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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1999
REGISTRATION NO 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMPASS AEROSPACE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 3728 95-4659126
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1501 Hughes Way, Suite 400
Long Beach, California 90815
(310) 522-0600
N. Paul Brost
Vice President, Chief Financial Officer and Treasurer
Compass Aerospace Corporation
1501 Hughes Way, Suite 400
Long Beach, California 90815
(310) 522-0600
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
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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Jurisdiction Primary Standard IRS
Name of Additional of Industrial Employee
Registrants* Incorporation Classification Identification Numbers
Number
<S> <C> <C> <C>
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 California 3728 95-3195940
Corporation
Wichita Manufacturing, Inc. California 3728 33-0536613
</TABLE>
* 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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Title Of Each Class of Securities Amount To Be Proposed Maximum Proposed Maximum Aggregate Amount Of
To Be Registered Registered Offering Price 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)
</TABLE>
(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) of
the Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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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.
SUBJECT TO COMPLETION DATED APRIL 2, 1999
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. (collectively, the "Guarantors")
---------------------------------------
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 (the
"Outstanding Notes") 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
---------------------------------------
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.
---------------------------------------
The date of this Prospectus is , 1999
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TABLE OF CONTENTS
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Page
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Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Unaudited Pro Forma Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 22
Selected Historical Consolidated Financial Data. . . . . . . . . . . . . . . . . . 24
Management's Discussion and Analysis of Consolidated Financial Condition
and Consolidated Results of Operations . . . . . . . . . . . . . . . . . . . . . 26
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Description of Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 55
Description of the New Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Certain United States Federal Income Tax Consequences. . . . . . . . . . . . . . . 82
Certain United States Federal Income Tax Consequences to Non-U.S. Holders. . . . . 82
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
</TABLE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. 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,
- Our ability to integrate acquired businesses,
- Our future capital needs,
- Our ability to compete, including internationally, and
- Our ability to implement a Year 2000 readiness program.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed in this Prospectus might
not occur.
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AVAILABLE INFORMATION
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by us with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"). As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto. As such we make
in this Prospectus reference to the Registration Statement and to the exhibits
and schedules thereto. For further information about us and about the
securities we hereby offer, you should consult the Registration Statement and
the exhibits and schedules thereto. 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, as
amended (the "Exchange Act"), and in accordance therewith 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. 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 such 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 "NEW NOTES"). THE TERMS "COMPASS,"
THE "COMPANY," "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 ("AEROMIL"), BARNES MACHINE,
INC. ("BARNES MACHINE"), BRITTAIN MACHINE, INC. ("BRITTAIN MACHINE"), MODERN
MANUFACTURING, INC. ("MODERN"), PACIFIC HILLS MANUFACTURING CO. (FORMERLY
LAMSCO WEST, INC., "PACIFIC HILLS"), SEA-LECT PRODUCTS, INC. (TOGETHER WITH ITS
FORMER SUBSIDIARY J&J LEASING, INC., "SEA-LECT"), WESTERN METHODS MACHINERY
CORPORATION ("WESTERN METHODS") AND WICHITA MANUFACTURING, INC. ("WICHITA").
THE EXCHANGE OFFER
On April 21, 1998 we completed the private offering of $110.0 million of
Outstanding Notes. We entered into a registration rights agreement with the
initial purchasers in the private offering in which we agreed, among other
things, to deliver to you this Prospectus and to complete the Exchange Offer
within 330 days of the issuance of the 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. If a
registration statement was not filed within 240 days, or was not declared
effective within 300 days, of the issuance date of the Outstanding Notes, or the
Exchange Offer is not completed within 30 days after a registration statement is
declared effective, or a Shelf Registration Statement is not declared effective
on or prior to the 60th day after the obligation to file a Shelf Registration
Statement arises, we agreed to pay certain additional interest on the
Outstanding Notes until the Exchange Offer is completed. Increased interest is
currently accruing. You should read the discussion under the headings "Summary
Description of the New 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 New 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 New 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 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. See "Management's Discussion and Analysis of
Consolidated Financial Condition and Consolidated Results of Operations--
Consolidated Results of Operations" and "The Business--Compass." These
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 ("CNC") 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, as well as three-spindle five-axis gantry mills. We
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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 (collectively, "Boeing"),
- - certain other commercial aircraft manufacturers, including certain models
(A320, A330, A340) produced by Airbus Industrie ("Airbus")
- - 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 year ended December 31, 1998 we generated combined pro forma
revenues and EBITDA of approximately $183.4 million and $52.6 million,
respectively. At December 31, 1998 we had a total revenue backlog of
approximately $145.0 million, of which approximately $90.0 million is
deliverable in 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 result of the aircraft manufacturers' new manufacturing and
purchasing practices, the supplier industry has been consolidating at an
increasing pace in recent years and 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;
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- - 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 90815 and 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 New Notes. The New Notes will be obligations of Compass
entitled to the benefits of the indenture governing the Outstanding Notes and
will be irrevocably and unconditionally guaranteed by each of Compass'
subsidiaries. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Outstanding Notes, except that
the New Notes have been registered under the Securities Act and therefore are
not entitled to the benefits of the registrations rights granted under the
registration rights agreement, executed as part of the offering of the
Outstanding Notes, dated April 21, 1998 by and among Compass and Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), BancBoston Securities Inc.
("BSI") and Libra Investments, Inc. ("Libra") as the initial purchasers of
the Outstanding Notes.
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Termination of Certain Rights. . . You are entitled to exchange your notes
for registered 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 New 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.
At this date there is $110.0 million
principal amount of notes outstanding.
We will issue registered notes on or
promptly after the expiration of the
Exchange Offer.
Resale of the New Notes. . . . . . Based on an interpretation of the staff
of the 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;
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- 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.
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 New
Notes and Outstanding Notes. . . . The New Notes will bear interest from
their date of issuance. Holders of
Outstanding Notes whose notes are
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 New Notes.
Consequently, holders who exchange their
Outstanding Notes for New 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 New
Notes to be issued in the Exchange
Offer) that they would have received had
they not accepted the Exchange Offer.
Termination of the
Exchange Offer . . . . . . . . . . We may terminate the Exchange Offer if
we determine that 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 our Company 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
Outstanding Notes. . . . . . . . . If you are a holder of a note and you
wish to tender your 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:
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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
- 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, (i) 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, (ii) 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 (iii) 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 Beneficial Owners. . . . . . . If you are the beneficial owner of
Outstanding Notes and 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 such
person in whose name your notes are
registered promptly and instruct such
person to tender on your behalf. If you
are a beneficial owner and you
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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.
Guaranteed Delivery
Procedures . . . . . . . . . . . . If you wish to tender your notes and
time will not permit 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 and
Delivery of New Notes . . . . . . Subject to certain conditions (as
summarized above in "Termination of the
Exchange Offer" and described 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 Consequences . . . . . . . . . We believe the exchange of the New Notes
for the 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 and the
facsimile for the Exchange Agent is
(212) 858-2611.
</TABLE>
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<PAGE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the Outstanding Notes and the New Notes are identical in all
material respects, except for certain transfer restrictions and registration
rights relating to the Outstanding Notes.
<TABLE>
<S> <C>
Notes Offered. . . . . . . . . . . $110.0 million aggregate principal
amount of 101/8% 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 New Notes will be unsecured senior
subordinated obligations and will be
subordinated to all our existing and
future senior indebtedness. The New
Notes will rank senior to or equal to
all our future subordinated
indebtedness. Because the New Notes are
subordinated, in the event of
bankruptcy, liquidation or dissolution,
holders of the New 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 New
Notes--Subordination" and "Description
of the New Notes--Certain Definitions"
sections of this Prospectus.
At December 31, 1998, we had outstanding
$81.0 million of senior indebtedness and
$110.0 million of senior subordinated
indebtedness.
Guarantees . . . . . . . . . . . . The New Notes will be jointly and
severally, 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
December 31, 1998 our subsidiaries had
$6.0 million of indebtedness
outstanding.
Optional Redemption. . . . . . . . We may redeem the New 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 thereof, plus accrued interest,
if at least 65% of the aggregate
principal amount of the notes originally
issued remains outstanding after such
redemption. See "Description of the New
Notes--Optional Redemption."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Change of Control. . . . . . . . . Upon certain change of control events,
each holder of New Notes may require us
to repurchase all or a portion of its
New Notes at a purchase price equal to
101% of the principal amount thereof,
plus accrued interest. See "Description
of the New Notes--Certain Covenants"
and "Description of the New Notes--
Certain Definitions" for the definition
of "Change of Control."
Certain Covenants. . . . . . . . . The indenture governing the New Notes
contains covenants that, among other
things, will limit our ability and the
ability of our restricted subsidiaries
to:
- incur additional indebtedness,
- issue Disqualified Capital Stock,
- pay dividends or make other
distributions with respect to our
capital stock,
- create certain liens,
- sell certain assets,
- sell the capital stock of our
subsidiaries,
- engage in certain transactions with
affiliates, and
- effect certain consolidations or
mergers.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description
of the New Notes" in this Prospectus.
Exchange Offer;
Registration Rights. . . . . . . . Under a registration rights agreement
executed as part of the offering of
the Outstanding Notes, we have agreed to:
- file a registration statement
within 240 days after the issue
date of the Outstanding Notes
enabling note holders to exchange
the privately 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.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
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
yet having been declared effective by
the Commission, liquidated damages are
currently accruing at the rate of
$11,000 per week in the aggregate for
the $110.0 million principal amount of
Outstanding Notes. See "The Exchange
Offer--Certain Conditions of the
Exchange Offer."
Risk Factors . . . . . . . . . . . See "Risk Factors" for a discussion of
factors you should carefully consider
before deciding to invest in the notes.
</TABLE>
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<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 (date of incorporation) through December 31, 1997 and for the year
ended December 31, 1998. Such financial statements have been audited by Ernst &
Young LLP, independent auditors.
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
36 days Year
Ended Ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
(dollars in thousands)
Income Statement Data:
Revenues ......................................... $ 3,057 $ 96,547
Gross Profit ..................................... 671 26,137
Operating Income ................................. 267 11,600
Other Data:
Cash flow provided by (used in) operations ....... $ 269 $ (6,677)
EBITDA (1) ....................................... 486 20,550
EBITDA margin .................................... 15.9% 21.3%
Depreciation and Amortization .................... $ 219 $ 8,440
Capital Expenditures ............................. 25 5,701
Balance Sheet Data (at period end):
Cash and Cash Equivalents ........................ $ 443 $ 7,871
Total Assets ..................................... 33,789 255,505
Long Term Debt (including current portion) ....... 20,585 196,968
Stockholders' Equity ............................. 9,074 29,955
</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 is not indicative
of Compass' operating performance, does not provide a measure of liquidity
and does not represent available or discretionary funds of Compass.
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. See "Management's
Discussion and Analysis of Consolidated Financial Condition and Consolidated
Results of Operations--Consolidated Results of Operations."
<TABLE>
<CAPTION>
Brittain Machine
Brittain Machine for the for the period Compass for the Compass for the
Years Ended from July 1, 1997 36 days Ended Year Ended
June 30, through April 21, December 31, December 31,
1994 1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges(1) 10.4x (0.2)x 10.7x 8.4x 20.5x 1.5x 1.3x
</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 $757,000.
14
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this Prospectus before deciding to invest in the notes.
WE HAVE A LIMITED COMBINED OPERATING HISTORY AND 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 and 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. 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 the recent 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
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. 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 or 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.
WE ARE DEPENDENT ON THE COMMERCIAL AIRCRAFT INDUSTRY WHICH HAS HISTORICALLY BEEN
HIGHLY CYCLIC
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. See "Business--Industry Overview
and Trends."
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
15
<PAGE>
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
We manufacture parts to exact specifications provided by our aerospace
customers in engineering drawings. See "Business--Operations--Certification" and
"Business--Sales and Marketing." 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 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
This Prospectus contains forward looking statements which involve risks and
uncertainties. Those statements appear in a number of places in this Prospectus
and include statements regarding our intent, belief or current expectations,
including statements made with respect to future acquisitions, industry trends,
the on-going needs of our existing customers, especially Boeing, our ability to
integrate the operations of our subsidiaries and of future acquisitions, our
ability to expand our customer base and our future operating performance. 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. Any
delays or unexpected costs incurred in connection with the integration of
acquired companies could have a material adverse effect on our business,
financial condition or results of operations.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL AND ON THE CONTINUING AVAILABILITY OF
A SUPPLY OF QUALIFIED PERSONNEL
Our success depends to an extent on our ability to retain and attract
existing and new key personnel. We have entered into employment agreements with
Alexander Hogg, Chief Executive Officer and President and certain other key
personnel, but we cannot assure you that such individuals will remain with
Compass throughout the terms of their agreements, or thereafter. Although we
believe replacement personnel, including persons already employed by Compass,
could be found, the loss of the services of one or more of these key employees
before we are able to attract and retain qualified replacement personnel could
have a material adverse effect on our business, financial condition or results
of operations.
Our ability to attract and retain skilled personnel is also important to
our business. Competition for qualified personnel in the aerospace industry is
intense. We may not be able to retain our existing staff or fill new positions
or vacancies created by expansion or turnover.
16
<PAGE>
WE HAVE A SIGNIFICANT AMOUNT OF DEBT
At December 31, 1998 we had approximately $197.0 million of consolidated
indebtedness outstanding, approximately $7.9 million of cash, approximately
$255.5 million of total assets, approximately $121.3 million of total tangible
assets and approximately $30.0 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 (total debt less cash)
equal to 3.6 times pro forma combined 1998 EBITDA. See "Capitalization,"
"Management's Discussion and Analysis of Consolidated Financial Condition and
Consolidated Results of Operations" and "Unaudited Pro Forma Financial Data."
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 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.
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.
WE OPERATE IN A COMPETITIVE INDUSTRY
We compete with a number of established companies that may have
significantly greater financial, technological and marketing resources than we
do. Our primary competitors in the parts manufacturing business for the
structural frames of aircraft are Stellex Aerospace, Ducommun Incorporated and
The Triumph Group, Inc., each of which has significantly greater financial and
marketing resources than we do. Our ability to compete depends on our continued
certification under customer quality assurance programs, such as Boeing's
D1-9000 certification program, high product performance, timely deliveries,
competitive prices and superior customer service and support. We cannot assure
you that we will be able to compete successfully with respect to these or other
factors. See "Business--Competition."
OUR CONTRACTS ASSOCIATED WITH OUR BACKLOG COULD BE TERMINATED
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. See "Business--Backlog."
17
<PAGE>
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 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 SUFFER A LOSS 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.
WE ARE DEPENDENT UPON THE AVAILABILITY OF RAW MATERIALS
We utilize substantial amounts of aircraft-quality metals including
aluminum and titanium. In the recent past, there have been significant increases
in the price of titanium. We cannot assure you that we will be able to purchase
such items at all times in sufficient quantities or on satisfactory terms and
conditions.
FRAUDULENT TRANSFER STATUTES MAY LIMIT YOUR RIGHTS AS A NOTE HOLDER
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.
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<PAGE>
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
(including contingent or unliquidated 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 matured.
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
December 31, 1998 we had outstanding $81.0 million of senior indebtedness and
$110.0 million of senior subordinated indebtedness and our subsidiaries had
$6.0 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. See "Description of Notes--Subordination."
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. See "--Fraudulent Transfer Considerations" and "Description of
the New Notes." We cannot assure you that our subsidiaries will make sufficient
dividend payments to enable us to meet our obligations under the notes.
RESTRICTIVE COVENANTS IN OUR INDENTURE AND OUR CREDIT AGREEMENT MAY ADVERSELY
AFFECT US
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;
- 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. Our ability to meet such financial ratios and
tests may be affected by events beyond our control. We cannot assure that we
will meet such tests. A breach of any of these covenants could result in an
19
<PAGE>
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. See "Description of the
Notes--Certain Covenants" and "Description of Credit Agreement."
NO PUBLIC TRADING MARKET FOR THE NOTES EXISTS
There has not been an established trading market for the notes. Although
the initial purchasers have told us they currently make a market in the
Outstanding Notes, and, if issued, intend to make a market in the New 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 New
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 New 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 shall 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 and, if such transfer is for an aggregate principal
amount of Outstanding Notes less than $250,000, 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.
20
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and consolidated
capitalization of Compass at December 31, 1998. 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 DECEMBER 31,
1998
---------------
<S> <C>
(DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS.................................. $ 7,871
---------------
---------------
DEBT (INCLUDING CURRENT PORTION):
Notes ......................................... $ 110,000
Term Loan A....................................... 35,000
Term Loan B....................................... 45,000
Acquisition Line.................................. 1,000
Capital leases and other.......................... 5,968
---------------
TOTAL DEBT............................... $ 196,968
STOCKHOLDERS' EQUITY:
Common stock...................................... 248
Additional paid-in capital........................ 28,718
Retained earnings................................. 989
---------------
TOTAL STOCKHOLDERS' EQUITY............... 29,955
---------------
TOTAL CAPITALIZATION..................... $ 226,923
---------------
---------------
</TABLE>
21
<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>
COMPANY
PRO FORMA
COMPANY COMPANY YEAR ENDED
YEAR ENDED 1998 ACQUISITIONS FROM COMBINED DECEMBER 31,
DECEMBER 31, JANUARY 1, 1998 THROUGH WITH ADJUSTMENTS (4) 1998 (5)
(DOLLARS IN THOUSANDS) 1998 (1) THE DATE OF ACQUISITION (2) 1998 ACQUISITIONS (3) (UNAUDITED) (UNAUDITED)
------------ --------------------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................... $ 96,547 $86,897 $183,444 $ 0 $183,444
Cost of goods sold.......... 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....................... 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) operations...... $ (6,677) $14,179 $ 7,502 $ 760 $ 8,262
EBITDA (6).................. 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................ 255,505 255,505 255,505
Total debt (including
current portion).......... 196,968 196,968 196,968
Stockholders' equity
(deficit)................. 29,955 29,955 29,955
</TABLE>
___________
(1) Reflects the results of operations of Brittain Machine, Wichita, 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.
22
<PAGE>
(2) Reflects the results of operations of: (a) Brittain Machine, Wichita 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.
(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, Barnes
Machine, Sea-Lect, and Pacific Hills.
(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.
- 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.
- 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. Compass is under no obligation
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) 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 is not indicative of Compass' operating performance, does not
provide a measure of liquidity and does not represent available or
discretionary funds of Compass.
23
<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 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.
<TABLE>
<CAPTION>
BRITTAIN
MACHINE FOR COMPASS
THE PERIOD FOR THE COMPASS
FROM JULY 1, 36 DAYS FOR THE
BRITTAIN MACHINE FOR THE YEARS 1997 THROUGH ENDED YEAR ENDED
ENDED JUNE 30, APRIL 21, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998 1997 1998
---- ---- ---- ---- ---- ---- ----
(unaudited)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues ................. $ 20,788 $ 19,244 $ 26,892 $ 35,481 $ 49,682 $ 3,057 $ 96,547
Cost of goods sold ....... 14,729 16,708 19,076 25,656 34,640 2,386 70,410
-----------------------------------------------------------------------------------------------------
Gross profit ............. 6,059 2,536 7,816 9,825 15,042 671 26,137
Selling, general and
administrative expenses .. 2,156 2,654 2,353 2,770 6,798 404 14,537
-----------------------------------------------------------------------------------------------------
Operating income (loss) .. 3,903 (118) 5,463 7,055 8,244 267 11,600
Interest (income)
expense, net ............. 293 301 403 398 386 166 8,493
Other (income) expense ... 456 (5) 677 162 (20) (16) 670
-----------------------------------------------------------------------------------------------------
Income (loss) before
taxes .................... 3,154 (414) 4,383 6,114 7,878 117 2,437
Income taxes ............. 1,282 (194) 1,637 2,208 2,901 43 1,522
-----------------------------------------------------------------------------------------------------
Net income (loss) ........ $ 1,672 $ (220) $ 2,746 $ 3,906 $ 4,977 $ 74 $ 915
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
OTHER DATA:
Net cash flow provided
by (used in) operations .. $ 2,858 $1,1027 $ 2,381 $ (155) $ 7,978 $ 269 $ (6,667)
EBITDA (1) ............... 4,999 1,185 6,855 8,724 9,755 486 20,550
EBITDA margin ............ 24.0% 6.2% 25.5% 24.6% 19.6% 15.9% 21.3%
Depreciation and
amortization ............. 1,096 1,303 1,392 1,669 1,511 219 8,440
Capital
expenditures ............. 1,056 2,575 1,519 1,072 3559 25 5,701
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents .............. $ 589 $ 164 $ 91 $ 455 $ 1,683 $ 443 $ 7,871
24
<PAGE>
Total assets ............. 15,110 17,290 22,095 28,602 $ 32,776 33,789 255,505
Total debt (including
current portion) ......... 3,957 5,131 4,495 3,950 3,775 20,585 196,968
Stockholders'
equity ................... 8,834 8,614 11,360 15,266 20,243 9,074 29,955
</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 is not indicative of Compass' operating performance, does not
provide a measure of liquidity and does not represent available or
discretionary funds of Compass.
25
<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" and the consolidated
financial statements and notes related thereto of Compass and its
predecessor, Brittain Machine, appearing elsewhere in this Prospectus and
other more detailed financial data appearing elsewhere herein.
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 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 YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE 36 DAYS ENDED
DECEMBER 31, 1997
REVENUES. Revenues increased $93.5 million to $96.6 million for the
year ended December 31, 1998 from $3.1 million for the 36 days ended December
31, 1997. The increase was attributable to an increase in net sales
resulting from the acquisitions of Brittain Machine, Barnes Machine, Wichita,
Sea-Lect and Pacific Hills, and a full year of operations of Aeromil and
Western Methods in 1998.
COST OF SALES. Cost of sales increased $68.0 million to $70.4 million for
the year ended December 31, 1998 from $2.4 million for the 36 days ended
December 31, 1997. 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 72.9% for the year ended December 31, 1998 from 78.1% for
the 36 days ended December 31, 1997. This percentage decrease was primarily
attributable to the aforementioned acquisitions which provided a higher level
of average margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $14.1 million to $14.5 million for the year
ended December 31, 1998 from $0.4 million for the 36 days ended December 31,
1997. 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 15.1% for the year ended December 31, 1998 from 13.2% for the 36
days ended December 31, 1997. Excluding the effect of certain non-cash
compensation and consulting fees related to stock grants, selling, general and
administrative expenses as a percentage of revenues was 14.6% for the year ended
December 31, 1998.
26
<PAGE>
OPERATING INCOME. Operating income increased $11.3 million to $11.6
million for the year ended December 31, 1998 from $0.3 million for the 36 days
ended December 31, 1997. 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 12.0% for the year ended December 31,
1998 from 8.7% for the 36 days ended December 31, 1997.
INTEREST EXPENSE. Interest expense increased $8.3 million to $8.5 million
for the year ended December 31, 1998 from $0.2 million for the 36 days ended
December 31, 1997. The increase in interest expense was primarily attributable
to increased borrowings in connection with the acquisitions completed by Compass
in 1998 and to a full year of borrowings in connection with the acquisitions
completed by Compass in 1997].
NET CASH FLOW PROVIDED BY (USED IN) OPERATIONS. Net cash from
operations decreased $7.0 million to net cash used in operations of $6.7
million for the year ended December 31, 1998 from $0.3 million of net cash
from operations for the 36 days ended December 31, 1997. The primary uses of
cash during the year ended December 31, 1998 related to increased
inventories, and increased accounts receivable and deferred loan fees partly
offset by net income, non-cash charges to operations for depreciation and
amortization, non-cash compensation and deferred taxes, and a net increase in
accounts payable and accrued expenses.
EBITDA. EBITDA increased $20.1 million to $20.6 million for the year
ended December 31, 1998 from $0.5 million for the 36 days ended December 31,
1997 as a result of the factors discussed above. EBITDA as a percentage of
revenues increased to 21.2% for the year ended December 31, 1998 from 15.9% for
the 36 days ended December 31, 1997.
PROVISION FOR INCOME TAXES. Compass' provision for income taxes differs
from the federal statutory rate principally due to state income taxes (net of
federal income tax benefit) and the amortization of goodwill attributable to
certain acquisitions which is not deductible for tax purposes.
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 $4.0 million to $6.8 million for the period
from July 1, 1997 to April 21, 1998 from $2.8 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 7.8% 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 $1.1 million to $8.2 million
for the period from July 1, 1997 through April 21, 1998 from $7.1 million for
the year ended June 30, 1997 as a result of the factors discussed above.
Operating income as a percentage of revenues decreased to 16.6% for the period
from July 1, 1997 through April 21, 1998 from 19.9% for the year ended June 30,
1997.
27
<PAGE>
NET CASH FLOW PROVIDED BY (USED IN) OPERATIONS. Net cash flow from
operations increased $8.2 million to $8.0 million for the period from July 1,
1997 through April 21, 1998 from net cash used in operations 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.
EBITDA. EBITDA increased $1.1 million to $9.8 million for the period
from July 1, 1997 through April 21, 1998 from $8.7 million for the year ended
June 30, 1997 as a result of the factors discussed above. EBITDA as a
percentage of revenues decreased to 19.6% for the period from July 1, 1997
through April 21, 1998 from 24.6% for the year ended June 30, 1997, primarily
as a result of increased selling, general and administrative expense related
to the non-recurring bonuses mentioned 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 $0.4 million to $2.8 million for the year
ended June 30, 1997 from $2.4 million for the year ended June 30, 1996.
Selling, general and administrative expense as a percentage of revenues
decreased to 7.8% for the year ended June 30, 1997 from 8.7% 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 $1.6 million to $7.1
million for the year ended June 30, 1997 from $5.5 million for the year ended
June 30, 1996 as a result of the factors discussed above. Operating income
as a percentage of revenues decreased to 19.9% for the year ended June 30,
1997 from 20.3% for the year ended June 30, 1996.
NET CASH FLOW PROVIDED BY (USED IN) OPERATIONS. Net cash from
operations decreased $2.6 million to net cash used in operations of $0.2
million for the year ended June 30, 1997 from $2.4 million of net cash from
operations 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.
EBITDA. EBITDA increased $1.8 million to $8.7 million for the year ended
June 30, 1997 from $6.9 million for the year ended June 30, 1996 as a result of
the factors discussed above. EBITDA as a percentage of revenues decreased to
24.6% for the year ended June 30, 1997 from 25.5% for the year ended 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 December 31, 1998 Compass had cash of approximately $7.9 million, working
capital of approximately $38.1 million and total debt (including the current
portion of long term debt) of approximately $197.0 million.
On April 21, 1998, Compass completed the private offering of $110.0
million of Outstanding Notes. The net cash proceeds of $106.7 million (after
fees and expenses of $3.3 million) from the issuance and sale of the
Outstanding Notes were used to repay existing bank debt, to finance
acquisitions and for
28
<PAGE>
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 (the "Credit Agreement"), with BankBoston 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. ("BRSI"), an affiliate of BankBoston, as arranger, providing for
borrowing availability of up to $170.0 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 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 $65 million acquisition line (the "Acquisition Line"). At
December 31, 1998 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 and the remaining $30.0 million of the Acquisition
Line will become available provided Compass raises one dollar of equity for
every additional dollar of borrowings over the initial $35 million of
availability. See "Description of Credit Agreement." The Credit Agreement
replaced and terminated a $20.0 million senior secured revolving credit facility
with BankBoston, N.A. ("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 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.
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. 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. Compass used $6.7 million in net cash
for operating activities for the year ended December 31, 1998.
Compass' capital expenditures for the year ended December 31, 1998 were
approximately $5.7 million. These 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. See
"Risk Factors." 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
29
<PAGE>
rates along the entire interest rate yield curve would adversely affect the net
fair value of all interest sensitive financial instruments by $1.2 million at
December 31, 1998. 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. See "Description of the New Notes--Optional
Redemption."
INFLATION
Compass believes that inflation has not had a material impact on its
results of operations for the 36 days ended December 31, 1997 and the year ended
December 31, 1998.
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,
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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.
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 December 31, 1998 Compass had spent an estimated $0.2 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 DLJ, BSI
and Libra (the "Initial Purchasers"), pursuant to a Purchase Agreement dated
April 15, 1998 (the "Purchase Agreement") 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 (i) file
with the Commission a registration statement under the Securities Act with
respect to the New Notes within 240 days after the date of the original
issuance of the Outstanding Notes (the "Issue Date"), (ii) 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 (iii) 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. The Registration Statement of which this Prospectus is a
part is intended to satisfy such obligations of Compass under the
Registration Rights Agreement. See "--Certain Conditions of the Exchange
Offer."
TERMS OF THE EXCHANGE OFFER
Compass hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of New Notes for each $1,000 in principal amount of the
Outstanding Notes. New 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 such holder's 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 New Notes under the Indenture will be
identical in all material respects to the form and terms of the Outstanding
Notes. The New 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 New Notes will bear
interest from their date of issuance at the same rate and upon the same terms
as the Outstanding Notes. See "Description of the New 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 New Notes (the "Exchange
Date") will be paid to the registered holders of New Notes on the first
interest payment date of the New 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.
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 (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
thereunder.
Compass shall be deemed to have accepted validly tendered Outstanding Notes
when, as, and if Compass has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as
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agent for the tendering holders of Outstanding Notes for the purposes of
receiving the New Notes from Compass.
If any tendered Outstanding Notes are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, any such unaccepted Outstanding Notes will be returned, without
expense, to the tendering holder thereof 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 New 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. See "--Fees
and Expenses" below.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 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, unless Compass, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date and time to which the Exchange Offer is
extended.
In order to extend the Exchange Offer, 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, (i) to delay
accepting any Outstanding Notes, (ii) to extend the Exchange Offer, (iii) 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 (iv) to amend the terms
of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination, or amendment will be followed as promptly as
practicable by 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 amendment by means of a prospectus
supplement that will be distributed to the registered holders of Outstanding
Notes, and Compass will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such 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 NEW NOTES
The New 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 New 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 New Notes. Such accrued
and unpaid interest on the Outstanding Notes will be paid to registered
holders of the New Notes with the first interest payment on the New Notes.
Interest on the Outstanding Notes accepted for exchange will cease to accrue
on the day prior to the issuance of the New Notes.
The New Notes bear interest (as do the Outstanding Notes) at a rate equal
to 101/8% per annum. Interest on the New Notes is payable on each April 15 and
October 15, commencing on October 15, 1999.
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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 (or, in the case of a tender by guaranteed delivery, that such
holder has received and agrees 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.
Each signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Outstanding Notes surrendered
for exchange pursuant thereof are tendered (i) 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 (ii) by an Eligible Institution (as defined below).
In the event that a signature on a Letter of Transmittal or a notice of
withdrawal, as the case may be, is required to be guaranteed, such guarantee
must be by 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 (collectively, "Eligible Institutions"). 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 (i)
be endorsed by the registered holder, with the signature thereon guaranteed
by an Eligible Institution or (ii) 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 herein 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 (including 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
(including 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 thereto) 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
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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, and,
unless waived by Compass, proper evidence satisfactory to Compass of such
person's authority to so act must be submitted.
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
such beneficial owner's behalf. If such beneficial owner wishes to tender
directly, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and tendering Outstanding Notes, make appropriate
arrangements to register ownership of the Outstanding Notes in such
beneficial owner's name. 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 New 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, and 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, and agree to be bound
by, the terms of the Letter of Transmittal (or, in the case of a tender by
guaranteed delivery, that such holder has received and agrees 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 (i) the tender is made by or through an Eligible Institution,
(ii) 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 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 five New York Stock Exchange trading 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 (iii) 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 five New York Stock Exchange trading days after the
date of execution of the Notice of Guaranteed Delivery. 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 (i)
the tender is made by or through an Eligible Institution, (ii) 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 five New York Stock Exchange trading
days after the date of the transmittal of the Notice of Guaranteed Delivery
via ATOP, and (iii) Book-Entry Confirmation is received by the Exchange Agent
within five New York Stock Exchange trading days after the date of the
transmittal of the Notice of Guaranteed Delivery via ATOP.
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ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF NEW 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 New 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
thereof to the Exchange Agent.
In all cases, issuances of New 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 (i) specify the name of the
person having tendered the Outstanding Notes to be withdrawn, (ii) identify
the Outstanding Notes to be withdrawn (including the principal amount of such
Outstanding Notes), and (iii) 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 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, and eligibility (including time of receipt) of such
notices will be determined by Compass in its sole, reasonable discretion,
which 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 thereof without cost to
such 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 New Notes in
exchange for, any Outstanding Notes and may terminate or amend the Exchange
Offer if, prior to the exchange of the New Notes for the Outstanding Notes,
Compass determines, in its sole discretion, that (i) 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, (ii) there has been a banking
moratorium or similar event or international calamity involving the United
States, (iii) there has been a change in the business or prospects of Compass
that may have a material adverse effect on Compass, or (iv) the Exchange
Offer violates any applicable law. If Compass makes any of the foregoing
determinations, Compass may (i) refuse to accept any Outstanding Notes and
return all tendered Outstanding Notes to the tendering holders or (ii) extend
the Exchange Offer, retain all Outstanding Notes tendered prior to the
Expiration Date, and use
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reasonable efforts to satisfy any such condition, subject, however, to the
rights of Eligible Holders to withdraw such Outstanding Notes (see
"--Withdrawal Rights" above). In addition, Compass will not accept for
exchange any Outstanding Notes tendered, and no New 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 amended, as in effect on the date of the indenture (the
"Trust Indenture Act").
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, if, other than as a result of
actions by the holders of the Outstanding Notes, (i) the Registration
Statement was not filed by December 17, 1998 (the "Filing Date"), (ii) 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 (iii) if the Exchange Offer has not been
consummated within 30 days after the Registration Statement is declared
effective (the "Consummation Date"), then 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 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;
PROVIDED, HOWEVER, that 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 in the case of (i), (ii) or
(iii) above, to a maximum amount of liquidated damages of $0.50 per week per
$1,000 principal amount, which provision for liquidated damages will continue
until such conditions as noted in (i), (ii) or (iii) have been cured.
Because Compass did not comply with certain of these provisions, liquidated
damages are currently accruing at the rate of $11,000 per week. Liquidated
damages accrued as of any interest payment date will be payable on such date.
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,
which rights include, without limitation, (a) the right to require Compass
(i) to file with the Commission the Exchange Offer Registration Statement
under the Securities Act within 240 days following the Issue Date; (ii) to
use its best efforts to cause such Registration Statement to become
effective under the Securities Act within 300 days after the Issue Date;
(iii) to consummate the Exchange Offer within 30 days after the Registration
Statement covering the Exchange Offer is declared effective; and (iv) if
certain events described in the Registration Rights Agreement occur (x) to
file a Shelf Registration Statement covering resales of the Outstanding
Notes, (y) to use its best efforts to cause such Shelf Registration Statement
to be declared effective under the Securities Act and (z) to keep such Shelf
Registration Statement effective for the period described in the Registration
Rights Agreement; and (b) the right to receive liquidated damages from
Compass under certain circumstances described in the Registration Rights
Agreement.
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 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:
<TABLE>
<S> <C> <C>
IF BY OVERNIGHT CARRIER OR BY HAND: IF BY REGISTERED OR CERTIFIED MAIL: IF BY FACSIMILE:
IBJ Whitewhall Bank & Trust Company IBJ Whitehall Bank & Trust Company (212) 858-2611
One State Street P.O. Box 84
New York, New York Bowling Green Station CONFIRM BY TELEPHONE:
Attn: Securities Processing Window New York, New York 10274-0084
Subcellar One, (SC-1) Attn: Reorganization Department (212) 858-2103
</TABLE>
37
<PAGE>
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 in connection therewith. 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
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to
such tendering holder.
ACCOUNTING TREATMENT
The New 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 New Notes.
RESALES OF THE NEW NOTES
With respect to resales of New 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 (i) an
affiliate of Compass within the meaning of Rule 405 under the Securities Act
or (ii) a broker-dealer, (except as provided below) who exchanges Outstanding
Notes for New 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 New
Notes, will be allowed to resell the New Notes to the public without further
registration under the Securities Act and without delivering to the
purchasers of the New Notes a prospectus that satisfies the requirements of
Section 10 thereof. However, if any Eligible Holder acquires New Notes in
the Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such 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 and 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 (i) any New
Notes are to be acquired in the ordinary course of business of the person
receiving such New Notes, (ii) neither the holder of such Outstanding Notes nor
any such other person receiving such New Notes is participating, intends to
participate, or has any arrangement or understanding with any person to
participate, in the distribution of the New Notes, and (iii) 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
38
<PAGE>
distributing the New Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale of the New Notes and cannot rely on the no-action letters discussed
above.
Each broker-dealer that receives New 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 New 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 New 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 90 days
after the Expiration Date. Compass will make this Prospectus available to
any broker-dealer, at no charge, for use in connection with any such resale
for a period of 90 days after the Expiration Date. See "Plan of
Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Old Notes for
New 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.
39
<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 BUSINESS CAPABILITIES/ MAJOR
ACQUIRED FOUNDED ACQUIRED LOCATION SPECIALITIES CUSTOMERS(2)
<S> <C> <C> <C> <C> <C>
Aeromil 1971 Nov. 1997 Santa Ana, CA Medium-sized Boeing, Korean Airlines,
machined parts Hughes Aircraft, Raytheon
Aircraft
Western Methods 1978 Nov. 1997 Gardena, CA Small to medium- Boeing, Northrop, Lockheed,
sized machined parts NASA-JPL
Brittain Machine 1966 April 1998 Wichita, KS Small to large-sized Boeing, Raytheon, Hughes,
machined parts, Cessna, Shorts Brothers
fabrication and
tooling
Wichita 1992 April 1998 Cerritos, CA Small to medium- Boeing, Northrop, Tolo
sized machined parts
Barnes Machine 1982 April 1998 Shelton, WA Small to medium- Boeing, Northrop, Kawasaki
sized machined parts
Sea-Lect (1) 1989 May 1998 Kent, WA Sheet metal and Boeing, Japan Airlines, B.F.
extruded/machined Goodrich, Lucas Aerospace,
parts, assembly Mitsubishi, Kawasaki
including bonding/
riveting, tool and die
making
Pacific Hills 1962 Nov. 1998 Valencia, CA Shim stock, laminated Boeing, Rohr
shims, stampings,
Kent, WA flat patterns
Modern 1966 Dec. 1998 Renton, WA Small to medium- Boeing, Hawker
sized machined-parts
</TABLE>
(1) Compass simultaneously acquired Sea-Lect and J&J Leasing, Inc. ("J&J")
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.
("Korean Airlines"), Hughes Aircraft Company ("Hughes"), Raytheon Aircraft
Company ("Raytheon"), Lockheed Martin Corporation ("Lockheed"), National Air
Space Administration-Jet Propulsion Laboratory ("NASA-JPL"), Cessna Aircraft
Co. ("Cessna"), Japan Airlines Co., Ltd. ("Japan Airlines"), B.F. Goodrich
Aerospace, a division of The B.F. Goodrich Company ("B.F. Goodrich"), Lucas
Aerospace, a division of LucasVarity plc ("Lucas Aerospace"), Mitsubishi
Heavy Industries Ltd. ("Mitsubishi"), Kawasaki Heavy Industries, Ltd.
("Kawasaki"), Hawker de Havilland Inc. ("Hawker"), Shorts Brothers PLC
("Shorts Brothers"), Tolo Inc., a subsidiary of B.F. Goodrich ("Tolo") and
Rohr, Inc., a subsidiary of B.F. Goodrich ("Rohr").
40
<PAGE>
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 CNC 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. At December
31, 1998 Compass had a total revenue backlog of approximately $145.0
million, of which approximately $90.0 million is deliverable in 1999.
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' 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.
41
<PAGE>
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 and many of the acquired companies' key employees are remaining
with Compass.
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 penetration in the future. Compass
obtained additional contracts with Airbus in 1998 and currently manufactures
parts for the A320, A330 and A340 models. 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
42
<PAGE>
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.
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: (i) 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); (ii) projected worldwide airline traffic growth
of 5.0% per year and projected cargo traffic growth of 6.4% per year over the
next decade; (iii) increased aircraft load factors during the 1990-96 period;
(iv) increases in the average age of commercial aircraft during the 1990-96
period; and (v) the increasing importance of city pair marketing and flight
frequencies to the airline industry. Compass believes that this
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<PAGE>
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.
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
PRODUCTS AND FACILITY SIZE
LOCATION FUNCTION (SQ. FEET) OWNERSHIP
<S> <C> <C> <C>
Long Beach, CA Corporate 8,670
Headquarters
Santa Ana, CA Manufacturing 65,000 Leased(2)
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>
(2) Compass leases its Santa Ana facility from a former Aeromil affiliate at
a fair market rent.
44
<PAGE>
Compass has a large portfolio of sheet metal forming equipment,
high-speed and conventional CNC machining equipment, including horizontal and
vertical machining centers and three-spindle five-axis gantry mills, stretch
presses, bladder presses and brakes and shears at its eight manufacturing
facilities, which 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 also engages 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 subcontractors 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.
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. See "Risk Factors--Certification" and "--Sales and
Marketing."
Compass' manufacturing facilities have imposed certain quality control
criteria and all of Compass' facilities have received Boeing's D1-9000
certification for quality standards. Furthermore, all of Compass' facilities
have received Boeing's D1-9000-A certification, which certifies the facility
as well as particular machines and allows the facility to produce more
critical parts with the certified equipment. Compass' Shelton, Washington
facility has received on ISO 9002 certification, which is an European
classification. 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 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
45
<PAGE>
its manufactured parts and services. Compass' manufacturing facilities
perform testing and certification procedures on all manufactured parts and
provide detailed records to ensure 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 December 31, 1998 Compass had a total
revenue backlog of approximately $145.0 million, of which approximately $90.0
million is deliverable in 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.
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
46
<PAGE>
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 does Compass. See "Risk
Factors--Competition."
GOVERNMENT REGULATION
The aviation industry is highly regulated in the United States by the
Federal Aviation Administration ("FAA") 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 (a production approval holder, or "PAH") may engage a
supplier to manufacture all or a portion of an authorized part. If the
supplier manufactures complete parts, the PAH must ensure that the parts are
fabricated and inspected under the PAH'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 ("PMA") is, in general, an
approval of a manufacturing or modification facility's production quality
control system. A supplemental PMA 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 PMA 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 PMA is necessary to
operate its business as it is currently being conducted and management
believes any delay or failure to obtain the PMA 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 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 (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as
handling and disposal practices for solid and hazardous wastes, and (ii)
impose liability for the clean-up costs of, and certain damages resulting
from, past spills, disposals or other releases of hazardous substances
(together, "Environmental Laws"). 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'
47
<PAGE>
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, and 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, as amended ("CERCLA"), the
Resource Conservation and Recovery Act and similar state and local laws, some
of which 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.
EMPLOYEES
Compass had 956 employees at December 31, 1998 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.
48
<PAGE>
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 ("Macluan") and President of Hayes Capital Corporation
("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, 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, 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.
49
<PAGE>
HARALD H. LUDWIG has been a Director of Compass since November 1997. Mr.
Ludwig co-founded and has been President of Macluan, a private investment
company, since 1985. He is a graduate of Simon Fraser University and holds a
L.L.B. from Osgoode Hall Law School. An entity controlled by Mr. Ludwig
controls Holdings, 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 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
that are either in effect or are to be entered into upon consummation of the
Pending Acquisitions. See "--Employment Agreements." The Compensation
Committee's responsibilities also include administering the 1998 Stock Incentive
Plan (as defined herein), including selecting the officers and salaried
employees to whom awards will be granted.
50
<PAGE>
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. See "--Certain Relationships and Related
Party Transactions."
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 $12,000, plus reimbursement of expenses for each Board of
Directors' meeting and each committee meeting that they attend in person.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by Compass to its
Chief Executive Officer and the two other most highly compensated executive
officers for the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> LONG-TERM
COMPENSATION
SECURITIES
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) 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. See
"--Employment Agreements."
(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. See "--Employment
Agreements."
(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 $150,000. See "--Employment Agreements."
(3) Represents relocation expenses incurred by Mr. DiGirolamo and paid by
Compass.
51
<PAGE>
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS/ EXERCISE VALUE AT ASSUMED
SECURITIES SARS OF ANNUAL RATES OF
UNDERLYING GRANTED TO BASE STOCK PRICE
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED (#) IN 1998 ($/SH) DATE OPTION TERM
---- ------------ ------- ------ ---- -----------
5% ($) 10% ($)
------ -------
<S> <C> <C> <C> <C> <C> <C>
Alexander Hogg............. 346,291 42.1% $1.00 March 10, 2008 $564,000 $898,000
Pasquale DiGirolamo........ 40,000 4.9 $1.47 November 30, 2008 96,000 153,000
N. Paul Brost.............. 25,000 3.0 $1.47 October 14, 2008 60,000 95,000
</TABLE>
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"). The 1998 Stock Incentive Plan will be
administered by the Compensation Committee of the Board of Directors (the
"Committee"). 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
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
(amended as of April 14, 1998) 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 (i)
any entity other than Holdings 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 (ii) 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.
52
<PAGE>
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 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
(i) 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 (ii) 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 (i) 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 (ii) 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 (the "Management Fee") in an annual aggregate
amount equal to $200,000 plus 1.5% of Compass' EBITDA plus expenses, payable
quarterly in arrears. Of such fees, 50% 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 such fees 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. See "Description of Notes--Limitation on Restricted
Payments." In addition to the fees 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.
BankBoston, a lender and the administrative agent under the Credit
Agreement, and BRSI, the arranger under the Credit Agreement, are affiliates of
BSI, an Initial Purchaser of the Outstanding Notes, and are affiliates of
BancBoston Ventures Inc. which holds 17.6% of Compass' voting common stock.
53
<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: (i) each person known to Compass to beneficially own more
than 5% of Compass' voting securities; (ii) each director and each of the
executive officers of Compass; and (iii) the directors and executive officers
of Compass as a group.
<TABLE>
<CAPTION>
OWNERSHIP OF CLASS A
COMMON STOCK(1)
NAME AND ADDRESS OF NUMBER OF PERCENTAGE
BENEFICIAL OWNER SHARES OF OWNERSHIP
<S> <C> <C>
Compass Holdings, L.L.C. (2) ................ 15,000,000 77.6%
RBC Equity Investments, Inc. ................ 5,447,853 22.0%
BancBoston Ventures, Inc. (4) ............... 3,404,908 17.6
Douglas M. Hayes (3)(5)(6) .................. 256,000 1.3
Alexander Hogg (3) .......................... 70,376 *
Pasquale DiGirolamo (3) ..................... - *
N. Paul Brost (3) ........................... - *
Douglas B. Solomon(3) ....................... 256,000 1.3
Harald H. Ludwig (2)(5) ..................... 15,000,000 77.6
James P. Angus (2)(5) ....................... - *
William R. Monkman (3) ...................... - *
Michael Dritz (3)(5) ........................ - *
Philip J. Olsson (3) ........................ - *
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 are the beneficial
owners of any Series B Common Stock.
(2) The stockholder's address in each case 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 in each case 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 Holdings. Under the terms of the Operating
Agreement of Holdings, Mr. Ludwig has sole voting power and investment
power with respect to the shares held by Holdings. Messrs. Hayes, Dritz
and Angus hold membership interests in 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.
54
<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
Compass entered into the Credit Agreement consisting of a $170.0 million
senior revolving credit facility on November 20, 1998, as amended and restated
February 11, 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 $65 million Acquisition Line, a $35 million "Term Loan A" and a $45
million "Term Loan B". Availability under the 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.
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 the Credit Agreement will bear interest at the
agent bank's base rate plus a margin between 1.00% and 2.00%, or the
Eurodollar rate plus a margin between 2.5% and 3.5% based on the leverage
ratio. 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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DESCRIPTION OF THE NEW NOTES
The Outstanding Notes were issued under an indenture dated as of April 21,
1998 (the "Indenture") by and among Compass Aerospace Corporation (for purposes
of this description, the "Company"), the Guarantors (as defined herein) and IBJ
Schroder Bank & Trust Company, as trustee (the "Trustee"). Upon the issuance of
the New Notes the Indenture will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following
summaries of certain provisions of the Indenture are summaries only, do not
purport to be complete and are qualified in their entirety by reference to all
of the provisions of the Indenture. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Indenture.
Wherever particular provisions of the Indenture or the Trust Indenture Act are
referred to in this summary, such provisions are incorporated by reference as a
part of the statements made and such statements are qualified in their entirety
by such reference. Any Outstanding Notes that remain outstanding after the
consummation of the Exchange Offer, together with the New Notes, will be treated
as a single class of securities under the Indenture. The Outstanding Notes and
the New Notes are collectively referred to herein as the "Notes."
GENERAL
The Notes will be senior subordinated, unsecured, general obligations of
Compass, limited in aggregate principal amount to $110.0 million. The Notes will
be subordinate in right of payment to certain other debt obligations of Compass.
The Notes will be jointly and severally, irrevocably and unconditionally
guaranteed on a senior subordinated basis by each of Compass' present and future
Subsidiaries (the "Guarantors"). See "Certain Bankruptcy Limitations" below. The
term "Subsidiaries" as used in this Description of the New Notes, however, does
not include Unrestricted Subsidiaries. The New 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 New Notes will be identical in all
material respects to the form and terms of the Outstanding Notes except that:
(i) the New Notes will have been registered under the Securities Act and (ii)
the Registration Rights and Liquidated Damages applicable to the Outstanding
Notes will not be applicable to the New Notes. The New Notes will be issued
only in 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
the rate per annum stated on the cover page hereof from the date of issuance or
from the most recent Interest Payment Date to which interest has been paid or
provided for, 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.
Principal of, premium, if any, and interest (and Liquidated Damages, if
any,) on the Notes will be payable, and the Notes may be presented for
registration of transfer or exchange, at the office or agency of Compass
maintained for such purpose, which office or agency shall be maintained 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 therewith. Until
otherwise designated by Compass, Compass' office or agency will be the corporate
trust office of the Trustee presently located at the office of the Trustee in
the Borough of Manhattan, The City of New York.
SUBORDINATION
The Notes and the Guarantees will be general, unsecured obligations of
Compass and the Guarantors, respectively, subordinated in right of payment to
all Senior Debt of Compass and the Guarantors, as applicable. At December 31,
1998 Compass had outstanding an aggregate of approximately $197.0 million of
secured Senior Debt.
The Indenture provides that no payment (by set-off or otherwise) may be
made by or on behalf of Compass or a Guarantor, as applicable, on account of any
Obligation in respect of the Notes, including the principal of, premium, if any,
or interest on the Notes (including any repurchases of Notes), or on account
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of the redemption provisions of the Notes for cash or property (other than
Junior Securities), (i) upon the maturity of any Senior Debt of Compass or
such Guarantor by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and the interest on such
Senior Debt are first paid in full in cash or Cash Equivalents (or such
payment is duly provided for) or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or Cash
Equivalents, or (ii) in the event of default in the payment of any principal
of, premium, if any, or interest on Senior Debt of Compass or such Guarantor
when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise (a "Payment Default"), unless and
until such Payment Default has been cured or waived or otherwise has ceased
to exist.
Upon (i) the happening of an event of default other than a Payment Default
that permits the holders of Senior Debt to declare such Senior Debt to be due
and payable and (ii) written notice of such event of default given to Compass
and the Trustee by the Representative under the Credit Agreement or the holders
of an aggregate of at least $10.0 million principal amount outstanding of any
other Senior Debt or their representative (a "Payment Notice"), then, unless and
until such event of default has been cured or waived or otherwise has ceased to
exist, no payment (by set-off or otherwise) may be made by or on behalf of
Compass or any Guarantor which is an obligor under such Senior Debt on account
of any Obligation in respect of the Notes, including the principal of, premium,
if any, or interest on the Notes, (including any repurchases of any of the
Notes), or on account of the redemption provisions of the Notes, in any such
case, other than payments made with Junior Securities. Notwithstanding the
foregoing, unless the Senior Debt in respect of which such event of default
exists has been declared due and payable in its entirety within 179 days after
the Payment Notice is delivered as set forth above (the "Payment Blockage
Period") (and such declaration has not been rescinded or waived), at the end of
the Payment Blockage Period, Compass and the Guarantors shall be required to pay
all sums not paid to the holders of the Notes during the Payment Blockage Period
due to the foregoing prohibitions and to resume all other payments as and when
due on the Notes. Any number of Payment Notices may be given; PROVIDED, HOWEVER,
that (i) not more than one Payment Notice shall be given within a period of any
360 consecutive days, and (ii) no default that existed upon the date of such
Payment Notice or the commencement of such Payment Blockage Period (whether or
not such event of default is on the same issue of Senior Debt) shall be made the
basis for the commencement of any other Payment Blockage Period (it being
acknowledged that any subsequent action, or any subsequent breach of any
financial covenant for a period commencing after the expiration of such Payment
Blockage Period that, in either case, 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 for this purpose).
Upon any distribution of assets of Compass or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of
Compass or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities, (i) the
holders of all Senior Debt of Compass or such Guarantor, as applicable, will
first be entitled to receive payment in full in cash or Cash Equivalents (or
have such payment duly provided for) or otherwise to the extent holders
accept satisfaction of amounts due by settlement in other than cash or Cash
Equivalents before the holders are entitled to receive any payment on account
of any Obligation in respect of the Notes, including the principal of,
premium, if any, and interest on the Notes (other than Junior Securities) and
(ii) any payment or distribution of assets of Compass or such Guarantor of
any kind or character from any source, 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 (by set-off or otherwise), except
for the subordination provisions contained 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 such Senior Debt or their
representative to the extent necessary to make payment in full (or have such
payment duly provided for) on all such Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of Compass or any Guarantor (other than Junior
Securities) shall be received by the Trustee or the holders at a time when such
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 such
Senior Debt, and shall be paid or delivered by the Trustee or such holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the
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aggregate principal amounts remaining unpaid on account of such Senior Debt
held or represented by each, for application to the payment of all such
Senior Debt remaining unpaid, to the extent necessary to pay or to provide
for the payment of all such Senior Debt in full in cash or Cash Equivalents
or otherwise to the extent holders accept satisfaction of amounts due by
settlement in other than cash or Cash Equivalents after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
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 (or if
applicable Liquidated Damages) 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.
CERTAIN BANKRUPTCY LIMITATIONS
Compass is a holding company, conducting its business through its
Subsidiaries, which have guaranteed or will guarantee Compass' Obligations with
respect to the Notes, and Unrestricted Subsidiaries, which Unrestricted
Subsidiaries will not guarantee the Notes. See "Risk Factors." 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, such obligations may be avoided if a court concludes that such
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 will be limited
in a manner intended to cause it not to be a fraudulent conveyance under
applicable law, although no assurance can be given that a court would give the
holder the benefit of such provision. See "Risk Factors--Fraudulent Transfer
Considerations."
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. There can be no assurance in that event that such assets would suffice
to pay the outstanding principal and interest on the Notes.
OPTIONAL REDEMPTION
Compass will not have the right to redeem any Notes prior to April 15,
2002, other than out of the Net Cash Proceeds of an Initial Public Equity
Offering of common stock, as described in the next following paragraph. The
Notes will be redeemable for cash at the option of Compass, in whole or in part,
at any time on or after April 15, 2002 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, in each case
(subject to the right of holders of record on a Record Date to receive the
corresponding interest due (and the corresponding Liquidated Damages, if any) on
an Interest Payment Date corresponding to such Record Date that is on or prior
to such Redemption Date) together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . . . 105.063%
2003 . . . . . . . . . . . . . . . . . . . . . . . . 102.531%
2004 . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
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<PAGE>
Until 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 outstanding may be redeemed at the option of Compass within 90 days
of such Initial Public Equity Offering, on not less than 30 days, but not more
than 60 days, notice to each holder of the Notes to be redeemed, with cash from
the Net Cash Proceeds to Compass of such Initial Public Equity Offering, at a
redemption price equal to 110.125% of principal, (subject to the right of
holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date) together with accrued
and unpaid interest and Liquidated Damages, if any, to the date of redemption;
PROVIDED, HOWEVER, that immediately following such redemption not less than 65%
of the original aggregate principal amount of the Notes remain outstanding.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof 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 prior to the date fixed for redemption to the
holder of each Note to be redeemed to such holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof 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
The Indenture provides that in the event that a Change of Control has
occurred, each holder of Notes has the right, at such holder's option, pursuant
to an offer (subject only to conditions required by applicable law, if any) by
Compass (the "Change of Control Offer"), to require Compass to repurchase all or
any part of such holder's Notes (PROVIDED, that the principal amount of such
Notes must be $1,000 or an integral multiple thereof) on a date (the "Change of
Control Purchase Date") that is no later than 35 Business Days after the
occurrence of such Change of Control, at a cash price equal to 101% of the
principal amount thereof (the "Change of Control Purchase Price"), together with
accrued and unpaid interest and Liquidated Damages, if any, to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 10
Business Days following a Change of Control and shall remain open for 20
Business Days following its commencement (the "Change of 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.
As used herein, a "Change of Control" means (i) 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 (ii) 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 sale, transfer or other
conveyance, whether direct or indirect, of all or substantially all of the
assets of Compass, on a consolidated basis, in one transaction or a series of
related transactions, 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, whether or not applicable) (other
than any of the Excluded Persons) (a) 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, as applicable, of the transferee(s) or surviving entity or entities,
and (b) 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, whether or
not applicable) (other than any of the Excluded Persons) (a) 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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(b) 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, as applicable, 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, as applicable,
then in office.
On or before the Change of Control Purchase Date, Compass will (i) accept
for payment Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (ii) 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 (iii) 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 promptly
will 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 promptly will 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 publicly will 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 phrase "all or substantially all" of the assets of Compass will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of the
assets of Compass has occurred. In addition, no assurances can be given 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 such covenant.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any), 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, and such interest (and
Liquidated Damages, if applicable) 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
The Indenture provides that, except as set forth in this covenant,
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 (individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness or any Disqualified Capital Stock (including
Acquired Indebtedness), other than Permitted Indebtedness. Notwithstanding
the foregoing if (i) 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 (ii) 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, to
the extent set forth in the definition of Consolidated Coverage Ratio, the
use of proceeds thereof, would be at least 2 to 1 (as applicable, each the
"Debt Incurrence Ratio"), then Compass may incur such Indebtedness or
Disqualified Capital Stock and the Guarantors may incur such Indebtedness
(other than Disqualified Capital Stock).
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In addition, the foregoing limitations will not apply to:
(a) the incurrence by Compass or any Guarantor of Purchase Money
Indebtedness, PROVIDED, that (i) the aggregate principal amount of such
Indebtedness incurred on or after the Issue Date and outstanding at any time
pursuant to this paragraph (a) (including any Refinancing Indebtedness and other
Indebtedness issued to refinance, replace, defease or refund such Indebtedness)
shall not exceed $2.0 million, and (ii) 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;
(b) 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;
(c) 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 (i) 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 to clause (1)(b)(ii) of
the first paragraph of the covenant "Limitation on Sale of Assets and Subsidiary
Stock" or (ii) assumed by a transferee in an Asset Sale, and (B) 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 (including
upon designation of any subsidiary or other person as a Subsidiary) 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, as applicable.
Upon each incurrence of Indebtedness, Compass may designate under which
provision of this covenant such Indebtedness is being incurred and such
Indebtedness should be deemed to have been so incurred under such provision and
no other provision of this covenant except as specifically provided otherwise.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that Compass and the Guarantors will not, and will
not permit any of their Subsidiaries to, directly or indirectly, 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 (i) to a Subsidiary of Compass, (ii) to the extent applied in
connection with a Qualified Exchange and (iii) to the extent credited in (v) and
(w) in the following paragraph), after the Issue Date, plus (c) other than
amounts credited pursuant to clause (v) 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.
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The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, will not prohibit (v) 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, (w) 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, and the provisions of the immediately preceding paragraph will
not prohibit, (x) a Qualified Exchange, (y) 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 (z) Permitted Payments to Parent. The full amount of
any Restricted Payment made pursuant to the foregoing clauses (v), (w), (y) and
(z) (but not pursuant to clause (x)) of the immediately preceding sentence,
however, will be deducted in the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
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, after giving effect to such Management Fee
Payments or similar payments, on a pro forma basis after giving effect to such
payment, 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
The Indenture provides that 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 pay dividends or make other distributions to or on behalf of, or
to pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, Compass or any Subsidiary of Compass, except (a) 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, as applicable, provided such restrictions are no more restrictive
than those imposed by the Indenture and the Notes, (b) restrictions imposed by
applicable law, (c) existing restrictions under Indebtedness outstanding on the
Issue Date, including pursuant to the Credit Agreement, (d) 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, (e) 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 Capital
Stock" provided such restriction or requirement is no more restrictive than that
imposed by the Credit Agreement as of the Issue Date, (f) 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 (g) 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 (h) in connection with and pursuant to
permitted Refinancings,
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replacements of restrictions imposed pursuant to clauses (a), (c) or (d) 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 (a) customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practice, nor (b) 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, as the case may be.
LIMITATIONS ON LAYERING INDEBTEDNESS
The Indenture provides that 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 Guarantee, as applicable.
LIMITATION ON LIENS SECURING INDEBTEDNESS
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, unless Compass provides, and causes its Subsidiaries to
provide, concurrently therewith, that the Notes are equally and ratably so
secured, 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 PROVIDED, FURTHER, 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.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture provides that Compass and the Guarantors will not, and will
not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Subsidiary of Compass), and including any sale
or other transfer or issuance of any Equity Interests of any Subsidiary of
Compass, whether by Compass or a Subsidiary of either or through the issuance,
sale or transfer of Equity Interests by a Subsidiary of Compass, and including
any sale and leaseback transaction (any of the foregoing, an "Asset Sale"),
unless (l)(a) the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount")
are applied (i) 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 (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Notes and such other Indebtedness then outstanding or
(ii) 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 (subject only to
conditions required by applicable law, if any) (pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding) (the "Asset Sale Offer") at a purchase price of 100% of
principal amount (or accreted value in the case of Indebtedness issued with an
original issue discount) (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 (i) invested (or committed, pursuant to a
binding commitment subject only to
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reasonable, customary closing conditions, to be invested, and in fact is so
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 (if it continues to be a
Subsidiary) immediately following such transaction or (ii) used to retire
Purchase Money Indebtedness, Mortgage Indebtedness or Senior Debt and, to
permanently reduce (in the case of Senior Debt that is not Purchase Money
Indebtedness or Mortgage Indebtedness) the amount of such Indebtedness,
incurred under (d) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment
is so permanently reduced by such amount), (2) at least 90% of the
consideration for such Asset Sale or series of related Asset Sales consists
of cash or Cash Equivalents, (3) 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 (4) 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.
The Indenture provides that 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)(i) or 1(b) above (the "Excess
Proceeds") exceeds $5.0 million and that 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 (on a PRO RATA basis if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest and Liquidated Damages, if any). 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 and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero. For purposes of (2) above, total
consideration received means the total consideration received for such Asset
Sales minus the amount of, (a) Purchase Money Indebtedness or Mortgage
Indebtedness secured solely by the assets sold and assumed by a transferee and
(b) 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:
(i) Compass and its Subsidiaries may, in the ordinary course of
business, (1) convey, sell, transfer, assign or otherwise dispose of
inventory and other assets acquired and held for resale in the ordinary
course of business and (2) liquidate Cash Equivalents;
(ii) Compass and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
the covenant "Limitation on Merger, Sale or Consolidation";
(iii) Compass and its Subsidiaries may 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
(iv) Compass and the Guarantors may convey, sell, transfer, assign
or otherwise dispose of assets to Compass or any of its wholly owned
Guarantors;
(v) Compass and its Subsidiaries, in the ordinary course of
business, may 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
(vi) Compass and each of its Subsidiaries may 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;
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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 1(b)(i) 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.
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 (and Liquidated
Damages, if any, 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, and such interest (or Liquidated Damages, if applicable) will
not be payable to holders who tender Notes pursuant to such Asset Sale Offer.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither Compass nor any of its Subsidiaries
will be permitted on or after the Issue Date 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), (i) 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, and (ii) if involving
consideration to either party in excess of $1.0 million, unless such
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 (iii) if involving
consideration to either party in excess of $5.0 million, unless in addition
Compass, prior to the consummation thereof, obtains a written favorable
opinion as to the fairness of such 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
The Indenture provides that 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 (i)
either (a) Compass is the continuing entity or (b) 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; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; and (iii) 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 (except in the case of a
lease) be
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substituted 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 (except in the case of a lease) 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
The Indenture provides that 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
The Indenture provides that all present and future Subsidiaries of
Compass jointly and severally will guaranty irrevocably and unconditionally
all principal, premium, if any, and interest on (and Liquidated Damages, if
any) 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 (i) 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 (ii) 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 Subsidiary Guarantor or all of its assets to an
entity which is not a Subsidiary Guarantor or the designation of a Subsidiary
to become an Unrestricted Subsidiary, which transaction is otherwise in
compliance with the Indenture (including, without limitation, the provisions
of the covenant Limitations on Sale of Assets and Subsidiary Stock), such
Subsidiary 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 such Subsidiary 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
The Indenture prohibits Compass and its Subsidiaries from being required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming
subject to regulation under the Investment Company Act.
REPORTS
The Indenture provides that 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 and to prospective
purchasers of Notes identified to Compass by an Initial Purchaser, within 15
days after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, (i) 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, if Compass were subject
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to the requirements of Section 13 or 15(d) of the Exchange Act, 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 (ii) 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; and, in each case, together with a management's discussion and
analysis of financial condition and results of operations which would be so
required and, unless the Commission will not accept such reports, 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
The Indenture defines an Event of Default as (i) 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, (ii) 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, or otherwise, (iii) 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, (iv) certain events of bankruptcy, insolvency or
reorganization in respect of Compass or any of its Significant Subsidiaries,
(v) 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 (vi) 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. The Indenture provides that if a Default occurs
and is continuing, the Trustee must, within 90 days after the occurrence of
such default, give to the holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, 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 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; PROVIDED, however, that 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 (x) 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 (y) the date of
acceleration of any Senior Debt under the Credit Agreement. If an Event of
Default specified in clause (iv), above, 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, 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, and have been cured or waived.
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
on default with respect to any provision requiring a supermajority approval
to amend, which default may only be waived by such a supermajority, and
except 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
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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
The Indenture provides that 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 (i) 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; (ii) 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; (iii)
the rights, powers, trust, duties, and immunities of the Trustee, and
Compass' obligations in connection therewith; and (iv) 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, (i)
Compass must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, 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 the holders of Notes must have a valid, perfected, exclusive security
interest in such trust; (ii) 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, and
based thereon such opinion of counsel shall confirm 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; (iii) 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; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit and Compass shall have
delivered to the Trustee an Officer's Certificate, subject to such
qualifications and exceptions as the Trustee deems appropriate, 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; (v) 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; (vi) 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; and (vii) Compass shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
the conditions precedent provided for in, in the case of the Officers'
Certificate, (i) through (vi) and, in the case of the opinion of counsel,
clauses (i), (with respect to the validity and perfection of the security
interest) (ii), (iii) and (v) of this paragraph have been complied with.
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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
The Indenture contains provisions permitting Compass, the Guarantors and
the Trustee to 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; provided that no such modification may, 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
provided, that no such modification may, without the consent of each holder
affected thereby: (i) change the Stated Maturity on any Note, or 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, or change the place of payment where, or the coin or
currency in which, any Note or any premium or the interest thereon is
payable, or 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), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price or
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, or (ii) 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 (iii) 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
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of Compass, the
Guarantors or any successor entity shall have any personal liability in
respect of the 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, except that this provision shall in no way
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 (i) 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
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security or instrument and (b) the amount of each such respective principal
(or redemption) payment by (ii) 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.
"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 (i) 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) or (ii) 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 (iii) 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., and in the case of each of (i), (ii), and (iii)
maturing within one year after the date of acquisition.
"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 basis, of (a)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 to (b) 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, (i) 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,
(ii) 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, (iii) 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
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used to refinance or retire other Indebtedness) shall be assumed to have
occurred on the first day of the Reference Period, and (iv) 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.
"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, the sum of (i) Consolidated income tax
expense, (ii) Consolidated depreciation and amortization expense, and (iii)
Consolidated Fixed Charges, 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 (without duplication and determined in each case in
accordance with GAAP) of (a) 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 (i) original issue discount and non-cash interest payments or
accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations, and (iii) 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 (b) 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,
(x) 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 (y) 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 (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing
such net income (or loss) and without duplication): (a) 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), (b) 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, (c) 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, (d) 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, BSI
as arranger, BankBoston as a lender and administrative
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agent, and DLJ 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, subject to the proviso to the next succeeding sentence,
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 (i) extending
the maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) 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, (iii) 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 (iv) otherwise altering the terms and
conditions thereof in a manner not prohibited by the terms of the Indenture.
"DISQUALIFIED CAPITAL STOCK" means (a) except as set forth in (b), 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 (b)
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 (i)
loss, destruction or damage of such property or asset or (ii) 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 (a) customary employee
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of Compass, (b) 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, (c) 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, (d) Permitted
Payments to Parent, (e) transactions solely between Compass and any of its
wholly owned Consolidated Subsidiaries or solely among wholly owned
Consolidated Subsidiaries of Compass and (f) 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.
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"INDEBTEDNESS" of any person means, without duplication, (a) 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, (i) 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), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii)
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; (b) all liabilities and obligations, contingent or otherwise, of
such person (iv) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (v) relating to any Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; (c) all net
obligations of such person under Interest Swap and Hedging Obligations; (d)
all liabilities and obligations of others of the kind described in the
preceding clause (a), (b) or (c) 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; (e) 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 (a), (b), (c) or (d), or this clause (e), whether or not between or
among the same parties; and (f) 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) (a) 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, 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; (b) 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); (c) 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; (d) the making of
any capital contribution by such person to such other person; and (e) 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
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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 (i) 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, (ii) is
unsecured, (iii) has an Average Life longer than the security for which such
Qualified Capital Stock or Indebtedness is being exchanged, and (iv) 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 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 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 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) less, 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, in
the case of an Asset Sale only, less 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, (i) 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; (ii) such Indebtedness (x) is
incurred
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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 (y) constitutes Refinancing Indebtedness with respect to
Indebtedness so incurred; and (iii) 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.
"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: (a) 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; (b) Compass and the
Guarantors, as applicable, may incur Refinancing Indebtedness with respect to
any Indebtedness or Disqualified Capital Stock, as applicable, described in
clause (a) 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 paragraph (b)), provided that in each case such Refinancing Indebtedness
is secured only by the assets that secured the Indebtedness so refinanced;
(c) 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; (d) 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 (e) 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 (a) Investments in any of the Notes; (b)
Investments in Cash Equivalents; (c) intercompany notes to the extent
permitted under clause (d) of the definition of "Permitted Indebtedness" and
(d) 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 (a) Liens existing on the Issue Date; (b) 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, if adequate reserves with respect thereto are
maintained on the books of Compass in accordance with GAAP; (c) 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 (i) the underlying obligations are not
overdue for a period of more than 30 days, or (ii) 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; (d) 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; (e) 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; (f) 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
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Default with respect thereto; (g) pledges or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security legislation; (h) Liens securing
the Notes; (i) 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; (j) 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; (k) 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; (l) 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; (m)
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 (n) 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."
"PERMITTED PAYMENTS TO PARENT" means without duplication, (a) 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 (b) 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 (i), notwithstanding the foregoing, in the case of
determining the amount of a Tax Payment that is permitted to be paid by
Company 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 (a) shall be treated as a deductible expense of Compass in
the taxable year during which the obligation to make such payment accrues and
(ii) 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.
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"REFINANCING INDEBTEDNESS" means Indebtedness or Disqualified Capital
Stock (a) 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 (b) constituting an amendment, modification or supplement to, or a
deferral or renewal of ((a) and (b) above are, collectively, 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 the Indebtedness refinanced without giving effect to any
modification thereof made in connection with or in contemplation of such
refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) 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; 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 (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such Refinancing and (y) 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, (a) 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,
(b) 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, (c) 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, (d) any Restricted
Investment by such person and (e) 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); PROVIDED, HOWEVER, that the term "Restricted Payment"
does not include (i) 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; or (ii) any dividend,
distribution or other payment to Compass, or to any of its Guarantors, by
Compass or any of its Subsidiaries; or (iii) 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 (a) Indebtedness to any
Subsidiary of Compass or any officer, director or employee of Compass or any
Subsidiary of Compass, (b) Indebtedness incurred in violation of the terms
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of the Indenture, (c) Indebtedness to trade creditors, (d) Disqualified
Capital Stock, (e) Capitalized Lease Obligations, and (f) 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 (i) 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, (ii) 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 (iii) 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.
"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 (i) such subsidiary shall not engage, to any
substantial extent, in any line or lines of business activity other than a
Related Business, (ii) neither immediately prior thereto nor after giving pro
forma effect to such designation would there exist a Default or Event of
Default and (iii) 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 (i)
no Default or Event of Default is existing or will occur as a consequence
thereof and (ii) 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 New 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.
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The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for Notes in certificated form in certain limited circumstances.
See "--Transfer of Interests in Global Notes for Certificated Notes."
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.
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 DTC's procedures, (i)
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
(ii) 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. For certain other restrictions on the
transferability of the Notes see "--Transfers of Interests in Global Notes
for Certificated 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, Liquidated Damages, if any,
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 Indenture. Consequently, neither Compass, the Trustee nor any agent
of Compass or the Trustee has or will have any responsibility or liability
for (i) 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 (ii) any other matter relating to the actions and practices of
DTC or any of its Direct Participants or Indirect Participants.
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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; HOWEVER, 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 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. See "--Transfers of Interests in Global Notes for Certificated
Notes."
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.
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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 (i) DTC (x) 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 (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) Compass, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Certificated Notes
or (iii) 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.
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
The Indenture requires that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
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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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain 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
("IRS") 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 (e.g., 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 whom 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 New Notes under the terms of the
Exchange Offer should not constitute a taxable exchange. As a result, a
holder (i) should not recognize taxable gain or loss as a result of
exchanging Outstanding Notes for New Notes under the terms of the Exchange
Offer, (ii) the holding period of the New Notes should include the holding
period of the Old Notes exchanged for the New Notes and (iii) the adjusted
tax basis of the New Notes should be the same as the adjusted tax basis of
the Outstanding Notes exchanged therefor immediately before the exchange.
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of certain 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 (E.G., 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 whom
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 (i) an
individual who is a citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized under the laws
of the United States or any state or political subdivision thereof, (iii) an
estate that is subject to United States federal income taxation without
regard to the source of its income, or (iv) 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 (i) such
holder does not own, actually or constructively, 10 percent or more of the
total combined voting power of all classes of
82
<PAGE>
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 (ii) 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 (i) United States federal income tax on interest that is effectively
connected with the conduct of such trade or business and (ii) 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 (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-U.S.
Holder or (ii) 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.
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 (i) 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 (ii) the interest accrued on the Note was not
effectively connected with the conduct of a United States trade or business.
OWNER'S STATEMENT REQUIREMENT. Sections 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 (a "Financial Institution") 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, 1999, 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 (i) 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 (ii) 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, 1999, 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 (although 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 clause (i) 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, 1999, 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, 1999, 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. If such broker is a United States
83
<PAGE>
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, in the case of payments made after
December 31, 1999, 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 be required
unless 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.
84
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New 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 New 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 amend or supplemented, available to any broker-dealer for
use in connection with any such resales for a period of 90 days after the
Expiration Date.
Compass will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealer for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New 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 New
Notes. Any broker-dealer that resells New 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 New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New 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 DLJ, BSI and Libra, the initial purchasers
of the Outstanding Notes, that following completion of the Exchange Offer
they intend to make a market in the New Notes to be issued in the Exchange
Offer. However, such entities are under no obligation to do so and any market
activities with respect to the New Notes may be discontinued at any time.
LEGAL MATTERS
The validity of the New 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 Barnes Machine, the combined financial
statements of Sea-Lect and the consolidated financial statements of Modern
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.
85
<PAGE>
COMPASS AEROSPACE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMPASS AEROSPACE CORPORATION
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-3
Consolidated Balance Sheets............................................................................ F-4
Consolidated Statements of Income...................................................................... F-5
Consolidated Statements of Stockholders' Equity........................................................ F-6
Consolidated Statements of Cash Flows.................................................................. F-7
Notes to Consolidated Financial Statements............................................................. F-8
AEROMIL ENGINEERING COMPANY
For the period from January 1, 1997 through November 25, 1997
Report of Independent Auditors......................................................................... F-19
Balance Sheet.......................................................................................... F-20
Statement of Operations and Retained Earnings.......................................................... F-21
Statement of Cash Flows................................................................................ F-22
Notes to Financial Statements.......................................................................... F-23
BRITTAIN MACHINE, INC.
For the period from July 1, 1997 through April 21, 1998
Report of Independent Certified Public Accountants..................................................... F-29
Consolidated Balance Sheet............................................................................. F-30
Consolidated Statement of Earnings and Retained Earnings............................................... F-31
Consolidated Statement of Cash Flows................................................................... F-32
Notes to Consolidated Financial Statements............................................................. F-33
For the years ended June 30, 1997 and June 30, 1996
Report of Independent Certified Public Accountants..................................................... F-40
Report of Independent Auditors......................................................................... F-41
Consolidated Balance Sheets............................................................................ F-42
Consolidated Statements of Earnings and Retained Earnings.............................................. F-44
Consolidated Statements of Cash Flows.................................................................. F-45
Notes to Consolidated Financial Statements............................................................. F-46
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-54
Balance Sheets......................................................................................... F-55
Statements of Income and Retained Earnings............................................................. F-56
Statements of Cash Flows............................................................................... F-57
Notes to Financial Statements.......................................................................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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-63
Combined Balance Sheets................................................................................ F-64
Combined Statements of Income.......................................................................... F-65
Combined Statements of Shareholders' Equity............................................................ F-66
Combined Statements of Cash Flows...................................................................... F-67
Notes to Combined Financial Statements................................................................. F-68
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-71
Balance Sheets......................................................................................... F-72
Statements of Income................................................................................... F-73
Statements of Retained Earnings........................................................................ F-74
Statements of Cash Flows............................................................................... F-75
Notes to Financial Statements.......................................................................... F-76
MODERN MANUFACTURING, INC. (formerly Y.F. Americas, Inc.)
[to be supplied]
</TABLE>
F-2
<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 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.
/s/ Ernst & Young LLP
Long Beach, California
March 15, 1999
F-3
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1997
---------- ---------
<S> <C> <C>
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-4
<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>
See accompanying notes.
F-5
<PAGE>
COMPASS AEROSPACE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------ ----------- ----------- ----------- ------------
<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-6
<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-7
<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-8
<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
Leasehold improvements............... Lease term or life of asset,
whichever is 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-9
<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-10
<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 acquisitions of Western and Aeromil
under its then existing credit facility. 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 $15.1 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 $55.0 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, 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
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 183,444 $ 150,785
---------- ----------
---------- ----------
Net income............................................................ $ 8,188 $ 5,745
---------- ----------
---------- ----------
</TABLE>
F-11
<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
F-12
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
5. DEBT OFFERING (CONTINUED)
recorded as a deferred charge and are amortized over the seven-year life of the
Notes using the straight-line method.
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
F-13
<PAGE>
COMPASS AEROSPACE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
7. BANK BORROWINGS (CONTINUED)
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 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-14
<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-15
<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
DECEMBER 31, 1998 31, 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-16
<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-17
<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 July 2008. The Company also leases office
spaces under operating leases with terms expiring at various dates through 2007.
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-18
<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.
/s/ Ernst & Young LLP
Long Beach, California
March 19, 1998
F-19
<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-20
<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-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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>
<CAPTION>
<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-27
<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-28
<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-29
<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-30
<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-31
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD JULY 1, 1997 THROUGH APRIL 21, 1998
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<S> <C>
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-32
<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-33
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
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. 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-34
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
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
<TABLE>
<S> <C>
Long-term debt consists of the following at April 21, 1998:
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-35
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
NOTE E--LONG-TERM DEBT (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-36
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
NOTE G--RELATED PARTY TRANSACTIONS (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-37
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
principal stockholders during the period July 1, 1997 through April 21, 1998 for
deburring 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-38
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
APRIL 21, 1998
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-39
<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-40
<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 operations, stockholders' equity, 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-41
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30,
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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-42
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30,
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
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-43
<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
--------- ---------
Earnings from operations.................................................................... 7,055 5,463
Other income (expense)
Write off note receivable from affiliate.................................................. (386) --
Interest income........................................................................... 11 28
Interest expense.......................................................................... (409) (431)
Gain (loss) on sale of assets............................................................. 5 (8)
Litigation expense........................................................................ (73) (600)
Other..................................................................................... (89) (69)
--------- ---------
(941) (1,080)
--------- ---------
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-44
<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 these statements.
F-45
<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.
F-46
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES--CONTINUED
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>
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-47
<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-48
<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
F-49
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE F--INDUSTRIAL REVENUE BONDS (CONTINUED)
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 June 30, 1997 and 1996 were
$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>
F-50
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
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>
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>
<S> <C>
Year ending June 30
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.
F-51
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE G--RELATED PARTY TRANSACTIONS (CONTINUED)
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 deburring 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 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
F-52
<PAGE>
BRITTAIN MACHINE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 AND 1996
NOTE J--CONTINGENCY (CONTINUED)
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.
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-53
<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.
/s/ Ernst & Young LLP
Long Beach, California
August 12, 1998
F-54
<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-55
<PAGE>
BARNES MACHINE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 1, 1997 YEAR ENDED
TO SEPTEMBER 30,
APRIL 21, 1998 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-56
<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-57
<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-58
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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-59
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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-60
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-61
<PAGE>
BARNES MACHINE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. IMPACT OF YEAR 2000 (UNAUDITED) (CONTINUED)
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-62
<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-63
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 11, 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-64
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1998 THROUGH DECEMBER 31,
MAY 11, 1998 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-65
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEA-LECT J&J LEASING, INC.
COMMON STOCK COMMON STOCK
-------------------- ----------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT EARNINGS EQUITY
--------- --------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
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-66
<PAGE>
SEA-LECT PRODUCTS INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, YEAR ENDED
1998 THROUGH DECEMBER 31,
MAY 11, 1998 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-67
<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-68
<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>
MAY 11, DECEMBER 31,
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>
<CAPTION>
<S> <C>
1998.............................................................................. $ 258,252
1999.............................................................................. 410,428
2000.............................................................................. 215,693
2001.............................................................................. 29,414
2002.............................................................................. 9,863
----------
$ 923,650
----------
----------
</TABLE>
F-69
<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>
EQUIPMENT
BUILDING (NON-
(JV) 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-70
<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-71
<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-72
<PAGE>
LAMSCO WEST, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM FISCAL YEAR ENDED
JANUARY 4, 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-73
<PAGE>
LAMSCO WEST, INC.
STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM FISCAL YEAR ENDED
JANUARY 4, 1998 ----------------------------
TO NOVEMBER 20, JANUARY 3, DECEMBER 28,
1998 1998 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-74
<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-75
<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.
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.
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.
F-76
<PAGE>
LAMSCO WEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 20, 1998
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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-77
<PAGE>
LAMSCO WEST, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 20, 1998
NOTE 3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, JANUARY 3, DECEMBER 28,
1998 1998 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-78
<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-79
<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), 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
------ -----------
<S> <C>
3.1 Certificate of Incorporation of Compass Aerospace Corporation
("Compass"), as amended to date.
3.2 By-Laws of Compass , as amended to date.
*3.3 Certificate of Incorporation of AOM Acquisition Co. (which later
changed its name to "Aeromil Engineering Company"), as amended to
date.
*3.4 Bylaws of AOM Acquisition Co.
*3.5 Articles of Incorporation of Western Methods Machinery
Corporation.
*3.6 Bylaws of Western Methods Machinery Corporation.
*3.7 Articles of Incorporation of Brittain Machine, Inc.
*3.8 Bylaws of Brittain Machine, Inc., as amended to date.
*3.9 Articles of Incorporation of Wichita Manufacturing, Inc.
*3.10 Bylaws of Wichita Manufacturing, Inc.
*3.11 Articles of Incorporation of Barnes Machine, Inc.
*3.12 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 Articles of Incorporation of Lamsco West, Inc. (which later
changed its name to Pacific Hills Manufacturing Co.), as amended
to date.
*3.16 Bylaws of Lamsco West, Inc., as amended to date.
*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 "New 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.
II-2
<PAGE>
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.
*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 Statement regarding the computation of ratio of earnings to
fixed charges for Compass.
*21.1 Subsidiaries of the Company.
*23.1 Consent of Ernst & Young, LLP.
*23.2 Consent of Grant Thorton LLP.
23.3 Consent of McGladery & 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 and Qualification on Form T-1 of IBJ
Whitehall Bank & Trust Company, as Trustee under the Indenture
relating to the New 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 Agent Agreement.
</TABLE>
- ------------------------
* To be filed by amendment.
II-3
<PAGE>
(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.
ITEM 22. UNDERTAKINGS
(a) 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 by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) 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.
(c) The undersigned Registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and Compass
being acquired involved therein, that was not the subject of and included
in the Registration Statement when it became effective.
II-4
<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 March 30, 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. Each person whose signature appears below hereby constitutes
and appoints Douglas M. Hayes and Douglas B. Solomon, and each or either of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) and supplements to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requested or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Douglas M. Hayes Chairman of the Board of Directors March 30, 1999
- ------------------------
Douglas M. Hayes
/s/ Alexander Hogg Director, President
- ------------------------ and Chief Executive Officer March 30, 1999
Alexander Hogg
/s/ N. Paul Brost Vice President, Chief Financial
- ------------------------ Officer and Treasurer (Principal March 30, 1999
N. Paul Brost Financial and Accounting Officer)
/s/ Douglas B. Solomon Director and Secretary March 30, 1999
- ------------------------
Douglas B. Solomon
/s/ James P. Angus Director March 30, 1999
- ------------------------
James P. Angus
II-5
<PAGE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael Dritz Director March 30, 1999
- ------------------------
Michael Dritz
/s/ Harald H. Ludwig Director March 30, 1999
- ------------------------
Harald H. Ludwig
/s/ William R. Monkman Director March 30, 1999
- ------------------------
William R. Monkman
/s/ Philip J. Olsson Director March 30, 1999
- ------------------------
Philip J. Olsson
</TABLE>
II-6
<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 March 30, 1999.
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
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. Each person whose signature appears below hereby constitutes
and appoints Douglas M. Hayes and Douglas B. Solomon, and each or either of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) and supplements to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requested or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <S> <S>
/s/ Douglas M. Hayes Chairman of the Board of Directors March 30, 1999
- ------------------------ of each Additional Registrant
Douglas M. Hayes
/s/ Alexander Hogg Director, and Chief Executive March 30, 1999
- ------------------------ Officer of each Additional Registrant
Alexander Hogg
/s/ N. Paul Brost Vice President, Chief Financial March 30, 1999
- ------------------------ Officer and Treasurer (Principal
N. Paul Brost Financial and Accounting Officer)
of each Additional Registrant
/s/ Douglas B. Solomon Director and Secretary of each March 30, 1999
- ------------------------ Additional Registrant
Douglas B. Solomon
/s/ Harald H. Ludwig Director of each Additional March 30, 1999
- ------------------------ Registrant
Harald H. Ludwig
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1. Certificate of Incorporation of Compass Aerospace
Corporation ("Compass"), as amended to date.
3.2. By-Laws of Compass , as amended to date.
*3.3. Certificate of Incorporation of AOM Acquisition Co. (which
later changed its name to "Aeromil Engineering Company"), as
amended to date.
*3.4. Bylaws of AOM Acquisition Co.
*3.5. Articles of Incorporation of Western Methods Machinery
Corporation.
*3.6. Bylaws of Western Methods Machinery Corporation.
*3.7. Articles of Incorporation of Brittain Machine, Inc.
*3.8. Bylaws of Brittain Machine, Inc., as amended to date.
*3.9. Articles of Incorporation of Wichita Manufacturing, Inc.
*3.10. Bylaws of Wichita Manufacturing, Inc.
*3.11. Articles of Incorporation of Barnes Machine, Inc.
*3.12. 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. Articles of Incorporation of Lamsco West, Inc. (which later
changed its name to Pacific Hills Manufacturing Co.), as
amended to date.
*3.16. Bylaws of Lamsco West, Inc., as amended to date.
*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 101/8% Series B Senior Subordinated
Notes due 2005 of Compass (the "New Notes") and the 101/8%
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, Bank Boston, 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.
<PAGE>
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.
*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. Statement regarding the computation of ratio of earnings to
fixed charges for Compass.
*21.1. Subsidiaries of the Company.
*23.1. Consent of Ernst & Young, LLP.
*23.2. Consent of Grant Thorton LLP.
23.3. Consent of McGladery & 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 and Qualification on Form T-1 of
IBJ Whitehall Bank & Trust Company, as Trustee under the
Indenture relating to the New 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 Agent Agreement.
</TABLE>
- --------------------
* To be filed by amendment.
<PAGE>
COMPASS AEROSPACE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
Balance at Charged Balance
Beginning to Charged to at
Description of Costs and Other End of
Period Expenses Expenses Deductions(1) Period
<S> <C> <C> <C> <C> <C>
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>
CERTIFICATE OF INCORPORATION
OF
COMPASS AEROSPACE CORPORATION
--------------------------------
FIRST. The name of this corporation shall be:
COMPASS AEROSPACE CORPORATION
SECOND. Its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is
The Corporation Trust 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:
Ten Million (10,000,000) Shares with .01 par value per share.
FIFTH. The name and address of the incorporator is as
follows:
Marian M. Luther
Morgan, Lewis & Bockius LLP
801 S. Grand Avenue, Suite 2200
Los Angeles, CA 90017
SIXTH. The Board of Directors shall have the power to adopt,
amend or repeal the bylaws.
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 of a knowing violation of law, (iii) pursuant
to Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which 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
<PAGE>
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 21st day of October, A.D., 1997.
