Company has no
obligation to increase his Base Salary as a result of such annual reviews.
Such Base Salary shall be payable to Executive in equal bi-weekly
installments or at such other intervals as salary is normally paid by Company
to its executive employees (except during any unpaid vacation), subject to
the usual or required employee payroll deductions and withholdings.
5.2 REIMBURSEMENT OF EXPENSES. During the Term of Employment,
Executive shall be entitled to receive prompt reimbursement for all
reasonable and necessary business expenses incurred by Executive in
connection with his performance of services under this Agreement in
accordance with Company's then prevailing policies and procedures (which
requirements shall include appropriate itemization and substantiation of all
such expenses incurred). Executive shall be personally liable for any
violation of these terms.
5.3 PERSONAL PAID TIME. Executive shall be entitled to Personal
Paid Time (including, without limitation four (4) weeks paid vacation and
holidays specified by the Company) in accordance with the policy applicable
to Company employees and shall not be entitled to paid vacation or sick time
other than Personal Paid Time. Personal Paid Time shall consist solely of a
continuation of Executive's Base Salary, and Executive shall be entitled to
no additional compensation during Personal Paid Time. Executive shall only
be allowed to carry over into the next fiscal year ten (10) days of unused
Personal Paid Time. All remaining unused Personal Paid Time will be cashed
out.
5.4 STOCK OPTIONS. Executive shall be granted a stock option to
purchase 40,000 shares of common stock of the Company (the "Common Stock")
with an exercise price equal to
-2-
<PAGE>
$1.47 per share. Such option will vest 25% per year in each of four (4)
years beginning on the first anniversary of the effective date hereof (no
part thereof vesting prior thereto) and will be subject to standard
repurchase and exercise provisions as stated in the Plan, including without
limitation (i) customary antidilution protection as relates to the number of
shares subject to such option (e.g., in the event of stock splits) but
excluding antidilution protection as relates to the percentage of Common
Stock subject to such option (e.g., in the event of new stock issuances) and
(ii) immediate vesting in the event that Executive dies or becomes disabled.
5.5 EXECUTIVE'S REPRESENTATIONS REGARDING STOCK. Executive
represents that he will retain and consult with his own professional advisors
to review and evaluate the economic, tax and other consequences of the Stock
Options. Executive further represents that any interest he may acquire will
be acquired for investment purposes only and that he understands that there
is no public market for any of the securities comprising the Stock Options
and that the securities he will receive are subject to restrictions on both
transferability and resale, and may not be transferred or resold except as
permitted under the Securities Act of 1933, as amended, and the applicable
state securities laws, pursuant to registration or exemption therefrom. The
shares of stock issuable to Executive shall bear an appropriate legend
setting out restrictions on transfer and the fact that the securities have
not been registered.
5.6 WITHHOLDING ON STOCK OPTIONS. The Company shall deduct from
all stock issued under the Stock Options any federal, state, or local taxes
required by law to be withheld with respect to such payments. In the
alternative, Executive may pay to the Company the amount of any such taxes
which the Company is required to withhold with respect to the grant or
delivery of stock.
5.7 RESTRICTIONS ON TRANSFER OF SHARES. The shares issued to
Executive will be transferable only in accordance with the terms of this
Agreement and the Stockholders Agreement (in the form and substance set forth
in Exhibit A attached hereto). The Company is hereby granted an option to
purchase Executive's shares if Executive terminates employment, other than by
death or permanent disability, or elects to sell or otherwise transfer title
to the shares. The purchase price shall be fair market value as agreed by
the parties or, if the parties cannot agree, it shall be the last price paid
for Company's Common Stock in an arm's-length transaction, including by way
of conversion of any of Company's other securities. The option granted in
this Section 5.7 shall terminate if and when Company's Common Stock is
publicly traded.
5.8 BENEFITS. In addition to the other benefits provided herein,
Executive shall be entitled to participate in such medical, dental,
prescription drug, vision, health care spending account, 401(k) saving and
retirement, short-term disability insurance, long-term disability insurance,
or other employee welfare benefit plans as the Company may offer to and
maintain for the benefit of its Corporate officers and as changed from
time-to-time, subject to Executive's fulfilling all applicable eligibility
requirements of each such plan. No statement concerning
-3-
<PAGE>
benefits or compensation to which Executive is entitled alters in any way the
Term of Employment or the termination of this Agreement.
6. COVENANTS. Executive covenants in favor of Company as follows:
6.1 TRADE SECRETS OF OTHERS. Executive represents that Executive's
performance of all the terms of this Agreement does not and will not breach
any agreement to keep in confidence proprietary information, material or
trade secrets acquired by Executive in confidence or in trust prior to
Executive's rendering of services to Company. Executive agrees not to enter
into any agreement either written or oral in conflict herewith.
6.2 CONFIDENTIALITY; TRADE SECRETS. Executive acknowledges that
his position with Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the
trade secrets and confidential and proprietary business information of
Company. Executive agrees that during the Term of Employment and thereafter:
(a) He shall protect and safeguard the trade secrets and
confidential and proprietary information of Company, including (by way of
illustration and not limitation) its arrangements with vendors, customers and
joint venture partners (referred to collectively as Company's
"contractors"); its data, records, patents, licenses, trademarks, copyrights,
compilations of information, processes, programs, know-how, improvements,
discoveries, marketing plans, strategies, forecasts, unpublished financial
statements, budgets, projections, licenses, prices, costs, files, documents,
drawings, memoranda, notes, or other documents, whether maintained
electronically or in hard copy (all such information is hereinafter called
the "Proprietary Information"); other than information known to him\her
before the date hereof and learned from third parties without breach of any
obligation of confidentiality or otherwise to Company, or in the public
domain;
(b) He shall not disclose any of such Proprietary
Information, except as may be required in the ordinary course of performing
his duties as an employee of Company; and
(c) He shall not use, directly or indirectly, for his own
benefit or for the benefit of another, any of such Proprietary Information,
other than for the benefit of Company as may be required in the ordinary
course of performing his duties as an employee of Company.
The Proprietary Information shall be the exclusive property of Company.
Executive agrees that he shall deliver to Company all files, records,
documents, drawings, memoranda, and other materials, whether electronic or
hard copy, relating to the Proprietary Information or pertaining to his work
with Company in the event of either Company's request or the termination of
his employment for any reason, and that he will not take with him any of the
foregoing or any reproduction of any of the foregoing.
-4-
<PAGE>
6.3 INDUCEMENT. Executive shall not during the Term of Employment
and for a period of two (2) years thereafter, directly or indirectly, employ,
cause others to employ, or attempt to induce others to employ any employees
of the Company or attempt to induce said employees to gain or seek other
employment.
6.4 REMEDIES FOR BREACH OF COVENANTS OF EXECUTIVE. The covenants
set forth in Section 6 of this Agreement shall continue to be binding upon
Executive, notwithstanding the termination of his employment with Company for
any reason whatsoever. Such covenants shall be deemed and construed as
separate agreements independent of any other provisions of this Agreement and
any other agreement between Company and Executive. The existence of any
claim or cause of action by Executive against Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the
enforcement by Company of any or all of such covenants. If Executive
breaches or threatens to breach any of the covenants in Section 6 of this
Agreement, the Parties acknowledge and agree that the damage or imminent
damage to Company's business and/or its goodwill would be irreparable and
extremely difficult to estimate, making any remedy at law or in damages
inadequate. Accordingly, Company shall be entitled to injunctive relief
against Executive in the event of any breach or threatened breach of the
covenants set forth in Section 6, in addition to any other relief (including
damages) available to Company under this Agreement or under law.