/s/ Marian M. Luther
--------------------------------
Marian M. Luther
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPASS AEROSPACE CORPORATION
COMPASS AEROSPACE CORPORATION, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That pursuant to the written consent of the Sole
Incorporator of COMPASS AEROSPACE CORPORATION, given in accordance with
Section 107 of the General Corporation Law of the State of Delaware,
resolutions were duly adopted setting forth the following amendment:
RESOLVED, that the Fourth Article of the Certificate of
Incorporation of the Corporation be, and it hereby is, amended
to read as follows:
"The total number of shares of stock which this
corporation is authorized to issue is:
Twenty Million (20,000,000) Shares with .01 par value
per share."
SECOND: That said amendment was duly adopted in accordance
with the provisions of Section 241 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this
certificate to be signed by Marian M. Luther as of this 27th day of October,
1997.
/s/ Marian M. Luther
----------------------------
Marian M. Luther, Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPASS AEROSPACE CORPORATION
Pursuant to Section 242 of the Delaware
General Corporation Law
COMPASS AEROSPACE CORPORATION, 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 October 21,
1997 and a certified copy was recorded in the Office of the New Castle County
Recorder of Deeds, Delaware. The Certificate of Incorporation was amended on
October 28, 1997 by a Certificate of Amendment filed in the Office of the
Secretary of State of Delaware on October 28, 1997 and a certified copy was
recorded in the Office of the New Castle County Recorder of Deeds, Delaware.
SECOND: That the following resolution was duly adopted
setting forth the following amendment:
RESOLVED, that the Fourth Article of the Certificate of
Incorporation of the Corporation be, and it hereby is, amended
to read as follows:
A. AUTHORIZED SHARES
"Section 1. AUTHORIZED SHARES. The total number of shares
of capital stock which the Corporation has authority to issue is
36,000,000 shares, consisting of:
(a) 30,000,000 shares of Class A Common Stock, par
value $0.01 per share (the "CLASS A COMMON");
and
(b) 6,000,000 shares of Class B Common Stock, par
value $0.01 per share (the "CLASS B COMMON").
The Class A Common and the Class B Common are hereinafter
collectively referred to as the "COMMON STOCK."
Section 2. AMENDMENT. Any amendment or modification shall
be binding and effective with respect to subsection 1(a) of this
Part A of this Article IV only with the prior written consent of
the holders of a majority of the Common Stock outstanding at the
time such action is taken (voting as a single class). Any
<PAGE>
amendment or modification shall be binding and effective with
respect to any provision of this Part A of this Article IV
(other than subsection 1(a) hereof, which shall be governed by
the preceding sentence) only with the prior written consent of
the holders of a majority of the Class B Common outstanding at
the time such action is taken.
B. COMMON STOCK
Except as otherwise provided in this Section B or as otherwise
required by applicable law, all shares of Class A Common and
Class B Common shall entitle the holders thereof to the same
rights and privileges, subject to the same qualifications,
limitations and restrictions.
Section 1. VOTING RIGHTS. Except as otherwise provided in
this Section B or as otherwise required by applicable law, (a)
the holders of Class A Common shall be entitled to one vote per
share on all matters to be voted on by the stockholders of the
Corporation, and (b) the holders of Class B Common shall have no
right to vote on any matters to be voted on by the stockholders
of the Corporation; PROVIDED that the holders of Class B Common
shall have the right to vote as a separate class, on any merger
or consolidation of the Corporation with or into another entity
or entities, or any recapitalization or reorganization, in which
such shares of Class B Common would receive or be exchanged for
consideration different on a per share basis from consideration
received with respect to or in exchange for the shares of Class
A Common or would otherwise be treated differently from shares
of Class A Common in connection with such transaction; PROVIDED,
HOWEVER, that a transaction in which the holders of Class B
Common receive securities substantially similar to those
received by the holders of Class A Common, except that such
securities received by such holders of Class B Common contain
terms and restrictions substantially similar to those
specifically applicable to the Class B Common, pursuant to this
Article IV, shall not require the affirmative vote of the
holders of the Class B Common.
Section 2. DIVIDENDS. As and when dividends are declared
or paid with respect to the Common Stock, whether in cash,
property or securities of the Corporation, the holders of Class
A Common and the holders of Class B Common shall be entitled to
receive such dividends pro rata at the same rate per share of
each class of Common Stock; PROVIDED that (i) if dividends are
declared which are payable in shares of Class A Common or Class
B Common, dividends shall be declared which are payable at the
same rate on all classes of stock, and the dividends payable in
shares of Class A Common shall be payable to holders of that
class, and the dividends payable in shares of Class B Common
shall be payable to holders of that class of stock and (ii) if
the dividends consist of other voting securities of the
Corporation, the Corporation shall make available to each
<PAGE>
holder of Class B Common, at such holder's request, dividends
consisting of non-voting securities of the Corporation which are
otherwise identical to the voting securities and which are
convertible into or exchangeable for such voting securities on
the same terms as the Class B Common is convertible.
Section 3. LIQUIDATION. The holders of the Class A Common
and the Class B Common shall be entitled to participate ratably
on a per share basis in all distributions to the holders of
Common Stock in any liquidation, dissolution or winding up of
the Corporation.
Section 4. CONVERSION.
4A. CONVERSION OF CLASS B COMMON.
(i) Upon the occurrence (or the expected occurrence
as described in (iii) below) of any Conversion Event,
each holder of Class B Common shall be entitled to
convert any or all of the shares of such holder's Class
B Common into the same number of shares of Class A
Common.
(ii) For purposes of this paragraph 4A, a "Conversion
Event" shall mean (a) any public offering or public sale
of securities of the Corporation (including a public
offering registered under the 1933 Act and a public sale
pursuant to Rule 144 of the Securities and Exchange
Commission or any similar rule then in force), (b) any
sale of securities of the Corporation to a person or
group of persons (within the meaning of the 1934 Act)
if, after such sale, such person or group of persons in
the aggregate would own or control securities which
possess in the aggregate the ordinary voting power to
elect a majority of the Corporation's directors
(provided that such sale has been approved by the Board
or a committee thereof), (c) any sale of securities of
the Corporation to a person or group of persons (within
the meaning of the 1934 Act) if, after such sale, such
person or group of persons in the aggregate would own or
control securities of the Corporation (excluding any
Class B Common being converted and disposed of in
connection with such Conversion Event) which possess in
the aggregate the ordinary voting power to elect a
majority of the Corporation's directors, (d) any sale of
securities of the Corporation to a person or group of
persons (within the meaning of the 1934 Act) if, after
such sale, such person or group of persons would not, in
the aggregate, own, control or have the right to acquire
more than two percent (2%) of the outstanding securities
of any class of voting securities of the Corporation,
(e) a merger, consolidation or similar transaction
involving the Corporation if, after such transaction, a
person or group of persons (within the meaning of the
1934 Act) in the aggregate would own or
<PAGE>
control securities which possess in the aggregate the
ordinary voting power to elect a majority of the
surviving corporation's directors (provided that the
transaction has been approved by the Board or a
committee thereof), and (f) the establishment of the
initial holder of shares of Class B Common as a Small
Business Investment Corporation in accordance with the
Small Business Investment Act of 1958, as amended, and
the rules and regulations thereunder promulgated by the
Small Business Administration. For purposes of this
paragraph 4A, a "person" shall include any natural
person and any corporation, partnership, limited
liability company, joint venture, trust, unincorporated
organization and any other entity or organization.
(iii) Each holder of Class B Common shall be entitled
to convert shares of Class B Common in connection with
any Conversion Event if such holder reasonably believes
that such Conversion Event will be consummated, and a
written request for conversion from any holder of Class
B Common to the Corporation stating such holder's
reasonable belief that a Conversion Event shall occur
shall be conclusive and shall obligate the Corporation
to effect such conversion in a timely manner so as to
enable each such holder to participate in such
Conversion Event. The Corporation will not cancel the
shares of Class B Common so converted before the tenth
day following such Conversion Event and shall reserve
such shares until such tenth day for reissuance in
compliance with the next sentence. If any shares of
Class B Common are converted into shares of Class A
Common in connection with a Conversion Event and such
shares of Class A Common are not actually distributed,
disposed of or sold pursuant to such Conversion Event
(other than pursuant to clause (f) in the definition
thereof), such shares of Class A Common shall be
promptly converted back into the same number of shares
of Class B Common.
4B. CONVERSION PROCEDURE.
(i) Each conversion of shares of Class B Common into
shares of Class A Common shall be effected by the
surrender of the certificate or certificates
representing the shares to be converted at the principal
office of the Corporation at any time during normal
business hours, together with the request described in
subparagraph 4A(iii) hereof. Each conversion shall be
deemed to have been effected as of the close of business
on the date on which such certificate or certificates
have been surrendered and such notice has been received
(or such later date as specified in the request
described in subparagraph 4A(iii)), and at such time the
rights of the holder of the converted Class B Common as
such holder shall cease and the person or persons in
whose name or names the certificate or
<PAGE>
certificates for shares of Class A Common are to be
issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of
Class A Common represented thereby.
(ii) Promptly after the surrender of certificates and
the receipt of the written notice or the request
described above, the Corporation shall issue and deliver
in accordance with the surrendering holder's
instructions (a) the certificate or certificates for the
Class A Common issuable upon such conversion and (b) a
certificate representing any Class B Common which was
represented by the certificate or certificates delivered
to the Corporation in connection with such conversion
but which was not converted.
(iii) The issuance of certificates for Class A Common
upon conversion of Class B Common will be made without
charge to the holders of such shares for any issuance
tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and the
related issuance of Class A Common.
(iv) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares
of Class A Common, solely for the purpose of issuance
upon the conversion of the Class B Common, such number
of shares of Class A Common issuable upon the conversion
of all outstanding Class B Common. All shares of Class
A Common issuable upon the conversion of the Class B
Common shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes,
liens and charges. The Corporation shall take all such
actions as may be necessary to assure that all such
shares of Class A Common may be so issued without
violation of any applicable law or governmental
regulation or any requirements of any domestic
securities exchange upon which shares of Class A Common
may be listed (except for official notice of issuance
which will be immediately transmitted by the Corporation
upon issuance).
(v) The Corporation shall not close its books
against the transfer of shares of Common Stock in any
manner which would interfere with the timely conversion
of any shares of Class B Common.
Section 5. STOCK SPLITS. If the Corporation in any manner
subdivides (by any stock split, stock dividend, recapitalization
or otherwise) or combines (by reverse stock split or otherwise)
the outstanding shares of one class of Common Stock, the
outstanding shares of the other classes of Common Stock shall be
proportionately subdivided or combined in a similar manner.
<PAGE>
Section 6. REGISTRATION OF TRANSFER. The Corporation shall
keep at its principal office (or such other place as the
Corporation reasonably designates) a register for the
registration of shares of Common Stock. Upon the surrender of
any certificate representing shares of any class of Common Stock
at such place, the Corporation shall, at the request of the
registered holder of such certificate, execute and deliver a new
certificate or certificates in exchange therefor representing in
the aggregate the number of shares of such class represented by
the surrendered certificate, and the Corporation forthwith shall
cancel such surrendered certificate. Each such new certificate
will be registered in such name and will represent such number
of shares of such class as is requested by the holder of the
surrendered certificate and will be substantially identical in
form to the surrendered certificate. The issuance of new
certificates shall be made without charge to the holders of the
surrendered certificates for any issuance tax in respect thereof
or other cost incurred by the Corporation in connection with
such issuance.
Section 7. REPLACEMENT. Upon receipt of evidence
reasonably satisfactory to the Corporation (an affidavit of the
registered holder will be satisfactory) of the ownership and the
loss, theft, destruction or mutilation of any certificate
evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt
of indemnity reasonably satisfactory to the Corporation
(provided that if the holder is a financial institution, other
institutional investor or executive officer of the Corporation,
such holder's own agreement will be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate,
the Corporation shall (at its expense) execute and deliver in
lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by
such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated
certificate.
Section 8. NOTICES. All notices referred to herein shall
be in writing, shall be delivered personally or by reputable
overnight courier service, charges prepaid, and shall be deemed
to have been given when so delivered or sent to the Corporation
at its principal executive offices and to any stockholder at
such holder's address as it appears in the stock records of the
Corporation (unless otherwise specified in a written notice to
the Corporation by such holder).
Section 9. AMENDMENT AND WAIVER. No amendment or waiver of
any provision of this Part B of this Article IV shall be
effective without the prior approval of the holders of a
majority of the then outstanding Common Stock
<PAGE>
(voting as a single class); PROVIDED that the vote of the
holders of a majority of any class of Common Stock shall be
required if any such amendment would after or change the powers,
preferences or special rights of the shares of such class so as
to affect such class adversely."
THIRD: This Amendment to the Certificate of Incorporation
was duly adopted by 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 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 20th day of April 1998.
By: /s/ Douglas B. Solomon
----------------------------
Douglas B. Solomon
Secretary
<PAGE>
BYLAWS
OF
COMPASS AEROSPACE CORPORATION
****
INCORPORATED UNDER THE LAWS
OF THE
STATE OF DELAWARE
ON
OCTOBER 21, 1997
****
LAW OFFICES
OF
MORGAN, LEWIS & BOCKIUS LLP
801 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90017-3189
<PAGE>
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
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<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
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<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
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<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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<PAGE>
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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<PAGE>
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.
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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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<PAGE>
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 BYLAWS
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 bylaws were
adopted as the bylaws of the Corporation on October 28, 1997 by the Written
Consent of the Sole Director and amended on March 9, 1998 by resolutions adopted
by the Unanimous Written Consent of the Board of Directors of the Corporation.
Dated effective the 9th day of March, 1998.
/s/ Douglas B. Solomon, Secretary
-----------------------------------
Douglas B. Solomon, Secretary
(Seal)
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====================================
COMPASS AEROSPACE CORPORATION
ISSUER,
AND
IBJ SCHRODER BANK & TRUST COMPANY
TRUSTEE
-------------------
INDENTURE
Dated as of April 21, 1998
-------------------
$110,000,000
10 1/8% Senior Subordinated Notes due 2005
===================================
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions....................................................................................... 1
SECTION 1.2. Incorporation by Reference of TIA................................................................. 21
SECTION 1.3. Rules of Construction............................................................................. 22
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating................................................................................... 23
SECTION 2.2. Execution and Authentication...................................................................... 23
SECTION 2.3. Registrar and Paying Agent........................................................................ 24
SECTION 2.4. Paying Agent to Hold Assets in Trust...............................................................25
SECTION 2.5. Securityholder Lists.............................................................................. 25
SECTION 2.6. Transfer and Exchange............................................................................. 25
SECTION 2.7. Replacement Securities............................................................................ 32
SECTION 2.8. Outstanding Securities............................................................................ 33
SECTION 2.9. Treasury Securities............................................................................... 33
SECTION 2.10. Temporary Securities.............................................................................. 33
SECTION 2.11. Cancellation...................................................................................... 34
SECTION 2.12. Defaulted Interest................................................................................ 34
SECTION 2.13. CUSIP Numbers..................................................................................... 35
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption............................................................................... 36
SECTION 3.2. Notices to Trustee................................................................................ 37
SECTION 3.3. Selection of Securities to Be Redeemed............................................................ 37
SECTION 3.4. Notice of Redemption.............................................................................. 37
SECTION 3.5. Effect of Notice of Redemption.................................................................... 38
SECTION 3.6. Deposit of Redemption Price....................................................................... 38
SECTION 3.7. Securities Redeemed in Part....................................................................... 40
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ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities............................................................................. 40
SECTION 4.2. Maintenance of Office or Agency................................................................... 41
SECTION 4.3. Limitation on Restricted Payments................................................................. 41
SECTION 4.4. Corporate and Partnership Existence............................................................... 43
SECTION 4.5. Payment of Taxes and Other Claims................................................................. 43
SECTION 4.6. Maintenance of Properties and Insurance........................................................... 43
SECTION 4.7. Compliance Certificate; Notice of Default......................................................... 44
SECTION 4.8. Reports........................................................................................... 45
SECTION 4.9. Limitation on Status as Investment Company........................................................ 45
SECTION 4.10. Limitation on Transactions with Affiliates........................................................ 45
SECTION 4.11. Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock....................................................... 46
SECTION 4.12. Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries............................................................... 47
SECTION 4.13. Limitations on Layering Indebtedness............................................................. 48
SECTION 4.14. Limitation on Sales of Assets and Subsidiary Stock............................................... 48
SECTION 4.15. Waiver of Stay, Extension or Usury Laws.......................................................... 53
SECTION 4.16. Limitation on Liens Securing Indebtedness........................................................ 53
SECTION 4.17. Rule 144A Information Requirement................................................................ 54
SECTION 4.18. Limitations on Lines of Business................................................................. 54
SECTION 4.19. Transactions Not Subject to Covenants............................................................ 54
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation...................................................... 55
SECTION 5.2. Successor Corporation Substituted................................................................ 55
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default................................................................................. 56
SECTION 6.2. Acceleration of Maturity Date; Rescission
and Annulment........................................................................ 58
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SECTION 6.3. Collection of Indebtedness and Suits for
Enforcement by Trustee............................................................... 59
SECTION 6.4. Trustee May File Proofs of Claim.................................................................. 60
SECTION 6.5. Trustee May Enforce Claims Without
Possession of Securities............................................................. 61
SECTION 6.6. Priorities........................................................................................ 61
SECTION 6.7. Limitation on Suits............................................................................... 62
SECTION 6.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest...................................................... 63
SECTION 6.9. Rights and Remedies Cumulative.................................................................... 63
SECTION 6.10. Delay or Omission Not Waiver...................................................................... 63
SECTION 6.11. Control by Holders................................................................................ 64
SECTION 6.12. Waiver of Existing or Past Default................................................................ 64
SECTION 6.13. Undertaking for Costs............................................................................. 65
SECTION 6.14. Restoration of Rights and Remedies................................................................ 65
ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee................................................................................. 65
SECTION 7.2. Rights of Trustee................................................................................. 67
SECTION 7.3. Individual Rights of Trustee...................................................................... 68
SECTION 7.4. Trustee's Disclaimer.............................................................................. 69
SECTION 7.5. Notice of Default................................................................................. 69
SECTION 7.6. Reports by Trustee to Holders..................................................................... 69
SECTION 7.7. Compensation and Indemnity........................................................................ 70
SECTION 7.8. Replacement of Trustee............................................................................ 71
SECTION 7.9. Successor Trustee by Merger, Etc.................................................................. 72
SECTION 7.10. Eligibility; Disqualification..................................................................... 72
SECTION 7.11. Preferential Collection of Claims Against Company................................................. 72
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Discharge; Option to Effect Legal
Defeasance or Covenant Defeasance.................................................... 73
SECTION 8.2. Legal Defeasance and Discharge.................................................................... 73
SECTION 8.3. Covenant Defeasance............................................................................... 74
SECTION 8.4. Conditions to Legal or Covenant Defeasance........................................................ 74
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SECTION 8.5. Deposited Cash and U.S. Government
Obligations to be Held in Trust; Other Miscellaneous Provisions...................... 76
SECTION 8.6. Repayment to the Company.......................................................................... 76
SECTION 8.7. Reinstatement..................................................................................... 77
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders................................................ 77
SECTION 9.2. Amendments, Supplemental Indentures
and Waivers with Consent of Holders.................................................. 79
SECTION 9.3. Compliance with TIA............................................................................... 80
SECTION 9.4. Revocation and Effect of Consents................................................................. 80
SECTION 9.5. Notation on or Exchange of Securities............................................................. 81
SECTION 9.6. Trustee to Sign Amendments, Etc................................................................... 81
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the
Holder Upon a Change of Control...................................................... 82
ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee........................................................................................ 85
SECTION 11.2. Execution and Delivery of Guarantee.............................................................. 87
SECTION 11.3. Certain Bankruptcy Events........................................................................ 87
SECTION 11.4. Limitation on Merger of Subsidiaries and
Release of Guarantors................................................................ 88
ARTICLE XII
SUBORDINATION
SECTION 12.1. Securities Subordinated to Senior Debt........................................................... 89
SECTION 12.2. No Payment on Securities in Certain Circumstances................................................ 89
SECTION 12.3. Securities Subordinated to Prior Payment of
All Senior Debt on Dissolution, Liquidation or Reorganization........................ 91
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SECTION 12.4. Securityholders to Be Subrogated to
Rights of Holders of Senior Debt..................................................... 91
SECTION 12.5. Obligations of the Company and the
Guarantors Unconditional............................................................. 92
SECTION 12.6. Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice...................................................... 92
SECTION 12.7. Application by Trustee of Assets Deposited with It............................................... 93
SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions of
the Company, the Guarantors or Holders of Senior Debt................................ 93
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities.......................................................... 94
SECTION 12.10. Right of Trustee to Hold Senior Debt............................................................ 94
SECTION 12.11. Article XII Not to Prevent Events of Default.................................................... 94
SECTION 12.12. No Fiduciary Duty of Trustee to Holders
of Senior Debt....................................................................... 95
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA Controls..................................................................................... 95
SECTION 13.2. Notices.......................................................................................... 95
SECTION 13.3. Communications by Holders with Other Holders..................................................... 97
SECTION 13.4. Certificate and Opinion as to Conditions Precedent............................................... 97
SECTION 13.5. Statements Required in Certificate or Opinion.................................................... 97
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar........................................................ 98
SECTION 13.7. Legal Holidays................................................................................... 98
SECTION 13.8. Governing Law.................................................................................... 98
SECTION 13.9. No Adverse Interpretation of Other Agreements.................................................... 99
SECTION 13.10. No Recourse Against Others...................................................................... 99
SECTION 13.11. Successors..................................................................................... 100
SECTION 13.12. Duplicate Originals............................................................................ 100
SECTION 13.13. Severability................................................................................... 100
SECTION 13.14. Table of Contents, Headings, Etc............................................................... 100
SECTION 13.15. Qualification of Indenture..................................................................... 100
SECTION 13.16. Registration Rights............................................................................ 101
EXHIBIT A
[FORM OF SECURITY]..............................................A-1
</TABLE>
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CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
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310(a)(1)................................................................................. 7.10
(a)(2)................................................................................. 7.10
(a)(3)................................................................................. N.A.
(a)(4)................................................................................. N.A.
(a)(5)................................................................................. 7.10
(b).................................................................................... 7.10
(c).................................................................................... N.A.
311(a).................................................................................... 7.11
(b).................................................................................... 7.11
(c).................................................................................... N.A.
312(a).................................................................................... 2.5
(b).................................................................................... 13.3
(c).................................................................................... 13.3
313(a).................................................................................... 7.6
(b)(1)................................................................................. 7.6
(b)(2)................................................................................. 7.6
(c).................................................................................... 7.6
(d).................................................................................... N.A.
314(a).................................................................................... 4.7(a)
315(a).................................................................................... 7.2
(b).................................................................................... 7.5
(c).................................................................................... 7.1
(d).................................................................................... 7.1
(e).................................................................................... 6.13
316(a)(last sentence)..................................................................... 2.9
(a)(1)(A).............................................................................. 6.11
(a)(1)(B).............................................................................. 6.12
(a)(2)................................................................................. N.A.
(b).................................................................................... 6.8
317(a)(1)................................................................................. 6.3
(a)(2)................................................................................. 6.4
(b).................................................................................... 2.4
318(a).................................................................................... 13.1
(b).................................................................................... N.A.
(c).................................................................................... 13.1
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TIA INDENTURE
SECTION SECTION
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</TABLE>
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
vii
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INDENTURE, dated as of April 21, 1998, by and between
Compass Aerospace Corporation, a Delaware corporation (the "Company"), and
IBJ Schroder Bank & Trust Company, a New York banking corporation as trustee
(the "Trustee").
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Company's 10 1/8% Series A Senior Subordinated Notes due 2005 to be exchanged
for the 10 1/8% Series B Senior Subordinated Notes due 2005:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. DEFINITIONS.
"ACQUIRED INDEBTEDNESS" means Indebtedness or Disqualified
Capital Stock of any person existing at the time such person becomes a
Subsidiary of the Company, including by designation, or is merged or
consolidated into or with the Company 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
the Company. 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 the Company 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.
"AFFILIATE TRANSACTION" shall have the meaning specified in
Section 4.10.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"ASSET SALE" shall have the meaning specified in Section
4.14.
"ASSET SALE OFFER" shall have the meaning specified in
Section 4.14.
"ASSET SALE OFFER AMOUNT" shall have the meaning specified
in Section 4.14.
<PAGE>
"ASSET SALE OFFER PERIOD" shall have the meaning specified
in Section 4.14.
"ASSET SALE OFFER PRICE" shall have the meaning specified
in Section 4.14.
"AVERAGE LIFE" means, as of the date of determination, with
respect to any security or instrument, the quotient obtained by dividing (i)
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 by (ii) the sum of all such
principal (or redemption) payments.
"BANKRUPTCY LAW" means Title 11, U.S. Code, or any similar
Federal, state or foreign law for the relief of debtors.
"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.
"BOARD RESOLUTION" means, with respect to any Person, a
duly adopted resolution 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.
"CAPITAL CONTRIBUTION" means any contribution to the equity
of the Company from a direct or indirect parent of the Company 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.
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<PAGE>
"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" or "CASH" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public or private debts.
"CASH EQUIVALENT" means (i) 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) or (ii) 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 (iii) 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., and in the case of each of (i), (ii), and (iii)
maturing within one year after the date of acquisition.
"CHANGE OF CONTROL" means (i) 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 the Company then outstanding
normally entitled to vote in elections of directors or (ii) on or following
the consummation of an Initial Public Equity Offering, (A) any merger or
consolidation of the Company with or into any person or any sale, transfer or
other conveyance, whether direct or indirect, of all or substantially all of
the assets of the Company, on a consolidated basis, in one transaction or a
series of related transactions, 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, whether or not applicable)
(other than any of the Excluded Persons) (a) 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, as applicable, of the transferee(s) or surviving
entity or entities, and (b) 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, whether or not applicable) (other than any of the Excluded
Persons) (a) 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 the Company then outstanding normally entitled to vote in
elections of directors, and (b) 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
the Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company, as applicable, was approved by a vote of a majority of the
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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 the Company, as applicable, then in office.
"CHANGE OF CONTROL OFFER" shall have the meaning specified
in Section 10.1.
"CHANGE OF CONTROL OFFER PERIOD" shall have the meaning
specified in Section 10.1.
"CHANGE OF CONTROL PURCHASE DATE" shall have the meaning
specified in Section 10.1.
"CHANGE OF CONTROL PURCHASE PRICE" shall have the meaning
specified in Section 10.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture, and thereafter
means such successor.
"CONSOLIDATION" means, with respect to the Company, the
consolidation of the accounts of the Subsidiaries with those of the Company,
all in accordance with GAAP; PROVIDED that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with the
accounts of the Company. 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 (a) 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 to (b) 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, (i) 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, (ii) 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, (iii) 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 (iv) the Consolidated
Fixed Charges of such person
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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.
"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, the sum of (i)
Consolidated income tax expense, (ii) Consolidated depreciation and
amortization expense, and (iii) Consolidated Fixed Charges, 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 the Company in
such Subsidiary.
"CONSOLIDATED FIXED CHARGES" of any person means, for any
period, the aggregate amount (without duplication and determined in each case
in accordance with GAAP) of (a) 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 (i) original issue discount and non-cash interest payments
or accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations, and (iii) 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 (b) 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,
(x) interest on a Capitalized Lease Obligation shall be deemed to accrue at
an interest rate reasonably determined in good faith by the Company to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP and (y) 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 (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the
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extent included in computing such net income (or loss) and without
duplication): (a) 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), (b) 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, (c) 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, (d) 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 NET WORTH" of any person at any date means
the aggregate consolidated stockholders' equity of such person (plus amounts
of equity attributable to preferred stock) and its Consolidated Subsidiaries,
as would be shown on the consolidated balance sheet of such person prepared
in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (a) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of such person
and its Consolidated Subsidiaries, (b) all write-ups in the book value of any
asset of such person or a Consolidated Subsidiary of such person subsequent
to the Issue Date (other than writeups resulting from foreign currency
translations or of tangible assets of a going concern business made within 12
months after the acquisition of such business) and (c) all investments in
Subsidiaries that are not Consolidated Subsidiaries and in persons that are
not Subsidiaries.
"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.
"CORPORATE TRUST OFFICE" means the office of the Trustee in
the Borough of Manhattan, The City of New York.
"COVENANT DEFEASANCE" shall have the meaning specified in
Section 8.3.
"CREDIT AGREEMENT" means the credit agreement entered into
by and among the Company, certain of its subsidiaries, certain financial
institutions and BancBoston Securities Inc. as arranger, BankBoston as a
lender and administrative agent, and DLJ 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, supple-
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mented, renewed, replaced or otherwise modified from time to time whether or
not with the same agent, trustee, representative lenders or holders, and,
subject to the proviso to the next succeeding sentence, 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 (i) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of the Company and its Subsidiaries and their respective
successors and assigns, (iii) 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 (iv)
otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the Indenture.
"CUSTODIAN" means any receiver, trustee, assignee,
liquidator, sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event or condition the occurrence of
which is, or with the lapse of time or the giving of notice or both would be,
an Event of Default.
"DEFAULTED INTEREST" shall have the meaning specified in
Section 2.12.
"DEFINITIVE SECURITIES" means Securities that are in the
form of Security attached hereto as Exhibit A that do not include the
information called for by footnotes 3 and 8 thereof.
"DEPOSITORY" means, with respect to the Securities issuable
or issued in whole or in part in global form, the person specified in Section
2.3 as the Depository with respect to the Securities, until a successor shall
have been appointed and become such pursuant to the applicable provision of
this Indenture, and, thereafter, "Depository" shall mean or include such
successor.
"DESIGNATED SENIOR DEBT" means, (a) so long as it is in
effect and there is at least $1 million of outstanding indebtedness
thereunder, the Credit Agreement and (b) any other Senior Debt designated by
the Company to be "Designated Senior Debt" that has an outstanding principal
amount of at least $25.0 million at the time of such designation.
"DISQUALIFIED CAPITAL STOCK" means (a) except as set forth
in (b), 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,
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on or prior to the Stated Maturity of the Securities and (b) with respect to
any Subsidiary of such person (including with respect to any Subsidiary of
the Company), 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, participation 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 DEFAULT" shall have the meaning specified in
Section 6.1.
"EVENT OF LOSS" means, with respect to any property or
asset, any (i) loss, destruction or damage of such property or asset or (ii)
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.
"EXCESS PROCEEDS" shall have the meaning specified in
Section 4.14.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated by the SEC thereunder.
"EXCHANGE SECURITIES" means the 10 1/8% Series B Senior
Subordinated Notes due 2005, as supplemented from time to time in accordance
with the terms hereof, to be issued pursuant to this Indenture in connection
with the offer to exchange Securities for the Initial Securities that may be
made by the Company pursuant to the Registration Rights Agreement that
contains the information referred to in footnotes 1, 2 and 8 to the form of
Security attached hereto as Exhibit A.
"EXCLUDED PERSON" means officers and directors of the
Company and those persons who beneficially own membership interests in
Compass Holdings LLC, in each case, as of the Issue Date.
"EXEMPTED AFFILIATE TRANSACTION" means (a) customary
employee compensation arrangements approved by a majority of independent (as
to such transactions) members of the Board of Directors of the Company, (b)
dividends permitted under the terms of the covenant discussed in Section 4.3
and payable, in form and amount, on a pro rata basis to all holders of common
stock of the Company, (c) Management Fee Payments up to $500,000 in any
fiscal year and the reimbursement by the Company of reasonable out-of-pocket
costs and expenses incurred in connection with the rendering of management
services to or on behalf of the Company, (d) Permitted Payments to Parent,
(e) transactions solely between the Company and any of its wholly owned
Consolidated Subsidiaries or solely among wholly owned Consolidated
Subsidiaries of the Company and (f) the payment of $750,000 to Parent for
reimbursement of the nonrefundable deposit against the purchase price for
the acquisition of Barnes Machine.
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"EXISTING INDEBTEDNESS" means Indebtedness of the Company
and its Subsidiaries in existence on the date of this Indenture.
"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.
"GLOBAL SECURITY" means a Security that contains the
information referred to in footnotes 3 and 6 to the form of Security attached
hereto as Exhibit A.
"GUARANTEE" shall have the meaning provided in Section 11.1.
"GUARANTOR" means, subject to the provisions in Section
11.4 of the Indenture, Western Methods Machinery Corporation, Aeromil
Engineering Company, Brittain Machine, Inc. and Barnes Machine Incorporated
and each other Subsidiary of the Company that executes a Guarantee
guaranteeing the Securities in accordance with the provisions of the
Indenture.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name
a Security is registered on the Registrar's books.
"INCUR" or "INCUR" shall have the meaning specified in
Section 4.11.
"INCURRENCE DATE" shall have the meaning specified in
Section 4.11.
"INDEBTEDNESS" of any person means, without duplication,
(a) 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, (i) 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), (ii) evidenced by bonds, notes, debentures or similar instruments,
(iii) 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; (b) all liabilities and obligations, contingent or otherwise, of
such person (iv) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (v) relating to any Capitalized Lease
Obligation, or (vi) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; (c) all net
obligations of such person under Interest Swap and Hedging
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Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clause (a), (b) or (c) 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; (e) 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 (a), (b), (c) or (d), or this
clause (e), whether or not between or among the same parties; and (f) 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.
"INDENTURE" means this Indenture, as amended or
supplemented from time to time in accordance with the terms hereof.
"INITIAL PUBLIC EQUITY OFFERING" means an initial
underwritten offering of common stock of the Company or Parent for cash
pursuant to an effective registration statement under the Securities Act as a
consequence of which the common stock of the Company or Parent is listed on a
national securities exchange or quoted on the national market system of
Nasdaq stock market.
"INITIAL PURCHASERS" means Donaldson, Lufkin & Jenrette
Securities Corporation, BancBoston Securities Inc. and Libra Investments,
Inc., severally, and not jointly.
"INITIAL SECURITIES" means the 10 1/8% Series A Senior
Subordinated Notes due 2005, as supplemented from time to time in accordance
with the terms hereof, issued under this Indenture that contains the
information referred to in footnotes 4, 5 and 7 to the form of Security
attached hereto as Exhibit A.
"INTEREST PAYMENT DATE" means the stated due date of an
installment of interest on the Securities.
"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
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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) (a) 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,
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; (b) 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); (c) other than
guarantees of Indebtedness of the Company 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; (d)
the making of any capital contribution by such person to such other person;
and (e) the designation by the Board of Directors of the Company of any
person to be an Unrestricted Subsidiary. The Company 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 the Company 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 the Company or a Subsidiary of the Company 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
Securities under the Indenture.
"JUNIOR SECURITY" means any Qualified Capital Stock and any
Indebtedness of the Company or a Guarantor, as applicable, that is
subordinated in right of payment to Senior Debt at least to the same extent
as the Securities 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 Securities; 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 the Company or the Guarantor, as applicable, that (i) 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, (ii) is unsecured, (iii) has an
Average Life longer than the security for which such Qualified Capital Stock
or Indebtedness is being exchanged, and (iv) 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 Securities.
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"LEGAL DEFEASANCE" shall have the meaning specified in
Section 8.2.
"LEGAL HOLIDAY" shall have the meaning specified in Section
13.7.
"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.
"LIQUIDATED DAMAGES" shall have the meaning specified in
the Registration Rights Agreement.
"MANAGEMENT FEE PAYMENTS" means payments from the Company
to Dunhill and Hayes Capital under that certain Management Consulting
Agreement, dated March 9, 1998, as amended, by and between the Company,
Dunhill Bank Caribbean Ltd. and Hayes Capital, in accordance with the terms
and provisions of such Management Consulting Agreement on the Issue Date,
PROVIDED, HOWEVER, that the obligation of the Company to make such payments
will be subordinated to the payment of all Obligations with respect to the
Securities (and any Guarantee thereof).
"MATERIAL FACILITY" means a facility that has a customer
certification including without limitation D1-9000.
"MATURITY DATE" means, when used with respect to any
Security, the date specified on such Security as the fixed date on which the
final installment of principal of such Security is due and payable (in the
absence of any acceleration thereof pursuant to the provisions of this
Indenture regarding acceleration of Indebtedness or any Change of Control
Offer or Asset Sale Offer).
"MOODY'S" means Moody's Investors Services, Inc. and its
successors.
"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 the Company.
"NET CASH PROCEEDS" means the aggregate amount of cash or
Cash Equivalents received by the Company in the case of a sale of Qualified
Capital Stock and by the Company and its Subsidiaries in respect of an Asset
Sale 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 the Company that were issued
for cash on or after the Issue Date, the amount of cash originally received
by the Company upon the issuance of such securities (including options,
warrants, rights and convertible or exchangeable debt) less, in each case,
the sum of all payments, fees, commissions and (in the
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<PAGE>
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, in the case of an Asset Sale only, less the
amount (estimated reasonably and in good faith by the Company) 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 the Company and their Subsidiaries) required to be paid by the
Company 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 the
Company or its Subsidiaries to the extent that, (i) under the terms thereof
or pursuant to law, no personal recourse may be had against the Company 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; (ii) such
Indebtedness (x) is incurred concurrently with the acquisition by the Company
or its Subsidiaries of such Subject Assets or a Person (or interests in a
Person) holding such Subject Assets, or (y) constitutes Refinancing
Indebtedness with respect to Indebtedness so incurred; and (iii) the Subject
Assets are not existing assets and no existing assets or proceeds from the
sale, transfer of 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 the Company or any Guarantor
under the terms of the Securities or the Indenture, including any liquidated
damages due pursuant to the terms of the Registration Rights Agreement.
"OFFERING MEMORANDUM" means the final Offering Memorandum
of the Company dated April 15, 1998, relating to the offering of the Initial
Securities in a transaction exempt from the requirements of Section 5 of the
Securities Act.
"OFFICER" means, with respect to the Company or any
Guarantor, the Chief Executive Officer, the President, any Vice President,
the Chief Financial Officer, the Treasurer, the Controller, or the Secretary
of the Company or such Guarantor.
"OFFICERS' CERTIFICATE" means, with respect to the Company
or any Guarantor, a certificate signed by two Officers or by an Officer and
an Assistant Secretary of the Company or such Guarantor and otherwise
complying with the requirements of Sections 13.4 and 13.5.
"OPINION OF COUNSEL" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee complying with the
requirements of Sections 13.4 and 13.5.
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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 the Company.
"PAYING AGENT" shall have the meaning specified in Section
2.3.
"PAYMENT DEFAULT" shall have the meaning specified in
Section 12.2.
"PAYMENT NOTICE" shall have the meaning specified in
Section 12.2.
"PERMITTED INDEBTEDNESS" means that: (a) the Company and
the Guarantors may incur Indebtedness evidenced by the Securities and
represented by this Indenture up to the amounts specified therein as of the
date thereof; (b) the Company and the Guarantors, as applicable, may incur
Refinancing Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, described in clause (a) of this definition or
incurred under the Debt Incurrence Ratio test of Section 4.11 or which is
outstanding on the Issue Date (after giving effect to the transactions
contemplated under the Offering, and $3.5 million of Mortgage Indebtedness to
be incurred in connection with the acquisition of Brittan Machine and within
six months after the Issue Date, which will be considered outstanding on the
Issue Date for purposes of this paragraph (b)), provided that in each case
such Refinancing Indebtedness is secured only by the assets that secured the
Indebtedness so refinanced; (c) the Company 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 the Company's
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; (d) the Company may incur
Indebtedness to any Subsidiary Guarantor, and any Subsidiary Guarantor may
incur Indebtedness to any other Subsidiary Guarantor or to the Company;
PROVIDED, that, in the case of Indebtedness of the Company, such obligations
shall be unsecured and subordinated in all respects to the Company's
obligations pursuant to the Securities and the date of any event that causes
such Subsidiary Guarantor no longer to be a Subsidiary Guarantor shall be an
Incurrence Date; and (e) any Guarantor may guaranty any Indebtedness of the
Company 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 (a) Investments in any of the
Securities; (b) Investments in Cash Equivalents; (c) intercompany notes to
the extent permitted under clause (d) of the definition of "Permitted
Indebtedness" and (d) any Investment by the Company 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 the Company or a Wholly Owned Subsidiary
Guarantor.
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"PERMITTED LIEN" means (a) Liens existing on the Issue
Date; (b) 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, if adequate reserves with respect
thereto are maintained on the books of the Company in accordance with GAAP;
(c) 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 (i) the underlying obligations are
not overdue for a period of more than 30 days, or (ii) such Liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of the Company in accordance
with GAAP; (d) 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; (e) 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 the Company or any of
its Subsidiaries) or interfere with the ordinary conduct of the business of
the Company or any of its Subsidiaries; (f) 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; (g) pledges
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security legislation; (h) Liens securing the Securities; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a
Subsidiary or is merged with or into the Company 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; (j) Liens arising from Purchase Money
Indebtedness or Mortgage Indebtedness permitted to be incurred pursuant to
Section 4.11 PROVIDED such Liens relate solely to the property which is
subject to such Purchase Money Indebtedness or Mortgage Indebtedness, as
applicable; (k) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of the
business of the Company or any of its Subsidiaries or materially detracting
from the value of the relative assets of the Company or any Subsidiary; (l)
Liens arising from precautionary Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Company or any of its
Subsidiaries in the ordinary course of business; (m) 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
Securities 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 (n) Liens securing Indebtedness
incurred under the Credit Agreement in accordance with the terms of Section
4.11.
"PERMITTED PAYMENTS TO PARENT" means without duplication,
(a) 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
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allocable to the Company and its Subsidiaries, provided such expenses do not
exceed $250,000 in any fiscal year; and (b) 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 the Company 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 the Company or
its Subsidiaries and Unrestricted Subsidiaries PROVIDED, HOWEVER, that (i),
notwithstanding the foregoing, in the case of determining the amount of a Tax
Payment that is permitted to be paid by Company 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 (a) shall be treated as a
deductible expense of the Company in the taxable year during which the
obligation to make such payment accrues and (ii) 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.
"PERSON" or "PERSON" means any corporation, individual,
limited liability company, joint stock company, joint venture, partnership,
limited liability company, unincorporated association, governmental
regulatory entity, country, state or political subdivision thereof, trust,
municipality or other entity.
"PREFERRED STOCK" means an Equity Interest of any class or
classes of a Person (however designated) which is preferred as to payments of
dividends, or as to distributions upon any liquidation or dissolution, over
Equity Interests of any other class of such Person.
"PRINCIPAL" of any Indebtedness means the principal of such
Indebtedness.
"PROPERTY" means any right or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and whether
tangible, intangible, contingent, direct or indirect.
"PURCHASE AGREEMENT" means the Purchase Agreement dated
April 15, 1998 by and between the Company and the Initial Purchasers, as such
agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"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 the Company, is directly related to a Related Business of the
Company 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 the
Company that is not Disqualified Capital Stock.
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"QUALIFIED EXCHANGE" means any legal defeasance,
redemption, retirement, repurchase or other acquisition of Capital Stock or
of Indebtedness of the Company issued on or after the Issue Date with the Net
Cash Proceeds received by the Company from the substantially concurrent sale
of Qualified Capital Stock or any exchange of Qualified Capital Stock for any
Capital Stock or for Indebtedness of the Company issued on or after the Issue
Date.
"RECORD DATE" means a Record Date specified in the
Securities whether or not such Record Date is a Business Day, or, if
applicable, as specified in Section 2.12.
"REDEMPTION DATE," when used with respect to any Security
to be redeemed, means the date fixed for such redemption pursuant to Article
III of this Indenture and Para graph 5 in the form of Security attached
hereto as Exhibit A.
"REDEMPTION PRICE," when used with respect to any Security
to be redeemed, means the redemption price for such redemption pursuant to
Paragraph 5 in the form of Security attached hereto as Exhibit A, which shall
include, without duplication, in each case, accrued and unpaid interest and
Liquidated Damages, if any, to the Redemption 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 Securities or this
Indenture.
"REFINANCING INDEBTEDNESS" means Indebtedness or
Disqualified Capital Stock (a) 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 (b) constituting an amendment, modification or
supplement to, or a deferral or renewal of ((a) and (b) above are,
collectively, 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 the Indebtedness
refinanced without giving effect to any modification thereof made in
connection with or in contemplation of such refinancing) the lesser of (i)
the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as deter mined in
accordance with GAAP) at the time of such Refinancing; PROVIDED, that (A)
such Refinancing Indebtedness of any Subsidiary of the Company shall only be
used to Refinance outstanding Indebtedness or Disqualified Capital Stock of
such Subsidiary, (B) such Refinancing Indebtedness shall (x) not have an
Average Life shorter than the Indebtedness or Disqualified Capital Stock to
be so refinanced at the time of such Refinancing and (y) in all respects, be
no less subordinated or junior, if applicable, to the rights of Holders of
the Securities than
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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 Securities than
the terms of the Liens (if any) securing such refinanced Indebtedness,
including, without limitation, the amount of Indebtedness secured shall not
be increased.
"REGISTRAR" shall have the meaning specified in Section 2.3.
"REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement dated as of the date hereof by and between the Initial
Purchasers and the Company, as such agreement may be amended, modified or
supplemented from time to time in accordance with the terms thereof.
"RELATED BUSINESS" means the business conducted (or
proposed to be conducted) by the Company 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 the Company 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, (a)
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, (b) 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, (c) 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, (d) any Restricted
Investment by such person and (e) 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 the Company to pay such Management Fee Payments will be
subordinated to the payment of all Obligations with respect to the Securities
(and any Guarantee thereof); PROVIDED, HOWEVER, that the term "Restricted
Payment" does not include (i) 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; or (ii) any dividend,
distribution or other payment to the Company, or to any of its Guarantors, by
the Company or any of its Subsidiaries; or (iii) the payment of $750,000 to
Parent for reimbursement for the down payment on the purchase price of Barnes
Machine.
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"RESTRICTED SECURITY" means a Security, unless or until it
has been (i) effectively registered under the Securities Act and disposed of
in accordance with the registration statement covering it or (ii) distributed
to the public pursuant to Rule 144 (or any similar provision then in force)
under the Securities Act; PROVIDED, that in no case shall an Exchange
Security issued in accordance with this Indenture and the terms and
provisions of the Registration Rights Agreement be a Restricted Security.
"S&P" means Standard & Poor's, a division of The McGraw
Hill Companies, and its successors.
"SEC" means the Securities and Exchange Commission.
"SECURITIES" means, collectively, the Initial Securities
and, when and if issued as provided in the Registration Rights Agreement, the
Exchange Securities.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
"SECURITIES CUSTODIAN" means the Trustee, as custodian with
respect to the Securities in global form, or any successor entity thereto.
"SECURITYHOLDER" or "HOLDER" means the Person in whose name
a Security is registered on the Registrar's books.
"SENIOR DEBT" of the Company 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
the Company 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
Securities or the applicable Guarantee; PROVIDED, that in no event shall
Senior Debt include (a) Indebtedness to any Subsidiary of the Company or any
officer, director or employee of the Company or any Subsidiary of the
Company, (b) Indebtedness incurred in violation of the terms of this
Indenture, (c) Indebtedness to trade creditors, (d) Disqualified Capital
Stock, (e) Capitalized Lease Obligations, and (f) any liability for taxes
owed or owing by the Company 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.
"SPECIAL RECORD DATE" for payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 2.12.
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"STATED MATURITY" when used with respect to any Security,
means April 15, 2005.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the
Company 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 Securities
or such Guarantee, as applicable, in any respect or has a stated maturity
after the Stated Maturity.
"SUBSIDIARY," with respect to any person, means (i) 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, (ii) 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 (iii) 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 the Company or of any Subsidiary of the Company. Unless the
context requires otherwise, Subsidiary means each direct and indirect
Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939, as amended,
(15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the
execution of this Indenture, except as provided in Section 9.3.
"TRANSACTIONS" shall have the meaning ascribed thereto in
the Offering Memorandum.
"TRANSFER RESTRICTED SECURITIES" means Securities that bear
or are required to bear the legend set forth in Section 2.6.
"TREASURY RATE" means the yield to maturity at the time of
computation of U.S. Treasury securities with a constant maturity (as compiled
and published in the most recent Federal Reserve Release H.15 (519) which has
become publicly available at least two Business Days prior to the applicable
Redemption Date (or, if such statistical release is no longer published, any
publicly available source or similar market data)) closest to the period from
the applicable Redemption Date to April 15, 2002, PROVIDED, HOWEVER, that if
the period from such Redemption Date to April 15, 2002, is not equal to the
constant maturity of a U.S. Treasury security for which a weekly average
yield is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of one year) from the weekly average
yields of U.S. Treasury securities for which such yields are given, except
that if the period from the applicable Redemption Date to April 15, 2002, is
less than one year, the weekly average yield on actually traded U.S. Treasury
securities adjusted to a constant maturity of one year shall be used.
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"TRUSTEE" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"TRUST OFFICER" means any officer within the corporate
trust division (or any successor group) of the Trustee or any other officer
of the Trustee customarily performing functions similar to those performed by
the persons who at that time shall be such officers, and also means, with
respect to a particular corporate trust matter, any other officer of the
Trustee to whom such trust matter is referred because of his knowledge of and
familiarity with the particular subject.
"UNRESTRICTED SUBSIDIARY" means any subsidiary of the
Company that does not own any Capital Stock of, or own or hold any Lien on
any property of, the Company or any other Subsidiary of the Company and that,
at the time of determination, shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company); PROVIDED, that (i) such
subsidiary shall not engage, to any substantial extent, in any line or lines
of business activity other than a Related Business, (ii) neither immediately
prior thereto nor after giving PRO FORMA effect to such designation would
there exist a Default or Event of Default and (iii) immediately after giving
pro forma effect thereto, the Company could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio in Section 4.11. The Board
of Directors of the Company may designate any Unrestricted Subsidiary to be a
Subsidiary, PROVIDED, that (i) no Default or Event of Default is existing or
will occur as a consequence thereof and (ii) immediately after giving effect
to such designation, on a PRO FORMA basis, the Company could incur at least
$1.00 of Indebtedness pursuant to the Debt Incurrence Ratio of Section 4.11.
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 noncallable 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 the Company or one or more Wholly-owned
Subsidiaries of the Company.
SECTION 1.2. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA,
such provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"COMMISSION" means the SEC.
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"INDENTURE SECURITIES" means the Securities.
"INDENTURE SECURITYHOLDER" means a Holder or a
Securityholder.
"INDENTURE TO BE QUALIFIED" means this Indenture.
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee.
"OBLIGOR" on the indenture securities means the Company,
each Guarantor and any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined
by the TIA, defined by TIA reference to another statute or defined by SEC
rule and not otherwise defined herein have the meanings assigned to them
thereby.
SECTION 1.3. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and
words in the plural include the singular;
(5) provisions apply to successive events and
transactions;
(6) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision; and
(7) references to Sections or Articles means
reference to such Section or Article in this Indenture, unless stated
otherwise.
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ARTICLE II
THE SECURITIES
SECTION 2.1. FORM AND DATING.
The Securities and the Trustee's certificate of
authentication, in respect thereof, shall be substantially in the form of
Exhibit A hereto, which Exhibit is part of this Indenture. The Securities may
have notations, legends or endorsements required by law, stock exchange rule
or usage. The Company shall approve the form of the Securities and any
notation, legend or endorsement on them. Any such notations, legends or
endorsements not contained in the form of Security attached as Exhibit A
hereto shall be delivered in writing to the Trustee. Each Security shall be
dated the date of its authentication.
The terms and provisions contained in the forms of
Securities shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
SECTION 2.2. EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one
Officer shall attest to, the Security for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security was an
Officer at the time of such execution but no longer holds that office at the
time the Trustee authenticates the Security, the Security shall be valid
nevertheless and the Company shall nevertheless be bound by the terms of the
Securities and this Indenture.
A Security shall not be valid until an authorized signatory
of the Trustee manually signs the certificate of authentication on the
Security but such signature shall be conclusive evidence that the Security
has been authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Initial Securities for
original issue in the aggregate principal amount of up to $110,000,000 and
shall authenticate Exchange Securities for original issue in the aggregate
principal amount of up to $110,000,000, in each case upon a written order of
the Company in the form of an Officers' Certificate; PROVIDED that such
Exchange Securities shall be issuable only upon the valid surrender for
cancellation of Initial Securities of a like aggregate principal amount in
accordance with the Registration Rights Agreement. The Officers' Certificate
shall specify the amount of Securities to be authenticated and the date on
which the Securities are to be authenticated. The aggregate principal amount
of Securities outstanding at any time may not exceed $110,000,000, except as
provided in Section 2.7. Upon the written order of the Company in the form of
an Officers' Certificate,
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the Trustee shall authenticate Securities in substitution of Securities
originally issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has
the same rights as an Agent to deal with the Company, any Affiliate of the
Company, or any of their respective Subsidiaries.
Securities shall be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiples
thereof.
SECTION 2.3. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency in the
Borough of Manhattan, The City of New York, where Securities may be presented
for registration of transfer or for exchange ("Registrar"), and an office or
agency where Securities may be presented for payment ("Paying Agent"), and
where notices and demands to or upon the Company in respect of the Securities
may be served. The Company may act as Registrar or Paying Agent, except that,
for the purposes of Articles III, VIII, X, and Section 4.14 hereof and as
otherwise specified in this Indenture, neither the Company nor any Affiliate
of the Company shall act as Paying Agent. The Registrar shall keep a register
of the Securities and of their transfer and exchange. The Company may have
one or more co-Registrars and one or more additional Paying Agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional Paying Agent. The Company hereby initially appoints the
Trustee as Registrar and Paying Agent, and by its acknowledgement and
acceptance on the signature page hereto, the Trustee hereby initially agrees
so to act.
The Company shall enter into an appropriate written agency
agreement with any Agent (including the Paying Agent) not a party to this
Indenture, which agreement shall implement the provisions of this Indenture
that relate to such Agent, and shall furnish a copy of each such agreement to
the Trustee. The Company shall promptly notify the Trustee in writing of the
name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such.
The Company initially appoints The Depository Trust Company
("DTC"), to act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as
Securities Custodian with respect to the Global Securities.
Upon the occurrence of an Event of Default described in
Section 6.1(iv) or (v) hereof, the Trustee shall, or upon the occurrence of
any other Event of Default by notice to
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the Company, the Registrar and the Paying Agent, the Trustee may assume the
duties and obligations of the Registrar and the Paying Agent hereunder.
SECTION 2.4. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust for
the benefit of Holders or the Trustee all assets held by the Paying Agent for
the payment of principal of, premium, if any, or interest (or Liquidated
Damages, if any) on, the Securities (whether such assets have been
distributed to it by the Company or any other obligor on the Securities), and
shall notify the Trustee in writing of any Default in making any such
payment. If either of the Company or a Subsidiary of the Company acts as
Paying Agent, it shall segregate such assets and hold them as a separate
trust fund for the benefit of the Holders or the Trustee. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default or any Event of Default, upon
written request to a Paying Agent, require such Paying Agent to distribute
all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have
been delivered by the Company to the Paying Agent, the Paying Agent (if other
than the Company) shall have no further liability for such assets.
SECTION 2.5. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with TIA Section 312(a). If
the Trustee or any Paying Agent is not the Registrar, the Company shall
furnish to the Trustee on or before the third Business Day preceding each
Interest Payment Date and at such other times as the Trustee or any such
Paying Agent may request in writing a list in such form and as of such date
as the Trustee or any such Paying Agent reasonably may require of the names
and addresses of Holders and the Company shall otherwise comply with TIA
Section 312(a).
SECTION 2.6. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE
SECURITIES. When Definitive Securities are presented to the Registrar with a
request:
(x) to register the transfer of such
Definitive Securities; or
(y) to exchange such Definitive
Securities for an equal principal amount of Definitive Securities of other
authorized denominations, the Registrar shall register the transfer or make
the exchange as requested if its reasonable requirements for such
transaction are met; PROVIDED, HOWEVER, that the Definitive Securities
surrendered for registration of transfer or exchange:
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(i) shall be duly endorsed or accompanied
by a written instrument of transfer in form reasonably satisfactory to
the Company and the Registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing; and
(ii) in the case of Transfer Restricted
Securities that are Definitive Securities, shall be accompanied by
the following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder for registration
in the name of such Holder, without transfer, a certification
from such Holder to that effect (in substantially the form set
forth on the reverse of the Security); or
(B) if such Transfer Restricted Security is
being transferred to a "qualified institutional buyer" (within
the meaning of Rule 144A promulgated under the Securities Act)
that is aware that any sale of Securities to it will be made
in reliance on Rule 144A under the Securities Act and that is
acquiring such Transfer Restricted Security for its own
account or for the account of another such "qualified
institutional buyer," a certification from such Holder to that
effect (in substantially the form set forth on the reverse of
the Security); or
(C) if such Transfer Restricted Security is
being transferred pursuant to an exemption from registration
in accordance with Rule 144, or outside the United States in
an offshore transaction in compliance with Rule 904 under the
Securities Act, or pursuant to an effective registration
statement under the Securities Act, a certification from such
Holder to that effect (in substan tially the form set forth on
the reverse of the Security); or
(D) if such Transfer Restricted Security is
being transferred in reliance on another exemption from the
registration requirements of the Securities Act and with all
applicable securities laws of the States of the United States,
a certification from such Holder to that effect (in
substantially the form set forth on the reverse of the
Security) and an Opinion of Counsel reasonably acceptable to
the Company and to the Registrar, if the Company so requests,
to the effect that such transfer is in compliance with the
Securities Act.
(b) RESTRICTIONS ON TRANSFER OF A
DEFINITIVE SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL SECURITY. A
Definitive Security may not be exchanged for a beneficial interest in a
Global Security except upon satisfaction of the requirements set forth below.
Upon receipt by the Trustee of a Definitive Security, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to
the Trustee, together with:
(i) if such Definitive Security is a
Transfer Restricted Security, certification, substantially in the form
set forth on the reverse of the Security, that such
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Definitive Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive
Security is a Transfer Restricted Security, written instructions
directing the Trustee to make, or to direct the Securities Custodian to
make, an endorsement on the Global Security to reflect an increase in
the aggregate principal amount of the Securities represented by the
Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL
SECURITIES. The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depositary, in accordance
with this Indenture (including applicable restrictions on transfer set forth
herein, if any) and the procedures of the Depositary therefor.
(d) TRANSFER OF A BENEFICIAL INTEREST IN
A GLOBAL SECURITY FOR A DEFINITIVE SECURITY.
(i) Any Person having a beneficial interest
in a Global Security may upon request exchange such beneficial interest
for a Definitive Security. Upon receipt by the Trustee of written
instructions or such other form of instructions as is customary for the
Depositary, from the Depositary or its nominee on behalf of any Person
having a beneficial interest in a Global Security, and upon receipt by
the Trustee of a written instruction or such other form of instructions
as is customary for the Depositary or the Person designated by the
Depositary as having such a beneficial interest in a Transfer
Restricted Security only, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Per son designated by the Depositary as
being the beneficial owner, a certification from the
transferor to that effect (in substantially the form set forth
on the reverse of the Security); or
(B) if such beneficial interest is being
transferred to a "qualified institutional buyer" (within the
meaning of Rule 144A promulgated under the Securities Act),
that is aware that any sale of Securities to it will be made
in reliance on Rule 144A under the Securities Act and that is
acquiring such
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beneficial interest in the Transfer Restricted Security for
its own account or the account of another such "qualified
institutional buyer", a certification to that effect from the
transferor (in substantially the form set forth on the reverse
of the Security); or
(C) if such beneficial interest is being
transferred pursuant to an exemption from registration in
accordance with Rule 144, or outside the United States in an
offshore transaction in compliance with Rule 904 under the
Securities Act, or pursuant to an effective registration
statement under the Securities Act, a certification from the
transferor to that effect (in substantially the form set forth
on the reverse of the Security); or
(D) if such beneficial interest is being
transferred in reliance on another exemption from the
registration requirements of the Securities Act and in
accordance with all applicable securities laws of the States
of the United States, a certification to that effect from the
transferor (in substantially the form set forth on the reverse
of the Security) and an Opinion of Counsel from the transferee
or transferor reasonably acceptable to the Company and to the
Registrar, if the Company so requests, to the effect that
such transfer is in compliance with the Securities Act,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities
Custodian, the aggregate principal amount of the Global Security to be
reduced and, following such reduction, the Company will execute and,
upon receipt of an authentication order in the form of an Officers'
Certificate, the Trustee's authenticating agent will authenticate and
deliver to the transferee a Definitive Security.
(ii) Definitive Securities issued in
exchange for a beneficial interest in a Global Security pursuant to
this Section 2.6(d) shall be registered in such names and in such
authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct
the Trustee. The Trustee shall deliver such Definitive Securities to
the persons in whose names such Securities are so registered.
(e) RESTRICTIONS ON TRANSFER AND
EXCHANGE OF GLOBAL SECURITIES. Notwithstanding any other provisions of this
Indenture (other than the provisions set forth in subsection (f) of this
Section 2.6), a Global Security may not be transferred as a whole except by
the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary.
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(f) AUTHENTICATION OF DEFINITIVE
SECURITIES IN ABSENCE OF DEPOSITARY. If at any time:
(i) the Depositary for the Securities
notifies the Company that the Depositary is unwilling or unable to
continue as Depositary for the Global Securities and a successor
Depositary for the Global Securities is not appointed by the
Company within ninety days after delivery of such notice; or
(ii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance
of Definitive Securities under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will, or its authenticating agent will, authenticate and deliver Definitive
Securities, in an aggregate principal amount equal to the principal amount of
the Global Securities, in exchange for such Global Securities.
(g) Legends.
(i) Except as permitted by the following
paragraph (ii), each Security certificate evidencing the Global
Securities and the Definitive Securities (and all Securities issued in
exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH
IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) (A "QIB"), (B) IT HAS ACQUIRED
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT, OR (C)
IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1)(2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT, AN "IAI").
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(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY
OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR
TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND,
IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, IF THE
COMPANY SO REQUESTS, THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, IF THE
COMPANY SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A
NOTICE SUBSTAN TIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO RE-
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FUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF
THE FOREGOING.
(ii) Upon any sale or transfer of a
Transfer Restricted Security (including any Transfer Restricted
Security represented by a Global Security) pursuant to Rule 144
under the Act or an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Security, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted
Security for a Definitive Security that does not bear the
legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B) any such Transfer Restricted Security
represented by a Global Security shall not be subject to the
provisions set forth in (i) above (such sales or transfers
being subject only to the provisions of Section 2.6(c)
hereof); PROVIDED, HOWEVER, that with respect to any request
for an exchange of a Transfer Restricted Security that is
represented by a Global Security for a Definitive Security
that does not bear a legend, which request is made in reliance
upon Rule 144, the Holder thereof shall certify in writing to
the Registrar that such request is being made pursuant to
Rule 144 (such certification to be substantially in the form
set forth on the reverse of the Security).
(h) CANCELLATION AND/OR ADJUSTMENT OF
GLOBAL SECURITY. At such time as all beneficial interests in a Global
Security have either been exchanged for Definitive Securities, redeemed,
repurchased or cancelled, such Global Security shall be returned to or
retained and cancelled by the Trustee. At any time prior to such
cancellation, if any beneficial interest in a Global Security is exchanged
for Definitive Securities, redeemed, repurchased or cancelled, the principal
amount of Securities represented by such Global Security shall be reduced and
an endorsement shall be made on such Global Security, by the Trustee or the
Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS
AND EXCHANGES OF DEFINITIVE SECURITIES.
(i) To permit registrations of transfers
and exchanges, the Company shall execute and the Trustee or any
authenticating agent of the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's request.
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(ii) No service charge shall be made to a
Holder for any registration of transfer or exchange, but the Company
may require payment of a sum sufficient to cover any transfer tax,
assessments, or similar governmental charge payable in connection
therewith (other than any such transfer taxes, assessments, or similar
governmental charge payable upon exchanges or transfers pursuant to
Section 2.2 (fourth paragraph), 2.10, 3.7, 4.14 (clause 8 of the sixth
paragraph), 9.5, or 10.1 hereof).
(iii) The Registrar shall not be required
to register the transfer of or exchange of (a) any Definitive Security
selected for redemption in whole or in part pursuant to Article III,
except the unredeemed portion of any Definitive Security being redeemed
in part, or (b) any Security for a period beginning 15 Business Days
before the mailing of a notice of an offer to repurchase pursuant to
Article X or Section 4.14 hereof or redemption of Securities pursuant
to Article III hereof and ending at the close of business on the day
of such mailing.
(iv) The Trustee shall have no obligation
or duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Indenture or under
applicable law with respect to any transfer of any interest in any
Security (including any transfers between or among Depositary
participants or beneficial owners of interests in any Global Security)
other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so
if and when expressly required by the terms of, this Indenture, and
to examine the same to determine substantial compliance as to form
with the express requirements thereof.
SECTION 2.7. REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims and submits an affidavit or other evidence,
satisfactory to the Trustee, to the Trustee to the effect that the Security has
been lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Trustee's requirements
are met. If required by the Trustee or the Company, such Holder must provide an
indemnity bond or other indemnity, sufficient in the judgment of both the
Company and the Trustee, to protect the Company, the Trustee or any Agent from
any loss which any of them may suffer if a Security is replaced. The Company may
charge such Holder for its reasonable, out-of-pocket expenses in replacing a
Security.
Every replacement Security is an additional obligation of the
Company.
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SECTION 2.8. OUTSTANDING SECURITIES.
Securities outstanding at any time are all the Securities
that have been authenticated by the Trustee (including any Security
represented by a Global Security) except those cancelled by it, those
delivered to it for cancellation, those reductions in the interest in a
Global Security effected by the Trustee hereunder and those described in this
Section 2.8 as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security, except
as provided in Section 2.9 hereof.
If a Security is replaced pursuant to Section 2.7 hereof
(other than a mutilated Security surrendered for replacement), it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a BONA FIDE purchaser. A mutilated Security
ceases to be outstanding upon surrender of such Security and replacement
thereof pursuant to Section 2.7 hereof.
If on a Redemption Date or the Maturity Date the Paying
Agent (other than the Company or an Affiliate of the Company) holds cash
sufficient to pay all of the principal and interest and premium, if any, due
on the Securities payable on that date and payment of the Securities called
for redemption is not otherwise prohibited, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.9. TREASURY SECURITIES.
In determining whether the Holders of the required
principal amount of Securities have concurred in any direction, amendment,
supplement, waiver or consent, Securities owned by the Company or Affiliates
of the Company shall be disregarded, except that, for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, amendment, supplement, waiver or consent, only Securities that a
Trust Officer of the Trustee knows are so owned shall be disregarded.
SECTION 2.10. TEMPORARY SECURITIES.
Until Definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of Definitive
Securities but may have variations that the Company reasonably and in good
faith consider appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall, upon receipt of a
written order of the Company in the form of an Officers' Certificate,
authenticate Definitive Securities in
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exchange for temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as permanent Securities authenticated and delivered hereunder.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the
Trustee for cancellation. The Registrar and the Paying Agent shall forward to
the Trustee any Securities surrendered to them for registration, transfer,
exchange or payment. The Trustee, or at the direction of the Trustee, the
Registrar or the Paying Agent (other than the Company or an Affiliate of the
Company), and no one else, shall cancel and, without the written direction of
the Company to the contrary, shall dispose of all Securities surrendered for
transfer, exchange, payment or cancellation. Subject to Section 2.7 hereof,
the Company may not issue new Securities to replace Securities that have been
paid or delivered to the Trustee for cancellation. No Securities shall be
authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section 2.11 hereof, except as expressly permitted in the
form of Securities and as permitted by this Indenture.
SECTION 2.12. DEFAULTED INTEREST.
Interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the person in whose name that Security (or one or more predecessor
Securities) is registered at the close of business on the Record Date for
such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date plus any
interest payable on the defaulted interest at the rate and in the manner
provided in Section 4.1 hereof and the Security (herein called "Defaulted
Interest"), shall forthwith cease to be payable to the registered holder on
the relevant Record Date, or, as applicable, the Special Record Date (as
defined below), and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities (or their
respective predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee and the Paying Agent in writing of the amount
of Defaulted Interest proposed to be paid on each Security and the date
of the proposed
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payment, and at the same time the Company shall deposit with the Paying
Agent an amount of cash equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Paying Agent for such deposit prior to the date of
the proposed payment, such cash when deposited to be held in trust for
the benefit of the persons entitled to such Defaulted Interest as
provided in this clause (1). Thereupon the Paying Agent shall fix a
special record date for the payment of such Defaulted Interest (a
"Special Record Date"), which shall be not more than 15 days, and not
less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Paying Agent of the notice
of the proposed payment. The Paying Agent shall promptly notify the
Company and the Trustee of such Special Record Date and, in the name
and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
to be mailed, first-class postage prepaid, to each Holder at his
address as it appears in the Security register not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been mailed as aforesaid, such Defaulted Interest shall be paid to the
persons in whose names the Securities (or their respective predecessor
Securities) are registered on such Special Record Date and shall no
longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any
Defaulted Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee and the Paying Agent
of the proposed payment pursuant to this clause, such manner shall be
deemed practicable by the Trustee and the Paying Agent.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon the registration of transfer of
or in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 2.13. CUSIP NUMBERS.
The Company in issuing the Securities may use "CUSIP"
numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders; PROVIDED that
any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only
on the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect
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in or omission of such numbers. The Company will promptly notify the Trustee
of any change in the "CUSIP" numbers.
ARTICLE III
REDEMPTION
SECTION 3.1. RIGHT OF REDEMPTION.
Redemption of Securities, as permitted by the provisions of
this Indenture, shall be made in accordance with such provisions and this
Article III. The Company shall not have the right to redeem any Securities
prior to April 15, 2002, other than as provided in the next paragraph and
Paragraph 5 of the Securities. On or after April 15, 2002, the Company shall
have the right to redeem all or any part of the Securities for cash at the
Redemption Prices specified in the form of Security attached as Exhibit A set
forth therein in Paragraph 5 thereof, in each case (subject to the right of
Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date, and subject to the
provisions set forth in Section 3.5), including accrued and unpaid interest
and Liquidated Damages, if any, thereon to the Redemption Date.
Notwithstanding the foregoing, until April 15, 2001, upon
an Initial Public Equity Offering of common stock for cash of the Company, up
to 35% of the aggregate principal amount of the Securities originally
outstanding may be redeemed at the option of the Company within 90 days of
such Initial Public Equity Offering, on not less than 30 days, but not more
than 60 days, notice to each holder of the Securities to be redeemed, with
cash from the Net Cash Proceeds to the Company of such Initial Public Equity
Offering, at a redemption price equal to 110.125% of principal, (subject to
the right of Holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together
with accrued and unpaid interest and Liquidated Damages, if any, to the date
of redemption; PROVIDED, HOWEVER, that at least 65% of the aggregate
principal amount of the Securities originally outstanding remain outstanding
immediately following such redemption.
Except as provided in this paragraph and Paragraph 5 of the
Securities, the Securities may not otherwise be redeemed at the option of the
Company.
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SECTION 3.2. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to
Paragraph 5 of the Securities, it shall notify the Trustee and the Paying
Agent in writing of the Redemption Date and the principal amount of
Securities to be redeemed and whether it wants the Paying Agent to give
notice of redemption to the Holders.
If the Company elects to reduce the principal amount of
Securities to be redeemed pursuant to Paragraph 5 of the Securities by
crediting against any such redemption Securities it has not previously
delivered to the Trustee and the Paying Agent for cancellation, it shall so
notify the Trustee, in the form of an Officers' Certificate, and the Paying
Agent of the amount of the reduction and deliver such Securities with such
notice.
The Company shall give each notice to the Trustee and the
Paying Agent provided for in this Section 3.2 at least 40 days before the
Redemption Date (unless a shorter notice shall be satisfactory to the Trustee
and the Paying Agent). Any such notice may be cancelled at any time prior to
notice of such redemption being mailed to any Holder and shall thereby be
void and of no effect.
SECTION 3.3. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed
pursuant to Paragraph 5 thereof, the Trustee shall select the Securities to
be redeemed on a PRO RATA basis, by lot or by such other method as the
Trustee shall determine to be appropriate and fair and in such manner as
complies with any applicable Depositary, legal and stock exchange
requirements.
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption and shall promptly
notify the Company and the Paying Agent in writing of the Securities selected
for redemption and, in the case of any Security selected for partial
redemption, the principal amount thereof to be redeemed. Securities in
denominations of $1,000 may be redeemed only in whole. The Trustee may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the principal of Securities that have denominations larger than $1,000.
Provisions of this Indenture that apply to Securities called for redemption
also apply to portions of Securities called for redemption.
SECTION 3.4. NOTICE OF REDEMPTION.
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At least 30 days, but not more than 60 days prior to the
Redemption Date, the Company shall mail a notice of redemption by first class
mail, postage prepaid, to the Trustee, the Paying Agent and each Holder whose
Securities are to be redeemed. At the Company's request, the Paying Agent
shall give the notice of redemption in the Company's name and at the
Company's expense. Each notice for redemption shall identify the Securities
to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including accrued
and unpaid interest and Liquidated Damages, if any, to be paid upon
such redemption;
(3) the name and address of the Paying Agent
and the Registrar;
(4) that Securities called for redemption
must be surrendered to the Paying Agent at the address specified in
such notice to collect the Redemption Price;
(5) that, unless (a) the Company defaults in
its obligation to deposit with the Paying Agent cash which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms shall provide the amount to fund the
Redemption Price in accordance with Section 3.6 hereof or (b) such
redemption payment is prohibited, interest on Securities called for
redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Securities is to receive
payment of the Redemption Price, including accrued and unpaid interest
(and Liquidated Damages, if any) to the Redemption Date, upon surrender
to the Paying Agent of the Securities called for redemption and to be
redeemed;
(6) if any Security is being redeemed in
part, the portion of the principal amount, equal to $1,000 or any
integral multiple thereof, of such Security to be redeemed and that,
after the Redemption Date, and upon surrender of such Security, a new
Security or Securities in aggregate principal amount equal to the
unredeemed portion thereof shall be issued;
(7) if less than all the Securities are to
be redeemed, the identification of the particular Securities (or
portion thereof) to be redeemed, as well as the
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aggregate principal amount of such Securities to be redeemed and the
aggregate principal amount of Securities to be outstanding after such
partial redemption;
(8) the CUSIP number of the Securities to
be redeemed; and
(9) that the notice is being sent
pursuant to this Section 3.4 and pursuant to the optional redemption
provisions of Paragraph 5 of the Securities.
SECTION 3.5. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.4 hereof, Securities called for redemption become due and payable
on the Redemption Date and at the Redemption Price, including accrued and
unpaid interest (and Liquidated Damages, if any) to the Redemption Date. Upon
surrender to the Trustee or Paying Agent, such Securities called for
redemption shall be paid at the Redemption Price, including interest and
Liquidated Damages, if any, accrued and unpaid to the Redemption Date;
PROVIDED that if the Redemption Date is after a regular Record Date and on or
prior to the Interest Payment Date, to which such Record Date relates, the
accrued interest (and Liquidated Damages, if any) shall be payable to the
Holder of the redeemed Securities registered on the relevant Record Date; and
PROVIDED, FURTHER, that if a Redemption Date is a Legal Holiday, payment
shall be made on the next succeeding Business Day and no interest shall
accrue for the period from such Redemption Date to such succeeding Business
Day.
SECTION 3.6. DEPOSIT OF REDEMPTION PRICE.
No later than 11:00 a.m. (New York time) on the Redemption
Date, the Company shall deposit in same day funds with the Paying Agent
(other than the Company or an Affiliate of the Company) cash sufficient to
pay the Redemption Price of all Securities to be redeemed on such Redemption
Date (other than Securities or portions thereof called for redemption on
that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any cash
so deposited which is not required for that purpose upon the written request
of the Company.
If the Company complies with the preceding paragraph and
payment of the Securities called for redemption is not prohibited for any
reason, interest on the Securities to be redeemed shall cease to accrue on
the applicable Redemption Date, whether or not such Securities are presented
for payment. Notwithstanding anything herein to the contrary, if any Security
surrendered for redemption in the manner provided in the Securities shall not
be so
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paid upon surrender for redemption because of the failure of the Company to
comply with the preceding paragraph, interest shall continue to accrue and be
paid from the Redemption Date until such payment is made on the unpaid
principal, and, to the extent lawful, on any interest not paid on such unpaid
principal, in each case at the rate and in the manner provided in Section 4.1
hereof and the Security.
SECTION 3.7. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is to be redeemed in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder, without service charge to the Holder, a new Security
or Securities equal in principal amount to the unredeemed portion of the
Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest (and
Liquidated Damages, if any) on the Securities on the dates and in the manner
provided herein and in the Securities. An installment of principal of or
interest (or Liquidated Damages, if any) on the Securities shall be
considered paid on the date it is due if the Trustee or Paying Agent (other
than the Company or an Affiliate of the Company) holds for the benefit of the
Holders (on or before 10:00 a.m. New York City time to the extent necessary
to provide the funds to the Depository in accordance with the Depository's
procedures) on that date cash deposited and designated for and sufficient to
pay the installment.
The Company shall pay interest on overdue principal and on
overdue installments of interest (and Liquidated Damages, if any) at the
rate specified in the Securities compounded semi-annually, to the extent
lawful.
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SECTION 4.2. MAINTENANCE OF OFFICE OR AGENCY.
The Company and the Guarantors shall maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company and the Guarantors in respect of the Securities and this Indenture
may be served. The Company and the Guarantors shall give prompt written notice
to the Trustee and the Paying Agent of the location, and any change in the
location, of such office or agency. If at any time the Company and the
Guarantors shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee and the Paying Agent with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.2 hereof.
The Company and the Guarantors may also from time to time designate
one or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company and the Guarantors of their obligation to
maintain an office or agency in the Borough of Manhattan, The City of New York,
for such purposes. The Company and the Guarantors shall give prompt written
notice to the Trustee and the Paying Agent of any such designation or rescission
and of any change in the location of any such other office or agency. The
Company hereby initially designates the Corporate Trust Office of the Trustee as
such office.
SECTION 4.3. LIMITATION ON RESTRICTED PAYMENTS.
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, 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) the
Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in Section 4.11 or (3) the aggregate
amount of all Restricted Payments made by the Company 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 the Company 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 the
Company from a Capital Contribution or the sale of its Qualified Capital Stock
(other than (i) to a Subsidiary of the Company, (ii) to the extent applied in
connection with a Qualified Exchange and (iii) to the
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extent credited in (v) and (w) in the following paragraph), after the Issue
Date, plus (c) other than amounts credited pursuant to clause (v) 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 the Company or the Guarantor that made such prior Investment,
without restriction in cash on or prior to the date of any such calculation.
The foregoing clauses (2) and (3) of the immediately preceding
paragraph, however, will not prohibit (v) 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 the Company 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, (w) repurchases of
Capital Stock from employees of the Company 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 the Company from subsequent reissuances of such Qualified Capital Stock to
new employees that are not Excluded Persons, and the provisions of the
immediately preceding paragraph will not prohibit, (x) a Qualified Exchange,
(y) 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
(z) Permitted Payments to Parent. The full amount of any Restricted Payment
made pursuant to the foregoing clauses (v), (w), (y) and (z) (but not
pursuant to clause (x)) of the immediately preceding sentence, however, will
be deducted in the calculation of the aggregate amount of Restricted Payments
available to be made referred to in clause (3) of the immediately preceding
paragraph.
In addition, the Company 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, after giving effect
to such Management Fee Payments or similar payments, on a PRO FORMA basis
after giving effect to such payment, 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
the Company. Additionally, on the date of each Restricted Payment, the
Company 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
this Indenture pursuant to which such Restricted Payment was made and
certifying that such Restricted Payment was made in compliance with the terms
of this Indenture.
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SECTION 4.4. CORPORATE AND PARTNERSHIP EXISTENCE.
Except as otherwise permitted by Article V, Section 4.14 or Section
11.4, the Company and the Guarantors shall do or cause to be done all things
necessary to preserve and keep in full force and effect their respective
corporate, partnership or other organizational existence, as the case may be,
and the corporate, partnership or other organizational existence, as the case
may be, of each of their Subsidiaries in accordance with the respective
organizational documents of each of them and the material rights (charter and
statutory) and material corporate franchises of the Company, the Guarantors and
each of their respective Subsidiaries; PROVIDED, HOWEVER, that neither the
Company nor any Guarantor shall be required to preserve, with respect to
themselves, any right or franchise, and with respect to any of their respective
Subsidiaries, any such existence, right or franchise, if (a) the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and (b) the loss thereof is not adverse in any
material respect to the Holders.
SECTION 4.5. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company and the Guarantors shall, and shall cause each of their
Subsidiaries to, pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon the Company, any Guarantor or any
of their Subsidiaries or any of their respective properties and assets and (ii)
all lawful claims, whether for labor, materials, supplies or services, which
have become due and payable and which by law have or may become a Lien upon the
property and assets of the Company, any Guarantor or any of their Subsidiaries;
PROVIDED, HOWEVER, that neither the Company nor any Guarantor shall be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves have been established in accordance with GAAP.
SECTION 4.6. MAINTENANCE OF PROPERTIES AND INSURANCE.
The Company and the Guarantors shall cause all material properties
used or useful to the conduct of their business and the business of each of
their Subsidiaries to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in their reasonable
judgment may be necessary, so that the business carried on in connection
therewith may be properly conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section 4.6 shall
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prevent the Company or any Guarantor from discontinuing any operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is (a)(i) in the judgment of the Company,
desirable in the conduct of the business of the Company and (ii) not adverse
in any material respect to the Holders or (b) otherwise permitted under
Section 4.14.
The Company and the Guarantors shall provide, or cause to be provided,
for themselves and each of their Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of the Board of Directors of the Company is adequate and
appropriate for the conduct of the business of the Company, the Guarantors and
such Subsidiaries in a prudent manner, with (except for self-insurance)
reputable insurers or with the government of the United States of America or an
agency or instrumentality thereof, in such amounts, with such deductibles, and
by such methods as shall be customary, in the reasonable, good faith opinion of
the Company and adequate and appropriate for the conduct of the business of the
Company, the Guarantors and such Subsidiaries in a prudent manner for entities
similarly situated in the industry.
SECTION 4.7. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee within 120
days after the end of its fiscal year an Officers' Certificate, one of the
signers of which shall be the principal executive, principal financial or
principal accounting officer of the Company, complying with Section 314(a)(4) of
the TIA and stating that a review of its activities and the activities of its
Subsidiaries, if any, during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture (without regard to notice requirements or grace periods) and further
stating, as to each such Officer signing such certificate, whether or not the
signer knows of any failure by the Company, any Guarantor or any Subsidiary of
the Company to comply with any conditions or covenants in this Indenture and, if
such signer does know of such a failure to comply, the certificate shall
describe such failure with particularity. The Officers' Certificate shall also
notify the Trustee should the relevant fiscal year end on any date other than
the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto. The Trustee shall not be deemed to have knowledge of any
Default, any Event of Default or any such fact unless one of its Trust Officers
receives written notice thereof from the Company or any of the Holders.
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SECTION 4.8. REPORTS.
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and, to each Holder and to prospective purchasers of Securities
identified to the Company by an Initial Purchaser, within 15 days after it is or
would have been (if it were subject to such reporting obligations) required to
file such with the Commission, (i) 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, if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the Commission and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports; and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required and, unless the Commission shall not accept such reports,
file with the Commission the annual, quarterly and other reports which it is or
would have been required to file with the Commission.
SECTION 4.9. LIMITATION ON STATUS AS INVESTMENT COMPANY.
The Company and the Guarantors shall not and shall not permit any of
their Subsidiaries to become required to register as an "investment company" (as
that term is defined in the Investment Company Act of 1940, as amended), or
otherwise become subject to regulation under the Investment Company Act.
SECTION 4.10. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
Neither the Company nor any of its Subsidiaries shall be permitted on
or after the Issue Date 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), (i) unless it is determined that the terms of
such Affiliate Transaction are fair and reasonable to the Company, and no less
favorable to the Company, than could have been obtained in an arm's length
transaction with a non-Affiliate, and (ii) if involving consideration to either
party in excess of $1.0 million, unless such 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 (iii) if involving consideration to either party in excess
of $5.0 million, unless in addition the Company, prior to the consummation
thereof, obtains a written favorable
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opinion as to the fairness of such transaction to the Company 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.
SECTION 4.11. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND
DISQUALIFIED CAPITAL STOCK.
Except as set forth in this covenant, the Company and the Guarantors
shall not, and shall 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 (individually and collectively, to
"incur" or, as appropriate, an "incurrence"), any Indebtedness or any
Disqualified Capital Stock (including Acquired Indebtedness), other than
Permitted Indebtedness. Notwithstanding the foregoing if (i) 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 (ii) on the date of such incurrence (the
"Incurrence Date"), the Consolidated Coverage Ratio of the Company 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, to the extent set forth in the definition of Consolidated
Coverage Ratio, the use of proceeds thereof, would be at least 2 to 1 (as
applicable, each the "Debt Incurrence Ratio"), then the Company may incur such
Indebtedness or Disqualified Capital Stock and the Guarantors may incur such
Indebtedness (other than Disqualified Capital Stock).
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Company or any Guarantor of Purchase Money
Indebtedness, PROVIDED, that (i) the aggregate principal amount of such
Indebtedness incurred on or after the Issue Date and outstanding at any time
pursuant to this paragraph (a) (including any Refinancing Indebtedness and other
Indebtedness issued to refinance, replace, defease or refund such Indebtedness)
shall not exceed $2.0 million, and (ii) in each case, such Indebtedness shall
not constitute more than 100% of the cost (determined in accordance with GAAP)
to the Company or such Guarantor, as applicable, of the property so purchased or
leased;
(b) if no Event of Default shall have occurred and be continuing, the
incurrence by the Company 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;
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(c) the incurrence by the Company 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 (i) 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 to clause (1)(b)(ii) of
the first paragraph of Section 4.14 or (ii) assumed by a transferee in an Asset
Sale, and (B) in the case of Mortgage Indebtedness such Indebtedness shall not
constitute more than 100% of the cost (determined in accordance with GAAP) to
the Company 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 the Company
(including upon designation of any subsidiary or other person as a Subsidiary)
or is merged with or into or consolidated with the Company or a Subsidiary of
the Company shall be deemed to have been incurred at the time such Person
becomes such a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company, as applicable.
Upon each incurrence of Indebtedness, the Company may designate under
which provision of this covenant such Indebtedness is being incurred and such
Indebtedness should be deemed to have been so incurred under such provision and
no other provision of this covenant except as specifically provided otherwise.
SECTION 4.12. LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES.
The Company and the Guarantors shall not, and shall 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 the Company to
pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except (a) restrictions imposed by the
Securities or this Indenture or by other indebtedness of the Company (which may
also be guaranteed by the Guarantors) ranking senior or PARI PASSU with the
Securities or the guarantees, as applicable, provided such restrictions are no
more restrictive than those imposed by this Indenture and the Securities,
(b) restrictions imposed by applicable law, (c) existing restrictions under
Indebtedness outstanding on the Issue Date, including pursuant to the Credit
Agreement, (d) restrictions under any Acquired Indebtedness not incurred in
violation of this
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Indenture or any agreement relating to any property, asset, or business
acquired by the Company 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, (e) any
such restriction or requirement imposed by Indebtedness incurred under the
Credit Agreement pursuant to Section 4.11 provided such restriction or
requirement is no more restrictive than that imposed by the Credit Agreement
as of the Issue Date, (f) restrictions with respect solely to a Subsidiary of
the Company 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 (g) restrictions on transfer contained in Purchase Money Indebtedness or
Mortgage Indebtedness incurred pursuant to Section 4.11 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 (h) in connection with and pursuant to permitted Refinancings,
replacements of restrictions imposed pursuant to clauses (a), (c) or (d) 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 (a) customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practice, nor (b) Liens permitted under
the terms of this Indenture on assets securing Senior Debt, Purchase Money
Indebtedness, or Mortgage Indebtedness incurred in accordance with Section
4.11 shall in and of themselves be considered a restriction on the ability of
the applicable Subsidiary to transfer such agreement or assets, as the case
may be.
SECTION 4.13. LIMITATIONS ON LAYERING INDEBTEDNESS.
The Company and the Guarantors shall not, and shall not permit any
of their Subsidiaries to, directly or indirectly, incur, or suffer to exist
any Indebtedness (other than the Securities) that is subordinate in right of
payment to any other Indebtedness of the Company or a Guarantor unless, by
its terms, such Indebtedness is subordinate in right of payment to, or ranks
PARI PASSU with, the Securities or the Guarantees, as applicable.
SECTION 4.14. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of its
property, business or assets, including by merger or consolidation (in the case
of a Subsidiary of the Company), and including any sale or other transfer or
issuance of any Equity Interests of any Subsidiary of the Company,
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whether by the Company or a Subsidiary of either or through the issuance,
sale or transfer of Equity Interests by a Subsidiary of the Company, and
including any sale and leaseback transaction (any of the foregoing, an "Asset
Sale"), unless (l)(a) the Net Cash Proceeds therefrom (the "Asset Sale Offer
Amount") are applied (i) within 270 days after the date of such Asset Sale to
the optional redemption of the Securities in accordance with the terms of
this Indenture and other Indebtedness of the Company ranking on a parity with
the Securities and with similar provisions requiring the Company to redeem
such Indebtedness with the proceeds for asset sales, pro rata in proportion
to the respective principal amounts (or accreted values in the case of
Indebtedness issued with an original issue discount) of the Securities and
such other Indebtedness then outstanding or (ii) within 300 days after the
date of such Asset Sale to the repurchase of the Securities and such other
Indebtedness on a parity with the Securities and with similar provisions
requiring the Company to make an offer to purchase such Indebtedness with the
proceeds for asset sales pursuant to a cash offer (subject only to conditions
required by applicable law, if any) (pro rata in proportion to the respective
principal amounts (or accreted values in the case of Indebtedness issued with
an original issue discount) of the Securities and such other Indebtedness
then outstanding) (the "Asset Sale Offer") at a purchase price of 100% of
principal amount (or accreted value in the case of Indebtedness issued with
an original issue discount) (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 (i) invested (or
committed, pursuant to a binding commitment subject only to reasonable,
customary closing conditions, to be invested, and in fact is so 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 the Company or such Subsidiary (if it continues to be a
Subsidiary) immediately following such transaction or (ii) used to retire
Purchase Money Indebtedness, Mortgage Indebtedness or Senior Debt and, to
permanently reduce (in the case of Senior Debt that is not Purchase Money
Indebtedness or Mortgage Indebtedness) the amount of such Indebtedness,
incurred under Section 4.11 hereof (including that in the case of a revolver
or similar arrangement that makes credit available, such commitment is so
permanently reduced by such amount), (2) at least 90% of the consideration
for such Asset Sale or series of related Asset Sales consists of cash or Cash
Equivalents, (3) 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 (4) the Board of Directors of the Company
determines in good faith that the Company or such Subsidiary, as applicable,
receives fair market value for such Asset Sale.
Notwithstanding, and without complying with, the provisions of this
covenant:
(i) the Company and its Subsidiaries may, in the ordinary course
of business, (1) convey, sell, transfer, assign or otherwise dispose of
inventory and other
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assets acquired and held for resale in the ordinary course of business and
(2) liquidate Cash Equivalents;
(ii) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
Section 5.1;
(iii) the Company and its Subsidiaries may 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 the Company or such Subsidiary, as applicable;
and
(iv) the Company and the Guarantors may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or any of its wholly
owned Guarantors;
(v) the Company and its Subsidiaries, in the ordinary course of
business, may 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
(vi) the Company and each of its Subsidiaries may surrender or
waive contract rights or settle, release or surrender contract, tort or
other claims of any kind or grant Liens not prohibited by this Indenture;
An acquisition of Securities 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)(i) or 1(b) above (the "Excess Proceeds") exceeds
$5.0 million and that 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, the Company 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 (on a PRO
RATA basis if the Asset Sale Offer Amount is insufficient to purchase all
Indebtedness so tendered) at the Asset Sale Offer Price (together with accrued
interest and Liquidated Damages, if any). To the extent that the aggregate
amount of Securities and such other PARI PASSU Indebtedness tendered pursuant to
an Asset Sale Offer is less than the Asset Sale Offer Amount, the Company may
use any remaining Net Cash Proceeds for general corporate purposes as otherwise
permitted by this Indenture and following each Asset Sale Offer the Excess
Proceeds amount shall be reset to zero. For purposes of (2) above, total
consideration received means the total consideration received for such Asset
Sales minus the amount of, (a) Purchase Money Indebtedness or Mortgage
Indebtedness secured solely by the assets sold and assumed by a transferee and
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(b) 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.
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 Securities, all within the period and as otherwise provided above
in clauses 1(a) or 1(b)(i) of the first paragraph of this Section 4.14 plus 90
days.
In addition to the foregoing and notwithstanding anything herein to
the contrary, the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly make any Asset Sale of any of the Equity
Interests of any Subsidiary of the Company (other than the Company or a Wholly
Owned Subsidiary Guarantor) except pursuant to an Asset Sale of all the Equity
Interests of such Subsidiary.
Notice of an Asset Sale Offer shall be sent, on or prior to the
commencement of the Asset Sale Offer, by first-class mail, by the Company to
each Holder at its registered address, with a copy to the Trustee. The notice
to the Holders shall contain all information, instructions and materials
required by applicable law or otherwise material to such Holders' decision to
tender Securities pursuant to the Asset Sale Offer. The notice, which (to the
extent consistent with this Indenture) shall govern the terms of an Asset Sale
Offer, shall state:
(1) that the Asset Sale Offer is being made pursuant
to such notice and this Section 4.14;
(2) the Asset Sale Offer Amount, the Asset Sale Offer
Price (including the amount of accrued but unpaid interest (and
Liquidated Damages, if any)), and the date of purchase;
(3) that any Security or portion thereof not tendered
or accepted for payment will continue to accrue interest if interest
is then accruing;
(4) that, unless the Company defaults in depositing
cash with the Paying Agent (which may not for purposes of this Section
4.14, notwithstanding anything in this Indenture to the contrary, be
the Company or any Affiliate of the Company), in accordance with the
last paragraph of this Section 4.14 any Security, or portion thereof,
accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Asset Sale Purchase Date;
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(5) that Holders electing to have a Security, or
portion thereof, purchased pursuant to an Asset Sale Offer will be
required to surrender their Security, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Security completed,
to the Paying Agent (which may not for purposes of this Section 4.14,
notwithstanding any other provision of this Indenture, be the Company
or any Affiliate of the Company) at the address specified in the
notice;
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent receives, prior to
the expiration of the Asset Sale Offer, a facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
the Securities the Holder is withdrawing and a statement containing a
facsimile signature and stating that such Holder is withdrawing his
election to have such principal amount of the Securities purchased;
(7) that if Indebtedness in a principal amount in
excess of the principal amount of Securities to be acquired pursuant
to the Asset Sale Offer are tendered and not withdrawn, the Company
shall purchase Indebtedness on a PRO RATA basis in proportion to the
respective principal amounts (or accreted values in the case of
Indebtedness issued with an original issue discount) thereof (with
such adjustments as may be deemed appropriate by the Company so that
only Securities in denominations of $1,000 or integral multiples of
$1,000 shall be acquired);
(8) that Holders whose Securities were purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding
such Asset Sales.
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 the Company 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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On or before the date of purchase, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the Asset
Sale Offer (on a PRO RATA basis if required pursuant to paragraph (7) above),
(ii) deposit with the Paying Agent cash sufficient to pay the Asset Sale Offer
Price for all Securities or portions thereof so accepted and (iii) deliver to
the Trustee Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof being purchased by the Company.
The Paying Agent shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the Asset Sale Offer Price for such
Securities, and the Company shall promptly issue a new Security and the Trustee,
upon written request of the Company, shall promptly authenticate and mail or
deliver to such Holders such new Security equal in principal amount to any
unpurchased portion of the Security surrendered. Any Securities not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof.
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 (and Liquidated Damages,
if any, due on such Interest Payment Date) will be paid to the person in whose
name a Security is registered at the close of business on such Record Date, and
such interest (or Liquidated Damages, if applicable) will not be payable to
Holders who tender Securities pursuant to such Asset Sale Offer.
SECTION 4.15. WAIVER OF STAY, EXTENSION OR USURY LAWS.
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or forgive the
Company or any Guarantor from paying all or any portion of the principal of,
premium of, or interest (or Liquidated Damages, if any) on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each of the Company and the Guarantors hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 4.16. LIMITATION ON LIENS SECURING INDEBTEDNESS.
The Company and the Guarantors shall not, and shall 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
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date of this Indenture or upon any income or profits therefrom securing any
Indebtedness of the Company or any Guarantor other than Senior Indebtedness,
unless the Company provides, and causes its Subsidiaries to provide,
concurrently therewith, that the Securities are equally and ratably so
secured, PROVIDED that, if such Indebtedness is Subordinated Indebtedness,
the Lien securing such Subordinated Indebtedness shall be subordinate and
junior to the Lien securing the Securities with the same relative priority as
such Subordinated Indebtedness shall have with respect to the Securities, and
PROVIDED, FURTHER, that this clause shall not be applicable to any Liens
securing any such Indebtedness which became Indebtedness of the Company
pursuant to a transaction subject to the provisions of this Indenture
described below under Section 5.1 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 the Company or any Subsidiary of
the Company other than property or assets acquired in such transaction.
SECTION 4.17. RULE 144A INFORMATION REQUIREMENT.
The Company shall furnish to the Holders of the Securities, securities
analysts, and prospective purchasers of Securities designated by the Holders of
Transfer Restricted Securities, upon their request, the information required to
be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such
time as either the Company has concluded an offer to exchange the Exchange
Securities for the Initial Securities or a registration statement relating to
resales of the Securities has become effective under the Securities Act. The
Company shall also furnish such information during the pendency of any
suspension of effectiveness of such resale registration statement.
SECTION 4.18. LIMITATIONS ON LINES OF BUSINESS.
Neither the Company 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 the Company, is a Related Business.
SECTION 4.19. TRANSACTIONS NOT SUBJECT TO COVENANTS.
Notwithstanding anything to the contrary in this Indenture, the
consummation of the Transactions shall not be prohibited by this Indenture.
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ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. LIMITATION ON MERGER, SALE OR CONSOLIDATION.
The Company shall 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 (i) either (a) the Company is the continuing
entity or (b) 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 the Company in connection with the Securities and this Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a PRO FORMA basis to such transaction; and (iii) unless such
transaction is solely the merger of the Company 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 Section 4.11 .
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with the foregoing,
the successor corporation formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to and (except in the
case of a lease) be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation had been named therein as the Company, and (except in the case of a
lease) the Company shall be released from the obligations under the Securities
and this 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, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2. SUCCESSOR CORPORATION SUBSTITUTED.
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Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.1
hereof, the successor corporation formed by such consolidation or into which the
Company is merged or to which such transfer is made, or, in the case of a plan
of liquidation, the entity which receives the greatest value from such plan of
liquidation shall succeed to, and (except in the case of a lease) be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor corporation had been named herein as
the Company, and (except in the case of a lease) when a successor corporation
duly assumes all of the obligations of the Company pursuant hereto and pursuant
to the Securities, the Company shall be released from such obligations (except
with respect to any obligations that arise from, or are related to, such
transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) failure by the Company to pay any installment of
interest (or Liquidated Damages, if any) upon the Securities as and when
the same becomes due and payable, and the continuance of any such failure
for a period of 30 days;
(ii) failure by the Company to pay all or any part of the
principal or premium, if any, on the Securities when and as the same
becomes due and payable at maturity, upon redemption, by acceleration, or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise;
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(iii) failure by the Company or any Subsidiary to observe
or perform any other covenant or agreement contained in the Securities or
this Indenture and, subject to certain exceptions and the continuance of
such failure for a period of 30 days after written notice is given to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in aggregate principal amount of the Securities outstanding;
(iv) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudicating the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a period
of 60 days; or a decree, judgment or order of a court of competent
jurisdiction appointing a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency for the Company, any of its Significant
Subsidiaries, or any substantial part of the property of any such Person,
or for the winding up or liquidation of the affairs of any such Person,
shall have been entered, and such decree, judgment, or order shall have
remained in force undischarged and unstayed for a period of 60 days;
(v) the Company or any of its Significant Subsidiaries
shall institute proceedings to be adjudicated a voluntary bankrupt, or
shall consent to the filing of a bankruptcy proceeding against it, or shall
file a petition or answer or consent seeking reorganization under any
bankruptcy or similar law or similar statute, or shall consent to the
filing of any such petition, or shall consent to the appointment of a
Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency of it or any substantial part of its assets or property, or
shall make a general assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts generally as they become
due, fail generally to pay its debts as they become due, or take any
corporate action in furtherance of any of the foregoing;
(vi) the failure to pay at final stated maturity (giving
effect to any applicable grace periods) the principal amount of any
Indebtedness of the Company or any Subsidiary of the Company or the
acceleration of the final stated maturity of any Indebtedness if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any such Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, aggregates $5.0
million or more at any time; and
(vii) final unsatisfied judgments not covered by insurance
for the payment of money, or the issuance of any warrant of attachment
against any portion of
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the property or assets of the Company or any of its Subsidiaries,
aggregating in excess of $5.0 million, at any one time shall
be rendered against the Company or any of its Subsidiaries and not be
stayed, bonded or discharged for a period (during which execution shall not
be effectively stayed) of 60 days.
SECTION 6.2. ACCELERATION OF MATURITY DATE; RESCISSION AND ANNULMENT.
If an Event of Default occurs and is continuing (other than an Event
of Default specified in Section 6.1(iv) or Section 6.1(v) above relating to the
Company or any Significant Subsidiary), then, and in every such case, unless the
principal of all of the Securities shall have already become due and payable,
either the Trustee or the Holders of 25% in aggregate principal amount of then
outstanding Securities, by notice in writing to the Company (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; PROVIDED, however, that 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 (x) the third Business Day after the sending to the Company and
the representative of such written notice, unless such Event of Default is cured
or waived prior to such date and (y) the date of acceleration of any Senior Debt
under the Credit Agreement. If an Event of Default specified in clause (iv) or
(v), above, relating to the Company 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 Securities
without any declaration or other act on the part of Trustee or the Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of not less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee cash
sufficient to pay:
(A) all overdue interest and Liquidated Damages, if any, on
all Securities,
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(B) the principal of (and premium, if any, applicable to)
any Securities which would become due other than by reason of such
declaration of acceleration, and interest thereon at the rate borne by
the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
(D) all sums paid or advanced by the Trustee hereunder and
the compensation, expenses, disbursements and advances of the Trustee
and its agents and counsel, and all other amounts due the Trustee
under Section 7.7 and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on Securities which have become
due solely by such declaration of acceleration, have been cured or waived
as provided in Section 6.12.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to (i) any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event and (ii) any provision requiring supermajority approval to amend, unless
such default has been waived by such a supermajority. No such waiver shall cure
or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
The Company covenants that if an Event of Default in payment of
principal, premium or interest (or Liquidated Damages, if any) specified in
clause (i) or (ii) of Section 6.1 hereof occurs and is continuing, the Company
shall, upon demand of the Trustee, pay to it, for the benefit of the Holders of
such Securities, the whole amount then due and payable on such Securities for
principal, premium (if any), and interest (and Liquidated Damages, if any), and,
to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal (and premium, if any), and on any overdue
interest (and Liquidated Damages, if any), at the rate borne by the Securities,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including compensation to, and expenses,
disbursements and advances of the Trustee and its agents and counsel and all
other amounts due the Trustee under Section 7.7.
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If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any (and
Liquidated Damages, if any), or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise to take any and all actions under
the TIA, including
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (and Liquidated Damages, if any) owing and
unpaid in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agent and counsel and all
other amounts due the Trustee under Section 7.7) and of the Holders allowed
in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to
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the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due
it for the reasonable compensation, expenses, disbursements and advances of
the Trustee and its agents and counsel, and any other amounts due the Trustee
under Section 7.7 hereof.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; PROVIDED,
however, that the Trustee may, on behalf of the Holders, vote for the
election of a trustee in bankruptcy or similar official and may be a member
of a creditors' committee.
SECTION 6.5. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee and its agents and counsel
and all other amounts due the Trustee under Section 7.7, be for the ratable
benefit of the Holders of the Securities in respect of which such judgment has
been recovered.
SECTION 6.6. PRIORITIES.
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any), or interest (or Liquidated Damages, if any), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 hereof;
SECOND: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any), and interest (and Liquidated Damages, if
any) on, the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such
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Securities for principal, premium (if any), and interest (and Liquidated
Damages, if any), respectively; and
THIRD: To the Company, the Guarantors or such other Person as may be
lawfully entitled thereto, the remainder, if any, each as their respective
interests may appear.
The Trustee may, but shall not be obligated to, fix a record date and
payment date for any payment to the Holders under this Section 6.6.
SECTION 6.7. LIMITATION ON SUITS.
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in aggregate principal
amount of then outstanding Securities shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
(E) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect,
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disturb or prejudice the rights of any other Holders, or to obtain or to seek
to obtain priority or preference over any other Holders or to enforce any
right under this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.
SECTION 6.8. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium (if any), and interest (and
Liquidated Damages, if any) on, such Security on the Maturity Dates of such
payments as expressed in such Security (in the case of redemption, the
Redemption Price on the applicable Redemption Date, in the case of a Change of
Control, the Change of Control Purchase Price on the Change of Control Purchase
Date, and in the case of an Asset Sale, the Asset Sale Offer Price on the
relevant purchase date) and to institute suit for the enforcement of any such
payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.10. DELAY OR OMISSION NOT WAIVER.
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
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SECTION 6.11. CONTROL BY HOLDERS.
The Holder or Holders of a majority in aggregate principal amount of
then outstanding Securities shall 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 upon the Trustee, PROVIDED, that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture,
(2) the Trustee shall not determine and shall have no duty to
ascertain that the action so directed would involve it in personal
liability or would be unjustly prejudicial to the Holders not taking part
in such direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. WAIVER OF EXISTING OR PAST DEFAULT.
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of the outstanding Securities may, on
behalf of all Holders, waive any existing or past Default or Event of Default
hereunder and its consequences under this Indenture, except a default
(A) in the payment of the principal of, premium, if any, or
interest (or Liquidated Damages, if any) on, any Security as specified in
clauses (i) and (ii) of Section 6.1 hereof and not yet cured, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder
of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
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SECTION 6.13. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted to be taken by it
as Trustee, any court may in its discretion require the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; but the provisions of this Section 6.13 shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Holder, or group
of Holders, holding in the aggregate more than 10% in aggregate principal amount
of the outstanding Securities, or to any suit instituted by any Holder for
enforcement of the payment of principal of, or premium (if any), or interest (or
Liquidated Damages, if any) on, any Security on or after the respective Maturity
Date expressed in such Security (including, in the case of redemption, on or
after the Redemption Date).
SECTION 6.14. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Guarantors, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed, subject to
the terms hereof.
SECTION 7.1. DUTIES OF TRUSTEE.
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(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of a Default or an Event
of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the Trustee, and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1,
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts, and
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.11 hereof.
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of
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any of its duties hereunder or to take or omit to take any action under this
Indenture or at the request, order or direction of the Holders or in the
exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of
this Section 7.1.
(f) The Trustee shall not be liable for interest on any
assets received by it except as the Trustee may agree in writing with the
Company (including without limitation to the extent the Trustee receives funds
prior to the interest payment date in order to comply with the provisions of
Section 4.1). Assets held in trust by the Trustee need not be segregated from
other assets except to the extent required by law.
SECTION 7.2. RIGHTS OF TRUSTEE.
Subject to Section 7.1 hereof:
(a) The Trustee may rely and shall be protected in acting
or refraining from acting on any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in such document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5 hereof. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it or
its agent takes or omits to take in good faith which it believes to be
authorized or within its rights or powers conferred upon it by this Indenture.
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(e) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent, order,
bond, debenture or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit, and if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company personally or by its agent or attorney.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request, order
or direction of any of the Holders, pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company or any
Guarantor shall be sufficient if signed by an Officer of the Company or such
Guarantor, as applicable.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's or any Guarantor's covenants in Article IV hereof
or as to the performance by any Agent of its duties hereunder. In addition, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
except (i) any Event of Default occurring pursuant to Sections 6.1(i), 6.1(ii)
and 4.1 hereof, or (ii) any Default or Event of Default of which the Trustee
shall have received written notification or obtained actual knowledge.
(i) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate.
SECTION 7.3. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
Guarantor, any of their Subsidiaries, or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same
with like rights. However, the Trustee must comply with Sections 7.10 and 7.11
hereof.
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SECTION 7.4. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities or any money paid to the
Company or upon the Company's discretion under any provision of this Indenture,
and it shall not be responsible for any statement or recital herein or any
statement in the Securities, other than the Trustee's certificate of
authentication, or the use or application of any funds received by a Paying
Agent other than the Trustee.
SECTION 7.5. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal (or premium, if any), of, or interest (or Liquidated
Damages, if any) on, any Security (including the payment of the Change of
Control Purchase Price on the Change of Control Payment Date, the payment of the
Redemption Price on the Redemption Date and the payment of the Asset Sale Offer
Price on the relevant purchase date), the Trustee may withhold the notice if and
so long as a Trust Officer in good faith determines that withholding the notice
is in the interest of the Securityholders.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each April 15 beginning with the April 15
following the date of this Indenture, the Trustee shall, if required by law,
mail to each Securityholder a brief report dated as of such April 15 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA
Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
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SECTION 7.7. COMPENSATION AND INDEMNITY.
The Company and the Guarantors jointly and severally agree to pay to
the Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company and the Guarantors shall reimburse the
Trustee upon request for all reasonable disbursements, expenses and advances
incurred or made by it in accordance with this Indenture. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents, accountants, experts and counsel.
The Company and the Guarantors jointly and severally agree to
indemnify the Trustee (in its capacity as Trustee) and each of its officers,
directors, attorneys-in-fact and agents for, and hold it harmless against, any
claim, demand, expense (including but not limited to reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel), loss or
liability incurred by it without negligence or bad faith on the part of the
Trustee, arising out of or in connection with the administration of this trust
and its rights or duties hereunder, including the reasonable costs and expenses
of defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. The Company and the Guarantors shall defend the
claim and the Trustee shall provide reasonable cooperation at the Company's and
the Guarantors' expense in the defense. The Trustee may have separate counsel
and the Company and the Guarantors shall pay the reasonable fees and expenses of
such counsel; PROVIDED, that the Company and the Guarantors will not be required
to pay such fees and expenses if they assume the Trustee's defense and there is
no conflict of interest between the Company and the Guarantors and the Trustee
in connection with such defense. The Company and the Guarantors need not pay
for any settlement made without their written consent; PROVIDED, that such
consent shall not be unreasonably withheld. The Company and the Guarantors need
not reimburse any expense or indemnify against any loss or liability to the
extent incurred by the Trustee through its negligence, bad faith or willful
misconduct.
To secure the Company's and the Guarantors' payment obligations in
this Section 7.7, the Trustee shall have a lien prior to the Securities on all
assets held or collected by the Trustee, in its capacity as Trustee, except
assets held in trust to pay principal and premium, if any, of or interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(iv) or (v) of this Indenture occurs, the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
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The Company's and the Guarantors' obligations under this Section
7.7 and any lien arising hereunder shall survive the resignation or removal
of the Trustee, the discharge of the Company's and the Guarantors'
obligations pursuant to Article VIII of this Indenture and any rejection or
termination of this Indenture under any Bankruptcy Law.
SECTION 7.8. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in aggregate principal amount of the
outstanding Securities may remove the Trustee by so notifying the Company and
the Trustee in writing and may appoint a successor trustee with the Company's
consent. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian or other public officer takes charge
of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 hereof have been paid, the retiring Trustee shall transfer all property held
by it as trustee to the successor Trustee, subject to the lien provided in
Section 7.7 hereof, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
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If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's and the Guarantors' obligations under Section 7.7 hereof
shall continue for the benefit of the retiring Trustee.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of TIA Section
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus
of at least $25,000,000 as set forth in its most recent published annual report
of condition. The Trustee shall comply with TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
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ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. DISCHARGE; OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.
This Indenture shall cease to be of further effect (except that the
Company's and the Guarantors' obligations under Section 7.7 and the Trustee's
and the Paying Agent's obligations under Sections 8.6 and 8.7 shall survive)
when all outstanding Securities theretofore authenticated and issued have been
delivered (other than destroyed, lost or stolen Securities that have been
replaced or paid) to the Trustee for cancellation and the Company or the
Guarantors have paid all sums payable hereunder. In addition, the Company may
elect to have Section 8.2, at the Company's option and at any time within one
year of the Maturity Date of the Securities, or Section 8.3, at the Company's
option at any time, of this Indenture applied to all outstanding Securities upon
compliance with the conditions set forth below in this Article VIII.
SECTION 8.2. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company and the Guarantors shall be deemed
to have been discharged from their respective obligations with respect to all
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented and this Indenture shall cease to be of further effect
as to all outstanding Securities and Guarantees, except as to be deemed to be
"outstanding" only for the purposes of Section 8.5 hereof and the other Sections
of this Indenture referred to in (a) and (b) below, and the Company and the
Guarantors shall be deemed to have satisfied all other of their respective
obligations under such Securities and this Indenture (and the Trustee, on demand
of and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Securities to receive payments in respect of the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such
Securities when such payments are due from the trust described in Section 8.5,
(b) the Company's obligations with respect to such Securities under Sections
2.4, 2.6, 2.7, 2.10, 4.2, 8.5, 8.6 and 8.7 hereof and (c) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and the Company's and the
Guarantors' obligations in connection therewith. Subject to compliance with
this Article VIII, the Company may exercise its option under this
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Section 8.2 notwithstanding the prior exercise of its option under Section
8.3 hereof with respect to the Securities.
SECTION 8.3. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, the Company and the Guarantors shall be released
from their respective obligations under the covenants contained in Sections 4.3,
4.6, 4.7, 4.8, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17 and 4.18, Article V and
Article X hereof with respect to the outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder.
For this purpose, such Covenant Defeasance means that, with respect to the
outstanding Securities, neither the Company nor any Guarantor need comply with
and shall have any liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document, but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby. In addition, upon the Company's exercise under
Section 8.1 hereof of the option applicable to this Section 8.3, Sections
6.1(iii) through 6.1(vii) hereof shall not constitute Events of Default with
respect to the Securities.
SECTION 8.4. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Securities:
(i) The Company shall irrevocably have deposited or caused
to be deposited with the Trustee (or another trustee satisfying the requirements
of Section 7.10 hereof who shall agree to comply with the provisions of this
Article VIII applicable to it), in trust, for the benefit of the Holders of the
Securities, cash, 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 (and Liquidated Damages, if any) on such outstanding Securities 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 Securities,
and the holders of Securities must have a
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valid, perfected, exclusive security interest in such trust, (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the trustee
confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of
this Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of such outstanding Securities 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; (iii) in the case of
Covenant Defeasance, the Company 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 outstanding Securities 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; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
in the case of Legal Defeasance insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit]; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of such Securities over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding other creditors of the Company; and (vii) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that the conditions precedent provided for in, in the case of
the Officers' Certificate, (i) through (vi) and, in the case of the opinion
of counsel, clauses (i), (with respect to the validity and perfection of the
security interest) (ii), (iii) and (v) of this paragraph, have been complied
with and in the case of a Covenant Defeasance the Company shall have
delivered to the Trustee an Officers' Certificate, subject to such
qualifications and exceptions as the Trustee deems appropriate, to the effect
that, assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit and that no Holder of the
Securities is an insider of the Company, after the 91st day of deposit the
trust funds will not be subject to the effect of any applicable Federal
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
If the funds deposited with the Trustee to effect Covenant Defeasance
are insufficient to pay the principal of, premium, if any, and interest (and
Liquidated Damages, if any) on the Securities when due, then the obligations of
the Company and the Guarantors under this Indenture, the Securities and the
Guarantees will be revived and no such defeasance will be deemed to have
occurred.
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SECTION 8.5. DEPOSITED CASH AND U.S. GOVERNMENT OBLIGATIONS TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.6 hereof, all cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Paying Agent") pursuant to Section 8.4 hereof in respect of the outstanding
Securities shall be held in trust and applied by the Paying Agent, in accordance
with the provisions of such Securities and this Indenture, to the payment,
either directly or through any other Paying Agent as the Trustee may determine,
to the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest (and Liquidated Damages, if
any), but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 8.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of outstanding Securities.
SECTION 8.6. REPAYMENT TO THE COMPANY.
(a) Anything in this Article VIII to the contrary
notwithstanding, the Trustee or the Paying Agent shall deliver or pay to the
Company from time to time upon the request of the Company any cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.4(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
(b) Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest (and Liquidated Damages, if any) on any Security and remaining
unclaimed for two years after such principal, and premium, if any, or interest
has become due and payable shall be paid to the Company on its request; and the
Holder of such Security shall thereafter look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the NEW YORK TIMES and THE
WALL STREET JOURNAL (national edition),
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notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 8.7. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any cash or U.S.
Government Obligations in accordance with Section 8.2 or 8.3 hereof, as the case
may be, of this Indenture by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Guarantors' obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as
the Trustee or Paying Agent is permitted to apply such money in accordance with
Sections 8.2 and 8.3 hereof, as the case may be; PROVIDED, HOWEVER, that, if the
Company makes any payment of principal of, premium, if any, or interest (and
Liquidated Damages, if any) on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the cash or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder, the Company or any Guarantor, when
authorized by Board Resolutions, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
PROVIDED such action pursuant to this clause (1) shall not adversely affect the
interests of any Holder in any respect;
(2) to add to the covenants of the Company or the Guarantors for
the benefit of the Holders, or to surrender any right or power herein conferred
upon the Company
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or the Guarantors or make any other change that does not adversely affect the
rights of any Holder;
(3) to provide for collateral for or additional Guarantors of
the Securities;
(4) to evidence the succession of another Person to the Company,
and the assumption by any such successor of the obligations of the Company,
herein and in the Securities in accordance with Article V;
(5) to comply with the TIA;
(6) to evidence the succession of another corporation to any
Guarantor and assumption by any such successor of the Guarantee of such
Guarantor (as set forth in Section 11.4) in accordance with Article XI;
(7) to evidence the release of any Guarantor in accordance with
Article XI;
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities;
(9) in any other case where a supplemental indenture is required
or permitted to be entered into pursuant to the provisions of this Indenture
without the consent of any Holder; or
(10) to provide for the issuance and authorization of the
Exchange Securities.
(11) to effect any changes to Section 2.6 in a manner necessary
to comply with procedures of the Securities Custodian or the Depository,
PROVIDED such action pursuant to this clause (11) shall not adversely affect the
interests of any Holder in any respect.
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SECTION 9.2. AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS WITH
CONSENT OF HOLDERS.
Subject to Section 6.8 hereof, with the consent of the Holders of a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender offer or exchange offer for such
Securities), by written act of said Holders delivered to the Company and the
Trustee, the Company, and as applicable, any Guarantor, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities;
PROVIDED that no such modification may, without the consent of holders of at
least 66 2/3% in aggregate principal amount of Securities at the time
outstanding, modify the provisions (including the defined terms therein) of
Article X in a manner adverse to the holders. Subject to Section 6.8, the
Holder or Holders of not less than a majority in aggregate principal amount of
then outstanding Securities may waive compliance by the Company or any Guarantor
with any provision of this Indenture or the Securities. Notwithstanding any of
the above, however, no such amendment, supplemental indenture or waiver shall,
without the consent of the Holder of each outstanding Security affected thereby:
(1) change the Maturity Date on any Security, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or any premium or
the interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Maturity Date thereof (or in the
case of redemption, on or after the Redemption Date), or reduce the Change of
Control Purchase Price or the Asset Sale Offer Price (although the provisions
relating to the Change of Control or Asset Sale may otherwise be amended or
deleted in accordance with the provisions of this Indenture) or alter the
provisions (including the defined terms used herein) of Article III of this
Indenture or Paragraph 5 of the Securities, regarding the right of the Company
to redeem the Securities, in a manner adverse to the Holders; or
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or wavier provided for in this Indenture; or
(3) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Security affected thereby.
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It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
under Section 9.4 hereof becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
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The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (3) of Section 9.2 hereof, in which case, the amendment, supplement
or waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; PROVIDED, that any such
waiver shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest (and Liquidated Damages, if any) on a
Security, on or after the respective dates set for such amounts to become due
and payable expressed in such Security, or to bring suit for the enforcement of
any such payment on or after such respective dates.
SECTION 9.5. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; PROVIDED, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
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ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. REPURCHASE OF SECURITIES AT OPTION OF THE HOLDER UPON A
CHANGE OF CONTROL.
(a) In the event that a Change of Control has occurred,
each holder of Securities will have the right, at such holder's option, pursuant
to an offer (subject only to conditions required by applicable law, if any) by
the Company (the "Change of Control Offer"), to require the Company to
repurchase all or any part of such holder's Securities (PROVIDED, that the
principal amount of such Securities must be $1,000 or an integral multiple
thereof) on a date (the "Change of Control Purchase Date") that is no later than
35 Business Days after the occurrence of such Change of Control, at a cash price
equal to 101% of the principal amount thereof (the "Change of Control Purchase
Price"), together with accrued and unpaid interest and Liquidated Damages, if
any, to the Change of Control Purchase Date.
Notwithstanding anything in this Article X to the contrary, prior to
the commencement of a Change of Control Offer, but in any event within 30 days
following any Change of Control, the Company shall (i)(a) repay in full and
terminate all commitments under Indebtedness under the Credit Agreement and all
other Senior Debt the terms of which require repayment upon a Change of Control
or (b) offer to repay in full and terminate all commitments under all
Indebtedness under the Credit Agreement and all such other Senior Debt and repay
the Indebtedness owed to each lender which has accepted such offer in full or
(ii) obtain the requisite consents under the Credit Agreement and all such other
Senior Debt to permit the repurchase of the Securities as provided herein. The
Company's failure to comply with the preceding sentence shall constitute an
Event of Default described in Section 6.1(iv) and not in Section 6.1(ii).
(b) In the event that, pursuant to this Section 10.1, the
Company shall be required to commence a Change of Control Offer, the Company
shall follow the procedures set forth in this Section 10.1 as follows:
(i) the Change of Control Offer shall commence within 10
Business Days following the occurrence of a Change of Control;
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(ii) the Change of Control Offer shall remain open for 20
Business Days following its commencement (the "Change of Control Offer
Period");
(iii) upon the expiration of the Change of Control Offer
Period, the Company promptly shall purchase all of the tendered Securities
at the Change of Control Purchase Price;
(iv) if the Change of Control is on or after an interest
payment record date and on or before the associated Interest Payment Date,
any accrued and unpaid interest (and Liquidated Damages, if any) due on
such Interest Payment Date will be paid to the Person in whose name a
Security is registered at the close of business on such Record Date, and
such interest (and Liquidated Damages, if applicable) will not be payable
to Securityholders who tender Securities pursuant to the Change of Control
Offer;
(v) the Company shall provide the Trustee and the Paying
Agent with written notice of the Change of Control Offer at least three
Business Days before the commencement of any Change of Control Offer; and
(vi) on or before the commencement of any Change of Control
Offer, the Company or the Trustee (upon the request and at the expense of
the Company) shall send, by first-class mail, a notice to each of the
Securityholders, which (to the extent consistent with this Indenture) shall
govern the terms of the Change of Control Offer and shall state:
(A) that the Change of Control Offer is
being made pursuant to this Section 10.1 and that all
Securities, or portions thereof, tendered will be accepted
for payment;
(B) the Change of Control Purchase
Price (including the amount of accrued but unpaid interest
(and Liquidated Damages, if any)) and the Change of Control
Purchase Date;
(C) that any Security, or portion
thereof, not tendered or accepted for payment will continue
to accrue interest;
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(D) that, unless the Company defaults
in depositing cash with the Paying Agent in accordance with
the last paragraph of this Section 10.1, or such payment is
prevented for any reason, any Security, or portion thereof,
accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control
Purchase Date;
(E) that Holders electing to have a
Security, or portion thereof, purchased pursuant to a Change
of Control Offer will be required to surrender the Security,
with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Security completed, to the Paying
Agent (which may not for purposes of this Section 10.1,
notwithstanding anything in this Indenture to the contrary,
be the Company or any Affiliate of the Company) at the
address specified in the notice prior to the expiration of
the Change of Control Offer;
(F) that Holders will be entitled to
withdraw their election, in whole or in part, if the Paying
Agent receives, prior to the expiration of the Change of
Control Offer, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement
containing a facsimile signature and stating that such
Holder is withdrawing his election to have such principal
amount of Securities purchased;
(G) that Holders whose Securities are
purchased only in part will be issued new Securities equal
in principal amount to the unpurchased portion of the
Securities surrendered; and
(H) a brief description of the events
resulting in such Change of Control.
Any Change of Control Offer shall 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
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this Indenture relating to a Change of Control, compliance by the Company or
any of the Guarantors with such laws and regulations shall not in and of
itself cause a breach of its obligations under this Indenture.
On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer, (ii) 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 Securities so
tendered and (iii) deliver to the Trustee Securities so accepted together with
an Officers' Certificate listing the Securities or portions thereof being
purchased by the Company. The Paying Agent promptly will pay the Holders of
Securities 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 promptly will authenticate and deliver to such Holders a new
Security equal in principal amount to any unpurchased portion of the Security
surrendered. Any Securities not so accepted will be delivered promptly by the
Company to the Holder thereof. The Company publicly will announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Purchase Date.
ARTICLE XI
GUARANTEE
SECTION 11.1. GUARANTEE.
(a) If any Person becomes a Subsidiary of the Company,
whether pursuant to the acquisition by the Company or any Guarantor of Equity
Interests of such Person, or otherwise, such Subsidiary (in each case, a
"Guarantor") shall, to the fullest extent permitted by applicable law,
irrevocably and unconditionally guarantee (the "Guarantee") to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability against
the Company and any other Guarantors of this Indenture, the Securities or the
obligations of the Company under this Indenture or the Securities, that: (x)
the principal of and premium (if any), and interest (and Liquidated Damages, if
any) on the Securities will be paid in full when due, whether at the Maturity
Date or Interest Payment Date, by acceleration, call for redemption, upon a
Change of Control, an Asset Sale Offer or otherwise; (y) all other obligations
of the Company to the Holders or the Trustee under this Indenture or the
Securities will be promptly paid in full or performed, all in accordance with
the terms of this Indenture and the Securities; and (z) in case of any extension
of time of payment or renewal of any Securities or
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any of such other obligations, they will be paid in full when due or
performed in accordance with the terms of the extension or renewal, whether
at maturity, by acceleration, call for redemption, upon a Change of Control,
an Asset Sale Offer or otherwise. Failing payment when due of any amount so
guaranteed for whatever reason, each Guarantor shall be obligated to pay the
same before failure so to pay becomes an Event of Default.
If the Company or a Guarantor defaults in the payment of the principal
of, premium, if any, or interest (or Liquidated Damages, if any) on, the
Securities when and as the same shall become due, whether upon maturity,
acceleration, call for redemption, upon a Change of Control Offer, upon an Asset
Sale Offer or otherwise, without the necessity of action by the Trustee or any
Holder, each Guarantor shall be required, jointly and severally, to promptly
make such payment in full.
Each Guarantor shall, within five Business Days after becoming a
Subsidiary of the Company, execute and deliver to the Trustee a supplemental
indenture, which shall be in a form satisfactory to the Trustee, making such
Guarantor a party to this Indenture.
(b) Each Guarantor hereby agrees to the fullest extent
permitted by applicable law, that its obligations with regard to this Guarantee
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any delays in obtaining or realizing upon or failures to
obtain or realize upon collateral, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstances that might
otherwise constitute a legal or equitable discharge or defense of a Guarantor.
Each Guarantor hereby waives to the fullest extent permitted by applicable law
diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company or right to require the prior disposition
of the assets of the Company to meet its obligations, protest, notice and all
demands whatsoever and covenants that this Guarantee will not be discharged
except by complete performance of the obligations contained in the Securities
and this Indenture.
(c) If any Holder or the Trustee is required by any court
or otherwise to return to either the Company or any Guarantor, or any Custodian
or similar official acting in relation to either the Company or such Guarantor,
any amount paid by either the Company or such Guarantor to the Trustee or such
Holder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor agrees that it will not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor further agrees that, as between such
Guarantor, on the one hand, and the Holders and the Trustee, on the other hand,
(i) the maturity of the obligations guaranteed hereby may be accelerated as
provided in Section 6.2 hereof for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration as to the
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Company of the obligations guaranteed hereby, and (ii) in the event of any
declaration of acceleration of those obligations as provided in Section 6.2
hereof, those obligations (whether or not due and payable) will forthwith
become due and payable by each of the Guarantors for the purpose of this
Guarantee.
(d) It is the intention of each Guarantor and the Company
that the obligations of each Guarantor hereunder shall be in, but not in excess
of, the maximum amount permitted by applicable law. Accordingly, if the
obligations in respect of the Guarantee would be annulled, avoided or
subordinated to the creditors of any Guarantor by a court of competent
jurisdiction in a proceeding actually pending before such court as a result of a
determination both that such Guarantee was made by such Guarantor without fair
consideration and, immediately after giving effect thereto, such Guarantor was
insolvent or unable to pay its debts as they mature or left with an unreasonably
small capital, then the obligations of such Guarantor under such Guarantee shall
be reduced by such court if and to the extent such reduction would result in the
avoidance of such annulment, avoidance or subordination; PROVIDED, HOWEVER, that
any reduction pursuant to this paragraph shall be made in the smallest amount as
is strictly necessary to reach such result. For purposes of this paragraph,
"fair consideration", "insolvency", "unable to pay its debts as they mature",
"unreasonably small capital" and the effective times of reductions, if any,
required by this paragraph shall be determined in accordance with applicable
law.
SECTION 11.2. EXECUTION AND DELIVERY OF GUARANTEE.
Each Guarantor shall, by virtue of such Guarantor's execution and
delivery of an indenture supplement pursuant to Section 11.1 hereof, be deemed
to have signed on each Security issued hereunder the notation of guarantee set
forth on the form of the Securities attached hereto as Exhibit A to the same
extent as if the signature of such Guarantor appeared on such Security.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the guarantee set forth in
Section 11.1 on behalf of each Guarantor. The notation of a guarantee set forth
on any Security shall be null and void and of no further effect with respect to
the guarantee of any Guarantor which, pursuant to Section 11.4, is released from
such Guarantee.
SECTION 11.3. CERTAIN BANKRUPTCY EVENTS.
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Each Guarantor hereby covenants and agrees, to the fullest extent that
it may do so under applicable law, that in the event of the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company, such
Guarantor shall not file (or join in any filing of), or otherwise seek to
participate in the filing of, any motion or request seeking to stay or to
prohibit (even temporarily) execution on the Guarantee and hereby waives and
agrees not to take the benefit of any such stay of execution, whether under
Section 362 or 105 of the United States Bankruptcy Code or otherwise.
SECTION 11.4. LIMITATION ON MERGER OF SUBSIDIARIES AND RELEASE OF
GUARANTORS.
No Guarantor shall consolidate or merge with or into (whether or not
such Guarantor is the surviving person) another person unless (i) subject to the
provisions of the following paragraph and certain other provisions of this
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 and this Indenture on the terms set forth in this
Indenture; and (ii) 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 Subsidiary Guarantor (or all of its assets) to an entity
which is not a Subsidiary Guarantor (including the designation of a Subsidiary
to become an Unrestricted Subsidiary), which transaction is otherwise in
compliance with this Indenture (including, without limitation, the provisions of
Section 4.14), such Subsidiary Guarantor will be deemed released from its
obligations under its Guarantee of the Securities; PROVIDED, HOWEVER, that any
such termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, any Indebtedness of
the Company or any other Subsidiary shall also terminate upon such release, sale
or transfer.
ARTICLE XII
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SUBORDINATION
SECTION 12.1. SECURITIES SUBORDINATED TO SENIOR DEBT.
The Company and the Guarantors and each Holder, by its acceptance of
Securities, agree that (a) the payment of the principal of and interest on the
Securities and (b) any other payment in respect of the Securities, including on
account of the acquisition or redemption of the Securities by the Company and
the Guarantors (including, without limitation, pursuant to Section 4.14, Article
X or Article XI) is subordinated, to the extent and in the manner provided in
this Article XII, to the prior payment in full in cash or Cash Equivalents of
all Senior Debt of the Company and the Guarantors and that these subordination
provisions are for the benefit of the holders of Senior Debt.
This Article XII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt, and such provisions are made for the benefit of the holders of
Senior Debt and such holders are made obligees hereunder and any one or more of
them may enforce such provisions.
SECTION 12.2. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES.
(a) No payment (by set-off or otherwise) shall be made by
or on behalf of the Company or a Guarantor, as applicable, on account of any
Obligation in respect of the Securities, including the principal of, premium, if
any, or interest or Liquidated Damages on the Securities (including any
repurchases of Securities), or on account of the redemption provisions of the
Securities, for cash or property (other than Junior Securities), (i) upon the
maturity of any Senior Debt of the Company or such Guarantor by lapse of time,
acceleration (unless waived) or otherwise, unless and until all principal of,
premium, if any, and the interest on such Senior Debt are first paid in full in
cash or Cash Equivalents (or such payment is duly provided for) or otherwise to
the extent holders accept satisfaction of amounts due by settlement in other
than cash or Cash Equivalents, or (ii) in the event of default in the payment of
any principal of, premium, if any, or interest on Senior Debt of the Company or
such Guarantor when it becomes due and payable, whether at maturity, or at a
date fixed for prepayment or by declaration or otherwise (a "Payment Default"),
unless and until such Payment Default has been cured or waived or otherwise has
ceased to exist.
(b) Upon (i) the happening of an event of default other
than a Payment Default that permits the holders of Senior Debt to declare such
Senior Debt to be due
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and payable and (ii) written notice of such event of default given to the
Company and the Trustee by the Representative under the Credit Agreement or
the holders of an aggregate of at least $10.0 million principal amount
outstanding of any other Senior Debt or their representative (a "Payment
Notice"), then, unless and until such event of default has been cured or
waived or otherwise has ceased to exist, no payment (by set-off or otherwise)
may be made by or on behalf of the Company or any Guarantor which is an
obligor under such Senior Debt on account of any Obligation in respect of the
Securities, including the principal of, premium, if any, or interest on the
Securities, (including any repurchases of any of the Securities), or on
account of the redemption provisions of the Securities, in any such case,
other than payments made with Junior Securities. Notwithstanding the
foregoing, unless the Senior Debt in respect of which such event of default
exists has been declared due and payable in its entirety within 179 days
after the Payment Notice is delivered as set forth above (the "Payment
Blockage Period") (and such declaration has not been rescinded or waived), at
the end of the Payment Blockage Period, the Company and the Guarantors shall
be required to pay all sums not paid to the Holders of the Securities during
the Payment Blockage Period due to the foregoing prohibitions and to resume
all other payments as and when due on the Securities. Any number of Payment
Notices may be given; PROVIDED, HOWEVER, that (i) not more than one Payment
Notice shall be given within a period of any 360 consecutive days, and (ii)
no default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period (whether or not such event of
default is on the same issue of Senior Debt) shall be made the basis for the
commencement of any other Payment Blockage Period (it being acknowledged that
any subsequent action, or any subsequent breach of any financial covenant for
a period commencing after the expiration of such Payment Blockage Period
that, in either case, 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 for this purpose).
(c) In furtherance of the provisions of Section 12.1, in
the event that, notwithstanding the foregoing provisions of this Section 12.2,
any payment or distribution of assets of the Company or any Guarantor (other
than Junior Securities) shall be received by the Trustee or the Holders at a
time when such payment or distribution is prohibited by the foregoing provisions
of this Section 12.2, such payment or distribution shall be held in trust for
the benefit of the holders of such Senior Debt, and shall be paid or delivered
by the Trustee or such Holders, as the case may be, to the holders of such
Senior Debt remaining unpaid or unprovided for or to their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Debt may have been issued,
ratably according to the aggregate principal amounts remaining unpaid on account
of such Senior Debt held or represented by each, for application to the payment
of all such Senior Debt remaining unpaid, to the extent necessary to pay or to
provide for the payment of all such Senior Debt in full in cash or Cash
Equivalents or otherwise to the extent holders accept satisfaction of amounts
due after giving effect to any concurrent payment or distribution to the holders
of such Senior Debt.
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SECTION 12.3. SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
DEBT ON DISSOLUTION, LIQUIDATION OR REORGANIZATION.
Upon any distribution of assets of the Company or any Guarantor upon
any dissolution, winding up, total or partial liquidation or reorganization of
the Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities:
(a) the holders of all Senior Debt of the Company or such
Guarantor, as applicable, will first be entitled to receive payment in full in
cash or Cash Equivalents (or have such payment duly provided for) or otherwise
to the extent holders expressly accept satisfaction of amounts due by settlement
in other than cash or Cash Equivalents before the Holders are entitled to
receive any payment on account of any Obligation in respect of the Securities,
including the principal of, premium, if any, and interest on the Securities
(other than Junior Securities); and
(b) any payment or distribution of assets of the Company or
such Guarantor of any kind or character from any source, 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 (by set-off or
otherwise), except for the subordination provisions contained in this Indenture,
will be paid by the liquidating trustee or agent or other person making such a
payment or distribution directly to the holders of such Senior Debt or their
representative to the extent necessary to make payment in full (or have such
payment duly provided for) on all such Senior Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of such
Senior Debt.
SECTION 12.4. SECURITYHOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS
OF SENIOR DEBT.
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt of the Company or any Guarantor as provided herein, the Holders of
Securities shall be subrogated to the rights of the holders of such Senior Debt
to receive payments or distributions of assets of the Company applicable to the
Senior Debt until all amounts owing on the Securities shall be paid in full, and
for the purpose of such subrogation no such payments or distributions to the
holders of such Senior Debt by or on behalf of the Company or any Guarantor, or
by or on behalf of the Holders by virtue of this Article XII, which otherwise
would have been made to the Holders shall, as between the Company or any
Guarantor and the Holders, be deemed to be payment by the Company or any
Guarantor or on account of such
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Senior Debt, it being understood that the provisions of this Article XII are
and are intended solely for the purpose of defining the relative rights of
the Holders, on the one hand, and the holders of such Senior Debt, on the
other hand.
SECTION 12.5. OBLIGATIONS OF THE COMPANY AND THE GUARANTORS
UNCONDITIONAL.
Nothing contained in this Article XII or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between the Company and
any Guarantors and the Holders, the obligation of each such Person, which is
absolute and unconditional, to pay to the Holders the principal of, premium, if
any, and interest and Liquidated Damages on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
and the Guarantors other than the holders of the Senior Debt, nor shall anything
herein or therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article XII, of the holders of Senior Debt in
respect of cash, property or securities of the Company and the Guarantors
received upon the exercise of any such remedy. Notwithstanding anything to the
contrary in this Article XII or elsewhere in this Indenture or in the
Securities, upon any distribution of assets of the Company and the Guarantors
referred to in this Article XII, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating Trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Company or any Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article XII so long as such
court has been apprised of the provisions of, or the order, decree or
certificate makes reference to, the provisions of this Article XII. Nothing in
this Section 12.5 shall apply to the claims of, or payments to, the Trustee
under or pursuant to Section 7.7.
SECTION 12.6. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than one Business Day prior to such payment
written notice thereof from the Company or from one or more holders of Senior
Debt or from any representative therefor and, prior to the receipt of
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any such written notice, the Trustee, subject to the provisions of Sections
7.1 and 7.2, shall be entitled in all respects conclusively to assume that no
such fact exists.
SECTION 12.7. APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of Securityholders
and, to the extent (i) the making of such deposit by the Company shall not be in
contravention of any term or provision of the Credit Agreement or other
Designated Senior Debt and (ii) allocated for the payment of Securities, shall
not be subject to the subordination provisions of this Article XII. Otherwise,
any deposit of assets with the Trustee or the Agent (whether or not in trust)
for the payment of principal of or interest on any Securities shall be subject
to the provisions of Sections 12.1, 12.2, 12.3 and 12.4; PROVIDED that, if prior
to one Business Day preceding the date on which by the terms of this Indenture
any such assets may become distributable for any purpose (including without
limitation, the payment of either principal of or interest on any Security) the
Trustee or such Paying Agent shall not have received with respect to such assets
the written notice provided for in Section 12.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
SECTION 12.8. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS
OF THE COMPANY, THE GUARANTORS OR HOLDERS OF SENIOR DEBT.
No right of any present or future holders of any Senior Debt to
enforce subordination provisions contained in this Article XII shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or any Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Company or any Guarantor with
the terms of this Indenture, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of Senior Debt may
extend, renew, modify or amend the terms of the Senior Debt or any security
therefor and release, sell or exchange such security and otherwise deal freely
with the Company and the Guarantors, all without affecting the liabilities and
obligations of the parties to this Indenture or the Holders. The subordination
provisions contained in this Indenture are for the benefit of the holders from
time to time of Senior Debt and may not be rescinded, cancelled, amended or
modified in any way other than any amendment or modification that would not
adversely affect the rights of any holder of Senior Debt or any amendment or
modification that is consented to by each holder of Senior Debt that would be
adversely affected thereby. The subordination provisions hereof shall continue
to be effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Debt is
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rescinded or must otherwise be returned by any holder of the Senior Debt upon
the insolvency, bankruptcy, or reorganization of the Company, any Guarantor,
or otherwise, all as though such payment has not been made.
SECTION 12.9. SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF SECURITIES.
Each Holder of the Securities by his acceptance thereof authorizes
and expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained
in this Article XII and to protect the rights of the Holders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company or any Guarantor (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit
of creditors or any other marshalling of assets and liabilities of the
Company or any Guarantor), the immediate filing of a claim for the unpaid
balance of his Securities in the form required in said proceedings and cause
said claim to be approved. In the event of any liquidation or reorganization
of the Company or any Guarantor in bankruptcy, insolvency, receivership or
similar proceeding, if the Holders of the Securities (or the Trustee on their
behalf) have not filed any claim, proof of claim, or other instrument of
similar character necessary to enforce the obligations of the Company or any
Guarantor in respect of the Securities at least thirty (30) days before the
expiration of the time to file the same, then in such event, but only in such
event, the holders of the Designated Senior Debt or a representative on their
behalf may, as an attorney-in-fact for such Holders, file any claim, proof of
claim, or other instrument of similar character on behalf of such Holders.
Nothing herein contained shall be deemed to authorize the Trustee or the
holders of Senior Debt or their representative to authorize or consent to or
accept or adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights
of any Holder thereof, or to authorize the Trustee or the holders of Senior
Debt or their representative to vote in respect of the claim of any
Securityholder in any such proceeding.
SECTION 12.10. RIGHT OF TRUSTEE TO HOLD SENIOR DEBT.
The Trustee shall be entitled to all of the rights set forth in this
Article XII in respect of any Senior Debt at any time held by it to the same
extent as any other holder of Senior Debt, and nothing in this Indenture shall
be construed to deprive the Trustee of any of its rights as such holder.
SECTION 12.11. ARTICLE XII NOT TO PREVENT EVENTS OF DEFAULT.
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The failure to make a payment on account of principal of, premium, if
any, or interest (or Liquidated Damages, if any) on the Securities by reason of
any provision of this Article XII shall not be construed as preventing the
occurrence of a Default or an Event of Default under Section 6.1 or in any way
limit the rights of the Trustee or any Holder to pursue any other rights or
remedies with respect to the Securities.
SECTION 12.12. NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR
DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders (other than
for its willful misconduct or negligence) if it shall in good faith mistakenly
pay over or distribute to the Holders of Securities or the Company, any
Guarantor or any other Person, cash, property or securities to which any holders
of Senior Debt shall be entitled by virtue of this Article XII or otherwise.
Nothing in this Section 12.12 shall affect the obligation of any other such
Person to hold such payment for the benefit of, and to pay such payment over to,
the holders of Senior Debt or their representative. In the event of any
conflict between the fiduciary duty of the Trustee to the Holders of Securities
and to the holders of Senior Debt, the Trustee is expressly authorized to
resolve such conflict in favor of the Holders.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 13.2. NOTICES.
Any notices or other communications to the Company or any Guarantor or
the Trustee required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telex, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
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if to the Company or any Guarantor:
Compass Aerospace Corporation
2029 Century Park East, Suite 1112
Los Angeles, California 90067
Attention: Chief Financial Officer
Telecopy: (310) 261-9948
with a copy to:
Morgan, Lewis & Bockius LLP
300 South Grand Avenue
22nd Floor
Los Angeles, California 90071-3132
Attention: Peter Wallace, Esq.
Telecopy: (213) 612-2554
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Trust Department
Telecopy: (212) 858-2952
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
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Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.3. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA Section 312(c).
SECTION 13.4. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, such Person shall furnish to
the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been met; and
(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of such counsel, all such conditions precedent have been met.
SECTION 13.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
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(1) a statement that the Person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been met; and
(4) a statement as to whether or not, in the opinion
of each such Person, such condition or covenant has been met;
PROVIDED, HOWEVER, that with respect to matters of fact an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 13.6. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 13.7. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 13.8. GOVERNING LAW.
THIS INDENTURE, THE GUARANTEES AND THE SECURITIES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. EACH OF THE
COMPANY AND THE GUAR-
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ANTORS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE AND THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE
AFORESAID COURTS. EACH OF THE COMPANY AND THE GUARANTORS IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE TRUSTEE OR ANY SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE COMPANY AND THE GUARANTORS IN ANY OTHER JURISDICTION.
SECTION 13.9. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any Guarantor or any of their respective
Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.10. NO RECOURSE AGAINST OTHERS.
No partner, incorporator, direct or indirect stockholder, director,
officer or employee, as such, past, present or future, of the Company or any
Guarantor, or any successor entity, shall have any personal liability in respect
of the obligations of the Company and the Guarantors under the Securities, this
Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation by reason of his, her or its status as such
partner, incorporator, stockholder, director, officer or employee. Each
Securityholder by accepting a Security waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Securities.
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SECTION 13.11. SUCCESSORS.
All agreements of the Company and the Guarantors in this Indenture and
the Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 13.12. DUPLICATE ORIGINALS.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 13.13. SEVERABILITY.
In case any one or more of the provisions in this Indenture or in the
Securities or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.15. QUALIFICATION OF INDENTURE.
The Company shall qualify this Indenture under the TIA in accordance
with the terms and conditions of the Registration Rights Agreement and shall pay
all costs and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to, costs
and expenses of qualification of this Indenture and the Securities and printing
this Indenture and the Securities. The Trustee shall be entitled to receive
from the Company any such Officers' Certificates, Opinions of Counsel or other
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documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 13.16. REGISTRATION RIGHTS.
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
COMPASS AEROSPACE CORPORATION
By: /s/ DOUGLAS B. SOLOMON
-------------------------------
Name: Douglas B. Solomon
Title: Secretary
Attest: /s/ ALEXANDER HOGG
----------------------------
Name: Alexander Hogg
Title: Chief Executive Officer
and President
WESTERN METHODS MACHINERY CORPORATION
By: /s/ DOUGLAS B. SOLOMON
-------------------------------
Name: Douglas B. Solomon
Title: Secretary
Attest: /s/ ALEXANDER HOGG
----------------------------
Name: Alexander Hogg
Title: Chief Executive Officer
and President
102
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AEROMIL ENGINEERING COMPANY
By: /s/ DOUGLAS B. SOLOMON
-------------------------------
Name: Douglas B. Solomon
Title: Secretary
Attest: /s/ ALEXANDER HOGG
----------------------------
Name: Alexander Hogg
Title: Chief Executive Officer
and President
BRITTAIN MACHINE, INC.
By: /s/ DOUGLAS B. SOLOMON
-------------------------------
Name: Douglas B. Solomon
Title: Secretary
Attest: /s/ ALEXANDER HOGG
----------------------------
Name: Alexander Hogg
Title: Chief Executive Officer
and President
BARNES MACHINE INCORPORATED
By: /s/ DOUGLAS B. SOLOMON
-------------------------------
Name: Douglas B. Solomon
Title: Secretary
Attest: /s/ ALEXANDER HOGG
----------------------------
Name: Alexander Hogg
Title: Chief Executive Officer
and President
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IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By: /s/ TERENCE RAWLINS
-------------------------------
Name: Terence Rawlins
Title: Assistant Vice President
Attest: /s/ BARBARA MCCLUSKEY
----------------------------
Name: Barbara McCluskey
Title: Assistant Secretary
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EXHIBIT A
[FORM OF SECURITY]
COMPASS AEROSPACE CORPORATION
10 1/8% SERIES A(1) SENIOR SUBORDINATED NOTE DUE 2005
CUSIP No. ______________
No. $
Compass Aerospace Corporation, a Delaware corporation (hereinafter
called the "Company", which term includes any successors under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
________________, or registered assigns, the principal sum of _____________
Dollars, on April 15, 2005.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
- --------------------
(1) Series A should be replaced with Series B in the Exchange Securities.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed.
COMPASS AEROSPACE CORPORATION ,
a Delaware corporation
By:
--------------------------------------
Name:
Title:
Attest:
--------------------------
Name:
Title:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By
------------------------------------
Authorized Signatory
A-3
<PAGE>
COMPASS AEROSPACE CORPORATION
10 1/8% SERIES A(2) SENIOR SUBORDINATED NOTE DUE 2005
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depositary Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative of
DTC (and any payment is made to Cede & Co. or such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.(3)
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULA-
- ----------
(2) Series A should be replaced with Series B in the Exchange Securities.
(3) This paragraph should only be added if the Security is issued in global
form.
A-4
<PAGE>
TION S UNDER THE SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1)(2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT, AN "IAI").
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER
THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000,
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, IF THE
COMPANY SO REQUESTS, THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, IF THE COMPANY SO REQUESTS), OR
(G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND
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<PAGE>
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE
THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.
1. INTEREST.
Compass Aerospace Corporation, a Delaware corporation (hereinafter
called the "Company," which term includes any successors under the Indenture
hereinafter referred to), promises to pay interest on the principal amount of
this Security at the rate of 10 1/8 % per annum. To the extent it is lawful,
the Company promises to pay interest on any interest payment due but unpaid on
such principal amount at a rate of 10 1/8 % per annum compounded semi-annually.
The Company will pay interest semi-annually on April 15 and October 15
of each year (each, an "Interest Payment Date"), commencing October 15, 1998.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
the date of the original issuance. Interest will be computed on the basis of a
360-day year consisting of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company shall pay interest (and Liquidated Damages, if any) on the
Securities (except defaulted interest) to the Persons who are the registered
Holders at the close of business on the Record Date immediately preceding the
Interest Payment Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. Except as provided below, the Company shall pay
principal, premium, and interest (and Liquidated Damages, if any) in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for payment of public and private debts ("Cash"). The Securities
will be payable as to principal, premium and interest (and Liquidated Damages,
if any) at the office or agency of the Company maintained for
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<PAGE>
such purpose within the Borough of Manhattan, the City and State of New York
or, at the option of the Company, payment of principal, premium and interest
(and Liquidated Damages, if any) may be made by check mailed to the Holders
at their addresses set forth in the register of Holders, and PROVIDED that
payment by wire transfer of immediately available funds will be required with
respect to principal of and interest (and Liquidated Damages, if any) and
premium on all Global Securities and all other Securities the Holders of
which shall have provided wire transfer instructions to the Company or the
Paying Agent at least 5 Business Days prior to the relevant record date.
3. PAYING AGENT AND REGISTRAR.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders. The Company or any of
its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of
April 21, 1998 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act, as in effect on the date of the Indenture. The Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are senior
subordinated obligations of the Company limited in aggregate principal amount to
$110,000,000. The Securities are, to the extent and in the manner provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Debt of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed or guaranteed. Each
Holder of this Security, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his behalf to take
such action as may be provided in the Indenture and (c) appoints the Trustee his
attorney-in-fact for such purpose.
5. REDEMPTION.
Except as provided in this Paragraph 5 or in Article III of the
Indenture, the Company shall not have the right to redeem any Securities. The
Securities may be redeemed in whole or from time to time in part at any time on
and after April 15, 2002,
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<PAGE>
at the option of the Company, at the Redemption Price (expressed as a
percentage of principal amount) set forth below with respect to the indicated
Redemption Date, in each case (subject to the right of Holders of record on a
Record Date that is on or prior to such Redemption Date to receive interest
due on the Interest Payment Date to which such Record Date relates), plus any
accrued but unpaid interest (and Liquidated Damages, if any) to the
Redemption Date.
<TABLE>
<CAPTION>
If redeemed during
the 12-month period
commencing April 15, Redemption Price
-------------------- ----------------
<S> <C>
2002 . . . . . . . . . 105.063%
2003 . . . . . . . . . 102.531%
2004 . . . . . . . . . 100.000%
</TABLE>
Notwithstanding the foregoing, until April 15, 2001, upon an Initial
Public Equity Offering of common stock for cash of the Company, up to 35% of the
aggregate principal amount of the Securities originally outstanding may be
redeemed at the option of the Company within 90 days of such Initial Public
Equity Offering, on not less than 30 days, but not more than 60 days, notice to
each holder of the Securities to be redeemed, with cash from the Net Cash
Proceeds of such Initial Public Equity Offering, at a redemption price equal to
110.125% of principal, (subject to the right of Holders of record on a Record
Date to receive interest due on an Interest Payment Date that is on or prior to
such Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; PROVIDED, HOWEVER, that at least 65%
of the aggregate principal amount of the original aggregate principal amount of
the Securities remain outstanding.
Any such redemption will comply with Article III of the Indenture.
6. NOTICE OF REDEMPTION.
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
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<PAGE>
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date, the
Securities called for redemption will cease to bear interest and the only right
of the Holders of such Securities will be to receive payment of the Redemption
Price, plus any accrued and unpaid interest (and Liquidated Damages, if any) to
the Redemption Date.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
of or exchange any Securities (a) selected for redemption except the unredeemed
portion of any Security being redeemed in part or (b) for a period beginning 15
Business Days before the mailing of a notice of an offer to repurchase or
redemption and ending at the close of business on the day of such mailing.
8. PERSONS DEEMED OWNERS.
The registered Holder of a Security may be treated as the owner of it
for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee
and such Paying Agent(s) with respect to such money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
Except as set forth in the Indenture, if the Company irrevocably
deposits with the Trustee, in trust, for the benefit of the Holders, cash, 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 selected by the Trustee,
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<PAGE>
to pay the principal of, premium, if any, and interest (and Liquidated
Damages, if any) on the Securities to redemption or maturity and complies
with the other provisions of the Indenture relating thereto, the Company will
be discharged from certain provisions of the Indenture and the Securities
(including the financial covenants, but excluding its obligation to pay the
principal of, premium, if any, and interest (and Liquidated Damages, if any)
on the Securities). Upon satisfaction of certain additional conditions set
forth in the Indenture, the Company may elect to have its obligations
discharged with respect to outstanding Securities.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may under certain circumstances amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, or make any other change that does not adversely affect
the rights of any Holder of a Security.
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the
Company and any Guarantors to, among other things, incur additional Indebtedness
and issue Preferred Stock, pay dividends or make certain other Restricted
Payments, enter into certain transactions with Affiliates, incur Liens, sell
assets and subsidiary stock, merge or consolidate with any other Person or
transfer (by lease, assignment or otherwise) substantially all of the properties
and assets of the Company. The limitations are subject to a number of important
qualifications and exceptions. The Company must periodically report to the
Trustee on compliance with such limitations.
13. RANKING.
Payment of principal, premium, if any, and interest (and Liquidated
Damages, if any) on the Securities is subordinated, in the manner and to the
extent set forth in the Indenture, to the prior payment in full of all Senior
Debt.
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<PAGE>
14. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
offer to purchase on the Change of Control Purchase Date all outstanding
Securities at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest (and Liquidated Damages, if any), if any, to
the Change of Control Purchase Date. Holders of Securities will receive a
Change of Control Offer from the Company prior to any related Change of Control
Purchase Date and may elect to have such Securities purchased by completing the
form entitled "Option of Holder to Elect Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability of the
Company, the Guarantors or any of their respective Subsidiaries to sell assets
and subsidiary stock. In the event the proceeds from a permitted Asset Sale
exceed certain amounts, as specified in the Indenture, the Company will be
required either to reinvest the proceeds of such Asset Sale in a Related
Business, repay certain Indebtedness or to make an offer to purchase each
Holder's Securities at 100% of the principal amount thereof, plus accrued
interest (and Liquidated Damages, if any), if any, to the purchase date.
15. NOTATION OF GUARANTEE.
As set forth more fully in the Indenture, the Persons constituting
Guarantors from time to time, in accordance with the provisions of the
Indenture, unconditionally and jointly and severally guarantee, in accordance
with Section 11.1 of the Indenture, to the Holder and to the Trustee and its
successors and assigns, that (i) the principal of and interest on the Security
will be paid, whether at the Maturity Date or Interest Payment Dates, by
acceleration, call for redemption upon a Change of Control Offer, upon an Asset
Sale Offer or otherwise, and all other obligations of the Company to the Holder
or the Trustee under the Indenture or this Security will be promptly paid in
full or performed, all in accordance with the terms of the Indenture and this
Security, and (ii) in the case of any extension of payment or renewal of this
Security or any of such other obligations, they will be paid in full when due or
performed in accordance with the terms of such extension or renewal, whether at
the Maturity Date, as so extended, by acceleration, call for redemption, upon a
Change of Control Offer, upon an Asset Sale Offer or otherwise. Such guarantees
shall cease to apply, and shall be null and void, with respect to any Guarantor
who, pursuant to Article XI of the Indenture, is released from its guarantees,
or whose guarantees otherwise cease to be applicable pursuant to the terms of
the Indenture.
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<PAGE>
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
16. DEFAULTS AND REMEDIES.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Securities may declare all the Securities to be due and payable immediately, or
if there are any amounts outstanding under the Credit Agreement shall become
immediately due and payable upon the first to occur of an acceleration under the
Credit Agreement or three Business Days after receipt by the Company and the
representative of the holders of the Indebtedness under the Credit Agreement of
the notice of such an acceleration but only if such Event of Default is then
continuing. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries, all outstanding Securities will
become due and payable without further action or notice. Securityholders may
not enforce the Indenture, the Securities or the Guarantees except as provided
in the Indenture. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
17. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company, any Guarantor, any of their Subsidiaries or any of their respective
Affiliates, and may otherwise deal with such Persons as if it were not the
Trustee.
18. NO RECOURSE AGAINST OTHERS.
No partner, incorporator, direct or indirect stockholder, partner,
director, officer or employee, as such, past, present or future, of the Company
or any Guarantor, or any successor entity, shall have any personal liability in
respect of the obligations of the Company and the Guarantors under the
Securities or the Indenture by reason of his,
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<PAGE>
her or its status as such partner, incorporator, stockholder, director,
officer or employee. Each Holder of a Security by accepting a Security
waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of the Securities.
19. AUTHENTICATION.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
20. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES.(4)
In addition to the rights provided to Holders of Securities under the
Indenture, Holders of Securities shall have all the rights set forth in the
Registration Rights Agreement.
23. GOVERNING LAW.
- ----------
(4) This paragraph should be included only for the Initial Securities.
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<PAGE>
The Indenture and the Securities shall be governed by and construed in
accordance with the internal laws of the State of New York.
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 20, 1998
and amended and restated as of February 11, 1999
Among
COMPASS AEROSPACE CORPORATION
as Borrower
the Lending Institutions listed on Schedule 1 hereto
as Lenders,
BANKBOSTON, N.A.,
as Agent,
ROYAL BANK OF CANADA,
as Syndication Agent,
GENERAL ELECTRIC CAPITAL CORPORATION,
as Documentation Agent,
NATIONSBANK, N.A.,
as Co-Agent
and
BANCBOSTON ROBERTSON STEPHENS INC.,
as Arranger
<PAGE>
-ii-
Table of Contents
1. DEFINITIONS AND RULES OF INTERPRETATION................................ 2
1.1. Definitions........................................... 2
1.2. Rules of Interpretation............................... 43
2. AMOUNT AND TERMS OF CREDIT FACILITIES.................................. 44
2.1. The Commitments....................................... 44
2.2. Minimum Amount of Each Borrowing...................... 45
2.3. Requests for Loans; Conditions to Loans............... 45
2.4. Settlement; Failure to Make Funds Available........... 46
2.5. The Notes............................................. 51
2.6. Conversion and Continuation Options................... 52
2.7. Pro-Rata Borrowings................................... 53
2.8. Interest on the Loans................................. 53
2.9. Change in Borrowing Base.............................. 54
2.10. Inability to Determine Eurocurrency Rate.............. 55
2.11. Illegality............................................ 55
2.12. Additional Costs, etc................................. 56
2.13. Capital Adequacy...................................... 57
2.14. Change of Lending Office.............................. 57
2.15. Certificate........................................... 57
2.16. Indemnity............................................. 58
2.17. Replacement of Lenders................................ 58
2.18. Resignation of UK Fronting Lender..................... 60
2.19. Nature of Acquisition Loan Lenders' Interests in UK
Acquisition Loans..................................... 61
3. LETTERS OF CREDIT...................................................... 61
3.1. Letter of Credit Commitments.......................... 61
3.2. Reimbursement Obligation of Borrower.................. 62
3.3. Letter of Credit Payments............................. 63
3.4. Obligations Absolute.................................. 63
3.5. Reliance by Issuer.................................... 64
3.6. Existing Letters of Credit............................ 64
4. REDUCTION OF COMMITMENTS; PAYMENTS; PREPAYMENTS........................ 65
4.1. Reallocation and Voluntary Reduction of Unutilized
Commitments........................................... 65
4.2. Mandatory Reduction of Commitments.................... 66
4.3. Voluntary Prepayments of Loans........................ 67
4.4. Obligations Exceed Commitment or Borrowing Base....... 68
4.5. Scheduled Payments of Principal of Term Loans A....... 69
4.6. Scheduled Payments of Principal of Term Loans B....... 69
4.7. Scheduled Payments of Principal of Acquisition Loans
and UK Acquisition Loans.............................. 70
4.8. Revolving Credit Maturity Date........................ 70
4.9. Certain Mandatory Prepayments of Loans................ 71
4.10. Application of Mandatory Prepayments.................. 74
4.11. Change in Control..................................... 75
5. FEES; TAXES; ETC....................................................... 75
<PAGE>
-iii-
5.1. Fees.................................................. 75
5.2. Funds for Payments.................................... 77
5.3. Computations.......................................... 78
5.4. Currency of Account................................... 78
5.5. Judgment Currency..................................... 79
6. COLLATERAL SECURITY AND GUARANTEE...................................... 79
6.1. Security of Borrower.................................. 79
6.2. Guarantee and Security of Guarantors.................. 80
6.3. Security for and Guarantee of UK Obligations.......... 80
7. GUARANTEE.............................................................. 80
7.1. Guarantee of Payment and Performance.................. 80
7.2. Guarantors' Agreement to Pay Enforcement Costs, etc... 81
7.3. Waivers by the Guarantors; Lenders' Freedom to Act.... 81
7.4. Unenforceability of Obligations Against Borrowers..... 82
7.5. Subrogation; Subordination............................ 82
7.6. Security; Setoff...................................... 83
7.7. Further Assurances.................................... 83
7.8. Termination........................................... 84
7.9. Successors and Assigns................................ 84
7.10. Limitation on Guarantee of Obligations................ 84
7.11. Contribution with Respect to Guarantee of
Obligations........................................... 84
8. REPRESENTATIONS AND WARRANTIES......................................... 85
8.1. Corporate Authority................................... 85
8.2. Approvals............................................. 86
8.3. Title to Properties; Leases........................... 86
8.4. Financial Statements and Projections.................. 86
8.5. No Material Changes; Solvency; Intellectual Property.. 88
8.6. Litigation............................................ 88
8.7. No Materially Adverse Contracts, etc.................. 88
8.8. Compliance with Other Instruments, Laws, etc.......... 88
8.9. Tax Status............................................ 88
8.10. No Event of Default................................... 89
8.11. Holding Company and Investment Company Acts........... 89
8.12. Absence of Financing Statements, etc.................. 89
8.13. Perfection of Security Interests...................... 89
8.14. Employee Benefit Plans................................ 90
8.15. Use of Proceeds....................................... 91
8.16. Environmental Compliance.............................. 91
8.17. Subsidiaries, etc..................................... 93
8.18. Bank Accounts......................................... 93
8.19. Chief Executive Office................................ 94
8.20. Fiscal Year........................................... 94
8.21. Accuracy and Completeness of Information.............. 94
8.22. Insurance............................................. 94
8.23. Senior Debt........................................... 94
8.24. Representations and Warranties in Ancillary
Documents............................................. 94
8.25. Material Contracts.................................... 95
8.26. Indebtedness.......................................... 95
8.27. Lamsco Acquisition.................................... 95
8.28. Year 2000 Problem..................................... 95
<PAGE>
-iv-
9. AFFIRMATIVE COVENANTS.................................................. 95
9.1. Maintenance of Office................................. 95
9.2. Records and Accounts.................................. 96
9.3. Financial Statements, Certificates and Information.... 96
9.4. Annual Meetings With Lenders.......................... 98
9.5. Notices............................................... 98
9.6. Corporate Existence; Maintenance of Properties;
Performance of Obligations............................ 99
9.7. Insurance............................................. 100
9.8. Taxes................................................. 100
9.9. Inspection of Properties and Books, etc............... 100
9.10. Compliance with Laws, Contracts, Licenses, and
Permits............................................... 101
9.11. Use of Proceeds....................................... 102
9.12. Cash Management System. The Borrower will at all
times maintain the Concentration Account ............. 102
9.13. Inventory Restrictions................................ 103
9.14. Mortgaged Properties.................................. 103
9.15. Ownership of Subsidiaries............................. 103
9.16. Collateral for Loans.................................. 103
9.17. Permitted Acquisitions................................ 104
9.18. Interest Rate Protection.............................. 105
9.19. UCC Searches.......................................... 105
9.20. Employee Benefit Plans................................ 106
9.21. Further Assurances.................................... 106
10. NEGATIVE COVENANTS.................................................... 106
10.1. Indebtedness.......................................... 106
10.2. Liens................................................. 108
10.3. Investments........................................... 109
10.4. Distributions and Restricted Payments................. 110
10.5. Mergers, Consolidations and Acquisitions.............. 112
10.6. Disposition of Assets................................. 112
10.7. Issuance of Capital Stock............................. 112
10.8. Sale and Leaseback.................................... 113
10.9. Compliance with Environmental Laws.................... 113
10.10. Employee Benefit Plans................................ 113
10.11. Transactions with Affiliates.......................... 114
10.12. Restrictive or Inconsistent Agreements................ 114
10.13. Amendments or Termination of Documents, etc........... 115
10.14. Bank Accounts......................................... 115
10.15. Fiscal Year........................................... 115
10.16. Line of Business...................................... 115
11. FINANCIAL COVENANTS................................................... 115
11.1. Maximum Leverage Ratio................................ 115
11.2. Minimum Consolidated EBITDA........................... 116
11.3. Minimum Interest Coverage Ratio....................... 116
11.4. Minimum Debt Service Coverage Ratio................... 116
11.5. Maximum Capital Expenditures.......................... 116
11.6. General Provisions Relating to Financial Terms and
Covenants............................................. 117
11.7. Computations of Financial Covenants During First
Year of Credit Facilities............................. 118
<PAGE>
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12. CLOSING CONDITIONS.................................................... 119
12.1. Loan Documents, etc................................... 119
12.1.1. Loan Documents............................. 119
12.1.2. Senior Subordinated Note Documents......... 119
12.1.3. Acquisition Documents...................... 119
12.1.4. Equity Documents........................... 119
12.1.5. Management Consulting Agreement............ 120
12.1.6. Permitted Disqualified Capital Stock
Documents.................................. 120
12.2. Completion of Acquisition............................. 120
12.3. Certified Copies of Charter Documents................. 120
12.4. Corporate Action...................................... 120
12.5. Incumbency Certificate................................ 120
12.6. Plans; Shareholders' Agreements; Management
Agreements; Employee Agreements; Collective
Bargaining Agreements; Debt Agreements; Affiliate
Contracts; Tax Sharing Agreements and Other
Material Contracts.................................... 121
12.7. Validity of Liens..................................... 122
12.8. Perfection Certificates and UCC Search Results........ 122
12.9. Intentionally Omitted................................. 122
12.10. Certificates of Insurance............................. 122
12.11. Borrowing Base Report................................. 122
12.12. Accounts Receivables Aging Report..................... 122
12.13. Landlord Waivers...................................... 123
12.14. Solvency Certificate.................................. 123
12.15. Opinion of Counsel.................................... 123
12.16. Payment of Fees....................................... 123
12.17. Updated Collateral Examinations....................... 123
12.18. Satisfactory Due Diligence Review..................... 124
12.19. Litigation............................................ 124
12.20. Material Adverse Effect............................... 124
12.21. Borrowing Availability................................ 124
12.22. Financial Statements and Projections.................. 124
12.23. Refinancings.......................................... 124
12.24. Cash Management System................................ 124
12.25. Disbursement Instructions............................. 125
12.26. Consolidated Total Funded Debt to Consolidated
EBITDA................................................ 125
12.27. Deposits with DLJ Capital Funding, Inc................ 125
12.28. Sources and Uses Statement............................ 125
13. CONDITIONS TO ALL BORROWINGS.......................................... 125
13.1. Representations True; No Default or Event of
Default............................................... 125
13.2. No Legal Impediment................................... 125
13.3. Governmental Regulation............................... 125
13.4. Proceedings and Documents............................. 126
13.5. Borrowing Base Report................................. 126
13.6. Borrowing Availability................................ 126
13.7. Senior Debt........................................... 126
13.8. Permitted Acquisitions................................ 126
14. EVENTS OF DEFAULT; ACCELERATION; ETC.................................. 127
<PAGE>
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14.1. Events of Default and Acceleration.................... 127
14.2. Termination of Commitments............................ 130
14.3. Remedies.............................................. 131
14.4. Distribution of UK Collateral Proceeds................ 131
14.5. Distribution of Other Collateral Proceeds............. 132
15. THE AGENT............................................................. 132
15.1. Authorization......................................... 132
15.2. Employees and Agents.................................. 133
15.3. No Liability.......................................... 133
15.4. No Representations.................................... 134
15.5. Payments.............................................. 134
15.6. Holders of Notes...................................... 135
15.7. Indemnity............................................. 135
15.8. Agent as Lender....................................... 135
15.9. Resignation........................................... 135
15.10. Notification of Defaults and Events of Default........ 136
15.11. Duties in the Case of Enforcement..................... 136
16. ASSIGNMENT AND PARTICIPATION.......................................... 136
16.1. Conditions to Assignment by Lenders................... 136
16.2. Certain Representations and Warranties;
Limitations; Covenants................................ 137
16.3. Register.............................................. 138
16.4. New Notes............................................. 138
16.5. Participations........................................ 138
16.6. Disclosure............................................ 139
16.7. Assignee or Participant Affiliated with Borrower...... 139
16.8. Miscellaneous Assignment Provisions................... 140
16.9. Assignment by Borrower or Guarantor................... 140
17. PROVISIONS OF GENERAL APPLICATION..................................... 140
17.1. Setoff................................................ 140
17.2. Expenses.............................................. 141
17.3. Indemnification....................................... 142
17.4. Survival of Covenants, Etc............................ 142
17.5. Notices, Etc.......................................... 143
17.6. Governing Law......................................... 143
17.7. Headings.............................................. 143
17.8. Counterparts.......................................... 143
17.9. Entire Agreement, Etc................................. 144
17.10. Waiver of Jury Trial.................................. 144
17.11. Consents, Amendments, Waivers, Etc.................... 144
17.12. Severability.......................................... 147
17.13. Understanding as to Revolving Credit Commitments
and Acquisition Loan Commitment Period................ 147
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Schedules and Exhibits
Schedule 1 Commitments; Banks' Offices
Schedule 1.1 Mandatory Liquid Asset Costs
Schedule 1.2 Applicable Margins
Schedule 2 Permitted Inventory Locations
Schedule 8.3 Title to Properties; Leases
Schedule 8.5 Distributions since Balance Sheet Date
Schedule 8.6 Litigation
Schedule 8.7 Material Adverse Contracts
Schedule 8.8 Compliance with Law
Schedule 8.9 Taxes
Schedule 8.13 Real Estate
Schedule 8.16 Environmental
Schedule 8.17 Subsidiaries
Schedule 8.18 Bank Accounts
Schedule 8.19 Chief Executive Offices
Schedule 8.22 Insurance
Schedule 8.25 Material Contracts
Schedule 8.26 Existing Indebtedness
Schedule 10.1 Permitted Existing Indebtedness
Schedule 10.2 Permitted Existing Liens
Schedule 10.3 Permitted Existing Investments
Exhibit A-1 Form of Revolving Credit Note
Exhibit A-2 Form of Term A Note
Exhibit A-3 Form of Term B Note
Exhibit A-4 Form of Acquisition Note
Exhibit B-1 Form of US Loan Request
Exhibit B-2 Form of UK Loan Request
Exhibit C Form of Borrowing Base Report
Exhibit D Form of Compliance Certificate
Exhibit E Form of Security Agreement
Exhibit F Form of Stock Pledge Agreement
Exhibit G Form of Assignment and Acceptance
Exhibit H Form of Agency Account Agreement
Exhibit I Form of Accession Agreement
Exhibit J Form of Commitment Reallocation Request
Exhibit K Form of UK Borrower Accession Agreement
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is made as of November 20,
1998, and restated as of February 11, 1999, by and among (a) COMPASS AEROSPACE
CORPORATION, a Delaware corporation (the "Borrower"), (b) AEROMIL ENGINEERING
COMPANY, a Delaware corporation ("Aeromil"), (c) WESTERN METHODS MACHINERY
CORPORATION, a California corporation ("Western Methods"), (d) BARNES MACHINE
INCORPORATED, a Washington corporation ("Barnes"), (e) BRITTAIN MACHINE, INC. a
Kansas corporation ("Brittain"), (f) WICHITA MANUFACTURING, INC., a California
corporation ("Wichita"), (g) J&J LEASING, INC. a Washington corporation ("J&J"),
(h) SEA-LECT PRODUCTS, INC., a Delaware corporation ("Sea-Lect"), (i) CWE
ACQUISITION CO., a Delaware corporation ("CWE"), (j) LAMSCO WEST, INC., a
California corporation ("Lamsco"), (k) MODERN MANUFACTURING, INC., a Delaware
corporation ("Modern Manufacturing" and, together with Aeromil, Western Methods,
Barnes, Brittain, Wichita, J&J, Sea-Lect, CWE, Lamsco, and any other
Subsidiaries of the Borrower that may become parties hereto as Guarantors
hereunder, the "Guarantors"), (l) the Lenders (as defined in ss.1 below), (m)
BANKBOSTON, N.A. as Issuing Bank and as Agent (as such terms are defined in ss.1
below), (n) ROYAL BANK OF CANADA, as Syndication Agent (as defined in ss.1
below), (o) GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation Agent (as
defined in ss.1 below), and (p) NATIONSBANK, N.A., as Co-Agent (as defined in
ss.1 below).
RECITALS
The Borrowers, the Guarantors, BankBoston, N.A. (the "Existing Lender"),
and the Agent are party to a Credit Agreement, dated as of November 20, 1998 (as
amended and supplemented, through the date hereof, the "Existing Credit
Agreement"), pursuant to which the Existing Lender made Loans to and issued
Letters of Credit for the account of the Borrower (the "Existing Credit
Extensions").
The Borrower has requested the Existing Lender and the Agent to amend and
restate the Existing Credit Agreement in its entirety to, among other things,
(a) reduce the Total Term Loan A Commitment to $35,000,000;
(b) reduce the Total Term Loan B Commitment to $45,000,000;
(c) increase the Total Acquisition Commitment to $65,000,000;
(d) revise certain of the financial covenants set forth in ss.11 of
the Existing Credit Agreement in connection with the Modern Acquisition;
and
(e) make certain other changes to the terms and provisions of the
Existing Credit Agreement.
The Existing Lender and the Agent are willing, on the terms set forth in
this Agreement and subject to the conditions and in reliance on the
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representations set forth herein, to amend and restate in its entirety the
Existing Credit Agreement so as to accomplish the foregoing.
Each of the Borrower, the Lenders, the Issuing Bank and the Agent
acknowledges and agrees that (a) all Loans made and Letters of Credit issued
under the Existing Credit Agreement shall continue as Loans and Letters of
Credit under this Agreement, as provided in Sections 2.1 and 3.6, and shall be
governed by this Agreement and secured by all the Collateral, (b) all other
outstanding Obligations under the Existing Credit Agreement shall continue as
Obligations of the same type under this Agreement and shall be governed by this
Agreement and secured by all the Collateral, (c) the security interests granted
to the Agent, on behalf of itself, the Issuing Bank and the Lenders pursuant to
the Loan Documents (as defined in the Existing Credit Agreement), shall remain
outstanding and in full force and effect and shall continue to secure the
Obligations (as defined herein), and (d) all Liens (as defined under the
Existing Credit Agreement) evidenced by the Loan Documents (as defined in the
Existing Credit Agreement) are hereby ratified, confirmed and continued.
Accordingly, in consideration of the premises and the mutual agreements
herein contained, the parties hereto hereby agree that, from and after the
Restatement Effective Date, the Existing Credit Agreement (including all the
Schedules and Exhibits thereto) is amended and restated in its entirety to read
as set forth above and as follows (and, in the case of the Schedules and
Exhibits, in the forms attached hereto).
1. DEFINITIONS AND RULES OF INTERPRETATION.
1.1. Definitions. The following terms shall have the meanings set forth in
this ss.1 or elsewhere in the provisions of this Agreement referred to below:
Accounts Receivable. All rights of the Borrower or any of its Subsidiaries
to payment for goods sold, leased or otherwise marketed in the ordinary course
of business and all rights of the Borrower or any of its Subsidiaries to payment
for services rendered in the ordinary course of business and all sums of money
or other proceeds due thereon pursuant to transactions with account debtors,
except for that portion of the sum of money or other proceeds due thereon that
relate to sales, use or property taxes in conjunction with such transactions,
recorded on books of account in accordance with GAAP.
Acquisition. Any transaction, or any series of related transactions,
consummated prior to or after the Original Closing Date, in which the Borrower
or any Subsidiary of the Borrower (in one transaction or as the most recent
transaction in a series of transactions) (a) acquires any business or all or
substantially all of the assets of any Person or any division or business unit
thereof, whether through purchase of assets, merger or otherwise, (b) directly
or indirectly acquires control of at least a majority (in number of votes) of
the Securities of a corporation which have ordinary voting power for the
election of directors or (c) directly or indirectly acquires control of a
majority ownership in any partnership or joint venture.
Acquisition Commitment Fee. See ss.5.1(c)(i).
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Acquisition Documents. Each of the Aeromil Acquisition Documents, the
Western Methods Acquisition Documents, the Barnes Acquisition Documents, the
Brittain Acquisition Documents, the J&J Acquisition Documents, the Sea-Lect
Acquisition Documents, the Lamsco Acquisition Documents, the Modern Acquisition
Documents and all other agreements, documents and instruments executed and/or
delivered in connection with any Acquisition.
Acquisition Loan Commitment. With respect to a Lender, the commitment of
such Lender to make Acquisition Loans to the Borrower hereunder in the amount
set forth on Schedule 1 hereto, as the same may be reduced from time to time;
or, after the Acquisition Loan Commitment Period or if such commitment is
terminated, zero.