6.5 LITIGATION. Executive agrees that during the Term of
Employment and thereafter Executive shall do all things, including the giving
of evidence in suits and other proceedings, which Company shall deem
necessary to obtain, maintain, defend, or assert rights accruing to Company
during the Term of Employment and in connection with which Executive has
knowledge, information, or expertise. All reasonable expenses incurred by
Executive during the Term of Employment or thereafter in fulfilling the
duties set forth in this Section, shall be reimbursed by Company to the full
extent legally appropriate, including without limitation a reasonable payment
for Executive's time in the event this Agreement has terminated prior to the
time Executive renders such duties.
6.6 FUTURE COOPERATION. The Parties hereto agree to cooperate with
each other without additional compensation from and after the date hereof, to
supply any information and to execute documents reasonably required for the
purposes of giving effect to this Agreement, or in connection with the
consummation of any actions contemplated hereby.
7. TERMINATION OF EMPLOYMENT. This Agreement and the employment of
Executive hereunder shall terminate upon the occurrence of the first to occur
of the following events or conditions, and the Parties shall remain subject
to the following conditions and covenants after termination:
7.1 EXPIRATION OF TERM. This Agreement shall terminate upon
expiration of the term specified in Section 2 hereof.
-5-
<PAGE>
7.2 DEATH OR INCAPACITY. This Agreement shall automatically
terminate upon the death or Incapacity of Executive. Subject to the
Americans with Disabilities Act and applicable state law, "Incapacity" shall
mean Executive's inability by reason of mental or physical condition to
perform substantially all of his duties and responsibilities hereunder for a
continuous period of three (3) months or more, or for any aggregate period of
four (4) months or more in any twelve-month period whether or not continuous.
In the event of a dispute as to the existence of any such disability,
Executive agrees to submit to medical or psychiatric examinations conducted
by physicians mutually agreed upon by Company and Executive and to be bound
by any determination made by such physicians.
7.3 CAUSE. Company may terminate Executive's employment for Cause.
"Cause" shall mean a determination by Company in its sole discretion
exercised in good faith that there has been (i) an act of dishonesty, fraud,
embezzlement, breach of trust, misappropriation, acceptance of a bribe or
kickback or other similar activity on Executive's part; (ii) an act by
Executive in bad faith and to the detriment of Company or a refusal or
failure by Executive to act in accordance with any specific direction of
order of Company; (iii) neglect by Executive of such Executive's duties,
chronic absenteeism, unacceptable performance, or any material breach or
violation of Executive's obligations (including, without limitation, any
failure to implement material policies or procedures established by Company
for the transaction of business by Company) or covenants pursuant to this
Agreement, any of which is not rectified to the satisfaction of Company by
Executive within a reasonable time after notification to Executive of such
conduct; or (iv) the conviction, or a plea of nolo contendere, of Executive
of a felony or a crime involving fraud, dishonesty or moral turpitude.
Executive's termination for Cause shall be effective immediately upon notice
to Executive. If Executive's employment is terminated for Cause, or if
Executive voluntarily terminates his employment, Company shall pay Executive
his prorated Base Salary through the effective date of the termination of
employment (which shall be no earlier than the date of notice thereof to
Executive) at the rate in effect at the time of such termination, and Company
shall have no further obligations to Executive under this Agreement.
Executive shall forfeit all benefits, rights, and Stock Options which have
not vested as of the effective date of termination.
7.4 OTHER THAN FOR CAUSE. Company may terminate Executive's
employment other than for Cause. If Company terminates Executive's
employment other than for Cause, Company shall pay Executive the following
amounts, according to that portion of the Term of Employment which has
elapsed, such payments to be payable in installments at such time as
Executive would have been paid the Base Salary had the Term of Employment
continued:
EMPLOYMENT TERM ELAPSED SEVERANCE PAY
Less than 180 days Nothing
-6-
<PAGE>
More than 180 days but less than five (5) years Base Salary
(prorated to a
monthly sum)
multiplied by
six (6) months
All amounts which are vested benefits or to which Executive is otherwise
entitled under any employee benefits plan of Company shall be payable in
accordance with the terms of such plan. Executive's termination other than
for Cause shall be effective immediately upon notice to Executive.
7.5 TERMINATION BY EMPLOYEE Executive may terminate his
employment by Company at any time, with or without cause, by providing
Company thirty (30) days' advance written notice. Company will have the
option, in its complete discretion, to make Executive's termination of
employment effective at any time after receipt of such notice and prior to
the end of such notice period, provided Company pays Executive all
compensation due and owing through the last day actually worked plus an
amount equal to the Base Salary Executive would have earned through the
balance of the notice period, and thereafter all of Company's obligations
under this Agreement terminate.
7.6 CONTINUATION OF COVENANTS. Notwithstanding termination of his
employment pursuant to the provisions of this Section 7, the obligations of
Executive set forth in Sections 5.2, 5.7, 6, 10 and 11 herein shall survive
the termination of this Agreement.
8. ASSIGNMENT.
8.1 BY EXECUTIVE. This Agreement is personal to Executive and
without the prior written consent of Company (which consent may be withheld
in Company's sole discretion) shall not be assignable by Executive.
Executive shall not have the right to sell, transfer, or assign the right to
receive payments or benefits hereunder, and any such attempted assignment or
transfer shall terminate this Agreement for Cause at the option of Company.
8.2 BY COMPANY. The provisions of this Agreement shall inure to
the benefit of and be binding upon Company, its successors and assigns,
including without limitation any corporation which may acquire all or
substantially all of Company's assets and business, or with or into which
Company may be consolidated, merged, or reorganized. Upon any such merger,
consolidation or reorganization, the term "Company" as used herein shall be
deemed to refer to such successor corporation.
9. SEVERABILITY. In case one or more provisions of this Agreement shall
for any reason be held by an arbitrator or court of competent jurisdiction to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect the validity or
enforceability of any other provision of this Agreement, and this Agreement
shall be construed in all respects as if such invalid, illegal or
unenforceable provision or clause were omitted and had never been contained
herein. In the event any provision of this Agreement is determined by an
-7-
<PAGE>
arbitrator or court to be unenforceable by reason of its being extended for
too great a period of time or over too great a range of activities, the
parties hereto agree that the affected provision shall be interpreted to
extend only over the maximum period of time or range of activities as to
which it may be enforceable.
10. ARBITRATION OF DISPUTES. Except as otherwise provided herein, any
dispute or controversy arising from or relating to this Agreement, or from
any other aspect of Executive's employment or the termination thereof,
including but not limited to alleged violations of federal, state, and/or
local statutes (for example, claims for discrimination including but not
limited to discrimination based on race, sex, sexual orientation, religion,
national origin, age, marital status, medical condition as defined under
California law, handicap, or disability, and claims relating to leaves of
absence mandated by state or federal law), breach of any contract or covenant
(express or implied), tort claims, violation of public policy, or any other
alleged violation of Executive's statutory, contractual, or common law rights
(and including claims against Company's officers, directors, employees, and
agents), which Executive and Company or other party are unable to resolve
through direct discussion, regardless of the kind or type of dispute
(excluding claims for workers' compensation or unemployment insurance,
administrative charges of employment discrimination or retaliation, and any
solely monetary dispute within the jurisdiction of small claims court) shall
be decided by final and binding arbitration in the County of Los Angeles,
State of California in accordance with the American Arbitration Association's
("AAA") National Rules for the Resolution of Employment Disputes (the
"Rules"). Executive and Company each have the right to be represented by
counsel with respect to arbitration of any dispute pursuant to this
paragraph. The arbitrator shall be selected by agreement between Executive
and Company, but if they do not agree on the selection of an arbitrator
within 30 days after the date of the request for arbitration, the arbitrator
shall be selected pursuant to the Rules. At the request of either Company or
Executive, arbitration proceedings shall be conducted in the utmost secrecy,
and, in such case, all documents, testimony and records shall be received,
heard, and maintained by the arbitrator in secrecy, available for inspection
only by Company and Executive and their respective attorneys and experts who
shall agree, in advance and in writing, to receive all such information
confidentially and to maintain the secrecy of such information until such
information shall become generally known. The arbitrator shall have
authority to award equitable relief, damages, costs, and fees to the greatest
extent permitted by law, including but not limited to any remedy or relief
that a court may order. The fees of the arbitrator shall be split equally
between the Parties. Except for a breach or threatened breach of Section 6
of this Agreement, the arbitrator shall have exclusive authority to resolve
all claims between the Parties, including but not limited to whether any
particular claim is arbitrable and whether all or any part of this Agreement
is void or unenforceable.