Acquisition Loan Commitment Percentage. With respect to each Lender with
an Acquisition Loan Commitment, the percentage of such Lender's Acquisition Loan
Commitment to the Total Acquisition Loan Commitment or, after the termination of
the Acquisition Loan Commitments, the percentage of such Lender's outstanding
Acquisition Loans to the aggregate outstanding Acquisition Loans.
Acquisition Loan Commitment Period. The period from the Original Closing
Date through to the earlier to occur of (a) November 17, 2000 and (b) the
termination of the Total Acquisition Commitment.
Acquisition Loan Lenders. Lenders with Acquisition Loan Commitments or UK
Acquisition Loan Commitments or, after the termination of the Acquisition Loan
Commitment Period, Lenders with outstanding Acquisition Loans and/or UK
Acquisition Loans.
Acquisition Loan Maturity Date. November 19, 2003.
Acquisition Loan Percentage. With respect to each Lender holding an
Acquisition Loan after the termination of the Acquisition Loan Commitments, the
percentage of such Lender's Acquisition Loans to the aggregate principal amount
of all Term Loans, Acquisition Loans and UK Acquisition Loans outstanding at
such time.
Acquisition Loans. Loans made or to be made by the Lenders with an
Acquisition Loan Commitment to the Borrower pursuant to ss.2.1(d)(i).
Acquisition Note. See ss.2.5.
Acquisition Note Record. A Record with respect to an Acquisition Note.
Additional Acquisition Loans. See ss.2.1(d).
Aeromil. Aeromil Engineering Company, a Delaware corporation, formerly
known as "AOM Acquisition Co."
Aeromil Acquisition. The acquisition by the Borrower of all of the assets
of Aeromil pursuant to the Aeromil Acquisition Documents.
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Aeromil Acquisition Agreement. The Asset Purchase Agreement, dated as of
November 24, 1997, by and among Doy B. Henley and Delores J. Henley,
individually and as trustees of the Henley Family Trust and AOM Acquisition.
Aeromil Acquisition Documents. The Aeromil Acquisition Agreement, and all
other agreements and documents relating to the Aeromil Acquisition.
Affiliate. With respect to any Person (a) any other Person which directly
or indirectly controls, is controlled by, or is under common control with, such
Person, or (b) any other Person who is a Relative, director, officer, or general
partner of such Person or of any Person described in clause (a). For purposes of
this definition, control of a Person shall include the power, whether direct or
indirect, (i) to vote five percent (5%) or more of the equity securities having
ordinary voting power for the election of directors or other managers of such
Person or (ii) to direct or to cause the direction of the management and
policies of such Person, whether by contract or otherwise.
Affiliate Contracts. See ss.12.6.
Agency Account Institutions. Any financial institutions which receive
deposits directly or indirectly (as a result of interim concentration of funds
in depository accounts) from the Borrower or any Domestic Subsidiary of the
Borrower.
Agency Account Agreements. The Agency Account Agreements, in the form of
Exhibit H hereto (or a form otherwise approved by the Agent in its sole
discretion), entered into by the Borrower or a Domestic Subsidiary of the
Borrower, the Agent and an Agency Account Institution.
Agency Accounts. The depository accounts maintained by the Borrower and
each Domestic Subsidiary of the Borrower with the Agency Account Institutions.
Agent. BankBoston, N.A. acting as administrative and collateral agent for
the Lenders, and any successor Agent appointed pursuant to ss.15.9.
Agents. Collectively, the Agent, the Co-Agent, the Documentation Agent and
the Syndication Agent.
Agent's Head Office. The Agent's head office located at 100 Federal
Street, Boston, Massachusetts 02110, or at such other location as the Agent may
designate from time to time.
Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be
approved by the Agent.
Agreement. This Amended and Restated Credit Agreement, including the
Schedules and Exhibits hereto.
Allocable Amount. See ss.7.11(b).
Amendment Agreement. The Amendment Agreement, dated as of February 11,
1999, among the parties to the Existing Credit Agreement.
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Ancillary Documents. Collectively, (i) the Subordinated Debt Documents,
(ii) the Equity Documents, (iii) the Acquisition Documents, (iv) the Management
Consulting Agreement, (v) Permitted Disqualified Capital Stock Documents, and
(vi) any other Instruments designated by the Borrower and the Agent as an
"Ancillary Document" for purposes of this Agreement.
AOM Acquisition. AOM Acquisition Co., a Delaware corporation, now known as
Aeromil Engineering Company.
Applicable Currency. As to any particular payment or the making of any
Loan, the applicable currency, consisting of Dollars or Sterling, in which it is
denominated.
Applicable Law. As to any Person, any law (including common law), treaty,
rule or regulation, or any determination of any Governmental Authority, in each
case applicable to or binding upon such Person or any of its Property, or to
which such Person or any of its Property is subject.
Applicable Margin. With respect to any Loan or Commitment Fees, the
applicable percentage set forth on Schedule 1.2 hereto opposite the Leverage
Ratio set forth therein as of the relevant date of determination; provided,
however, that for the period commencing on the Original Closing Date and ending
on the date the Lenders receive the financial statements and certificates
required under ss.9.3(b) and (d) for the fiscal quarter ended June 30, 1999, the
Applicable Margin shall be as set forth opposite Level I on Schedule 1.2.
Each change in the Applicable Margin resulting from a change in the
Leverage Ratio shall be effective with respect to all Loans, Commitments and
Letters of Credit outstanding on and after the date of delivery to the Agent of
the Compliance Certificate required by ss.9.3(d) (which shall include attached
thereto the financial statements and certificates required by ss.9.3(a) or (b))
indicating such change until the date immediately preceding the next delivery of
such Compliance Certificate indicating another such change. Notwithstanding the
foregoing, (i) at any time during which the Borrower has failed to timely
deliver such Compliance Certificate required by ss.9.3(d) and the financial
statements and certificates required by ss.9.3(a) or (b), or (ii) at any time
after the occurrence and during the continuance of an Event of Default, the
Leverage Ratio shall be deemed to be in Level I for purposes of determining the
Applicable Margin.
Applicable Reference Bank. With respect to any determination of the
Eurocurrency Rate applicable to (a) any portions of any UK Acquisition Loans
which are Eurocurrency Rate Loans, the UK Fronting Lender, and (b) any portions
of any other Loans which are Eurocurrency Rate Loans, BankBoston and any other
Lender identified by the Agent as a reference bank hereunder.
Approval. With respect to any Transaction Party, each and every approval,
consent, filing or registration by or with any Governmental Authority, or any
creditor or shareholder of such Transaction Party or any of its Subsidiaries,
necessary to authorize or permit the execution, delivery and performance by such
Transaction Party of any of the Loan Documents to which
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it is a party, and to ensure the validity and enforceability of such Loan
Documents.
Arranger. BancBoston Robertson Stephens Inc., a Massachusetts corporation.
Assignment and Acceptance. See ss.16.1.
Balance Sheet Date. December 31, 1997.
BankBoston. BankBoston, N.A., a national banking association, in its
individual capacity.
Barnes. Barnes Machine Incorporated, a Washington corporation.
Barnes Acquisition. The acquisition by the Borrower of all of the Capital
Stock of Barnes pursuant to the Barnes Acquisition Documents.
Barnes Acquisition Agreement. The Stock Purchase Agreement, dated as of
January 19, 1998, by and among Barnes, Robert E. Barnes and J. Joy Barnes and
Compass LLC.
Barnes Acquisition Documents. The Barnes Acquisition Agreement, and all
other agreements and documents relating to the Barnes Acquisition.
Base Rate. The higher of (a) the annual rate of interest announced from
time to time by BankBoston at its head office in Boston, Massachusetts, as its
"base rate" and (b) one-half of one percent (1/2%) above the Federal Funds
Effective Rate. For the purposes of this definition, "Federal Funds Effective
Rate" shall mean, for any day, the rate per annum equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by the Agent.
Base Rate A Loans. All or any portion of any Revolving Credit Loans,
Acquisition Loans or Term Loans A bearing interest calculated by reference to
the Base Rate.
Base Rate B Loans. All or any portion of Term Loans B bearing interest
calculated by reference to the Base Rate.
Base Rate Loans. The Base Rate A Loans and Base Rate B Loans.
Boeing. Boeing Company.
Borrower. As defined in the preamble hereto.
Borrowers. The Borrower and the UK Borrower.
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Borrowing Base. At the time of reference thereto, an amount determined by
the Agent by reference to the most recent Borrowing Base Report, which is equal
to the sum of:
(a) 85.00% of Eligible Accounts Receivable of all US Transaction
Parties for which invoices have been issued and are payable; plus
(b) 50.00% of the net book value (determined on a first-in first-out
basis at lower of cost or market) of Eligible Inventory of all US
Transaction Parties; plus
(c) 25.00% of the orderly liquidation value (as determined by the
most recent appraisal performed by or for the Agent) of Eligible Machinery
and Equipment of all US Transaction Parties; minus
(d) Reserves.
No assets (i) of Modern Manufacturing or (ii) which are acquired in an
Acquisition after the Restatement Effective Date (including after-acquired
property of the type acquired in any such Acquisition) shall be included in the
Borrowing Base unless and until a commercial finance examination acceptable to
the Agent has been delivered to the Agent and the Agent has made such
adjustments to Reserves as the Agent determines appropriate in its reasonable
discretion.
Borrowing Base Report. A Borrowing Base Report signed by the chief
financial officer of the Borrower and in substantially the form of Exhibit C
hereto.
Brittain. Brittain Machine, Inc., a Kansas corporation.
Brittain Acquisition. The acquisition by the Borrower of all of the
Capital Stock of Brittain pursuant to the Brittain Acquisition Documents.
Brittain Acquisition Agreement. The Stock Purchase Agreement, dated as of
March 7, 1998, by and among Brittain, the stockholders named therein, and
Compass LLC.
Brittain Acquisition Documents. The Brittain Acquisition Agreement, and
all other agreements and documents relating to the Brittain Acquisition.
Business Day. Any day on which banking institutions in Boston,
Massachusetts and New York, New York (or, in the case of any UK Acquisition
Loan, London, England), are open for the transaction of banking business and, in
the case of Eurocurrency Rate Loans, also a day which is a Eurocurrency Business
Day.
Capital Assets. Fixed assets, both tangible (such as land, buildings,
fixtures, machinery and equipment) and intangible (such as patents, copyrights,
trademarks, franchises and good will); provided that Capital Assets shall not
include any item customarily charged directly to expense or depreciated over a
useful life of less than twelve (12) months in accordance with GAAP.
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Capital Expenditures. Amounts paid or indebtedness incurred by any Person
or any of its Subsidiaries in connection with the purchase or lease by any such
Person or any of its Subsidiaries of Capital Assets that would be required to be
capitalized and shown on the balance sheet of such Person in accordance with
GAAP.
Capital Stock. Any shares, interests, participations, rights or other
equivalents (howsoever designated) of capital stock or share capital of a
corporation (including common or preferred stock) or any equivalent ownership
interests in a Person other than a corporation (including any equivalent
ownership interests in any entity organized under the laws of any applicable
foreign jurisdiction).
Capitalized Leases. Leases under which a Person or any of its Subsidiaries
is the lessee or obligor, the discounted future rental payment obligations under
which are required to be capitalized on the balance sheet of the lessee or
obligor in accordance with GAAP.
Cash Equivalents. Any of the following:
(a) marketable obligations issued or unconditionally guaranteed by
the government of the United States, in each case maturing within 270 days
after the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United
States or any political subdivision of any such state maturing within 270
days after the date of acquisition thereof and, at the time of
acquisition, is rated "A-2" or better from Standard & Poor's and "P-2" or
better by Moody's;
(c) commercial paper maturing no more than 270 days after the date
of acquisition thereof, issued by a corporation organized under the laws
of any state of the United States or of the District of Columbia and, at
the time of acquisition, is rated "A-2" or better from Standard & Poor's
and "P-2" or better by Moody's;
(d) money market funds whose investments are made solely in
securities described in clause (a) of this definition maturing within one
(1) year after the date of acquisition thereof;
(e) time or demand deposits or certificates of deposit maturing
within ninety (90) days after the date of acquisition thereof, or
overnight bank deposits of any commercial bank that is either (i) a member
of the Federal Reserve System that has capital and surplus (as shown on
its most recent statement of condition) in excess of $100,000,000 and is
rated "A" or better by Moody's or Standard & Poor's or (ii) a Lender
(including any domestic or foreign branch of any Lender);
(f) BankBoston's 1784 money market fund and in other overnight
investments customarily provided by BankBoston to its corporate customers;
and
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(g) other short-term investments utilized by UK Subsidiaries in
accordance with normal investment practices for cash management purposes
not exceeding at any time the Dollar Equivalent of $1,000,000 in aggregate
outstanding principal amount.
CERCLA. See ss.8.16.
Change of Control.
(a) Prior to consummation of the Borrower's Initial Public Equity
Offering Excluded Persons shall cease to own beneficially and of record at
least fifty-one percent (51%) of the total voting power in the aggregate
of all classes of Capital Stock of the Borrower then outstanding normally
entitled to vote in elections of directors; or
(b) on or following the consummation of the Borrower's Initial
Public Equity Offering (i) any merger or consolidation of the Borrower
with or into any person or any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets of the
Borrower and its Subsidiaries, on a consolidated basis, in one transaction
or a series of related transactions, 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, whether or
not applicable) (other than any of the Excluded Persons) (A) is or becomes
the "beneficial owner," directly or indirectly, of more than thirty-five
percent (35%) of the total voting power in the aggregate normally entitled
to vote in the election of directors, managers, or trustees, as
applicable, of the transferee(s) or surviving entity or entities, and (B)
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, (ii) any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act,
whether or not applicable) (other than any of the Excluded Persons) (A) is
or becomes the "beneficial owner," directly or indirectly, of more than
thirty-five percent (35%) of the total voting power in the aggregate of
all classes of Capital Stock of the Borrower then outstanding normally
entitled to vote in elections of directors, and (B) 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 (iii) during any period of twelve (12) consecutive
months after the Original Closing Date, individuals who at the beginning
of any such twelve (12) month period constituted the Board of Directors of
the Borrower (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the
Borrower, as applicable, 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 elections was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Borrower, as applicable, then in office.
Closing Date. The first date on which the conditions set forth in ss.12
and ss.13 have been satisfied and any Revolving Credit Loans, any Term Loans,
any Acquisition Loans or any UK Acquisition Loans are to be made or any Letter
of Credit is to be issued hereunder.
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Co-Agent. NationsBank, N.A. acting as co-agent for the Lenders
Code. The Internal Revenue Code of 1986.
Collateral. All of the property, rights and interests of the Borrower and
its Subsidiaries that are or are intended to be subject to the security
interests, liens and mortgages created by the Security Documents.
Collective Bargaining Agreements. See ss.12.6.
Commitment. With respect to each Lender, such Lender's Term Loan A
Commitment, Term Loan B Commitment, Acquisition Loan Commitment, UK Acquisition
Loan Commitment, and Revolving Credit Commitment, if any.
Commitment Fees. The Acquisition Commitment Fee, the UK Acquisition
Commitment Fee and the Revolving Credit Commitment Fee.
Commitment Letter. The Commitment Letter agreement, dated as of November
18, 1998, between the Borrower, the Agent and the Arranger.
Commitment Percentage. With respect to each Lender, such Lender's Term
Loan A Commitment Percentage, Term Loan B Commitment Percentage, Acquisition
Loan Commitment Percentage, UK Acquisition Loan Commitment Percentage, and
Revolving Credit Commitment Percentage, if any.
Commitment Reallocation Date. See ss.4.1(e).
Commitment Reallocation Request. See ss.4.1(e).
Compliance Certificate. See ss.9.3(d).
Concentration Account. The Borrower's depository concentration account
with BankBoston.
Confidential Information. See ss.16.6.
Confidential Information Memorandum. The Confidential Information
Memorandum, dated as of January, 1999, disclosing the terms and conditions of
this Agreement.
Consolidated or consolidated. With reference to any term defined herein,
shall mean that term as applied to the accounts of a Person and its
Subsidiaries, consolidated in accordance with GAAP.
Consolidated Current Assets. With respect to any Person at any date of
determination, the total assets that would properly be classified as current
assets (other than cash and cash equivalents) of such Person and its
Subsidiaries as of such date, determined on a consolidated basis in accordance
with GAAP.
Consolidated Current Liabilities. With respect to any Person at any date
of determination, the total liabilities (other than, without duplication, (a)
the current portion of long-term Indebtedness and (b) outstanding Revolving
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Credit Loans) that would properly be classified as current liabilities of any
Person and its Subsidiaries as of such date, determined on a consolidated basis
in accordance with GAAP.
Consolidated Debt Service. With respect to any Person for any period, the
sum, without duplication, of (a) Consolidated Total Interest Expense for such
period, and (b) the scheduled amount of all principal payments on all
Indebtedness (including, without limitation, the principal component of all
Capitalized Lease Obligations) of such Person and its Subsidiaries for such
period.
Consolidated EBITDA. With respect to any Person for any period (subject to
any adjustments required by ss.11.6 and determined on a consolidated basis in
accordance with GAAP), Consolidated Net Income of such Person and its
Subsidiaries for such period plus (a) to the extent deducted in determining
Consolidated Net Income, the sum of interest, taxes, depreciation and
amortization of such Person and its Subsidiaries for such period on a
consolidated basis, all determined in accordance with GAAP, plus (b) all
non-cash charges of such Person for such period arising from the vesting of
stock options granted by such Person or as a result of the effect of an initial
public offering of Capital Stock of such Person on stock options granted by such
Person.
Consolidated Excess Cash Flow. With respect to the Borrower and its
Subsidiaries for any period:
Consolidated EBITDA for such period; plus
(b) the sum of (i) reductions to non-cash working capital for such period
(i.e., the decrease, if any, in Consolidated Current Assets minus Consolidated
Current Liabilities from the beginning to the end of such period); provided that
such working capital as of the first day of such period shall be determined on a
pro forma basis adjusted to give effect (as if such event had occurred on the
first day of such period) to each Permitted Acquisition made during such period,
plus (ii) (to the extent not included in Consolidated EBITDA and to the extent
the same have not resulted in a permanent prepayment of the Loans) all other
cash income for such period (including cash income on Cash Equivalents), plus
(iii) the proceeds of any Indebtedness permitted by paragraphs (c) or (g) of
ss.10.1 to the extent used to finance permitted cash Capital Expenditures made
during such period; minus
(c) the sum of (i) all permanent payments or prepayments (including
voluntary prepayments) of Consolidated Total Funded Debt during such period
(other than prepayments made out of Net Cash Proceeds or out of the prior year's
Consolidated Excess Cash Flow), plus (ii) additions to non-cash working capital
for such period (i.e., the increase, if any, in Consolidated Current Assets
minus Consolidated Current Liabilities from the beginning to the end of such
period); provided that such working capital as of the first day of such period
shall be determined on a pro forma basis adjusted to give effect (as if such
event had occurred on the first day of such period) to each Permitted
Acquisition made during such period, plus (iii) all permitted Capital
Expenditures made during such period (other than any such Capital Expenditures
made to acquire Capital Assets in any Permitted Acquisition),
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plus (iv) all interest payments on Consolidated Total Funded Debt made in cash
during such period, plus (v) all dividend payments on Permitted Disqualified
Capital Stock made in cash during such period, to the extent made in compliance
with ss.10.4(a), plus (vi) all income taxes paid in cash during such period.
Consolidated Net Income (or Deficit). With respect to any Person for any
period, an amount equal to the consolidated net income (or deficit) of such
Person and its Subsidiaries for such period, after deduction of all expenses,
taxes and other proper charges, determined in accordance with GAAP and after
eliminating therefrom all extraordinary nonrecurring items of income including,
without limitation (a) income from unusual transactions, (b) income from the
sale of Capital Assets, (c) income from the write-up in the book value of any
Property of such Person or its Subsidiaries and (d) income from any Cash
Equivalents or any other Investments (except Receivables).
Consolidated Operating Cash Flow. With respect to any Person for any
period, an amount equal to
(a) Consolidated EBITDA for such period, less
(b) the sum of (i) cash payments made during such period in respect
of tax liabilities of such Person and its Subsidiaries, plus (ii) to the
extent not already deducted in the determination of Consolidated EBITDA,
the aggregate amount of cash Capital Expenditures of such Person and its
Subsidiaries during such period (other than Capital Expenditures made (A)
with the proceeds of Indebtedness permitted by paragraphs (c) or (g) of
ss.10.1 or (B) made to acquire Capital Assets in a Permitted Acquisition).
Consolidated Total Funded Debt. With respect to any Person at any time,
(a) all Indebtedness referred to in clause (a) of the definition of
Indebtedness, plus (b) the principal amount of all obligations under Capitalized
Leases, determined in each case on a consolidated basis in accordance with GAAP.
Consolidated Total Interest Expense. With respect to any Person for any
period (subject to any adjustments required by ss.11.6 and determined on a
consolidated basis in accordance with GAAP), the aggregate amount of (a)
interest expense of such Person and its Subsidiaries for such period, whether
such interest was or is required to be reflected as an item of expense or
capitalized, including payments consisting of interest in respect of Capitalized
Leases or synthetic leases and including Commitment Fees, fronting fees,
facility fees, balance deficiency fees and similar fees or expenses in
connection with the borrowing of money, and (b) in the case of the Borrower,
dividend payments made in cash during such period in respect of any Capital
Stock.
Contractual Obligation. With respect to any Person, any provision of any
Security issued by such Person or of any Instrument or undertaking to which such
Person is a party or by which it or any of its Property is bound.
Conversion Request. A notice given by the Borrower to the Agent of the
Borrower's election to convert or continue a Loan in accordance with ss.2.6(a).
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Counterparty. Any Lender, or any other bank or financial institution which
has entered into a Rate Protection Agreement with the Borrower.
CWE. CWE Acquisition Co., a Delaware corporation.
Debt Agreements. See ss.12.6.
Default. See ss.14.1.
Defaulting Lender. See ss.15.5(c).
Disqualified Capital Stock. With respect to any Person, any Capital Stock
of such Person which is not Permitted Capital Stock.
Distribution. The declaration or payment of any dividend on or in respect
of any shares of any class of Capital Stock of a Person, other than dividends
payable solely in shares of Permitted Capital Stock of such Person; the
purchase, redemption, or other retirement of any shares of any class of Capital
Stock or other Equity Interests of a Person, directly or indirectly through a
Subsidiary of such Person or otherwise; the return of capital by a Person to its
shareholders or equity holders as such; or any other distribution on or in
respect of any shares of any class of Capital Stock or other Equity Interests of
such Person.
Documentation Agent. General Electric Capital Corporation acting as
documentation agent for the Lenders.
Dollar Equivalent. On any date of determination, with respect to an amount
denominated in Dollars, such amount of Dollars, and with respect to an amount
denominated in Sterling, the amount (as conclusively ascertained by the UK
Fronting Lender absent manifest error) of Dollars which could be purchased by
the UK Fronting Lender (in accordance with its normal banking practices) with
that amount of Sterling in the London foreign exchange market at the spot rate
of exchange prevailing at or about 11:00 a.m. (London time) on such date of
determination.
Dollars or $. Dollars in lawful currency of the United States.
Domestic Lending Office. Initially, the office of each Lender designated
as such in Schedule 1 hereto; thereafter, such other office of such Lender, if
any, located within the United States that will be making or maintaining Base
Rate Loans.
Domestic Company. A company organized under the laws of the United States
or any state thereof.
Domestic Subsidiary. A Subsidiary organized under the laws of the United
States or any state thereof.
Drawdown Date. The date on which any Revolving Credit Loan, Term Loan,
Acquisition Loan or UK Acquisition Loan is made or is to be made, and the date
on which all or any portion of any Loan is converted or continued in accordance
with ss.2.3 and ss.2.6.
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Eligible Accounts Receivable. With respect to any US Transaction Party,
the aggregate of the unpaid portions of Accounts Receivable (net of any credits,
rebates, offsets, holdbacks or other adjustments or commissions payable to third
parties that are adjustments to such Accounts Receivable) (a) that such US
Transaction Party reasonably and in good faith determines to be collectible; (b)
that are with account debtors that (i) are not Affiliates of the Borrower or any
of its Subsidiaries, (ii) purchased the goods or services giving rise to the
relevant Account Receivable in an arm's length transaction, (iii) are not
insolvent or the subject of any case or proceeding, whether voluntary or
involuntary, under any bankruptcy, reorganization, arrangement, insolvency,
adjustment of debt, dissolution, liquidation or similar law of any jurisdiction
and (iv) are, in the Agent's reasonable judgment, creditworthy; (c) that are in
payment of obligations that have been fully performed and are not subject to
dispute or any other similar claims that would reduce the cash amount payable
therefor; (d) that are not subject to any pledge, restriction, security interest
or other lien or encumbrance other than those created by the Loan Documents; (e)
in which the Agent has a valid and perfected first priority security interest;
(f) that are not outstanding for more than ninety (90) days past the earlier to
occur of (i) the date of the respective invoices therefor and (ii) the date of
shipment therefor in the case of goods or the end of the calendar month
following the provision thereof in the case of services; (g) that are not due
from an account debtor located in Indiana, Minnesota or New Jersey unless such
US Transaction Party (i) has received a certificate of authority to do business
and is in good standing in such state or (ii) has filed a notice of business
activities report with the appropriate office or agency of such state for the
current year; (h) that are payable in Dollars; (i) that are not payable from an
office outside of the United States; and (j) that are not secured by a letter of
credit unless the Agent has a prior, perfected security interest in such letter
of credit. Eligible Accounts Receivable shall not include any Accounts
Receivable of (x) any account debtor if more that twenty-five percent (25%) of
the aggregate amount of all Accounts Receivable owing from such account debtor
are not Eligible Accounts Receivable as a result of the failure of such Accounts
Receivable to satisfy the criteria set forth in clauses (a), (b)(iii), (b)(iv),
(c) or (f) of this definition, or (y) any account debtor and any Affiliate of
any account debtor if more than twenty-five percent (25%) of the aggregate
amount of all Accounts Receivable owing from such account debtor and its
Affiliates are not Eligible Accounts Receivable as a result of the failure of
such Accounts Receivable to satisfy the criteria set forth in clauses (a),
(b)(iii), (b)(iv), (c) or (f) of this definition.
Eligible Assignee. Any of (a) a commercial bank or finance company
organized under the laws of the United States, or any State thereof or the
District of Columbia, and having total assets in excess of $1,000,000,000; (b) a
savings and loan association or savings bank organized under the laws of the
United States, or any State thereof or the District of Columbia, and having a
net worth of at least $100,000,000, calculated in accordance with GAAP; (c) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (d) the central bank of any country which is a member of
the OECD; and (e) any other bank, insurance company,
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commercial finance company or other financial institution or other Person
approved by the Agent, such approval not to be unreasonably withheld.
Notwithstanding the foregoing, no assignee of the rights and obligations of the
UK Fronting Lender shall be deemed to be an Eligible Assignee unless such
assignee is also a UK Qualifying Lender.
Eligible Inventory. With respect to any US Transaction Party, finished
goods, work in progress and raw materials and component parts inventory owned by
such US Transaction Party; provided that Eligible Inventory shall not include
any inventory (a) held on consignment, or not otherwise owned by such US
Transaction Party, or of a type no longer sold by such US Transaction Party; (b)
which has been returned by a customer and is damaged or subject to any legal
encumbrance other than Permitted Liens; (c) which is not in the possession of
such US Transaction Party unless the Agent has received (i) a waiver in form and
substance satisfactory to the Agent from the possessor of such inventory, (ii)
financing statements in form and substance satisfactory to the Agent executed
and delivered by such US Transaction Party as secured party/bailor and the
possessor of such inventory as debtor/bailee, for filing in the appropriate
jurisdictions provided, however, that the Agent may, in its sole discretion,
waive the foregoing requirements with respect to waivers and financing
statements, and (iii) an assignment in form and substance satisfactory to the
Agent by the secured party/bailor to the Agent of the aforementioned financing
statements; (d) in which the Agent does not have a valid and perfected first
priority security interest; (e) which has been shipped to a customer of the such
US Transaction Party regardless of whether such shipment is on a consignment
basis; (f) which is not located at a Permitted Inventory Location of such US
Transaction Party within the United States; (g) which is held by such US
Transaction Party on property leased by such US Transaction Party, unless the
Agent has received a waiver from the lessor and any sublessor of such leased
property, in form and substance satisfactory to the Agent; or (h) which the
Agent reasonably deems to be obsolete or not marketable in the ordinary course
of business.
Eligible Machinery and Equipment. With respect to any US Transaction
Party, those items of machinery and equipment owned by such US Transaction Party
at the relevant time of reference thereto with respect to which such US
Transaction Party has full and unencumbered title (except for liens granted to
the Agent pursuant to the Security Documents) and with respect to which the
Agent has a valid and perfected first priority security interest, securing all
of the Obligations.
Employee Benefit Plan. Any employee benefit plan within the meaning of
ss.3(3) of ERISA maintained or contributed to by the Borrower, or any ERISA
Affiliate, other than a Multiemployer Plan.
Employee Stock Proceeds. See ss.4.9(a)(iv)(A).
Employee Stock Proceeds Payment Period. See ss.4.9(a)(iv)(A)
Employment Agreements. See ss.12.6.
Enforcement Notice. A written notice delivered by the Agent to any
Transaction Party stating that one or more Defaults or Events of Default are
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continuing, setting forth and describing the nature thereof, and setting forth
the restrictions to be imposed by the Agent in respect of the covenants set
forth in ss.10.3(g), ss.10.4(a) or ss.10.4(c).
Enforcement Period. With respect to any Enforcement Notice, the period
commencing on the date on which the Agent delivers such Enforcement Notice to
any of the Transaction Parties, and ending on the first date thereafter on which
the Defaults and Events of Default specified in the Enforcement Notice are no
longer continuing.
Environmental Laws. See ss.8.16(a).
Equity Documents. Collectively, (a) the Stockholders Agreement, dated as
of April 15, 1998, among the Borrower, each of the purchasers named therein and
each of the other stockholders named therein, and (b) each subscription
agreement and each other instrument or document governing the investment
arrangements by such purchasers and other stockholders in the Borrower.
Equity Interests. Capital Stock and warrants, options and other rights to
acquire Capital Stock.
ERISA. The Employee Retirement Income Security Act of 1974.
ERISA Affiliate. Any Person which is treated as a single employer with the
Borrower under ss.414 of the Code.
ERISA Reportable Event. A reportable event with respect to a Guaranteed
Pension Plan within the meaning of ss.4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Eurocurrency Reserve Rate. For any day with respect to a Eurocurrency Rate
Loan, the maximum rate (expressed as a decimal) at which any lender subject
thereto would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulations relating to such reserve requirements) against "Eurocurrency
Liabilities" (as that term is used in Regulation D), if such liabilities were
outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurocurrency Reserve Rate.
Eurocurrency Business Day. Any day on which commercial banks are open for
business (including dealings in Dollar and Sterling deposits) in London or such
other eurocurrency interbank market as may be selected by the Agent in its sole
discretion acting in good faith.
Eurocurrency Lending Office. Initially, the office of each Lender
designated as such in Schedule 1 hereto; thereafter, such other office of such
Lender, if any, that shall be making or maintaining Eurocurrency Rate Loans.
Eurocurrency Rate.
(a) With respect to all Loans (other than the UK Acquisition Loans)
and for any Interest Period with respect to such Eurocurrency Rate Loan,
the rate of interest equal to (i) the rate per annum
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(rounded upwards to the nearest 1/16 of one percent) at which the
Applicable Reference Bank's Eurocurrency Lending Office is offered Dollar
deposits two Eurocurrency Business Days prior to the beginning of such
Interest Period in the interbank eurocurrency market where the
eurocurrency and foreign currency and exchange operations of such
Eurocurrency Lending Office are customarily conducted, for delivery on the
first day of such Interest Period for the number of days comprised therein
and in an amount comparable to the amount of the Eurocurrency Rate Loan of
the Applicable Reference Bank to which such Interest Period applies,
divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve
Rate, if applicable.
(b) With respect to all UK Acquisition Loans, at the time any
determination is to be made with respect to an Applicable Currency for any
Interest Period, the rate at which the UK Fronting Lender, in accordance
with its normal practice, is able to obtain like deposits in such
Applicable Currency in the London interbank offered market for such
currency for a period comparable in length to such Interest Period plus
the cost (if any) to the UK Fronting Lender of maintaining the reserve
deposit and/or liquidity requirements of any applicable regulatory
authority.
(c) The parties acknowledge that the Applicable Reference Bank will
not accept offers of Dollar deposits at rates that are substantially
higher than the published eurocurrency rates in the most current edition
of the Wall Street Journal.
Eurocurrency Rate A Loans. All or any portion of Revolving Credit Loans,
Acquisition Loans, UK Acquisition Loans and Term Loans A bearing interest
calculated by reference to the Eurocurrency Rate.
Eurocurrency Rate B Loans. All or any portion of the Term Loans B bearing
interest calculated by reference to the Eurocurrency Rate.
Eurocurrency Rate Loans. The Eurocurrency Rate A Loans and the
Eurocurrency Rate B Loans.
Event of Default. See ss.14.1.
Exchange Act. The Securities and Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Securities and Exchange Commission
thereunder.
Exchange Note Documents. The Exchange Notes, the Senior Subordinated
Indenture and each of the documents, instruments and other agreements,
evidencing or governing obligations of the Transaction Parties in respect of the
Exchange Notes, as in effect on the Original Closing Date and as the same may be
amended, modified or supplemented from time to time in accordance with the terms
thereof and hereof.
Exchange Notes. The Senior Subordinated Notes due 2005 issued by the
Borrower in accordance with the terms contained in the Senior Subordinated
Indenture.
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Excluded Persons. Officers and directors of the Borrower and those Persons
who beneficially own membership interests in the Parent, in each case, as of the
Original Closing Date.
Excess UK Working Capital Outstandings. As of any date, with respect to
the Permitted UK Working Capital Facility, the amount by which (a) the sum of
the Dollar Equivalent of (i) all outstanding loans to the UK Borrower and/or any
UK Subsidiary, plus (ii) all outstanding liabilities of the UK Borrower and/or
any UK Subsidiary (whether contingent or otherwise) in respect of all letters of
credit, bank guarantees, indemnities or other similar instruments (including the
maximum amount available to be drawn by beneficiaries under all such letters of
credit, bank guarantees, indemnities or other similar instruments), plus (iii)
any indemnity or counter indemnity from the UK Borrower and/or any UK Subsidiary
in favor of an issuer of any letters of credit, bank guarantees, indemnities or
other similar instruments issued to or for the account or for the benefit of the
UK Borrower or a UK Subsidiary, plus (iv) any other extensions of credit to the
UK Borrower and/or any UK Subsidiary (in each case to the extent made pursuant
to the Permitted UK Working Capital Facility) exceeds (b) the Dollar Equivalent
of $5,000,000.
Existing Acquisition Loans. The outstanding "Acquisition Loans" (as
defined in the Existing Credit Agreement) made by the Existing Lenders under the
Existing Credit Agreement.
Existing Indebtedness. See ss.8.26.
Existing Credit Agreement. As defined in the Recitals.
Existing Lender. As defined in the Recitals.
Existing Letters of Credit. See ss.3.6.
Existing Term Loans A. The outstanding "Term Loans A" (as defined in the
Existing Credit Agreement) made by the Existing Lender under the Existing Credit
Agreement.
Existing Term Loans B. The outstanding "Term Loans B" (as defined in the
Existing Credit Agreement) made by the Existing Lender under the Existing Credit
Agreement.
Fees. The Commitment Fees, the Letter of Credit Fee, the Fronting Fee, the
UK Fronting Fee, and all other fees payable under ss.5.1.
Fee Letter. The Fee Letter agreement, dated as of November 20, 1998,
between the Borrower, the Agent and the Arranger.
First Amendment to Security Documents Agreement. The First Amendment to
Security Documents Agreement, dated as of the Restatement Effective Date, among
the Borrower, the Guarantors and the Agent.
Fronting Fee. See ss.5.1(d).
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GAAP. (a) When used in ss.11, whether directly or indirectly through
reference to a capitalized term used therein, (i) principles that are consistent
with the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors (or its equivalent in England and Wales, with respect
to a UK Subsidiary), in effect for the fiscal year ended on the Balance Sheet
Date, and (ii) to the extent consistent with such principles, the accounting
practices of the Transaction Parties reflected in the consolidated financial
statements for the year ended on the Balance Sheet Date, and (b) when used in
general, other than as provided above, principles that are (i) consistent with
the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors (or its equivalent in England and Wales, with respect
to a UK Subsidiary), as in effect from time to time, and (ii) consistently
applied with past financial statements of the Borrower adopting the same
principles, provided that in each case referred to in this definition of "GAAP"
a certified public accountant (or a chartered accountant in the case of a UK
Subsidiary) would, insofar as the use of such accounting principles is
pertinent, be in a position to deliver an unqualified opinion (other than a
qualification regarding changes in GAAP) as to financial statements in which
such principles have been properly applied.
Governing Documents. With respect to any Person, its certificate or
articles of incorporation, its by-laws or other organizational documents and all
shareholder agreements, voting trusts and similar arrangements applicable to any
of its Equity Interests.
Governmental Authority. Any foreign, federal, state, provincial, regional,
local, municipal or other government, or any department, commission, board,
bureau, agency, public authority or instrumentality thereof, or any court or
arbitrator.
Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of ss.3(2) of ERISA maintained or contributed to by any Transaction
Party or any ERISA Affiliate the benefits of which are guaranteed on termination
in full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
Guarantor Payment. See ss.7.11(a).
Guarantors. Collectively, (a) Aeromil, Western Methods, Barnes, Brittain,
Wichita, J&J and Sea-Lect, Lamsco, Modern Manufacturing, CWE, (b) each other
Subsidiary of the Borrower which becomes a party to this Agreement as a
Guarantor hereunder, and (c) the Borrower, with respect to any Obligation for
which it is not the direct obligor.
Guarantee. The Guarantee made by the Guarantors in favor of the Lenders,
the Issuing Bank and the Agent, pursuant to ss.7 hereof, pursuant to which each
Guarantor guarantees to the Lenders, the Issuing Bank and the Agent the payment
and performance of the Obligations.
Hazardous Substances. See ss.8.16(b).
Indebtedness. With respect to any Person, without duplication,
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(a) all liabilities and obligations, contingent or otherwise, of
such 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, (i) 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), (ii) evidenced by bonds, notes, debentures or
similar instruments, (iii) 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 that sixty (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;
(b) all liabilities and obligations, contingent or otherwise, of
such Person (x) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks, (y) relating to any obligations under
Capitalized Leases, or (z) evidenced by a letter of credit or
reimbursement obligation of such Person with respect to any letter of
credit;
(c) all net obligations of such Person under Rate Protection
Agreements;
(d) all liabilities and obligations of others of the kinds described
in the preceding clause (a), (b) or (c) that such Person has guaranteed or
that are 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;
(e) any and all deferrals, renewals, extensions, refinancings 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 (a), (b), (c) or (d), or this clause (e), whether or not
between or among the same parties; and
(f) 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 this Agreement, 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.
Independent Public Accountants. Ernst & Young, or any other firm of
certified public accountants selected by the Borrower and reasonably acceptable
to the Agent.
Initial Public Equity Offering. An initial underwritten offering of common
stock of the Borrower or Parent for cash pursuant to an effective registration
statement under the Securities Act as a consequence of which the
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common stock of the Borrower or Parent is listed on a national securities
exchange or quoted on the national market system of the Nasdaq stock market.
Insolvency Event of Default. See ss.14.1.
Instrument. Any contract, agreement, indenture, mortgage, guarantee,
debenture, pledge agreement or other document, instrument or writing (whether by
formal agreement, letter or otherwise) under which any obligation is evidenced,
assumed or undertaken, or any right to any Lien is granted or perfected.
Intercompany Debt Payment. See ss.10.4(c)
Interest Payment Date. As to (a) any Base Rate Loan, the last day of the
calendar quarter which includes the Drawdown Date thereof and (b) as to any
Eurocurrency Rate Loan in respect of which the Interest Period is (i) three (3)
months or less, the last day of such Interest Period and (ii) more than three
(3) months, the date that is three (3) months from the first day of such
Interest Period and, in addition, the last day of such Interest Period
Interest Period. With respect to each Loan, (i) initially, the period
commencing on the Drawdown Date of such Loan and ending (A) for any Base Rate
Loan, on the last day of the calendar quarter during which the Drawdown Date
occurs, or (B) for any Eurocurrency Rate Loan, the last day of a 1, 2, 3, or 6
month period, as selected by the Borrower or the UK Borrower in the applicable
Loan Request; and (ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Loan and ending on the last
day of one of the periods set forth above, as selected by the Borrower in a
Conversion Request; provided that all of the foregoing provisions relating to
Interest Periods are subject to the following:
(a) if any Interest Period with respect to a Eurocurrency Rate Loan
would otherwise end on a day that is not a Eurocurrency Business Day, that
Interest Period shall be extended to the next succeeding Eurocurrency
Business Day unless the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Eurocurrency Business Day;
(b) if any Interest Period with respect to a Base Rate Loan would
end on a day that is not a Business Day, that Interest Period shall end on
the next succeeding Business Day;
(c) if the Borrower shall fail to give notice as provided in
ss.2.6(a), the Borrower shall be deemed to have requested a conversion of
the affected Eurocurrency Rate Loan to a Base Rate Loan and the
continuance of all Base Rate Loans as Base Rate Loans on the last day of
the then current Interest Period with respect thereto;
(d) any Interest Period relating to any Eurocurrency Rate Loan that
begins on the last Eurocurrency Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
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calendar month at the end of such Interest Period) shall end on the last
Eurocurrency Business Day of a calendar month;
(e) no Interest Period relating to Term Loans, Acquisition Loans or
UK Acquisition Loans or any portion thereof bearing interest based on the
Eurocurrency Rate shall extend beyond the date on which a regularly
scheduled installment payment of the principal of Term Loans, the
Acquisition Loans or the UK Acquisition Loans is to be made unless a
portion of the Term Loans, the Acquisition Loans or the UK Acquisition
Loans, as the case may be, at least equal to such installment payment has
an Interest Period ending on such date or is a Base Rate Loan; and
(f) any Interest Period relating to any Eurocurrency Rate Loan that
would otherwise extend beyond the Revolving Credit Loan Maturity Date (if
comprising a Revolving Credit Loan), the Term Loan A Maturity Date (if
comprising Term Loans A or a portion thereof), the Term Loan B Maturity
Date (if comprising Term Loans B or a portion thereof) or the Acquisition
Loan Maturity Date (if comprising an Acquisition Loan or a UK Acquisition
Loan, or any portion thereof) shall end on the Revolving Credit Loan
Maturity Date, the Term Loan A Maturity Date, the Term Loan B Maturity
Date or the Acquisition Loan Maturity Date (as the case may be).
International Standby Practices. With respect to any standby Letter of
Credit, International Standby Practices (ISP98) as promulgated by the Institute
of International Banking Law & Practice, Inc., or any successor code of standby
letter of credit practices among banks adopted by the Agent in the ordinary
course of its business as a standby letter of credit issuer and in effect at the
time of issuance of such Letter of Credit.
Investments. All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guarantees (or other commitments as described under
Indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guarantee shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
Issuing Bank. With respect to any Letter of Credit, BankBoston and any
successor Issuing Bank.
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J&J. J&J Leasing, Inc., a Washington corporation.
J&J Acquisition. The acquisition by SLP Acquisition of all of the Capital
Stock of J&J pursuant to the J&J Acquisition Documents.
J&J Acquisition Agreement. The Stock Purchase Agreement, dated as of May
11, 1998, by and among J&J, SLP Acquisition and the stockholders named therein.
J&J Acquisition Documents. The J&J Acquisition Agreement, and all other
agreements and documents relating to the J&J Acquisition.
Lamsco. Lamsco West, Inc., a California corporation.
Lamsco Acquisition. The acquisition by the Borrower of all of the Capital
Stock of Lamsco pursuant to the Lamsco Acquisition Documents.
Lamsco Acquisition Agreement. The Stock Purchase Agreement, dated as of
October 12, 1998, by and among Lamsco, Alinabal Holdings Corporation, a Delaware
corporation, Stephen G. Cerri, Kevin M. Conlisk and Samuel S. Bergami, and the
Borrower.
Lamsco Acquisition Documents. The Lamsco Acquisition Agreement, and all
other agreements and documents relating to the Lamsco Acquisition.
Lenders. (a) The financial institutions listed on Schedule 1 hereto (other
than any such financial institution that has ceased to be a party hereto
pursuant to an Assignment and Acceptance) and (b) any financial institution that
has become a party hereto (in accordance with the requirements hereof) pursuant
to an Assignment and Acceptance.
Letter of Credit. See ss.3.1(a).
Letter of Credit Application. See ss.3.1(a).
Letter of Credit Cash Collateral Account. A cash collateral account
established and maintained by the Agent pursuant to a cash collateral agreement
in form and substance satisfactory to the Agent, into which shall be deposited
cash and Cash Equivalents to be held as security for Letter of Credit Exposure
as required under this Agreement.
Letter of Credit Exposure. At any time, the sum of (a) the Maximum Drawing
Amount with respect to all Letters of Credit issued, and (b) all Unpaid
Reimbursement Obligations.
Letter of Credit Fee. See ss.5.1(d).
Letter of Credit Participation. See ss.3.1(d).
Leverage Ratio. As of the end of any Reference Period, the ratio of (a)
Consolidated Total Funded Debt of the Borrower and its Subsidiaries as at such
date, to (b) Consolidated EBITDA of the Borrower and its Subsidiaries for such
Reference Period.
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Lien. Any mortgage, security interest, pledge, hypothecation, assignment,
attachment, deposit arrangement, encumbrance, lien (statutory, judgment or
otherwise), charge (whether fixed or floating), preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any similar such interest arising under the laws of any applicable
domestic or foreign jurisdiction and including any conditional sale or other
title retention agreement, any financing lease involving substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the UCC or comparable law of any domestic or foreign
jurisdiction).
Liquidity. At any time, the sum of (a) all cash and Cash Equivalents of
the Borrower plus (b) the lesser of (i) the Borrowing Base (ii) the Total
Revolving Credit Commitment, minus the aggregate of (A) the Letter of Credit
Exposure, (B) outstanding Revolving Credit Loans (after giving effect to all
amounts requested) and (C) any Excess UK Working Capital Outstandings and (iii)
the maximum amount of Indebtedness constituting Revolving Credit Loans permitted
to be incurred under the Subordinated Debt Documents at such date of
determination.
Loan Documents. This Agreement, the Notes, the Security Documents, the
Commitment Letter, the Fee Letter, the Amendment Agreement and any Rate
Protection Agreement between the Borrower and any Lender.
Loan Request. A US Loan Request and/or a UK Loan Request.
Loans. The Revolving Credit Loans, the Term Loans, the Acquisition Loans
and the UK Acquisition Loans.
Macluan Capital. Macluan Capital Corporation, a corporation incorporated
under the laws of the province of British Columbia, Canada.
Management Agreements. See ss.12.6.
Management Consulting Agreement. The Management Consulting Agreement,
dated as of November 26, 1997, among the Borrower, Dunhill Bank Caribbean Ltd.
and Hayes Capital Corporation.
Mandatory Liquid Asset Costs. With respect to the UK Fronting Lender and
each Acquisition Loan Lender in respect of any UK Acquisition Loan, any
additional cost to the UK Fronting Lender or to such Acquisition Loan Lender of
complying with the relevant reserve asset ratio required by the Bank of England
from time to time, expressed as a percentage per annum, and calculated as set
forth in Schedule 1.1 hereto.
Material Contracts. See ss.12.6.
Materially Adverse Effect. With respect to any event or occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding):
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(a) a materially adverse effect on the business, Properties,
operations, prospects or condition, financial or otherwise, of the
Borrower and its Subsidiaries, taken as a whole;
(b) a materially adverse effect on the ability of any Transaction
Party to perform any of its payment or other obligations under any Loan
Document to which it is a party; or
(c) any impairment of the validity or enforceability of any Loan
Document or any impairment of the rights, remedies or benefits available
to the Agent or any Lender under any Loan Document.
Maximum Drawing Amount. The maximum aggregate amount that the
beneficiaries may at any time draw under outstanding Letters of Credit, as such
aggregate amount may be reduced from time to time pursuant to the terms of the
Letters of Credit.
Modern Acquisition. The acquisition by the Borrower of all of the Capital
Stock of Y.F. Americas, Inc. (now known as Modern Manufacturing, Inc.) pursuant
to the Modern Acquisition Documents.
Modern Acquisition Agreement. The Stock Purchase Agreement, dated as of
December 1, 1998, by and among the Borrower, Y.F. Americas, Inc. (now known as
Modern Manufacturing, Inc.) and Y.F. International, Ltd. as the stockholder of
Y.F. Americas, Inc.
Modern Acquisition Documents. The Modern Acquisition Agreement, and all
other agreements and documents relating to the Modern Acquisition.
Modern Holdings. Modern Holdings, Inc., a Washington corporation, which
merged with and into Y.F. Americas, Inc. (now known as Modern Manufacturing,
Inc.) pursuant to the Modern Merger.
Modern Manufacturing. Modern Manufacturing, Inc., a Delaware corporation,
formerly known as Y.F. Americas, Inc.
Modern Merger. The merger of (a) Y.F. Americas, Inc. and Modern Holdings,
Inc. (a Washington corporation and Subsidiary of Y. F. Americas, Inc.) pursuant
to the Agreement and Plan of Merger Agreement, dated as of January 8, 1999,
pursuant to which Y.F. Americas, Inc. (now known as Modern Manufacturing, Inc.)
was the surviving corporation and (b) Y.F. Americas, Inc. and Modern
Manufacturing, Inc. (a Washington corporation and Subsidiary of Y. F. Americas,
Inc.) pursuant to the Agreement and Plan of Merger Agreement, dated as of
January 18, 1999, pursuant to which Y.F. Americas, Inc. (now known as Modern
Manufacturing, Inc.) was the surviving corporation.
Moody's. Moody's Investors Service, Inc.
Mortgage Indebtedness. Indebtedness (other than the Obligations) secured
solely by a mortgage over Real Property.
Mortgaged Property. Any Real Estate which is subject to any Mortgage.
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Mortgages. Collectively, the several mortgages and deeds of trust from the
time to time executed and delivered by any Transaction Party to the Agent with
respect to fee and leasehold interests of such Transaction Party in the Real
Estate and in each case in form and substance satisfactory to the Agent.
Most Recent Reference Period. The most recent Reference Period for which
financial statements of the Borrower and its Subsidiaries have been delivered to
the Lenders in compliance with ss.9.3 hereof.
Multiemployer Plan. Any multiemployer plan within the meaning of ss.3(37)
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.
Net Cash Proceeds. With respect to any (a) sale or other disposition of
any assets (including Capital Stock of any Subsidiary of the Borrower) of the
Borrower or any of its Subsidiaries, (b) issuance or sale by the Borrower or any
Subsidiary of the Borrower of any Capital Stock, or (c) any issuance, incurrence
or disposition of Indebtedness by the Borrower or any of its Subsidiaries, the
gross consideration received by or payable to the Borrower or any of its
Subsidiaries (in cash) from such sale or issuance, net of reasonable and
customary commissions, underwriting costs, direct sales costs, normal closing
adjustments, income taxes attributable to such sale and professional fees and
expenses incurred directly in connection therewith, to the extent the foregoing
are actually paid in connection with such sale or issuance.
Non-Defaulting Lender. Each Lender that is not a Defaulting Lender.
Note Record. A record with respect to a Note.
Notes. The Revolving Credit Notes, the Term Notes and the Acquisition
Notes.
Obligations. All indebtedness, obligations and liabilities of the Borrower
or any of its Subsidiaries to the Agent or any of the Lenders, existing on the
date of this Agreement or arising thereafter, direct or indirect, joint or
several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contract, operation of law or
otherwise, arising or incurred under this Agreement, any of the other Loan
Documents or any cash management agreement or arrangement between any
Transaction Party and the Agent or in respect of any deposit or other account of
any Transaction Party maintained with the Agent pursuant to this Agreement.
Offering Memorandum. The Offering Memorandum, dated as of April 15, 1998,
disclosing the terms and conditions of the Senior Subordinated Notes and the
Exchange Notes.
Operating Account. Any demand deposit account(s) maintained by any
Transaction Party with BankBoston.
Original Closing Date. November 20, 1998.
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Original Credit Facility. The Revolving Credit Agreement, dated as of
April 15, 1998, among (a) the Borrower, (b) certain subsidiaries of the
Borrower, (c) BankBoston and certain other lenders, (d) BankBoston as
administrative agent, and (e) DLJ Capital Funding, Inc., as documentation agent.
Parent. Compass Holdings, LLC, a Nevada limited liability company.
PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of ERISA
and any successor entity or entities having similar responsibilities.
Perfection Certificates. The Perfection Certificates as defined in the
Security Agreement.
Permitted Acquisition. Any Acquisition after the Restatement Effective
Date by the Borrower or any other Transaction Party of any business so long as,
in each case, either the Required Lenders have given their written consent to
such Acquisition or all of the following conditions are satisfied:
(a) the target is a Domestic Company or a UK Company in a Related
Business;
(b) the Acquisition is on friendly terms;
(c) after giving effect to the Acquisition, the assets comprising
such business (as used in this definition, the "Acquired Assets") shall be
owned or leased exclusively by such Transaction Party and substantially
all of the Acquired Assets shall be located in the United States or the
United Kingdom;
(d) any Indebtedness incurred or assumed in connection with the
Acquisition is Permitted Indebtedness or its incurrence is consented to by
the Required Lenders;
(e) the Borrower, or a wholly-owned direct or indirect Subsidiary of
the Borrower, is the surviving entity;
(f) if the Acquired Assets are owned or leased by a newly-formed or
newly-acquired Domestic Subsidiary of the Borrower, such Domestic
Subsidiary (together with any Domestic Subsidiary thereof and any parent
of such Domestic Subsidiary that is not already a Guarantor) shall have
executed and delivered to the Agent and the Lenders (A) an Accession
Agreement substantially in the form attached hereto as Exhibit I pursuant
to the terms of which such Subsidiary (and such parent or parents, if
applicable) (i) become a party to this Agreement as a Guarantor, become a
party to the Security Agreement as an Assignor, become a party to the
Stock Pledge Agreement as a Pledgor, and become a party to any of the
other Loan Documents as the Agent may reasonably request, and (ii) agree
to perform and observe all of the obligations and covenants (including all
obligations and covenants contained in ss.7 hereof) of a Transaction Party
hereunder, and of the appropriate party under any Loan Document to which
it becomes a party, and (B) such other Security Documents in form and
substance
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satisfactory to the Agent as may be reasonably required by the Agent, in
each case within ten (10) days after the closing of the Acquisition;
(g) if the Acquired Assets are owned by a UK Subsidiary of the
Borrower:
(i) the Borrower and such UK Subsidiary (and any parent of
such UK Subsidiary that has not already done so) shall to the extent
not constituting the giving of unlawful financial assistance for the
purposes of Sections 151 to 158 of the Companies Act 1985 (England)
(A)(1) have executed and delivered to the Agent and the Lenders on
or prior to the completion of the Acquisition such Instruments and
other documents, in each case in form and substance satisfactory to
the Agent, as the Agent may require in order to create a perfected
first priority Lien on and create a first fixed and floating charge
over (x) all of the Acquired Assets (subject only to Permitted Liens
on certain assets entitled to priority under Applicable Law) as
security for the UK Obligations, (y) all the Capital Stock of any
such UK Subsidiary as security for the UK Obligations and (z)
sixty-five percent (65%) of the Capital Stock of any such UK
Subsidiary that is a direct Subsidiary of the Borrower or a Domestic
Subsidiary of the Borrower as security for the Obligations, and (2)
become a party to any other Loan Document as the Agent may
reasonably request, and (ii) agree to perform and observe all of the
obligations and covenants (other than obligations and covenants of a
Guarantor contained in ss.7 hereof) of a Transaction Party
hereunder, and of the appropriate party under any Loan Document to
which it becomes a party; and
(ii) to the extent that such UK Subsidiary cannot comply with
any of the requirements of subclause (i) above due to the
applicability of Sections 151 to 158 of the Companies Act 1985
(England), (A) the Agent shall have determined in its sole
discretion immediately prior to the closing of the Acquisition that
within ten (10) days after the closing of the Acquisition such UK
Subsidiary would complete the Whitewash Procedure and satisfy all of
the requirements of subclause (i) above, and (B) such UK Subsidiary
shall have in fact completed the Whitewash Procedure and satisfied
all of the requirements of subclause (i) above, within ten (10) days
after the closing of the Acquisition;
provided, however, that notwithstanding anything herein to the contrary,
in the case of Acquisitions by the UK Borrower or a UK Subsidiary of the
Capital Stock of one or more UK Companies the aggregate purchase price of
which does not exceed the Dollar Equivalent of $3,000,000, the UK
Obligations shall not be secured by all Acquired Assets of such UK
Companies to the extent that the Borrower or any of its Affiliates would
need to undergo a Whitewash Procedure solely in order to provide such
Acquired Assets of such UK Companies as security for such UK Obligations,
but instead such UK Obligations shall be secured by a first priority
pledge of, and fixed charge over, one hundred percent (100%) of the
Capital Stock of such UK Companies;
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(h) the Transaction Parties shall have complied with the
requirements of ss.ss.9.16 and 9.17 hereof;
(i) the Borrower shall have demonstrated to the reasonable
satisfaction of the Agent (based on, among other things, operating and
financial projections and pro forma financial statements delivered to the
Agent and certified by the Chief Financial Officer) that, immediately
after giving effect to the Acquisition (including the making of any Loans
and the incurrence of any Indebtedness required to finance the
Acquisition), all covenants (including covenants contained in ss.11 of
this Agreement) contained herein (A) would have been satisfied on a pro
forma basis as at the end of and for the Most Recent Reference Period, and
(B) will be satisfied on a pro forma basis through the Term Loan B
Maturity Date;
(j) the Borrower shall have Liquidity (assuming pro-forma covenant
compliance) of at least $10,000,000 after giving effect to the
Acquisition;
(k) the Agent shall have received satisfactory audits or independent
accountant reviews of the target company;
(l) any and all pro-forma adjustments to historical EBITDA shall be
acceptable to the Agent in its reasonable discretion (provided that
contractual and adequately documented reductions in compensation payable
to former owners and/or rental income payable to Affiliates which are
effective as of the Drawdown Date shall be deemed acceptable to the
Agent);
(m) no Default or Event of Default is continuing immediately prior
to such Acquisition, and no Default or Event of Default would result from
such Acquisition;
(n) the Agent shall have received satisfactory evidence that the
business to be acquired has complied with, and, following the consummation
of the Acquisition, is in compliance with, in all material respects all
Applicable Laws, including Environmental Laws (without limiting the
foregoing, if Real Estate is being acquired as part of the Acquisition,
the Agent shall have received environmental surveys and appraisals
reasonably satisfactory to the Agent);
(o) a commercial finance exam satisfactory to the Agent shall have
been delivered to the Agent prior to inclusion of the target company's
assets in the Borrowing Base;
(p) prior to the closing of the Acquisition, the Borrower has
delivered to the Agent the definitive acquisition documents between the
applicable Transaction Parties and the applicable selling entities; and
(q) the Agent shall have received
(i) a copy of the favorable legal opinion addressed to the
Borrower and/or the Subsidiary of the Borrower which is
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party to the Acquisition, from counsel to the seller in the
Acquisition, with such legal opinion either addressed to the Agent
and the Lenders or accompanied by a reliance letter authorizing the
Agent and the Lenders to rely on such opinion, with such opinion
and, if applicable, such reliance letter, in form and substance
satisfactory to the Agent;
(ii) a copy of the favorable legal opinion addressed to the
seller in such Acquisition from counsel to the Borrower and/or the
Subsidiary of the Borrower which is party to the Acquisition, with
such legal opinion either addressed to the Agent and the Lenders or
accompanied by a reliance letter authorizing the Agent and the
Lenders to rely on such opinion, with such opinion and, if
applicable, such reliance letter, in form and substance satisfactory
to the Agent;
(iii) in the case of an Acquisition of a UK Company, a
favorable legal opinion addressed to the Lenders and the Agent, in
form and substance satisfactory to the Agent, from counsel to the UK
Borrower, as to, among other things, the effectiveness of the
Collateral and/or UK Collateral granted pursuant to clauses (f) and
(g) above; and
(iv) in the case of an Acquisition of a Domestic Company, to
the extent requested by the Agent, a favorable legal opinion
addressed to the Lenders and the Agent, in form and substance
satisfactory to the Agent, from counsel (including any local
counsel, as applicable) to the Borrower.
Permitted Additional Acquisition Loan. Any Additional Acquisition Loan or
UK Acquisition Loan requested by the Borrower after the Restatement Effective
Date so long as, in each case, all of the following conditions are satisfied:
(a) all proceeds of such Additional Acquisition Loan shall be used
in compliance with ss.8.15(a)(iii) hereof; and
(b) the aggregate amount of any Additional Acquisition Loan (after
giving effect to any requests therefor), plus all Additional Acquisition
Loans previously made, shall not exceed the aggregate amount of Net Cash
Proceeds of Permitted Capital Stock and Permitted Disqualified Capital
Stock issued and sold by the Borrower after the Restatement Effective Date
and prior to June 30, 1999, the entire proceeds of which have been used to
finance Permitted Acquisitions.
Permitted Capital Stock. Any Capital Stock of any Person with respect to
which (by its terms or the terms of any Security into which it is convertible,
exercisable or exchangeable, or otherwise) such Person has no obligation
(whether as a result of the passage of time or the occurrence of any other event
or contingency) to make or pay any Distribution.
Permitted Dispositions. Dispositions permitted by ss.10.6.
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Permitted Disqualified Capital Stock. Disqualified Capital Stock issued by
the Borrower (a) which, by its terms or by the terms of any Security into which
it is convertible, exercisable or exchangeable, is not required to be redeemed
or repurchased prior to one (1) year after the Term Loan B Maturity Date, (b)
all other terms of which (including mandatory redemption or repurchase
obligations, redemption or repurchase premiums, covenants and remedies) shall
have been approved in writing by the Agent and the Required Lenders (such
approval not to be unreasonably withheld), and (c) all the Net Cash Proceeds
from the issuance of which are used concurrently with such issuance to finance a
Permitted Acquisition.
Permitted Disqualified Capital Stock Documents. Each of the Instruments
pursuant to which any Disqualified Capital Stock is issued.
Permitted Indebtedness. Indebtedness permitted by ss.10.1.
Permitted Inventory Locations. The distribution locations and
manufacturing facilities of the US Transaction Parties located in the United
States and listed on Schedule 2 hereto, as such Schedule 2 may be supplemented
from time to time with the consent of the Agent, such consent not to be
unreasonably withheld.
Permitted Liens. Liens, security interests and other encumbrances
permitted by ss.10.2.
Permitted Payments to Parent. Without duplication,
(a) payments by the Borrower 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 are related and are
fairly allocable to the Borrower and its Subsidiaries, provided that (i)
such expenses do not exceed $250,000 in any fiscal year and (ii) at the
time of any such payment, no Default or Event of Default is continuing;
and
(b) payments to Parent by the Borrower in amounts required for
Parent to pay its federal, state or local income taxes ("Tax Payments");
provided that (i) such Tax Payments for any period do not exceed the
lesser of (A) the amount of such income taxes of Parent which are
attributable to the net income of the Borrower for such period and (B) the
amount of such income taxes which would be required to be paid in cash by
the Borrower and its Subsidiaries for such period on a consolidated basis
if the Borrower and its Subsidiaries were not consolidated with Parent and
its other Subsidiaries for tax purposes (and assuming that all payments
made to the Parent pursuant to this clause (b) are treated as deductible
expenses of the Borrower in the year in which the obligation to make such
payment accrues); and (ii) any Tax Payments shall either be used by Parent
to pay such tax liabilities within fifteen (15) days of Parent's receipt
of such payment or refunded to the Borrower.
Permitted Seller Subordinated Debt. Indebtedness of the Borrower, or any
Subsidiary of the Borrower which is the purchaser in a Permitted Acquisition,
(whether in respect of promissory notes, non-compete covenants, earn-out
obligations or other deferred payment obligations) incurred to any seller or
affiliate of any seller to finance a Permitted Acquisition, (a) which is
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subordinated on terms reasonably satisfactory to the Agent, (b) which is not
secured by any assets of the Borrower or any of its Subsidiaries, (c) which is
not guaranteed by the Borrower or a Subsidiary of the Borrower (except that the
Borrower shall be permitted to guarantee any such Indebtedness so long as such
guarantee is on terms (and subject to subordination provisions) reasonably
satisfactory to the Agent), (d) which requires no scheduled principal payment
prior to one (1) year after the Term Loan B Maturity Date, and (e) for which all
other terms (including mandatory prepayment or redemption obligations,
prepayment or redemption premiums, covenants, events of default, remedies and
subordination provisions) shall have been approved in writing by the Agent and
the Required Lenders (such approval not to be unreasonably withheld).
Permitted Seller Subordinated Debt Documents. Each of the Instruments
evidencing any Permitted Seller Subordinated Debt or pursuant to which any
Permitted Seller Subordinated Debt is issued, incurred or guaranteed.
Permitted Subordinated Debt. Indebtedness for borrowed money of the
Borrower (a) which is subordinated on terms reasonably satisfactory to the
Agent, (b) which is not secured by any assets of the Borrower or any of its
Subsidiaries, (c) which is not guaranteed by any Subsidiary of the Borrower, (d)
which requires no scheduled principal payment prior to one (1) year after the
Term Loan B Maturity Date, (e) for which all other terms (including mandatory
prepayment or redemption obligations, prepayment or redemption premiums,
covenants, events of default, remedies and subordination provisions) shall have
been approved in writing by the Agent and the Required Lenders, and (f) all Net
Cash Proceeds of which are used, concurrently with the issuance or incurrence of
such Indebtedness, to finance a Permitted Acquisition.
Permitted Subordinated Debt Documents. Instruments evidencing any
Permitted Subordinated Debt or pursuant to which any Permitted Subordinated Debt
is issued, incurred or guaranteed.
Permitted UK Working Capital Facility. A credit facility for the UK
Borrower (a) which is established in connection with, or following the
completion of, a Permitted Acquisition of a UK Company, (b) the proceeds of
which are used solely for working capital purposes, (c) which is subject to
intercreditor arrangements between the Acquisition Loan Lenders and the lenders
under such UK credit facility in form and substance satisfactory to the Agent
and the Required Acquisition Loan Lenders, and (d) for which the scope and
priority of the Liens securing such facility are satisfactory to the Agent and
the Required Acquisition Loan Lenders.
Person. Any individual, corporation, partnership, limited liability
company, limited liability partnership, trust, unincorporated association,
business, or other legal entity, and any government or any governmental agency
or political subdivision thereof.
Plan. Any pension plan as defined in Section 3(2) of ERISA, which is
maintained or contributed to by (or to which there is an obligation to
contribute of) the Borrower, a Subsidiary or an ERISA Affiliate, and each such
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plan for the five year period immediately following the latest date on which the
Borrower, a Subsidiary, or an ERISA Affiliate maintained, contributed to or had
an obligation to contribute to such plan.
Prepayment Obligations Cash Collateral Account. A cash collateral account
established and maintained by the Agent pursuant to a cash collateral agreement
in form and substance satisfactory to the Agent, into which shall be deposited
Net Cash Proceeds under the circumstances contemplated by ss.4.9(a)(iv)(C).
Pro Forma Balance Sheet. See ss.8.4(b).
Property. Any interest in any kind of property or asset, whether real,
personal or mixed, and whether tangible or intangible.
Purchase Money Indebtedness. With respect to any Transaction Party, any
Indebtedness of such Person to any seller or other Person which (a) is incurred
solely to finance the acquisition (including, in the case of Capitalized Lease
obligations, the lease) by such Transaction Party of any tangible property which
is directly related to a Related Business of the Borrower, (b) is incurred
substantially concurrently with such acquisition, (c) is not guaranteed by the
Borrower or any of its Subsidiaries (except that the Borrower shall be permitted
to guarantee any Purchase Money Indebtedness so long as such guarantee is on
terms reasonably satisfactory to the Agent, (d) is secured only by the property
so financed and (e) does not exceed the cost (determined in accordance with
GAAP) to the Transaction Party of the property so acquired.
Rate Protection Agreement. Any interest rate swap, cap, collar or similar
agreement or arrangement entered into, from time to time, by the Borrower and a
Counterparty to protect the Borrower against fluctuations in interest rates on
Indebtedness of the Borrower and its Subsidiaries.
Real Estate. All real property now or in the future owned or leased (as
lessee or sublessee) by the Borrower or any of its Subsidiaries.
Record. The grid attached to a Note, or the continuation of such grid, or
any other similar record, including computer records, maintained by any Lender
with respect to any Loan referred to in such Note.
Recovery Event. The receipt by the Borrower or any Subsidiary of the
Borrower of any cash insurance proceeds payable by reason of theft, physical
destruction or damage or any other similar event with respect to any Property of
the Borrower or any Subsidiary of the Borrower (including, without limitation,
business interruption insurance).
Reference Period. Each period of four (4) consecutive fiscal quarters of
the Borrower.
Refinanced Indebtedness. See ss.12.23.
Register. See ss.16.3.
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Reimbursement Obligation. The Borrower's obligation to reimburse the
Issuing Bank and the Lenders on account of any drawing under any Letter of
Credit as provided in ss.3.2.
Related Business. The business conducted by the Borrower and its
Subsidiaries on the Original Closing Date and any similar line of business.
Relative. In relation to any Person, any spouse, parent, grandparent,
child, grandchild, brother or sister of such Person, or the spouse of any of the
foregoing.
Replaced Lender. See ss.2.17.
Replacement Lender. See ss.2.17.
Required Acquisition Loan Lenders. Non-Defaulting Lenders the sum of whose
(a) outstanding Acquisition Loan Commitments represents an amount greater than
fifty percent (50%) of the Total Acquisition Loan Commitment, or (b) after the
termination of the Acquisition Loan Commitment Period, outstanding Acquisition
Loans represents an amount greater than fifty percent (50%) of all outstanding
Acquisition Loans made by Non-Defaulting Lenders.
Required Lenders. Non-Defaulting Lenders, the sum of whose (a) outstanding
(i) Term Loan A Commitments, or after the termination thereof, outstanding Term
Loans A, (i) Term Loan B Commitments, or after the termination thereof,
outstanding Term Loans B, (iii) Acquisition Loan Commitments or, after the
termination thereof, outstanding Acquisition Loans, (iv) UK Acquisition Loan
Commitments or, after the termination thereof, outstanding UK Acquisition Loans,
(v) Revolving Credit Commitments or, after the termination thereof, outstanding
Revolving Credit Loans and (vi) Letter of Credit Exposure, represents an amount
greater than 50% of the sum of (b) all outstanding (i) Term Loan A Commitments,
or after the termination thereof, outstanding Term Loans A, (i) Term Loan B
Commitments, or after the termination thereof, outstanding Term Loans B, (iii)
Acquisition Loan Commitments or, after the termination thereof, all outstanding
Acquisition Loans, (iv) UK Acquisition Loan Commitments or, after the
termination thereof, outstanding UK Acquisition Loans, (v) Revolving Credit
Commitments or, after the termination thereof, all outstanding Revolving Credit
Loans and (vi) Letter of Credit Exposure.
Required Revolving Credit Lenders. Non-Defaulting Lenders the sum of whose
(a) outstanding Revolving Credit Commitments represents an amount greater than
fifty percent (50%) of the Total Revolving Credit Commitment, or (b) after the
termination of the Revolving Credit Commitments, outstanding Revolving Credit
Loans represents an amount greater than fifty percent (50%) of all outstanding
Revolving Credit Loans made by Non-Defaulting Lenders.
Required Term Loan A Lenders. Non-Defaulting Lenders the sum of whose (a)
outstanding Term Loan A Commitments represents an amount greater than fifty
percent (50%) of the Total Term Loan A Commitment, or (b) after the termination
of the Term Loan A Commitments, outstanding Term Loans A represents an amount
greater than fifty percent (50%) of all outstanding Term Loans A made by
Non-Defaulting Lenders.
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Required Term Loan B Lenders. Non-Defaulting Lenders the sum of whose (a)
outstanding Term Loan B Commitments represents an amount greater than fifty
percent (50%) of the Total Term Loan B Commitment, or (b) after the termination
of the Term Loan B Commitments, outstanding Term Loans B represents an amount
greater than fifty percent (50%) of all outstanding Term Loans B made by
Non-Defaulting Lenders.
Required UK Acquisition Loan Lenders. Non-Defaulting Lenders the sum of
whose (a) outstanding UK Acquisition Loan Commitments represents an amount
greater than fifty percent (50%) of the Total UK Acquisition Loan Commitment, or
(b) after the termination of the Acquisition Loan Commitment Period, outstanding
UK Acquisition Loans represents an amount greater than fifty percent (50%) of
all outstanding UK Acquisition Loans made by Non-Defaulting Lenders.
Reserves. Such amounts as the Agent may from time to time establish and
revise (a) to reflect events, conditions, contingencies or risks which do or may
adversely affect (A) any Collateral or its value or (B) the security interests
or other rights of the Agent or the Lenders in or with respect to any Collateral
or (b) to reflect the belief of the Agent that any Borrowing Base Report or
other collateral report or financial information furnished by or on behalf of
the Borrower or any of its Subsidiaries to the Agent or the Lenders was or may
have been incomplete, inaccurate or misleading in any respect. Without limiting
the foregoing, the Agent shall be entitled from time to time to establish and
revise Reserves to the extent that the Agent determines that: (i) dilution with
respect to Accounts Receivable of the US Transaction Parties for any period has
increased or may be reasonably anticipated to increase above historical levels
or is above levels that are consistent with the then applicable advance rate
against Eligible Accounts Receivable, (ii) the creditworthiness of account
debtors of the US Transaction Parties has declined or is not consistent with the
then applicable advance rate against Eligible Accounts Receivable, (iii) the
turnover period for inventory of the US Transaction Parties has changed in any
adverse respect or is not consistent with the then applicable advance rate for
Eligible Inventory, (iv) the liquidation value of Eligible Inventory, or any
category thereof, has decreased or is not consistent with the then applicable
advance rate for Eligible Inventory, or (v) the nature or quality of the
inventory of the US Transaction Parties has deteriorated in any respect or the
mix of such inventory has changed in any adverse respect.
Restatement Effective Date. As defined in the Amendment Agreement.
Revolving Credit Commitment. With respect to a Lender, the commitment of
such Lender to make Revolving Credit Loans hereunder in the amount set forth on
Schedule 1 hereto, as the same may be reduced from time to time; or, if such
commitment is terminated, zero.
Revolving Credit Commitment Fee. See ss.5.1(c)(i).
Revolving Credit Commitment Percentage. With respect to each Lender with a
Revolving Credit Commitment, the percentage of such Lender's Revolving Credit
Commitment to the Total Revolving Credit Commitment or, after the termination of
the Total Revolving Credit Commitment, the
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percentage of such Lender's outstanding Revolving Credit Loans to the aggregate
outstanding Revolving Credit Loans.
Revolving Credit Lenders. Lenders with Revolving Credit Commitments or,
after the termination of the Revolving Credit Commitments, Lenders with
outstanding Revolving Credit Loans.
Revolving Credit Loan Maturity Date. November 19, 2003.
Revolving Credit Loans. Loans made or to be made by the Lenders with a
Revolving Credit Commitment to the Borrower pursuant to ss.2.1(c).
Revolving Credit Note Record. A Record with respect to a Revolving Credit
Note.
Revolving Credit Notes. See ss.2.5.
Sea-Lect. Sea-Lect Products, Inc., a Delaware corporation, formerly known
as "SLP Acquisition Co."
Sea-Lect Acquisition. The acquisition by SLP Acquisition of all of the
assets of Sea-Lect Products, Inc., a Washington corporation, pursuant to the
Sea-Lect Acquisition Documents.
Sea-Lect Acquisition Agreement. The Asset Purchase Agreement, dated as of
May 11, 1998, by and among the shareholders named therein and SLP Acquisition.
Sea-Lect Acquisition Documents. The Sea-Lect Acquisition Agreement, and
all other agreements and documents relating to the Sea-Lect Acquisition.
Securities. Any Capital Stock, partnership interests, voting trust
certificates, bonds, debentures, notes, or other evidences of Indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities."
Securities Act. The Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder.
Security Agreement. The Security Agreement, dated as of the Original
Closing Date, among the Agent and the US Transaction Parties, as amended by the
First Amendment to Security Documents Agreement.
Security Documents. The Security Agreement, the Stock Pledge Agreement,
the First Amendment to Security Documents Agreement, the Agency Account
Agreements, the Mortgages and each other Instrument executed and delivered by
any Transaction Party to or in favor of the Agent or any Lender and designated a
"Security Document" for purposes of this Agreement.
Security Instrument. Any security agreement, chattel mortgage, assignment,
financing or similar statement or notice, continuation statement,
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other agreement or Instrument or amendment or supplement to any thereof,
providing for, evidencing or perfecting any Lien.
Senior Subordinated Indenture. The Senior Subordinated Indenture, dated as
of April 21, 1998, by and among the Borrower and IBJ Schroder Bank & Trust
Company, as Trustee.
Senior Subordinated Note Documents. The Senior Subordinated Notes, the
Senior Subordinated Indenture, any and all guarantees of any Subsidiary of the
Borrower given or made pursuant to the Senior Subordinated Indenture, and each
of the Instruments evidencing the Senior Subordinated Notes or pursuant to which
any Senior Subordinated Note is issued, incurred or guaranteed.
Senior Subordinated Notes. The Senior Subordinated Notes due 2005 issued
by the Borrower in accordance with the terms contained in the Offering
Memorandum, in an aggregate principal amount outstanding not to exceed
$110,000,000, and the Exchange Notes.
Settlement. Among the Lenders, the making or receiving of payments in
immediately available funds to the extent necessary to cause each Lender's
actual share of the outstanding amount of Loans (after giving effect to any US
Loan Request) to be equal to each Lender's Commitment Percentage of the
outstanding amount of such Loans, in any case where, prior to such event or
action, the actual share is not so equal.
Settlement Amount. See ss.2.4(a).
Settlement Date. (a) The Drawdown Date relating to any US Loan Request,
(b) Friday of each week, or if Friday is not a Business Day, the Business Day
immediately following such Friday, (c) the Business Day immediately following
the Agent becoming aware of the existence of an Event of Default, (d) any
Business Day on which the amount of Revolving Credit Loans outstanding from
BankBoston plus BankBoston's Revolving Credit Commitment Percentage of the
Letter of Credit Exposures is equal to or greater than BankBoston's Revolving
Credit Commitment Percentage of the Total Revolving Credit Commitment, (e) the
Business Day immediately following any Business Day on which the amount of Loans
outstanding increases or decreases by more than $2,000,000 as compared to the
previous Settlement Date, (f) any day on which any conversion of a Base Rate
Loan to a Eurocurrency Rate Loan occurs or (g) any Business Day on which (i) the
amount of outstanding Loans decreases and (ii) the amount of the Agent's Loans
outstanding equals zero Dollars ($0).
Settling Lender. See ss.2.4(a).
Shareholder Agreements. See ss.12.6.
SLP Acquisition. SLP Acquisition Co., a Delaware corporation, now known as
Sea-Lect Products, Inc.
Solvent. See ss.8.5(b).
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Standard & Poor's. Standard & Poor's Corporation.
Sterling or (pound). The lawful currency for the time being of the United
Kingdom.
Sterling Equivalent. On any date of determination, with respect to any
amount denominated in Sterling, such amount of Sterling, and with respect to any
amount denominated in Dollars, the amount (as conclusively ascertained by the UK
Fronting Lender absent manifest error) of Sterling which could be purchased by
the UK Fronting Lender (in accordance with its normal banking practices) with
that amount in Dollars in the London foreign exchange market at the spot rate of
exchange prevailing at or about 11:00 a.m. (London time), on such date of
determination.
Stock Pledge Agreement. The Stock Pledge Agreement, , dated as of the
Original Closing Date, among the Borrower, Brittain, Sea-Lect, and the Agent, as
amended by the First Amendment to Security Documents Agreement.
Subordinated Debt. Indebtedness under or in respect of the Subordinated
Debt Documents.
Subordinated Debt Documents. The Senior Subordinated Note Documents, the
Exchange Note Documents, the Permitted Subordinated Debt Documents, and the
Permitted Seller Subordinated Debt Documents.
Subsidiary. Any corporation, limited liability company, association,
trust, or other business entity of which the designated parent shall at any time
own directly or indirectly through a Subsidiary or Subsidiaries at least a
majority (by number of votes) of the outstanding Voting Stock and, in relation
to the UK Borrower, any "subsidiary" or "subsidiary undertaking" as defined in
the Companies Act 1989, Sections 144 and 21 and Schedule 9 respectively.
Syndication Agent. Royal Bank of Canada acting as syndication agent for
the Lenders.
Tax Sharing Agreements. See ss.12.6.
Term A Notes. See ss.2.5.
Term A Note Record. A record with respect to a Term A Note.
Term B Notes. See ss.2.5.
Term B Note Record. A record with respect to a Term B Note.
Term Loans A. The term loans made or to be made by the Lenders with a Term
Loan A Commitment to the Borrower in the aggregate principal amount of
$35,000,000 pursuant to ss.2.1(a).
Term Loan A Commitment. With respect to a Lender, the commitment of such
Lender to make Term Loans A to the Borrower hereunder in the amount set forth on
Schedule 1 hereto, as the same may be reduced from time to time; or if such
commitment is terminated, zero.
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Term Loan A Commitment Percentage. With respect to each Lender with a Term
Loan A Commitment, the percentage of such Lender's Term Loan A Commitment to the
Total Term Loan A Commitment or, after the termination of the Total Term Loan A
Commitment, the percentage of such Lender's outstanding Term Loan A to the
aggregate outstanding Term Loans A.
Term Loan A Lenders. Lenders with Term Loan A Commitments or, after the
termination of the Term Loan A Commitments, Lenders with outstanding Term Loans
A.
Term Loan A Maturity Date. November 19, 2003.
Term Loan A Payment Date. See ss.4.5.
Term Loan A Percentage. With respect to each Lender holding a Term Loan A,
the percentage of such Lender's Term Loan A to the aggregate principal amount of
all Term Loans and (after the expiration of the Acquisition Loan Commitment
Period) Acquisition Loans and UK Acquisition Loans outstanding at such time.
Term Loans B. The term loans made or to be made by the Lenders with a Term
Loan B Commitment to the Borrower in the aggregate principal amount of
$45,000,000 pursuant to ss.2.1(b).
Term Loan B Commitment. With respect to a Lender, the commitment of such
Lender to make Term Loans B to the Borrower hereunder in the amount set forth on
Schedule 1 hereto, as the same may be reduced from time to time; or if such
commitment is terminated, zero.
Term Loan B Commitment Percentage. With respect to each Lender with a Term
Loan B Commitment, the percentage of such Lender's Term Loan B Commitment to the
Total Term Loan B Commitment or, after the termination of the Total Term Loan B
Commitment, the percentage of such Lender's outstanding Term Loan B to the
aggregate outstanding Term Loans B.
Term Loan B Lenders. Lenders with Term Loan B Commitments or, after the
termination of the Term Loan B Commitments, Lenders with outstanding Term Loans
B.
Term Loan B Maturity Date. February 1, 2005.
Term Loan B Payment Date. See ss.4.6.
Term Loan B Percentage. With respect to each Lender holding a Term Loan B,
the percentage of such Lender's Term Loan B to the aggregate principal amount of
all Term Loans and (after the expiration of the Acquisition Loan Commitment
Period) Acquisition Loans and UK Acquisition Loans outstanding at such time.
Term Loans. Term Loans A and Term Loans B.
Term Note Records. Term A Note Records and Term B Note Records.
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Term Notes. The Term A Notes and the Term B Notes.
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 as of the Restatement
Effective Date is $65,000,000.
Total Acquisition Loan Commitment. The sum of the Acquisition Loan
Commitments of the Lenders, as in effect from time to time.
Total Commitment. The sum of the Commitments of the Lenders, as in effect
from time to time.
Total Revolving Credit Commitment. The sum of the Revolving Credit
Commitments of the Lenders, as in effect from time to time. The Total Revolving
Credit Commitment as of the Restatement Effective Date is $25,000,000.
Total Term Loan A Commitment. The sum of the Term Loan A Commitments of
the Lenders, as in effect from time to time. The Total Term Loan A Commitment as
of the Restatement Effective Date is $35,000,000.
Total Term Loan B Commitment. The sum of the Term Loan B Commitments of
the Lenders, as in effect from time to time. The Total Term Loan B Commitment as
of the Restatement Effective Date is $45,000,000.
Total UK Acquisition Loan Commitment. The sum of the UK Acquisition Loan
Commitments of the Lenders, as in effect from time to time.
Tranche. The respective facility and commitments utilized in making Loans
hereunder, with there being five (5) separate Tranches, i.e., Term Loans A, Term
Loans B, Acquisition Loans, UK Acquisition Loans and Revolving Credit Loans.
Transaction Parties. Collectively, the Borrower and all Guarantors.
Type. As to any Loan, its nature as a Base Rate Loan or a Eurocurrency
Rate Loan.
UCC. The Uniform Commercial Code, as amended from time to time, as in
effect in the applicable jurisdiction.
UK Acquisition Loan Commitment. With respect to a Lender, the commitment
of such Lender to purchase a risk participation from the UK Fronting Lender in
UK Acquisition Loans to the UK Borrower, in the amount set forth on Schedule 1
hereto, as the same may be reduced from time to time, or after the Acquisition
Loan Commitment Period, or if such Commitment is terminated, zero.
UK Acquisition Commitment Fee. See ss.5.1(c)(ii).
UK Acquisition Loan Commitment Percentage. With respect to each Lender
with a UK Acquisition Loan Commitment, the percentage of such
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Lender's UK Acquisition Loan Commitment to the Total UK Acquisition Loan
Commitment or, after the termination of the UK Acquisition Loan Commitments, the
percentage of such Lender's outstanding UK Acquisition Loans to the aggregate
outstanding UK Acquisition Loans.
UK Acquisition Loan Percentage. With respect to each Lender holding a UK
Acquisition Loan after the termination of the UK Acquisition Loan Commitments,
the percentage of such Lender's UK Acquisition Loans to the aggregate principal
amount of all Term Loans, Acquisition Loans and UK Acquisition Loans outstanding
at such time.
UK Acquisition Loans. Acquisition loans made or to be made by the UK
Fronting Lender to the UK Borrower pursuant to ss.2.1(e).
UK Borrower. A UK Subsidiary of the Borrower that shall become party
hereto as the "UK Borrower" pursuant to ss.13.8 of this Agreement by executing
and delivering an Accession Agreement substantially in the form attached hereto
as Exhibit K.
UK Collateral. Any Collateral which, by the terms of the Security
Documents applicable thereto, is or is intended to constitute collateral
security for all or part of the UK Obligations, but not any of the other
Obligations.
UK Company. A private limited liability company organized under the laws
of England and Wales.
UK Fronting Fee. See ss.5.1(e).
UK Fronting Lender. BankBoston, acting through its London, England branch
office, in its capacity as fronting bank with respect to UK Acquisition Loans,
provided that in the event the UK Fronting Lender is also an Acquisition Loan
Lender, such Person's funding requirements in its capacity as the UK Fronting
Lender shall not include its independent requirement, in its individual
capacity, to fund as an Acquisition Loan Lender.
UK Insolvency Event. Any of the following events or circumstances: (i) the
UK Borrower or any of its Subsidiaries shall be deemed unable to pay its debts
within the meaning of section 123(l) (a), (b), (e) or (2) of the Insolvency Act
1986 or shall otherwise become insolvent or stop or suspend making payments
(whether of principal or interest) with respect to all or any class of its
Indebtedness or announce an intention to do so, (ii) a meeting shall be convened
by the UK Borrower or any of its Subsidiaries for the purpose of passing any
resolution to purchase, reduce or redeem any of its Capital Stock or to comply
with section 142 of the Companies Act 1985, (iii) any petition shall be
presented or other step taken for the purpose of the appointment of an
administrator or the winding up the UK Borrower or any of its Subsidiaries (not
being, in the case of a winding up, a petition which the UK Borrower can
demonstrate to the reasonable satisfaction of the Agent, by providing an opinion
of leading counsel to that effect, is frivolous, vexatious or an abuse of the
process of the court or relates to a claim to which the UK Borrower has a good
defense and which is being vigorously contested by the UK Borrower) or an order
shall be made or resolution passed for the winding-up of the UK Borrower or any
of its Subsidiaries or a notice shall be issued by convening a
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meeting for the purpose of passing any such resolution (except for the purpose
of a solvent amalgamation or reconstitution which shall have been approved by
the Agent), or (iv) any steps shall be taken, or negotiations commenced by the
UK Borrower or any of its Subsidiaries or by any of their respective creditors
with a view to proposing any kind of composition, compromise or arrangement
involving such Person and any of its creditors or for the presentation of a
petition for the appointment of an administrator.
UK Loan Request. See ss.2.3(b).
UK Obligations. All Obligations of any of the Transaction Parties to the
UK Fronting Lender or the Agent under or in respect of or in connection with any
of the UK Acquisition Loans, and including any UK Fronting Fees and all other
obligations arising under any other instruments at any time evidencing any
thereof, or under or in respect of the guarantee by any Transaction Party of any
of the foregoing obligations of any other Transaction Party.
UK Office. BankBoston's London branch at 39 Victoria Street, London SW1H
OED, or such other location in the United Kingdom as the UK Fronting Lender may
from time to time designate to the Agent and the UK Borrower as the UK Office.