11. LEGAL FEES. Without implying consent to or agreeing to any legal
proceeding other than arbitration as provided in Section 10 herein, in the
event of any arbitration proceeding, administrative proceeding, or litigation
between the Parties relating to or arising from this Agreement, the
prevailing Party in such proceeding or litigation shall be entitled to
recover all reasonable attorney's fees and costs.
-8-
<PAGE>
12. GOVERNING LAW. This Agreement, and each and every related document,
are to be governed by and construed in accordance with the laws of the State
of California.
13. NOTICES. All notices, requests, demands or other communications
hereunder given by the Executive to Company shall be sent by certified mail to
the following address:
Compass Aerospace Corporation
1501 Hughes Way, Suite 400
Long Beach, Califiornia 90815
Attention: Alexander Hogg
Fax: 310-522-0601
All notices, requests, demands or other communications hereunder given by
Company to Executive shall be personally delivered to him or sent by certified
mail to the following address:
Pasquale DiGirolamo
5558 Red Lion Five Points Road
Springboro, OH 45066
or such other addresses as a party may from time to time specify in writing to
the other in accordance with this notice provision. All notices hereunder sent
by certified mail shall be effective when mailed.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
among the Parties, and supersedes any and all prior agreements, arrangements and
understandings, both written and oral. No change, supplement, amendment,
modification, waiver or termination of this Agreement or any provisions
contained herein shall be binding unless executed in writing by the President of
Company.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
COMPASS AEROSPACE CORPORATION,
a Delaware corporation
By: /S/ Alexander Hogg
---------------------------------------------
Its: Chief Executive Officer and President
PASQUALE DIGIROLAMO
"Executive"
/s/ N. Pasquale Digirolamo
--------------------------------------------
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<PAGE>
EXHIBIT 12.1
Compass Aerospace Corporation
Statements re Computation of Ratio of Earnings to Fixed Charges
The ratio of earnings to fixed charges has been calculated by dividing
income before income taxes and fixed charges by fixed charges. Fixed charges
consist of interest expense and one third of operating rental expense, which
management believes is representative of the interest component of rental
expenses.
<TABLE>
<CAPTION>
Compass Aerospace
Corporation Brittain Machine, Inc.(1)
for the Nine for the years ended June 30
Year Ended 36 Days Months and
December 31, December 31, 21 days ended
1998 1997 April 21, 1998 1997 1996 1995 1994
-------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest (income) expense, net 8,493 166 385 398 403 359 293
Interest portion of Net Rental 416 53 17 52 40 42 42
Expense
-------------------------- -------------------------------------------------------
Total Fixed Charges 8,909 219 402 450 443 401 335
========================== =======================================================
Earnings
Income (loss) before taxes 2,347 117 7,879 6,114 4,383 (414) 3,154
Fixed Charges 8,909 219 402 450 443 401 335
-------------------------- -------------------------------------------------------
Total Adjusted Earnings 11,256 336 8,281 6,564 4,826 (13) 3,489
========================== =======================================================
Ratio of earnings to fixed charges 1.3 1.5 20.6 14.6 10.9 (0.0) 10.4
========================== =======================================================
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1999 1998
------------------------------
<S> <C> <C>
Fixed Charges
Interest (income) expense, net 5,074 361
Interest portion of Net Rental 206 51
Expense
-------------------------------
Total Fixed Charges 5,280 412
===============================
Earnings
Income (loss) before taxes (2,034) 390
Fixed Charges 5,280 412
-------------------------------
Total Adjusted Earnings 3,246 802
===============================
Ratio of earnings to fixed charges 0.6 1.9
===============================
</TABLE>
(1) Brittain Machine, Inc. is included as the predecessor of Compass Aerospace
Corporation.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF COMPASS AEROSPACE CORPORATION
Aeromil Engineering Company, a Delaware corporation
Barnes Machine, Inc., a Washington corporation
Brittain Machine, Inc., a Kansas corporation
CWE Acquisition Co., a Delaware corporation
Modern Manufacturing, Inc., a Delaware corporation
Pacific Hills Manufacturing Co., a California corporation, doing business as
"Lamsco West, Inc.," "Lamsco NW" and "Lamsco Northwest"
Sea-Lect Products, Inc., a Delaware corporation
Western Methods Machinery Corporation, a California corporation
Wichita Manufacturing, Inc., a California corporation
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 17, 1997 accompanying the
consolidated financial statements of Brittain Machine, Inc. as of June 30,
1997 and for the year then ended and our report dated July 9, 1998
accompanying the consolidated financial statements of Brittain Machine, Inc.
as of April 21, 1998 and for the period July 1, 1997 through April 21, 1998
contained in the Amendment No. 1 to the Compass Aerospace Corporation
Registration Statement (Form S-4 No. 333-75643-01) and Prospectus. We consent
to the use of the aforementioned reports in the Registration Statement and
Prospectus and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
Wichita, Kansas
June 24, 1999
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305-(b) (2)
_________
IBJ WHITEHALL BANK & TRUST COMPANY
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
New York 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
Terence Rawlins, Assistant Vice President
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
COMPASS AEROSPACE CORPORATION
(Exact name of each registrant as specified in its charter)
Delaware 38-3025165
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2029 Century Park, East, Suite 1112
Los Angeles, CA 90067
(Address of principal executive office) (Zip code)
10 1/8% Senior Subordinated Notes due 2005
(Title of Indenture Securities)
-1-
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
New York State Banking Department,
Two Rector Street, New York, New York
Federal Deposit Insurance Corporation,
Washington, D.C.
Federal Reserve Bank of New York Second
District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate
trust powers.
Yes
Item 2. Affiliations with the Obligors.
If the obligors are an affiliate of the trustee,
describe each such affiliation.
The obligors are not an affiliate of the trustee.
-2-
<PAGE>
Item 13. Defaults by the Obligors.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligors are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been a
default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such
default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this
statement of eligibility.
*1. A copy of the Charter of IBJ Whitehall Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460 & 333-46849).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No. 22-19146).
-3-
<PAGE>
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission
File No. 333-46849).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligors and its directors
or officers, the trustee has relied upon information furnished to it by the
obligors.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the
answer to said Item is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2
and 16 of this form since to the best knowledge of the trustee as indicated
in Item 13, the obligors are not in default under any indenture under which
the applicant is trustee.
-4-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, IBJ Whitehall Bank & Trust Company, a corporation
organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of New
York, and State of New York, on the 13th day of May, 1999.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /S/ Terence Rawlins
-------------------------------
Terence Rawlins
Assistant Vice President
-5-
<PAGE>
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the issue by
Compass Aerospace Corporation, of it's 10 1/8% Senior Subordinated
Notes due 2005, we hereby consent that reports of examinations by
Federal, State, Territorial, or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon
request therefor.