UK Qualifying Lender. A bank, trust or other financial institution which
(i) is a "lender" as defined in Section 840A of the Income and Corporation Taxes
Act 1988 (or any statutory reenactment or modification thereof in substantially
the same form and context as at June 21, 1996) which is within the charge to
United Kingdom corporation tax as regards interest payable or paid to it under
this Agreement; or (ii) if at any time Section 349 or Section 840A of the Income
and Corporation Taxes Act 1988 (or a statutory re-enactment or modification
thereof, in substantially the same form and context as at the Original Closing
Date) shall not at any time continue in full force and effect, is a bank
carrying on through its Domestic Lending Office or Eurocurrency Lending Office
for the purposes of this Agreement a bona fide banking business in the United
Kingdom which is within the charge to United Kingdom corporation tax as regards
any interest payable or paid to it under this Agreement.
UK Risk Participation Fee. See ss.2.4(b)(ii).
UK Subsidiary. A Subsidiary of the Borrower organized under the laws of
England and Wales.
Uniform Customs. With respect to any Letter of Credit, the Uniform Customs
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 or any successor version thereto adopted by the
Issuing Bank in the ordinary course of its business as a letter of credit issuer
and in effect at the time of issuance of such Letter of Credit.
United Kingdom. The United Kingdom of Great Britain and Northern Ireland.
United States. The United States of America.
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Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which
the Borrower does not reimburse the Issuing Bank and the Lenders on the date
specified in, and in accordance with, ss.3.2.
US Loan Request. See ss.2.3(a).
US Transaction Parties. Collectively, the Borrower and all Guarantors
which are Domestic Subsidiaries.
Voting Stock. Stock or similar interests, of any class or classes (however
designated), the holders of which are at the time entitled, as such holders, to
vote for the election of a majority of the directors (or persons performing
similar functions) of the corporation, association, trust or other business
entity involved, whether or not the right so to vote exists by reason of the
happening of a contingency.
Western Methods. Western Methods Machinery Corporation, a California
corporation.
Western Methods Acquisition. Shall mean the acquisition by the Borrower of
all of the Capital Stock of Western Method pursuant to the Western Method
Acquisition Documents.
Western Methods Acquisition Agreement. The Stock Purchase Agreement, dated
as of November 25, 1997, by and among the Borrower and James N. Smith, Stella M.
Smith and Smith Charitable Remainder Unitrust No. 97-1.
Western Methods Acquisition Documents. The Western Method Acquisition
Agreement, and all other agreements and documents relating to the Western
Methods Acquisition.
Whitewash Procedure. Procedures pursuant to which the UK Borrower and/or a
UK Subsidiary and its directors satisfy the requirements of Sections 151 through
158 of the Companies Act 1985 (England) in respect of this Agreement and the
other Loan Documents.
Wichita. Wichita Manufacturing, Inc., a California corporation.
1.2. Rules of Interpretation.
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Agreement. The
singular includes the plural and the plural includes the singular. A
reference to any Applicable Law includes any amendment or modification to
such Applicable Law. A reference to any Person includes its permitted
successors and assigns. Accounting terms not otherwise defined herein have
the meanings assigned to them by GAAP. The words "include", "includes" and
"including" are not limiting. All terms not specifically defined herein or
by GAAP, which terms are defined in the Uniform Commercial Code as in
effect in the State of New York, have the meanings assigned to them
therein. Reference to a
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particular "ss." refers to that section of this Agreement unless otherwise
indicated. The words "herein", "hereof", "hereunder" and words of like
import shall refer to this Agreement as a whole and not to any particular
section or subsection of this Agreement.
(b) This Agreement contains references to the Borrower and/or its
Subsidiaries in numerous places. These references shall not affect or
impair in any respect the prohibitions contained in this Agreement on the
Borrower's forming or investing in any Subsidiaries.
(c) Any statute, statutory instrument, regulation, by-law or other
requirement of United States federal, state or local law and any United
States legal term for any action, remedy, method of judicial proceeding,
legal documents, legal statutes, procedure, court, official or any legal
concept or doctrine or other expression shall in respect of any non-United
States jurisdiction be deemed to include that which most nearly
approximates in such non-United States jurisdiction such United States
statute, statutory instrument, regulation, by-law or other requirement of
law or legal term.
2. AMOUNT AND TERMS OF CREDIT FACILITIES.
2.1. The Commitments.
(a) Term Loans A. On the Restatement Effective Date (i) all Existing
Term Loans A shall be continued as Term Loans A hereunder and (ii)
$7,631,579 of Existing Acquisition Loans outstanding on the Restatement
Effective Date shall be converted to Term Loans A hereunder, such that,
after giving effect to such continuation and such conversion, the
aggregate outstanding principal amount of Term Loans A hereunder is
$35,000,000.
(b) Term Loans B. On the Restatement Effective Date (i) all Existing
Term Loans B shall be continued as Term Loans B hereunder and (ii)
$7,368,421 of Existing Acquisition Loans outstanding on the Restatement
Effective Date shall be converted to Term Loans B hereunder, such that,
after giving effect to such continuation and such conversion, the
aggregate outstanding principal amount of Term Loans B hereunder is
$45,000,000.
(c) Revolving Credit Loans. Subject to the terms and conditions set
forth in this Agreement, each Revolving Credit Lender severally agrees to
lend to the Borrower Revolving Credit Loans which may be repaid and
reborrowed in accordance with the provisions hereof. The aggregate
principal amount of (i) Revolving Credit Loans of any Revolving Credit
Lender at any time (and after giving effect to any requests therefor),
plus (ii) such Lender's Revolving Credit Commitment Percentage of all
Letter of Credit Exposure at such time plus (iii) such Lender's Revolving
Credit Commitment Percentage of the Excess UK Working Capital
Outstandings, shall not exceed the lesser of (x) the Revolving Credit
Commitment of such Lender at such time and (y) such Lender's Revolving
Credit Commitment Percentage of the Borrowing Base at such time. The Total
Revolving Credit Commitment as of the Restatement Effective Date is
$25,000,000.
(d) Acquisition Loans and UK Acquisition Loans. On the Restatement
Effective Date (i) $1,000,000 of the Existing Acquisition Loans
outstanding on
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the Restatement Effective Date shall be continued as Acquisition Loans
hereunder, and (ii) the $15,000,000 balance of Existing Acquisition Loans
outstanding on the Restatement Effective Date shall be converted to Term
Loans A and Term Loans B as provided in ss.ss.2.1(a) and 2.1(b) above.
Subject to the terms and conditions set forth in this Agreement, (i) each
Acquisition Loan Lender severally agrees, on the closing date of each
Permitted Acquisition of a Domestic Subsidiary, to lend to the Borrower
Acquisition Loans which may be repaid and reborrowed in accordance with
the provisions hereof, and (ii) the UK Fronting Lender agrees, on the
closing date of each Permitted Acquisition of a UK Subsidiary, to lend to
the UK Borrower UK Acquisition Loans (in Sterling or in Dollars) which may
be repaid and reborrowed in accordance with the provisions hereof;
provided that that portion of any Acquisition Loans and/or UK Acquisition
Loans which (after giving effect to any request therefor), when added to
all Acquisition Loans and/or UK Acquisition Loans previously made and
outstanding, would exceed the aggregate principal amount of $35,000,000
(such Acquisition Loans and/or UK Acquisition Loans, or portion thereof,
exceeding $35,000,000, being referred to herein as an "Additional
Acquisition Loan") must constitute a Permitted Additional Acquisition
Loan. The aggregate principal amount of (x) the Acquisition Loans of any
Acquisition Loan Lender at any time during the Acquisition Loan Commitment
Period (and after giving effect to any requests therefor), shall not
exceed the Acquisition Loan Commitment of such Lender at such time (y) the
Dollar Equivalent of all UK Acquisition Loans of such Acquisition Loan
Lender at any time during the Acquisition Loan Commitment Period (and
after giving effect to any requests therefor), shall not exceed the UK
Acquisition Loan Commitment of such Lender at such time and (z) the sum of
(A) the Acquisition Loans of any Acquisition Loan Lender plus (B) the
Dollar Equivalent of all UK Acquisition Loans of such Acquisition Loan
Lender at any time during the Acquisition Loan Commitment Period (and
after giving effect to any requests therefor), shall not exceed the sum of
(1) the Acquisition Loan Commitment of such Lender at such time plus (2)
the UK Acqusition Loan Commitment of such Lender at such time. The Total
Acquisition Commitment as of the Restatement Effective Date is
$65,000,000. Each UK Acquisition Loan shall be funded from the UK Fronting
Lender's UK Office.
2.2. Minimum Amount of Each Borrowing. Each Loan Request shall be in a
minimum amount of $500,000, or, in the case of a UK Acquisition Loan denominated
in Sterling, (pound)250,000. Any conversion to or from Eurocurrency Rate Loans
shall be in such amounts and be made pursuant to such elections so that, after
giving effect thereto, the aggregate principal amount of all Eurocurrency Rate
Loans having the same Interest Period shall not be less than the Dollar
Equivalent of $5,000,000 or a whole multiple of $1,000,000 in excess thereof.
2.3. Requests for Loans; Conditions to Loans.
(a) US Loan Requests. The Borrower shall give to the Agent written
notice in the form of Exhibit B-1 hereto (or telephonic notice confirmed
in a writing in the form of Exhibit B-1 hereto) of each Loan requested by
the Borrower hereunder (a "US Loan Request"), not later than 1:00 p.m.
(Boston time) (A) one (1) Business Day prior to the proposed Drawdown Date
of any Base Rate Loan and (B) three (3) Eurocurrency Business Days prior
to the proposed Drawdown Date of any Eurocurrency Rate Loan. Each such
notice
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shall specify (i) the principal amount of the Loan requested, (ii) the
proposed Drawdown Date of such Loan; (iii) the Interest Period of such
Loan, and (iv) the Type and Tranche of such Loan. Promptly upon receipt of
any such notice, the Agent shall notify each Lender which is required to
make Loans of the Tranche specified in the US Loan Request of such
Lender's proportionate share thereof and of the other matters specified in
the US Loan Request. Each US Loan Request shall be irrevocable and binding
on the Borrower and shall obligate the Borrower to accept the Loans of the
Type and Tranche requested from the respective Lenders on the proposed
Drawdown Date. The Borrower shall not, without the consent of the Agent,
request any Eurocurrency Rate Loans, or request a conversion of any Base
Rate Loans into Eurocurrency Rate Loan until the date which is the earlier
to occur of (i) ninety (90) days following the Original Closing Date and
(ii) the date on which the syndication of the Commitments and Loans
hereunder has been completed to the satisfaction of the Agent.
(b) UK Loan Requests. The UK Borrower shall give to the UK Fronting
Lender (with a copy to the Agent) written notice in the form of Exhibit
B-2 hereto (or telephonic notice, confirmed in a writing in the form of
Exhibit B-2 hereto) of each UK Acquisition Loan requested by the UK
Borrower hereunder (a "UK Loan Request"), not later than three (3)
Eurocurrency Business Days prior to the proposed Drawdown Date of any UK
Acquisition Loan. Each UK Loan Request shall constitute due evidence
pursuant to ss.2.5(e) of the UK Acquisition Loan made pursuant thereto.
All such UK Acquisition Loans requested by the UK Borrower pursuant to
this ss.2.3(b) shall be Eurocurrency Rate Loans. Each UK Loan Request
shall specify (i) the principal amount and Applicable Currency of the UK
Acquisition Loan requested, (ii) the proposed Drawdown Date of such UK
Acquisition Loan, and (iii) the Interest Period for such UK Acquisition
Loan. Promptly upon receipt of any such notice, the Agent shall notify
each of the Acquisition Loan Lenders thereof and of the other matters
specified in the UK Loan Request. Each UK Loan Request shall be
irrevocable and binding on the UK Borrower and shall obligate the UK
Borrower to accept the UK Acquisition Loan requested from the UK Fronting
Lender on the proposed Drawdown Date. The UK Borrower shall not, without
the consent of the Agent, request any Eurocurrency Rate Loans until the
date which is the earlier to occur of (i) ninety (90) days following the
Original Closing Date and (ii) the date on which the syndication of the
Commitments and Loans hereunder has been completed to the satisfaction of
the Agent.
(c) Intentionally Omitted.
2.4. Settlement; Failure to Make Funds Available.
(a) US Loan Requests.
(i) Settlement and Funding Procedures. On each Settlement
Date, the Agent shall, not later than 1:00 p.m. (Boston time), give
facsimile notice (i) to each Lender with a Commitment of the
respective Tranche and the Borrower of (A) the respective
outstanding amount of Base Rate Loans made by the Agent on behalf of
the Lenders with a Commitment of the respective Tranche from the
immediately preceding Settlement Date through the close of business
on the prior day and (B) the amount of any Eurocurrency Rate Loans
to be
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made (following the giving of notice pursuant to ss.2.3(a)) on such
date pursuant to a US Loan Request and (ii) to each Lender with a
Commitment of the respective Tranche of the amount (a "Settlement
Amount") that each such Lender (the "Settling Lender") shall pay to
effect a Settlement of a Loan of its respective Tranche. A statement
of the Agent submitted to the Lenders with a Commitment of the
respective Tranche and the Borrower or to such Lenders with respect
to any amounts owing under this ss.2.4 shall be prima facie evidence
of the amount due and owing. The Settling Lender shall, not later
than 3:00 p.m. (Boston time) on such Settlement Date, effect a wire
transfer of immediately available funds to the Agent in the amount
of the Settlement Amount. All funds advanced by any Lender as a
Settling Lender pursuant to this ss.2.4(a) shall for all purposes be
treated as a Loan of the respective Tranche made by such Settling
Lender to the Borrower and all funds received by any Lender pursuant
to this ss.2.4(a) shall for all purposes be treated as repayment of
amounts owed with respect to Loans of the respective Tranche made by
such Lender. In the event that any bankruptcy, reorganization,
liquidation, receivership or similar case or proceeding in which the
Borrower is a debtor prevent a Settling Lender from making any Loan
of the respective Tranche to effect a Settlement as contemplated
hereby, such Settling Lender will make such disposition and
arrangements with the other Lenders with respect to such Loans,
either by way of purchase of participations, distribution, pro tanto
assignment of claims, subrogation or otherwise as shall result in
each Lender's share of the outstanding Loans of the respective
Tranche being equal, as nearly as may be, to such Lender's
Commitment Percentage of the outstanding amount of the Loans of the
respective Tranche.
(ii) Advances by Agent. The Agent may, unless notified to the
contrary by any Lender prior to a Settlement Date, assume that such
Lender has made or will make available to the Agent on such
Settlement Date the amount of such Lender's Settlement Amount, and
the Agent may (but it shall not be required to), in reliance upon
such assumption, make available to the Borrower a corresponding
amount. If any Lender makes available to the Agent such amount on a
date after such Settlement Date, such Lender shall pay to the Agent
on demand an amount equal to the product of (a) the amount of such
Settlement Amount, times (b) the Base Rate during the period from
but not including the date such payment is required to be made to
and including the date on which such payment is immediately
available to the Agent, times (c) a fraction, the numerator of which
is the number of days that elapse from and including such Settlement
Date to the date on which the amount of such Settlement Amount shall
become immediately available to the Agent, and the denominator of
which is 360. A statement of the Agent submitted to such Lender with
respect to any amounts owing under this paragraph shall be prima
facie evidence of the amount due and owing to the Agent by such
Lender. If such Lender's Settlement Amount is not made available to
the Agent by such Lender within three (3) Business Days following
such Settlement Date, the Agent shall be entitled to recover such
amount from the Borrower on demand, with interest thereon at the
rate per annum applicable to the Loans as of such Settlement Date.
(iii) Failure to Make Funds Available. The failure or refusal
of any Lender to make available to the Agent at the aforesaid time
and place on any Settlement Date the amount of its Settlement Amount
(a) shall not relieve any other Lender from its several obligations
hereunder to make available to the
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Agent the amount of such other Lender's Settlement Amount and (b)
shall not impose upon such other Lender any liability with respect
to such failure or refusal or otherwise increase the Commitment of
such other Lender.
(b) UK Loan Requests.
(i) UK Funding Procedure. Not later than 11:00 a.m. (London
time) on the proposed Drawdown Date of any UK Acquisition Loan, so
long as the limitations set forth in ss.2.1(d) have not been
exceeded and so long as the UK Fronting Lender has not received
notice from the Agent of the occurrence and continuance of a Default
or Event of Default or of the UK Borrower's failure to satisfy any
of the other conditions to making UK Acquisition Loans set forth
herein, the UK Fronting Lender will make available to the UK
Borrower, at the UK Fronting Lender's UK Office, in immediately
available funds, the amount of such requested UK Acquisition Loan.
Promptly following the making of each UK Acquisition Loan, the UK
Fronting Lender shall provide notice to the Agent of the amount
thereof.
(ii) Application of Interest Payments for UK Acquisition
Loans. As promptly as is practicable following each date upon which
the UK Fronting Lender receives a payment of interest under this
Agreement on account of any UK Acquisition Loans, the UK Fronting
Lender shall, in the event that such payment is made in Sterling,
convert into Dollars (based upon the actual exchange rate then
applicable to the UK Fronting Lender) the amount equal to the
portion of such interest payment which constitutes the Applicable
Margin thereof. In consideration of the agreement of the Acquisition
Loan Lenders to purchase participating interests in the UK
Acquisition Loans, the UK Fronting Lender hereby agrees to pay to
the Agent, for the ratable accounts of each Acquisition Loan Lender
in accordance with their UK Acquisition Loan Commitments, a risk
participation fee (the "UK Risk Participation Fee") in the amount
equal to (A) the proceeds received by such UK Fronting Lender from
such conversion to Dollars (other than any such proceeds payable for
the account of any Defaulting Lender, which proceeds shall be
retained by the UK Fronting Lender for its own account) or, (B) if
no such conversion is required, the amount in Dollars constituting
the Applicable Margin in respect of such interest payment actually
received by the UK Fronting Lender on account of any UK Acquisition
Loans (other than any such proceeds payable for the account of any
Defaulting Lender, which proceeds shall be retained by the UK
Fronting Lender for its own account); provided, however, that in the
event that any Acquisition Loan Lender has funded the purchase of
participating interests in the extensions of credit on account of
which such interest payment was made pursuant to ss.2.4(b)(iii) the
UK Fronting Lender shall instead pay to the Agent, for the account
of each Acquisition Loan Lender which has so funded such purchase,
the amount equal to such Acquisition Loan Lender's UK Acquisition
Loan Commitment Percentage of the proceeds received by the UK
Fronting Lender from such conversion (or, if no such conversion is
required, the amount in Dollars constituting such Acquisition Loan
Lender's UK Acquisition Loan Commitment Percentage of such interest
payment actually received by the UK Fronting Lender on account of
any UK Acquisition Loans). Such amount shall be payable to the Agent
in Dollars on the date upon which the UK Fronting Lender receives
the proceeds of such conversion.
(iii) Currency Conversions and Contingent Funding Agreement.
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(A) Each of the Acquisition Loan Lenders hereby
unconditionally and irrevocably agrees to purchase, as the
Agent may at any time request, an undivided participating
interest (in Dollars) in its ratable share, determined by
reference to its UK Acquisition Loan Commitment Percentage, of
all UK Acquisition Loans made by the UK Fronting Lender,
provided that:
(x) the Agent hereby agrees that, unless an Event
of Default has occurred and is continuing, it will not
request any such purchase of participating interests
unless the Agent has given to the UK Borrower at least
three (3) Business Days' prior notice thereof;
(y) the Agent hereby agrees that it promptly will
request that the Acquisition Loan Lenders purchase such
participating interest in all outstanding UK Acquisition
Loans made by the UK Fronting Lender if the UK Fronting
Lender provides to the Agent a written certification
that an Event of Default of the type described in
ss.ss.14.1(a) or (b) has occurred and is continuing and
requesting that such a request be made by the Agent to
the Acquisition Loan Lenders; and
(z) in the event that any of the Insolvency Events
of Default shall have occurred with respect to the UK
Borrower, each Acquisition Loan Lender shall be deemed
to have purchased, automatically and without request,
such participating interest in the UK Acquisition Loans
made by the UK Fronting Lender to the UK Borrower.
Any such request by the Agent shall be made in writing to each
Acquisition Loan Lender and shall specify the amount of
Dollars (in the case of purchases of participating interests
in UK Acquisition Loans denominated in Sterling, based upon
the actual exchange rate at which the Agent anticipates being
able to obtain the relevant amount in Sterling on the relevant
date, with any excess payment being refunded to the
Acquisition Loan Lenders and any deficiency remaining payable
by the Acquisition Loan Lenders) required from such
Acquisition Loan Lender in order to effect the purchase by
such Acquisition Loan Lender of a participating interest in
the amount equal to its UK Acquisition Loan Commitment
Percentage times the aggregate then outstanding principal
amount (in the Applicable Currency) of the UK Acquisition
Loans (which participating interest shall thereafter also
cover accrued interest thereon and other amounts owing in
connection therewith). Promptly upon receipt of such request,
each Acquisition Loan Lender shall deliver to the Agent (in
immediately available funds) the amount so specified by the
Agent. The Agent shall convert such amounts into the
Applicable Currency and shall promptly deliver the proceeds of
such conversion to the UK Fronting Lender in immediately
available funds. Promptly following receipt thereof, the UK
Fronting Lender will deliver to each Acquisition Loan Lender
(through the Agent) a certificate setting forth the amount of
the UK Acquisition Loans purchased by such Acquisition Loan
Lender, dated the date of receipt of such funds and in such
amount. From and after such purchase, (i) the outstanding UK
Acquisition Loans shall be deemed to have been converted into
UK Acquisition Loans denominated in Dollars, (ii) any further
UK Acquisition Loans to be made to the UK Borrower shall be
Eurocurrency Rate Loans made in Dollars, with each Acquisition
Loan Lender purchasing a participating interest therein in the
manner described in the foregoing provisions of this
ss.2.4(b)(iii) immediately upon the making thereof in the
amount equal to such
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Acquisition Loan Lender's UK Acquisition Loan Commitment
Percentage thereof (with the Agent hereby agreeing to provide
prompt notice to each such Acquisition Loan Lender of its
receipt from the UK Fronting Lender of a notice of borrowing
and of the making of any UK Acquisition Loans), and (iii) all
amounts from time to time accruing, and all amounts from time
to time payable, on account of such UK Acquisition Loans
(including any interest and other amounts which were accrued
but unpaid on the date of such purchase) shall be payable in
Dollars as if such UK Acquisition Loans had originally been
made in Dollars and as to UK Acquisition Loans shall be
distributed by the UK Fronting Lender to the Agent, for the
accounts of the Acquisition Loan Lenders, on account of such
participating interests. Notwithstanding anything to the
contrary contained in this ss.2.4, the failure of any
Acquisition Loan Lender to purchase its participating interest
in any UK Acquisition Loans shall not relieve any other
Acquisition Loan Lender of its obligations hereunder to
purchase its participating interest in a timely manner, but no
Acquisition Loan Lender shall be responsible for the failure
of any other Acquisition Loan Lender to purchase the
participating interest to be purchased by such other
Acquisition Loan Lenders on any date.
(B) If any amount required to be paid by any Acquisition
Loan Lender pursuant to ss.2.4(b)(iii) is paid to the Agent
within three (3) Business Days following the date upon which
such Acquisition Loan Lender receives notice from the Agent
that the UK Acquisition Loan in which such Acquisition Loan
Lender has purchased a participating interest has been made,
such Acquisition Loan Lender shall pay to the Agent on demand
an amount equal to the product of (x) such amount, times (y)
the Base Rate during the period from but not including the
date such payment is required to be made to and including the
date on which such payment is immediately available to the
Agent, times (z) a fraction the numerator of which is the
number of days that elapse during such period and the
denominator of which is 360. If any such amount required to be
paid by any Acquisition Loan Lender pursuant to ss.2.4(b)(iii)
is not in fact made available to the Agent within three (3)
Business Days following the date upon which such Acquisition
Loan Lender receives notice from the Agent that the UK
Acquisition Loan in which such Acquisition Loan Lender has
purchased a participating interest has been made, the Agent
shall be entitled to recover from such Acquisition Loan
Lender, on demand, such amount with interest thereon
calculated from such due date at the rate per annum applicable
to Acquisition Loans which are Base Rate Loans. A certificate
from the Agent submitted to any Acquisition Loan Lender with
respect to any amounts owing under this ss.2.4(b)(iii) shall
be conclusive in the absence of manifest error. Amounts
payable by any Acquisition Loan Lender pursuant to this
ss.2.4(b)(iii) shall be paid to the Agent, for the account of
the UK Fronting Lender; provided that, if the Agent (in its
sole discretion) has elected to fund on behalf of such
Acquisition Loan Lender the amounts owing to the UK Fronting
Lender, then the amounts shall be paid to the Agent, for its
own account.
(C) Whenever, at any time after the UK Fronting Lender
has received from any Acquisition Loan Lender such Acquisition
Loan Lender's participating interest in a UK Acquisition Loan
pursuant to ss.2.4(b)(iii) above, the UK Fronting Lender
receives any payment on account thereof, such UK Fronting
Lender will distribute to the Agent, for the account of such
Acquisition Loan Lender, such Acquisition Loan Lender's
participating interest in such amount (appropriately adjusted,
in the case of interest
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payments, to reflect the period of time during which such
Acquisition Loan Lender's participating interest was
outstanding and funded) in like funds received; provided,
however, that in the event that any such payment received by
the UK Fronting Lender is required to be returned, such
Acquisition Loan Lender will return to the UK Fronting Lender
any portion thereof previously distributed by the UK Fronting
Lender to the Acquisition Loan Lender in like funds as such
payment is required to be returned by the UK Fronting Lender.
(D) Each Acquisition Loan Lender's obligation to
purchase participating interests pursuant to this ss.2.4 shall
be absolute and unconditional and shall not be affected by any
circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Acquisition Loan
Lender may have against the UK Fronting Lender, any Borrower
or any other Person for any reason whatsoever; (ii) the
occurrence and continuation of any Default or Event of
Default; (iii) any adverse change in the condition (financial
or otherwise) of any Transaction Party or any other Lender;
(iv) any breach of any of the Loan Documents by any of the
Transaction Parties or any other Lender; or (v) any other
circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.
2.5. The Notes.
(a) Revolving Credit Notes. Revolving Credit Loans shall be
evidenced by separate promissory notes of the Borrower, each in
substantially the form of Exhibit A-1 hereto (each a "Revolving Credit
Note"), with appropriate insertions. One Revolving Credit Note shall be
payable to the order of each Revolving Credit Lender in a principal amount
equal to such Lender's Revolving Credit Commitment as of the Restatement
Effective Date and representing the obligation of the Borrower to pay to
such Lender such principal amount or, if less, the outstanding amount of
such Lender's Revolving Credit Loans, plus interest accrued thereon, as
set forth below.
(b) Term A Notes. Term Loans A shall be evidenced by separate
promissory notes of the Borrower in substantially the form of Exhibit A-2
hereto (each a "Term A Note"), with appropriate insertions. One Term A
Note shall be payable to the order of each Term Loan A Lender in a
principal amount equal to such Lender's Term Loans A as of the Restatement
Effective Date and representing the obligation of the Borrower to pay to
such Lender the outstanding amount of such Lender's Term Loans A, plus
interest accrued thereon, as set forth below.
(c) Term B Notes. Term Loans B shall be evidenced by separate
promissory notes of the Borrower in substantially the form of Exhibit A-3
hereto (each a "Term B Note"), with appropriate insertions. One Term B
Note shall be payable to the order of each Term Loan B Lender in a
principal amount equal to such Lender's Term Loans B as of the Restatement
Effective Date and representing the obligation of the Borrower to pay to
such Lender the outstanding amount of such Lender's Term Loans B, plus
interest accrued thereon, as set forth below.
(d) Acquisition Notes. Acquisition Loans shall be evidenced by
separate promissory notes of the Borrower in substantially the form of
Exhibit A-4 hereto (each an "Acquisition Note"), with appropriate
insertions. One Acquisition Note shall be payable to the order of each
Acquisition Loan Lender in a principal amount equal to such Lender's
Acquisition Loan
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Commitment as of the Restatement Effective Date and representing the
obligation of the Borrower to pay to such Lender such principal amount or,
if less, the outstanding amount of such Lender's Acquisition Loans, plus
interest accrued thereon, as set forth below.
(e) Evidence of UK Acquisition Loans. The obligations of the UK
Borrower to repay all amounts borrowed by it as UK Acquisition Loans, all
interest thereon and all other amounts payable by it in respect thereof
shall be evidenced by this Agreement, it being the intention of the
parties hereto that the UK Borrower's obligations with respect to the UK
Acquisition Loans owed by it shall be evidenced only as stated herein and
not by separate promissory notes or other instruments.
(f) Note Records. The Borrower irrevocably authorizes each Lender
with a Commitment of the respective Tranche to make or cause to be made,
at or about the time of the Drawdown Date of any Loans of the respective
Tranche or at the time of receipt of any payment of principal on any Note
of such Lender, an appropriate notation on such Lender's applicable Note
Record reflecting the making of such Loan or (as the case may be) the
receipt of such payment. The outstanding amount of the Loans set forth on
such Lender's Note Records shall be prima facie evidence of the principal
amount thereof owing and unpaid to such Lender, but the failure to record,
or any error in so recording, any such amount on any Note Record of such
Lender shall not limit or otherwise affect the obligations of the Borrower
hereunder or under any Note to make payments of principal of or interest
on any Note when due.
2.6. Conversion and Continuation Options.
(a) Conversion to Different Type of Loan. The Borrower may elect
from time to time to convert any of its outstanding Loans to a Loan of
another Type, provided that (i) with respect to any such conversion of a
Eurocurrency Rate Loan to a Base Rate Loan, the Borrower shall give the
Agent at least one (1) Business Day's prior written notice of such
election; (ii) with respect to any such conversion of a Base Rate Loan to
a Eurocurrency Rate Loan, the Borrower shall give the Agent at least three
(3) Eurocurrency Business Days' prior written notice of such election;
(iii) with respect to any such conversion of a Eurocurrency Rate Loan into
a Base Rate Loan, such conversion shall only be made on the last day of
the Interest Period with respect thereto; (iv) no Loan may be converted
into a Eurocurrency Rate Loan when any Default or Event of Default has
occurred and is continuing; (v) the Borrower may not have more than five
(5) Eurocurrency Rate Loans outstanding at any time; (vi) any partial
conversion shall be in an aggregate principal amount of $1,000,000 or an
integral multiple of $500,000 in excess thereof, provided, that any
conversion to or from Eurocurrency Rate Loans shall be in such amounts and
be made pursuant to such elections so that, after giving effect thereto,
the aggregate principal amount of all Eurocurrency Rate Loans having the
same Interest Period shall not be less than $5,000,000 or a whole multiple
of $1,000,000 in excess thereof; and (vii) each Conversion Request
relating to the conversion of a Base Rate Loan to a Eurocurrency Rate Loan
shall be irrevocable by the Borrower.
(b) Continuation of Type of Loans of Borrower. Any Loan of the
Borrower of any Type may be continued as a Loan of the same Type upon the
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expiration of an Interest Period with respect thereto by compliance by the
Borrower with the notice provisions contained in ss.2.6(a); provided that
no Eurocurrency Rate Loan may be continued as such when any Default or
Event of Default has occurred and is continuing, but shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto ending during the continuance of any
Default or Event of Default of which officers of the Agent active upon the
Borrower's account have actual knowledge. In the event that the Borrower
fails to provide any such notice with respect to the continuation of any
Eurocurrency Rate Loan as such, then such Eurocurrency Rate Loan shall be
automatically converted to a Base Rate Loan on the last day of the first
Interest Period relating thereto. The Agent shall notify the Lenders
promptly when any such automatic conversion contemplated by this ss.2.6(b)
is scheduled to occur.
(c) Continuation of Type of UK Acquisition Loans. Each UK
Acquisition Loan shall be continued as a Eurocurrency Rate Loan upon the
expiration of an Interest Period with respect thereto, provided, that (i)
with respect to any such continuation of a UK Acquisition Loan as a
Eurocurrency Rate Loan, the UK Borrower shall give the Agent at least
three (3) Business Days prior written notice of the Interest Period to be
applicable to such Eurocurrency Rate Loan (or such shorter period prior
thereto as the UK Fronting Lender shall agree), (ii) in the event that the
UK Borrower fails to provide any such notice with respect to the
continuation of any Eurocurrency Rate Loan as such, then such Eurocurrency
Rate Loan shall be automatically continued as a Eurocurrency Rate Loan
having a one (1) month Interest Period commencing on the last day of the
then expiring Interest Period relating thereto, and (iii) any Eurocurrency
Rate Loan being continued as such when any payment Default or Event of
Default has occurred and is continuing shall be automatically continued as
a Eurocurrency Rate Loan having a one (1) month Interest Period commencing
on the last day of the then current Interest Period relating thereto
ending during the continuance of any payment Default or any Event of
Default. The Agent shall notify the UK Fronting Lender and the Acquisition
Loan Lenders promptly when any such automatic continuation of a
Eurocurrency Rate Loan contemplated by clauses (ii) or (iii) of this
ss.2.6(c) occurs or is scheduled to occur.
2.7. Pro-Rata Borrowings. All Loans (other than Loans subject to the
Settlement provisions of ss.2.4 hereof and UK Acquisition Loans made by the UK
Fronting Lender) made under this Agreement shall be made by the Lenders pro rata
on the basis of their respective Term Loan A Commitments, Term Loan B
Commitments, Revolving Credit Commitments, and Acquisition Loan Commitments, as
the case may be.
2.8. Interest on the Loans.
(a) Each of the Borrowers promises to pay interest on each of its
Loans or any portions thereof outstanding during each Interest Period in
arrears on each Interest Payment Date with respect thereto.
(b) Except as otherwise provided in this ss.2.8, each Loan to the
Borrower shall bear interest during each Interest Period relating to all
or any portion of such Loan at the following rates:
(i) To the extent that all or any portion of a Loan bears
interest during such Interest Period based on the Base Rate, such
Loan or such
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portion thereof shall bear interest during such Interest Period at
the rate per annum of the Base Rate plus the Applicable Margin.
(ii) To the extent that all or any portion of a Loan bears
interest during such Interest Period based on the Eurocurrency Rate,
such Loan or such portion thereof shall bear interest during such
Interest Period at the rate per annum of the Eurocurrency Rate
determined for such Interest Period plus the Applicable Margin.
(c) Except as otherwise provided in this ss.2.8, each Loan to the UK
Borrower shall bear interest during each Interest Period relating to all
or any portion of such Loan at the following rates:
(i) Each UK Acquisition Loan which is denominated in Dollars
shall bear interest for each Interest Period with respect thereto at
the rate per annum equal to the Eurocurrency Rate determined for
such Interest Period plus the Applicable Margin for Eurocurrency
Rate A Loans; and
(ii) Each UK Acquisition Loan which is denominated in Sterling
shall bear interest for each Interest Period with respect thereto at
the rate per annum equal to the Eurocurrency Rate determined for
such Interest Period plus the Applicable Margin for Eurocurrency
Rate A Loans plus any Mandatory Liquid Asset Costs incurred by the
UK Fronting Lender or any UK Acquisition Loan Lender in respect of
such UK Acquisition Loan from time to time.
(d) Overdue principal and (to the extent permitted by Applicable
Law) interest on the Loans and all other overdue amounts payable hereunder
or under any of the other Loan Documents shall bear interest compounded
monthly and payable on demand at a rate per annum equal to two percent
(2%) above the rate of interest otherwise applicable thereto until such
amount shall be paid in full (after as well as before judgment).
(e) During the continuance of an Event of Default the principal of
each Loan not overdue shall, until such Event of Default has been cured or
remedied or such Event of Default has been waived by the Required Lenders
pursuant to ss.17.11, bear interest at a rate per annum equal to the rate
of interest applicable to overdue principal of such Loan pursuant to
ss.2.8(d).
2.9. Change in Borrowing Base. The Borrowing Base shall be determined
monthly (or at such other interval as may be specified pursuant to ss.9.3(f)) by
the Agent by reference to the Borrowing Base Report. The Agent shall give to the
Lenders and the Borrower written notice of any change in the Borrowing Base
resulting from the Agent's determination to add reserves or to change advance
rates with respect to the Borrowing Base, as provided in the definition of
Borrowing Base, which notice shall be effective upon receipt by the Borrower.
Prior to such time as the Borrower receives such notice, the Borrowing Base
shall be the amount in effect in the absence of such notice. For purposes of
this Agreement and the other Loan Documents, the Agent may assume, subject to
adjustment based upon the provisions of this Agreement, that the Borrowing Base
in effect on any given date is the Borrowing Base, as indicated on the most
recent Borrowing Base Report delivered on a timely
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basis to the Lenders and the Agent in accordance with the provisions of
ss.9.3(e) hereof.
2.10. Inability to Determine Eurocurrency Rate. In the event, prior to the
commencement of any Interest Period relating to any Eurocurrency Rate Loan, the
Agent or the UK Fronting Lender (as applicable) shall determine or be notified
by the Required Lenders that adequate and reasonable methods do not exist for
ascertaining the Eurocurrency Rate that would otherwise determine the rate of
interest to be applicable to any Eurocurrency Rate Loan during any Interest
Period, the Agent shall forthwith give notice of such determination (which shall
be conclusive and binding on the Borrowers and the Lenders) to the Borrower and
the Lenders. In such event (i) any Loan Request or Conversion Request with
respect to Eurocurrency Rate Loans (other than UK Acquisition Loans) shall be
automatically withdrawn and shall be deemed a request for Base Rate Loans, (ii)
any UK Loan Request with respect to a UK Acquisition Loan shall be deemed to be,
rather than a request for a Eurocurrency Rate Loan, a request for a UK
Acquisition Loan bearing interest at a rate reasonably determined by the UK
Fronting Lender to be equal to its costs of funds for such UK Acquisition Loan
for the applicable Interest Period plus the Applicable Margin for Eurocurrency
Rate Loans for UK Acquisition Loans, (iii) each Eurocurrency Rate Loan (other
than a UK Acquisition Loan) will automatically, on the last day of the then
current Interest Period relating thereto, become a Base Rate Loan, (iv) each UK
Acquisition Loan will automatically, on the last day of the then current
Interest Period relating thereto, become a UK Acquisition Loan bearing interest
at a rate reasonably determined by the UK Fronting Lender to be equal to its
costs of funds for such UK Acquisition Loan for the applicable Interest Period
plus the Applicable Margin for Eurocurrency Rate Loans for UK Acquisition Loans
and (v) the obligations of the Lenders to make Eurocurrency Rate Loans shall be
suspended until the Agent determines that the circumstances giving rise to such
suspension no longer exist, whereupon the Agent shall so notify th Borrower and
the Lenders.
2.11. Illegality. Notwithstanding any other provisions herein, if any
present or future law, regulation, treaty or directive or the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurocurrency Rate Loans, such Lender shall forthwith give notice of such
circumstances to the Borrower and the Agent and thereupon (a) the commitment of
such Lender to make Eurocurrency Rate Loans or convert Loans of another Type to
Eurocurrency Rate Loans shall forthwith be suspended, (b) such Lender's Loans
then outstanding as Eurocurrency Rate Loans (other than any UK Acquisition
Loans), if any, shall be converted automatically to Base Rate Loans on the last
day of each Interest Period applicable to such Eurocurrency Rate Loans or within
such earlier period as may be required by law, and (iii) such Lender's UK
Acquisition Loans, if any, shall be converted automatically, on the last day of
the then current Interest Period relating thereto or within such earlier period
as may be required by law, to UK Acquisition Loans bearing interest at a rate
reasonably determined by the UK Fronting Lender to be equal to its costs of
funds for such UK Acquisition Loans for the applicable Interest Period plus the
Applicable Margin for Eurocurrency Rate Loans for UK Acquisition Loans. Each of
the Borrowers hereby agrees promptly to pay the Agent for the account of such
Lender, promptly upon demand by such Lender, any additional amounts
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necessary to compensate such Lender for any costs incurred by such Lender in
making any conversion in accordance with this ss.2.11, including any interest or
fees payable by such Lender to lenders of funds obtained by it in order to make
or maintain its Eurocurrency Rate Loans hereunder.
2.12. Additional Costs, etc. If any present or future Applicable Law,
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Lender or the Agent by any central bank or other fiscal,
monetary or other authority (whether or not having the force of law), shall:
(i) subject any Lender or the Agent to any tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature with respect to this
Agreement, the other Loan Documents, any Letters of Credit or such
Lender's Commitments or Loans (other than taxes based upon or measured by
the income or profits of such Lender or the Agent), or
(ii) materially change the basis of taxation (except for changes in
taxes based upon or measured by the income or profits of such Lender or
the Agent) of payments to any Lender of the principal of or the interest
on any Loans or any other amounts payable to any Lender or the Agent under
this Agreement or any of the other Loan Documents, or
(iii) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Agreement) any special
deposit, reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or letters of
credit issued by, or commitments of an office of any Lender, or
(iv) impose on any Lender or the Agent any other conditions or
requirements with respect to this Agreement, the other Loan Documents, the
Loans, such Lender's Commitments or any Letters of Credit, or any class of
loans, letters of credit or commitments of which any of the Loans or such
Commitments forms a part, and the result of any of the foregoing is
(A) to increase the cost to any Lender of making, funding,
issuing, renewing, extending or maintaining any of such Lender's
Loans or Commitments or Letters of Credit, or
(B) to reduce the amount of principal, interest, Reimbursement
Obligation or other amount payable to such Lender or the Agent
hereunder on account of such Lender's Loans or Commitments or
Letters of Credit, or
(C) to require such Lender or the Agent to make any payment or
to forgo any interest or Reimbursement Obligation or other sum
payable hereunder, the amount of which payment or
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forgone interest or Reimbursement Obligation or other sum is
calculated by reference to the gross amount of any sum receivable or
deemed received by such Lender or the Agent from the Borrowers
hereunder;
then, and in each such case, the applicable Borrower will, upon demand made by
such Lender or (as the case may be) the Agent at any time and from time to time
and as often as the occasion therefor may arise, pay to such Lender or the Agent
such additional amounts as will be sufficient to compensate such Lender or the
Agent for such additional cost, reduction, payment or forgone interest or
Reimbursement Obligation or other sum.
2.13. Capital Adequacy. If after the Original Closing Date any Lender or
the Agent determines that (a) the adoption of or change in any law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) regarding capital requirements for banks or bank holding companies
or any change in the interpretation or application thereof by a court or
governmental authority with appropriate jurisdiction, or (b) compliance by such
Lender or the Agent or any corporation controlling such Lender or the Agent with
any law, governmental rule, regulation, policy, guideline or directive (whether
or not having the force of law) of any such entity regarding capital adequacy,
has the effect of reducing the return on such Lender's or the Agent's capital as
a result of such Lender's obligations hereunder to a level below that which such
Lender or the Agent could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or the Agent's then existing
policies with respect to capital adequacy and assuming full utilization of such
entity's capital) by any amount deemed by such Lender or (as the case may be)
the Agent to be material, then such Lender or the Agent may notify the Borrower
of such fact. To the extent that the amount of such reduction in the return on
capital is not reflected in the Base Rate, the Borrowers agree to pay such
Lender or (as the case may be) the Agent for the amount of such reduction in the
return on capital as and when such reduction is determined upon presentation by
such Lender or (as the case may be) the Agent of a certificate in accordance
with ss.2.15 hereof.
2.14. Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of ss.ss.2.12 or 2.13 with
respect to such Lender, it will, if requested by the Borrower, use reasonable
efforts (subject to overall policy consideration of such Lender) to designate
another lending office for any Loans affected by such event, provided that such
designation is made on such terms that such Lender and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of any such Section.
Nothing in this ss.2.14 shall affect or postpone any of the obligations of the
Borrower or the right of any Lender provided in ss.ss.2.12 or 2.13.
2.15. Certificate. A certificate setting forth any additional amounts
payable pursuant to ss.ss.2.11, 2.12 or 2.13 and a brief explanation of such
amounts which are due, submitted by any Lender or the Agent to the Borrower,
shall be conclusive, absent manifest error, that such amounts are due and owing.
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2.16. Indemnity. Each of the Borrowers agrees to indemnify each Lender and
to hold each Lender harmless from and against any loss, cost or expense
(including loss of anticipated profits) that such Lender may sustain or incur as
a consequence of (a) default by such Borrower in payment of the principal amount
of or any interest on any Eurocurrency Rate Loans as and when due and payable,
including any such loss or expense arising from interest or fees payable by such
Lender to lenders of funds obtained by it in order to maintain its Eurocurrency
Rate Loans, (b) default by such Borrower in making a borrowing or conversion
after such Borrower has given (or is deemed to have given) a Loan Request or a
Conversion Request relating thereto in accordance with ss.2.6 or (c) the making
of any payment of a Eurocurrency Rate Loan or the making of any conversion of
any such Loan to a Base Rate Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by such Lender to lenders of funds obtained by it in order to maintain
any such Loans.
2.17. Replacement of Lenders. (a) If any Lender becomes a Defaulting
Lender or (b) if any Lender (other than the Agent) refuses to consent to a
proposed change, waiver, discharge or termination with respect to this Agreement
or any other Loan Document which has been approved by the Required Lenders as
provided in ss.17.11, then the Borrower shall have the right, if no Default or
Event of Default then exists, to replace such Lender (the "Replaced Lender")
with any other Lender or with one or more other Eligible Assignees, none of whom
shall constitute a Defaulting Lender at the time of such replacement
(collectively, the "Replacement Lender") reasonably acceptable to the Agent or,
at the option of the Borrower, to replace only (i) the Revolving Credit
Commitment (and Letter of Credit Participations and Revolving Credit Loans
outstanding pursuant thereto) of the Replaced Lender with an identical Revolving
Credit Commitment (and Letter of Credit Participations and Revolving Credit
Loans outstanding pursuant thereto) provided by the Replacement Lender, (ii) the
Acquisition Loan Commitment and UK Acquisition Loan Commitment (and Acquisition
Loans and UK Acquisition Loans outstanding pursuant thereto) of the Replaced
Lender with an identical Acquisition Loan Commitment and UK Acquisition Loan
Commitment (and Acquisition Loans and UK Acquisition Loans outstanding pursuant
thereto) provided by the Replacement Lender, (iii) the Term Loan A Commitment
(and Term Loans A outstanding pursuant thereto) of the Replaced Lender with an
identical Term Loan A Commitment (and Term Loans A outstanding pursuant thereto)
provided by the Replacement Lender, and/or (iv) the Term Loan B Commitment (and
Term Loans B outstanding pursuant thereto) of the Replaced Lender with an
identical Term Loan B Commitment (and Term Loans B outstanding pursuant thereto)
provided by the Replacement Lender; provided that:
(A) at the time of any replacement pursuant to this Section ss.2.17,
the Replacement Lender shall enter into one or more Assignment and
Acceptances pursuant to ss.16 (and with all fees payable pursuant to
ss.16.3 to be paid by the Replacement Lender) pursuant to which the
Replacement Lender shall acquire all of the Commitments and outstanding
Loans of and Letter of Credit Participations (or, in the case of the
replacement of only (w) the Revolving Credit Commitment (and Letter of
Credit Participations and Revolving Credit Loans outstanding pursuant
thereto) of the Replaced Lender with an identical Revolving
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Credit Commitment (and Letter of Credit Participations and Revolving
Credit Loans outstanding pursuant thereto) provided by the Replacement
Lender (x) the Acquisition Loan Commitment and UK Acquisition Loan
Commitment (and Acquisition Loans and UK Acquisition Loans outstanding
pursuant thereto) of the Replaced Lender with an identical Acquisition
Loan Commitment and UK Acquisition Loan Commitment (and Acquisition Loans
and UK Acquisition Loans outstanding pursuant thereto) provided by the
Replacement Lender, (y) the Term Loan A Commitment (and Term Loans A
outstanding pursuant thereto) of the Replaced Lender with an identical
Term Loan A Commitment (and Term Loans A outstanding pursuant thereto)
provided by the Replacement Lender and/or (z) the Term Loan B Commitment
(and Term Loans B outstanding pursuant thereto) of the Replaced Lender
with an identical Term Loan B Commitment (and Term Loans B outstanding
pursuant thereto) provided by the Replacement Lender) of the Replaced
Lender and, in connection therewith, the Replacement Lender shall pay to
(x) the Replaced Lender in respect thereof an amount equal to
the sum of (1) an amount equal to the principal of, and all accrued
interest on, all outstanding Loans of the Replaced Lender (or, in
the case of the replacement of only (I) the Revolving Credit
Commitment, the outstanding Revolving Credit Loans (II) the
Acquisition Loan Commitments and UK Acquisition Loan Commitments,
the outstanding Acquisition Loans and UK Acquisition Loans, (III)
the Term Loan A Commitment, the outstanding Term Loans A and/or (IV)
the Term Loan B Commitment, the outstanding Term Loans B of the
Replaced Lender), (2) except in the case of the replacement of only
(I) the Term Loan A Commitment or outstanding Term Loans A of a
Replaced Lender (II) the Term Loan B Commitment or outstanding Term
Loans B of a Replaced Lender, and/or (III) only the Acquisition Loan
Commitments and UK Acquisition Loan Commitments or outstanding
Acquisition Loans and/or UK Acquisition Loans of a Replaced Lender,
an amount equal to such Replacement Lender's Revolving Credit
Commitment Percentage of all Unpaid Reimbursement Obligations that
have been funded by (and not reimbursed to) such Replaced Lender,
together with all then unpaid interest with respect thereto at such
time and (3) an amount equal to all accrued, but theretofore unpaid,
Fees owing to the Replaced Lender but only with respect to the
relevant Tranche, in the case of the replacement of less than all
the Tranches of Loans then held by the respective Replaced Lender)
pursuant to ss.5.1 hereof,
and (y) except in the case of the replacement of only one or
more Tranches of (I) the Term Loan A Commitment and Term Loans A,
(II) Term Loan B Commitment and Term Loans B, (III) the Acquisition
Loan Commitment and/or Acquisition Loans, or (IV) the UK Acquisition
Loan Commitment and/or UK Acquisition Loans of the Replaced Lender,
the Issuing Bank or Lenders an amount equal to such Replaced
Lender's Revolving Credit Commitment Percentage of any Unpaid
Reimbursement
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Obligations with respect to a Letter of Credit issued by the Issuing
Bank, to the extent such amount was not theretofore funded by such
Replaced Lender; and
(B) all obligations of the Borrower owing to the Replaced Lender
(other than (x) those specifically described in clause (A) above in
respect of which the assignment purchase price has been, or is
concurrently being, paid or (y) relating to any Tranche of Loans and/or
Commitments of the respective Replaced Lender which will remain
outstanding after giving effect to the respective replacement) shall be
paid in full by the Borrower to such Replaced Lender concurrently with
such replacement.
Upon the execution of the respective Assignment and Acceptance, the payment of
amounts referred to in clauses (A) and (B) above, recordation of the assignment
on the Register by the Agent pursuant to ss.16.1 and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of the appropriate Note
or Notes executed by the Borrower, (x) the Replacement Lender shall become a
Lender hereunder with respect to the assigned interest(s) (y) unless the
respective Replaced Lender continues to have a Term Loan A Commitment or Term
Loans A, a Term Loan B Commitment or Term Loans B, an Acquisition Loan
Commitment or Acquisition Loans, a UK Acquisition Loan Commitment or UK
Acquisition Loans, or a Revolving Credit Commitment or Revolving Credit Loans,
the Replaced Lender shall cease to constitute a Lender hereunder with respect to
the Loans and Term Loan A Commitments, Term Loan B Commitments, Acquisition Loan
Commitments, UK Acquisition Loan Commitments and/or Revolving Credit Commitments
so transferred, except with respect to indemnification provisions applicable to
the Replaced Lender under this Agreement, which shall survive as to such
Replaced Lender, and (z) the Term Loan A Commitment Percentages, Term Loan B
Commitment Percentages, Acquisition Loan Commitment Percentages, UK Acquisition
Loan Commitment Percentages and Revolving Credit Commitment Percentages of the
Lenders shall be automatically adjusted at such time to give effect to such
replacement.
2.18. Resignation of UK Fronting Lender. The UK Fronting Lender may resign
at any time by giving thirty (30) days prior written notice thereof to the
Agent, the Acquisition Loan Lenders and the UK Borrower; provided such
resignation shall not become effective until the date upon which a replacement
UK Fronting Lender reasonably acceptable to the Required Acquisition Loan
Lenders and the Agent has been selected and has assumed the rights and
obligations of the UK Fronting Lender hereunder. Unless an Event of Default
shall have occurred and be continuing, such successor UK Fronting Lender shall
be reasonably acceptable to the UK Borrower. If no successor UK Fronting Lender
shall have been so appointed by the Required UK Acquisition Loan Lenders and
shall have accepted such appointment within thirty (30) days after the resigning
UK Fronting Lender's giving of notice of resignation, then the resigning UK
Fronting Lender may, on behalf of the Acquisition Loan Lenders, appoint a
successor UK Fronting Lender, which shall be a financial institution having a
rating of not less than A or its equivalent by Standard & Poor's, which
qualifies as a UK Qualifying Lender, and which shall otherwise have the ability
to fund the UK Acquisition Loans from an appropriate lending office. Upon the
acceptance of any appointment as UK Fronting Lender hereunder by a successor UK
Fronting Lender, such successor UK Fronting
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Lender shall thereupon succeed to and become vested with all the rights, powers,
privileges, duties and obligations of the resigning UK Fronting Lender, and the
resigning UK Fronting Lender shall be discharged from its duties and obligations
hereunder. After any resigning UK Fronting Lender's resignation, the provisions
of this Agreement and the other Loan Documents shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as UK Fronting Lender.
2.19. Nature of Acquisition Loan Lenders' Interests in UK Acquisition
Loans. For the avoidance of any doubt, the interest of the Acquisition Loan
Lenders in the UK Acquisition Loans (and the related interest and fees) shall be
a sub-participation only, and the obligations of the Acquisition Loan Lenders
under ss.2.4 shall not constitute or be deemed a direct assignment or novation
of the UK Obligations in favor of the Acquisition Loan Lenders or otherwise
evidence a direct contractual relationship or any direct rights or obligations
between any of the Acquisition Loan Lenders (in their capacities as such), on
the one hand, and the UK Borrower, on the other. The UK Fronting Lender is the
sole counterpart to the UK Borrower in respect of the UK Acquisition Loans. The
sole claims of each of the Acquisition Loan Lenders in respect of its interest
hereunder shall be to the UK Fronting Lender in respect of such Acquisition Loan
Lender's actual share of the any payments, actually received by the UK Fronting
Lender in cash or solvent credits on or in respect of the principal of, and
interest on, and fees accrued with respect to, the UK Acquisition Loans, in each
case which shall be payable to such Acquisition Loan Lender pursuant to the
provisions hereof.
3. LETTERS OF CREDIT.
3.1. Letter of Credit Commitments.
(a) Commitment to Issue Letters of Credit. Subject to the terms and
conditions hereof and the execution and delivery by the Borrower of a
letter of credit application on the Issuing Bank's customary form (a
"Letter of Credit Application"), the Issuing Bank on behalf of the
Revolving Credit Lenders and in reliance upon the agreement of the
Revolving Credit Lenders set forth in ss.3.1(d) and upon the
representations and warranties of the Transaction Parties contained
herein, agrees, in its individual capacity, to issue, extend and renew for
the account of the Borrower one or more standby or documentary letters of
credit (individually, a "Letter of Credit"), in such form as may be
requested from time to time by the Borrower and reasonably agreed to by
the Issuing Bank; provided, however, that, after giving effect to such
request, (a) the Letter of Credit Exposure shall not exceed $10,000,000
and (b) the sum of (i) the Letter of Credit Exposure plus (ii) the amount
of all Revolving Loans outstanding plus (iii) any Excess UK Working
Capital Outstandings shall not exceed the lesser of (A) the Total
Revolving Credit Commitment and (B) the Borrowing Base.
(b) Letter of Credit Applications. Each Letter of Credit Application
shall be completed to the reasonable satisfaction of the Issuing Bank. In
the event that any provision of any Letter of Credit Application shall be
inconsistent with any provision of this Agreement, then the provisions of
this Agreement shall, to the extent of any such inconsistency, govern.
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(c) Terms of Letters of Credit. Each Letter of Credit issued,
extended or renewed hereunder shall, among other things, (i) provide for
the payment of sight drafts for honor thereunder when presented in
accordance with the terms thereof and when accompanied by the documents
described therein, and (ii) shall by its terms terminate on or before the
earlier to occur of (A) the date which is fourteen (14) days (or, if the
Letter of Credit is confirmed by a confirmer or otherwise provides for one
or more nominated persons, forty-five (45) days) prior to the Revolving
Credit Loan Maturity Date, and (B) the date which is one (1) year after
the date of issuance thereof (subject to renewal on terms satisfactory to
the Issuing Bank). Each Letter of Credit so issued, extended or renewed
shall be subject to the Uniform Customs or, in the case of a standby
Letter of Credit issued on or after January 1, 1999, either the Uniform
Customs or the International Standby Practices.
(d) Reimbursement Obligations of Lenders. Each Revolving Credit
Lender severally agrees that it shall be absolutely liable, without regard
to the occurrence of any Default or Event of Default or any other
condition precedent whatsoever, to the extent of such Lender's Revolving
Credit Commitment Percentage, to reimburse the Issuing Bank on demand for
the amount of each draft paid by the Issuing Bank under each Letter of
Credit to the extent that such amount is not reimbursed by the Borrower
pursuant to ss.3.2 (such agreement for a Revolving Credit Lender being
called herein the "Letter of Credit Participation" of such Lender).
(e) Participations of Lenders. Each such payment made by a Revolving
Credit Lender shall be treated as the purchase by such Lender of a
participating interest in the Borrower's Reimbursement Obligations under
ss.3.2 in an amount equal to such payment. Each Revolving Credit Lender
shall share in accordance with its participating interest in any interest
which accrues pursuant to ss.3.2.
3.2. Reimbursement Obligation of Borrower. In order to induce the Issuing
Bank to issue, extend and renew each Letter of Credit and the Revolving Credit
Lenders to participate therein, the Borrower hereby agrees to reimburse or pay
to the Issuing Bank, for the account of the Issuing Bank or (as the case may be)
the Revolving Credit Lenders, with respect to each Letter of Credit issued,
extended or renewed by the Issuing Bank hereunder at the request of the
Borrower,
(a) except as otherwise expressly provided in ss.3.2(b) and (c), on
each date that any draft presented under such Letter of Credit is honored
by the Issuing Bank, or the Issuing Bank otherwise makes a payment with
respect thereto, (i) the amount paid by the Issuing Bank under or with
respect to such Letter of Credit, and (ii) the amount of any taxes, fees,
charges or other costs and expenses whatsoever incurred by the Issuing
Bank or any Revolving Credit Lender in connection with any payment made by
the Issuing Bank or any Revolving Credit Lender under, or with respect to,
such Letter of Credit,
(b) upon the reduction (but not termination) of the Total Revolving
Credit Commitment to an amount less than the Maximum Drawing Amount, an
amount equal to such difference, which amount shall be held by the Issuing
Bank or by the Agent for the benefit of the
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Revolving Credit Lenders, the Issuing Bank and the Agent, as cash
collateral for all Reimbursement Obligations, and
(c) upon the termination of the Total Revolving Credit Commitment,
or the acceleration of the Reimbursement Obligations with respect to
Letters of Credit in accordance with ss.14, an amount equal to the then
Maximum Drawing Amount with respect to Letters of Credit, which amount
shall be held by the Issuing Bank or by the Agent for the benefit of the
Revolving Credit Lenders, the Issuing Bank and the Agent, as cash
collateral for all Reimbursement Obligations, until all Reimbursement
Obligations are paid in full.
Each such payment shall be made to the Issuing Bank at the Issuing Bank's head
office located at 100 Federal Street, Boston, Massachusetts in immediately
available funds. Interest on any and all amounts remaining unpaid by the
Borrower under this ss.3.2 at any time from the date such amounts become due and
payable (whether as stated in this ss.3.2, by acceleration or otherwise) until
payment in full (whether before or after judgment) shall be payable to the
Issuing Bank on demand at the rate specified in ss.2.8 for overdue principal on
the Revolving Credit Loans.
3.3. Letter of Credit Payments. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Issuing Bank
shall notify the Borrower of the date and amount of the draft presented or
demand for payment and of the date and time when it expects to pay such draft or
honor such demand for payment. If the Borrower fails to reimburse the Issuing
Bank as provided in ss.3.2 on or before the date that such draft is paid or
other payment is made by the Issuing Bank, the Issuing Bank may at any time
thereafter notify the Lenders of the amount of any such Unpaid Reimbursement
Obligation. No later than 3:00 p.m. (Boston time) on the Business Day next
following the receipt of such notice, each Lender with a Revolving Credit
Commitment, or if such Commitment is terminated, with outstanding Revolving
Credit Loans, shall make available to the Issuing Bank, at its head office
located at 100 Federal Street, Boston, Massachusetts, in immediately available
funds, such Lender's Revolving Credit Commitment Percentage of such Unpaid
Reimbursement Obligation, together with an amount equal to the product of (a)
the amount equal to such Lender's Revolving Credit Commitment Percentage of such
Unpaid Reimbursement Obligation, times (b) the Base Rate during the period from
but not including the date such payment is required to be made to and including
the date on which such payment is immediately available to the Issuing Bank,
times (c) a fraction, the numerator of which is the number of days that elapse
from and including the date the Issuing Bank paid the draft presented for honor
or otherwise made payment to the date on which such Lender's Revolving Credit
Commitment Percentage of such Unpaid Reimbursement obligation shall become
immediately available to the Issuing Bank, and the denominator of which is 360.
3.4. Obligations Absolute. The Borrower's obligations under this ss.3
shall be absolute and unconditional under any and all circumstances and
irrespective of the occurrence of any Default or Event of Default or any
condition precedent whatsoever or any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Issuing Bank,
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any Revolving Credit Lender, the Agent or any beneficiary of a Letter of Credit.
The Borrower further agrees with the Issuing Bank and the Revolving Credit
Lenders that the Issuing Bank and such Lenders shall not be responsible for, and
the Borrower's Reimbursement Obligations under ss.3.2 shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
the Borrower, the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or
any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such transferee. The Issuing Bank and the Revolving
Credit Lenders shall not be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrower agrees that
any action taken or omitted by the Issuing Bank or any Revolving Credit Lender
under or in connection with each Letter of Credit and the related drafts and
documents, if done in good faith, shall be binding upon the Borrower and shall
not result in any liability on the part of the Issuing Bank or any such Lender
to such Borrower.
3.5. Reliance by Issuer. To the extent not inconsistent with ss.3.4, the
Issuing Bank shall be entitled to rely, and shall be fully protected in relying
upon, any Letter of Credit, draft, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document reasonably believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Issuing Bank. The Issuing Bank
shall be fully justified in failing or refusing to take any action under this
Agreement unless it shall first have received such advice or concurrence of the
Required Revolving Credit Lenders as it reasonably deems appropriate or it shall
first be indemnified to its reasonable satisfaction by the Revolving Credit
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Issuing Bank shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement in accordance with a request of the Required Revolving Credit
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon the Revolving Credit Lenders and all future
holders of the Notes or of a Letter of Credit Participation.
3.6. Existing Letters of Credit. The Borrower and the Lenders each agree
that (a) any letter of credit which has been previously issued by BankBoston
under the Existing Credit Agreement (the "Existing Letters of Credit") for the
account of the Borrower or any of its Subsidiaries, shall be deemed a Letter of
Credit issued under and governed by this Agreement, (b) this Credit Agreement
supercedes any and all prior agreements between the Borrower or any of its
Subsidiaries and BankBoston with respect to the Existing Letters of Credit, and
(c) all Existing Letters of Credit, from and after the Restatement Effective
Date, shall be subject to and governed by the terms of this Agreement.
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4. REDUCTION OF COMMITMENTS; PAYMENTS; PREPAYMENTS.
4.1. Reallocation and Voluntary Reduction of Unutilized Commitments.
(a) Voluntary Reduction of Revolving Credit Loan Commitment. The
Borrower shall have the right at any time and from time to time, upon
three (3) Business Days prior written notice to the Agent, to reduce by
$1,000,000 or an integral multiple of $500,000 in excess thereof or to
terminate entirely the Total Revolving Credit Commitment, whereupon the
Revolving Credit Commitments of each Revolving Credit Lender shall be
reduced pro rata in accordance with its respective Revolving Credit
Commitment Percentage of the amount specified in such notice or, as the
case may be, terminated. Promptly after receiving any notice of the
Borrower delivered pursuant to this ss.4.1(a), the Agent will notify the
Lenders with a Revolving Credit Commitment of the substance thereof. Upon
the effective date of any such reduction or termination, the Borrower
shall pay to the Agent for the respective accounts of such Lenders the
full amount of any Revolving Credit Commitment Fee then accrued on the
amount of the reduction. No reduction or termination of the Revolving
Credit Commitment may be reinstated.
(b) Voluntary Reduction of Total Acquisition Commitment. The
Borrower shall have the right at any time and from time to time upon three
(3) Business Days prior written notice to the Agent, to reduce by
$1,000,000 or an integral multiple of $500,000 in excess thereof or to
terminate entirely the Total Acquisition Commitment, whereupon the Total
Acquisition Loan Commitment and the Total UK Acquisition Loan Commitment
shall be reallocated, subject to the provisions of ss.4.1(e), and the
Acquisition Loan Commitments and UK Acquisition Loan Commitments of the
Acquisition Loan Lenders shall be reduced pro rata in accordance with
their respective Acquisition Loan Commitment Percentages and UK
Acquisition Loan Commitment Percentages of the amount specified in such
notice or, as the case may be, terminated. Promptly after receiving any
notice of any Borrower delivered pursuant to this ss.4.1(b), the Agent
will notify the Lenders of the substance thereof. Upon the effective date
of any such reduction and reallocation or termination, the applicable
Borrower shall pay to the Agent for the respective accounts of the
applicable Lenders the full amount of any Acquisition Commitment Fee or UK
Acquisition Commitment Fee then accrued on the amount of the reduction. No
reduction or termination of the Total Acquisition Commitment may be
reinstated.
(c) Intentionally Omitted.
(d) Intentionally Omitted.
(e) Reallocation of Total Acquisition Commitment. The Borrower shall
have the right, no more frequently than once in any calendar month (unless
otherwise permitted by the Agent) to request the reallocation of the
unborrowed and unused portion of the Total Acquisition Commitment between
the Total Acquisition Loan Commitment and the Total UK Acquisition Loan
Commitment, whereupon the Total Acquisition Loan Commitment and the Total
UK Acquisition Loan Commitment shall be reallocated as specified in such
notice and the Acquisition Loan Commitments and UK Acquisition Loan
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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 the amount
specified in such notice. The Borrower shall give to the Agent written
notice in the form of Exhibit J hereto of each reallocation requested
under this ss.4.1(e) (a "Commitment Reallocation Request"). Each such
notice shall specify (i) the Total Acquisition Loan Commitment and Total
UK Acquisition Loan Commitment as of the date of such notice, (ii) each
Borrower's Total Acquisition Loan Commitment and Total UK Acquisition Loan
Commitment, as the case may be, after giving effect to such notice, and
(iii) the effective date of such reallocation, which date shall be no less
than ten (10) Business Days after the date of such notice (the "Commitment
Reallocation Date"). Upon giving effect to a Commitment Reallocation
Request, the sum of the Acquisition Loan Commitments and UK Acquisition
Loan Commitments shall not exceed the Total Acquisition Commitment in
effect at that time. On the Commitment Reallocation Date, the Acquisition
Loan Commitments and UK Acquisition Loan Commitments shall be reallocated
in accordance with the related Commitment Reallocation Request given in
compliance with the foregoing requirements and Schedule 1 shall be deemed
revised to reflect the reallocation. The Agent shall keep a record of each
Commitment Reallocation Request and the Acquisition Loan Commitments and
UK Acquisition Loan Commitments of each Lender as in effect on each date
and such record shall be conclusive and binding on all parties hereto, in
the absence of manifest error. A reallocation of the Total Acquisition
Commitment under this ss.4.1 shall not be deemed to be a reduction of the
Total Acquisition Commitment.
4.2. Mandatory Reduction of Commitments.
(a) Intentionally Omitted.
(b) The Term Loan A Commitment of each Lender with such a Commitment
and the Term Loan B Commitment of each Lender with such a Commitment shall
terminate immediately following the conversion of Existing Acquisition
Loans to Term Loans on the Restatement Effective Date pursuant to
ss.ss.2.1(a) and 2.1(b).
(c) The Revolving Credit Commitment of each Lender with such a
Commitment shall terminate on the Revolving Credit Loan Maturity Date.
(d) The Acquisition Loan Commitment of each Lender with such a
Commitment and the UK Acquisition Loan Commitment of each Lender with such
a Commitment shall terminate in their entirety on November 19, 2000.
(e) If the Borrower has not received during the period commencing on
the Restatement Effective Date and ending on June 30, 1999, at least
$30,000,000 of Net Cash Proceeds from the issuance and sale of Permitted
Capital Stock and/or Permitted Disqualified Capital Stock, the Acquisition
Loan Commitment shall automatically be reduced on June 30, 1999 by the
amount by which such Net Cash Proceeds received by the Borrower during
such period is less than $30,000,000. On or prior to the date of such
mandatory reduction the Borrower shall reallocate the Total Acquisition
Commitment between the Total Acquisition Loan Commitment and the Total UK
Acquisition Loan Commitment, whereupon the Acquisition Loan Commitments
and UK
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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. Upon
giving effect to the reallocation, the sum of the Acquisition Loan Commitments
and UK Acquisition Loan Commitments shall not exceed the Total Acquisition
Commitment then in effect. Schedule 1 shall be deemed revised to reflect the
reallocation. The Agent shall keep a record of such reallocation and the
Acquisition Loan Commitments and UK Acquisition Loan Commitments of each Lender
in effect following such reallocation and such record shall be conclusive and
binding on all parties hereto, in the absence of manifest error. Upon the
effective date of such reduction and reallocation, the applicable Borrower shall
pay to the Agent for the respective accounts of the applicable Lenders the full
amount of any Acquisition Commitment Fee or UK Acquisition Commitment Fee then
accrued on the amount of the reduction. No such reduction of the Total
Acquisition Commitment may be reinstated.
4.3. Voluntary Prepayments of Loans.
(a) The Borrower shall have the right, at its election, to repay
outstanding Revolving Credit Loans, Acquisition Loans and Term Loans as a
whole, or in part, at any time without premium or penalty (but subject to
ss.2.16); provided, however, that during the period from the Original
Closing Date through the first anniversary of the Original Closing Date,
any prepayment of the outstanding Term Loans B shall be subject to a
prepayment premium in an amount equal to one percent (1%) of the total
amount of each such prepayment. Such prepayment premium shall be due and
payable on the date that any such prepayment is made by the Borrower. The
Borrower shall give the Agent, no later than 1:00 p.m. (Boston time), at
least one (1) Business Day prior written notice of any proposed prepayment
pursuant to this ss.4.3 of Base Rate Loans, and three (3) Eurocurrency
Business Days notice of any proposed prepayment pursuant to this ss.4.3 of
Eurocurrency Rate Loans, in each case specifying the proposed date of
prepayment, and the principal amount, Type and Tranche of Loans to be
prepaid.
(b) The UK Borrower shall have the right, at its election, to repay
the outstanding amount of the UK Acquisition Loans, as a whole or in part,
at any time without penalty or premium (but subject to ss.2.16). The UK
Borrower shall give the UK Fronting Lender (with a copy to the Agent), no
later than 10:00 a.m. (London time), at least three (3) Eurocurrency
Business Days notice of any proposed prepayment pursuant to this ss.4.3 of
Eurocurrency Rate Loans, in each case specifying the proposed date of
prepayment of UK Acquisition Loans and the principal amount to be prepaid.
(c) Each partial prepayment shall be in the principal amount of
$500,000 or an integral multiple thereof and shall be accompanied by the
payment of accrued interest on the principal prepaid to the date of
prepayment and shall be applied, in the absence of instruction by the
Borrower, first to principal of Base Rate Loans and then to principal of
Eurocurrency Rate Loans. Any partial prepayment of Eurocurrency Rate Loans
shall be in such amounts and be made pursuant to such elections so that,
after giving effect thereto, the aggregate principal amount of all
Eurocurrency Rate Loans having the same Interest Period shall not be less
than $5,000,000 or a whole multiple of $1,000,000 in excess thereof.
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(d) Each partial repayment or prepayment in respect of Loans of any
Tranche (whether voluntary, mandatory or scheduled) shall be applied pro
rata to such Loans based on the then outstanding amount of such Loans on
such prepayment date.
(e) Each prepayment of Term Loans, or, following the termination of
the Acquisition Loan Commitment Period, the Acquisition Loans and/or the
UK Acquisition Loans, pursuant to this ss.4.3 must consist of a prepayment
of Term Loans A (in an amount equal to the Term Loan A Percentage of such
prepayment), Term Loans B (in an amount equal to the Term Loan B
Percentage of such prepayment), Acquisition Loans (in an amount equal to
the Acquisition Loan Percentage of such prepayment), and UK Acquisition
Loans (in an amount equal to the UK Acquisition Loan Percentage of such
prepayment); provided, however, that during the Acquisition Loan
Commitment Period (x) a prepayment of Acquisition Loans shall not be
required to be accompanied by a prepayment of Term Loans or UK Acquisition
Loans, (y) a prepayment of UK Acquisition Loans shall not be required to
be accompanied by a prepayment of Acquisition Loans or Term Loans, and (z)
a prepayment of Term Loans shall not be required to be accompanied by a
prepayment of Acquisition Loans or UK Acquisition Loans. No amount prepaid
with respect to the Term Loans may be reborrowed. No amount prepaid,
following the termination of the Acquisition Loan Commitment Period, with
respect to the Acquisition Loans or the UK Acquisition Loans, may be
reborrowed.
(f) Each prepayment, pursuant to this ss.4.3, of (i) Acquisition
Loans and UK Acquisition Loans, following the termination of the
Acquisition Loan Commitment Period, shall be applied to reduce the then
remaining scheduled repayments of the respective Tranche being repaid on a
pro rata basis (based upon the then remaining principal amount of each
such scheduled repayment), and (ii) Term Loans shall be applied to reduce
the then remaining scheduled repayments of the respective Tranche being
repaid on a pro rata basis (based upon the then remaining principal amount
of each such scheduled repayment).
(g) Any Term Loan B Lender may elect, by notice to the Agent in
writing (or by telephone or telecopy promptly confirmed in writing) at
least one (1) Business day prior to any prepayment of Term Loans B being
made by the Borrower for the account of such Lender pursuant to this
ss.4.3, to cause all or a portion of such prepayment to be applied instead
to prepay the Term Loans A, and, following the termination of the
Acquisition Loan Commitment Period, the Acquisition Loans and the UK
Acquisition Loans, in accordance with ss.4.3.
4.4. Obligations Exceed Commitment or Borrowing Base.
(a) If at any time the sum of the outstanding (i) Revolving Credit
Loans, plus (ii) Letter of Credit Exposure plus (iii) Excess UK Working
Capital Outstandings exceeds the lesser of (x) the Total Revolving Credit
Commitment in effect at such time and (y) the Borrowing Base in effect at
such time, then the Borrower shall immediately pay the amount of such
excess to the Agent for the respective accounts of the Lenders for
application: first, to any Unpaid Reimbursement Obligations; second, to
the Revolving Credit Loans; and third, to provide to the Agent cash
collateral for Reimbursement Obligations as contemplated by ss.3.2(b) and
(c). Each payment of any Unpaid Reimbursement Obligations or
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prepayment of Revolving Credit Loans shall be allocated among Revolving
Credit Lenders, in proportion, as nearly as practicable, to Unpaid
Reimbursement Obligations or (as the case may be) the outstanding
Revolving Credit Loans of such Lender, with adjustments to the extent
practicable to equalize any prior payments or repayments not exactly in
proportion.
(b) If at any time during the Acquisition Loan Commitment Period the
sum of outstanding Acquisition Loans exceeds the Total Acquisition Loan
Commitment, then the Borrower shall immediately pay the amount of such
excess to the Agent for the respective accounts of the Acquisition Loan
Lenders for application to the Acquisition Loans. Each payment of any
portion of the Acquisition Loans shall be allocated among such Lenders
according to such Lenders' Acquisition Loan Commitment Percentage.
(c) If at any time during the Acquisition Loan Commitment Period the
sum of the Dollar Equivalent of all outstanding UK Acquisition Loans
exceeds the Total UK Acquisition Loan Commitment for any reason (including
fluctuations in currency rates) for a period of five (5) or more
consecutive Business Days, then the UK Borrower shall immediately pay the
amount of such excess to the UK Fronting Lender for application to the UK
Acquisition Loans.
4.5. Scheduled Payments of Principal of Term Loans A. The Borrower
promises to pay to the Agent for the account of the Lenders with Term Loans A
the principal amount of the Term Loans A in twenty (20) consecutive quarterly
installments with each installment payment due and payable on the last day of
each March, June, September and December (each such date a "Term Loan A Payment
Date"), commencing on March 31, 1999, with a final payment on the Term Loan A
Maturity Date in an amount equal to the unpaid balance of Term Loans A, together
with all accrued and unpaid interest thereon. The aggregate principal amount of
the Term Loans A due on each Term Loan A Payment Date shall be the amount
obtained by (i) multiplying (A) the outstanding aggregate principal amount of
Term Loans A on the Restatement Effective Date (after giving effect to the
continuations and conversions contemplated by ss.2.1(a)) by (B) the percentage
set forth below opposite the period during which such Term Loan A Payment Date
falls and (ii) dividing the product of clause (i) above by the number of Term
Loan A Payment Dates in such period.
Amortization
Date Percentage
---- ----------
March 31, 1999 through December 31, 1999 10.0%
January 1, 2000 through December 31, 2000 15.0%
January 1, 2001 through December 31, 2001 15.0%
January 1, 2002 through December 31, 2002 23.75%
January 1, 2003 through November 19, 2003 36.25%
Total 100%
4.6. Scheduled Payments of Principal of Term Loans B. The Borrower
promises to pay to the Agent for the account of the Lenders with Term Loans B
the principal amount of the Term Loans B in twenty-five (25)
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consecutive quarterly installments with each installment payment due and payable
on the last day of each March, June, September and December (each such date a
"Term Loan B Payment Date"), commencing on March 31, 1999, with a final payment
on the Term Loan B Maturity Date in an amount equal to the unpaid balance of
Term Loans B, together with all accrued and unpaid interest thereon. The
aggregate principal amount of the Term Loans B due on each Term Loan B Payment
Date shall be the amount obtained by (i) multiplying (A) the outstanding
aggregate principal amount of Term Loans B on the Restatement Effective Date
(after giving effect to the continuations and conversions contemplated by
ss.2.1(b)) by (B) the percentage set forth below opposite the period during
which such Term Loan B Payment Date falls and (ii) dividing the product of
clause (i) above by the number of Term Loan B Payment Dates in such period.
Amortization
Date Percentage
---- ----------
March 31, 1999 through December 31, 1999 1.0%
January 1, 2000 through December 31, 2000 1.0%
January 1, 2001 through December 31, 2001 1.0%
January 1, 2002 through December 31, 2002 1.0%
January 1, 2003 through December 31, 2003 1.0%
January 1, 2004 through December 31, 2004 47.5%
January 1, 2005 through February 1, 2005 47.5%
Total 100%
4.7. Scheduled Payments of Principal of Acquisition Loans and UK
Acquisition Loans.
(a) The Borrower promises to pay to the Agent for the account of the
Lenders with Acquisition Loans the aggregate principal amount of the
Acquisition Loans outstanding on the last day of the Acquisition Loan
Commitment Period in thirteen (13) equal consecutive quarterly
installments. Each such installment shall be due and payable on the last
day of each calendar quarter, commencing with the calendar quarter ended
December 31, 2000, with the remaining unpaid balance of the Acquisition
Loans being absolutely due and payable on the Acquisition Loan Maturity
Date, together with all accrued and unpaid interest thereon.
(b) The UK Borrower promises to pay to the UK Fronting Lender for
the account of the Lenders with UK Acquisition Loans the aggregate
principal amount of the UK Acquisition Loans outstanding on the last day
of the Acquisition Loan Commitment Period in thirteen (13) equal
consecutive quarterly installments. Each such installment shall be due and
payable on the last day of each calendar quarter, commencing with the
calendar quarter ended December 31, 2000, with the remaining unpaid
balance of the UK Acquisition Loans being absolutely due and payable on
the Acquisition Loan Maturity Date, together with all accrued and unpaid
interest thereon.
4.8. Revolving Credit Maturity Date. The Borrower promises to pay to the
Agent for the account of the Lenders with Revolving Credit Loans the aggregate
principal amount of the Revolving Credit Loans outstanding on the
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Revolving Credit Loan Maturity Date, and there shall become absolutely due and
payable on the Revolving Credit Loan Maturity Date all of the Revolving Credit
Loans outstanding on such date, together with all accrued and unpaid interest
thereon.
4.9. Certain Mandatory Prepayments of Loans.
(a) The Borrower or the UK Borrower, as the case may be, will prepay
the Loans, in accordance with the allocation and application provisions of
ss.4.10, on the date of receipt by the Borrower or any of its Subsidiaries
of any of the amounts described below, by the amount described below:
(i) Asset Sales. One hundred percent (100%) of the Net Cash
Proceeds from any sale or other disposition of Property (including
any sale or other disposition of Capital Stock of any Subsidiary of
the Borrower) of the Borrower or any of its Subsidiaries (other than
Net Cash Proceeds from (x) the sale or other disposition of
inventory in the ordinary course of business consistent with past
practices, (y) the sale or other disposition of equipment in the
ordinary course of business, to the extent that the Borrower
delivers a certificate to the Agent on or prior to the date of
receipt stating that such Net Cash Proceeds shall be reinvested in
the ordinary course of business in replacement assets in which the
Agent shall have a perfected first priority security interest for
the benefit of the Agent and the Lenders (subject only to Permitted
Liens) within a period specified in such certificate not to exceed
180 days after the receipt of such Net Cash Proceeds (which
certificate shall set forth the Borrower's estimate of the proceeds
to be so expended); provided, that if any portion of such proceeds
are not so used within the period specified in such certificate,
such remaining portion of such Net Cash Proceeds shall be applied to
prepay the Loans on the last day of such period, and (z) other sales
or dispositions of Property so long as the aggregate amount of Net
Cash Proceeds from such asset sales or dispositions does not exceed
$100,000 in the aggregate for all such sales or dispositions in any
fiscal year of the Borrower).
(ii) Recovery Events. One hundred percent (100%) of the cash
proceeds from any Recovery Event (net of any reasonable costs
incurred in connection with such Recovery Event ), provided, that
such cash proceeds not in excess of $10,000,000 in the aggregate for
all Recovery Events received during any fiscal year of the Borrower
shall not be required to be so applied on such date to the extent
that (A) the Borrower shall have demonstrated to the reasonable
satisfaction of the Agent (based on, among other things, operating
and financial projections and pro forma financial statements
delivered to the Agent and certified by the Borrower's chief
financial officer) that, after giving effect to the receipt and
application of such proceeds, all covenants (including covenants
contained in ss.11 of this Agreement) contained herein (x) would
have been satisfied on a pro forma basis as at the end of and for
the Most Recent Reference Period, and (y) will be satisfied on a pro
forma basis through the period ending two years after receipt of
such proceeds and (B) the Borrower delivers to the Agent on or prior
to such date a certificate stating that such cash proceeds shall be
used to replace or restore any Property in respect of which such
proceeds were paid within a period specified in such certificate not
to exceed 180 days
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after the date of receipt of such proceeds (which certificate shall
set forth the Borrower's estimate of the proceeds to be so
expended); and provided further, that if any portion of such
proceeds are not so used within the period specified in the
foregoing proviso, such remaining portion of such cash proceeds
shall be applied to prepay the Loans on the last day of such period.
(iii) Debt Issuances. One hundred percent (100%) of the Net
Cash Proceeds from any issuance, incurrence or disposition of any
Indebtedness (other than the issuance or incurrence of Indebtedness
permitted pursuant to ss.10.1).
(iv) Equity Issuances. Fifty percent (50%) of Net Cash
Proceeds from any issuance by the Borrower of any Equity Interests
and one hundred percent (100%) of any Net Cash Proceeds from any
issuance by any Subsidiary of the Borrower of any Equity Interests,
provided that
(A) Net Cash Proceeds of Equity Interests of the
Borrower issued to officers or employees of the Borrower or
any of its Subsidiaries ("Employee Stock Proceeds") shall not
be required to be applied to prepay the Loans on the date of
the receipt thereof (unless such date of receipt is also a
date specified below) but instead shall be required to be paid
on each date on which the aggregate amount of such Employee
Stock Proceeds received during the period commencing on the
later of (x) the Original Closing Date and (y) the date on
which a mandatory prepayment was most recently made pursuant
to this ss.4.9(a)(iv) as a result of the receipt of Employee
Stock Proceeds and ending on the date of determination (the
"Employee Stock Proceeds Payment Period"), equals $100,000,
with the amount of the prepayments required on each such date
to equal fifty percent (50%) of the aggregate amount of
Employee Stock Proceeds received on or before such date during
the applicable Employee Stock Proceeds Payment Period;
(B) Net Cash Proceeds of Permitted Disqualified Capital
Stock issued and sold by the Borrower after the Original
Closing Date in compliance with the requirements of ss.10.7(b)
shall not be required to be applied to prepay the Loans if all
such Net Cash Proceeds are used substantially concurrently
with such issuance to finance a Permitted Acquisition;
(C) Up to $30,000,000 of Net Cash Proceeds of Permitted
Capital Stock issued and sold by the Borrower after the
Original Closing Date in compliance with the requirements of
ss.10.7(c) shall not be required to be applied to prepay the
Loans if
(x) all such Net Cash Proceeds are used
substantially concurrently with such issuance to finance
a Permitted Acquisition; or
(y) the Borrower notifies the Agent in writing
prior to its receipt of such Net Cash Proceeds that it
intends to
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use such Net Cash Proceeds to finance a Permitted
Acquisition, and each of the following conditions
precedent is satisfied:
(1) such Net Cash Proceeds are deposited
into the Prepayment Obligations Cash Collateral
Account pending application of such Net Cash
Proceeds, in which event the Agent need not
release such Net Cash Proceeds to the Borrower
except upon presentation of evidence satisfactory
to the Agent that such Net Cash Proceeds are to be
applied in accordance with the provisions of this
Agreement; and
(2) such Net Cash Proceeds are in fact so
used to finance a Permitted Acquisition during the
Acquisition Loan Commitment Period;
if any such Net Cash Proceeds are not used to finance a
Permitted Acquisition during the Acquisition Loan
Commitment Period, such Net Cash Proceeds shall
forthwith be used and applied in the manner required for
Net Cash Proceeds governed by ss.4.9(a)(iv) but not by
this subparagraph (C) (e.g., if the Borrower receives
$30,000,000 of Net Cash Proceeds from its issuance of
Permitted Capital Stock, gives the notice required by
clause (y) of this subparagraph (C), deposits such Net
Cash Proceeds as required by subclause (1) above, does
not use any of such Net Cash Proceeds during the
Acquisition Loan Commitment Period, and, at the end of
the Acquisition Loan Commitment Period, has not used any
of the $20,000,000 basket amount of subparagraph (D) of
ss.4.9(a)(iv), the result would be as follows:
$20,000,000 of such Net Cash Proceeds would utilize in
full the $20,000,000 basket amount of subparagraph (D)
of ss.4.9(a)(iv), and would not be required to be used
to prepay the Loans, and fifty percent (50%) of the
$10,000,000 balance of such Net Cash Proceeds would be
required to be used forthwith to prepay the Loans, in
accordance with the allocation and application
provisions of ss.4.10).
(D) Up to an additional $20,000,000 of Net Cash Proceeds
of Permitted Capital Stock issued and sold by the Borrower
after the Original Closing Date in compliance with the
requirements of ss.10.7(c) shall not be required to be applied
to prepay the Loans.
(v) Acquisition Proceeds. One hundred percent (100%) of the
cash proceeds (net of reasonable expenses incurred in connection
with obtaining such proceeds) received by the Borrower or any of its
Subsidiaries pursuant to any Acquisition Document, including
indemnification or similar payments and post-closing adjustments,
but excluding, in each case, reimbursement of out-of-pocket costs
and expenses.
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(b) Excess Cash Flow. Not later than the earlier to occur of (i)
ninety (90) days after the end of each fiscal year of the Borrower,
commencing with the fiscal year ending December 31, 1999, and (ii) the
date on which the financial statements with respect to such fiscal year
are delivered pursuant to ss.9.4(a), the Borrower shall prepay the Loans
in accordance with ss.4.10 in an aggregate amount equal to (A)
seventy-five percent (75%) of Consolidated Excess Cash Flow for such
fiscal year, or (B) if the Leverage Ratio as of the last day of such
fiscal year is less than 3.5:1, fifty percent (50%) of Consolidated Excess
Cash Flow for such fiscal year. Notwithstanding the foregoing, the amount
of any Excess Cash Flow prepayment pursuant to this paragraph (b) shall
not exceed that amount which, if paid on the last day of the fiscal year
ended immediately prior to such prepayment, would have left the Borrower
and its Subsidiaries with not less than the Dollar Equivalent of
$20,000,000 of cash and Cash Equivalents as of such last day.
(c) Notice of Prepayment. The Borrower shall deliver to the Agent,
at the time of any prepayment required under this ss.4.9, (i) a
certificate signed by a financial officer of the Borrower setting forth in
reasonable detail the calculation of the amount of such prepayment and
(ii) to the extent practicable, at least three (3) days prior written
notice of such prepayment. Each notice of prepayment shall specify the
prepayment date, the Type and Tranche of each Loan being prepaid and the
principal amount of each Loan (or portion thereof) to be prepaid. All
prepayments of Loans under this ss.4.9 shall be subject to ss.2.16, but
shall (except as provided in the next sentence) be otherwise without
premium or penalty. Any prepayment of Term Loans B during the period from
the Original Closing Date through the first anniversary of the Original
Closing Date shall be subject to a prepayment premium of one percent (1%)
of the total amount of such prepayment. Such prepayment premium shall be
due and payable on the date that any such prepayment is made.