IBJ WHITEHALL BANK & TRUST COMPANY
By: /S/ Terence Rawlins
------------------------------
Terence Rawlins
Assistant Vice President
Dated: May 13, 1999
-6-
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
Of New York, New York
And Foreign and Domestic Subsidiaries
Report as of December 31, 1998
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
ASSETS
<S> <C> <C>
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin.........$ 26,852
b. Interest-bearing balances...................................$ 17,489
2. Securities:
a. Held-to-maturity securities.................................$ -0
b. Available-for-sale securities...............................$ 207,069
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs
Federal Funds sold and Securities purchased
under agreements to resell....................................$ 80,389
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income............$ 2,033,599
b. LESS: Allowance for loan and lease losses...........$ 62,853
c. LESS: Allocated transfer risk reserve...............$ -0
d. Loans and leases, net of unearned income,
allowance, and reserve...................................$ 1,970,746
5. Trading assets held in trading accounts..........................$ 848
6. Premises and fixed assets (including capitalized leases).........$ 1,583
7. Other real estate owned..........................................$ -0
8. Investments in unconsolidated subsidiaries and
associated companies..........................................$ -0
9. Customers' liability to this bank on acceptances outstanding.....$ 340
10. Intangible assets................................................$ 11,840
11. Other assets.....................................................$ 66,691
12. TOTAL ASSETS.....................................................$ 2,383,847
</TABLE>
-7-
<PAGE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C> <C>
13. Deposits:
a. In domestic offices....................................$ 804,562
(1) Noninterest-bearing.....................$ 168,822
(2) Interest-bearing........................$ 635,740
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs............................................$ 885,076
(1) Noninterest-bearing.....................$ 16,554
(2) Interest-bearing........................$ 868,522
14. Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold
under agreements to repurchase...........................$ 225,000
15. a. Demand notes issued to the U.S. Treasury...............$ 674
b. Trading Liabilities....................................$ 560
16. Other borrowed money:
a. With a remaining maturity of one year or less..........$ 38,002
b. With a remaining maturity of more than one year........$ 1,375
c. With a remaining maturity of more than three years.....$ 1,550
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding....$ 340
19. Subordinated notes and debentures...........................$ 100,000
20. Other liabilities...........................................$ 74,502
21. TOTAL LIABILITIES...........................................$ 2,131,641
22. Limited-life preferred stock and related surplus............$ N/A
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
EQUITY CAPITAL
<S> <C>
23. Perpetual preferred stock and related surplus...............$ -0
24. Common stock................................................$ 28,958
25. Surplus (exclude all surplus related to preferred stock)....$ 210,319
26. a. Undivided profits and capital reserves.................$ 11,655
b. Net unrealized gains (losses) on available-for-sale
securities..........................................$ 1,274
27. Cumulative foreign currency translation adjustments.........$ -0
28. TOTAL EQUITY CAPITAL........................................$ 252,206
29. TOTAL LIABILITIES AND EQUITY CAPITAL........................$ 2,383,847
</TABLE>
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO OF COMPASS AEROSPACE
CORPORATION FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001081008
<NAME> COMPASS AEROSPACE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,050
<SECURITIES> 0
<RECEIVABLES> 16,162
<ALLOWANCES> 756
<INVENTORY> 32,749
<CURRENT-ASSETS> 62,129
<PP&E> 65,743
<DEPRECIATION> 8,527
<TOTAL-ASSETS> 251,053
<CURRENT-LIABILITIES> 23,726
<BONDS> 195,130
0
0
<COMMON> 248
<OTHER-SE> 28,615
<TOTAL-LIABILITY-AND-EQUITY> 251,053
<SALES> 34,392
<TOTAL-REVENUES> 34,392
<CGS> 24,578
<TOTAL-COSTS> 24,578
<OTHER-EXPENSES> (512)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,074
<INCOME-PRETAX> (2,034)
<INCOME-TAX> (942)
<INCOME-CONTINUING> (1,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,092)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
COMPASS AEROSPACE CORPORATION
OFFER FOR ALL OUTSTANDING
10 1/8% SENIOR SUBORDINATED NOTES DUE 2005
IN EXCHANGE FOR
10 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2005
PURSUANT TO THE PROSPECTUS, DATED [____________], 1999.
- ------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1999,
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ONE BUSINESS DAY PRIOR TO THE EXPIRATION DATE.
- ------------------------------------------------------------------------------
Delivery To: IBJ WHITEHALL BANK & TRUST COMPANY, EXCHANGE AGENT
BY HAND/OVERNIGHT BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSION
DELIVERY: MAIL: NUMBER:
IBJ Whitehall Bank & IBJ Whitehall Bank & Trust (212) 858-2611
Trust Company Company
One State Street P.O. Box 84
New York, New York New York, New York 10274-0084 CONFIRM BY TELEPHONE:
10004 Attn: Reorganization Section
Attn: Securities (212) 858-2103
Processing
Window,
Subcellar One
(SC-1)
For Information Call:
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed
the prospectus, dated , 1999 of Compass Aerospace Corporation, a
Delaware corporation ("Compass"), and this letter of transmittal, which
together constitute Compass' offer to exchange an aggregate principal amount
of up to $110,000,000 of 10 1/8% Series B Senior Subordinated Notes Due 2005
of Compass for a like principal amount of the issued and outstanding
$110,000,000 of 10 1/8% Senior Subordinated Notes Due 2005 of Compass.
For each outstanding note accepted for exchange, the holder of such
outstanding note will receive a Series B Note having a principal amount equal to
that of the surrendered outstanding note. The new notes will bear interest from
and including the date of consummation of the exchange offer. Holders whose
outstanding notes are accepted for exchange will have the right to receive, in
cash, accrued interest thereon to, but not including, the date of consummation
of the exchange offer, such interest to be payable to the registered holders of
the Series B Notes with the first interest payment on the Series B Notes, but
will be deemed to have waived the right to receive
<PAGE>
any payment in respect of interest on the outstanding notes accrued after
such date. Compass reserves the right, at any time or from time to time, to
extend the exchange offer at its discretion, in which event the term
"Expiration Date" shall mean the latest time and date to which the exchange
offer is extended. Compass shall notify the holders of the outstanding notes
of any extension by means of a public announcement prior to 10:00 A.M., New
York City time, on the next business day after the previously scheduled
Expiration Date.
This letter is to be completed by a holder of outstanding notes if (i)
certificates are to be forwarded herewith, or (ii) if a tender of
certificates for outstanding notes, if available, is to be made by book-entry
transfer to the account maintained by the exchange agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer--Book-Entry Transfer" section of the
prospectus. Holders of outstanding notes whose certificates are not
immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their outstanding notes into the
exchange agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this letter to the
exchange agent on or prior to the expiration date, must tender their
outstanding notes according to the guaranteed delivery procedures set forth
in "The Exchange Offer--Guaranteed Delivery Procedures" section of the
prospectus. See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the exchange agent.
The undersigned has completed the appropriate boxes below and signed
this letter to indicate the action the undersigned desires to take with
respect to the exchange offer.
<PAGE>
List below the outstanding notes to which this letter relates. If a space
provided below is inadequate, the certificate numbers and principal amount of
outstanding notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES 1 2 3
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate
Principal Principal
Amount of Amount
Name(s) and Address(es) of Certificate Outstanding Tendered**
Registered Holder(s) (Please fill Number(s)* Note(s)
in, if blank)
- -------------------------------------------------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Total
- -------------------------------------------------------------------------------
* Need not be completed if outstanding notes are being tendered by book-
entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the outstanding notes represented by the outstanding
notes indicated in column 2.