4.10. Application of Mandatory Prepayments.
(a) Whenever any mandatory prepayment is required to be made
pursuant to ss.4.9, such prepayment shall be applied by the Agent in the
following order:
first, to (A) prior to the termination of the Acquisition Loan
Commitment Period, first to prepay the principal of outstanding Term
Loans A and Term Loans B on a pro rata basis, with the Term Loans A
to receive the Term Loan A Percentage and the Term Loans B to
receive the Term Loan B Percentage, in each case, of the total
amount to be applied as a mandatory prepayment of Term Loans
pursuant to this ss.4.10, and which prepayments of such Term Loans
shall be applied to reduce the then remaining scheduled installments
of principal due on the respective Tranche pro rata (based on the
then remaining scheduled installment payments of the respective
Tranche), and second to prepay the outstanding principal of the
Acquisition Loans and the UK Acquisition Loans on a pro rata basis,
and (B) after the termination of the Acquisition Loan Commitment, to
prepay the principal of outstanding Term Loans A, Term Loans B,
Acquisition Loans and UK Acquisition Loans on a pro rata basis, with
the Term Loans A to receive the Term Loan A Percentage, the Term
Loans B to receive the Term Loan B Percentage, the Acquisition Loans
to receive the Acquisition Loan Percentage, and the UK Acquisition
Loans to receive the UK Acquisition Loan Percentage, in each case,
of the total amount to be
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applied as a mandatory prepayment of Term Loans, Acquisition Loans
and UK Acquisition Loans pursuant to this ss.4.10, and which
prepayments of such Term Loans, Acquisition Loans and UK Acquisition
Loans shall be applied to reduce the then remaining scheduled
installments of principal due on the respective Tranche pro rata
(based on the then remaining scheduled installment payments of the
respective Tranche),
second, to prepay the outstanding principal of the Revolving
Credit Loans;
third, to pay outstanding Reimbursement Obligations;
fourth, to cash collateralize Letter of Credit Exposure by
depositing cash into the Letter of Credit Cash Collateral Account in
an amount equal to such Letter of Credit Exposure.
(b) Any Term Loan B Lender may elect, by notice to the Agent in
writing (or by telephone or telecopy promptly confirmed in writing) at
least one (1) Business Day prior to any prepayment of Term Loans B
required to be made by the Borrower for the account of the such Lender
pursuant to ss.4.9, to refuse such prepayment of such Term Loans B. Any
amount so refused by any Term Loan B Lender shall be applied as provided
in paragraph (a) above.
(c) With respect to each prepayment required by ss.4.9, the Borrower
may designate the Types of Loans which are to be repaid, and, in the case
of Eurocurrency Rate Loans, the specific borrowings of the respective
Tranche pursuant to which made; provided, that (i) repayments of
Eurocurrency Rate Loans under this ss.4.10 may only be made on the last
day of an Interest Period applicable thereto unless all Eurocurrency Rate
Loans of the respective Tranche with Interest Periods ending on such date
of required payment and all Base Rate Loans of the respective Tranche have
been paid in full; (ii) in the event that any prepayment of Eurocurrency
Rate Loans shall be in such amounts and be made pursuant to such elections
so that, after giving effect thereto, the aggregate principal amount of
all Eurocurrency Rate Loans having the same Interest Period shall be less
than $5,000,000 or a whole multiple of $1,000,000 in excess thereof, such
Loans shall be immediately converted into Base Rate Loans; and (iii) each
prepayment in respect of any Loans shall be applied pro rata among such
Loans. In the absence of a designation by the Borrower as described in the
preceding sentence, the Agent shall, subject to the above, make such
designation in its sole discretion.
4.11. Change in Control. Upon the occurrence of any Change in Control, the
Borrower shall immediately prepay all the outstanding Obligations, and deposit
cash into the Letter of Credit Cash Collateral Account to secure Reimbursement
Obligations in accordance with ss.3.2.
5. FEES; TAXES; ETC.
5.1. Fees.
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(a) Closing Fees. The Borrower has paid to the Agent on the Original
Closing Date the funding fees and closing fees payable by the Borrower
pursuant to the Fee Letter.
(b) Agent's Fee and Other Fees. The Borrower shall pay to the Agent
(i) an agent's fee at the time and in the amounts required by the Fee
Letter, and (ii) any other fees or amounts required by the Commitment
Letter or the Fee Letter, as and when required by the Commitment Letter or
Fee Letter, as applicable.
(c) Commitment Fees.
(i) Revolving Credit Commitment Fee; Acquisition Commitment
Fee. The Borrower agrees to pay to the Agent, with respect to each
calendar quarter or portion thereof ending after the Original
Closing Date, for the account of the Lenders with a Commitment in
the respective Tranche, in accordance with their respective
Revolving Credit Commitment Percentages and Acquisition Loan
Commitment Percentages, (A) a Revolving Credit Loan commitment fee
(the "Revolving Credit Commitment Fee") and (B) an Acquisition Loan
commitment fee (the "Acquisition Commitment Fee") in an amount equal
to the Applicable Margin for the applicable Commitment Fee then in
effect per annum multiplied by, respectively, (x) the average daily
amount during such calendar quarter or portion thereof by which the
Total Revolving Credit Commitment exceeds the outstanding amount of
such Revolving Credit Loans and all Letter of Credit Exposure or (y)
the average daily amount during such calendar quarter or portion
thereof by which the Total Acquisition Loan Commitment exceeds the
outstanding amount of the Acquisition Loan. The Revolving Credit
Commitment Fee and the Acquisition Commitment Fee shall be payable
quarterly in arrears, on the first day of each calendar quarter for
the immediately preceding calendar quarter (or portion thereof),
commencing on the first such date following the Original Closing
Date and with a final payment on, respectively, (A) the Revolving
Credit Loan Maturity Date or any earlier date on which the Revolving
Credit Commitments shall terminate and (B) the last day of the
Acquisition Loan Commitment Period or any earlier date on which the
Total Acquisition Loan Commitment shall terminate.
(ii) UK Acquisition Commitment Fee. The UK Borrower agrees to
pay to the UK Fronting Lender, with respect to each calendar quarter
or portion thereof ending after the Original Closing Date, for the
account of the Lenders with a UK Acquisition Loan Commitment, in
accordance with their respective UK Acquisition Loan Commitment
Percentages, a UK Acquisition Loan commitment fee (the "UK
Acquisition Commitment Fee") in an amount equal to the Applicable
Margin for the UK Acquisition Commitment Fee then in effect per
annum multiplied by the average daily amount during such calendar
quarter or portion thereof by which the Total UK Acquisition Loan
Commitment exceeds the outstanding amount of the UK Acquisition
Loan. The UK Acquisition Commitment Fee shall be payable quarterly
in arrears, on the first day of each calendar quarter for the
immediately preceding calendar quarter (or portion thereof),
commencing on the first such date following the Original Closing
Date and with a final payment on the last day of the Acquisition
Loan Commitment Period or any earlier date on which the Total UK
Acquisition Loan Commitment shall terminate.
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(iii) Intentionally Omitted.
(iv) Distribution of UK Acquisition Commitment Fee. Promptly
after receipt by the UK Fronting Lender of UK Acquisition Commitment
Fees pursuant to ss.5.1(c)(ii), the UK Fronting Lender shall pay to
the Agent, for the ratable accounts of each Acquisition Loan Lender,
the amount of such UK Acquisition Commitment Fees actually received
by the UK Fronting Lender (other than any such fees payable for the
account of any Defaulting Lender, which proceeds shall be retained
by the UK Fronting Lender for its own account). Such amount shall be
paid by the Agent to the Acquisition Loan Lenders ratably in
accordance with their respective UK Acquisition Loan Commitment
Percentages.
(d) Letter of Credit Fees. The Borrower shall pay a fee (in each
case, a "Letter of Credit Fee") to the Issuing Bank in respect of each
Letter of Credit, in an amount equal to the Applicable Margin for
Eurocurrency Rate A Loans then in effect per annum multiplied by the
average daily aggregate Maximum Drawing Amount of all Letters of Credit,
and payable quarterly in arrears on the first Business Day of each
calendar quarter with respect to the previous calendar quarter. The
Issuing Bank shall distribute the Letter of Credit Fee among the Revolving
Credit Lenders pro rata in accordance with such Lenders' Revolving Credit
Commitment Percentages. In addition, the Borrower shall pay to the Issuing
Bank, solely for the account of the Issuing Bank, (i) the Issuing Bank's
customary issuance, processing, negotiation, amendment and administrative
fees, determined in accordance with customary fees and charges for similar
facilities, and (ii) a fronting fee (the "Fronting Fee") equal to one
quarter of one percent (0.25%) of the Maximum Drawing Amount of each
Letter of Credit, payable upon the issuance of such Letter of Credit.
(e) UK Fronting Fee. The UK Borrower agrees to pay to the UK
Fronting Lender for its own account a fronting fee (the "UK Fronting Fee")
of one-quarter of one percent (.25%) per annum on the Dollar Equivalent of
the average principal amount of UK Acquisition Loans outstanding during
the immediately preceding calendar month. The UK Fronting Fee shall be
payable in arrears on the first day of each month, commencing on the first
such date following the Original Closing Date, and on the Acquisition Loan
Maturity Date, or any earlier date on which the Total UK Acquisition Loan
Commitment has terminated.
5.2. Funds for Payments.
(a) Payment to Agent. All payments by the Borrower of principal,
interest, Reimbursement Obligations, Fees and any other amounts due from
the Borrower hereunder or under any of the other Loan Documents shall be
made to the Agent, for the respective accounts of the Lenders with a
Commitment in the Loans of the respective Tranche and the Agent, at the
Agent's Head Office or at such other location that the Agent may from time
to time designate, in each case on or before 2:00 p.m. (Boston,
Massachusetts, time or other local time at the place of payment), in
immediately available funds. All payments by the UK Borrower of principal,
interest, Fees, and any other amounts due from the UK Borrower hereunder
or under any of the other Loan Documents shall be made to the UK Fronting
Lender, at the UK Office of the UK Fronting Lender, or at such other
location that the UK Fronting Lender may from time to time designate, in
each case on
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or before 11:00 a.m. (London, England, time or other local time at the
place of payment), in immediately available funds.
(b) No Offset, etc. All payments by any of the Transaction Parties
hereunder and under any of the other Loan Documents shall be made without
setoff or counterclaim and free and clear of and without deduction for any
taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein (including the
United States, the United Kingdom or any political subdivision in or of
the United States, the United Kingdom or any other jurisdiction from or to
which a payment is made by or on behalf of the Transaction Parties or by
any federation or organization of which the United States, the United
Kingdom or any such jurisdiction is a member at the time of payment)
unless such Transaction Party is compelled by law to make such deduction
or withholding. If any such obligation is imposed upon any of the
Transaction Parties with respect to any amount payable by it hereunder or
under any of the other Loan Documents, such Transaction Party will pay to
the Agent, for the account of (i) the Lenders with a Commitment in Loans
of the respective Tranche, (ii) in the event of the termination of any
Commitment, the Lenders with outstanding Loans of the respective Tranche,
or (as the case may be), (iii) the Agent, on the date on which such amount
is due and payable hereunder or under such other Loan Document, such
additional amount in Dollars as shall be necessary to enable the Lenders
or the Agent to receive the same net amount which such Lenders or the
Agent would have received on such due date had no such obligation been
imposed upon such Transaction Party. Each of the Transaction Parties will
deliver promptly to the Agent certificates or other valid vouchers for all
taxes or other charges deducted from or paid with respect to payments made
by such Transaction Party hereunder or under such other Loan Document.
5.3. Computations. All computations of interest on (a) Base Rate Loans and
of Fees shall, unless otherwise expressly provided herein, be based on a 365-day
year and paid for the actual number of days elapsed, and (b) Eurocurrency Rate
Loans shall, unless otherwise expressly provided herein, be based on a 360-day
year (except as may otherwise be in accordance with the UK Fronting Lender's
customary method of calculation of interest and fees) and paid for the actual
number of days elapsed. Except as otherwise provided in the definition of the
term "Interest Period" with respect to Eurocurrency Rate Loans, whenever a
payment hereunder or under any of the other Loan Documents becomes due on a day
that is not a Business Day, the due date for such payment shall be extended to
the next succeeding Business Day, and interest shall accrue during such
extension.
5.4. Currency of Account.
(a) Dollars are the currency of account and payment for each and
every sum at any time due from the Transaction Parties hereunder; provided
that:
(i) each repayment or prepayment of a UK Acquisition Loan or a
part thereof shall be made in the Applicable Currency in which such
Loan is denominated at the time of that repayment;
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(ii) each payment of interest shall be made in the Applicable
Currency in which the sum in respect of which such interest is
payable is denominated, and each payment of UK Fronting Fees shall
be made in the Applicable Currency in which the sum in respect of
which such fees are payable is denominated;
(iii) each payment in respect of costs, expenses and
indemnities shall be made in the Applicable Currency in which the
same were incurred; and
(iv) any amount expressed to be payable in a currency other
than Dollars shall be paid in that other currency.
(b) No payment to the Agent, the Arranger, the Issuing Bank or any
Lender (whether under any judgment or court order or otherwise) shall
discharge the obligation or liability in respect of which it was made
unless and until the Agent, the Arranger, the Issuing Bank or such Lender
shall have received payment in full in the currency in which such
obligation or liability was incurred, and to the extent that the amount of
any such payment shall, on actual conversion into such currency, fall
short of such obligation or liability actual or contingent expressed in
that currency, the applicable Borrower shall indemnify and hold harmless
the Agent, the Arranger, the Issuing Bank or such Lender, as the case may
be, with respect to the amount of the shortfall.
5.5. Judgment Currency. If any sum due from any of the Transaction Parties
under this Agreement or any order or judgment given or made in relation hereto
has to be converted from the currency (the "first currency") in which the same
is payable hereunder or under such order or judgment into another currency (the
"second currency") for the purpose of (a) making or filing a claim or proof
against such Transaction Party, (b) obtaining an order or judgment in any court
or other tribunal or (c) enforcing any order or judgment given or made in
relation hereto, such Transaction Party shall indemnify and hold harmless each
of the Persons to whom such sum is due from and against any loss suffered as a
result of any discrepancy between (i) the rate of exchange used for such purpose
to convert the sum in question from the first currency into the second currency
and (ii) the rate or rates of exchange at which such Person may in the ordinary
course of business purchase the first currency with the second currency upon
receipt of a sum paid to it in satisfaction, in whole or in part, of any such
order, judgment, claim or proof.
6. COLLATERAL SECURITY AND GUARANTEE.
6.1. Security of Borrower. All the Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted Liens
entitled to priority under Applicable Law) in all of the assets of the Borrower
(with such exceptions as contemplated by this Agreement or which are acceptable
to the Required Lenders), including all Capital Stock of any direct Subsidiary
of the Borrower (but excluding thirty-five percent (35%) of the Capital Stock of
each such direct Subsidiary which is a UK Subsidiary), and all intercompany
obligations owing to the Borrower, in each case wherever located and whether now
owned or hereafter acquired, pursuant to the terms of the Security Documents to
which the Borrower is a party.
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6.2. Guarantee and Security of Guarantors. All Obligations shall also be
guaranteed pursuant to the terms of the Guarantee. The Obligations of each
Guarantor shall be secured by a perfected first priority security interest
(subject only to Permitted Liens entitled to priority under Applicable Law) in
all of the assets of such Guarantor (with such exceptions as are contemplated by
this Agreement or which are acceptable to the Required Lenders) including all
Capital Stock of any direct Subsidiary of any Guarantor (but excluding
thirty-five percent (35%) of the Capital Stock of each such direct Subsidiary
which is a UK Subsidiary), and all intercompany obligations owing to such
Guarantor, in each case wherever located and whether now owned or hereafter
acquired, pursuant to the terms of the Security Documents to which such
Guarantor is a party.
6.3. Security for and Guarantee of UK Obligations. The UK Obligations
shall be secured by a perfected first priority Lien on and a first fixed and
floating charge over (subject only to Permitted Liens on certain assets entitled
to priority under Applicable Law) (a) all of the assets which secure the
Obligations of the Borrower or of any Guarantor, (b) certain assets of the UK
Borrower and any other UK Subsidiary, whether now owned or hereafter acquired,
to the extent such a fixed and floating charge would not constitute the giving
of unlawful financial assistance for the purposes of sections 151 to 158 of the
Companies Act 1985 (England), provided, however, that to the extent that the UK
Borrower or a UK Subsidiary cannot comply with any of the requirements of this
clause (b) due to the applicability of sections 151 to 158 of the Companies Act
1985 (England), the UK Borrower and/or a UK Subsidiary shall have completed a
Whitewash Procedure within ten (10) days after the closing of any Acquisition
whereby such assets were acquired and (c) a first priority pledge of, and fixed
charge over, all of the Capital Stock of the UK Borrower and any other UK
Subsidiary which is now or hereafter owned by any Transaction Party, in each
case to the extent contemplated by the Security Documents; provided, however,
that notwithstanding anything herein to the contrary, in the case of
Acquisitions by the UK Borrower or a UK Subsidiary of the Capital Stock of one
or more UK Companies the aggregate purchase price of which does not exceed the
Dollar Equivalent of $3,000,000, the UK Obligations shall not be secured by all
Acquired Assets of such UK Companies to the extent that the Borrower or any of
its Affiliates would need to undergo a Whitewash Procedure solely in order to
provide such Acquired Assets of such UK Companies as security for such UK
Obligations, but instead such UK Obligations shall be secured solely by the
security set forth in clause (a) and (c) above with respect to such acquired UK
Companies.
7. GUARANTEE.
7.1. Guarantee of Payment and Performance. Each of the Guarantors hereby
jointly and severally guarantees to the Lenders, the Issuing Bank and the Agent
the full and punctual payment when due (whether at stated maturity, by required
prepayment, by acceleration or otherwise), as well as the performance, of all of
the Obligations including all such which would become due but for the operation
of the automatic stay pursuant to ss.362(a) of the Federal Bankruptcy Code and
the operation of ss.ss.502(b) and 506(b) of the Federal Bankruptcy Code. This
Guarantee is an absolute, unconditional and continuing guarantee of the full and
punctual payment and performance of all of the Obligations and not of their
collectability only and is in no way
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conditioned upon any requirement that any Agent, the Issuing Bank or any Lender
first attempt to collect any of the Obligations from the Borrower or resort to
any collateral security or other means of obtaining payment. Should any of the
Borrowers default in the payment or performance of any of the Obligations, the
obligations of the Guarantors hereunder with respect to such Obligations in
default shall, upon demand by the Agent, become immediately due and payable to
the Agent, for the benefit of the Lenders, the Issuing Bank and the Agent,
without any other requirements for demand or notice of any nature, all of which
are expressly waived by each of the Guarantors. Payments by the Guarantors
hereunder may be required by the Agent on any number of occasions. All payments
by any of the Guarantors hereunder shall be made to the Agent, in the manner and
at the place of payment specified therefor in ss.5 hereof, for the account of
the Lenders, the Issuing Bank and the Agent.
7.2. Guarantors' Agreement to Pay Enforcement Costs, etc. Each of the
Guarantors further jointly and severally agrees, as the principal obligor and
not as a guarantor only, to pay to the Agent, on demand, all reasonable
out-of-pocket costs and expenses (including court costs and legal expenses,
including, in the case of the occurrence and continuation of a Default or Event
of Default, the allocated cost of staff counsel) incurred or expended by any
Agent, the Issuing Bank or any Lender in connection with the Obligations, this
Guarantee and the enforcement thereof, together with interest on amounts
recoverable under this ss.7 from the time when such amounts become due until
payment, whether before or after judgment, at the rate of interest for overdue
principal set forth in ss.2.8 hereof, provided that if such interest exceeds the
maximum amount permitted to be paid under applicable law, then such interest
shall be reduced to such maximum permitted amount.
7.3. Waivers by the Guarantors; Lenders' Freedom to Act. Each of the
Guarantors agrees that the Obligations will be paid and performed strictly in
accordance with their respective terms, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of any Agent, the Issuing Bank or any Lender with respect thereto.
Each of the Guarantors waives promptness, diligence, presentment, demand,
protest, notice of acceptance, notice of any Obligations incurred and all other
notices of any kind, all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in effect,
any right to require the marshalling of assets of any of the Borrowers or any
other entity or other Person primarily or secondarily liable with respect to any
of the Obligations, and all suretyship defenses generally. Without limiting the
generality of the foregoing, each of the Guarantors agrees to the provisions of
any instrument evidencing, securing or otherwise executed in connection with any
Obligation and agrees that the obligations of such Guarantor hereunder shall not
be released or discharged, in whole or in part, or otherwise affected by (a) the
failure of any Agent, the Issuing Bank or any Lender to assert any claim or
demand or to enforce any right or remedy against any of the Borrowers or any
other entity or other person primarily or secondarily liable with respect to any
of the Obligations; (b) any extension, compromise, refinancing, consolidation or
renewal of any Obligation; (c) any change in the time, place or manner of
payment of any of the Obligations or any rescissions, waivers, compromise,
refinancing, consolidation or other amendments or modifications of any of the
terms or provisions of this Agreement, the other Loan Documents or any other
agreement evidencing, securing or otherwise
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executed in connection with any of the Obligations, (d) the addition,
substitution or release of any entity or other person primarily or secondarily
liable for any Obligation; (e) theadequacy of any rights which any Agent, the
Issuing Bank or any Lender may have against any collateral security or other
means of obtaining repayment of any of the Obligations; (f) the impairment of
any collateral securing any of the Obligations, including without limitation the
failure to perfect or preserve any rights which any Agent, the Issuing Bank or
any Lender might have in such collateral security or the substitution, exchange,
surrender, release, loss or destruction of any such collateral security; or (g)
any other act or omission which might in any manner or to any extent vary the
risk of such Guarantor or otherwise operate as a release or discharge of such
Guarantor, all of which may be done without notice to such Guarantor (it being
understood, however, that any Guarantor may make inquiries to the Agent as to
the amount of the outstanding Obligations at any time). To the fullest extent
permitted by law, each of the Guarantors hereby expressly waives any and all
rights or defenses arising by reason of (i) any "one action" or
"anti-deficiency" law which would otherwise prevent any Agent, the Issuing Bank
or any Lender from bringing any action, including any claim for a deficiency, or
exercising any other right or remedy (including any right of set-off), against
such Guarantor before or after such Agent's, the Issuing Bank's or such Lender's
commencement or completion of any foreclosure action, whether judicially, by
exercise of power of sale or otherwise, or (ii) any other law which in any other
way would otherwise require any election of remedies by any Agent, the Issuing
Bank or any Lender.
7.4. Unenforceability of Obligations Against Borrowers. If for any reason
any of the Borrowers has no legal existence or is under no legal obligation to
discharge any of the Obligations, or if any of the Obligations have become
irrecoverable from any of the Borrowers by reason of such Borrower's insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this Guarantee shall nevertheless be binding on each of the Guarantors
to the same extent as if each such Guarantor at all times had been the principal
obligor on all such Obligations. In the event that acceleration of the time for
payment of any of the Obligations is stayed upon the insolvency, bankruptcy or
reorganization of any of the Borrowers, or for any other reason, all such
amounts otherwise subject to acceleration under the terms of this Agreement, the
other Loan Documents or any other agreement evidencing, securing or otherwise
executed in connection with any Obligation shall be immediately due and payable
by each of the Guarantors.
7.5. Subrogation; Subordination.
(a) Postponement of Rights Against Borrowers. Until the final
payment and performance in full in cash of all of the Obligations: none of
the Guarantors shall exercise any rights against any of the Borrowers or
any other Guarantor arising as a result of payment by each such Guarantor
hereunder, by way of subrogation, reimbursement, restitution, contribution
or otherwise, and will not prove any claim in competition with the Agent,
the Issuing Bank or any Lender in respect of any payment hereunder in any
bankruptcy, insolvency or reorganization case or proceedings of any
nature; none of the Guarantors will claim any setoff, recoupment or
counterclaim against any of the Borrowers in respect of any liability of
any such Guarantor to such Borrower; and each of the Guarantors waives any
benefit of and any right to participate in any collateral security which
may be held by the Agent, the Issuing Bank or any Lender.
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(b) Subordination. The payment of any amounts due with respect to
any indebtedness of any of the Borrowers for money borrowed or credit
received now or hereafter owed to any of the Guarantors is hereby
subordinated to the prior payment in full in cash of all of the
Obligations. Each of the Guarantors agrees that such Guarantor will not
demand, sue for or otherwise attempt to collect any such indebtedness of
any of the Borrowers to such Guarantor until all of the Obligations shall
have been paid in full. If, notwithstanding the foregoing sentence, any of
the Guarantors shall collect, enforce or receive any amounts in respect of
such indebtedness while any Obligations are still outstanding, such
amounts shall be collected, enforced and received by such Guarantor as
trustee for the Lenders, the Issuing Bank and the Agent and be paid over
to the Agent, for the benefit of the Lenders, the Issuing Bank and the
Agent, on account of the Obligations without affecting in any manner the
liability of the Guarantors under the other provisions of this Guarantee.
(c) Provisions Supplemental. The provisions of this ss.7.5 shall be
supplemental to and not in derogation of any rights and remedies of the
Lenders, the Issuing Bank and the Agent under any separate subordination
agreement which the Agent may at any time and from time to time enter into
with any of the Guarantors for the benefit of the Lenders, the Issuing
Bank and the Agent.
7.6. Security; Setoff. Each of the Guarantors grants to each of the Agent,
the Issuing Bank and the Lenders, as security for the full and punctual payment
and performance of all of the Guarantors' obligations hereunder, a continuing
lien on and security interest in all securities or other property belonging to
each such Guarantor now or hereafter held by such Agent, the Issuing Bank or
such Lender and in all deposits (general or special, time or demand, provisional
or final) and other sums credited by or due from such Agent, the Issuing Bank or
such Lender to such Guarantor or subject to withdrawal by such Guarantor.
Regardless of the adequacy of any collateral security or other means of
obtaining payment of any of the Obligations, each of the Agent, the Issuing Bank
and the Lenders is hereby authorized at any time and from time to time, without
notice to any of the Guarantors (any such notice being expressly waived by each
of the Guarantors) and to the fullest extent permitted by law, to set off and
apply such deposits and other sums against the obligations of such Guarantor
under this Guaranty, whether or not such Agent, the Issuing Bank or such Lender
shall have made any demand under this Guarantee and although such obligations
may be contingent or unmatured.
7.7. Further Assurances. Each of the Guarantors agrees that it will from
time to time, at the request of the Agent, do all such things and execute all
such documents as the Agent may consider necessary or desirable to give full
effect to this Guarantee and to perfect and preserve the rights and powers of
the Lenders, the Issuing Bank and the Agent hereunder. Each of the Guarantors
acknowledges and confirms that such Guarantor itself has established its own
adequate means of obtaining from the Transaction Parties on a continuing basis
all information desired by such Guarantor concerning the financial condition of
the Transaction Parties and that such Guarantor will look to the other
Transaction Parties and not to the Agent, the Issuing Bank or any Lender in
order for such Guarantor to keep adequately informed of changes in the financial
condition of the Transaction Parties.
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7.8. Termination. Notwithstanding any termination of this Guarantee, this
Guarantee shall continue to be effective or be reinstated, if at any time any
payment made or value received with respect to any Obligation is rescinded or
must otherwise be returned by any Agent, the Issuing Bank or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower, any Guarantor, or
otherwise, all as though such payment had not been made or value received.
7.9. Successors and Assigns. This Guarantee shall be binding upon each of
the Guarantors, its successors and assigns, and shall inure to the benefit of
the Agent, the Issuing Bank and the Lenders and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing
sentence, each Lender may, in accordance with the provisions of ss.16, assign or
otherwise transfer this Agreement, the other Loan Documents or any other
agreement or note held by it evidencing, securing or otherwise executed in
connection with the Obligations, or sell participations in any interest therein,
to any other entity or other person, and such other entity or other person shall
thereupon become vested, to the extent set forth in the agreement evidencing
such assignment, transfer or participation, with all the rights in respect
thereof granted to such Lender herein. None of the Guarantors may assign any of
its obligations hereunder.
7.10. Limitation on Guarantee of Obligations. Notwithstanding any
provision herein contained to the contrary, each Guarantor's liability hereunder
shall be limited to an amount not to exceed as of any date of determination the
greater of:
(a) the net amount of all Loans and other extensions of credit
(including Letters of Credit) advanced under this Agreement and directly
or indirectly re-loaned or otherwise transferred to, or incurred for the
benefit of, such Guarantor, plus interest thereon at the applicable rate
specified in this Agreement; or
(b) the amount which could be claimed by the Agent and Lenders from
such Guarantor under this Guarantee without rendering such claim voidable
or avoidable under ss.548 of Chapter 11 of the Federal Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform
Fraudulent Conveyance Act or similar statute or common law after taking
into account, among other things, such Guarantor's right of contribution
and indemnification from each other Guarantor under ss.7.11.
7.11. Contribution with Respect to Guarantee of Obligations.
(a) To the extent that any Guarantor shall make a payment under this
Guarantee with respect to all or any of the Obligations (a "Guarantor
Payment") which, taking into account all other Guarantor Payments then
previously or concurrently made by the other Guarantors, exceeds the
amount which such Guarantor would otherwise have paid if each Guarantor
had paid the aggregate Obligations satisfied by such Guarantor Payment in
the same proportion that such Guarantor's "Allocable Amount" (as defined
below) (in effect immediately prior to such Guarantor Payment) bore to the
aggregate Allocable Amounts of all Guarantors in effect immediately prior
to the making
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of such Guarantor Payment, then following the final payment and
performance in full in cash of the Obligations and termination of the
Commitments, such Guarantor shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each of the other
Guarantors for the amount of such excess, pro rata based upon their
respective Allocable Amounts in effect immediately prior to such Guarantor
Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Guarantor shall be equal to the maximum amount of the claim which could
then be recovered from such Guarantor under this Guarantee without
rendering such claim voidable or avoidable under ss.548 of Chapter 11 of
the Federal Bankruptcy Code or under any applicable state Uniform
Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law.
(c) This ss.7.11 is intended only to define the relative rights of
Guarantors and nothing set forth in this ss.7.11 is intended to or shall
impair the obligations of Guarantors, jointly or severally, to pay any
amount as and when the same shall become due and payable in accordance
with the terms of this Guarantee.
(d) The rights of the parties under this ss.7.11 shall be
exercisable upon the final payment and performance in full in cash of all
of the Obligations and the termination of the Commitments.
(e) The parties hereto acknowledge that the rights of contribution
and indemnification hereunder shall constitute assets of any Guarantor to
which such contribution and indemnification is owing.
8. REPRESENTATIONS AND WARRANTIES.
The US Transaction Parties jointly and severally represent and warrant to
the Lenders, the Issuing Bank and the Agent as follows:
8.1. Corporate Authority.
(a) Incorporation; Good Standing. Each Transaction Party (a) is a
corporation (or similar business entity) duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation
or organization, (b) has all requisite corporate or other legal power to
own its property and conduct its business as now conducted and as
presently contemplated to be conducted, and (c) is in good standing as a
foreign corporation (or similar business entity) or other organization and
is duly authorized to do business in each jurisdiction in which it
conducts business, except where a failure to be so qualified would not
have a Materially Adverse Effect.
(b) Authorization. The execution, delivery and performance of the
Loan Documents to which each Transaction Party is or is to become a party
(a) are within the corporate or other legal authority of such Person, (b)
have been duly authorized by all necessary corporate or other proceedings
and (c) do not and will not conflict with or result in any breach or
contravention of any
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Applicable Law or any Contractual Obligation or Governing Document of any
Transaction Party.
(c) Enforceability. The execution and delivery of the Loan Documents
to which each Transaction Party is or is to become a party will result in
valid and legally binding obligations of such Person enforceable against
it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent
that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any
proceeding therefor may be brought.
8.2. Approvals. The execution, delivery and performance by each
Transaction Party of the Loan Documents to which it is or is to become a party
and the transactions contemplated thereby do not require any Approval that has
not already been obtained.
8.3. Title to Properties; Leases. Except as indicated on Schedule 8.3
hereto, the Borrower and its Subsidiaries own all of the assets reflected on the
consolidated balance sheet of the Borrower and its Subsidiaries as at the
Balance Sheet Date or acquired since that date (except assets sold or otherwise
disposed of in the ordinary course of business since that date), subject to no
Liens or other rights of others, except Permitted Liens.
8.4. Financial Statements and Projections.
(a) Financial Statements. There has been furnished to each of the
Lenders
(i) the audited consolidated balance sheet and consolidated
statement of income, statement of stockholders' equity and cash
flows of the Borrower and its Subsidiaries as of December 31, 1997
and for the period from October 21, 1997 through December 31, 1997;
(ii) the audited balance sheet and unaudited statement of
income and retained earnings and cash flows of Western Methods for
the period from January 1, 1997 through November 25, 1997;
(iii) the audited balance sheet and statement of operations
and retained earnings and cash flows of Aeromil for the period from
January 1, 1997 through November 25, 1997;
(iv) the audited consolidated balance sheets and consolidated
statements of earnings and retained earnings and cash flows of
Brittain and its Subsidiaries for the fiscal year ended December 31,
1997;
(v) the audited balance sheet and statement of income and
retained earnings and cash flows of Barnes for the fiscal year ended
September 30, 1997;
(vi) the audited consolidated balance sheets and consolidated
statements of income and cash flows of Sea-Lect and its Subsidiaries
for the fiscal year ended December 31, 1997;
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(vii) the audited consolidated balance sheet and consolidated
statement of income and cash flows of Lamsco for the fiscal year
ended January 3, 1998;
(viii) the unaudited consolidated balance sheets and
statements of income and cash flows of the Borrower and its
Subsidiaries as of and for the nine (9) month period ended September
30, 1998;
(ix) the unaudited consolidated balance sheets and statements
of income of Lamsco and its Subsidiaries as of and for the nine (9)
month period ended September 30, 1998; and
(x) the audited consolidated balance sheet and consolidated
statement of income, statement of stockholders' equity and cash
flows of Modern Holdings and its Subsidiaries as of December 31,
1997.
Such financial statements have been prepared in accordance with GAAP and fairly
present the consolidated financial condition of the Borrower and its
Subsidiaries listed above, Lamsco and its Subsidiaries, or Modern Holdings and
its Subsidiaries (as the case may be), as at the close of business on the date
thereof and the results of operations and cash flows for the fiscal year or
other fiscal period then ended. There are no contingent liabilities of the
Transaction Parties as of such date involving material amounts, known to the
Borrower, Lamsco or Modern Holdings (as the case may be), which were not
disclosed in such balance sheets or the notes related thereto.
(b) Pro Forma Balance Sheet. There has been furnished to each of the
Lenders the Borrower's unaudited pro forma consolidated balance sheet as
of December 31, 1998 (the "Pro Forma Balance Sheet"), prepared after
giving effect to (i) the Lamsco Acquisition and the making of the Loans on
the Original Closing Date and the consummation of the other transactions
to occur on the Original Closing Date and (ii) the Modern Acquisition, as
if each such transaction had occurred on such date. Such Pro Forma Balance
Sheet has been prepared (i) in good faith by the Borrower, based upon
reasonable estimates and assumptions and (ii) on the basis of the
assumptions stated therein, accurately reflects all adjustments required
to be made to give effect to the transactions contemplated to occur on the
Original Closing Date and present fairly on a pro forma basis the
estimated consolidated financial position of the Borrower and its
consolidated Subsidiaries, as of such date, assuming that such
transactions had actually occurred at such date.
(c) Projections. There has been furnished to each of the Lenders
copies of the projections of (i) the annual operating budgets of the
Borrower and its Subsidiaries on a consolidated basis, (ii) balance sheets
and (iii) cash flow statements for the 1998 to 2005 fiscal years, which
disclose all assumptions made with respect to general economic, financial
and market conditions used in formulating such projections. To the
knowledge of the Borrower or any of its Subsidiaries, no facts exist that
(individually or in the aggregate) would result in any material change in
any of such projections. The projections are based upon reasonable
estimates and assumptions, have been prepared on the basis of the
assumptions stated therein and reflect the reasonable estimates of the
Borrower and its Subsidiaries of the results of operations and other
information projected therein.
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8.5. No Material Changes; Solvency; Intellectual Property.
(a) Changes. Since the Balance Sheet Date there has occurred no
Materially Adverse Effect. Since the Balance Sheet Date the Transaction
Parties have not made any Distributions or made any payments to, or
entered into any transactions with, any Affiliate, except as disclosed on
Schedule 8.5.
(b) Solvency. Each Transaction Party (after giving effect to the
transactions contemplated by this Agreement and the other Loan Documents),
is Solvent. As used herein, "Solvent" shall mean, as to any Person, that
such Person, (a) has assets having a fair value in excess of its
liabilities, (b) has assets having a fair value in excess of the amount
required to pay its liabilities on existing debts as such debts become
absolute and matured, and (c) has, and expects to continue to have, access
to adequate capital for the conduct of its business and the ability to pay
its debts from time to time incurred in connection with the operation of
its business as such debts mature.
(c) Franchises, Patents, Copyrights, etc. The Borrower and each of
its Subsidiaries possess all franchises, patents, copyrights, trademarks,
trade names, licenses and permits, and rights in respect of the foregoing,
adequate for the conduct of their respective business substantially as now
conducted without known conflict with any rights of others.
8.6. Litigation. Except as disclosed on Schedule 8.6 hereto, there are no
actions, suits, proceedings or investigations of any kind pending or, to the
Borrower's knowledge, threatened against the Borrower or any of its Subsidiaries
before any Governmental Authority, that (a) if adversely determined, could,
either in any case or in the aggregate, (i) have a Materially Adverse Effect or
(ii) result in any substantial liability not adequately covered by insurance, or
(b) question the validity or enforceability of any of the Loan Documents, or any
action taken or to be taken pursuant hereto or thereto.
8.7. No Materially Adverse Contracts, etc. Except as disclosed on Schedule
8.7 hereto, neither the Borrower nor any of its Subsidiaries is subject to any
Contractual Obligation, any Governing Document or, to the knowledge of the
Borrower, any Applicable Law, which could reasonably be expected to have a
Materially Adverse Effect.
8.8. Compliance with Other Instruments, Laws, etc. Neither the Borrower
nor any of its Subsidiaries is in violation in any material respect of any
provision of Applicable Law (except as disclosed on Schedule 8.8 hereto) or of
its Governing Documents or Contractual Obligations (including any Ancillary
Documents). Notwithstanding the reference to Schedule 8.8 hereto in this ss.8.8,
and notwithstanding the disclosures made in such Schedule 8.8, none of the
matters disclosed in such Schedule 8.8, either individually or in the aggregate,
has had, or could reasonably be expected to have, a Materially Adverse Effect.
8.9. Tax Status. Except as disclosed on Schedule 8.9 hereto, each of the
Borrower and its Subsidiaries (a) have made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which any of them is subject, (b) have paid all taxes and
other governmental assessments and charges shown or determined to be due
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on such returns, reports and declarations, except those being contested in good
faith and by appropriate proceedings and (c) have set aside on their books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
Except as disclosed on Schedule 8.9 hereto, there are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and none of the officers of the Borrower knows of any basis for any such claim.
8.10. No Event of Default. No Default or Event of Default has occurred and
is continuing.
8.11. Holding Company and Investment Company Acts. Neither the Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
8.12. Absence of Financing Statements, etc. Except with respect to
Permitted Liens, there is no Security Instrument that purports to cover, affect
or give notice of any present or possible future Lien on any Property of the
Borrower or any of its Subsidiaries.
8.13. Perfection of Security Interests.
(a) The provisions of the Security Agreement are effective to create
in favor of the Agent, for the benefit of the Agent, the Issuing Bank and
the Lenders, a legal, valid and enforceable security interest in all
right, title and interest of the respective US Transaction Parties in the
Collateral described therein and the Agent, for the benefit of Agent, the
Issuing Bank and the Lenders, has a fully perfected Lien on, and security
interest in, all right, title and interest of such Transaction Parties, in
all of the Collateral described therein, subject to no Liens other than
Permitted Liens. Each of the Transaction Parties party to the Security
Agreement has good and merchantable title to all Collateral described
therein, free and clear of all Liens except Permitted Liens.
(b) So long as the Agent maintains possession of the stock
certificates representing the Stock Collateral (as defined in the Stock
Pledge Agreement) pledged to the Agent pursuant to the Stock Pledge
Agreement, together with properly completed stock powers endorsing such
shares of Stock Collateral, the security interests created in favor of the
Agent, as pledgee for the benefit of the Agent, the Issuing Bank and the
Lenders, under the Stock Pledge Agreement constitute first priority
perfected security interests in such Stock Collateral, subject to no
security interests of any other Person. No filings or recordings are
required in order to perfect (or maintain the perfection or priority of)
the security interests created in the Stock Collateral and the proceeds
thereof under the Stock Pledge Agreement.
(c) The Mortgages create, as security for the Obligations, a valid
and enforceable perfected security interest in and Lien on all of the
Mortgaged Properties in favor of the Agent for the benefit of the Agent,
the Issuing Bank and the Lenders, superior to and prior to the rights of
all third persons and subject to no other Liens (other than Permitted
Liens). Schedule 8.13 hereto
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contains a true and complete list of all Real Estate of the Borrower and
each of its Subsidiaries and the type of interest therein held by the
Borrower and/or its Subsidiaries. Each of the Borrower and its
Subsidiaries has good and marketable title at the time of the grant
thereof and at all times thereafter to all Mortgaged Properties free and
clear of all Liens except those described in the first sentence of this
subsection (c).
8.14. Employee Benefit Plans.
(a) In General. Each Employee Benefit Plan and each Guaranteed
Pension Plan has been maintained and operated in compliance in all
material respects with the provisions of ERISA and, to the extent
applicable, the Code, including but not limited to the provisions
thereunder respecting prohibited transactions and the bonding of
fiduciaries and other persons handling plan funds as required by ss.412 of
ERISA. The Borrower has heretofore delivered to the Agent the most
recently completed annual report, Form 5500, with all required
attachments, and actuarial statement required to be submitted under
ss.103(d) of ERISA, with respect to each Guaranteed Pension Plan.
(b) Terminability of Welfare Plans. Under each Employee Benefit Plan
which is an employee welfare benefit plan within the meaning of ss.3(1) or
ss.3(2)(B) of ERISA, no benefits are due unless the event giving rise to
the benefit entitlement occurs prior to plan termination (except as
required by Title I, Subtitle B, Part 6 of ERISA). The Borrower or an
ERISA Affiliate, as appropriate, may terminate each such Plan at any time
(or at any time subsequent to the expiration of any applicable bargaining
agreement) in the discretion of the Borrower or such ERISA Affiliate
without liability to any Person other than for benefits accrued prior to
such termination.
(c) Guaranteed Pension Plans. Each contribution required to be made
to a Guaranteed Pension Plan, whether required to be made to avoid the
incurrence of an accumulated funding deficiency, the notice or lien
provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No
waiver of an accumulated funding deficiency or extension of amortization
periods has been received with respect to any Guaranteed Pension Plan, and
neither the Borrower nor any ERISA Affiliate is obligated to or has posted
security in connection with an amendment to a Guaranteed Pension Plan
pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code. No liability to
the PBGC (other than required insurance premiums, all of which have been
paid) has been incurred by the Borrower or any ERISA Affiliate with
respect to any Guaranteed Pension Plan and there has not been any ERISA
Reportable Event (other than an ERISA Reportable Event as to which the
requirement of thirty (30) days notice has been waived), or any other
event or condition which presents a material risk of termination of any
Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each
Guaranteed Pension Plan (which in each case occurred within twelve months
of the date of this representation), and on the actuarial methods and
assumptions employed for that valuation, the aggregate benefit liabilities
of all such Guaranteed Pension Plans within the meaning of ss.4001 of
ERISA did not exceed the aggregate value of the assets of all such
Guaranteed Pension Plans, disregarding for this purpose the benefit
liabilities and assets of any Guaranteed Pension Plan with assets in
excess of benefit liabilities.
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(d) Multiemployer Plans. Neither the Borrower nor any ERISA
Affiliate has incurred any material liability (including secondary
liability) to any Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a
result of a sale of assets described in ss.4204 of ERISA. Neither the
Borrower nor any ERISA Affiliate has been notified that any Multiemployer
Plan is in reorganization or insolvent under and within the meaning of
ss.4241 or ss.4245 of ERISA or is at risk of entering reorganization or
becoming insolvent, or that any Multiemployer Plan intends to terminate or
has been terminated under ss.4041A of ERISA.
(e) UK Pension Schemes. The UK Borrower and the UK Subsidiaries have
no pension schemes whether final salary schemes or money purchase schemes.
8.15. Use of Proceeds.
(a) The Borrower will:
(i) use the proceeds of the Term Loans solely to fund (A) the
purchase price of the Lamsco Acquisition, (B) fees and expenses
incurred in connection with the Lamsco Acquisition, and the
financing thereof, (C) the purchase price of the Modern Acquisition
and (D) fees and expenses incurred in connection with the Modern
Acquisition and the financing thereof;
(ii) use the proceeds of Revolving Credit Loans solely to
finance permitted Capital Expenditures and for working capital and
general corporate purposes and will not use any proceeds of
Revolving Credit Loans to finance any Permitted Acquisition or any
fees or expenses incurred in connection therewith;
(iii) use the proceeds of Acquisition Loans solely to fund the
purchase price of Permitted Acquisitions and related fees and
expenses in connection therewith; and
(iv) obtain Letters of Credit solely (A) for working capital
purposes and (B) as security for capital expenditures of the
Borrower and its Subsidiaries.
(b) The UK Borrower will use the proceeds of UK Acquisition Loans
solely to fund the purchase price of Permitted Acquisitions of UK
Companies and related fees and expenses in connection therewith; and
(c) No portion of any Loan is to be used for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such
terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. Parts 221 and 224.
8.16. Environmental Compliance. Each Transaction Party has taken all
reasonable steps to investigate the past and present condition and usage of the
Real Estate and the operations conducted thereon and has determined that:
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(a) except as disclosed on Schedule 8.16 hereto, no Transaction
Party and no operator of the Real Estate or any operations thereon is in
violation, or alleged violation, in any material respect, of any judgment,
decree, order, law, license, rule or regulation pertaining to health,
safety or environmental matters, including without limitation, those
arising under the United Kingdom Environmental Protection Act 1990, the
United Kingdom Control of Pollution Act 1974, the United Kingdom Water
Industry Act 1991, the United Kingdom Water Resources Act 1991, the United
Kingdom Clean Air Acts, the United Kingdom Planing Hazardous Substance Act
1990, the United Kingdom Public Health Acts, the United Kingdom
Radioactive Substances Act 1960, the Environment Act 1995, any European
Community legislation regulating the same, Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control
Act, or any other Applicable Law relating to health, safety or the
environment (hereinafter "Environmental Laws");
(b) except as disclosed on Schedule 8.16 hereto, no Transaction
Party has received notice from any third party, including any Governmental
Authority, (i) that any one of them has been identified by the United
States Environmental Protection Agency ("EPA") as a potentially
responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B nor has any of the
Real Estate been listed on the CERCLA Information System for consideration
of placement on the National Priorities List; (ii) that any hazardous
waste, as defined by 42 U.S.C. ss.6903(5), any hazardous substances as
defined by 42 U.S.C. ss.9601(14), any pollutant or contaminant as defined
by 42 U.S.C. ss.9601(33), any pollutant or contaminant, as defined in the
Environmental Protection Act 1990 (United Kingdom), and any toxic
substances, petroleum (including crude oil), radioactive material,
asbestos or hazardous materials or other chemicals or substances regulated
by any Environmental Laws ("Hazardous Substances") which any one of them
has generated, transported or disposed of has been found at any site at
which a Governmental Authority has conducted or has ordered that any
Transaction Party conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law; or (iii) that it is or
shall be a named party to any claim, action, cause of action, complaint,
or legal or administrative proceeding (in each case, contingent or
otherwise) arising out of any third party's incurrence of costs, expenses,
losses or damages of any kind whatsoever in connection with the release of
Hazardous Substances;
(c) except as disclosed on Schedule 8.16 hereto, (i) no portion of
the Real Estate is currently being or, to the Borrower's knowledge, has
been used for the handling, processing, storage or disposal of Hazardous
Substances or non-hazardous Solid Waste (as defined in the RCRA) except in
accordance with applicable Environmental Laws; and no underground tank,
underground injection facility or other underground storage receptacle for
Hazardous Substances is located on any portion of
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the Real Estate; (ii) in the course of any activities conducted by any
Transaction Party or any operators of their properties, no Hazardous
Substances or non-hazardous Solid Waste have been generated or are being
used on the Real Estate except in accordance with applicable Environmental
Laws; (iii) to the Borrower's knowledge there have been no releases (i.e.
any past or present releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or
dumping) or threatened releases of Hazardous Substances or non-hazardous
Solid Waste on, upon, into or from the Properties of any Transaction
Party, which releases would have a material adverse effect on the value of
any of the Real Estate or adjacent properties or the environment; (iv) to
the Borrower's knowledge, there have been no releases on, upon, from or
into any real property in the vicinity of any of the Real Estate which,
through soil or groundwater contamination, may have come to be located on,
and which would have an adverse effect on the value of, the Real Estate;
and (v) in addition, any Hazardous Substances or non-hazardous Solid Waste
that have been generated on any of the Real Estate have been transported
offsite only by carriers having an identification number issued by the
EPA, treated or disposed of only by treatment or disposal facilities
maintaining valid permits as required under applicable Environmental Laws,
which transporters and facilities have been and are, to the Borrower's
knowledge, operating in compliance with such permits and applicable
Environmental Laws; and
(d) no Real Estate is subject to any applicable Environmental Laws
requiring the performance of Hazardous Substances site assessments, or the
removal or remediation of Hazardous Substances, or the giving of notice to
any Governmental Authority or the recording or delivery to other Persons
of an environmental disclosure document or statement by virtue of the
transactions contemplated hereby, or as a condition to the recording of
any mortgage.
Notwithstanding the reference to Schedule 8.16 hereto in this ss.8.16, and
notwithstanding the disclosures made in such Schedule 8.16, none of the matters
disclosed in such Schedule 8.16, either individually or in the aggregate, has
had, or could reasonably be expected to have, a Materially Adverse Effect.
8.17. Subsidiaries, etc. Set forth on Schedule 8.17 hereto is a complete
and accurate list of all Subsidiaries of the Borrower and each of its
Subsidiaries, and showing (as to the Borrower and each such Subsidiary) the
jurisdiction of its incorporation, the number of shares of each class of Capital
Stock authorized and the number outstanding or issued (as applicable) and the
percentage of the outstanding or issued (as applicable) shares of each such
class legally and/or beneficially owned (directly or indirectly) by the
Borrower, such Subsidiary or Parent and the number of shares covered by all
outstanding options, warrants, rights of conversion or purchase and similar
rights. All of the outstanding Capital Stock of the Borrower and all such
Subsidiaries has been validly issued, is fully paid and non-assessable and is
owned by Parent, the Borrower or one or more of its Subsidiaries free and clear
of all Liens except those created by the Security Documents.
8.18. Bank Accounts. Schedule 8.18 sets forth the account holder, account
number, sort code (if applicable), location and a description (including
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type and currency) of each account maintained by the Borrower and each of its
Subsidiaries with any bank or similar institution, including all Agency
Accounts.
8.19. Chief Executive Office. Set forth on Schedule 8.19 hereto is a
complete and accurate list of the chief executive office or registered office,
as applicable, of the Borrower and each of its Subsidiaries, at which location
such Person keeps its books and records.
8.20. Fiscal Year. The Borrower and each of its Subsidiaries has a fiscal
year which is the twelve (12) months ending on December 31 of each year.
8.21. Accuracy and Completeness of Information. All information, reports
and other papers and data (including the Ancillary Documents, the Offering
Memorandum and the Confidential Information Memorandum) furnished to the Agent
or any Lender in connection with the transactions contemplated by this Agreement
were, at the time the same were so furnished, complete and correct in all
material respects. No Loan Document, and no document furnished or statement made
to the Agent or any Lender in connection with the negotiation, preparation or
execution of the Loan Documents, contains or will contain any untrue statement
of fact or omits or will omit to state a material fact necessary in order to
make the statements contained therein not misleading. No fact is known to the
Borrower which has had or may in the future have (so far as Borrower can
reasonably foresee) a Materially Adverse Effect that has not been set forth in
the financial statements furnished to the Agent or any Lender or other reports
or other papers or data otherwise disclosed in writing to the Agent or any
Lender.
8.22. Insurance. The Borrower and each of its Subsidiaries maintains with
financially sound and reputable insurers insurance with respect to its
Properties and businesses against such casualties and contingencies as are in
accordance with sound business practices, with the details of such coverage
being more fully described on Schedule 8.22 hereto.
8.23. Senior Debt. All Obligations, including all Loans, Reimbursement
Obligations and the Maximum Drawing Amount of all Letters of Credit, constitute
(a) "Senior Debt" (or the equivalent term) under all Subordinated Debt Documents
and (b) "Designated Senior Debt" under the Senior Subordinated Indenture. The
Borrower hereby irrevocably expressly designates all such Obligations to be
"Senior Debt" and "Designated Senior Debt" under and for all purposes of the
Senior Subordinated Indenture. The Borrower and each Guarantor hereby
irrevocably agree that all Obligations are, and are hereby made, senior in right
of payment to the Securities and each Guarantee (as such terms are defined in
the Senior Subordinated Indenture) and to all other Obligations of the Borrower
or any of its Subsidiaries under or in respect of the Senior Subordinated
Indenture or any of the other Senior Subordinated Debt Documents.
8.24. Representations and Warranties in Ancillary Documents. All
representations and warranties set forth in the Ancillary Documents are true and
correct in all material respects at the time as of which such representations
and warranties were made and on the Original Closing Date.
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8.25. Material Contracts. All Material Contracts of the Borrower and each
of its Subsidiaries as of the Original Closing Date are listed on Schedule 8.25
hereto.
8.26. Indebtedness. Schedule 8.26 sets forth a true and complete list of
all Indebtedness (other than the Loans) of the Borrower and each of its
Subsidiaries as of the Original Closing Date after giving effect to the Lamsco
Acquisition and the other transactions contemplated hereby (the "Existing
Indebtedness"), in each case showing the aggregate amount thereof and the name
of the respective obligor and any other entity which directly or indirectly
guaranteed such debt. None of the Existing Indebtedness was incurred in
connection with, or in contemplation of, the Lamsco Acquisition or the other
transactions contemplated hereby.
8.27. Lamsco Acquisition. All aspects of the Lamsco Acquisition have been
effected in accordance with the Lamsco Acquisition Documents and all Applicable
Laws. At the time of consummation thereof, all Approvals required in order to
consummate the Lamsco Acquisition shall have been obtained, given, filed or
taken and be in full force and effect. All applicable waiting periods with
respect thereto have or, prior to the time when required, will have, expired
without, in all such cases, any action being taken by any competent authority
which restrains, prevents or imposes adverse conditions upon the consummation of
the Lamsco Acquisition. There does not exist any judgment, order or injunction
prohibiting or imposing material adverse conditions upon the consummation of the
Lamsco Acquisition.
8.28. Year 2000 Problem. The Borrower and its Subsidiaries have reviewed
the areas within their businesses and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem" (i.e. the risk that computer applications
used by the Borrower or any of its Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999). Based upon such review, the Borrower
reasonably believes that the "Year 2000 Problem" will not have any materially
adverse effect on the business or financial condition of the Borrower or any of
its Subsidiaries.
9. AFFIRMATIVE COVENANTS.
Each of the US Transaction Parties covenants and agrees with the Agent,
the Issuing Bank and each Lender that until all Commitments have terminated and
the principal of and interest on each Loan, all Fees, and all other expenses or
amounts payable under any Loan Document (other than wholly contingent
indemnification Obligations) shall have been paid in full and all Letters of
Credit have been cancelled or have expired and all amounts drawn thereunder have
been reimbursed, unless the Required Lenders shall otherwise consent in writing,
each Transaction Party will, and will cause each of its Subsidiaries to:
9.1. Maintenance of Office. Maintain its chief executive office or
registered office, as applicable, at the location set forth on Schedule 8.19
hereto, or at such other place in the United States (or the United Kingdom, in
the case of the UK Borrower or any other UK Subsidiary) as the Borrower shall
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designate upon thirty (30) days' prior written notice to the Agent, where
notices, presentations and demands to or upon such Person in respect of the Loan
Documents to which such Person is a party may be given or made.
9.2. Records and Accounts. (a) Keep true and accurate records and books of
account in which full, true and correct entries are made in accordance with GAAP
and (b) maintain adequate accounts and reserves for all taxes (including income
taxes), depreciation, depletion, obsolescence and amortization of its properties
and the properties of its Subsidiaries, contingencies, and other reserves.
9.3. Financial Statements, Certificates and Information. Deliver to each
of the Lenders:
(a) as soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower, commencing
with the fiscal year ending December 31, 1998, the consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at
the end of such year, and the related consolidated and consolidating
statements of income and consolidated statements of retained earnings and
cash flow for such year, each such statement setting forth in comparative
form the figures for the previous fiscal year and prepared in reasonable
detail and in accordance with GAAP, and all such consolidated statements
to be certified without qualification by the Independent Public
Accountants, together with a written statement from such Accountants to
the effect that they have read a copy of this Agreement, and that, in
making the examination necessary to said certification, they have obtained
no knowledge of any Default or Event of Default, or, if such Accountants
shall have obtained knowledge of any Default or Event of Default, they
shall disclose in such statement any such Default or Event of Default;
provided that such Accountants shall not be liable to the Lenders for
failure to obtain knowledge of any Default or Event of Default;
(b) as soon as practicable, but in any event not later than
forty-five (45) days after the end of each of the first three fiscal
quarters in each fiscal year of the Borrower, commencing with the fiscal
quarter ending March 31, 1999, copies of the unaudited consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at
the end of such quarter, and the related consolidated and consolidating
statements of income and consolidated statements of retained earnings and
cash flow for such quarter and for the portion of the Borrower's fiscal
year then elapsed, each such statement showing the comparison of the
Borrower's performance for such periods (i) to the corresponding periods
for the prior year, and (ii) to the Borrower's projected budget for such
periods, and each prepared in accordance with GAAP, together with a
certification by the principal financial or accounting officer of the
Borrower that the information contained in such financial statements
fairly presents the financial condition of the Borrower and its
Subsidiaries on the date thereof and the results of operations of the
Borrower and its Subsidiaries for the periods specified therein (in each
case, subject to normal year-end audit adjustments);
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(c) as soon as practicable, but in any event within (i) forty-five
(45) days after the end of each month ending after the Original Closing
Date and prior to May 30, 1999, and (ii) thirty (30) days after the end of
each month thereafter, copies of the unaudited monthly consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries as at
the end of such month and the related consolidated and consolidating
statements of income for such month, each prepared in accordance with
GAAP, together with a certification by the principal financial or
accounting officer of the Borrower that the information contained in such
financial statements fairly presents the financial condition of the
Borrower and its Subsidiaries on the date thereof and the results of
operations of the Borrower and its Subsidiaries for the periods specified
therein (in each case, subject to normal year-end audit adjustments);
(d) simultaneously with the delivery of the financial statements
referred to in subsections (a), (b) and (c) above, a statement certified
by the principal financial or accounting officer of the Borrower in
substantially the form of Exhibit D hereto (a "Compliance Certificate"),
setting forth (in the case of any Compliance Certificate delivered in
connection with annual or quarterly financial statements) in reasonable
detail computations evidencing compliance with the covenants contained in
ss.11 and (if applicable) reconciliations to reflect changes in GAAP since
the Balance Sheet Date;
(e) contemporaneously with the filing or mailing thereof, copies of
all material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Borrower;
(f) within ten (10) Business Days after the end of each calendar
month or at such earlier time as the Agent may reasonably request, a
Borrowing Base Report setting forth the Borrowing Base as at the end of
such calendar month or other date so requested by the Agent;
(g) within ten (10) Business Days after the end of each calendar
month, an Accounts Receivable aging report with respect to the Borrower in
form and substance satisfactory to the Agent;
(h) from time to time as the Agent may reasonably request detailed
management prepared reports summarizing the Borrowers' inventory,
including information on the aging and obsolescence of such inventory;
(i) as soon as practicable, but in any event (A) for the fiscal year
commencing on January 1, 1999, not later than thirty (30) days after the
beginning of such fiscal year, and (B) for each fiscal year thereafter,
not later than thirty (30) days prior to the beginning of such fiscal
year, management-prepared consolidated and consolidating financial
forecasts of the Borrower and its Subsidiaries with respect to such fiscal
year, prepared on a quarterly basis in form satisfactory to the Agent;
(j) within ten (10) Business Days after the delivery of any
financial statements pursuant to paragraph (a) or (b), a written
explanation for the variations reflected in such financial statements
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from the financial forecasts for the applicable period, together with a
narrative discussion and analysis by management of the financial condition
and performance of the Borrower and its Subsidiaries as of the end of and
for the periods covered by such financial statements;
(k) promptly after delivery thereof, copies of any officers'
certificate or fairness opinion required to be delivered by the Borrower
under ss.4.10 of the Senior Subordinated Indenture;
(l) promptly after delivery thereof (to the extent not previously or
concurrently delivered to the Agent and the Lenders), copies of all
financial statements, projections and other financial information,
including compliance certificates, required to be delivered by the
Borrower under the Senior Subordinated Indenture;
(m) simultaneously with the delivery of the financial statements
referred to in subsection (c) above, and at such other times as the Agent
may reasonably request, a statement certified by the principal financial
or accounting officer of the Borrower setting forth the Excess UK Working
Capital Outstandings as of the end of the month for which such financial
statements relate or as of such other date as the Agent may reasonably
request;
(n) from time to time such other financial data and information
(including accountants' management letters) as the Agent or any Lender may
reasonably request.
9.4. Annual Meetings With Lenders. Within 120 days after the end of each
fiscal year of the Borrower, at the request of the Agent or Required Lenders,
hold a meeting (at a mutually agreeable location and time) with all Lenders who
choose to attend such meeting at which meeting shall be reviewed the financial
results of the previous year and the financial condition of the Borrower and its
Subsidiaries and the management-prepared financial forecasts of the Borrower and
its Subsidiaries for the current fiscal year of the Borrower and its
Subsidiaries.
9.5. Notices. Promptly notify the Agent and each of the Lenders in writing
in reasonable detail of:
(a) Defaults.
(i) The occurrence of any Default or Event of Default,
together with a reasonably detailed description thereof, and the
actions the Borrower proposes to take with respect thereto.
(ii) Any Person giving any notice or taking any other action
in respect of a claimed default (whether or not constituting an
Event of Default) under any (A) Ancillary Document, or (B) any other
Instrument or Contractual Obligation to which the Borrower or any of
its Subsidiaries is a party or obligor if such default under such
other Instruments or Contractual Obligations could result,
individually or in the aggregate, in a Materially Adverse Effect.
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(b) Environmental Events; Governmental Actions.
(i) Any violation of any Environmental Law that the Borrower
or any of its Subsidiaries reports or is required under
Environmental Laws to report to any Governmental Authority.
(ii) Upon becoming aware thereof, any inquiry, proceeding,
investigation or other action of any Governmental Authority that
could have a Materially Adverse Effect.
(c) Notification of Claim against Collateral. Any setoff, claims
(including environmental claims) withholdings or other defenses to which
any of the Collateral, or the Agent's rights with respect to Collateral,
are subject.
(d) Notice of Litigation and Judgments.
(i) Any litigation or proceedings threatened or any pending
litigation or proceedings affecting the Borrower or any of its
Subsidiaries that could have a Materially Adverse Effect and stating
the nature and status of such litigation or proceedings.
(i) Any judgment, final or otherwise, against the Borrower or
any of its Subsidiaries in an amount in excess of $500,000.
9.6. Corporate Existence; Maintenance of Properties; Performance of
Obligations.
(a) Preserve and keep in full force and effect its corporate
existence, rights and franchises.
(b) Cause all of its Properties used or useful in the conduct of its
business to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment.
(c) Make all necessary repairs, renewals, replacements, betterments
and improvements to its Properties, all as in the judgment of the Borrower
may be necessary so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
(d) Continue to engage in Related Business; provided that nothing in
this ss.9.6 shall prevent any Transaction Party from discontinuing the
operation and maintenance of any of its Properties if such discontinuance
is, in the judgment of the Borrower, desirable in the conduct of the
business of such Transaction Party and such discontinuance would not have
a Materially Adverse Effect.
(e) Perform all of the Contractual Obligations of such Transaction
Party under each of the Ancillary Documents to which such Transaction
Party is a party without giving effect to any waiver or amendment thereof
not consented to in writing by the Agent.
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9.7. Insurance. Maintain with financially sound and reputable insurers
insurance with respect to its Properties and business against such casualties
and contingencies as shall be in accordance with the general practices of
businesses engaged in similar activities in similar geographic areas and in such
amounts, containing such terms, in such forms and for such periods as described
on Schedule 8.22 hereto and as may be reasonable and prudent and in accordance
with the terms of the Security Agreement and naming the Agent as additional
insured and loss payee.
9.8. Taxes. Duly pay and discharge, or cause to be paid and discharged,
before the same shall become overdue, all taxes, assessments and other
governmental charges imposed upon it and its Real Estate, sales and activities,
or any part thereof, or upon the income or profits therefrom, as well as all
claims for labor, materials, or supplies that if unpaid might by law become a
Lien upon any of its Property; provided that any such tax, assessment, charge,
levy or claim need not be paid if the validity or amount thereof shall currently
be contested in good faith by appropriate proceedings and if adequate reserves
with respect thereto shall have been set aside on its books; and provided
further that all such taxes, assessments, charges, levies or claims shall be
paid forthwith upon the commencement of proceedings to foreclose any Lien that
may have attached as security therefor.
9.9. Inspection of Properties and Books, etc.
(a) General. Permit the Lenders, through the Agent or any of the
Lenders' other designated representatives, to visit and inspect any of its
Properties, to examine its books of account (and to make copies thereof
and extracts therefrom), and to discuss the affairs, finances and accounts
with, and to be advised as to the same by, its officers, all at such
reasonable times and intervals as the Agent or any Lender may reasonably
request.
(b) Inventory Reports and Appraisals. Promptly upon the request of
the Agent (but not more frequently than twice each calendar year, or more
frequently as determined by the Agent if an Event of Default shall have
occurred and be continuing), obtain and deliver to the Agent a report of
an independent collateral auditor (or, if an Event of Default shall have
occurred and be continuing, an appraiser) satisfactory to the Agent
(which, to the extent practicable, shall be affiliated with one of the
Lenders), with respect to the inventory component included in the
Borrowing Base, which report shall indicate (among other things) whether
or not the information set forth in the Borrowing Base Report most
recently delivered is accurate and complete in all material respects based
upon a review of the inventory (including verification as to the value,
location and respective types). All such reports shall be conducted and
made at the expense of the Borrower.
(c) Commercial Finance Examinations. No more frequently than four
times each calendar year, or more frequently as determined by the Agent if
an Event of Default shall have occurred and be continuing, upon the
Agent's request, permit the Agent's commercial finance examiners to
conduct commercial finance examinations of the Properties of the Borrower
and its Subsidiaries, all at such reasonable times as the Agent may
request. All such commercial finance examinations shall be conducted and
made at the expense of the Borrower.
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(d) Appraisals. No more frequently than once each calendar year, or
more frequently as determined by the Agent if an Event of Default shall
have occurred and be continuing, upon the request of the Agent, obtain and
deliver to the Agent appraisal reports in form and substance and from
appraisers satisfactory to the Agent, stating the then current fair
market, orderly liquidation and forced liquidation values of all or any
portion of the equipment owned by the Borrower or any of its Subsidiaries
or of any Mortgaged Property or other Real Estate that, pursuant to
ss.9.14, will become a Mortgaged Property. All such appraisals referred to
in this ss.9.9(d) shall be conducted and made at the expense of the
Borrower.
(e) Environmental Assessments. If (a) an Event of Default shall have
occurred and be continuing, or (ii) the Agent believes in good faith that
any representation hereunder relating to environmental matters is not then
true and correct, or any covenant hereunder relating to environmental
matters has not been performed, the Agent may, for the purpose of
assessing and ensuring the value of any Mortgaged Property, obtain one or
more environmental assessments or audits of such Mortgaged Property
prepared by a hydrogeologist, an independent engineer or other qualified
consultant or expert approved by the Agent to evaluate or confirm (x)
whether any Hazardous Materials are present in the soil or water at such
Mortgaged Property and (y) whether the use and operation of such Mortgaged
Property complies with all Environmental Laws. Environmental assessments
may include without limitation detailed visual inspections of such
Mortgaged Property including any and all storage areas, storage tanks,
drains, dry wells and leaching areas, and the taking of soil samples,
surface water samples and ground water samples, as well as such other
investigations or analyses as the Agent deem appropriate. All such
environmental assessments shall be conducted and made at the expense of
the Borrowers.
(f) Communications with Accountants. The US Transaction Parties (i)
authorize the Agent and, if accompanied by the Agent, the Lenders, upon
reasonable advance written notice to the Borrower, to communicate directly
with the Independent Public Accountants, provided, that a representative
of the Borrower shall have the right to participate in any such
communication and (ii) authorize such accountants to disclose to the Agent
and the Lenders any and all financial statements and other supporting
financial documents and schedules including copies of any management
letter with respect to the business, financial condition and other affairs
of any Transaction Party. At the request of the Agent, the Borrower shall
deliver a letter addressed to such accountants instructing them to comply
with the provisions of this ss.9.9(f).
9.10. Compliance with Laws, Contracts, Licenses, and Permits.
(a) Comply with (i) all Applicable Laws wherever its business is
conducted, including all Environmental Laws, (ii) all the provisions of
its Governing Documents and (iii) all its Contractual Obligations.
(b) Promptly obtain any Approval at any time required to be
obtained.
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9.11. Use of Proceeds. Each Borrower will use the proceeds of its Loans
and will obtain Letters of Credit solely for the purposes set forth in ss.8.15.
9.12. Cash Management System. The Borrower will at all times maintain the
Concentration Account. Each of the Borrower and its Domestic Subsidiaries will
(a) at all times maintain Agency Account Agreements (whereby the Agency Account
Institution party thereto shall, among other things, waive any right of set off,
other than for service charges and returns incurred in connection therewith),
with each Agency Account Institution where the Borrower or any of its Domestic
Subsidiaries maintains depository accounts, other than (i) accounts which are
used exclusively for the purposes of payment of payroll, (ii) accounts which
have balances that at all times are less than $25,000 and which are closed out
by March 31, 1999, or (iii) during the period from the Original Closing Date
through February 26, 1999, accounts maintained at Bank of America, (b) at all
times from and after March 31, 1999 direct each Agency Account Institution
pursuant to the Agency Account Agreements, to cause all funds held by such
Agency Account Institution in the Agency Accounts to be transferred daily (or
such other period as the Agent requests) to, and only to, the Agent for deposit
in the Concentration Account; provided, however, that (x) prior to March 31,
1999 the Borrower and its Domestic Subsidiaries will direct such Agency Account
Institutions pursuant to the Agency Account Agreements that such Agency Accounts
will be subject to the instructions of the Agent with respect to the cash
deposited into such Agency Accounts and (y) notwithstanding the foregoing
requirements of clause (b) and clause (x), so long as no Event of Default shall
have occurred and be continuing, (A) funds held in the Borrower's concentration
account maintained with Bank of America shall be transferred by Bank of America
to the Agent, for deposit into the Concentration Account, only on days when the
balance of the Bank of America concentration account exceeds $1,000,000, and (B)
any such transfer of funds by Bank of America to the Agent shall be limited to
an amount which, after giving effect to such transfer, results in the the
balance of the Bank of America concenration account being equal to $500,000, and
(c) direct its account debtors and obligors on instruments or other obligors of
such Borrower or Domestic Subsidiary with respect to any of the Collateral to
make all payments on or with respect to any of the Collateral due or to become
due to such Borrower or Domestic Subsidiary directly to the Concentration
Account or the Borrower's or such Domestic Subsidiary's Agency Accounts. If,
notwithstanding the requirements of the foregoing sentence, any of the Borrower
or its Domestic Subsidiaries receives any cash proceeds of any of the
Collateral, whether in the form of money, checks or otherwise, such Borrower or
Domestic Subsidiary will hold such cash proceeds in trust for the benefit of the
Agent and the Lenders and turn such cash proceeds promptly over to the Agent in
the identical form received by deposit to any Agency Account or the
Concentration Account. The Borrower and its Domestic Subsidiaries may also
maintain one or more Operating Accounts into which, prior to the occurrence of
an Event of Default, cash may be transferred from the Concentration Account (or,
during the period from the Original Closing Date through March 31, 1999, the
Borrower's concentration account maintained with Bank America) at the request of
the Borrower for purposes of paying expenses of the Borrower or such Domestic
Subsidiary, and short term investment accounts into which, prior to the
occurrence of an Event of Default, cash may be transferred from the
Concentration Accounts at the request of the Borrower for purposes of
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managing investments for the Borrower or one of its Domestic Subsidiaries.
Following the occurrence and during the continuance of an Event of Default, the
Agent shall have sole control over the Concentration Account.
9.13. Inventory Restrictions. Each of the US Transaction Parties shall
cause all Eligible Inventory to be located at all times solely at Permitted
Inventory Locations, and to be sold or otherwise disposed of in the ordinary
course of such Transaction Party's business, consistent with past practices or
as required pursuant to the terms of this Agreement.
9.14. Mortgaged Properties. The US Transaction Parties will deliver to the
Agent, promptly upon the request of the Agent, a fully executed Mortgage over
any Real Estate, in form and substance satisfactory to the Agent, together with
title insurance policies, surveys, evidences of insurance with the Agent named
as loss payee and additional insured, legal opinions (only as to due execution,
delivery, authorization and enforceability of such Mortgage and the absence of
approvals, taxes, conflicts or governmental filings or qualifications) and other
documents and certificates with respect to such Real Estate as may be reasonably
required by the Agent. The US Transaction Parties further agree that, following
the taking of such actions with respect to such Real Estate, the Agent shall
have for the benefit of the Lenders and the Agent a valid and enforceable
Mortgage over such Real Estate, free and clear of all title defects and
encumbrances except for Permitted Liens.
9.15. Ownership of Subsidiaries. Maintain legal and beneficial ownership
of one hundred percent (100%) of the Equity Interests of each of the Guarantors.
9.16. Collateral for Loans.
(a) Pledge and maintain the pledge of all of the Capital Stock of
each of its direct Subsidiaries in favor of the Agent, for the benefit of
the Secured Parties, in accordance with the provisions of the Stock Pledge
Agreement or any other Instrument evidencing a pledge of stock or charge
over shares entered into by the Borrower or any of its Subsidiaries,
except that only sixty-five percent (65%) of the Capital Stock of any
direct UK Subsidiary of the Borrower shall be pledged to secure the
Obligations (other than the UK Obligations) if the Borrowers establish, to
the reasonable satisfaction of the Agent, that a pledge of a greater
amount would result in adverse tax consequences.
(b) From time to time, at its own cost and expense, promptly secure
or cause to be secured (a) the Obligations by creating or causing to be
created in favor of the Agent for the benefit of the Lenders perfected
security interests (subject only to Permitted Liens) with respect to all
inventory, receivables, equipment, accounts, copyrights, patents,
trademarks, other general intangibles, real property and other assets of
the Borrower or any of its Domestic Subsidiaries, now owned, or hereafter
acquired, and (b) the UK Obligations by creating or causing to be created
in favor of the Agent for the benefit of the UK Fronting Lenders and
Acquisition Loan Lenders perfected security interests in and first fixed
and floating charges over (subject only to Permitted Liens) all inventory,
receivables, equipment, accounts, copyrights, patents, trademarks, other
general intangibles, real property and other assets of the UK Borrower or
any of its UK Subsidiaries, now owned, or hereafter acquired, to the
extent such a fixed and floating charge would not constitute
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the giving of unlawful financial assistance for the purposes of Sections
151 to 158 of the Companies Act 1985 (England), and each to the extent
that the Agent or the Required Acquisition Loan Lenders shall so request;
provided, that to the extent that the UK Borrower or a UK Subsidiary
cannot comply with any of the requirements of this ss.9.16(b) due to the
applicability of Sections 151 to 158 of the Companies Act 1985 (England),
the UK Borrower and/or a UK Subsidiary shall have completed a Whitewash
Procedure within ten (10) days after the closing of any Acquisition
whereby such assets were acquired; provided, further, that notwithstanding
anything herein to the contrary, in the case of Acquisitions by the UK
Borrower or another UK Subsidiary of the Capital Stock of one or more UK
Companies the aggregate purchase price of which does not exceed the Dollar
Equivalent of $3,000,000, the UK Obligations shall not be secured by all
assets of such UK Companies to the extent that the Borrower or any of its
Affiliates would need to undergo a Whitewash Procedure solely in order to
provide such assets of such UK Companies as security for such UK
Obligations, but instead such UK Obligations shall be secured by a first
priority pledge of, and fixed charge over, one hundred percent (100%) of
the Capital Stock of such UK Companies as set forth in clause (a) above.
All such security interests in and charges over such Property will be
created under Security Instruments in form and substance satisfactory to
the Agent, and the Borrower and its Subsidiaries shall deliver to the
Agent all such Security Instruments (including, without limitation, legal
opinions, title insurance policies and lien searches) as the Agent or the
Required Lenders shall reasonably request to evidence the satisfaction of
the obligations created by this ss.9.16. The Borrower agrees to provide
such evidence as the Agent or the Required Lenders shall request as to the
perfection and priority of such security interests in and charges over
such Property (subject only to Permitted Liens).
9.17. Permitted Acquisitions.
(a) In the case of any personal property or fixtures acquired by (i)
the Borrower or any of its Domestic Subsidiaries in connection with a
Permitted Acquisition (A) pledge such personal property or fixtures (to
the maximum extent permitted by Applicable Law) to the Agent as security
for the payment in full of all the Obligations, pursuant to documentation
satisfactory to the Agent (but in any event not materially more
restrictive or burdensome than the Security Documents in effect as of the
Original Closing Date), and (ii) the UK Borrower or any of its UK
Subsidiaries in connection with a Permitted Acquisition (x) pledge such
personal property or fixtures (to the extent not constituting the giving
of unlawful financial assistance for the purposes of Sections 151 to 158
of the Companies Act 1985 (England)) to the Agent as security for the
payment in full of all the UK Obligations, pursuant to documentation
satisfactory to the Agent; provided, that to the extent that the UK
Borrower or a UK Subsidiary cannot comply with any of the requirements of
this ss.9.17(a)(ii) due to the applicability of Sections 151 to 158 of the
Companies Act 1985 (England), the UK Borrower and/or a UK Subsidiary shall
have completed a Whitewash Procedure within ten (10) days after the
closing of any Acquisition whereby such assets were acquired; provided,
however, that notwithstanding anything herein to the contrary, in the case
of Acquisitions by the UK Borrower or a UK Subsidiary of the Capital Stock
of one or more UK Companies the aggregate purchase price of which does not
exceed the Dollar Equivalent of $3,000,000, the UK Obligations shall not
be secured by all Acquired Assets of such UK Companies to the extent that
the Borrower or any of its Affiliates would need to undergo a
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Whitewash Procedure solely in order to provide such Acquired Assets of
such UK Companies as security for such UK Obligations, but instead such UK
Obligations shall be secured by a first priority pledge of, and fixed
charge over, one hundred percent (100%) of the Capital Stock of such UK
Companies and (y) perform any filings, recordings or other actions
necessary in the reasonable judgment of the Agent to create in favor of
the Agent a perfected first-priority security interest in and/or charge
over all such personal property or fixtures (subject only to Permitted
Liens) within ten (10) days of any Transaction Party acquiring such
personal property or fixtures.
(b) In the case of Real Estate acquired by any Transaction Party
after the effectiveness hereof in connection with a Permitted Acquisition,
at the request of the Agent, (i) execute and deliver to the Agent, within
ten (10) days after such Transaction Party takes possession of such Real
Estate, a mortgage granting to the Agent a perfected Lien on such Real
Estate and (ii) deliver to the Agent, within ten (10) days after such
Transaction Party takes or receives possession of such Real Estate, ALTA
mortgage policies of title insurance (or its equivalent in a UK
Subsidiary's jurisdiction of organization) covering all such Real Estate
and issued by title insurance companies satisfactory to the Agent, with
proof of payment of all fees and premiums of such policy, and naming the
Agent as additional insured and loss payee; provided, further, that the
amount, form, and substance of each such mortgage title insurance policy
shall be reasonably satisfactory to the Agent and shall contain no
exceptions for coverage other than for Liens which the Agent reasonably
determines are Permitted Liens.
(c) Deliver to the Agent and the Agent's Special Counsel within ten
(10) days after the date of any Permitted Acquisition, true, complete, and
correct copies of each instrument of transfer, officer's certificate,
legal opinion and other instrument or agreement executed and delivered by
the applicable seller and/or the applicable Transaction Party in
connection with such Permitted Acquisition.
9.18. Interest Rate Protection. The Borrower will at all times maintain
Rate Protection Agreements acceptable to the Agent establishing a fixed or
maximum interest rate acceptable to the Agent with respect to an aggregate
notional principal amount of Indebtedness equal to at least fifty percent (50%)
of the Consolidated Total Funded Debt of the Borrower and its Subsidiaries. Any
fixed rate debt instruments (including the Senior Subordinated Notes) issued by
the Borrower or any of its Subsidiaries and outstanding as of the Original
Closing Date and permitted hereby shall be deemed Rate Protection Agreements
acceptable to the Agent for purposes of the previous sentence, and shall count
towards the fifty percent (50%) requirement of such sentence.
9.19. UCC Searches. On or prior to the sixtieth (60th) day following the
Original Closing Date, deliver to the Agent (at the Borrower's own cost) copies
of Request for Information or Copies (UCC-11), or equivalent reports for the
purpose of verifying that all financing statements necessary or, in the opinion
of the Agent desirable, to perfect the security interests purported to be
created by the Security Documents shall have been properly recorded and filed.
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9.20. Employee Benefit Plans. (a) Promptly upon filing the same with the
Department of Labor or Internal Revenue Service upon request of the Agent,
furnish to the Agent a copy of the most recent actuarial statement required to
be submitted under ss.103(d) of ERISA and Annual Report, Form 5500, with all
required attachments, in respect of each Guaranteed Pension Plan and (b)
promptly upon receipt or dispatch, furnish to the Agent any notice, report or
demand sent or received in respect of a Guaranteed Pension Plan under ss.ss.302,
4041, 4042, 4043, 4063, 4065, 4066 and 4068 of ERISA, or in respect of a
Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA.
9.21. Further Assurances. Cooperate with the Lenders and the Agent and
execute such further instruments and documents as Lenders or the Agent shall
reasonably request to carry out to their satisfaction the transactions
contemplated by this Agreement and the other Loan Documents.
10. NEGATIVE COVENANTS.
Each of the US Transaction Parties covenants and agrees with the Agent,
the Issuing Bank and each Lender that until all Commitments have terminated and
the principal of and interest on each Loan, all Fees, and all other expenses or
amounts payable under any Loan Document (other than wholly contingent
indemnification Obligations) shall have been paid in full and all Letters of
Credit have been cancelled or have expired and all amounts drawn thereunder have
been reimbursed, unless the Required Lenders shall otherwise consent in writing,
such Transaction Party will not, and will not permit any of its Subsidiaries to:
10.1. Indebtedness. Create, issue, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to (including as a result
of an Acquisition) any Indebtedness (including any Disqualified Capital Stock)
which is not permitted under Section 4.11 of the Senior Subordinated Indenture
and which is not also permitted by one of the following paragraphs:
(a) Indebtedness of the Transaction Parties to the Lenders, the
Issuing Bank and the Agent arising under the Loan Documents;
(b) Indebtedness of the Borrower and its Subsidiaries 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 the Borrower's
industry; provided, that the aggregate principal amount outstanding of
such Indebtedness shall at no time exceed $250,000;
(c) Indebtedness of any Transaction Party for Purchase Money
Indebtedness; provided that the aggregate outstanding principal amount of
all such Indebtedness (including any such Indebtedness outstanding on the
Original Closing Date) shall not exceed $10,000,000 at any time;
(d) Indebtedness which is Permitted Subordinated Debt, Permitted
Seller Subordinated Debt or Permitted Disqualified Capital
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Stock, in an aggregate outstanding principal amount for all such
Indebtedness not to exceed $25,000,000 at any time;
(e) Indebtedness of the Borrower under the Senior Subordinated Notes
in an aggregate principal amount not to exceed $110,000,000, minus the
amount of any payment, prepayment, redemption, repurchase or other
acquisition of, or cancellation or discharge of, any Senior Subordinated
Notes;
(f) Indebtedness of the Borrower under the Exchange Notes issued in
exchange for the Senior Subordinated Notes in the manner described in the
Offering Memorandum, provided, that the aggregate principal amount of the
Exchange Notes outstanding at any time shall not exceed the outstanding
principal amount of the Senior Subordinated Notes on the date of the
issuance of the Exchange Notes, minus the amount of any payment,
prepayment, redemption, repurchase or other acquisition of, or
cancellation or other discharge of, any Exchange Notes;
(g) Mortgage Indebtedness secured by real property other than
Collateral, provided that the outstanding principal amount of such
Mortgage Indebtedness (including any such Indebtedness outstanding on the
Original Closing Date) shall not exceed $8,000,000 in the aggregate at any
time; and provided further that the Borrower and its Subsidiaries shall
not be permitted to incur any Mortgage Indebtedness after the Original
Closing Date unless the Borrower shall have demonstrated to the reasonable
satisfaction of the Agent (based on, among other things, operating and
financial projections and pro forma financial statements delivered to the
Agent and certified by the Borrower's chief financial officer) that,
immediately after incurring such Mortgage Indebtedness, all covenants
(including covenants contained in ss.11 of this Agreement) contained
herein (i) would have been satisfied on a pro forma basis as at the end of
and for the Most Recent Reference Period, and (ii) will be satisfied on a
pro forma basis through the Term Loan B Maturity Date;
(h) Indebtedness in respect of intercompany loans permitted by
ss.10.3(g);
(i) Indebtedness of the Borrower under Rate Protection Agreements
entered into for bona fide hedging purposes, and not for speculative
purposes;
(j) Indebtedness of the UK Borrower under a Permitted UK Working
Capital Facility, provided, that the outstanding principal amount of such
Indebtedness (including undrawn amounts under letters of credit, bank
guarantees, indemnities or other similar instruments) shall be less than
$10,000,000 (or the Dollar Equivalent thereof) in the aggregate at all
times;
(k) Any guarantee by the Borrower of Purchase Money Indebtedness
permitted by paragraph (c) of this ss.10.1 (to the extent permitted in the
definition of Purchase Money Indebtedness), and any
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guarantee by the Borrower of Permitted Seller Subordinated Debt permitted
by paragraph (d) of this ss.10.1 (to the extent permitted in the
definition of Permitted Seller Subordinated Debt); and
(l) Indebtedness not otherwise permitted by this ss.10.1 existing on
the Original Closing Date and listed and described on Schedule 10.1
hereto, but without giving effect to any refinancings, renewals or
increases in the principal amount thereof.
10.2. Liens. Do any of the following: (i) create or incur or suffer to
exist any Lien upon any of its Property whether now owned or hereafter acquired,
or upon the income or profits therefrom; (ii) transfer any such Property or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; or (iii) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; other than:
(a) Liens to secure taxes, assessments and other government charges
in respect of obligations not overdue or Liens to secure claims for labor,
material or supplies in respect of obligations not overdue;
(b) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(c) encumbrances on Real Estate consisting of easements, rights of
way, zoning restrictions, conditions, covenants and restrictions on the
use of real property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which the Borrower or a
Subsidiary of the Borrower is a party, and other minor liens or
encumbrances; provided that none of such Liens (i) interferes with the use
of the Property affected in the ordinary conduct of its business and (ii)
individually or in the aggregate have an adverse effect on the business of
the Borrower and its Subsidiaries or on the value of the Property subject
to such Liens;
(d) Liens to secure obligations under Capitalized Leases of the type
and amount permitted by ss.10.1(c), so long as such Liens cover only the
personal property subject to such Capitalized Leases, and purchase money
security interests in personal property securing purchase money
Indebtedness of the type and amount permitted by ss.10.1(c), so long as
such security interests are incurred in connection with the acquisition of
such property and cover only the personal property so acquired;
(e) Liens in favor of the Agent for the benefit of the Lenders and
the Agent under the Loan Documents;
(f) Liens securing the Real Estate that is the subject of Mortgage
Indebtedness permitted hereunder;
(g) Liens of carriers, warehousemen, mechanics and materialmen, and
other like liens on properties, in existence less than
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120 days from the date of creation thereof in respect of obligations not
overdue;
(h) Liens securing the Permitted UK Working Capital Facility;
provided that (i) such Permitted UK Working Capital Facility does not
exceed the limitations of ss.10.1(j) and (ii) such Liens are permitted
under the definition of Permitted UK Working Capital Facility; and
(i) Liens existing on the Original Closing Date and listed and
described on Schedule 10.2 hereto.