See instruction 2. Outstanding notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof. See Instruction 1.
- -------------------------------------------------------------------------------
</TABLE>
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)___________________________________________
Window Ticket Number (if any)_____________________________________________
Date of Execution of Notice of Guaranteed Delivery________________________
Name of Institution which guaranteed delivery_____________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:___________________________________________________________________________
Address:________________________________________________________________________
_____________________________________________________________________
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the exchange offer, the
undersigned hereby tenders to Compass the aggregate principal amount of
outstanding notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the outstanding notes tendered hereby, the
undersigned hereby sells, assigns and transfers to, or upon the order of,
Compass all right, title and interest in and to such outstanding notes as are
being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the outstanding
notes tendered hereby and that Compass will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim when the same are accepted
by Compass. The undersigned hereby further represents that any new notes
acquired in exchange for outstanding notes tendered hereby will have been
acquired in the ordinary course of business of the person receiving such new
notes, whether or not such person is the undersigned, that neither the Holder
of such outstanding notes nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such new
notes and that neither the holder of such outstanding notes nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities
Act of 1933, as amended (the "Securities Act"), of Compass.
The undersigned also acknowledges that this Exchange Offer is being made
in reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the Series B Notes issued in exchange for the
outstanding notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is (i) an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act, or (ii) a broker-dealer, except as provided
below), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Series B Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangements with any person to participate in the distribution of
such Series B Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of Series B Notes. If the undersigned is a
broker-dealer that will receive Series B Notes for its own account in
exchange for outstanding notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver the prospectus in connection with any resale of such Series B
Notes; however, by so acknowledging and by delivering the prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by Compass to be necessary or desirable to complete the
sale, assignment and transfer of the outstanding notes tendered hereby. All
authority conferred or agreed to be conferred in this letter and every
obligation of the undersigned hereunder shall be binding upon the successors,
assigns, heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by, and shall
survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal Rights" section of the prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Series B Notes (and, if applicable,
substitute certificates representing outstanding notes for any outstanding
notes not exchanged) in the name of the undersigned or, in the case of a
book-entry delivery of outstanding notes, please credit the account indicated
above maintained at the Book-Entry Transfer Facility. Similarly, unless
otherwise indicated under the box entitled "Special Delivery Instructions"
below, please send the Series B Notes (and, if applicable, substitute
certificates representing outstanding notes for any outstanding notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Outstanding Notes."
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF
OUTSTANDING NOTES" ABOVE AND SIGNING THIS LETTER, OR BY CAUSING THE
OUTSTANDING NOTES TO BE TRANSFERRED TO THE EXCHANGE AGENT'S ACCOUNT VIA ATOP
IN THE CASE OF A BOOK-ENTRY TRANSFER, WILL BE DEEMED TO HAVE TENDERED THE
OUTSTANDING NOTES AS SET FORTH ABOVE.
<PAGE>
- ----------------------------------- --------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
To be completed ONLY if To be completed ONLY if
certificates for outstanding notes certificates for outstanding notes
not exchanged and/or Series B not exchanged and/or Series B Notes
Notes are to be issued in the name are to be sent to someone other than
of and sent to someone other than the person or persons whose
the person or persons whose signature(s) appear(s) on this letter
signature(s) appear(s) on this above or to such person or persons at
letter above. an address other than shown in the
box entitled "Description of
Outstanding Notes" on this letter
above.
Issue: Series B Notes and/or
outstanding notes to:
Mail: Series B Notes and/or
outstanding notes to:
Name(s)
---------------------------
(PLEASE TYPE OR PRINT)
Name(s)
- ----------------------------------- ------------------------------
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address
--------------------------- --------------------------------------
(PLEASE TYPE OR PRINT)
- -----------------------------------
(ZIP CODE)
Address
(Complete Substitute Form W-9) -----------------------------
--------------------------------------
(ZIP CODE)
- ----------------------------------- --------------------------------------
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS), OR A BOOK-ENTRY
CONFIRMATION, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
- -------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,1999
X. . . . . . . . . . . . . . . . . . . . . . . . . . . . ,1999
X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,1999
SIGNATURE(s) OF OWNER DATE
Area Code and Telephone Number . . . . . . . . . . . . . . . . . . . . .
If a holder is tendering any outstanding notes, this letter must be
signed by the registered holder(s) as the name(s) appear(s) on the
certificate(s) for the outstanding notes or by any person(s) authorized to
become registered holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
Name(s):
-----------------------------------------------------------------
------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-----------------------------------------------------------------
Address:
-----------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUESTED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
------------------------------------------------------
(AUTHORIZED SIGNATURE)
- -------------------------------------------------------------------------------
(TITLE)
- -------------------------------------------------------------------------------
(NAME AND FIRM)
Dated:
-------------------------------------------------------------------,1999
- -------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
FOR ALL OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2005 IN EXCHANGE
FOR THE 10 1/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2005 OF COMPASS AEROSPACE
CORPORATION
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are
to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange
Offer--Book-Entry Transfer" section of the prospectus. Certificates for all
physically tendered outstanding notes, or Book-Entry Confirmation, as the
case may be, as well as a properly completed and duly executed letter (or
manually signed facsimile thereof) and any other documents required by this
letter, must be received by the exchange agent at the address set forth
herein on or prior to the expiration date, or the tendering holder must
comply with the guaranteed delivery procedures set forth below. Outstanding
notes tendered hereby must be in denominations of principal amount of
maturity of $1,000 and any integral multiple thereof.
Noteholders whose certificates for outstanding notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the exchange agent on or prior to the expiration date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their outstanding notes pursuant to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery Procedures" section of
the prospectus. Pursuant to such procedures,
- - such tender must be made through an Eligible Institution,
- - prior to the expiration date, the exchange agent must receive from such
Eligible Institution a properly completed and duly executed letter (or a
facsimile thereof) and notice of guaranteed delivery, substantially in the
form provided by Compass (by facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of outstanding
notes, the certificate number or numbers of any outstanding notes which
will not be tendered by book-entry transfer, and the amount of outstanding
notes tendered, stating that the tender is being made thereby and
guaranteeing that within three business days after the date of execution of
the notice of guaranteed delivery, the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
letter will be deposited by the Eligible Institution with the exchange
agent, and
- - the certificates for all physically tendered outstanding notes, in proper
form for transfer, or Book-Entry Confirmation, as the case may be, and all
other documents required by this letter, are received by the exchange agent
within three business days after the date of execution of the notice of
guaranteed delivery.
THE METHOD OF DELIVERY OF THIS LETTER, THE OUTSTANDING NOTES AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING
HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR
CONFIRMED BY THE EXCHANGE AGENT. IF OUTSTANDING NOTES ARE SENT BY MAIL, IT
IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT THE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
See "The Exchange Offer" section in the prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the outstanding notes evidenced by a submitted
certificate is to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of outstanding notes to be tendered in the box above
entitled "Description of Outstanding Notes--Principal Amount Tendered." A
reissued certificate representing the balance of untendered outstanding notes
will be sent to such tendering holder, unless otherwise provided in the
appropriate
<PAGE>
box on this letter, promptly after the expiration date. All of the
outstanding notes delivered to the exchange agent will be deemed to have been
tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this letter is signed by the registered holder of the outstanding
notes tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
If any tendered outstanding notes are owned of record by two or more
joint owners, all such owners must sign this letter.
If any tendered outstanding notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this letter as there are different registrations of
certificates.
When this letter is signed by the registered holder or holders of the
outstanding notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the new
notes are to be issued, or any untendered outstanding notes are to be
reissued, to a person other than the registered holder, then endorsements of
any certificates transmitted hereby or separate bond powers are required.
Signatures on such certificate(s) must be guaranteed by an Eligible
Institution.
If this letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed
by an Eligible Institution.
If this letter or any certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and, unless waived by Compass,
proper evidence satisfactory to Compass of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR OUTSTANDING NOTES OR SIGNATURES ON BOND
POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR
TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES OR BY
SUCH OTHER ELIGIBLE INSTITUTION WITHIN THE MEANING OF RULE 17(A)(d)-15 UNDER
THE SECURITIES EXCHANGE ACT OF 1934,(COLLECTIVELY "ELIGIBLE INSTITUTIONS").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OUTSTANDING NOTES ARE TENDERED:
- - BY A REGISTERED HOLDER OF OUTSTANDING NOTES (WHICH TERM, FOR PURPOSES OF
THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER
FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE
HOLDER OF SUCH OUTSTANDING NOTES) TENDERED WHO HAS NOT COMPLETED THE BOX
ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS"
ON THIS LETTER, OR
- - FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of outstanding notes should indicate in the applicable
box the name and address to which Series B Notes issued pursuant to the
exchange offer and/or substitute certificates evidencing outstanding notes
not
<PAGE>
exchanged are to be issued or sent, if different from the name or address of
the person signing this letter. In the case of issuance in a different name,
the employer identification or social security number of the person named
must also be indicated. Noteholders tendering outstanding notes by
book-entry transfer may request that outstanding notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as
such noteholder may designate hereon. If no such instructions are given,
such outstanding notes not exchanged will be returned to the name and address
of the person signing this letter.
5. TAX IDENTIFICATION NUMBER.
Federal income tax law may require that a tendering holder whose
outstanding notes are accepted for exchange must provide the Compass (as
payor) with such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below, which in the case of a tendering holder who is an
individual, is his or her social security number. If Compass is not provided
with the current TIN or an adequate basis for an exemption, such tendering
holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, such tendering holder may be subject to backup
withholding in an amount equal to 31% of all reportable payments made after
the exchange. If withholding results in an overpayment of taxes, a refund
may be obtained.
Exempt holders of outstanding notes (including, among others, all
corporations) are not subject to these backup withholding requirements. See
the enclosed Guidelines of Certification of Taxpayer Identification Number on
Substitute Form W-9 (the "W-9 Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder of outstanding
notes should provide its correct TIN by completing the "Substitute Form W-9"
set forth below, certifying that the TIN provided is correct and as to
certain other matters. If the tendering holder of outstanding notes is a
nonresident alien or foreign entity not subject to backup withholding, such
holder should provide a completed Form W-8, Certificate of Foreign Status.
These forms may be obtained from the exchange agent. If the outstanding
notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the
W-9 Guidelines for instructions on applying for a TIN, check the box in Part
2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN.
6. TRANSFER TAXES.
Compass will pay all transfer taxes, if any, applicable to the transfer
of outstanding notes in exchange for new notes pursuant to the exchange
offer. If however, new notes and/or substitute outstanding notes not
exchanged are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the outstanding notes
tendered hereby, or if tendered outstanding notes are registered in the name
of any person other than the person signing this letter, or if a transfer tax
is imposed for any reason other than the transfer of outstanding notes to
Compass or its order pursuant to the exchange offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted herewith,
the amount of such transfer taxes will be billed directly to such tendering
holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OUTSTANDING NOTES SPECIFIED IN THIS
LETTER.
7. WAIVER OF CONDITIONS.
Compass reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the prospectus.
<PAGE>
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of outstanding notes, by execution of this
letter, shall waive any right to receive notice of the acceptance of their
outstanding notes for exchange.
Neither Compass, the exchange agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of
outstanding notes nor shall any of them incur any liability for failure to
give any such notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES.
Any holder whose outstanding notes have been mutilated, lost, stolen or
destroyed should contact the exchange agent at the address indicated above
for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the prospectus and this letter, may be directed to
the exchange agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: __________________________
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN:___________________
TIN IN THE BOX AT RIGHT AND Social Security Number or
CERTIFY BY SIGNING AND Employer Identification
DATING BELOW Number
- ------------------------------------------------------------------------------
Part 2--TIN Applied For / /
-----------------------------------------------------------
SUBSTITUTE CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY
THAT:
Form W-9 (1) the number shown on this form is my correct Taxpayer
Department of Identification Number (or I am waiting for a number to
the Treasury be issued to me);
Internal Revenue
Service (2) I am not subject to backup withholding either because:
(a) I am exempt from backup withholding, or (b) I have
Payor's Request not been notified by the Internal Revenue Service (the
For Taxpayer "IRS") that I am subject to backup withholding as a
Identification result of a failure to report all interest or
Number ("TIN") dividends, or (c) the IRS has notified me that I am no
and longer subject to backup withholding; and
Certification
(3) any other information provided on this form is true and
correct.
SIGNATURE DATE
----------------------- -----------
- ------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- ------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administrative Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments to me thereafter will be withheld until I provide the
number.
- ----------------------------- -------------------------------
Signature Date
- ------------------------------------------------------------------------------
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
<TABLE>
<CAPTION>
What Name and Number to Provide:
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
For this type of account: Give the Name and Give the Name and
SOCIAL SECURITY For this type of account: EMPLOYER
number of ____ IDENTIFICATION number
of ___
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Individual The individual 6. Sole proprietorship The owner(3)
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on 7. A valid trust, estate, Legal entity (Do not
the account(1) or pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is so designated in
the account title.)(4)
3. Custodian account of The minor(2)
a minor (Uniform Gift
to Minors Act)
4. (a) The usual revocable 8. Corporate The corporation
savings trust (grantor The grantor-
is also trustee) trustee(1) 9. Association, club, The organization
religious, charitable,
educational or other
tax-exempt organization
(b) So-called trust
account that is not a The actual owner(1)
legal or valid trust 10. Partnership The partnership
under State law
5. Sole proprietorship The owner(3) 11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
receives agricultural
program payments
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Show the individual's name. If you are a sole proprietor, you must
furnish your individual name and either your Social Security number or your
employer identification number. You may also enter your business name or
"doing business as" name on the business name line. Enter your name(s) as
shown on your social security card and/or as if was used to apply for your
employer identification number on Form SS-4.
4 List fist and circle the name of the legal trust, estate, or pension
trust.
Note:
(i) If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
(ii) If you are an individual, you must generally provide the name as
shown on your social security card. However, if you have changed
your last name, for instance, due to marriage, without informing the
Social Security Administration of the name change, please enter your
first name, the last name shown on your social security card, and
your new last name.
(iii) For a joint account, only the person whose Taxpayer Identification
Number is shown on Substitute Form w-9 should sign the form.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number:
If you do not have a taxpayer identification number, apply for one
immediately. To apply, obtain Form SS-5, Application for a Social Security
Number Card (for individuals), from your local office of the Social Security
Administration, or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), from your local office of the
Internal Revenue Service.
Payees Exempt from Backup Withholding:
Payees that are exempt from backup withholding with respect to amounts
received in the offer include the following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement account or a custodial account under section 403(b)(7).
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A dealer in securities or commodities required to register in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Exempt payees described above, should file Substitute Form W-9 to avoid
possible erroneous backup withholding. Such payees should furnish their
taxpayer identification number, write "exempt" on the face of the form (Part
II), and sign and date the form.
Exempt Foreign Payees:
A payee that is a nonresident alien individual or foreign entity not subject
to backup withholding should complete and execute Form W-8, Certificate of
Foreign Status, and return the executed form with the Letter of Instructions.