10.3. Investments. Make or permit to exist or to remain outstanding any
Investment, except:
(a) Investments by the Borrower in Cash Equivalents;
(b) Investments by the Transaction Parties consisting of Accounts
Receivables;
(c) Investments consisting of loans and advances by the Transaction
Parties to employees of the Transaction Parties in the ordinary course of
business for travel, entertainment, relocation and other similar business
related expenses in the aggregate amount outstanding at any time not to
exceed $250,000;
(d) Investments constituting Permitted Acquisitions;
(e) Investments consisting of the Guarantee;
(f) Investments existing on the Original Closing Date and listed on
Schedule 10.3 hereto;
(g) Investments by the Borrower or any Guarantor in a Guarantor
which is a Domestic Subsidiary or the Borrower in the form of intercompany
loans made in cash, provided, however, that if any Enforcement Period is
continuing, then no such Investments shall be permitted under this
paragraph (g) in violation of the restrictions set forth in the
Enforcement Notice commencing such Enforcement Period; and
(h) Investments by the Borrower in the UK Borrower or any
Subsidiaries of the UK Borrower which are (i) made out of Net Cash
Proceeds of Permitted Capital Stock issued by the Borrower after the
Original Closing Date which are not required to be used to prepay the
Loans and which have not been used to finance any Permitted Acquisitions
of any Domestic Companies or for any other purpose, or (ii) made from
other sources, in an aggregate principal amount not greater than the
lesser of (x) $10,000,000 and (y) 20% of the aggregate cash purchase price
paid by the UK Borrower and its Subsidiaries for Permitted Acquisitions of
UK Companies; provided that no Investment pursuant to this clause (ii)
shall be permitted unless the Borrower shall have Liquidity of at least
$10,000,000 after giving effect to such Investment.
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10.4. Distributions and Restricted Payments.
(a) Make any Distributions, except that:
(i) Subsidiaries of the Borrower may make Distributions in the
form of cash dividends to the Borrower or any other Subsidiary of
the Borrower, provided, however, that if any Enforcement Period is
continuing, then no such Distributions shall be permitted under this
clause (i) in violation of the restrictions set forth in the
Enforcement Notice commencing such Enforcement Period; and
(ii) the Borrower may purchase, redeem, retire or otherwise
acquire shares of its Capital Stock, or options or warrants to
purchase its Capital Stock, held by officers, directors or employees
of the Borrower or any of its Subsidiaries pursuant to a
compensation plan or arrangement upon the death, disability or
termination of employment of any such officer, director or employee,
provided, that the aggregate amount of such payments made by the
Borrower pursuant to this clause (ii) shall not exceed $300,000 in
the aggregate in any fiscal year of the Borrower;
(iii) the Borrower may make Permitted Payments to Parent; and
(iv) the Borrower may pay accrued unpaid dividends on
Permitted Disqualified Capital Stock as required by the terms of
such Permitted Disqualified Capital Stock; provided, that no such
payment shall be permitted if any Default or Event of Default is
continuing or would result from such payment.
(b) Make any payment, prepayment, redemption, repurchase or other
acquisition of or in respect of, or cancel or discharge in any other
manner, any Subordinated Debt or make any payment or distribution in
respect of any interest or other amounts payable under any of the
Subordinated Debt Documents (or make any offer to do any of the
foregoing), except for:
(i) mandatory payments of principal of and accrued unpaid
interest on Subordinated Debt made as required by the terms of the
Subordinated Debt Documents, so long as such payments are not
prohibited by the subordination provisions set forth in the
Subordinated Debt Documents (it being understood that the redemption
of Senior Subordinated Notes pursuant to Article III of the Senior
Subordinated Indenture is prohibited by this Agreement); and
(ii) the issuance of the Exchange Notes for the Senior
Subordinated Notes originally issued under the Senior Subordinated
Indenture in accordance with the terms of the Senior Subordinated
Note Documents.
(c) Make any payment, prepayment, redemption, repurchase or other
acquisition of, or cancel or discharge in any manner, any Indebtedness of
any Transaction Party to any other Transaction Party, or make any payment
or distribution in respect of any interest or other sums due in respect of
any such Indebtedness (an "Intercompany Debt Payment"), at any time while
any
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Enforcement Period shall be continuing if the Enforcement Notice for such
Enforcement Period prohibits such Intercompany Debt Payment.
(d) Make any payment to Parent or any Affiliate of the Borrower or
Parent of any fees or commissions of any kind, including, without
limitation, any consulting fees, management fees, investment banking fees
or commissions, arrangement, placement or syndication fees, or brokers',
finders' or other transaction fees or commissions, except for:
(i) payments of management fees by the Borrower pursuant to
the Management Consulting Agreement, provided, however, that (A) at
the time of any such payment, the entire amount of such payment is
then required to be made in accordance with the terms of the
Management Consulting Agreement, (B) no Default or Event of Default
is continuing at the time of such payment or would result therefrom,
(C) the maximum amount of such management fees paid or payable by
the Borrower with respect to any fiscal year shall not exceed
$200,000 plus one and one-half percent (1 1/2%) of Consolidated
EBITDA of the Borrower and its Subsidiaries for such fiscal year,
and (D) the Borrower shall pay such management fees quarterly in
arrears, in an amount for any quarter not in excess of one and
one-half percent (1 1/2%) of Consolidated EBITDA for the prior
fiscal quarter. In the event that the Borrower pays any such
management fees prior to the delivery by the Borrower of the
financial statements required pursuant to ss.9.3(a) and/or (b) and
the Borrower or the Agent (in the case of any over-payment)
determines that an over-payment or under-payment of such management
fees has occurred as a result of the Borrower's final determination
of Consolidated EBITDA, such management fees shall be adjusted
accordingly, with appropriate (x) refunds of such management fees
for the prior fiscal quarter being made to the Borrower, or (y)
additional payments of such management fees for the prior fiscal
quarter being made by the Borrower, each as the case may be.
(ii) payments by the Borrower to Dunhill Bank Caribbean, Ltd.
and/or Hayes Capital Corporation on the closing date of any
Permitted Acquisition of advisory fees in respect of such Permitted
Acquisition, provided, that the aggregate amount of such advisory
fees payable under this subparagraph (ii) for any Permitted
Acquisition shall not exceed one percent (1%) of the purchase price
paid by the Borrower (or one of its Subsidiaries) at closing for the
businesses acquired by the Borrower (or one of its Subsidiaries) in
such Permitted Acquisition;
(iii) payments by the Borrower to Dunhill Bank Caribbean, Ltd.
and/or Hayes Capital Corporation of a transaction fee on the closing
date of the issuance by the Borrower after the Original Closing Date
of (A) Indebtedness permitted hereby or consented to by the Required
Lenders, or (B) Equity Interests permitted hereby or consented to by
the Required Lenders, in each case obtained solely through the
efforts and services of Dunhill Bank Caribbean, Ltd. and/or Hayes
Capital Corporation and not through the efforts of any other
intermediary who has or would receive a fee in connection with such
issuance; provided however, that any such transaction fee payable in
connection with any issuance of (x) Indebtedness shall not exceed
one percent (1%) of Net
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Cash Proceeds (computed without regard to payment of such fee) of
the Indebtedness issued or (y) Equity Interests shall not exceed
three percent (3%) of the Net Cash Proceeds (computed without regard
to payment of such fee) of the Equity Interests issued; and
(iv) payments by the Borrower of fees in respect of the
transactions contemplated to occur on or prior to the Original
Closing Date pursuant to the Acquisition Documents or the Loan
Documents, provided, that such fees shall have been disclosed to and
approved by the Agent prior to the Original Closing Date.
10.5. Mergers, Consolidations and Acquisitions. Become a party to any
merger or consolidation, or agree to or effect any asset acquisition or stock
acquisition (other than the acquisition of assets in the ordinary course of
business consistent with past practices) except for (a) the merger or
consolidation of one (1) or more of the Domestic Subsidiaries of the Borrower
with and into the Borrower (with the Borrower being the surviving entity), (b)
the merger or consolidation of two (2) or more Domestic Subsidiaries of the
Borrower, provided that if any of such Subsidiaries is also a Guarantor, such
Guarantor is the surviving entity of such merger or consolidation, (c) a
Permitted Acquisition, or (d) the Lamsco Acquisition, as contemplated by the
Lamsco Acquisition Documents.
10.6. Disposition of Assets. Become a party to or agree to or effect any
disposition of assets, other than (i) the sale of inventory and the disposition
of obsolete and no longer useful assets, in each case in the ordinary course of
business, consistent with past practices and (ii) the sale of other assets so
long as the aggregate amount of Net Cash Proceeds from such sales pursuant to
this clause (ii) in any one year do not exceed $100,000. To the extent that the
Required Lenders waive the provisions of this ss.10.6 with respect to the sale
of any Collateral (to the extent the Required Lenders are permitted to waive
such provisions in accordance with ss.17.11), or any Collateral is sold as
permitted by this ss.10.6, such Collateral shall be sold free and clear of the
Liens created by the Security Documents, and the Agent shall be authorized to
take any actions deemed appropriate in order to effect the foregoing.
10.7. Issuance of Capital Stock. Issue any Capital Stock or any other
Equity Interests other than:
(a) the issuance by any Transaction Party (other than the Borrower)
of its own Permitted Capital Stock to its direct parent;
(b) the issuance and sale by the Borrower of its Permitted
Disqualified Capital Stock; provided that such issuance and sale would not
cause the Borrower to exceed the Dollar limitation of ss.10.1(d) or
otherwise cause or result in an Event of Default;
(c) the issuance and sale by the Borrower of Permitted Capital Stock
of the Borrower and Equity Interests constituting rights to purchase
Permitted Capital Stock of the Borrower, provided, that no Default or
Event of Default shall be continuing as of the date of such issuance or
sale or would result from such issuance or sale or the application of the
proceeds of such issuance or sale.
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Any Equity Interests issued as permitted by this ss.10.7, if owned by the
Borrower or any of its Subsidiaries, shall be immediately pledged as Collateral
and delivered pursuant to the Stock Pledge Agreement.
10.8. Sale and Leaseback. Enter into any arrangement, directly or
indirectly, whereby the Borrower or any of its Subsidiaries shall sell or
transfer any Property owned by it in order then or thereafter to lease such
Property or lease other Property for substantially the same purpose as the
property being sold or transferred.
10.9. Compliance with Environmental Laws. (a) Use any of the Real Estate
or any portion thereof for the handling, processing, storage or disposal of
Hazardous Substances in violation of Environmental Laws, (b) cause or permit to
be located on any of the Real Estate any underground tank or other underground
storage receptacle for Hazardous Substances in violation of Environmental Laws,
(c) generate any Hazardous Substances on any of the Real Estate in violation of
Environmental Laws, (d) conduct any activity at any Real Estate or use any Real
Estate in any manner so as to cause a release (i.e. releasing, spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, disposing or dumping) or threatened release of Hazardous Substances
on, upon or into the Real Estate or (e) otherwise conduct any activity at any
Real Estate or use any Real Estate in any manner that would violate any
Environmental Law or bring such Real Estate in violation of any Environmental
Law.
10.10. Employee Benefit Plans.
(a) Engage in any "prohibited transaction" within the meaning of
ss.406 of ERISA or ss.4975 of the Code, which could result in a material
liability for the Borrower or any of its Subsidiaries.
(b) Permit any Guaranteed Pension Plan to incur an "accumulated
funding deficiency", as such term is defined in ss.302 of ERISA, whether
or not such deficiency is or may be waived.
(c) Fail to contribute to any Guaranteed Pension Plan to an extent
which, or terminate any Guaranteed Pension Plan in a manner which, could
result in the imposition of a Lien on the assets of the Borrower or any of
its Subsidiaries pursuant to ss.302(f) or ss.4068 of ERISA.
(d) Permit or take any action which would result in the aggregate
benefit liabilities (with the meaning of ss.4001 of ERISA) of all
Guaranteed Pension Plans exceeding the value of the aggregate assets of
such Plans, disregarding for this purpose the benefit liabilities and
assets of any such Plan with assets in excess of benefit liabilities.
(e) Amend any Guaranteed Pension Plan in circumstances requiring the
posting of security pursuant to ss.307 of ERISA or ss.401(a)(29) of the
Code.
(f) Take any action referred to in paragraphs (a) through (c) above
that would violate any provisions of any applicable foreign pension and
retirement benefits legislation.
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10.11. Transactions with Affiliates. Enter into, or cause, suffer or
permit to exist any transaction or agreement with any Affiliate, or make any
payment to any Affiliate, except:
(a) transactions contemplated to be effected on or prior to the
Original Closing Date under the Equity Documents;
(b) the Equity Documents, provided that this paragraph (b) shall not
be construed to permit any payments or distributions under or pursuant to
the Equity Documents;
(c) the payment of management fees, advisory fees and other fees
permitted under ss.10.4(d);
(d) Distributions permitted under ss.10.4(a);
(e) transactions, agreements and payments among US Transaction
Parties not prohibited by any of the other terms of this Agreement or the
other Loan Documents;
(f) Permitted Payments to Parent;
(g) employment agreements entered into in the ordinary course of
business by the Transaction Parties and loans and advances to employees of
the Transaction Parties permitted by ss.10.3; and
(h) any transaction or agreement (and payments made pursuant
thereto) (other than as described in the following paragraphs of this
ss.10.9) having terms not less favorable to the Transaction Parties than
would be the case if such transaction or agreement had been entered into
with a Person that is not an Affiliate, provided that (i) the aggregate
potential value payable or receivable by the Transaction Parties in
connection with all such transactions during any fiscal year of the
Borrower shall not exceed $50,000; and (ii) the terms of any such
transaction or agreement shall have been disclosed to the Agent.
10.12. Restrictive or Inconsistent Agreements. Permit to exist any
Contractual Obligation:
(a) which directly or indirectly prohibits or restrains, or has the
effect of prohibiting or restraining, or otherwise imposes any materially
adverse or burdensome condition upon, the declaration or payment of
Distributions, the incurrence of Indebtedness, the payment of any
Indebtedness owed to the Borrower or a Subsidiary of the Borrower, the
granting of Liens, the making of loans or advances to the Borrower or any
of its Subsidiaries or the amendment or modification of any of the Loan
Documents;
(b) containing any provision that would be violated or breached by
any Loan or by the performance by any Transaction Party of any of its
obligations hereunder or under any of the other Loan Documents; or
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(c) which prohibits the Borrower or any Subsidiary of the Borrower
from transferring any of its Properties to the Borrower or any Subsidiary
of the Borrower; provided, that the foregoing covenant shall not prohibit
(i) encumbrances or restrictions (A) under the Subordinated Debt
Documents, as amended in compliance with this Agreement, or (B) under the
Loan Documents, (ii) restrictions under Instruments governing Purchase
Money Indebtedness on transfer of Property financed with proceeds of such
Indebtedness.
10.13. Amendments or Termination of Documents, etc.
(a) Permit any amendment, supplement or other modification to any
Ancillary Document, any Governing Document, any Tax Sharing Agreement, or
any Debt Agreements, if such amendment, supplement or modification would
adversely affect the Lenders or have a Material Adverse Effect;
(b) Cause or permit any waiver, release, discharge or compromise of
any material obligation of any party other than the Transaction Parties
under any Ancillary Documents
10.14. Bank Accounts. (a) Establish any bank accounts other than those
listed on Schedule 8.18, unless such new account is subject to an Agency Account
Agreement executed and delivered to the Agent (whereupon Schedule 8.18 shall be
amended as appropriate to reflect such new account), (b) violate directly or
indirectly any Agency Account Agreement or other bank agency or lock box
agreement in favor of the Agent for the benefit of the Banks and the Agent with
respect to such account, or (c) deposit into any of the payroll accounts listed
on Schedule 8.18 any amounts in excess of amounts necessary to pay current
payroll obligations from such accounts.
10.15. Fiscal Year. Permit the fiscal year of the Borrower and each of its
Subsidiaries to end on a day other than December 31.
10.16. Line of Business. Permit the Borrower to engage in any business or
activity other than the ownership of the Capital Stock of its wholly-owned
Subsidiaries and other activities incidental thereto.
11. FINANCIAL COVENANTS.
The Borrower covenants and agrees with the Agent, the Issuing Bank and
each Lender that until all Commitments have terminated and the principal of and
interest on each Loan, all Fees, and all other expenses or amounts payable under
any Loan Document (other than wholly contingent indemnification Obligations)
shall have been paid in full and all Letters of Credit have been cancelled or
have expired and all amounts drawn thereunder have been reimbursed, unless the
Required Lenders shall otherwise consent in writing, the Borrower will not
permit:
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 below opposite such period:
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Period Ratio
------ -----
Original Closing Date through September 30, 1999 4.50 to 1
October 1, 1999 through September 30, 2000 4.25 to 1
October 1, 2000 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
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 below
opposite such date or period:
Minimum
Consolidated
Period EBITDA
------ ------
Original Closing Date through December 31, 1999 $43,500,000
January 1, 2000 through December 31, 2000 $46,000,000
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
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 period:
Minimum Interest
Period Coverage Ratio
------ --------------
March 31, 1999 through December 31, 1999 2.25 to 1
January 1, 2000 through February 1, 2005 2.50 to 1
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 or after March 31, 1999, to (b) Consolidated Debt Service of
the Borrower and its Subsidiaries for such Reference Period to be less than 1.15
to 1.
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 ss.10.1 or (b) as a result of the acquisition of Capital Assets in any
Permitted Acquisition) (i) to exceed $10,000,000 in the 1999 calendar year and
(ii) for any Reference Period ending on any date or during any period set
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forth in the table below to exceed the amount set forth in the table below
opposite such date or period:
Maximum
Capital
Period Expenditures
------ ------------
January 1, 2000 through December 31, 2000 $10,000,000
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
11.6. General Provisions Relating to Financial Terms and Covenants. In the
event the Borrower or any of its Subsidiaries makes any Permitted Acquisition,
the following adjustments shall be made:
(a) Consolidated EBITDA. In determining Consolidated EBITDA of the
Borrower and its Subsidiaries for any period, there shall be (i) included
in such Consolidated EBITDA all EBITDA attributable to any business
acquired by the Borrower or any of its Subsidiaries during such period as
if such business were acquired on the first day of such period and (ii)
excluded from such Consolidated EBITDA all EBITDA attributable to any
business disposed of by the Borrower or any of its Subsidiaries during
such period as if such business were disposed of on the first day of such
period. For purposes hereof, the EBITDA attributable to any such acquired
or disposed of business prior to the date of acquisition or disposition
thereof shall be determined in a manner consistent with the method for
determining Consolidated EBITDA, but on a non-consolidated basis (subject
to any adjustments made pursuant to paragraph (c) below. Notwithstanding
the foregoing, this paragraph (a) shall not cause any increase in
Consolidated EBITDA of the Borrower and its Subsidiaries on account of the
Lamsco Acquisition for the fiscal quarters ended March 31, 1998, June 30,
1998 and September 30, 1998. The effect of the Lamsco Acquisition and the
Modern Acquisition on Consolidated EBITDA of the Borrower and its
Subsidiaries for such three fiscal quarters is fully reflected and
accounted for in ss.11.7(a).
(b) Consolidated Total Interest Expense. In determining Consolidated
Total Interest Expense for any period, there shall be (i) included all
Consolidated Total Interest Expense attributable to Indebtedness incurred
or assumed by the Borrower or any of its Subsidiaries during such period
in connection with any Permitted Acquisition as if such Indebtedness were
incurred or assumed on the first day of such period and (ii) excluded all
Consolidated Total Interest Expense attributable to that portion of the
principal amount of the Loans prepaid during such period with proceeds
from any disposition of a business as if such portion of the principal
amount of the Loans were prepaid on the first day of such period.
(c) EBITDA Adjustments. For the purpose of this ss.11.6, EBITDA
attributable to any business acquired by the Borrower or any of
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its Subsidiaries during any period may be adjusted to more accurately
reflect the financial condition and results of operations of the acquired
business after giving effect to the Acquisition as mutually determined and
agreed to by the Borrower and the Agent. The Borrower and the Agent shall
each use good faith efforts to mutually determine and agree to any such
adjustments. It is understood and agreed, however, that the Agent shall
have no liability for failing to agree to any such adjustments. In the
case of an Acquisition by the Borrower or any of its Subsidiaries, such
adjustments may reflect any cost savings (but not revenue enhancements)
that would have been achieved if such business had been owned by the
Borrower or one of its Subsidiaries for the entire relevant period,
including adjustments for excess owner's compensation, excess rent paid to
related parties, directors' fees paid to related parties and workmen's
compensation and other insurance expense in excess of that which would
have been incurred under policies of the Borrower and its Subsidiaries
existing at the time of such Acquisition.
(d) Covenant Adjustments.
(i) Upon completion of any Permitted Acquisition, the minimum
Consolidated EBITDA of the Borrower and its Subsidiaries required by
ss.11.2 shall be increased by the Agent, in consultation with the
Borrower, (i) for any Reference Period ended prior to the date of
such Acquisition, by the amount of EBITDA of the acquired business
for such Reference Period added to Consolidated EBITDA of the
Borrower and its Subsidiaries pursuant to ss.11.6(a) and (c), and
(ii) for all periods thereafter, by eighty percent (80%) of the
amount of EBITDA of the acquired business, as reflected in the
projections and pro-forma financial statements provided by the
Borrower to the Agent (and approved by the Agent) and on the basis
of which such Acquisition has satisfied the requirements for a
Permitted Acquisition.
(ii) Upon completion of any Permitted Acquisition, the maximum
Capital Expenditures covenant set forth in ss.11.5 will be adjusted
to reflect the acquired businesses, as determined by the Agent,
acting in its reasonable judgment in consultation with the Borrower.
11.7. Computations of Financial Covenants During First Year of Credit
Facilities.
(a) Consolidated EBITDA Calculation. In determining Consolidated
EBITDA of the Borrower and its Subsidiaries for any Reference Period which
includes any fiscal quarter ending March 31, 1998, June 30, 1998 or
September 30, 1998, the Consolidated EBITDA of the Borrower and its
Subsidiaries for such fiscal quarter shall be deemed for all purposes of
this Agreement to be as follows:
Fiscal Quarter Ended Consolidated EBITDA
-------------------- -------------------
March 31, 1998 $12,000,000
June 30, 1998 $12,000,000
September 30, 1998 $12,000,000
(b) Consolidated Operating Cash Flow Calculation. In determining
Consolidated Operating Cash Flow of the Borrower and its Subsidiaries for any
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Reference Period which includes any fiscal quarter ending June 30, 1998 or
September 30, 1998, the Consolidated Operating Cash Flow of the Borrower and its
Subsidiaries for such fiscal quarter shall be deemed for all purposes of this
Agreement to be as follows:
Consolidated
Fiscal Quarter Ended Operating Cash Flow
-------------------- -------------------
June 30, 1998 $8,000,000
September 30, 1998 $8,000,000
(c) Consolidated Total Interest Expense; Consolidated Debt Service.
In determining Consolidated Total Interest Expense and Consolidated Debt
Service of the Borrower and its Subsidiaries for any Reference Period
ending prior to December 31, 1999, Consolidated Total Interest Expense and
Consolidated Debt Service shall be deemed to be (i) for the Reference
Period ending March 31, 1999, Consolidated Total Interest Expense and
Consolidated Debt Service for the fiscal quarter ending on such date,
multiplied by 4, (ii) for the Reference Period ending June 30, 1999
Consolidated Total Interest Expense and Consolidated Debt Service for the
fiscal quarter ending on such date, multiplied by 2, and (iii) for the
Reference Period ending September 30, 1999, Consolidated Total Interest
Expense and Consolidated Debt Service for the fiscal quarter ending on
such date, multiplied by 4/3.
12. CLOSING CONDITIONS.
The obligations of the Lenders to make the initial Loans and of the
Issuing Bank to issue any initial Letters of Credit shall be subject to the
satisfaction of the following conditions precedent on or prior to the Original
Closing Date (unless waived in writing by the Agent and each of the Lenders on
or prior to the Original Closing Date).
12.1. Loan Documents, etc..
12.1.1. Loan Documents. Each of the Loan Documents (other than the
Rate Protection Agreements) shall have been duly executed and delivered by
the respective parties thereto, shall be in full force and effect and
shall be in form and substance satisfactory to each of the Lenders. The
Agent shall have received fully executed original counterparts or
originals of each such document.
12.1.2. Senior Subordinated Note Documents. The Agent shall have
received fully executed copies of each Senior Subordinated Note Document,
each of which shall be in form and substance satisfactory to the Agent.
12.1.3. Acquisition Documents. The Agent shall have received fully
executed copies of each of the Acquisition Documents, each of which shall
be in form and substance satisfactory to the Agent.
12.1.4. Equity Documents. The Agent shall have received fully
executed copies of each Equity Document, each of which shall be in form
and substance satisfactory to the Agent.
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12.1.5. Management Consulting Agreement. The Agent shall have
received a fully executed copy of the Management Consulting Agreement,
which shall be in form and substance satisfactory to the Agent.
12.1.6. Permitted Disqualified Capital Stock Documents. The Agent
shall have received fully executed copies of each Permitted Disqualified
Capital Stock Document (if any), each of which shall be in form and
substance satisfactory to the Agent.
12.2. Completion of Acquisition.
(a) The Lamsco Acquisition, including all of the terms and
conditions thereof, shall have been duly approved by the board of
directors and (if required by Applicable Law) the shareholders of the
parties thereto, and all Lamsco Acquisition Documents shall have been duly
executed and delivered by the parties thereto and shall be in full force
and effect. The representations and warranties set forth in the Lamsco
Acquisition Documents shall be true and correct in all material respects
as if made on and as of the Original Closing Date. Each of the conditions
precedent to the Borrower's and Lamsco's selling shareholders' obligations
to consummate the Lamsco Acquisition as set forth in the Lamsco
Acquisition Documents shall have been satisfied or waived with the consent
of the Agent. The Lamsco Acquisition shall have been consummated in
accordance with the terms of the Lamsco Acquisition Documents and all
Applicable Laws. The purchase price for the Lamsco Acquisition, together
with all fees and expenses payable by the Borrower of any of its
Subsidiaries in connection therewith and the financing thereof, shall not
exceed $80,000,000.
(b) On the Original Closing Date, after giving effect to the Lamsco
Acquisition, the ownership and capital structure (including the terms of
any Equity Interests issued or to be issued by the Borrower or any of its
Subsidiaries) and management of the Borrower and its Subsidiaries shall be
satisfactory to the Agent.
12.3. Certified Copies of Charter Documents. The Agent shall have received
from each of the Transaction Parties a copy, certified by a duly authorized
officer of such Person to be true and complete on the Original Closing Date, of
each of (i) its charter or other incorporation documents as in effect on such
date of certification, and (ii) its by-laws as in effect on such date.
12.4. Corporate Action. All corporate action necessary for the valid
execution, delivery and performance by the Borrower and each of its Subsidiaries
of the Existing Credit Agreement and the other Loan Documents to which it is or
is to become a party shall have been duly and effectively taken, and evidence
thereof, including good standing certificates, satisfactory to the Agent shall
have been provided to the Agent.
12.5. Incumbency Certificate. The Agent shall have received from each
Transaction Party an incumbency certificate, dated as of the Original Closing
Date, signed by a duly authorized officer of such Transaction Party, and giving
the name and bearing a specimen signature of each individual who shall be
authorized: (a) to sign, in the name and on behalf of such Transaction Party,
each of the Loan Documents to which such Transaction Party is or is to become a
party; (b) in the case of the Borrowers, to make Loan Requests and
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Conversion Requests and to apply for Letters of Credit; and (c) to give notices
and to take other action on its behalf under the Loan Documents.
12.6. Plans; Shareholders' Agreements; Management Agreements; Employee
Agreements; Collective Bargaining Agreements; Debt Agreements; Affiliate
Contracts; Tax Sharing Agreements and Other Material Contracts. The Agent shall
have received true and correct copies, certified as true and complete by an
appropriate officer of the Borrower of:
(i) all Plans, and (for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information), and for each Plan
that is a "single-employer plan" (as defined in Section 4001(a)(15) of
ERISA) the most recently completed actuarial valuation prepared therefor
and any other "employee benefit plan", as defined in Section 3(3) of
ERISA, and any other material agreements, plans or arrangements, with or
for the benefit of current or former employees of the Borrower or any of
its Subsidiaries or any ERISA Affiliate (provided that the foregoing shall
apply in the case of any Multi-employer Plan only to the extent that any
document described therein is in possession of the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate or reasonably available
thereto from the sponsor or trustee of any such plan);
(ii) all agreements entered into by the Borrower or any of its
Subsidiaries governing the terms and relative stock rights of its Capital
Stock and any agreements entered into by shareholders relating to any such
entity with respect to their Capital Stock (collectively, the "Shareholder
Agreements");
(iii) all agreements with members of, or with respect to the,
management of the Borrower or any of its Subsidiaries other than
Employment Agreements (collectively, the "Management Agreements");
(iv) any employment agreements entered into by the Borrower or any
of its Subsidiaries (collectively, the "Employment Agreements");
(v) all collective bargaining agreements applying or relating to any
employees of the Borrower or any of its Subsidiaries (collectively, the
"Collective Bargaining Agreements");
(vi) all tax sharing, tax allocation and other similar agreements
entered into by the Borrower and/or any of its Subsidiaries (collectively,
the "Tax Sharing Agreements");
(vii) all agreements evidencing or relating to Indebtedness for
borrowed money of the Borrower or any of its Subsidiaries, whether or not
such agreement is to remain outstanding after giving effect to the
incurrence of the Loans on the Original Closing Date (collectively, the
"Debt Agreements");
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(viii) all contracts, agreements or understandings entered into
between (x) the Borrower or any of its Subsidiaries on the one hand, and
(y) any Affiliates of the Borrower on the other hand (collectively, the
"Affiliate Contracts");
(ix) all material contracts and licenses of the Borrower or any of
its Subsidiaries that are to remain in effect after the Original Closing
Date (collectively, the "Material Contracts");
all of which Plans, Shareholders' Agreements, Management Agreements, Employment
Agreements, Collective Bargaining Agreements, Debt Agreements, Tax Sharing
Agreements, Affiliate Contracts and Material Contracts shall be in form and
substance satisfactory to the Agent and shall be in full force and effect on the
Original Closing Date.
12.7. Validity of Liens. The Security Documents shall be effective to
create in favor of the Agent a legal, valid and enforceable first priority
(except for Permitted Liens entitled to priority under applicable law) security
interest in and Lien upon the Collateral. All filings, recordings, deliveries of
Instruments and other actions necessary or desirable in the opinion of the Agent
to create and perfect such security interests shall have been duly effected. The
Agent shall have received evidence thereof in form and substance satisfactory to
the Agent.
12.8. Perfection Certificates and UCC Search Results. The Agent shall have
received from each Transaction Party a completed and fully executed Perfection
Certificate and the results of UCC searches and tax lien searches with respect
to the Collateral, indicating no Liens other than Permitted Liens and otherwise
in form and substance satisfactory to the Agent.
12.9. Intentionally Omitted.
12.10. Certificates of Insurance. The Agent shall have received (i) a
certificate(s) of insurance from an independent insurance broker dated as of the
Original Closing Date, identifying insurers, types of insurance, insurance
limits, and policy terms, and otherwise describing the insurance obtained in
accordance with the provisions of the Security Agreement and naming the Agent as
additional insured and loss payee, and (ii) certified copies of all policies
evidencing such insurance (or certificates therefor signed by the insurer or an
agent authorized to bind the insurer) and the Agent shall be satisfied with the
adequacy of all such insurance.
12.11. Borrowing Base Report. The Agent shall have received from the
Borrower the initial Borrowing Base Report dated as of the Original Closing
Date.
12.12. Accounts Receivables Aging Report. The Agent shall have received
from the Borrower the most recent Accounts Receivables aging report of the
Transaction Parties as of a date which shall be no more than fifteen (15) days
prior to the Original Closing Date and shall have notified the Agent in writing
on the Original Closing Date of any material deviation from the Accounts
Receivables values reflected in such Accounts Receivables aging
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report and shall have provided the Agent with such supplementary documentation
as the Agent may reasonably request.
12.13. Landlord Waivers. The Agent shall have received from each of the
landlords for the leased facilities of the Transaction Parties, landlord waivers
with respect to the statutory Liens over the Collateral located at such
facilities.
12.14. Solvency Certificate. The Agent shall have received an officer's
certificate of the Borrower dated as of the Original Closing Date as to the
solvency of the Transaction Parties following the consummation of the
transactions contemplated herein to occur on or prior to the Original Closing
Date, and in form and substance satisfactory to the Lenders.
12.15. Opinion of Counsel. The Agent shall have received a favorable legal
opinion addressed to the Lenders and the Agent, in form and substance
satisfactory to the Lenders and the Agent, from Morgan Lewis & Bockius, counsel
to the Borrower and each of its Subsidiaries, and from such local counsel (if
any) as the Agent deems appropriate.
12.16. Payment of Fees.
(a) The Borrowers shall have paid to the Agent all accrued
commitment fees and letter of credit fees and any other fees or amounts
payable as of the Original Closing Date under the Original Credit
Facility.
(b) The Borrowers shall have paid to the Agent the Fees required to
be paid pursuant to ss.ss.5.1(a) and (b). The aggregate amount of all
fees, costs and expenses paid or payable by the Borrower and its
Subsidiaries in connection with the transactions contemplated by the
Lamsco Documents and the Loan Documents shall not have exceeded
$80,000,000.
(c) The Borrowers shall have paid or reimbursed the Agent for all
fees and disbursements of the Agent's Special Counsel which shall have
been incurred in connection with the preparation, negotiation, execution
and delivery of (i) the Loan Documents and the implementation of the
transactions contemplated thereby, or which otherwise are required to be
paid under the Existing Credit Agreement, and (ii) the Original Credit
Facility or which are otherwise required to be paid under the Original
Credit Facility.
12.17. Updated Collateral Examinations. The Agent shall have reviewed and
been satisfied with the update of the commercial finance examinations of the
Borrower and its Subsidiaries performed by the Agent's field examiners,
including (a) satisfactory review of the Borrower's and each of its
Subsidiaries' books and records in connection with the calculation of the
Borrowing Base and the Agent's satisfaction with the components and the
Borrower's method of calculating the Borrowing Base, (b) satisfactory review of
the cash management system of the Transaction Parties, (c) satisfactory review
of receivables, inventory and backlog of the Borrower and its Subsidiaries, and
(d) satisfactory appraisals (to the extent available) and environmental reports
on any owned Real Estate.
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12.18. Satisfactory Due Diligence Review. The Agent shall have completed
and be satisfied with the results of all aspects of its due diligence including,
without limitation, (a) satisfactory discussions by the Agent with officers or
representatives of Boeing regarding Boeing's existing relationship with Lamsco,
(b) current fixed assets appraisals by firms selected by the Agent, and (c)
satisfactory examinations performed by an external accounting/consulting firm
including a financial review of the six (6) months ended June 30, 1998 for the
Transaction Parties and Lamsco.
12.19. Litigation. As of the Original Closing Date, there shall be no
actions, suits, proceedings or investigations of any kind pending or, to the
best of the Borrower's knowledge, threatened against the Borrower or any of its
Subsidiaries before any Governmental Authority, that (a) if adversely
determined, could, either in any case or in the aggregate, (i) have a Materially
Adverse Effect or (ii) result in any substantial liability not adequately
covered by insurance, or (b) question the validity or enforceability of any of
the Loan Documents, or any action taken or to be taken pursuant hereto or
thereto.
12.20. Material Adverse Effect. Since the Balance Sheet Date there shall
have occurred no Materially Adverse Effect.
12.21. Borrowing Availability. The Agent shall have received evidence
satisfactory to the Agent that, after giving effect to all transactions to occur
on the Original Closing Date, the Borrower shall have aggregate borrowing
availability (taking account of applicable restrictions under the terms of the
Subordinated Note Documents) under ss.2.1(c) of the Existing Credit Agreement on
the Original Closing Date of not less than $20,000,000. After giving effect to
all transactions to occur on the Original Closing Date, no Revolving Credit
Loans shall be outstanding.
12.22. Financial Statements and Projections. The Agent shall have received
copies of the financial statements, Pro Forma Balance Sheet and projections
described in ss.8.4.
12.23. Refinancings. On the Original Closing Date and after giving effect
to the Loans incurred on the Original Closing Date, the Lamsco Acquisition and
the other transactions contemplated hereby, neither the Borrower nor any of its
Subsidiaries shall have any Indebtedness outstanding except for the Loans and
the Existing Indebtedness, which Existing Indebtedness shall not exceed
$117,000,000. All of the Existing Indebtedness shall remain outstanding after
the transactions contemplated hereby without any defaults or events of default
existing thereunder or arising as a result of the transactions contemplated
hereby. The Agent and the Required Lenders shall be satisfied with the amount of
and the terms and conditions of all Existing Indebtedness
12.24. Cash Management System. The Borrower shall have opened the
Concentration Account and the Agent shall have received Agency Account
Agreements, duly executed and delivered by the Borrower and its Domestic
Subsidiaries and each Agency Account Institution at which the Borrower and any
Domestic Subsidiary of the Borrower (including Lamsco) maintains depository
accounts as required under ss.9.12, and such Agency Account Agreements shall be
in form and substance satisfactory to the Agent.
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12.25. Disbursement Instructions. The Agent shall have received
disbursement instructions from the Borrower with respect to the proceeds of the
initial Revolving Credit Loans, the Term Loans, the initial portion of the
Acquisition Loans and any initial Letters of Credit.
12.26. Consolidated Total Funded Debt to Consolidated EBITDA. The Agent
shall have received evidence that, after giving effect to the Lamsco Acquisition
and the Loans to be made on the Original Closing Date, the ratio of Consolidated
Total Funded Debt of the Borrower and its Subsidiaries to Consolidated EBITDA of
the Borrower and its Subsidiaries shall not exceed 4.25 to 1.
12.27. Deposits with DLJ Capital Funding, Inc. The Borrower shall have, on
or prior to the Original Closing Date (a) converted all cash equivalents
maintained with DLJ Capital Funding, Inc. into cash, and (b) deposited all such
cash into an account maintained by the Borrower with BankBoston.
12.28. Sources and Uses Statement. The Agent shall have received a sources
and uses statement from the Borrower which reflects (a) the source of all funds
to be used by the Borrower and any Subsidiary of the Borrower to consummate all
the transactions contemplated by the Existing Credit Agreement, including the
Lamsco Acquisition, and (b) all uses of such funds, such statement to be in form
and substance satisfactory to the Lenders.
13. CONDITIONS TO ALL BORROWINGS.
The obligations of the Lenders to make any Loan, and of the Issuing Bank
to issue, extend or renew any Letter of Credit, in each case whether on or after
the Original Closing Date, shall also be subject to the satisfaction of the
following conditions precedent:
13.1. Representations True; No Default or Event of Default. Each of the
representations and warranties of the Transaction Parties contained in this
Agreement, the other Loan Documents or in any Instrument delivered pursuant to
or in connection with this Agreement shall be true in all material respects as
of the date as of which they were made and shall also be true in all material
respects at and as of the time of the making of such Loan, or the issuance,
extension or renewal of such Letter of Credit, with the same effect as if made
at and as of that time (except to the extent that such representations and
warranties relate expressly to an earlier date) and no Default or Event of
Default shall have occurred and be continuing.
13.2. No Legal Impediment. No change shall have occurred in any law or
regulations thereunder or interpretations thereof that in the reasonable opinion
of any Lender would make it illegal for such Lender to make such Loan, or to
participate in the issuance , extension or renewal of such Letter of Credit or
in the reasonable opinion of the Issuing Bank would make it illegal for the
Issuing Bank to issue, extend or renew such Letter of Credit.
13.3. Governmental Regulation. Each Lender shall have received such
statements in substance and form reasonably satisfactory to such Lender as such
Lender shall require for the purpose of compliance with any applicable
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regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
13.4. Proceedings and Documents. All proceedings in connection with the
transactions contemplated by this Agreement, the other Loan Documents and all
other documents incident thereto shall be satisfactory in substance and in form
to the Agent and the Agent's Special Counsel, and the Agent shall have received
all information and such counterpart originals or certified or other copies of
such documents as the Agent may reasonably request.
13.5. Borrowing Base Report. The Agent shall have received the most recent
Borrowing Base Report required to be delivered to the Agent in accordance with
ss.9.3(f) and, if requested by the Agent, a Borrowing Base Report dated within
three (3) days of the Drawdown Date of such Loan or of the issuance, extension
or renewal of such Letter of Credit.
13.6. Borrowing Availability.
(a) After giving effect to all amounts requested, the sum of the
outstanding amount of all Revolving Credit Loans plus the Letter of Credit
Exposure plus Excess UK Working Capital Outstandings shall not exceed the
lesser of (a) the Total Revolving Credit Commitment and (b) the Borrowing
Base.
(b) During the Acquisition Loan Commitment Period, after giving
effect to all amounts requested, the outstanding amount of all Acquisition
Loans shall not exceed the Total Acquisition Loan Commitment.
(c) During the Acquisition Loan Commitment Period, after giving
effect to all amounts requested, the Dollar Equivalent of the outstanding
amount of all UK Acquisition Loans shall not exceed the Total UK
Acquisition Loan Commitment.
13.7. Senior Debt. The Borrower shall have demonstrated to the reasonable
satisfaction of the Agent that (a) all outstanding Obligations (after giving
effect to the requested Loans or Letters of Credit) constitute "Senior Debt" (or
corresponding alternative terms) under the Subordinated Debt Documents and
"Designated Senior Debt" under and for all purposes of the Senior Subordinated
Indenture, and (b) the incurrence of Indebtedness in respect of the requested
Loans or Letters of Credit shall be permitted by all Subordinated Debt
Documents. The foregoing demonstration shall include (if requested by the Agent)
certificates of the chief financial officer of the Borrower setting forth in
reasonable detail the basis therefor, and the calculations (if any) required to
evidence compliance with the applicable covenants set forth in the Subordinated
Debt Documents.
13.8. Permitted Acquisitions.
(a) Prior to the making of the initial UK Acquisition Loan, a UK
Subsidiary shall have been duly organized and such UK Subsidiary shall
have
(i) (A) executed and delivered to the Agent and the Lenders an
Accession Agreement substantially in the form attached hereto as
Exhibit K pursuant to the terms of which such UK Subsidiary becomes
a party to this Agreement as the UK Borrower, and becomes a party to
any other Loan Document as the Agent may reasonably request, and (B)
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agrees to perform and observe all of the obligations and covenants
of the UK Borrower and of a Transaction Party hereunder, and of the
appropriate party under any Loan Document to which it becomes a
party;
(ii) delivered to the Agent a copy, certified by a duly
authorized officer of such UK Subsidiary to be true and complete, of
each of (A) its Memorandum and Articles of Association, Certificate
of Incorporation and any Certificate of Incorporation on Name Change
as in effect on such date of certification, and (B) its by-laws as
in effect on such date;
(iii) delivered to the Agent a copy of all corporate action
necessary for the valid execution, delivery and performance by such
UK Subsidiary of this Agreement and the other Loan Documents to
which it is or is to become a party which corporate action shall
have been duly and effectively taken, and which shall be in form and
substance satisfactory to the Agent;
(iv) delivered to the Agent an incumbency certificate, signed
by a duly authorized officer of such UK Subsidiary, and giving the
name and bearing a specimen signature of each individual who shall
be authorized: (a) to sign, in the name and on behalf of such UK
Subsidiary, each of the Loan Documents to which such UK Subsidiary
is or is to become a party; (b) to make UK Loan Requests and
Conversion Requests; and (c) to give notices and to take other
action on its behalf under the Loan Documents;
(v) delivered to the Agent a favorable legal opinion addressed
to the Lenders and the Agent, in form and substance satisfactory to
the Lenders and the Agent, from local counsel to such UK Subsidiary.
(b) Prior to the making of each Acquisition Loan and each UK
Acquisition Loan, the proceeds of which are to be used to fund an
Acquisition, all conditions precedent for such Acquisition to be a
Permitted Acquisition set forth in the definition thereof shall have been
satisfied and a duly authorized officer of the Borrower shall have
delivered to the Agent an officer's certificate certifying that such
conditions have been met.
(c) Prior to the making of each Permitted Additional Acquisition
Loan, all conditions precedent for such Acquisition Loan or UK Acquisition
Loan to be a Permitted Additional Acquisition Loan set forth in the
definition thereof shall have been satisfied and a duly authorized officer
of the Borrower shall have delivered to the Agent an officer's certificate
certifying that such conditions have been met.
14. EVENTS OF DEFAULT; ACCELERATION; ETC.
14.1. Events of Default and Acceleration. If any of the following events
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time, "Defaults") shall occur:
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(a) the Borrower shall fail to pay any principal of the Loans or any
Reimbursement Obligation when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity
or at any other date fixed for payment;
(b) the Borrower or any of their Subsidiaries shall fail to pay any
interest on the Loans, the Fees, or other sums due hereunder or under any
of the other Loan Documents, when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity
or at any other date fixed for payment, and such Default shall continue
for three (3) Business Days after the due date of such payments;
(c) the Transaction Parties shall fail to comply with any of the
covenants contained in ss.10 or ss.11;
(d) any Transaction Party shall fail to perform any term, covenant
or agreement contained herein or in any of the other Loan Documents (other
than those specified elsewhere in this ss.14.1) for thirty (30) days after
written notice of such failure has been given to the Borrower by the
Agent;
(e) any representation or warranty of any Transaction Party in any
Loan Document or in any other Instrument delivered pursuant to or in
connection with this Agreement shall prove to have been false in any
material respect upon the date when made or deemed to have been made or
repeated;
(f) the Borrower or any of its Subsidiaries shall (i) fail to pay
any principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $1,000,000, when and as
the same shall become due and payable, or (ii) fail to observe or perform
any other term, covenant, condition or agreement contained in any
Instrument evidencing or governing such Indebtedness if the effect of any
failure referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their behalf
(with or without the giving of notice, the lapse of time or both) to
cause, such Indebtedness to become due prior to its stated maturity;
(g) any of the Transaction Parties shall make an assignment for the
benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of such Transaction Party or of any substantial
part of the assets of such Transaction Party or shall commence any case or
other proceeding relating to such Transaction Party under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation or similar law of any jurisdiction, now or hereafter in
effect, or any UK Insolvency Event shall occur, or any of the Transaction
Parties shall take any action to authorize or in furtherance of any of the
foregoing, or if any such petition or application shall be filed or any
such case or other proceeding shall be commenced against such Transaction
Party and such Transaction Party shall indicate its
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approval thereof, consent thereto or acquiescence therein or such petition
or application shall not have been dismissed within forty-five (45) days
following the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating any Transaction Party
bankrupt or insolvent, or approving a petition in any such case or other
proceeding, or a decree or order for relief is entered in respect of such
Transaction Party in an involuntary case under federal bankruptcy laws as
now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than sixty (60) days, whether or not consecutive, any
judgment against the Borrower or any of its Subsidiaries that, together
with other such outstanding judgments against the Borrower or any of its
Subsidiaries exceeds in the aggregate $1,000,000;
(j) (i) any default or event of default shall occur under any
Subordinated Debt Document, (ii) any holder or holders of any Subordinated
Debt (or any representatives of any such holders) shall exercise, purport
to exercise, give any notice of its intention to exercise, or become
entitled by the terms of any Subordinated Debt Document to exercise (A)
any right to accelerate any Subordinated Debt, or (B) any right to require
any prepayment, repurchase or other acquisition of any Subordinated Debt,
or (iii) any Transaction Party shall make, offer to make or become
obligated to make or offer to make, any prepayment, repurchase or other
acquisition of any Subordinated Debt, including any optional prepayment,
repurchase or other acquisition of Subordinated Debt, or any prepayment,
repurchase or other acquisition of Subordinated Debt upon a change in
control, or upon a sale of assets;
(k) any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded or the Agent's security interests, mortgages or liens
in the Collateral shall cease to be perfected, or shall cease to have the
priority contemplated by the Security Documents, in each case otherwise
than in accordance with the terms thereof or with the express prior
written agreement, consent or approval of the Agent, or any action at law,
suit or in equity or other legal proceeding to cancel, revoke or rescind
any of the Loan Documents shall be commenced by or on behalf of any of the
Transaction Parties party thereto or any of their respective stockholders,
or any court or any other governmental or regulatory authority or agency
of competent jurisdiction shall make a determination that, or issue a
judgment, order, decree or ruling to the effect that, any one or more of
the Loan Documents is illegal, invalid or unenforceable in accordance with
the terms thereof;
(l) the Borrower or any of its Subsidiaries shall be enjoined,
restrained or in any way prevented by the order of any Governmental
Authority from conducting any material part of its business and such order
shall continue in effect for more than ten (10) days;
(m) there shall occur any material damage to, or loss, theft or
destruction of, any Collateral, whether or not insured, or any strike,
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lockout, labor dispute, embargo, condemnation, act of God or public enemy
or other casualty, which in any such case causes, for more than fifteen
(15) consecutive days, the cessation or substantial curtailment of revenue
producing activities of the Borrower or any of its Subsidiaries if such
event or circumstance is not covered by business interruption insurance;
(n) the Borrower or any ERISA Affiliate incurs any liability to the
PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an
aggregate amount exceeding $1,000,000, or the Borrower or any ERISA
Affiliate is assessed withdrawal liability pursuant to Title IV of ERISA
by a Multiemployer Plan requiring aggregate annual payments exceeding
$1,000,000, or any of the following occurs with respect to a Guaranteed
Pension Plan: (i) an ERISA Reportable Event, or a failure to make a
required installment or other payment (within the meaning of ss.302(f)(1)
of ERISA), provided that the Agent determines in its reasonable discretion
that such event (A) could be expected to result in liability of the
Borrower or any of its Subsidiaries to the PBGC or such Guaranteed Pension
Plan in an aggregate amount exceeding $1,000,000 and (B) could constitute
grounds for the termination of such Guaranteed Pension Plan by the PBGC,
for the appointment by the appropriate United States District Court of a
trustee to administer such Guaranteed Pension Plan or for the imposition
of a lien in favor of such Guaranteed Pension Plan; or (ii) the
appointment by a United States District Court of a trustee to administer
such Guaranteed Pension Plan; or (iii) the institution by the PBGC of
proceedings to terminate such Guaranteed Pension Plan;
(o) any Change in Control shall occur;
(p) the Borrower shall at any time, directly or indirectly through
one or more Guarantors, legally or beneficially own less than one hundred
percent (100%) of the shares of the Capital Stock and other outstanding
Equity Interests of each of the Guarantors; or
(q) the Borrower and/or any Domestic Subsidiary or UK Subsidiary of
the Borrower shall have failed to satisfy all conditions necessary for an
Acquisition to constitute a Permitted Acquisition within ten (10) days
after the closing of such Acquisition;
then, and in any such event, so long as the same may be continuing, the Agent
may, and upon the request of the Required Lenders shall, by notice in writing to
the Borrower declare all amounts owing with respect to this Agreement, the Notes
and the other Loan Documents to be, and they shall thereupon forthwith become,
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by the Borrower; provided
that in the event of any Event of Default specified in ss.ss.14.1(g) or 14.1(h)
(an "Insolvency Event of Default") all such amounts shall become immediately due
and payable automatically and without any requirement of notice from the Agent
or any Lender.
14.2. Termination of Commitments. If any Insolvency Event of Default shall
occur, the Total Commitment and all Commitments of each
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Lender shall terminate immediately. If any other Event of Default shall have
occurred and be continuing, the Agent may and, upon the request of the Required
Lenders, shall, by notice to the Borrower, terminate the Total Commitment and
all Commitments of each Lender, and upon such notice being given such Total
Commitment and all Commitments of each Lender shall terminate immediately. If
any such notice is given to the Borrower the Agent will forthwith furnish a copy
thereof to each of the Lenders. No termination of the credit hereunder shall
relieve the Borrower or any Transaction Party of any of its Obligations.
14.3. Remedies. No remedy herein conferred upon any Lender or the Agent or
the holder of any Note is intended to be exclusive of any other remedy and each
and every remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or any other provision of law.
14.4. Distribution of UK Collateral Proceeds. In the event that, during
the continuance of any Event of Default, the Agent, any Issuer or any Lender, as
the case may be, receives any monies constituting proceeds of UK Collateral in
connection with the enforcement of any Security Documents, or otherwise with
respect to the realization upon any of the UK Collateral, such monies shall be
distributed, to the fullest extent permitted by Applicable Law, for application
as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent and the UK Fronting Lender for or in respect
of, all costs, expenses, disbursements and losses which shall have been
incurred or sustained by the Agent or the UK Fronting Lender in connection
with the collection of such monies or in connection with the exercise,
protection or enforcement of all or any of the rights, remedies, powers
and privileges of the Agent or the UK Fronting Lender under any of the
Loan Documents or in support of any provision of adequate indemnity to the
Agent or the UK Fronting Lender against any taxes or Liens which by law
shall have, or may have, priority over the rights of the Agent to such
monies, in each case under this ss.14.4(a), solely to the extent such
costs, expenses, disbursements and losses of the Agent or the UK Fronting
Lender arise in connection with the Agent's realization upon the UK
Collateral;
(b) Second, to all other UK Obligations in such order or preference
as the Required UK Acquisition Loan Lenders may determine; provided,
however, that UK Obligations owing to the UK Fronting Lender and the
Acquisition Loan Lenders with respect to each type of UK Obligation such
as interest, principal and fees, shall be made to the UK Fronting Lender
and the Acquisition Loan Lenders pro rata in accordance with
ss.2.4(b)(iii)(C); and provided, further, that the Agent may in its
discretion make proper allowance to take into account any UK Obligations
not then due and payable;
(c) Third, as may be required pursuant to Applicable Law; and
(d) Fourth, the excess, if any, shall be returned to the UK Borrower
or to such other Persons as are entitled thereto.
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14.5. Distribution of Other Collateral Proceeds. In the event that, during
the continuance of any Event of Default, the Agent or any Lender, as the case
may be, receives any monies constituting proceeds of Collateral (other than UK
Collateral) in connection with the enforcement of any the Security Documents, or
otherwise with respect to the realization upon any of the Collateral (other than
UK Collateral), such monies shall be distributed, to the fullest extent
permitted by Applicable Law, for application as follows:
(a) First, to the payment of, or (as the case may be) the
reimbursement of the Agent for or in respect of, all costs, expenses,
disbursements and losses which shall have been incurred or sustained by
the Agent in connection with the collection of such monies by the Agent,
for the exercise, protection or enforcement by the Agent of all or any of
the rights, remedies, powers and privileges of the Agent under this
Agreement or any of the other Loan Documents or in respect of the
Collateral or in support of any provision of adequate indemnity to the
Agent against any taxes or liens which by law shall have, or may have,
priority over the rights of the Agent to such monies;
(b) Second, to all other Obligations (including the UK Obligations)
in such order or preference as the Required Lenders may determine;
provided, however, that distributions in respect of Obligations owing to
the Lenders with respect to each type of Obligation such as interest,
principal, fees and expenses, shall be made among the Lenders pro rata;
and provided, further, that the Agent may in its discretion make proper
allowance to take into account any Obligations not then due and payable;
(c) Third, upon payment and satisfaction in full or other provisions
for payment in full satisfactory to the Lenders and the Agent of all of
the Obligations, to the payment of any obligations required to be paid
pursuant to ss.9-504(1)(c) of the Uniform Commercial Code of the State of
New York; and
(d) Fourth, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
15. THE AGENT.
15.1. Authorization.
(a) The Agent is authorized to take such action on behalf of each of
the Lenders and to exercise all such powers as are hereunder and under any
of the other Loan Documents and any related documents delegated to the
Agent, together with such powers as are reasonably incident thereto,
provided that no duties or responsibilities not expressly assumed herein
or therein shall be implied or deemed to have been assumed by the Agent.
(b) The relationship between the Agent and each of the Lenders is
that of an independent contractor. The use of the term "Agent" is for
convenience only and is used to describe, as a form of convention, the
independent
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contractual relationship between the Agent and each of the Lenders.
Nothing contained in this Agreement nor the other Loan Documents shall be
construed to create an agency, trust or other fiduciary relationship
between the Agent and any of the Lenders.
(c) As an independent contractor empowered by the Lenders to
exercise certain rights and perform certain duties and responsibilities
hereunder and under the other Loan Documents, the Agent is nevertheless a
"representative" of the Lenders, as that term is defined in Article 1 of
the Uniform Commercial Code, for purposes of actions for the benefit of
the Lenders and the Agent with respect to all collateral security and
guarantees contemplated by the Loan Documents. Such actions include the
designation of the Agent as "secured party", "mortgagee" or the like on
all financing statements and other documents and instruments, whether
recorded or otherwise, relating to the attachment, perfection, priority or
enforcement of any security interests, mortgages or deeds of trust in
collateral security intended to secure the payment or performance of any
of the Obligations, all for the benefit of the Lenders and the Agent.
(d) General Electric Capital Corporation, in its capacity as
Documentation Agent, shall not have any duties or responsibilities, under
this Agreement or any other Loan Document.
(e) Royal Bank of Canada, in its capacity as Syndication Agent,
shall not have any duties or responsibilities, under this Agreement or any
other Loan Document.
(f) NationsBank, N.A., in its capacity as Co-Agent, shall not have
any duties or responsibilities, under this Agreement or any other Loan
Document.
15.2. Employees and Agents. The Agent may exercise its powers and execute
its duties by or through employees or agents and shall be entitled to take, and
to rely on, advice of counsel concerning all matters pertaining to its rights
and duties under this Agreement and the other Loan Documents. The Agent may
utilize the services of such Persons as the Agent in its sole discretion may
reasonably determine, and all reasonable fees and expenses of any such Persons
shall be paid by the Borrower.
15.3. No Liability. Neither the Agent nor any of its shareholders,
directors, affiliates, officers or employees nor any other Person assisting them
in their duties nor any agent or employee thereof, shall be liable for any
waiver, consent or approval given or any action taken, or omitted to be taken,
in good faith by it or them hereunder or under any of the other Loan Documents,
or in connection herewith or therewith, or be responsible for the consequences
of any oversight or error of judgment whatsoever, except that the Agent or such
other Person, as the case may be, may be liable for losses due to its willful
misconduct or gross negligence. Neither the Agent nor any of its shareholders,
directors, officers or employees shall have any responsibilities, duties or
commitments to any Person under any of the Loan Documents, or any liabilities of
any kind or nature arising out of any of the financing
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arrangements provided by the Agent or the Lenders under the Loan Documents.
15.4. No Representations. The Agent shall not be responsible for the
execution or validity or enforceability of this Agreement, the Notes, any of the
other Loan Documents or any instrument at any time constituting, or intended to
constitute, collateral security for the Notes, or for the value of any such
collateral security or for the validity, enforceability or collectability of any
such amounts owing with respect to the Notes, or for any recitals or statements,
warranties or representations made herein or in any of the other Loan Documents
or in any certificate or instrument hereafter furnished to it by or on behalf of
any Transaction Party, or be bound to ascertain or inquire as to the performance
or observance of any of the terms, conditions, covenants or agreements herein or
in any instrument at any time constituting, or intended to constitute,
collateral security for the Notes or to inspect any of the properties, books or
records of any Transaction Party. The Agent shall not be bound to ascertain
whether any notice, consent, waiver or request delivered to it by the Borrower
or any holder of any of the Notes shall have been duly authorized or is true,
accurate and complete. The Agent has not made nor does it now make any
representations or warranties, express or implied, nor does it assume any
liability to the Lenders, with respect to the credit worthiness or financial
conditions of any of the Transaction Parties. Each Lender acknowledges that it
has, independently and without reliance upon the Agent or any other Lender, and
based upon such information and documents as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement.
15.5. Payments.
(a) Payments to Agent. A payment by any of the Transaction Parties
to the Agent hereunder or under any of the other Loan Documents for the
account of any Lender shall constitute a payment to such Lender. The Agent
agrees promptly to distribute to each Lender such Lender's pro rata share
of payments received by the Agent for the account of the Lenders except as
otherwise expressly provided herein or in any of the other Loan Documents.
(b) Distribution by Agent. If in the opinion of the Agent the
distribution of any amount received by it in such capacity hereunder,
under the Notes or under any of the other Loan Documents might involve it
in liability, it may refrain from making distribution until its right to
make distribution shall have been adjudicated by a court of competent
jurisdiction. If a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid, each Person
to whom any such distribution shall have been made shall either repay to
the Agent its proportionate share of the amount so adjudged to be repaid
or shall pay over the same in such manner and to such Persons as shall be
determined by such court.
(c) Defaulting Lenders. Notwithstanding anything to the contrary
contained in this Agreement or any of the other Loan Documents, any Lender
that fails (a) to make available to the Agent its pro rata share of any
Loan or comply with any Settlement provisions in ss.2.4 or (b) to comply
with the provisions of ss.17.1 with respect to making dispositions and
arrangements with
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the other Lenders, where such Lender's share of any payment received,
whether by setoff or otherwise, is in excess of its pro rata share of such
payments due and payable to all or any of the Lenders, in each case as,
when and to the full extent required by the provisions of this Agreement,
shall be deemed in default (a "Defaulting Lender") and shall be deemed a
Defaulting Lender until such time as such default is satisfied. A
Defaulting Lender shall be deemed to have assigned any and all payments
due to it from the Borrower, whether on account of outstanding Loans,
interest, fees or otherwise, to the remaining Non-Defaulting Lenders of
its respective Tranche(s) for application to, and reduction of, their
respective pro rata shares of all outstanding Loans of such Tranche. The
Defaulting Lender hereby authorizes the Agent to distribute such payments
to the Non-Defaulting Lenders of its respective Tranche(s) in proportion
to their respective pro rata shares of all outstanding Loans of such
Tranche. A Defaulting Lender shall be deemed to have satisfied in full a
default when and if, as a result of application of the assigned payments
to all outstanding Loans of the Non-Defaulting Lenders of such Defaulting
Lender's respective Tranche(s), the Lenders' respective pro rata shares of
all outstanding Loans for which such Lender has Commitments have returned
to those in effect immediately prior to such default and without giving
effect to the nonpayment causing such default. Until such time as its
default is satisfied, a Defaulting Lender shall have no right to vote with
respect to any matters under or in respect of this Agreement and shall not
be entitled to receive its portion of any Commitment Fee paid in
accordance with ss.4.1 of this Agreement.
15.6. Holders of Notes. The Agent may deem and treat the payee of any Note
as the absolute owner or purchaser thereof for all purposes hereof until it
shall have been furnished in writing with a different name by such payee or by a
subsequent holder, assignee or transferee.
15.7. Indemnity. The Lenders ratably agree (in accordance with the amount
of Loans owing to each Lender) hereby to indemnify and hold harmless the Agent
from and against any and all claims, actions and suits (whether groundless or
otherwise), losses, damages, costs, expenses (including any expenses for which
the Agent has not been reimbursed by the Borrower as required by ss.17.2), and
liabilities of every nature and character arising out of or related to this
Agreement, the Notes, or any of the other Loan Documents or the transactions
contemplated or evidenced hereby or thereby, or the Agent's actions taken
hereunder or thereunder, except to the extent that any of the same shall be
directly caused by the Agent's willful misconduct or gross negligence.
15.8. Agent as Lender. In its individual capacity, BankBoston shall have
the same obligations and the same rights, powers and privileges in respect to
its Commitments and Loans, and as the holder of any of the Notes, as it would
have were it not also the Agent.
15.9. Resignation. The Agent may resign at any time by giving sixty (60)
days prior written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor
Agent in such capacity. Unless a Default or Event of Default shall have occurred
and be continuing, such successor Agent shall be reasonably acceptable to the
Borrower. If no successor Agent shall have been so
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appointed by the Required Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a financial institution having a rating of not
less than A or its equivalent by Standard & Poor's. Upon the acceptance of any
appointment as an Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring Agent's
resignation, the provisions of this Agreement and the other Loan Documents shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Agent.
15.10. Notification of Defaults and Events of Default. Each Lender hereby
agrees that, upon learning of the existence of a Default or an Event of Default,
it shall promptly notify the Agent thereof. The Agent hereby agrees that upon
receipt of any notice under this ss.15.10 it shall promptly notify the other
Lenders of the existence of such Default or Event of Default.
15.11. Duties in the Case of Enforcement. In case one of more Events of
Default have occurred and shall be continuing, and whether or not acceleration
of the Obligations shall have occurred, the Agent shall, if (a) so requested by
the Required Lenders and (b) the Lenders have provided to the Agent such
additional indemnities and assurances against expenses and liabilities as the
Agent may reasonably request, proceed to enforce the provisions of the Security
Documents authorizing the sale or other disposition of all or any part of the
Collateral and exercise all or any such other legal and equitable and other
rights or remedies as it may have in respect of such Collateral. The Required
Lenders may direct the Agent in writing as to the method and the extent of any
such sale or other disposition, the Lenders hereby agreeing to indemnify and
hold the Agent, harmless from all liabilities incurred in respect of all actions
taken or omitted in accordance with such directions, provided that the Agent
need not comply with any such direction to the extent that the Agent reasonably
believes the Agent's compliance with such direction to be unlawful or
commercially unreasonable in any applicable jurisdiction.
16. ASSIGNMENT AND PARTICIPATION.
16.1. Conditions to Assignment by Lenders. Except as provided herein, each
Lender may assign to (a) one or more Eligible Assignees or (b) a Lender or an
Affiliate of such assigning Lender, all or a portion of its interests, rights
and obligations under this Agreement (including all or a portion of all or any
of its Commitment Percentages and Commitments and the same portion of the Loans
of the respective Tranche at the time owing to it, and the Notes held by it);
provided that (i) except in the case of an assignment to a Lender or an
Affiliate of such assigning Lender of outstanding Loans at the time owing to the
assigning Lender; (x) the Agent, and unless an Event of Default shall have
occurred and be continuing, the Borrower shall have given its prior written
consent to such assignment, which consent, with respect to the Borrower, shall
not be unreasonably withheld or delayed and (y) each such assignment shall be in
an amount that is a whole multiple of $2,500,000 or, if less, the entire
remaining Commitment, or outstanding Loans of the assigned Tranche at the
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time owing, to such Lender, (ii) any assignment by an Acquisition Loan Lender
shall be of the same percentage for the (A) Acquisition Loan Commitment and/or
outstanding Acquisition Loans and (B) UK Acquisition Loan Commitment and/or
outstanding UK Acquisition Loans, of such Acquisition Loan Lender, and (iii) the
parties to such assignment shall execute and deliver to the Agent, for recording
in the Register (as hereinafter defined), an Assignment and Acceptance,
substantially in the form of Exhibit G hereto (an "Assignment and Acceptance"),
together with any Notes subject to such assignment. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
(5) Business Days after the execution thereof, (i) the assignee thereunder shall
be a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder, and (ii) the assigning
Lender shall, to the extent provided in such assignment and upon payment to the
Agent of the registration fee referred to in ss.16.3, be released from its
obligations under this Agreement.
16.2. Certain Representations and Warranties; Limitations; Covenants. By
executing and delivering an Assignment and Acceptance, the parties to the
assignment thereunder confirm to and agree with each other and the other parties
hereto as follows:
(a) other than the representation and warranty that it is the legal
and beneficial owner of the interest being assigned thereby free and clear
of any adverse claim, the assigning Lender makes no representation or
warranty, express or implied, and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection
with this Agreement or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement, the other Loan
Documents or any other instrument or document furnished pursuant hereto or
the attachment, perfection or priority of any security interest or
mortgage;
(b) the assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
of Transaction Parties liable in respect of any of the Obligations, or the
performance or observance by the Transaction Parties liable in respect of
any of the Obligations of any of their obligations under this Agreement or
any of the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto;
(c) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
referred to in ss.8.4 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance;
(d) such assignee will, independently and without reliance upon the
assigning Lender, the Agent, or any other Lender and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;
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(e) such assignee represents and warrants that it is an Eligible
Assignee;
(f) such assignee appoints and authorizes the Agent to take such
action as Agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by
the terms hereof or thereof, together with such powers as are reasonably
incidental thereto;
(g) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Lender; and
(h) such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance.
16.3. Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register or similar list (the "Register") for
the recordation of the (a) the names and addresses of the Lenders, (b) the
Commitment Percentage of their respective Tranche(s), (c) the principal amount
of the Loans owing to, and/or as the case may be, the risk participations in any
UK Acquisition Loans held by, the Lenders from time to time, and (d) the Letter
of Credit Participations purchased by the Lenders from time to time. The entries
in the Register shall be conclusive, in the absence of manifest error, and the
Transaction Parties, the Agent and the Lenders may treat each Person whose name
is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower and
the Lenders at any reasonable time and from time to time upon reasonable prior
notice. Upon each such recordation, the assigning Lender agrees to pay to the
Agent a registration fee in the sum of $3,500.
16.4. New Notes. Upon its receipt of an Assignment and Acceptance executed
by the parties to such assignment, together with each Note subject to such
assignment, the Agent shall (a) record the information contained therein in the
Register, and (b) give prompt notice thereof to the Borrower. Within five (5)
Business Days after receipt of such notice, the Borrower, at its own expense,
shall execute and deliver to the Agent, in exchange for each surrendered Note, a
new Note with respect to the Borrower to the order of such Eligible Assignee in
an amount equal to the amount assumed by such Eligible Assignee pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained some portion
of its obligations hereunder, a new Note to the order of the assigning Lender in
an amount equal to the amount retained by it hereunder. Such new Notes shall
provide that they are replacements for the surrendered Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such in Assignment and
Acceptance and shall otherwise be substantially the form of the assigned Notes.
The surrendered Notes shall be cancelled and returned to the Borrower.
16.5. Participations. Each Lender may sell participations to one or more
banks or other entities in all or a portion of such Lender's rights and
obligations under this Agreement and the other Loan Documents; provided
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that (a) any such sale or participation shall not affect the rights and duties
of the selling Lender hereunder to the Borrower and (b) the only rights granted
to the participant pursuant to such participation arrangements with respect to
waivers, amendments or modifications of the Loan Documents shall be the rights
to approve waivers, amendments or modifications that would reduce the principal
of or the interest rate on any Loans, extend the term or increase the amount of
any Commitment of such Lender as it relates to such participant, reduce the
amount of any Commitment Fees to which such participant is entitled or extend
any regularly scheduled payment date for principal or interest.
16.6. Disclosure. Each of the Borrowers agree that in addition to
disclosures made in accordance with standard and customary banking practices any
Lender may disclose information obtained by such Lender pursuant to this
Agreement to (i) assignees or participants hereunder or to any direct or
indirect contractual counterparty in swap agreements or such contractual party's
professional advisor and (ii) potential assignees, participants hereunder,
contractual counterparties in swap agreements or such contractual parties'
professional advisors; provided that such (x) assignees, participants,
contractual counterparties or such contractual parties' professional advisors or
(y) potential assignees, participants, contractual counterparties or such
contractual parties' professional advisors shall agree (a) to treat in
confidence such information as the Borrowers shall have specifically designated
as confidential ("Confidential Information") unless such Confidential
Information otherwise becomes public knowledge, (b) not to disclose such
Confidential Information to a third party, except as required by law or legal
process and (c) not to make use of such Confidential Information for purposes of
transactions unrelated to such contemplated assignment or participation.
16.7. Assignee or Participant Affiliated with Borrower. If any assignee
Lender is an Affiliate of the Borrower, then any such assignee Lender shall have
no right to vote as a Lender hereunder or under any of the other Loan Documents
for purposes of granting consents or waivers or for purposes of agreeing to
amendments or other modifications to any of the Loan Documents or for purposes
of making requests to the Agent pursuant to ss.14.1 or ss.14.2, and the
determination of the Required Lenders, Required Revolving Credit Lenders,
Required Acquisition Loan Lenders, Required Term Loan A Lenders and/or Required
Term Loan B Lenders shall for all purposes of this Agreement and the other Loan
Documents be made without regard to such assignee Lender's interest in any of
the Loans. If any Lender sells a participating interest in any of the Loans to a
participant, and such participant is the Borrower or an Affiliate of the
Borrower, then such transferor Lender shall promptly notify the Agent of the
sale of such participation. A transferor Lender shall have no right to vote as a
Lender hereunder or under any of the other Loan Documents for purposes of
granting consents or waivers or for purposes of agreeing to amendments or
modifications to any of the Loan Documents or for purposes of making requests to
the Agent pursuant to ss.14.1 or ss.14.2 to the extent that such participation
is beneficially owned by the Borrower or any Affiliate of the Borrower, and the
determination of the Required Lenders, the Required Term Loan A Lenders, the
Required Term Loan B Lenders, the Required Revolving Credit Lenders, the
Required Acquisition Loan Lenders, and the Required UK Acquisition Loan Lenders
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shall for all purposes of this Agreement and the other Loan Documents be made
without regard to the interest of such transferor Lender in the Loans to the
extent of such participation.
16.8. Miscellaneous Assignment Provisions. On or before the date it
becomes a party to this Agreement and from time to time thereafter upon any
change in status rendering any certificate or document previously delivered
pursuant to ss.2.12 invalid or inaccurate, each Lender that is organized under
the laws of a jurisdiction outside the United States shall (but, with respect to
any renewal or change in status, if legally able to do so) deliver to the
Borrowers and the Agent certification as to its exemption from deduction or
withholding of any United States federal income taxes, and each such Lender
shall comply with all Applicable Laws with respect to such exemption and any
renewal or extension thereof. Anything contained in this ss.16 to the contrary
notwithstanding, any Lender may at any time pledge all or any portion of its
interest and rights under this Agreement (including all or any portion of its
Notes) to any of the twelve (12) Federal Reserve Banks organized under ss.4 of
the Federal Reserve Act, 12 U.S.C. ss.341. No such pledge or the enforcement
thereof shall release the pledgor Lender from its obligations hereunder or under
any of the other Loan Documents.
16.9. Assignment by Borrower or Guarantor. No Transaction Party shall
assign or transfer any of its rights or obligations under any of the Loan
Documents without the prior written consent of each of the Lenders.
17. PROVISIONS OF GENERAL APPLICATION.
17.1. Setoff. Regardless of the adequacy of any Collateral, during the
continuance of any Event of Default, any deposits or other sums credited by or
due from any Lender to the Borrower and any securities or other Property of the
Borrower in the possession of such Lender may be applied to or set off by such
Lender against the payment of Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to such Lender. Each Lender agrees with
each other Lender that (a) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Lender, other than Indebtedness evidenced
by the Notes held by such Lender, such amount shall be applied ratably to such
other Indebtedness and to the Indebtedness evidenced by all such Notes held by
such Lender, and (b) if such Lender shall receive from the Borrower, whether by
voluntary payment, exercise of the right of setoff, counterclaim, cross action,
enforcement of the claim evidenced by the Notes held by such Lender by
proceedings against the Borrower at law or in equity or by proof thereof in
bankruptcy, reorganization, liquidation, receivership or similar proceedings, or
otherwise, and shall retain and apply to the payment of the Note or Notes held
by such Lender any amount in excess of its ratable portion of the payments
received by all of the Lenders with respect to the Notes held by such Lender
will make such disposition and arrangements with the other Lenders with respect
to such excess, either by way of distribution, pro tanto assignment of claims,
subrogation or otherwise as shall result in each Lender receiving in respect of
the Notes held by it, its proportionate payment as contemplated by this
Agreement; provided that if all or any part of such excess payment is thereafter
recovered from such Lender,
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such disposition and arrangements shall be rescinded and the amount restored to
the extent of such recovery, but without interest.
17.2. Expenses. The Transaction Parties jointly and severally agree to pay
upon demand by the Agent (a) the reasonable costs of producing and reproducing
this Agreement, the other Loan Documents and the other agreements and
instruments mentioned herein; (b) any taxes (including any interest and
penalties in respect thereto) payable by the Agent or any of the Lenders (other
than taxes based upon the Agent's or any Lender's net income) on or with respect
to the transactions contemplated by this Agreement (the Transaction Parties
hereby jointly and severally agreeing to indemnify the Agent and each Lender
with respect thereto); (c) the reasonable fees, expenses and disbursements of
the Agent's Special Counsel or any local counsel to the Agent incurred in
connection with the preparation, administration, interpretation or syndication
of the Loan Documents and other instruments mentioned herein, each closing
hereunder, and amendments, modifications, approvals, consents or waivers of the
Loan Documents (including in each case the allocated cost of staff counsel) and
the termination hereof, and each Lender's counsel in the case of amendments,
modifications, approvals, consents or waivers hereto or hereunder; (d) the
reasonable fees, expenses and disbursements of (i) the Agent incurred by the
Agent in connection with the preparation, administration, interpretation or
syndication of the Loan Documents and other instruments mentioned herein,
including all title insurance premiums and surveyor, engineering and appraisal
charges, and (ii) the Agent and the Lenders for amendments, modifications,
approvals, consents or waivers of the Loan Documents; (e) any reasonable fees,
costs, expenses and bank charges, including bank charges for returned checks,
incurred by the Agent in establishing, maintaining or handling agency accounts,
lock box accounts and other accounts for the collection of any of the
Collateral; (f) all out-of-pocket expenses (including without limitation
attorneys' fees and costs (which attorneys, during the continuation of a Default
or Event of Default, may be employees of any Lender or the Agent) and reasonable
consulting, accounting, appraisal, investment banking and similar professional
fees and charges) incurred by any Lender or the Agent in connection with (A) the
enforcement of or preservation of rights under any of the Loan Documents against
any of the Transaction Parties or the administration thereof after the
occurrence of a Default or Event of Default and (B) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to any
Lender's or the Agent's relationship with the Transaction Parties; (g) all
reasonable fees, expenses and disbursements of the Agent incurred in connection
with UCC searches, UCC filings and other lien, judgment or litigation searches
(h) all reasonable costs of conducting commercial finance examinations and
appraisals of the Properties of the Borrower and its Subsidiaries, including the
applicable daily time charges of the Agent's commercial finance examiners,
agents, consultants and representatives engaged in such examinations and
appraisals as in effect from time to time and reasonable out-of-pocket travel
and other related expenses, subject to the frequency limitations set forth in
ss.9.9 or at any time after the occurrence of a Default or Event of Default; and
(i) all amounts paid by the Agent to any Agency Account Institution pursuant to
any Agency Account Agreement, as indemnity or otherwise. The covenants of this
ss.17.2 shall survive payment or satisfaction of all other Obligations.
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17.3. Indemnification. The Transaction Parties hereby jointly and
severally agree to indemnify and hold harmless the Arranger, the Lenders, the
Issuing Bank and the Agents from and against any and all claims, actions and
suits whether groundless or otherwise, and from and against any and all
liabilities, losses, damages and expenses of every nature and character arising
out of this Agreement or any of the other Loan Documents or the transactions
contemplated hereby including, without limitation, (a) any actual or proposed
use by any Transaction Party of the proceeds of any of the Loans, (b) the
reversal or withdrawal of any provisional credits granted by the Agent upon the
transfer of funds from bank agency or lock box accounts or in connection with
the provisional honoring of checks or other items, (c) any actual or alleged
infringement of any patent, copyright, trademark, service mark or similar right
of any Transaction Party comprised in the Collateral, (d) the Transaction
Parties entering into or performing this Agreement or any of the other Loan
Documents or (e) with respect to the Transaction Parties and their respective
properties and assets, the violation of any Environmental Law, the presence,
disposal, escape, seepage, leakage, spillage, discharge, emission, release or
threatened release of any Hazardous Substances or any action, suit, proceeding
or investigation brought or threatened with respect to any Hazardous Substances
(including, but not limited to, claims with respect to wrongful death, personal
injury or damage to property), in each case including, without limitation, the
reasonable fees and disbursements of counsel and allocated costs of internal
counsel incurred in connection with any such investigation, litigation or other
proceeding; provided, however, that the foregoing indemnification shall not
apply to any liabilities, losses, damages or expenses resulting directly from
the gross negligence or willful misconduct of the Arranger, any Lender, the
Issuing Bank, and any of the Agents. In litigation, or the prepartion therefor,
the Arranger, Lenders, the Issuing Bank and the Agents shall be entitled to
select their own counsel and, in addition to the foregoing indemnity, the
Transaction Parties agree to pay promptly the reasonable fees and expenses of
such counsel. If, and to the extent that the obligations of each Transaction
Party under this ss.17.3 are unenforceable for any reason, each Transaction
Party hereby agrees to make the maximum contribution to the payment in
satisfaction of such obligations which is permissible under applicable law. The
covenants contained in this ss.17.3 shall survive payment or satisfaction in
full of all other Obligations.
17.4. Survival of Covenants, Etc. All covenants, agreements,
representations and warranties made herein, in the Notes, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Transaction Parties pursuant hereto shall be deemed to have been relied upon
by the Lenders and the Agent, notwithstanding any investigation heretofore or
hereafter made by any of them, and shall survive the making by the Lenders of
any of the Loans as herein contemplated, and shall continue in full force and
effect so long as any of the covenants contained in ss.ss.9, 10, and 11 herein
remain in effect, and for such further time as may be otherwise expressly
specified in this Agreement. All statements contained in any certificate or
other paper delivered to any Lender or the Agent at any time by or on behalf of
the Transaction Parties pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Transaction Parties hereunder.
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17.5. Notices, Etc. Except as otherwise expressly provided in this
Agreement, all notices and other communications made or required to be given
pursuant to this Agreement or the Notes shall be in writing and shall be
delivered by hand, mailed by United States registered or certified first class
mail, postage prepaid, sent by overnight courier, or sent by telegraph,
telecopy, facsimile or telex and confirmed by delivery via courier or postal
service, addressed as follows:
(a) if to the Borrowers, at 2029 Century Park East, Suite 1112, Los
Angeles, California 90067, Attention: Douglas M. Hayes, or at such other
address for notice as the Borrowers shall last have furnished in writing
to the Person giving the notice; and
(b) if to the Agent, at 100 Federal Street, Boston, Massachusetts
02110, USA, Attention: Brian Geraghty, Director, or such other address for
notice as the Agent shall last have furnished in writing to the Person
giving the notice.
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof. The UK Borrower, by its
execution of this Agreement, irrevocably appoints the Borrower as its agent for
service of process in all suits in connection with this Credit Agreement and the
other Loan Documents.
17.6. Governing Law. THIS AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS
OF THE STATE OF NEW YORK AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF SAID STATE OF NEW YORK. EACH TRANSACTION PARTY
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON SUCH
TRANSACTION PARTY BY MAIL AT THE ADDRESS SPECIFIED IN ss.17.5. EACH TRANSACTION
PARTY HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE
OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
17.7. Headings. The captions in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
17.8. Counterparts. This Agreement and any amendment hereof may be
executed in several counterparts and by each party on a separate counterpart,
each of which when executed and delivered shall be an original, and all of which
together shall constitute one instrument. In proving this
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Agreement it shall not be necessary to produce or account for more than one such
counterpart signed by the party against whom enforcement is sought.
17.9. Entire Agreement, Etc. The Loan Documents express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except as provided in ss.17.11.
17.10. Waiver of Jury Trial. Each Transaction Party hereby waives its
right to a jury trial with respect to any action or claim arising out of any
dispute in connection with this Agreement, the Notes or any of the other Loan
Documents, any rights or obligations hereunder or thereunder or the performance
of such rights and obligations. Each Transaction Party (a) certifies that no
representative, Agent or attorney of any Lender or the Agent has represented,
expressly or otherwise, that such Lender or the Agent, would not, in the event
of litigation, seek to enforce the foregoing waivers and (b) acknowledges that
the Agent and the Lenders have been induced to enter into this Agreement, the
other Loan Documents to which it is a party by, among other things, the waivers
and certifications contained herein.
17.11. Consents, Amendments, Waivers, Etc.
(a) Neither this Agreement nor any other Loan Document nor any terms
hereof or thereof may be changed, waived, discharged or terminated unless
such change, waiver, discharge or termination is in writing signed by the
respective Transaction Parties party thereto and the Required Lenders;
provided that no such change, waiver, discharge or termination shall,
without the consent of each Lender (with Obligations of the respective
types being directly affected thereby):
(i) extend the final scheduled maturity of any Loan or Note or
extend the stated maturity of any Letter of Credit beyond the
Revolving Credit Loan Maturity Date, or reduce the rate or extend
the time of payment of interest or fees thereon (except in
connection with a waiver of applicability of any post-default
increase in interest rates), or reduce the principal amount thereof;
(ii) release all or substantially all of the Collateral
(except as expressly provided in the respective Loan Documents);
(iii) amend, modify or waive any provision of this ss.17.11,
(iv) reduce the percentage specified in, or otherwise modify,
the definition of Required Lenders (it being understood that, with
the consent of the Required Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of
the Required Lenders on substantially the same basis as Loans and
Commitments are included on the Original Closing Date); or
(v) consent to the assignment or transfer by a Borrower of any
of its rights and obligations under this Agreement; provided
further, that no change, waiver, discharge or termination shall:
(A) increase the Commitments of any Lender over the
amount thereof then in effect (it being understood that a
waiver of any
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conditions precedent, covenants, Defaults or Events of Default
or of a mandatory prepayment shall not constitute an increase
of the Commitment of any Lender, and that an increase in the
available portion of any Commitment of any Lender shall not
constitute an increase in such Commitment of such Lender)
without the consent of such Lender; or
(B) without the consent of the Issuing Bank, amend,
modify or waive any provision of ss.3 or alter its rights or
obligations with respect to Letters of Credit; or
(C) without the consent of the Agent, amend, modify or
waive any provision of ss.15 or any other provision of this
Agreement or any of the other Loan Documents relating to the
rights or obligations of the Agent; or
(D) without the consent of the Required Term Loan A
Lenders amend, modify or waive any of the terms contained in
(x) ss.ss.4.3(e), 4.3(f), 4.10(a) or the definitions of Term
Loan A Percentage, Term Loan B Percentage, Acquisition Loan
Percentage, UK Acquisition Loan Percentage or Required Term
Loan A Lenders to the extent that, in any such case, such
amendment, modification or waiver would alter the application
of prepayments or repayments as among Term Loans A, Term Loans
B, Acquisition Loans and UK Acquisition Loans, in a manner
adverse to Term Loans A Lenders or (y) ss.ss.4.3(d) or 4.5; or
(E) without the consent of the Required Term Loan B
Lenders amend, modify or waive any of the terms contained in
(x) ss.ss.4.3(e), 4.3(f) 4.10(a) or the definitions of Term
Loan A Percentage, Term Loan B Percentage, Acquisition Loan
Percentage, UK Acquisition Loan Percentage or Required Term
Loan B Lenders to the extent that, in any such case, such
amendment, modification or waiver would alter the application
of prepayments or repayments as among Term Loans A, Term Loans
B, Acquisition Loans and UK Acquisition Loans, in a manner
adverse to Term Loans B Lenders or (y) ss.ss.4.3(d) or 4.6; or
(F) without the consent of the Required Acquisition Loan
Lenders amend, modify or waive any of the terms contained in
(x) ss.ss.4.3(e) 4.3(f), 4.10(a) or the definitions of Term
Loan A Percentage, Term Loan B Percentage, Acquisition Loan
Percentage, UK Acquisition Loan Percentage or Required
Acquisition Loan Lenders to the extent that, in any such case,
such amendment, modification or waiver would alter the
application of prepayments or repayments as among Term Loans
A, Term Loans B, Acquisition Loans and the UK Acquisition
Loans, in a manner adverse to Acquisition Loans Lenders or (y)
ss.ss.4.3(d) or 4.7(a) or the definition of Acquisition Loan
Commitment Period; or
(G) without the consent of the Required UK Acquisition
Loan Lenders amend, modify or waive any of the terms contained
in (x) ss.ss.4.3(e), 4.3(f), 4.10(a) or the definitions of
Term Loan A Percentage, Term Loan B Percentage, Acquisition
Loan Percentage, UK Acquisition Loan Percentage or Required UK
Acquisition Loan Lenders to the extent that, in any such case,
such amendment, modification or waiver would
<PAGE>
-146-
alter the application of prepayments or repayments as among
Term Loans A, Term Loans B, Acquisition Loans and UK
Acquisition Loans, in a manner adverse to the UK Acquisition
Loan Lenders or (y) ss.ss.4.3(d) or 4.7(b) or the definition
of Acquisition Loan Commitment Period.
(H) without the consent of the UK Fronting Lender,
amend, modify or waive any provision in this Agreement or any
of the other Loan Documents relating to the rights or
obligations of the UK Fronting Lender.
(b) If, in connection with any proposed change, waiver, discharge or
termination to any provisions of this Agreement as contemplated by clause
(a)(i) through (v), inclusive, of the first proviso to ss.17.11(a), the
consent of the Required Lenders is obtained but the consent of the one or
more other Lenders whose consent is required is not obtained, then the
Borrower shall have the right to replace each such non-consenting Lender
or Lenders (so long as all nonconsenting Lenders are so replaced) with one
or more Replacement Lenders pursuant to ss.2.17 so long as at the time of
such replacement, each such Replacement Lender consents to the proposed
change, waiver, discharge or termination, provided that the Borrower shall
not have the right to replace a Lender solely as a result of the exercise
of such Lender's right (and the withholding of any required consent by
such Lender) pursuant to clauses (A) through (F) of the second proviso to
ss.17.11(a).
(c) No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or
delay or omission on the part of the Agent or any Lender in exercising any
right shall operate as a waiver thereof or otherwise be prejudicial
thereto. No notice to or demand upon the Borrower shall entitle the
Borrower to other or further notice or demand in similar or other
circumstances.
(d) Notwithstanding anything to the contrary contained above in this
ss.17.11, the Agent may (i) enter into amendments to this Agreement, the
Guarantee and the Security Documents for the purpose of adding additional
Subsidiaries of the Borrower (or other Transaction Parties) as parties
thereto and (ii) enter into security documents to satisfy the requirements
of ss.ss.9.16, 9.17 and 9.21, in each case without the consent of the
Required Lenders.
(e) Notwithstanding anything to the contrary contained above in this
ss.17.11, Schedules 8.13, 8.17, 8.18, 8.19, and 8.22 may be supplemented
or amended and restated by the Borrower in connection with any Permitted
Acquisition, to the extent that such supplement or amendment and
restatement reflects changes that are permitted by this Agreement and the
other Loan Documents. Such supplement or amendment and restatement shall
become effective upon the Borrower's delivery of the same to the Agent,
together with a certificate of an authorized officer of the Borrower that
such supplement or amendment and restatement reflects changes that are
permitted by this Agreement and the other Loan Documents. The Agent shall
promptly distribute to each Lender a copy of such supplement or amendment
and restatement, together with the certificate of the authorized officer
of the Borrower referred to above.