Penalties:
(1) Failure To Furnish Taxpayer Identification Number. --If you fail to
furnish your correct taxpayer's identification number to a payor, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information with Respect to Withholding.--If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information. --Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) Misuse of TINs. --If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
Privacy Act Notice. --Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid,
the acquisition or abandonment of secured property, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or
not you are required to file a tax return. Payors must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a TIN to a payor. Certain penalties may also apply.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
COMPASS AEROSPACE CORPORATION
This form or one substantially equivalent hereto must be used to accept the
exchange offer of Compass Aerospace Corporation ("Compass") made pursuant to the
prospectus, dated [_________], 1999, if:
- - certificates for outstanding notes of Compass are not immediately
available, or
- - the procedure for book-entry transfer cannot be completed on a timely
basis, or
- - time will not permit all required documents to reach the Exchange Agent
prior to 5:00 P.M., New York City time, on the expiration date of the
exchange offer. Such form may be delivered or transmitted by facsimile
transmission, mail or hand delivery to The Bank of New York (the "Exchange
Agent") as set forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender outstanding notes pursuant to the exchange
offer, a completed, signed and dated letter of transmittal relating to the
notes (or facsimile thereof) must also be received by the exchange agent
prior to 5:00 P.M., New York City time, on the expiration date. Capitalized
terms not defined herein are defined in the prospectus.
IBJ WHITEHALL BANK & TRUST COMPANY, EXCHANGE AGENT
IF BY OVERNIGHT CARRIER IF BY REGISTERED OR IF BY FACSIMILE:
OR BY HAND: CERTIFIED MAIL:
IBJ Whitehall Bank & IBJ Whitehall Bank & (212) 858-2611
Trust Company Trust Company
One State Street P.O. Box 84
New York, New York 10004 Bowling Green Station CONFIRM BY TELEPHONE:
Attention: Securities New York, New York
Processing 10274-0084
Window, Attention: Reorganization (212) 858-2103
Subcellar Department
One, (SC-1)
For Information Call:
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the prospectus and the
accompanying letter of transmittal, the undersigned hereby tenders to the
Company the principal amount of outstanding notes set forth below, pursuant
to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the prospectus. By so
tendering, the undersigned does make, at and as of the date hereof, the
representations and warranties of a tendering holder of outstanding notes set
forth in the letter of transmittal.
Principal Amount At Maturity of Outstanding Notes
Tendered:(*)
$______________________________________________
Certificate Nos. (if available):
_______________________________________________
Total Principal Amount at Maturity Represented
by Outstanding Notes Certificate(s)
$______________________________________________
If outstanding notes will be delivered by book-entry transfer
to The Depository Trust Company, provide account number.
Account Number_____________________________
________________________
(*) Must be in denominations of principal amount at maturity of $1,000 and any
integral multiple thereof.
<PAGE>
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _____________________________________ ______________
X _____________________________________ ______________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:_____________________________________________
Must be signed by the holder(s) of the outstanding notes as their name(s)
appear(s) on certificates for outstanding notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this notice of guaranteed
delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): ____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Capacity:_____________________________________________________________________
Address(es):__________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States, or an Eligible Institution within the meaning of Rule
17(A)(d)-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that the certificates representing the principal amount of
outstanding notes tendered hereby in proper form for transfer, or timely
confirmation of the book-entry transfer of such outstanding notes into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures"
section of the prospectus, together with a properly completed and duly
executed letter of transmittal (or a manually signed facsimile thereof) with
any required signature guarantee and any other documents required by the
letter of transmittal, will be received by the Exchange Agent at the address
set forth above, no later than three business days after the date of
execution hereof.
___________________________________ __________________________________________
Name of Firm Authorized Signature
___________________________________ ________________________________________
Address Title
___________________________________ Name:_________________________________
Zip Code (Please Type or Print)
Area Code and Telephone No.________ Dated:_________________________________
NOTE: DO NOT SEND CERTIFICATES FOR OUTSTANDING NOTES WITH THIS FORM.
CERTIFICATES FOR OUTSTANDING NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
EXCHANGE AGENCY AGREEMENT
This Agreement is entered into as of____________________, 1999 between
IBJ Whitehall Bank & Trust Company, a banking corporation organized under the
laws of the State of New York, as Exchange Agent (the "Agent") and Compass
Aerospace Corporation, a corporation organized under the laws of the State of
Delaware (the "Company").
The Company proposes to exchange $110.0 million aggregate principal
amount of the Company's 101/8% Series B Senior Subordinated Notes due 2005,
(the "New Notes" or "Exchange Notes") in exchange (the "Exchange Offer") for
an equal aggregate principal amount of the Company's outstanding 10 1/8%
Senior Subordinated Notes due 2005, (the "Old Notes") pursuant to the
prospectus (the "Prospectus") dated as of____________________________ 1999
and the accompanying Letter of Transmittal. New Notes will be issued in
integral multiples of $1,000 to each tendering holder of the Old Notes. The
Exchange Offer will terminate at 5:00 p.m. New York City Time
on_____________________________, unless extended by the Company in its sole
discretion (the "Expiration Date"). The New Notes are to be issued by the
Company pursuant to the terms of an Indenture dated as of April 21, 1998 (the
"Indenture") between the Company, and IBJ Whitehall Bank & Trust Company
(formerly known as IBJ Schroder Bank & Trust Company), as trustee (the
"Trustee").
Subject to the provisions hereof, the Company hereby appoints and the
Agent hereby accepts the appointment as Agent for the purposes of receiving,
accepting for delivery and otherwise acting upon tenders of the Old Notes
(the "Certificate") in accordance with the form of Letter of Transmittal
attached hereto (the "L/T") and with the terms and conditions set forth
herein and under the caption "The Exchange Offer" in the Prospectus.
The Agent has received the following documents in connection with its
appointment:
(1) L/T
(2) a form of Notice of Guaranteed Delivery
(3) the Prospectus
The Agent is authorized and hereby agrees to act as follows:
(a) to address, and deliver by hand or next day courier, a complete set
of the Exchange Offer Documents to each person who, prior to the
Expiration Date, becomes a registered holder of Old Notes promptly
after such person becomes a registered holder of Old Notes;
<PAGE>
(b) to receive all tenders of Old Notes made pursuant to the Exchange Offer
and stamp the L/T with the day, month and approximate time of receipt;
(c) to examine each L/T and Old Notes received to determine that all
requirements necessary to constitute a valid tender have been met. The
Agent shall be entitled to rely on the electronic messages sent by the
Depository Trust Company ("DTC") regarding ATOP (Automated Tender Offer
Program) delivery of the Notes to the Agent's account at DTC from the DTC
participants listed on the DTC position listing provided to the Agent;
(d) to take such actions necessary and appropriate to correct any irregularity
or deficiency associated with any tender not in proper order;
(e) to follow oral or written instructions given by the Chairman of the Board,
President, Chief Financial Officer or the Secretary of the Company, with
respect to the waiver of any irregularities or deficiencies associated with
any tender;
(f) to hold all valid tenders subject to further instructions from the Chairman
of the Board, President, Chief Financial officer or the Secretary of the
Company;
(g) to render a written report, in the form of Exhibit A attached hereto, on
each business day during the Exchange Offer and promptly confirm, by
telephone, the information contained therein to N. Paul Brost, Chief
Financial Officer of the Company at 310-552-0607.
(h) to follow and act upon any written amendments, modifications or supplements
to these instructions, any of which may be given to the Agent by the
President, Chairman of the Board, Chief Financial Officer or the Secretary
of the Company or such other person or persons as they shall designate in
writing;
(i) to return to the presentors, in accordance with the provisions of the L/T,
any Old Notes that were not received in proper order and as to which the
irregularities or deficiencies were not cured or waived;
(j) in the event the Exchange Offer is consummated, to deliver authenticated
Exchange Notes to tendering Noteholders, in accordance with the
instructions of such Noteholder's specified in the respective L/T's, as
soon as practicable after receipt thereof;
2
<PAGE>
(k) to determine that all endorsements, guarantees, signatures, authorities,
stock transfer taxes (if any) and such other requirements are fulfilled in
connection with any request for issuance of the Exchange Notes in a name
other than that of the registered owner of the Old Notes;
(l) to deliver to, or upon the order of, the Company all Old Notes received
under the Exchange Offer, together with any related assignment forms and
other documents; and
(m) subject to the other terms and conditions set forth in this Agreement to
take all other actions reasonable and necessary in the good faith judgment
of the Agent, to effect the foregoing matters.
The Agent shall:
(a) have no duties or obligations other than those specifically set forth
herein;
(b) not be required to refer to any documents for the performance of its
obligations hereunder other than this Agreement, the L/T and the documents
required to be submitted with the L/T; other than such documents, the Agent
will not be responsible or liable for any terms, directions or information
in the Prospectus or any other document or agreement unless the Agent
specifically agrees thereto in writing;
(c) not be required to act on the directions of any person, including the
persons named above, unless the Company provides a corporate resolution to
the Agent or other evidence satisfactory to the Agent of the authority of
such person;
(d) not be required to and shall make no representations and have no
responsibilities as to the validity, accuracy, value or genuineness of (i)
the Exchange Offer, (ii) any Certificates, L/T's or documents prepared by
the Company in connection with the Exchange Offer or (iii) any signatures
or endorsements, other than its own;
(e) not be obligated to take any legal action hereunder that might, in its
judgement, involve any expense or liability, unless it has been furnished
with reasonable indemnity by the Company;
(f) be able to rely on and shall be protected in acting on the written or oral
instructions with respect to any matter relating to its actions as Agent
specifically covered by this Agreement, of any officer of the Company
authorized to give instructions under paragraph (g) or (h) above;
3
<PAGE>
(g) be able to rely on and shall be protected in acting upon any certificate,
instrument, opinion, notice, letter, telegram or any other document or
security delivered to it and believed by it reasonably and in good faith to
be genuine and to have been signed by the proper party or parties;
(h) not be responsible for or liable in any respect on account of the identity,
authority or rights of any person executing or delivering or purporting to
execute or deliver any document or property under this Agreement and shall
have no responsibility with respect to the use or application of any
property delivered by it pursuant to the provisions hereof;
(i) be able to consult with counsel satisfactory to it (including counsel for
the Company or staff counsel of the Agent) and the advice or opinion of
such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with advice or opinion of such counsel;
(j) not be called on at any time to advise, and shall not advise, any person
delivering an L/T pursuant to the Exchange Offer as to the value of the
consideration to be received;
(k) not be liable for anything which it may do or refrain from doing in
connection with this Agreement except for its own gross negligence, willful
misconduct or bad faith;
(l) not be bound by any notice or demand, or any waiver or modification of this
Agreement or any of the terms hereof, unless evidenced by a writing
delivered to the Agent signed by the proper authority or authorities and,
if the Agent's duties or rights are affected, unless the Agent shall give
its prior written consent thereto;
(m) have no duty to enforce any obligation of any person to make delivery, or
to direct or cause any delivery to be made, or to enforce any obligation of
any person to perform any other act; and
(n) have the right to assume, in the absence of written notice to the contrary
from the proper person or persons, that a fact or an event by reason of
which an action would or might be taken by the Agent does not exist or has
not occurred without incurring liability for any action taken or omitted,
or any action suffered by the Agent to be taken or omitted, in good faith
or in the exercise of the Agent's best judgement, in reliance upon such
assumption.
The Agent shall be entitled to compensation as set forth in Exhibit B attached
hereto.
4
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The Company covenants and agrees to reimburse the Agent for,
indemnify it against, and hold it harmless from any and all reasonable costs
and expenses (including reasonable fees and expenses of counsel and allocated
cost of staff counsel) that may be paid or incurred or suffered by it or to
which it may become subject without gross negligence, willful misconduct or
bad faith on its part by reason of or as a result of its compliance with the
instructions set forth herein or with any additional or supplemental written
or oral instructions delivered to it pursuant hereto, or which may arise out
of or in connection with the administration and performance of its duties
under this Agreement. The Company agrees to promptly notify the Agent of any
extension of the Expiration Date.
This Agreement shall be construed and enforced in accordance with the
laws of the State of New York and shall inure to the benefit of, and the
obligations created hereby shall be binding upon, the successors and assigns
of the parties hereto. The parties agree to submit and to the exclusive
jurisdiction of the federal or state courts located in the State of New York,
New York County.
Unless otherwise expressly provided herein, all notices, requests,
demands and other communications hereunder shall be in writing, shall be
delivered by hand, facsimile or by First Class Mail, postage prepaid, shall
be deemed given when received and shall be addressed to the Agent and the
Company at the respective addresses listed below or to such other addresses
as they shall designate from time to time in writing, forwarded in like
manner.
If to the Agent, to: IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
Attention: Reorganization Operations Dept.
Telephone: (212) 858-2103
Facsimile: (212) 858-2611
with copies to: IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
Attn: Corporate Finance Trust Services
Telephone: (212) 858-2657
Facsimile: (212) 858-2952
If to the Company, to: Compass Aerospace Corporation
1501 Hughes Way, Suite 400
Long Beach, California 90810
Attn: N. Paul Brost
Telephone: (310) 522-0600
Facsimile: (310) 522-0601
5
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with copies to: Morgan, Lewis & Bockius LLP
300 South Grand Avenue, 22nd Floor
Los Angeles, California 90071
Attn: Peter P. Wallace, Esq.
Telephone: (213) 612-2532
Facsimile: (213) 612-2554
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf by their officers thereunto duly authorized, all
as of the day and year first above written.
IBJ WHITEHALL BANK & TRUST COMPANY
By:
-------------------------------------
COMPASS AEROSPACE CORPORATION
By:
-------------------------------------
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EXHIBIT A
SAMPLE REPORT
Date:_____________________________
Report Number:____________________
As of Date:_______________________
Ladies & Gentlemen:
As Exchange Agent for the Exchange Offer dated_______, 1999, we hereby render
the following report:
Principal Amount previously received: ________________
Principal Amount received today: ________________
Principal Amount received against Guaranteed Deliveries: ________________
Principal Amount withdrawn today: ________________
TOTAL PRINCIPAL AMOUNT RECEIVED TO DATE: ________________
________________
RECAP OF PRINCIPAL AMOUNT REPRESENTED BY GUARANTEES
Guarantees previously outstanding: ________________
Guarantees received today: ________________
Guarantees settled today: ________________
Guarantees withdrawn today: ________________
Guarantees outstanding: ________________
TOTAL PRINCIPAL AMOUNT AND GUARANTEES OUTSTANDING: ________________
________________
Very truly yours,
Reorganization Operations Dept.
<PAGE>
EXHIBIT B
COMPENSATION
THE AGENT FOR SERVING AS THE EXCHANGE AGENT
PURSUANT TO THIS AGREEMENT, SHALL RECEIVE A FEE OF
$2,500, PAYABLE UPON COMMENCEMENT OF THE EXCHANGE
OFFER, AND THE AGENT'S OUT-OF-POCKET EXPENSES
INCURRED IN CONNECTION WITH COMPLETING ITS DUTIES
PURSUANT TO THIS AGREEMENT.