<PAGE>
-147-
17.12. Severability. The provisions of this Agreement are severable and if
any one clause or provision hereof shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction, and shall not in any manner affect such clause or provision in any
other jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
17.13. Understanding as to Revolving Credit Commitments and Acquisition
Loan Commitment Period. The Transaction Parties acknowledge that each Loan or
Letter of Credit to be made or issued hereunder shall be subject to satisfaction
of each of the conditions precedent set forth in ss.13, including, without
limitation, ss.13.7. The efforts that may be required to satisfy the conditions
set forth in ss.13.7 may result in a delay in the availability of Loans and/or
Letters of Credit hereunder. The Transaction Parties acknowledge that none of
the Agent or any of the Lenders shall have any liability to the Transaction
Parties as a result of any good faith determination by the Agent that the
conditions set forth in ss.13.7 are not satisfied with respect to any request
for Loans or Letters of Credit hereunder.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
BORROWER: COMPASS AEROSPACE CORPORATION
By:
----------------------------------------
Name:
Title:
GUARANTORS: AEROMIL ENGINEERING COMPANY
By:
----------------------------------------
Name:
Title:
WESTERN METHODS MACHINERY CORPORATION
By:
----------------------------------------
Name:
Title:
BARNES MACHINE INCORPORATED
By:
----------------------------------------
Name:
Title:
BRITTAIN MACHINE, INC.
By:
----------------------------------------
Name:
Title:
<PAGE>
-2-
WICHITA MANUFACTURING, INC.,
By:
----------------------------------------
Name:
Title:
J&J LEASING, INC
By:
----------------------------------------
Name:
Title:
SEA-LECT PRODUCTS, INC.,
By:
----------------------------------------
Name:
Title:
CWE ACQUISITION CO.
By:
----------------------------------------
Name:
Title:
LAMSCO WEST, INC.
By:
----------------------------------------
Name:
Title:
MODERN MANUFACTURING, INC.
By:
----------------------------------------
Name:
Title:
<PAGE>
-3-
LENDERS
AND AGENTS: BANKBOSTON, N.A., individually and as Agent
By:
----------------------------------------
Name:
Title:
BANKBOSTON, N.A. (London Branch),
individually and as UK Fronting Lender
By:
----------------------------------------
Name:
Title:
<PAGE>
-4-
GENERAL ELECTRIC CAPITAL
CORPORATION, as Documentation Agent
By:
----------------------------------------
Name:
Title:
<PAGE>
-5-
NATIONSBANK, N.A., as Co- Agent
By:
----------------------------------------
Name:
Title:
<PAGE>
-6-
ROYAL BANK OF CANADA, as Syndication Agent
By:
----------------------------------------
Name:
Title:
<PAGE>
Schedule 1.2
Applicable Margins
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Eurocurrency Acquisition Commitment
Base Rate Rate A Base Eurocurrency Revolving Credit Fees and UK Acquisition
Level Leverage Ratio A Loans Loans Rate B Loans Rate B Loans Commitment Fees Commitment Fees
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I Greater than 3.5:1.0 1.50% 3.00% 2.00% 3.50% 0.50% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
II Less than or equal to
3.5:1.0 but greater 1.25% 2.75% 2.00% 3.50% 0.50% 0.75%
than 3.0:1.0
- ------------------------------------------------------------------------------------------------------------------------------------
III Less than or equal to
3.0:1.0 1.00% 2.50% 2.00% 3.50% 0.375% 0.50%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 4.3
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of November 20, 1998, by and among (a)
COMPASS AEROSPACE CORPORATION, a Delaware corporation (the "BORROWER"), (b)
AEROMIL ENGINEERING COMPANY, a Delaware corporation ("AEROMIL"), (c) WESTERN
METHODS MACHINERY CORPORATION, a California corporation ("WESTERN METHODS"),
(d) BARNES MACHINE INCORPORATED, a Washington corporation ("BARNES"), (e)
BRITTAIN MACHINE, INC., a Kansas corporation ("BRITTAIN"), (f) WICHITA
MANUFACTURING, INC., a California corporation ("WICHITA"), (g) SEA-LECT
PRODUCTS, INC., a Delaware corporation ("SEA-LECT"), (h) J&J LEASING, INC., a
Washington corporation ("J&J"), (i) CWE ACQUISITION CO., a Delaware
corporation ("CWE"), (j) LAMSCO WEST, INC., a California corporation,
("LAMSCO"), (k) each other entity that becomes a party hereto pursuant to
Section 22 hereof (each such entity, together with the Borrower, Aeromil,
Western Methods, Barnes, Brittain, Wichita, Sea-Lect, J&J, CWE and Lamsco,
collectively, the "ASSIGNORS"), and (l) BANKBOSTON, N.A., a national banking
association, as agent (hereinafter, in such capacity, the "ADMINISTRATIVE
AGENT") for itself and other lending institutions (hereinafter, collectively,
the "LENDERS") which are or may become parties to a Credit Agreement, dated
as of November 20, 1998 (as amended, restated, modified, or supplemented and
in effect from time to time, the "CREDIT AGREEMENT"), among the Assignors,
the Lenders and the Administrative Agent.
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make
certain Loans to the Borrowers and to provide credit for Letters of Credit
issued for the account of the Borrower;
WHEREAS, pursuant to the Guaranty, each Assignor (other than the Borrower)
has jointly and severally guaranteed to the Lenders and the Administrative Agent
the payment when due of each of the Obligations under the Credit Agreement and
the other Loan Documents;
WHEREAS, each of the Assignors wishes to grant security interests in favor
of the Administrative Agent, for the benefit of the Lenders and the
Administrative Agent, as herein provided, as security for the Obligations of the
Assignors under the Credit Agreement and the other Loan Documents;
NOW, THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definitions
shall have the respective meanings provided therefor in the Credit Agreement.
All terms defined in the Uniform Commercial Code and used herein shall have the
same definitions herein as specified therein. The term "UNIFORM COMMERCIAL
CODE", as used herein, means the Uniform Commercial Code as in effect in the
applicable jurisdiction.
<PAGE>
-2-
2. GRANT OF SECURITY INTEREST.
2.1. COLLATERAL GRANTED. Each of the Assignors hereby grants to the
Administrative Agent, for the benefit of the Lenders and the Administrative
Agent, to secure the payment and performance in full of all of the
Obligations, a security interest in and so pledges and assigns to the
Administrative Agent, for the benefit of the Lenders and the Administrative
Agent, the following properties, assets and rights of such Assignor,
wherever located, whether now owned or hereafter acquired or arising, and
all proceeds and products thereof (all of the same being hereinafter called
the "COLLATERAL"):
All personal and fixture property of every kind and nature
including without limitation all furniture, fixtures, equipment, raw
materials, inventory, other goods, accounts, contract rights, rights
to the payment of money, insurance refund claims and all other
insurance claims and proceeds, tort claims, chattel paper, documents,
instruments, securities and other investment property, deposit
accounts, rights to proceeds of letters of credit and all general
intangibles including, without limitation, all tax refund claims,
license fees, patents, patent applications, trademarks, trademark
applications, trade names, copyrights, copyright applications, rights
to sue and recover for past infringement of patents, trademarks and
copyrights, computer programs, computer software, engineering
drawings, service marks, customer lists, goodwill, and all licenses,
permits, agreements of any kind or nature pursuant to which such
Assignor possesses, uses or has authority to possess or use property
(whether tangible or intangible) of others or others possess, use or
have authority to possess or use property (whether tangible or
intangible) of such Assignor, and all recorded data of any kind or
nature, regardless of the medium of recording including, without
limitation, all software, writings, plans, specifications and
schematics.
2.2. DELIVERY OF INSTRUMENTS, ETC.
(a) Pursuant to the terms hereof, each of the Assignors has endorsed,
assigned and delivered to the Administrative Agent all negotiable or non-
negotiable instruments, certificated securities and chattel paper pledged
by it hereunder, together with instruments of transfer or assignment duly
executed in blank as the Administrative Agent may have specified. In the
event that any Assignor shall, after the date of this Agreement, acquire
any other negotiable or non-negotiable instruments, certificated securities
or chattel paper to be pledged by it hereunder, such Assignor shall
forthwith endorse, assign and deliver the same to the Administrative Agent,
accompanied by such instruments of transfer or assignment duly
<PAGE>
-3-
executed in blank as the Administrative Agent may from time to time
specify.
(b) To the extent that any securities now or hereafter acquired by
any Assignor are uncertificated and are issued to such Assignor or its
nominee directly by the issuer thereof, such Assignor shall cause the
issuer to note on its books the security interest of the Administrative
Agent in such securities and shall cause the issuer, pursuant to an
agreement in form and substance satisfactory to the Administrative Agent,
to agree to comply with instructions from the Administrative Agent as to
such securities, without further consent of such Assignor or such nominee.
To the extent that any securities, whether certificated or uncertificated,
or other financial assets now or hereafter acquired by any Assignor are
held by such Assignor or its nominee through a securities intermediary,
such Assignor shall (i) if necessary to perfect a security interest, cause
such securities intermediary to note on its books the security interest of
the Administrative Agent in such securities or other financial assets and
to confirm such notation promptly to the Administrative Agent and (ii) at
the request of the Administrative Agent, cause such securities
intermediary, pursuant to an agreement in form and substance reasonably
satisfactory to the Administrative Agent, to agree to comply with
entitlement orders from the Administrative Agent as to such securities or
other financial assets, without further consent of such Assignor or such
nominee. The Administrative Agent agrees with each Assignor that the
Administrative Agent shall not give any such entitlement orders to any such
issuer or securities intermediary unless an Event of Default has occurred
and is continuing and the Administrative Agent has elected to exercise its
rights and remedies as contemplated by Section 14.
(c) To the extent that any Assignor is a beneficiary under any
written letter of credit now or hereafter issued in favor of such Assignor,
such Assignor shall deliver such letter of credit to the Administrative
Agent. The Administrative Agent shall from time to time, at the request
and expense of the Assignors, make such arrangements with any Assignor as
are in the Administrative Agent's reasonable judgment necessary and
appropriate so that such Assignor may make any drawing to which such
Assignor is entitled under such letter of credit, without impairment of the
Administrative Agent's perfected security interest in such Assignor's
rights to proceeds of such letter of credit or in the actual proceeds of
such drawing. At the Administrative Agent's request, any Assignor shall,
for any letter of credit, whether or not written, now or hereafter issued
in favor of such Assignor as beneficiary, execute and deliver to the issuer
and any confirmer of such letter of credit an assignment of proceeds form,
in favor of the Administrative Agent and satisfactory to the Administrative
Agent and such issuer or (as the case may be) such confirmer, requiring the
proceeds of any drawing under such
<PAGE>
-4-
letter of credit to be paid directly to the Administrative Agent for
application as provided in the Credit Agreement.
2.3. EXCLUDED COLLATERAL. Notwithstanding the foregoing provisions
of this Section 2, such grant of security interest shall not extend to, and
the term "COLLATERAL" shall not include, any chattel paper and general
intangibles which are now or hereafter held by any Assignor as licensee,
lessee or otherwise, to the extent that (a) such chattel paper and general
intangibles are not assignable or capable of being encumbered as a matter
of law or under the terms of the license, lease or other agreement
applicable thereto (but solely to the extent that any such restriction
shall be enforceable under applicable law), without the consent of the
licensor or lessor thereof or other applicable party thereto and (b) such
consent has not been obtained; PROVIDED, HOWEVER, that the foregoing grant
of security interest shall extend to, and the term "COLLATERAL" shall
include, (i) any and all proceeds of such chattel paper and general
intangibles to the extent that the assignment or encumbering of such
proceeds is not so restricted and (ii) upon any such licensor, lessor or
other applicable party consent with respect to any such otherwise excluded
chattel paper or general intangibles being obtained, thereafter such
chattel paper or general intangibles as well as any and all proceeds
thereof that might have theretofore have been excluded from such grant of a
security interest and the term "COLLATERAL".
2.4. STOCK PLEDGE AGREEMENT. Concurrently herewith certain of the
Assignors are executing and delivering to the Administrative Agent, for the
benefit of the Lenders and the Administrative Agent, a stock pledge
agreement pursuant to which such Assignors are pledging to the
Administrative Agent, for the benefit of the Lenders and the Administrative
Agent, all the shares of the capital stock of each such Assignor's
subsidiaries. Such pledge(s) shall be governed by the terms of such stock
pledge agreement and not by the terms of this Agreement.
2.5. PRE-FILINGS. Each of the Assignors hereby acknowledges that (a)
any and all Uniform Commercial Code financing statements filed in
connection with any other previously or now existing credit facilities,
including without limitation, the Existing Facility, naming BankBoston,
N.A. as Administrative Agent (or otherwise as a representative of itself
and other financial institutions), as secured party, and such Assignor, as
debtor, shall be effective to perfect the Administrative Agent's security
interest granted by such Assignor pursuant to this Agreement to the extent
that such security interest may be perfected by the filing of Uniform
Commercial Code financing statements and (b) such prior filings represent
pre-perfecting of Uniform Commercial Code financing statements for purposes
of so perfecting the security interests granted by the Assignors hereunder.
Until all of the Obligations have been fully paid and satisfied and in
<PAGE>
-5-
full, the provisions of this Section 2.5 shall continue to apply, and such
pre-filings shall continue to be effective and not subject to any right of
termination in respect of the security interests granted herein..
3. TITLE TO COLLATERAL, ETC. The Assignors are the owners of the
Collateral free from any adverse Lien, security interest or other encumbrance,
except for the security interest created by this Agreement and Permitted Liens.
None of the account debtors in respect of any accounts, chattel paper or general
intangibles and none of the obligors in respect of any instruments included in
the Collateral is a governmental authority subject to the Federal Assignment of
Claims Act.
4. CONTINUOUS PERFECTION. Each Assignor's place of business or, if more
than one, chief executive office is indicated on the Perfection Certificate
delivered by such Assignor to the Administrative Agent herewith (collectively,
the "PERFECTION CERTIFICATES"). None of the Assignor's will change the same, or
the name, identity or corporate structure of any Assignor in any manner, without
providing at least thirty (30) days prior written notice to the Administrative
Agent. The Collateral, to the extent not delivered to the Administrative Agent
pursuant to Section 2.2, will be kept at those locations listed on the
Perfection Certificates and the Assignors will not remove the Collateral from
such locations, without providing at least thirty (30) days prior written notice
to the Administrative Agent.
5. NO LIENS. Except for the security interest herein granted and
Permitted Liens, the Assignors shall be the owner of the Collateral free from
any lien, security interest or other encumbrance, and each Assignor shall defend
the same against all claims and demands of all persons at any time claiming the
same or any interests therein adverse to the Administrative Agent or any of the
Lenders. The Assignors shall not pledge, mortgage or create, or suffer to exist
a security interest in the Collateral in favor of any person other than the
Administrative Agent, for the benefit of the Lenders and the Administrative
Agent, except for Permitted Liens.
6. NO TRANSFERS. The Assignors will not sell or offer to sell or
otherwise transfer the Collateral or any interest therein except for (a) sales
and leases of inventory and licenses of general intangibles in the ordinary
course of business and (b) sales or other dispositions of obsolescent items of
equipment in the ordinary course of business consistent with past practices.
7. INSURANCE.
7.1. MAINTENANCE OF INSURANCE. Each of the Assignors will maintain
with financially sound and reputable insurers insurance with respect to its
properties and business against such casualties and contingencies as shall
be in accordance with general practices of businesses engaged in similar
activities in similar geographic areas.
<PAGE>
-6-
Such insurance shall be in such amounts, contain such terms, be in such
forms and be for such periods as may be reasonably satisfactory to the
Administrative Agent. In addition, all such insurance shall be payable
to the Administrative Agent as loss payee under a "standard" or "New
York" loss payee clause for the benefit of the Lenders and the
Administrative Agent. Without limiting the foregoing, each Assignor
will (a) keep all of its physical property insured with casualty or
physical hazard insurance on an "all risks" basis, with a full
replacement cost endorsement and an "agreed amount" clause in an amount
equal to one hundred percent (100%) of the full replacement cost of such
property, (b) maintain all such workers' compensation or similar
insurance as may be required by law and (c) maintain, in amounts and
with deductibles equal to those generally maintained by businesses
engaged in similar activities in similar geographic areas, general
public liability insurance against claims of bodily injury, death or
property damage occurring, on, in or about the properties of such
Assignor; business interruption insurance; and product liability
insurance.
7.2. INSURANCE PROCEEDS. If a casualty loss suffered by any of the
Assignors results in a loss recovery from the Assignors' insurer and the
loss is one which does not materially impair the operations of any of the
facilities of such Assignors, then in such event the Administrative Agent
shall turn over all such loss recoveries to Borrower for the repair or
replacement of the loss which gave rise to any such recovery. If, however,
the loss is of a nature which does materially impair the operations of a
facility of the Assignors, then the Administrative Agent may withhold the
proceeds of the insurance recovery or cash collateral for the Obligations
if (a) there exists a Default or an Event of Default, or (b) the
Administrative Agent in its reasonable determination based on projected
operations of the Assignors (taking into account a reasonable estimate of
the time necessary to repair the facility which is the subject of the loss)
reasonably believes that there will occur an Event of Default at the end of
any of the next four quarterly financial covenant measurement periods. If
none of the conditions specified in clauses (a) or (b) exists at the time
of such loss, then the Administrative Agent shall promptly release the
proceeds of the insurance recovery to Borrower for repair or replacement of
the loss. If the Default does not become an Event of Default or if no
Event of Default occurs at the end of any of the next four financial
covenant measuring periods under the circumstances of clause (b) above,
then the Administrative Agent shall promptly release the proceeds of the
insurance recovery to the Borrower for repair or replacement of the loss.
If, however, a Default or an Event of Default exists, or, in the case of
clause (b), an Event of Default occurs or is continuing as at the end of
any of the applicable quarterly periods, then the Administrative Agent may,
at any time while any such Default or Event of Default is continuing, apply
such
<PAGE>
-7-
loss proceeds to the Obligations in such order and manner as the
Administrative Agent may in it discretion choose.
7.3. NOTICE OF CANCELLATION, ETC. All policies of insurance shall
provide for at least thirty (30) days prior written cancellation notice to
the Administrative Agent. In the event of failure by any Assignor to
provide and maintain insurance as herein provided, the Administrative Agent
may, at its option, provide such insurance and charge the amount thereof to
such Assignor. The Assignors shall furnish the Administrative Agent with
certificates of insurance and policies evidencing compliance with the
foregoing insurance provision.
8. MAINTENANCE OF COLLATERAL; COMPLIANCE WITH LAW. The Assignors will
keep the Collateral in good order and repair and will not use the same in
violation of law or any policy of insurance thereon. The Administrative Agent,
or its designee, may inspect the Collateral at any reasonable time, wherever
located. The Assignors will pay promptly when due all taxes, assessments,
governmental charges and levies upon the Collateral or incurred in connection
with the use or operation of such Collateral or incurred in connection with this
Agreement; PROVIDED that any such taxes, assessments, governmental charges and
levies need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if adequate reserves with
respect thereto shall have been set aside on its books; and PROVIDED FURTHER
that all such taxes, assessments, governmental charges and levies shall be paid
forthwith upon the commencement of proceedings to foreclose any Lien that may
have attached as security therefor. Each of the Assignors has at all times
operated, and each Assignor will continue to operate, its business in compliance
with all applicable provisions of the federal Fair Labor Standards Act, as
amended, and with all applicable provisions of federal, state and local statutes
and ordinances dealing with the control, shipment, storage or disposal of
hazardous materials or substances.
9. COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.
9.1. EXPENSES INCURRED BY ADMINISTRATIVE AGENT. In its discretion,
the Administrative Agent may discharge taxes and other encumbrances at any
time levied or placed on any of the Collateral, make repairs thereto and
pay any necessary filing fees. The Assignors agree to reimburse the
Administrative Agent on demand for any and all expenditures so made. The
Administrative Agent shall have no obligation to any Assignor to make any
such expenditures, nor shall the making thereof relieve any Assignor of any
default.
9.2. ADMINISTRATIVE AGENT'S OBLIGATIONS AND DUTIES. Anything herein
to the contrary notwithstanding, each Assignor shall remain liable under
each contract or agreement comprised in the Collateral to be observed or
performed by any such
<PAGE>
-8-
Assignor thereunder. Neither the Administrative Agent nor any Lender
shall have any obligation or liability under any such contract or
agreement by reason of or arising out of this Agreement or the receipt
by the Administrative Agent or any Lender of any payment relating to any
of the Collateral, nor shall the Administrative Agent or any Lender be
obligated in any manner to perform any of the obligations of any
Assignor under or pursuant to any such contract or agreement, to make
inquiry as to the nature or sufficiency of any payment received by the
Administrative Agent or any Lender in respect of the Collateral or as to
the sufficiency of any performance by any party under any such contract
or agreement, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which
may have been assigned to the Administrative Agent or to which the
Administrative Agent or any Lender may be entitled at any time or times.
The Administrative Agent's sole duty with respect to the custody, safe
keeping and physical preservation of the Collateral in its possession,
under Section 9-207 of the Uniform Commercial Code or otherwise, shall
be to deal with such Collateral in the same manner as the Administrative
Agent deals with similar property for its own account.
10. SECURITIES AND DEPOSITS. If a Default or an Event of Default shall
have occurred and be continuing, the Administrative Agent may at any time, at
its option, transfer to itself or any nominee any securities constituting
Collateral, receive any income thereon and hold such income as additional
Collateral or apply it to the Obligations. If a Default or an Event of Default
shall have occurred and be continuing, whether or not any Obligations are due,
the Administrative Agent may demand, sue for, collect, or make any settlement or
compromise which it deems desirable with respect to the Collateral. Regardless
of the adequacy of Collateral or any other security for the Obligations, any
deposits or other sums at any time credited by or due from the Administrative
Agent or any Lender to any Assignor may at any time be applied to or set off
against any of the Obligations.
11. NOTIFICATION TO ACCOUNT DEBTORS AND OTHER OBLIGORS. If a Default or
an Event of Default shall have occurred and be continuing, each Assignor shall,
at the request of the Administrative Agent, notify account debtors on accounts,
chattel paper and general intangibles of such Assignor and obligors on
instruments for which such Assignor is an obligee of the security interest of
the Administrative Agent in any account, chattel paper, general intangible or
instrument and that payment thereof is to be made directly to the Administrative
Agent or to any financial institution designated by the Administrative Agent as
the Administrative Agent's agent therefor, and the Administrative Agent may
itself, if a Default or an Event of Default shall have occurred and be
continuing, without notice to or demand upon such Assignor, so notify account
debtors and obligors. After the making of such a request or the giving of any
such notification, each Assignor shall hold any proceeds of collection of
accounts, chattel paper,
<PAGE>
-9-
general intangibles and instruments received by such Assignor as trustee
for the Administrative Agent, for the benefit of the Lenders and the
Administrative Agent, without commingling the same with other funds of
such Assignor and shall turn the same over to the Administrative Agent
in the identical form received, together with any necessary endorsements
or assignments. During the continuation of Default or an Event of
Default, the Administrative Agent shall apply the proceeds of collection
of accounts, chattel paper, general intangibles and instruments received
by the Administrative Agent to the Obligations, such proceeds to be
immediately entered after final payment in cash or solvent credits of
the items giving rise to them.
12. FURTHER ASSURANCES. Each Assignor, at its own expense, shall do,
make, execute and deliver all such additional and further acts, things, deeds,
assurances and instruments as the Administrative Agent may require more
completely to vest in and assure to the Administrative Agent and the Lenders
their respective rights hereunder or in any of the Collateral, including,
without limitation, (a) executing, delivering and, where appropriate, filing
financing statements and continuation statements under the Uniform Commercial
Code, (b) obtaining governmental and other third party consents and approvals,
including without limitation any consent of any licensor, lessor or other
applicable party referred to in Section 2.3, (c) obtaining waivers from
mortgagees and landlords and (d) taking all actions required by Sections 8-313
and 8-321 of the Uniform Commercial Code (1990) or Sections 8-106 and 9-115 of
the Uniform Commercial Code (1994), as applicable in each relevant jurisdiction,
with respect to certificated and uncertificated securities.
13. POWER OF ATTORNEY.
13.1. APPOINTMENT AND POWERS OF ADMINISTRATIVE AGENT. Each Assignor
hereby irrevocably constitutes and appoints the Administrative Agent and
any officer or agent thereof, with full power of substitution, as its true
and lawful attorneys-in-fact with full irrevocable power and authority in
the place and stead of such Assignor or in the Administrative Agent's own
name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments that may be necessary or desirable to accomplish the purposes
of this Agreement and, without limiting the generality of the foregoing,
hereby gives said attorneys the power and right, on behalf of such
Assignor, without notice to or assent by such Assignor, to do the
following:
(a) upon the occurrence and during the continuance of a Default
or an Event of Default, generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral
in such manner as is consistent with the Uniform Commercial Code and
as fully and completely as
<PAGE>
-10-
though the Administrative Agent were the absolute owner thereof for
all purposes, and to do at such Assignor's expense, at any time, or
from time to time, all acts and things which the Administrative
Agent deems necessary to protect, preserve or realize upon the
Collateral and the Administrative Agent's security interest
therein, in order to effect the intent of this Agreement, all as
fully and effectively as such Assignor might do, including, without
limitation, (i) the filing and prosecuting of registration and
transfer applications with the appropriate federal or local
agencies or authorities with respect to trademarks, copyrights and
patentable inventions and processes, (ii) upon written notice to
such Assignor, the exercise of voting rights with respect to voting
securities, which rights may be exercised, if the Administrative
Agent so elects, with a view to causing the liquidation in a
commercially reasonable manner of assets of the issuer of any such
securities and (iii) the execution, delivery and recording, in
connection with any sale or other disposition of any Collateral, of
the endorsements, assignments or other instruments of conveyance or
transfer with respect to such Collateral; and
(b) to file such financing statements with respect hereto, with
or without such Assignor's signature, or a photocopy of this Agreement
in substitution for a financing statement, as the Administrative Agent
may deem appropriate and to execute in such Assignor's name such
financing statements and amendments thereto and continuation
statements which may require such Assignor's signature.
13.2. RATIFICATION BY ASSIGNORS. To the extent permitted by law,
each Assignor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irrevocable.
13.3. NO DUTY ON ADMINISTRATIVE AGENT. The powers conferred on the
Administrative Agent hereunder are solely to protect the interests of the
Administrative Agent and the Lenders in the Collateral and shall not impose
any duty upon the Administrative Agent to exercise any such powers. The
Administrative Agent shall be accountable only for the amounts that it
actually receives as a result of the exercise of such powers and neither it
nor any of its officers, directors, employees or agents shall be
responsible to each Assignor for any act or failure to act, except for the
Administrative Agent's own gross negligence or willful misconduct.
14. REMEDIES. If an Event of Default shall have occurred and be
continuing, the Administrative Agent may, without notice to or demand upon any
Assignor, declare this Agreement to be in default, and the Administrative Agent
shall thereafter have in any jurisdiction in which
<PAGE>
-11-
enforcement hereof is sought, in addition to all other rights and remedies,
the rights and remedies of a secured party under the Uniform Commercial Code,
including, without limitation, the right to take possession of the
Collateral, and for that purpose the Administrative Agent may, so far as such
Assignor can give authority therefor, enter upon any premises on which the
Collateral may be situated and remove the same therefrom. The Administrative
Agent may in its discretion require any Assignor to assemble all or any part
of the Collateral at such location or locations within the state(s) of such
Assignor's principal office(s) or at such other locations as the
Administrative Agent may designate. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Administrative Agent shall give to the Assignors at
least five (5) Business Days prior written notice of the time and place of
any public sale of Collateral or of the time after which any private sale or
any other intended disposition is to be made. Each Assignor hereby
acknowledges that five (5) Business Days prior written notice of such sale or
sales shall be reasonable notice. In addition, each Assignor waives any and
all rights that it may have to a judicial hearing in advance of the
enforcement of any of the Administrative Agent's rights hereunder, including,
without limitation, its right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights with respect thereto.
15. NO WAIVER, ETC. Except as specifically required in the Loan
Documents, each Assignor waives demand, notice, protest, notice of acceptance
of this Agreement, notice of loans made, credit extended, Collateral received
or delivered or other action taken in reliance hereon and all other demands
and notices of any description. With respect to both the Obligations and the
Collateral, each Assignor assents to any extension or postponement of the
time of payment or any other indulgence, to any substitution, exchange or
release of or failure to perfect any security interest in any Collateral, to
the addition or release of any party or person primarily or secondarily
liable, to the acceptance of partial payment thereon and the settlement,
compromising or adjusting of any thereof, all in such manner and at such time
or times as the Administrative Agent may deem advisable. The Administrative
Agent shall have no duty as to the collection or protection of the Collateral
or any income thereon, nor as to the preservation of rights against prior
parties, nor as to the preservation of any rights pertaining thereto beyond
the safe custody thereof as set forth in Section 9.2. The Administrative
Agent shall not be deemed to have waived any of its rights upon or under the
Obligations or the Collateral unless such waiver shall be in writing and
signed by the Administrative Agent. No delay or omission on the part of the
Administrative Agent in exercising any right shall operate as a waiver of
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion. All
rights and remedies of the Administrative Agent with respect to the
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be
<PAGE>
-12-
exercised singularly, alternatively, successively or concurrently at such
time or at such times as the Administrative Agent deems expedient.
16. MARSHALLING. Neither the Administrative Agent nor any Lender shall be
required to marshal any present or future collateral security (including but not
limited to this Agreement and the Collateral) for, or other assurances of
payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of the
rights of the Administrative Agent hereunder and of the Administrative Agent or
any Lender in respect of such collateral security and other assurances of
payment shall be cumulative and in addition to all other rights, however
existing or arising. To the extent that it lawfully may, each Assignor hereby
agrees that it will not invoke any law relating to the marshalling of collateral
which might cause delay in or impede the enforcement of the Administrative
Agent's rights under this Agreement or under any other instrument creating or
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, each Assignor hereby
irrevocably waives the benefits of all such laws.
17. PROCEEDS OF DISPOSITIONS; EXPENSES. The Assignors shall pay to the
Administrative Agent on demand any and all expenses, including reasonable
attorneys' fees and disbursements, incurred or paid by the Administrative Agent
in protecting, preserving or enforcing the Administrative Agent's rights under
or in respect of any of the Obligations or any of the Collateral. After
deducting all of said expenses, the residue of any proceeds of collection or
sale of the Obligations or Collateral shall, to the extent actually received in
cash, be applied to the payment of the Obligations in such order or preference
as the Lender may determine OR in such order or preference as is provided in the
Credit Agreement, proper allowance and provision being made for any Obligations
not then due. Upon the final payment and satisfaction in full of all of the
Obligations and after making any payments required by Section 9-504(1)(c) of the
Uniform Commercial Code, any excess shall be returned to the Assignors, and the
Assignors shall remain liable for any deficiency in the payment of the
Obligations.
18. OVERDUE AMOUNTS. Until paid, all amounts due and payable by any
Assignor hereunder shall be a debt secured by the Collateral and shall bear,
whether before or after judgment, interest at the rate of interest for overdue
principal set forth in the Credit Agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT IS INTENDED TO
TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each Assignor agrees that
any suit for the enforcement of this Agreement may be brought in the courts of
the State of New York or any federal court sitting therein and consents to the
non-
<PAGE>
-13-
exclusive jurisdiction of such court and to service of process in any such
suit being made upon any Assignor by mail at the address specified in Section
17.5 of the Credit Agreement. Each Assignor hereby waives any objection that
it may now or hereafter have to the venue of any such suit or any such court
or that such suit is brought in an inconvenient court.
20. WAIVER OF JURY TRIAL. EACH ASSIGNOR WAIVES ITS RIGHT TO A JURY TRIAL
WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF
ANY SUCH RIGHTS OR OBLIGATIONS. Each Assignor (a) certifies that neither the
Administrative Agent or any Lender nor any representative, agent or attorney of
the Administrative Agent or any Lender has represented, expressly or otherwise,
that the Administrative Agent or any Lender would not, in the event of
litigation, seek to enforce the foregoing waivers and (b) acknowledges that, in
entering into the Credit Agreement and the other Loan Documents to which the
Administrative Agent or any Lender is a party, the Administrative Agent and the
Lenders are relying upon, among other things, the waivers and certifications
contained in this Section 20.
21. MISCELLANEOUS. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon each
Assignor and its respective successors and assigns, and shall inure to the
benefit of the Administrative Agent, the Lenders and their respective successors
and assigns. If any term of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Agreement shall be construed and be enforceable as if
such invalid, illegal or unenforceable term had not been included herein. Each
Assignor acknowledges receipt of a copy of this Agreement.
22. ADDITIONAL ASSIGNORS. It is understood and agreed that any Subsidiary
of any Assignor that is required to execute a counterpart of this Agreement
after the date hereof pursuant to the Credit Agreement shall become an Assignor
hereunder by executing a counterpart hereof or assumption agreement with respect
hereto, in form and substance satisfactory to the Administrative Agent, and
delivering the same to the Administrative Agent.
[Remainder of page left intentionally blank.]
<PAGE>
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IN WITNESS WHEREOF, intending to be legally bound, each of the Assignors
has caused this Agreement to be duly executed as of the date first above
written.
COMPASS AEROSPACE CORPORATION
By:
-----------------------------------
Name:
Title:
AEROMIL ENGINEERING COMPANY
By:
-----------------------------------
Name:
Title:
WESTERN METHODS MACHINERY CORPORATION
By:
-----------------------------------
Name:
Title:
BRITTAIN MACHINE, INC.
By:
-----------------------------------
Name:
Title:
SEA-LECT PRODUCTS, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
-15-
WICHITA MANUFACTURING, INC.
By:
-----------------------------------
Name:
Title:
BARNES MACHINE INCORPORATED
By:
-----------------------------------
Name:
Title:
J&J LEASING, INC.
By:
-----------------------------------
Name:
Title:
CWE ACQUISITION CO.
By:
-----------------------------------
Name:
Title:
LAMSCO WEST, INC.
By:
-----------------------------------
Name:
Title:
Accepted:
BANKBOSTON, N.A., as Administrative Agent
By:
-----------------------------------
Name:
<PAGE>
-16-
Title:
<PAGE>
EXHIBIT 4.4
Exhibit F
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT is made as of November 20, 1998, by and among
(a) COMPASS AEROSPACE CORPORATION, a Delaware corporation (the "BORROWER"), (b)
BRITTAIN MACHINE, INC., a Kansas corporation ("BRITTAIN"), (c) SEA-LECT
PRODUCTS, INC., a Delaware corporation ("SEA-LECT"), (d) each other entity that
becomes a party hereto pursuant to Section 20 hereof (each such entity, together
with the Borrower, Brittain and Sea-Lect, collectively, the "PLEDGORS") and (e)
BankBoston, N.A., a national banking association, as agent (hereinafter, in such
capacity, the "AGENT") for itself and the other lending institutions
(hereinafter, collectively, the "LENDERS") which are or may become parties to a
Credit Agreement, dated as of November 20, 1998 (as amended, modified,
supplemented or restated and in effect from time to time the "CREDIT
AGREEMENT"), among the Borrower, the other Pledgors, the Lenders, the Agent and
certain other parties thereto.
WHEREAS, the Pledgors are the direct or indirect legal and beneficial owner
of all of the issued and outstanding shares of each class of the capital stock
of their respective subsidiaries described on ANNEX A (the "SUBSIDIARIES"); and
WHEREAS, it is a condition precedent to the Lenders' making any loans or
otherwise extending credit to the Borrowers under the Credit Agreement that the
Pledgors execute and deliver to the Agent, for the benefit of the Lenders and
the Agent, a pledge agreement in substantially the form hereof;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. PLEDGE OF STOCK, ETC.
1.1. PLEDGE OF STOCK. Each Pledgor hereby pledges, assigns, grants a
security interest in, and delivers to the Agent, for the benefit of the
Lenders and the Agent, all of the shares of capital stock of its respective
Subsidiaries of every class, as more fully described on ANNEX A hereto,
which are owned by the Pledgors or, in the case of any UK Subsidiary,
sixty-five percent (65%) of the issued and outstanding shares of capital
stock of such UK Subsidiary, in each case as reflected in the column on
ANNEX A under the heading "PLEDGED SHARES", and all other Stock Collateral,
including all of the Stock Collateral pledged pursuant to Section 1.2
hereof, to be held by the Agent, for the benefit of the Lenders and the
Agent, subject to the
<PAGE>
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terms and conditions hereinafter set forth. The certificates for
such shares, accompanied by stock powers or other appropriate instruments
of assignment thereof duly executed in blank by the applicable Pledgor,
have been delivered to the Agent.
1.2. ADDITIONAL STOCK. In case any Pledgor shall acquire any
additional shares of the capital stock of any Subsidiary or corporation
which is the successor of any Subsidiary, or any securities exchangeable
for or convertible into shares of such capital stock of any class of any
Subsidiary, by purchase, stock dividend, stock split or otherwise, then
such Pledgor shall forthwith deliver to and pledge such shares or other
securities to the Agent, for the benefit of the Lenders and the Agent,
under this Agreement and shall deliver to the Agent forthwith any
certificates therefor, accompanied by stock powers or other appropriate
instruments of assignment duly executed by such Pledgor in blank; PROVIDED
that the Pledgors shall not be required to so deliver and pledge any
additional shares of any UK Subsidiary to the extent that the aggregate of
the shares of capital stock of such UK Subsidiary delivered and pledged
hereunder would exceed sixty-five percent (65%) of the total issued and
outstanding shares of capital stock of such Subsidiary. Each Pledgor
agrees that the Agent may from time to time attach as ANNEX A hereto an
updated list of the shares of capital stock or securities at the time
pledged with the Agent hereunder.
1.3. PLEDGE OF CASH COLLATERAL ACCOUNT. Each Pledgor also hereby
pledges, assigns, grants a security interest in, and delivers to the Agent,
for the benefit of the Lenders and the Agent, the Cash Collateral Account
and all of the Cash Collateral as such terms are hereinafter defined.
2. DEFINITIONS. The term "OBLIGATIONS" and all other capitalized terms
used herein without definition shall have the respective meanings provided
therefor in the Credit Agreement. Terms used herein and not defined in the
Credit Agreement or otherwise defined herein that are defined in the Uniform
Commercial Code (the "UCC") have such defined meanings herein, unless the
context otherwise indicated or requires, and the following terms shall have the
following meanings:
CASH COLLATERAL. See Section 4.
CASH COLLATERAL ACCOUNT. See Section 4.
STOCK. Includes the shares of stock described in ANNEX A attached hereto
and any additional shares of stock at the time pledged with the Agent hereunder.
STOCK COLLATERAL. The property at any time pledged to the Agent hereunder
(whether described herein or not) and all income therefrom, increases therein
and proceeds thereof, including without limitation that
<PAGE>
-3-
included in Cash Collateral, but excluding from the definition of "STOCK
COLLATERAL" any income, increases or proceeds received by a Pledgor to the
extent expressly permitted by Section 6.
TIME DEPOSITS. See Section 4.
3. SECURITY FOR OBLIGATIONS. This Agreement and the security interest in
and pledge of the Stock Collateral hereunder are made with and granted to the
Agent, for the benefit of the Lenders and the Agent, as security for the payment
and performance in full of all the Obligations.
4. LIQUIDATION, RECAPITALIZATION, ETC.
4.1. DISTRIBUTIONS PAID TO AGENT. Any sums or other property paid or
distributed upon or with respect to any of the Stock, whether by dividend
or redemption or upon the liquidation or dissolution of the issuer thereof
or otherwise, shall, except to the extent provided in Section 6, be paid
over and delivered to the Agent to be held by the Agent, for the benefit of
the Lenders and the Agent, as security for the payment and performance in
full of all of the Obligations. In case, pursuant to the recapitalization
or reclassification of the capital of the issuer thereof or pursuant to the
reorganization thereof, any distribution of capital shall be made on or in
respect of any of the Stock or any property shall be distributed upon or
with respect to any of the Stock, the property so distributed shall be
delivered to the Agent, for the benefit of the Lenders and the Agent, to be
held by it as security for the Obligations. Except to the extent provided
in Section 6, all sums of money and property paid or distributed in respect
of the Stock, whether as a dividend or upon such a liquidation,
dissolution, recapitalization or reclassification or otherwise, that are
received by any Pledgor shall, until paid or delivered to the Agent, be
held in trust for the Agent, for the benefit of the Lenders and the Agent,
as security for the payment and performance in full of all of the
Obligations.
4.2. CASH COLLATERAL ACCOUNT. All sums of money that are delivered
to the Agent pursuant to this Section 4 shall be deposited into an interest
bearing account with the Agent (the "CASH COLLATERAL ACCOUNT"). Some or
all of the funds from time to time in the Cash Collateral Account may be
invested in time deposits, including, without limitation, certificates of
deposit issued by the Agent (such certificates of deposit or other time
deposits being hereinafter referred to, collectively, as "TIME DEPOSITS"),
that are satisfactory to the Agent after consultation with the Pledgors,
PROVIDED, that, in each such case, arrangements satisfactory to the Agent
are made and are in place to perfect and to insure the first priority of
the Agent's security interest therein. Interest earned on the Cash
Collateral Account and on the Time Deposits, and the principal of the Time
Deposits at maturity that is not invested in new Time Deposits, shall be
deposited
<PAGE>
-4-
in the Cash Collateral Account. The Cash Collateral Account, all
sums from time to time standing to the credit of the Cash Collateral
Account, any and all Time Deposits, any and all instruments or other
writings evidencing Time Deposits and any and all proceeds or any thereof
are hereinafter referred to as the "CASH COLLATERAL."
4.3. PLEDGORS' RIGHTS TO CASH COLLATERAL, ETC. Except as otherwise
expressly provided in Section 15, the Pledgors shall have no right to
withdraw sums from the Cash Collateral Account, to receive any of the Cash
Collateral or to require the Agent to part with the Agent's possession of
any instruments or other writings evidencing any Time Deposits.
5. WARRANTY OF TITLE; AUTHORITY. Each Pledgor hereby represents and
warrants that: (a) such Pledgor has good and marketable title to, and is the
sole record and beneficial owner of, its Stock described in Section 1, subject
to no pledges, liens, security interests, charges, options, restrictions or
other encumbrances except the pledge and security interest created by this
Agreement, (b) all of its Stock described in Section 1 is validly issued, fully
paid and non-assessable, (c) such Pledgor has full power, authority and legal
right to execute, deliver and perform its obligations under this Agreement and
to pledge and grant a security interest in all of its Stock Collateral pursuant
to this Agreement, and the execution, delivery and performance hereof and the
pledge of and granting of a security interest in its Stock Collateral hereunder
have been duly authorized by all necessary corporate or other action and do not
contravene any law, rule or regulation or any provision of such Pledgor's
Governing Documents or of any judgment, decree or order of any tribunal or of
any agreement or instrument to which the Company is a party or by which it or
any of its property is bound or affected or constitute a default thereunder, and
(d) the information set forth in ANNEX A hereto relating to its Stock is true,
correct and complete in all respects. Each Pledgor covenants that it will
defend the rights of the Lenders and the Agent and security interest of the
Agent, for the benefit of the Lenders and the Agent, in such Stock against the
claims and demands of all other persons whomsoever. Each Pledgor further
covenants that it will have the like title to and right to pledge and grant a
security interest in its respective Stock Collateral hereafter pledged or in
which a security interest is granted to the Agent hereunder and will likewise
defend the rights, pledge and security interest thereof and therein of the
Lenders and the Agent.
6. DIVIDENDS, VOTING, ETC., PRIOR TO MATURITY. Subject to the following
provisions of this Section 6, the Pledgors shall be entitled to receive all cash
dividends paid in respect of the Stock, to vote the Stock and to give consents,
waivers and ratifications in respect of the Stock; PROVIDED, HOWEVER, that no
vote shall be cast or consent, waiver or ratification given by any Pledgor if
the effect thereof would impair any of the Stock Collateral or be inconsistent
with or result in any violation of any of the provisions of the Credit
Agreement, the Notes or any of the other Loan Documents. All
<PAGE>
-5-
such rights of the Pledgors to receive cash dividends shall cease in case an
Enforcement Period is commenced prohibiting the payment of such dividends (it
being understood that all such cash dividends not otherwise applied by the
Agent during the Enforcement Period shall be returned to the applicable
Pledgor upon termination of the Enforcement Period) All such rights of any
Pledgor to vote and give consents, waivers and ratifications with respect to
the Stock shall, at the Agent's option, as evidenced by the Agent's notifying
such Pledgor of such election, cease in case a Default or an Event of Default
shall have occurred and be continuing.
7. REMEDIES.
7.1. IN GENERAL. If a Default or an Event of Default shall have
occurred and be continuing, the Agent shall thereafter have the following
rights and remedies (to the extent permitted by applicable law) in addition
to the rights and remedies of a secured party under the UCC, all such
rights and remedies being cumulative, not exclusive, and enforceable
alternatively, successively or concurrently, at such time or times as the
Agent deems expedient:
(a) if the Agent so elects and gives notice of such election to
such Pledgor, the Agent may vote any or all shares of the Stock
(whether or not the same shall have been transferred into its name or
the name of its nominee or nominees) for any lawful purpose,
including, without limitation, if the Agent so elects, for the
liquidation of the assets of the issuer thereof, and give all
consents, waivers and ratifications in respect of the Stock and
otherwise act with respect thereto as though it were the outright
owner thereof (each Pledgor hereby irrevocably constituting and
appointing the Agent the proxy and attorney-in-fact of such Pledgor,
with full power of substitution, to do so);
(b) the Agent may demand, sue for, collect or make any
compromise or settlement the Agent deems suitable in respect of any
Stock Collateral;
(c) the Agent may sell, resell, assign and deliver, or otherwise
dispose of any or all of the Stock Collateral, for cash or credit or
both and upon such terms at such place or places, at such time or
times and to such entities or other persons as the Agent thinks
expedient, all without demand for performance by the respective
Pledgor or any notice or advertisement whatsoever except as expressly
provided herein or as may otherwise be required by law;
(d) the Agent may cause all or any part of the Stock held by it
to be transferred into its name or the name of its nominee or
nominees; and
<PAGE>
-6-
(e) the Agent may set off against the Obligations any and all
sums deposited with it or held by it, including without limitation,
any sums standing to the credit of the Cash Collateral Account and any
Time Deposits issued by the Agent.
7.2. SALE OF STOCK COLLATERAL. In the event of any disposition of
the Stock Collateral as provided in clause (c) of Section 7.1, the Agent
shall give to the Pledgors at least five (5) Business Days prior written
notice of the time and place of any public sale of the Stock Collateral or
of the time after which any private sale or any other intended disposition
is to be made. Each Pledgor hereby acknowledges that five (5) Business
Days prior written notice of such sale or sales shall be reasonable notice.
The Agent may enforce its rights hereunder without any other notice and
without compliance with any other condition precedent now or hereunder
imposed by statute, rule of law or otherwise (all of which are hereby
expressly waived by each Pledgor, to the fullest extent permitted by law).
The Agent may buy any part or all of the Stock Collateral at any public
sale and if any part or all of the Stock Collateral is of a type
customarily sold in a recognized market or is of the type which is the
subject of widely-distributed standard price quotations, the Agent may buy
at private sale. The Agent may apply the cash proceeds actually received
from any sale or other disposition to the reasonable expenses of retaking,
holding, preparing for sale, selling and the like, to reasonable attorneys'
fees, travel and all other expenses which may be incurred by the Agent in
attempting to collect the Obligations or to enforce this Agreement or in
the prosecution or defense of any action or proceeding related to the
subject matter of this Agreement, and then to the Obligations.
7.3. PRIVATE SALES. Each Pledgor recognizes that the Agent may be
unable to effect a public sale of the Stock by reason of certain
prohibitions contained in the Securities Act, federal banking laws, and
other applicable laws, but may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers. Each Pledgor
agrees that any such private sales may be at prices and other terms less
favorable to the seller than if sold at public sales and that such private
sales shall not by reason thereof be deemed not to have been made in a
commercially reasonable manner. The Agent shall be under no obligation to
delay a sale of any of the Stock for the period of time necessary to permit
the issuer of such securities to register such securities for public sale
under the Securities Act, or such other federal banking or other applicable
laws, even if the issuer would agree to do so. Subject to the foregoing,
the Agent agrees that any sale of the Stock shall be made in a commercially
reasonable manner, and each Pledgor agrees to use its best efforts to cause
the issuer or issuers of its respective Stock contemplated to be sold, to
execute and deliver, and cause the directors and officers of such issuer to
execute and deliver, all at such Pledgor's expense, all such
<PAGE>
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instruments and documents, and to do or cause to be done all such other
acts and things as may be necessary or, in the reasonable opinion of the
Agent, advisable to exempt such Stock from registration under the
provisions of the Securities Act, and to make all amendments to such
instruments and documents which, in the opinion of the Agent, are necessary
or advisable, all in conformity with the requirements of the Securities Act
and the rules and regulations of the Securities and Exchange Commission
applicable thereto.
7.4. PLEDGORS' AGREEMENTS, ETC. Each Pledgor further agrees to do or
cause to be done all such other acts and things as may be reasonably
necessary to make any sales of any portion or all of the Stock pursuant to
this Section 7 valid and binding and in compliance with any and all
applicable laws (including, without limitation, the Securities Act, the
Securities Exchange Act of 1934, as amended, the rules and regulations of
the Securities and Exchange Commission applicable thereto and all
applicable state securities or "Blue Sky" laws), regulations, orders,
writs, injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction
over any such sale or sales, all at such Pledgor's expense. Each Pledgor
further agrees that a breach of any of the covenants contained in this
Section 7 will cause irreparable injury to the Agent and the Lenders, that
the Agent and the Lenders have no adequate remedy at law in respect of such
breach and, as a consequence, agrees that each and every covenant contained
in this Section 7 shall be specifically enforceable against each Pledgor by
the Agent and each Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants.
8. MARSHALLING. Neither the Agent nor any Lender shall be required to
marshal any present or future collateral security for (including but not limited
to this Agreement and the Stock Collateral), or other assurances of payment of,
the Obligations or any of them, or to resort to such collateral security or
other assurances of payment in any particular order. All of the Agent's rights
hereunder and of the Lenders and the Agent in respect of such collateral
security and other assurances of payment shall be cumulative and in addition to
all other rights, however existing or arising. To the extent that it lawfully
may, each Pledgor hereby agrees that it will not invoke any law relating to the
marshalling of collateral that might cause delay in or impede the enforcement of
the Agent's rights under this Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or payment thereof is otherwise
assured, and to the extent that it lawfully may each Pledgor hereby irrevocably
waives the benefits of all such laws.
<PAGE>
-8-
9. PLEDGORS' OBLIGATIONS NOT AFFECTED. The obligations of each Pledgor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by (a) any exercise or nonexercise, or any waiver, by the Agent or
any Lender of any right, remedy, power or privilege under or in respect of any
of the Obligations or any security thereof (including this Agreement); (b) any
amendment to or modification of the Credit Agreement, the Note, the other Loan
Documents or any of the Obligations; (c) any amendment to or modification of any
instrument (other than this Agreement) securing any of the Obligations,
including, without limitation, any of the Security Documents; or (d) the taking
of additional security for, or any other assurances of payment of, any of the
Obligations or the release or discharge or termination of any security or other
assurances of payment or performance for any of the Obligations; whether or not
the Pledgors' shall have notice or knowledge of any of the foregoing.
10. TRANSFER, ETC., BY PLEDGORS. Without the prior written consent of the
Agent, the Pledgors will not sell, assign, transfer or otherwise dispose of,
grant any option with respect to, or pledge or grant any security interest in or
otherwise encumber or restrict any of the Stock Collateral or any interest
therein, except for the pledge thereof and security interest therein provided
for in this Agreement.
11. FURTHER ASSURANCES. Each Pledgor will do all such acts, and will
furnish to the Agent all such financing statements, certificates, legal opinions
and other documents and will obtain all such governmental consents and corporate
approvals and will do or cause to be done all such other things as the Agent may
reasonably request from time to time in order to give full effect to this
Agreement and to secure the rights of the Lenders and the Agent hereunder, all
without any cost or expense to the Agent or any Lender. If the Agent so elects,
a photocopy of this Agreement may at any time and from time to time be filed by
the Agent as a financing statement in any recording office in any jurisdiction.
12. AGENT'S EXONERATION. Under no circumstances shall the Agent be deemed
to assume any responsibility for or obligation or duty with respect to any part
or all of the Stock Collateral of any nature or kind or any matter or
proceedings arising out of or relating thereto, other than (a) to exercise
reasonable care in the physical custody of the Stock Collateral and (b) after a
Default or an Event of Default shall have occurred and be continuing to act in a
commercially reasonable manner. Neither the Agent nor any Lender shall be
required to take any action of any kind to collect, preserve or protect its or
any Pledgor's rights in the Stock Collateral or against other parties thereto.
The Agent's prior recourse to any part or all of the Stock Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of any of the Obligations.
13. NO WAIVER, ETC. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated except by a written instrument
expressly referring to this Agreement and to the provisions so
<PAGE>
-9-
modified or limited, and executed by the Agent, with the consent of the
Required Lenders, and each Pledgor. No act, failure or delay by the Agent
shall constitute a waiver of its rights and remedies hereunder or otherwise.
No single or partial waiver by the Agent of any default or right or remedy
that it may have shall operate as a waiver of any other default, right or
remedy or of the same default, right or remedy on a future occasion. Each
Pledgor hereby waives presentment, notice of dishonor and protest of all
instruments, included in or evidencing any of the Obligations or the Stock
Collateral, and any and all other notices and demands whatsoever (except as
expressly provided herein or in the Credit Agreement).
14. NOTICE, ETC. All notices, requests and other communications
hereunder shall be made in the manner set forth in the Credit Agreement.
15. TERMINATION. Upon final payment and performance in full of the
Obligations, this Agreement shall terminate and the Agent shall, at the
Pledgors' expense, return such Stock Collateral and Cash Collateral in the
possession or control of the Agent as has not theretofore been disposed of
pursuant to the provisions hereof, together with any moneys and other
property at the time held by the Agent hereunder.
16. OVERDUE AMOUNTS. Until paid, all amounts due and payable by the
Pledgors shall be a debt secured by the Stock Collateral and shall bear,
whether before or after judgment, interest at the rate of interest for
overdue principal set forth in the Credit Agreement.
17. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT IS INTENDED
TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each Pledgor agrees
that any suit for the enforcement of this Agreement may be brought in the
courts of the State of New York or any federal court sitting therein and
consents to the non-exclusive jurisdiction of such court and to service of
process in any such suit being made upon the Pledgors by mail at the address
specified in the Credit Agreement. Each Pledgor hereby waives any objection
that it may now or hereafter have to the venue of any such suit or any such
court or that such suit is brought in an inconvenient court.
18. WAIVER OF JURY TRIAL. EACH PLEDGOR WAIVES ITS RIGHT TO A JURY
TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS. Each Pledgor (a) certifies
that neither the Agent or any Lender nor any representative, agent or
attorney of the Agent or any Lender has represented, expressly or otherwise,
that the Agent or any Lender would not, in the event of litigation, seek to
enforce the foregoing waivers and (b) acknowledges that, in entering into the
Credit Agreement and the other Loan Documents to which the Agent is a party,
the Agent and
<PAGE>
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the Lenders are relying upon, among other things, the waivers and
certifications contained in this Section 18.
19. MISCELLANEOUS. The headings of each section of this Agreement are
for convenience only and shall not define or limit the provisions thereof.
This Agreement and all rights and obligations hereunder shall be binding upon
each Pledgor and its respective successors and assigns, and shall inure to
the benefit of the Agent and the Lenders and their respective successors and
assigns. If any term of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity of all other terms hereof shall be in no way
affected thereby, and this Agreement shall be construed and be enforceable as
if such invalid, illegal or unenforceable term had not been included herein.
Each Pledgor acknowledges receipt of a copy of this Agreement.
20. ADDITIONAL PLEDGORS. It is understood and agreed that any
Subsidiary of any party that is required to execute a counterpart of this
Agreement after the date hereof pursuant to the Credit Agreement shall become
a Pledgor hereunder by executing a counterpart hereof or assumption agreement
with respect hereto, in form and substance satisfactory to the Agent, and
delivering the same to the Agent.
<PAGE>
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IN WITNESS WHEREOF, intending to be legally bound, each of the Pledgors and
the Agent have caused this Agreement to be executed as of the date first above
written.
COMPASS AEROSPACE CORPORATION
By:
--------------------------------
Name:
Title:
BRITTAIN MACHINE, INC.
By:
--------------------------------
Name:
Title:
SEA-LECT PRODUCTS, INC.
By:
--------------------------------
Name:
Title:
BANKBOSTON, N.A., as Agent
By:
--------------------------------
Name:
Title:
<PAGE>
-12-
The undersigned Subsidiaries hereby join in the above Agreement for
Sections 6 and 7 thereof, the undersigned hereby agreeing to cooperate fully and
in good faith with the Agent and the Pledgors in carrying out such provisions.
WESTERN METHODS MACHINERY
CORPORATION
By:
--------------------------------
Name:
Title:
AEROMIL ENGINEERING COMPANY
By:
--------------------------------
Name:
Title:
BARNES MACHINE INCORPORATED
By:
--------------------------------
Name:
Title:
BRITTAIN MACHINE, INC.
By:
--------------------------------
Name:
Title:
SEA-LECT PRODUCTS, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
-13-
WICHITA MANUFACTURING, INC.
By:
--------------------------------
Name:
Title:
J&J LEASING, INC.
By:
--------------------------------
Name:
Title:
CWE ACQUISITION CO.
By:
--------------------------------
Name:
Title:
LAMSCO WEST, INC.
By:
--------------------------------
Name:
Title:
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 26th
day of November, 1997 by and between Compass Aerospace Corporation, a Delaware
corporation (the "Company") and Alexander Hogg (the "Executive").
RECITALS
WHEREAS, Company wishes to employ the Executive and Executive wishes to
accept employment upon the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the parties agree as follows:
1. Employment.
Company hereby employs and engages the services of Executive in the
position of President for the Term of Employment set forth in Section 2.
Executive agrees to serve Company for the Term of Employment as provided herein.
2. Term of Employment.
2.1 Initial Term. Executive's "Term of Employment" shall initially be for
a period of five (5) years, commencing on the effective date and ending five (5)
years thereafter (the "Initial Term").
2.2 Extension of Term. Upon expiration of the Initial Term, Executive's
Term of Employment shall automatically be extended for additional one (1) year
periods unless the Company or the Executive notifies the other party in writing
at least sixty (60) days prior to the end of the then current Term of Employment
of its intention to terminate this Agreement. Notwithstanding anything herein to
the contrary, the Term of Employment shall terminate upon the Executive's death
or permanent disability, or upon the Company's termination of Executive pursuant
to Section 7, hereof.
3. Position and Duties. During the Term of Employment:
(a) Executive shall perform services as President of the Company
subject to the direction and control of the Chairman of the Company's Board of
Directors (the "Chairman"). 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
<PAGE>
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 Chairman.
(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 Board's prior 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 Initial Term, Company shall compensate
Executive for the services to be rendered hereunder at an annual rate of Two
Hundred Fifty Thousand Dollars ($250,000) for the first year (the "Base Salary")
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
evaluations. Such Base Salary shall be payable to Executive beginning on January
2, 1998 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. Notwithstanding anything to the contrary, Company will pay
Executive One Thousand Dollars ($1,000) covering the period of employment from
the date hereof until December 26, 1997, and Twenty Thousand Dollars ($20,000)
covering the period of employment from December 27, 1997 until January 1, 1998,
payable on January 2, 1998.
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.
-2-
<PAGE>
5.3 Personal Paid Time. Executive shall be entitled to holidays specified
by the Company and personal paid time (" Personal Paid Time") (including,
without limitation four weeks' paid vacation and customary holidays) 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. Within 180 days of the date hereof, the Company shall
adopt a Stock Option Plan (the "Plan"), pursuant to which Executive shall be
granted a stock option to purchase 416,667 shares of common stock of the Company
(the "Common Stock@) with an exercise price equal to $1 per share. Such option
will vest with respect to 70,376 shares of Common Stock immediately and with
respect to the remaining 346,291 shares on the second anniversary of the date
hereof, 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 is
terminated without cause, dies or becomes disabled; provided, however, that such
option will immediately vest in its entirety if any entity other than Compass
Holdings, LLC or its successors acquires 51% or more of the Common Stock or if
the Company sells all or substantially all of Company's assets. Executive shall
also be granted stock options to purchase up to an additional 250,000 shares of
Common Stock as follows: Executive shall be granted options to purchase 62,500
shares on March 1, 1999; 62,500 shares on March 1, 2000; 62,500 shares on March
1, 2001, and 62,500 shares on March 1, 2002; provided in each case that no such
options shall be granted in any year unless the Company's EBITDA for the
applicable prior year is in excess of 35% of the weighted average during such
year of the aggregate purchase prices paid for the enterprise values of all
acquired businesses constituting the Company.
5.5 Executive's Representations Regarding Stock. Executive represents that
he has retained and consulted with his own professional advisors to review and
evaluate the economic, tax and other consequences of the stock options. The
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
the 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
-3-
<PAGE>
respect to such payments. In the alternative, the Executive may pay to the
Company the amount of any such taxes which the Company is required to withhold
with respect to the issuance of stock.
5.7 Restrictions on Transfer of Shares. The shares issuable to Executive
will be transferable only in accordance with the terms of this Agreement. The
Company is hereby granted an option to purchase Executive's shares if either
Executive terminates employment, other than by death or permanent disability, or
elects to sell or otherwise transfer title to the shares. The option price shall
be fair market value as agreed by the parties, or if the parties cannot agree,
as determined by an independent appraiser mutually agreed by the parties, except
in the case of an offer to purchase by a third party, in which case the option
price shall be the lesser of fair market value and the price offered by the
third party.
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 the 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 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
-4-
<PAGE>
(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 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. It is expressly agreed that the remedy at law for the breach of
any such covenants is inadequate and that injunctive relief shall be available
to prevent the breach of any threatened breach thereof.
6.4 Litigation. Executive agrees that during the Term of Employment or
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 and
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.
6.5 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 Employee
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:
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<PAGE>
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. "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 (i) a determination by Company in its sole discretion exercised in
good faith that there has been substantial misconduct (including, without
limitation, any willful failure to implement reasonable or proper material
policies or procedures established by Company for the transaction of business by
Company) or neglect by Executive of Executive's duties hereunder, a breach or
non-observance by Executive of any of the covenants of Executive contained
herein, or Executive's failure within a reasonable time after written notice to
correct any performance deficiency specified in the notice to the satisfaction
of Company; or (ii) Executive's embezzlement, fraud, acceptance of a bribe or
kickback or other similar act for Executive's personal benefit or to the
detriment of Company on Executive's part. 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 pro rata Base Salary through the
effective date of the termination of his employment (which shall be no earlier
than the date of receipt of notice thereof) 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 and rights granted
pursuant to Section 5 which have not vested as of the effective date of
termination.
7.4 Other Than For Cause. Company may terminate Executive other than for
Cause and in such case, shall pay Executive his pro rata Base Salary through the
effective date of the termination of his employment, and an amount equal to the
aggregate unpaid cash compensation contemplated to be paid to Executive from
such date until the end of the Term, payable monthly. Further, all amounts which
are vested benefits to which the Executive is entitled under any employee's
benefits plan of the Company shall be payable in accordance with the terms of
such benefits plan. Executive's termination other than for Cause shall be
effective immediately upon notice to Executive.
7.5 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, 11, and 12 herein shall survive the
termination of this Agreement.
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<PAGE>
8. Equity. The Parties hereto agree that the services to be rendered by
Executive are special, unique and of an extraordinary character. In the event of
the breach by Executive of any of the provisions of this Agreement, Company, in
addition and as a supplement to such other rights and remedies as may exist in
its favor, may apply to any court of law or equity having jurisdiction to
enforce the specific performance of this Agreement, and/or may apply for
injunctive relief against any act which would violate any of the provisions of
this Agreement.
9. Assignment.
9.1 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 at the option of
Company, terminate this Agreement for Cause.
9.2 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.
10. 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. 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.
11. 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 the Company's
officers, directors, employees or agents), which Executive and the Company or
other party are unable to resolve through direct discussion, regardless of the
kind or type of dispute (excluding claims for workers' compensation,
unemployment insurance and any solely monetary dispute
-7-
<PAGE>
within the jurisdiction of small claims court) shall be decided exclusively by
final and binding arbitration in the County of Los Angeles, State of California,
in accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. Any such dispute shall be submitted to AAA within one
(1) year of the date when the dispute first arose, or within one (1) year of the
termination of the employment, whichever occurs first. Any failure to timely
request arbitration shall constitute a waiver of all rights to raise any claims
in any forum arising out of any dispute that was subject to arbitration.
Executive hereby waives the right to pursue employment termination-related
claims, unless otherwise provided by law, except those specifically excluded
herein. Executive and the Company each have the right to be represented by
counsel with respect to arbitration of any dispute pursuant to this paragraph.
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 or by 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.
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
shall be in writing and shall be addressed as follows:
To Company: Compass Aerospace Corporation
2029 Century Park East
Suite 1112
Los Angeles, CA 90067
Attention: Mr. Douglas M. Hayes
Fax: 310-785-6638
To Executive: Mr. Alexander Hogg
4768 Cerillos Drive
Woodland Hills, CA 91367
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 shall
be effective: (a) four (4) days after deposit in the United Sates mail, postage
prepaid, registered or certified mail, return receipt requested; or (b) upon
delivery, if delivered in person to the address set forth above, sent by
commercial courier, overnight service, e-mail or by facsimile.
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
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this Agreement or any provisions contained herein shall be binding unless
executed in writing by the Chairman.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date first above written.
COMPASS AEROSPACE CORPORATION,
a Delaware corporation
"Compass"
By: /s/ Douglas M. Hayes
--------------------------------------
Its: Chairman of the Board
---------------------------------
ALEXANDER HOGG
"Executive"
/s/ Alexander Hogg
------------------------------------------
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COMPASS AEROSPACE CORPORATION
1998 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of the Compass Aerospace Corporation 1998 Stock Incentive Plan
(the "Plan") is to further the interests of Compass Aerospace Corporation (the
"Company") by strengthening the desire of Employees to continue their employment
with the Company and by securing other benefits for the Company through stock
options and restricted stock awards to be granted hereunder. Options granted
under the Plan are either options intending to qualify as "incentive stock
options" within the meaning of Section 422 of the Code or non-qualified stock
options.
2. DEFINITIONS
Whenever used herein the following terms shall have the following
meanings, respectively:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee selected and designated by the
Board as the "Compensation Committee," or if no committee has been appointed,
reference to "Committee" shall be deemed to refer to the Board.
(e) "Common Stock" shall mean the Company's Common Stock as described in
the Company's Articles of Incorporation.
(f) "Company" shall mean Compass Aerospace Corporation, a Delaware
corporation.
(g) "Employee" shall mean in connection with Non-Qualified Options, the
Company's Non-Qualified Stock Option Agreement and Restricted Stock Awards (i)
any director, officer, actual employee or independent contractor of the Company
or any Subsidiary or Parent of the Company, (ii) any individual in an effort to
induce said individual to become and remain an employee or independent
contractor of the Company, or (iii) any other individual or entity the Committee
may deem appropriate to receive a Non-Qualified Option (so long as the grant of
the Non-Qualified Option furthers a specific Company purpose and the Committee
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deems it in the best interests of the Company to grant the Non-Qualified Option
to said individual or entity). In connection with Incentive Options and the
Company's Incentive Stock Option Agreement, the term "Employee" shall include
only actual employees of the Company or of any Subsidiary or Parent of the
Company.
(h) "Fair Market Value Per Share" of the Common Stock shall mean if the
Common Stock is publicly traded the mean between the highest and lowest quoted
selling prices of the Common Stock on the date of the grant of the Option or, if
not available, the mean between the bona fide bid and asked prices of the Common
Stock on the date of the grant of the Option or RSA. In any situation not
covered above or if there were no sales on the date of the grant of an Option or
RSA, the Fair Market Value Per Share shall be determined by the Committee in
accordance with Section 20.2031-2 of the Federal Estate Tax Regulations.
Notwithstanding the foregoing, if the Option or RSA is granted in connection
with an initial public offering of the Company's Common Stock, the Fair Market
Value Per Share shall be at the price at which the Common Stock is sold in such
public offering.
(i) "Incentive Option" shall mean an Option granted under the Plan which
is designated as and is intended to qualify as an incentive stock option within
the meaning of Section 422 of the Code.
(j) "Initial Public Offering" shall mean a firm commitment underwritten
public offering pursuant to an effective registration statement under the Act
covering the offer and sale of the Common Stock.
(k) "Non-Qualified Option" shall mean an Option granted under the Plan
which is designated as a non-qualified stock option and which does not qualify
as an incentive stock option within the meaning of Section 422 of the Code.
(l) "Option" shall mean an Incentive Option, as defined in Section 2(i)
hereof, or a Non-Qualified Option, as defined in Section 2(k) hereof.
(m) "Optionee" shall mean any Employee who has been granted an Incentive
Option to purchase shares of Common Stock under the Plan and shall mean any
person (including an Employee) who has been granted a Non-Qualified Option under
the Plan.
(n) "Parent" shall have the meaning set forth in Section 424(e) of the
Code.
(o) "Participant" means any individual to whom a RSA has been granted by
the Committee under this Plan.
(p) "Permanent Disability" shall mean termination of employment with the
Company or with the consent of the Company by reason of permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
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(q) "Plan" shall mean this 1998 Stock Incentive Plan.
(r) "Restricted Stock Award" means any form of grant of Restricted Stock
under the Plan.
(s) "Restricted Stock" means shares of Common Stock issued pursuant to an
RSA which are subject to forfeiture provisions or such other conditions as may
be determined by the Committee and specified in the Restricted Stock Award
Agreement.
(t) "Restricted Stock Award Agreement" means a written agreement setting
forth the terms of an RSA.
(u) "RSA" means a Restricted Stock Award.
(v) "Subsidiary" shall have the meaning set forth in Section 424(f) of the
Code.
3. ADMINISTRATION
(a) The Plan shall be administered either (i) by the Board, or (ii) in the
discretion of the Board, by the Committee appointed by the Board. The Board may
from time to time appoint members of the Committee in substitution for or in
addition to members previously appointed and may fill vacancies.
(b) Any action of the Committee with respect to the administration of the
Plan shall be taken by majority vote or by written consent of a majority of its
members.
(c) Subject to the provisions of the Plan, the Committee or the Board
shall have the authority to construe and interpret the Plan, to define the terms
used therein, to determine the time or times an Option or RSA may be issued or
exercised and the number of shares which may be exercised at any one time, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
approve and determine the duration of leaves of absence which may be granted to
participants without constituting a termination of their employment for purposes
of the Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. All determinations and interpretations made by the
Committee shall be conclusive and binding on all Employees and on their
guardians, legal representatives and beneficiaries.
(d) The Company will indemnify and hold harmless the members of the Board
and the Committee from and against any and all liabilities, costs and expenses
incurred by such persons as a result of any act, or omission to act, in
connection with the performance of such persons' duties, responsibilities and
obligations under the Plan, other than such liabilities, costs and expenses as
may result from the negligence, gross negligence, bad faith, willful misconduct
and/or criminal acts of such person.
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(e) The Company will provide financial information to the Optionees and
Participants on the same basis as the Company provides such information to
holders of Common Stock, which in any event shall include dissemination of the
Company's financial statements at least annually.
4. NUMBER OF SHARES SUBJECT TO PLAN
The shares to be offered under the Plan shall initially consist of up to
two million (2,000,000) shares of Common Stock, subject to adjustment from time
to time by the Committee. If any Option granted hereunder shall expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject thereto shall again be available for purposes of this Plan. If
any shares which are attributable to RSAs expire or are otherwise terminated,
cancelled, surrendered or forfeited, during a calendar year, such shares shall
again be available for purposes of this Plan.
5. ELIGIBILITY AND PARTICIPATION
(a) The Committee shall determine the Employees to whom Options or RSAs
shall be granted, the time or times at which such Options or RSAs shall be
granted and the number of shares to be subject to each Option or RSA. An
Employee who has been granted an Option or RSA may, if he is otherwise eligible,
be granted an additional Option or Options or RSA or RSAs if the Committee shall
so determine. An Employee may be granted Incentive Options or Non-Qualified
Options or both under the Plan; provided, however, that the grant of Incentive
Options and Non-Qualified Options to an Employee shall be the grant of separate
Options and each Incentive Option and each Non-Qualified Option shall be
specifically designated as such.
(b) In no event shall an Employee be granted in any calendar year, under
the Plan and all other plans of the Company and any Subsidiary or Parent of the
Company, Incentive Options that are first exercisable during any one calendar
year for stock with an aggregate fair market value (determined as of the time
the option was granted) in excess of One Hundred Thousand Dollars ($100,000).
6. RESTRICTED STOCK AWARDS
The Committee may grant RSAs to such directors, officers, actual employees
or independant contractors of the Company of any Subsidiary of Parent of the
Company, in such amounts and subject to such terms and conditions as the
Committee may determine in its sole discretion, including such restrictions on
transferability and other restrictions as the Committee may impose, which
restrictions may lapse separately or in combination at such times, under such
circumstances, in such installments, or otherwise, as the Committee shall
determine.
Restricted Stock granted under the Plan shall be evidenced by certificates
registered in the name of the Participant and bearing an appropriate legend
referring to the terms, conditions,
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and restrictions applicable to such Restricted Stock. The Company may retain
physical possession of any such certificates, and the Company may require a
Participant awarded Restricted Stock to deliver a stock power to the Company,
endorsed in blank, relating to the Restricted Stock for so long as the
Restricted Stock is subject to a risk of forfeiture.
Unless otherwise determined by the Committee at the time of an Award, the
holder of an RSA shall have the right to vote the restricted shares and to
receive dividends thereon, unless and until such shares are forfeited.
In the event all or any of the shares subject to an RSA are forfeited due
to failure to meet or comply with restrictions imposed by the Committee at the
time of grant prior to the lapse of any or all such restrictions, the Company
shall repay to the Participant (or the Participant's estate) any cash amount
paid by the Participant for such forfeited shares.
7. PURCHASE PRICE OF OPTIONS
The purchase price of each share covered by the Plan shall be determined
by the Committee subject to the following:
(a) The purchase price of each share covered by each Incentive Option
shall not be less than one hundred percent (100%) of the Fair Market Value Per
Share of the Common Stock of the Company on the date the Incentive Option is
granted; provided, however, that if at the time an Incentive Option is granted
the Optionee owns or would be considered to own by reason of Section 424(d) of
the Code more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary or Parent of the Company, the
purchase price of the shares covered by such Incentive Option shall not be less
than one hundred ten percent (110%) of the Fair Market Value Per Share of the
Common Stock on the date the Incentive Option is granted.
(b) The purchase price of each share covered by each Non-Qualified Option
shall not be less than eighty-five percent (85%) of the Fair Market Value Per
Share of the Common Stock of the Company on the date the Non-Qualified Option is
granted.
8. DURATION OF OPTIONS
The expiration date of each Option and all rights thereunder shall be
determined by the Committee at the time of the grant of the Option and as shall
be permissible under the terms of the Plan; provided, however, in no event shall
an Option be exercisable after the expiration of ten (10) years from the date on
which the Option is granted, and the Option shall be subject to earlier
termination as provided herein; provided, however, that if at the time an
Incentive Option is granted the Optionee owns or would be considered to own by
reason of Section 424(d) of the Code more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or Parent of the Company, such Incentive Option shall expire
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five (5) years from the date the Incentive Option is granted unless the
Committee selects an earlier date.
9. EXERCISE OF OPTIONS
Except as otherwise determined by the Committee, an Option shall be
exercisable at a rate of twenty percent (20%) per year over five (5) years from
the date of grant of such Options, unless the Committee determines otherwise.
An Optionee may purchase less than the total number of shares for which
the Option is exercisable, provided that a partial exercise of an Option may not
be for less than one hundred (100) shares, unless the exercise is during the
final year of the Option, and shall not include any fractional shares. As a
condition to the exercise, in whole or in part, of any Option, the Committee may
in its sole discretion require the Optionee to pay, in addition to the purchase
price of the shares covered by the Option, an amount equal to any federal, state
and local taxes that the Committee has determined are required to be paid in
connection with the exercise of such Option in order to enable the Company to
claim a deduction or otherwise. Furthermore, if any Optionee disposes of any
shares of stock acquired by exercise of an Incentive Option prior to the
expiration of either of the holding periods specified in Section 422(a)(1) of
the Code, the Optionee shall pay to the Company, or the Company shall have the
right to withhold from any payments to be made to the Optionee, an amount equal
to any federal, state and local taxes the Committee has determined are required
to be paid in connection with the exercise of such Option, in order to enable
the Company to claim a deduction or otherwise.
10. METHOD OF EXERCISE OF OPTIONS
(a) To the extent that the right to purchase shares has accrued, Options
may be exercised from time to time by giving written notice to the Company
stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full, by cash or by certified or cashier's
check payable to the order of the Company or the equivalent thereof acceptable
to the Company, of the purchase price for the number of shares being purchased
and, if applicable, any federal, state or local taxes required to be paid in
accordance with the provisions of Section 8 hereof. The Company shall issue a
separate certificate or certificates with respect to each Option exercised by an
Optionee.
(b) In the Committee's discretion, payment of the purchase price for the
shares with respect to which the Option is being exercised may be made in whole
or in part with shares of Common Stock of the Company. If payment is made with
shares of Common Stock, the Optionee, or other person entitled to exercise the
Option, shall deliver to the Company certificates representing the number of
shares of Common Stock in payment for the shares being purchased, duly endorsed
for transfer to the Company. If requested by the Committee, prior to the
acceptance of such certificates in payment for such shares, the Optionee, or any
other person entitled to exercise the Option, shall supply the Committee with a
representation and warranty in
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writing that he has good and marketable title to the shares represented by the
certificate(s), free and clear of all liens and encumbrances. The value of the
shares of Common Stock tendered in payment for the shares being purchased shall
be their Fair Market Value Per Share on the date of the Optionee's exercise.
(c) Notwithstanding the foregoing, the Company shall have the right to
postpone the time of delivery of the shares for such period as may be required
for it to comply, with reasonable diligence, with any applicable listing
requirements of any national securities exchange or any federal, state or local
law. If an Optionee, or other person entitled to exercise an Option, fails to
accept delivery of or fails to pay for all or any portion of the shares
requested in the notice of exercise, upon tender of delivery thereof, the
Committee shall have the right to terminate his Option with respect to such
shares.
(d) The Company may make loans to Optionees as the Committee, in its
discretion, may determine in connection with the exercise of outstanding Options
granted under the Plan. Such loans shall (i) be evidenced by promissory notes
entered into by the holders in favor of the Company; (ii) be subject to the
terms and conditions set forth in this subsection (d) and such other terms and
conditions, not inconsistent with the Plan, as the Committee shall determine;
and (iii) bear interest at such rate as the Committee shall determine. In no
event may the principal amount of any such loan exceed the purchase price of the
shares covered by the Option, or portion thereof, purchased by the Optionee. The
initial term of the loan, the schedule of payments of principal and interest
under the loan, the extent to which the loan is to be with or without recourse
against the holder with respect to principal and applicable interest and the
conditions upon which the loan will become payable in the event of the holder's
termination of employment shall be determined by the Committee; provided,
however, that the term of the loan, including extensions, shall not exceed ten
(10) years. Unless the Committee determines otherwise, when a loan shall have
been made, shares having a Fair Market Value at least equal to the principal
amount of the loan shall be pledged by the holder to the Company as security for
payment of the unpaid balance of the loan and such pledge shall be evidenced by
a security agreement, the terms of which shall be determined by the Committee,
in it discretion; provided, however, that each loan shall comply with all
applicable laws, regulations and rules of the Board of Governors of the Federal
Reserve System and any other governmental agency having jurisdiction.
11. NON-TRANSFERABILITY OF OPTIONS
No Option or RSA granted under the Plan shall be assignable or
transferable by the Optionee, either voluntarily or by operation of law,
otherwise than by will or the laws of descent and distribution, and shall be
exercisable during his lifetime only by the Optionee. Shares subject to RSAs
shall be delivered or made only to the holder of the RSA or such holder's duly
appointed legal representative.
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12. CONTINUANCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option or RSA granted under the
Plan shall confer upon any Optionee or Participant any rights with respect to
the continuation of his employment by the Company or interfere in any way with
the right of the Company at any time to terminate such employment or to increase
or decrease the compensation of the Optionee or Participant from the rate in
existence at the time of the grant of an Option or RSA.
13. TERMINATION OF EMPLOYMENT OTHER THAN BY DEATH OR PERMANENT DISABILITY
Except as the Committee may determine otherwise with respect to any
Non-Qualified Options granted hereunder: If an Optionee ceases to be an Employee
for any reason other than his death or Permanent Disability, any Options granted
to him under the Plan shall terminate three (3) months from the date on which
such Optionee terminates his employment (whether voluntarily or involuntarily)
unless such Optionee has been rehired by the Company and is an Employee on such
date. During such three (3) month period, an Optionee may exercise any Option
granted to him but only to the extent such Option was exercisable on the date of
termination of his employment and provided that such Option has not expired or
otherwise terminated as provided herein. The decision as to whether a
termination for a reason other than death or Permanent Disability has occurred
shall be made by the Committee, whose decision shall be final and conclusive. A
leave of absence approved in writing by the Committee shall not be deemed a
termination of employment for purposes of this Section, but no Option may be
exercised during any such leave of absence, except during the first three (3)
months thereof.
14. DEATH OR PERMANENT DISABILITY OF OPTIONEE OR PARTICIPANT
Except as the Committee may determine otherwise with respect to any
Non-Qualified Options granted hereunder: If an Optionee shall die at a time when
he is employed by the Company or if the Optionee shall cease to be an Employee
by reason of Permanent Disability, any Options granted to him under this Plan
shall terminate one year after the date of his death or termination of
employment due to Permanent Disability unless by its terms it shall expire
before such date or otherwise terminate as provided herein, and shall only be
exercisable to the extent that it would have been exercisable on the date of his
death or his retirement due to Permanent Disability. In the case of death, the
Option may be exercised by the person or persons to whom the Optionee's rights
under the Option shall pass by will or by the laws of descent and distribution.
The decision as to whether a termination by reason of Permanent Disability has
occurred shall be made by the Committee, whose decision shall be final and
conclusive.
Each Participant shall file and maintain with the Company a written
designation of one or more persons as the beneficiary or beneficiaries who shall
be entitled to receive the award, if any, of Restricted Stock payable under the
Plan upon the Participant's death. If no such designation is in effect at the
time of a Participant's death, or if no designated beneficiary survives the
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Participant or if such designation conflicts with the law, the Participant's
estate shall be entitled to receive the RSA, if any, payable under the Plan upon
the Participant's death.
15. STOCK PURCHASE NOT FOR DISTRIBUTION
Each Optionee or Participant shall, by accepting the grant of an Option or
RSA under the Plan, represent and agree, for himself and his transferees by will
or the laws of descent and distribution, that all shares of stock purchased upon
exercise of the Option or grant of the RSA will be received and held without a
view to distribution except as may be permitted by the Act, and the rules and
regulations promulgated thereunder. After each notice of exercise of any portion
of an Option or grant of an RSA, if requested by the Committee, the person
entitled to exercise the Option or granted the RSA must agree in writing that
the shares of stock are being acquired in good faith without a view to
distribution except as may be permitted by the Act and the rules and regulations
promulgated thereunder.
16. PRIVILEGES OF STOCK OWNERSHIP
No person entitled to exercise any Option granted under the Plan shall
have any of the rights or privileges of a shareholder of the Company with
respect to any shares of Common Stock issuable upon exercise of such Option
until such person has become the holder of record of such shares. No adjustment
shall be made for dividends or distributions of rights in respect of such shares
if the record date is prior to the date on which such person becomes the holder
of record, except as provided in Section 17 hereof.
17. ADJUSTMENTS
The Committee shall have the full authority, in its sole discretion, to
specify any rules, procedures, adjustments or matters with respect to the Plan
or any Options or RSAs issued under the Plan in connection with any
reorganization, merger, reverse merger, recapitalization, reclassification,
stock split, reverse split, combination of shares, sale of all or substantially
all of the assets of the Company, sale of the Company or other corporate event
or transaction, including, without limitation, modifying any applicable vesting
provisions, adjusting the amount of outstanding Options and/or RSAs, and/or
terminating the Plan. The Committee shall not be obligated to take any action,
but any determination by the Committee, and the extent thereof, shall be final,
binding and conclusive. No fractional shares of stock shall be issued under the
Plan or in connection with any such adjustment.
18. AMENDMENT AND TERMINATION OF PLAN
(a) The Board may from time to time, with respect to any shares at the
time not subject to Options or RSAs, suspend or terminate the Plan or amend or
revise the terms of the Plan; provided that any amendment to the Plan shall be
approved by a majority of the shareholders of the Company if the amendment would
(i) materially increase the benefits
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accruing to participants under the Plan; (ii) increase the number of shares of
Common Stock which may be issued under the Plan, except as permitted under the
provisions of Section 16 hereof; or (iii) materially modify the requirements as
to eligibility for participation in the Plan.
(b) No amendment, suspension or termination of the Plan shall, without the
consent of the Optionee or Participant, alter or impair any rights or
obligations under any Option or RSA theretofore granted to such Optionee or
Participant under the Plan.
(c) The terms and conditions of any Option granted to an Optionee, or RSA
granted to a Participant, under the Plan may be modified or amended only by a
written agreement executed by the Optionee or Participant and the Company;
provided, however, that if any amendment or modification of an Incentive Option
would constitute a "modification, extension or renewal" within the meaning of
Section 424(h) of the Code, such amendment shall be null and void unless the
amendment contains an acknowledgment by the parties substantially in the
following form: "The parties hereto recognize and agree that this amendment
constitutes a modification, renewal or extension, within the meaning of Section
424(h) of the Code, of the option originally granted ________."
19. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon adoption by the Board and approval
by the Company's shareholders; provided, however, that prior to approval of the
Plan by the Company's shareholders, but after adoption by the Board, RSAs and
Options may be granted under the Plan subject to obtaining such shareholders'
approval. Notwithstanding the foregoing, such shareholders' approval must occur
no later than twelve (12) months after the date of adoption of the Plan by the
Board.
20. TERM OF PLAN
No Option or RSA shall be granted pursuant to the Plan after ten (10)
years from the earlier of the date of adoption of the Plan by the Board or the
date of approval of the Plan by the Company's shareholders.
21. RIGHT TO REPURCHASE AND RIGHT OF FIRST REFUSAL.
Except as the Committee may determine otherwise, if an Optionee or
Participant shall cease to be an Employee other than due to retirement with the
consent of the Company, the Company shall have the right to (i) repurchase all
or any portion of the shares purchased by an Optionee upon the exercise of the
Optionee's Option, or delivered to a Participant pursuant to a RSA, at the Fair
Market Value of the shares as of the date of termination of employment or, to
the extent required to satisfy applicable legal requirements, the original
purchase price, if higher, as well as any shares issuable upon exercise of any
unexercised Options which the Optionee has the right to exercise at the time the
Optionee ceases to be an employee at the Fair Market Value
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of the shares less the purchase price payable upon exercise of such Options, and
(ii) to purchase the unvested portion of the shares as of the date of
termination of employment at the cost, if any, paid by the Employee for purchase
of the Options. Any shares or Options repurchased by the Company hereunder shall
again be available for issuance under the Plan. The Committee shall determine in
each case whether the Optionee or Participant shall have ceased to be an
Employee due to retirement with the consent of the Company. Any such
determination of the Committee shall be final and conclusive.
The Company shall have the right of first refusal, exercisable in
connection with any proposed sale, hypothecation or other disposition of the
shares purchased by an Optionee pursuant to an Option or delivered to a
Participant pursuant to an RSA. In the event the holder of such shares desires
to accept a bona fide third-party offer for any or all of such shares, the
shares shall first be offered to the Company upon the same terms and conditions
as are set forth in the bona fide offer.
Each Option or RSA may provide, at the Committee's discretion, that the
rights granted by this section shall lapse and cease to have effect upon any of
the following: (1) the first date on which the Common Stock is held of record by
more than five hundred (500) persons, (2) determination by the Board that a
public market exists for the outstanding shares of Common Stock or (3) the
consummation of an Initial Public Offering.
22. MARKET STAND-OFF.
In connection with an Initial Public Offering or any subsequent
underwritten public offering by the Company of its equity securities pursuant to
an effective registration statement filed under the Act, an Optionee or
Participant shall agree not to sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the repurchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing transactions with
respect to any shares under the Plan without the prior written consent of the
Company or its underwriters, for such period of time from and after the
effective date of such registration statement as may be requested by the Company
or such underwriters, provided, however, that in no event shall such period
exceed one hundred eighty (180) days.
23. OPTION OR RSA AGREEMENTS
Options and RSAs under the Plan shall be evidenced by an agreement as
shall be approved by the Committee that sets forth the terms, conditions and
limitations of an Option or RSA. The Committee may amend agreements theretofore
entered into, either prospectively or retroactively, including, but not limited
to, the acceleration of vesting of an Option or RSA and the extension of time to
exercise an Option or RSA, except that, no such amendment shall affect the
Option or RSA in a materially adverse manner without the consent of the Optionee
or Participant.
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24. LEGENDS.
All certificates for shares delivered under the Plan shall be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Common Stock is then
listed and any applicable federal or state securities laws, or as may otherwise
be appropriate to administer the Plan, and the Committee may cause a legend or
legends to be placed on such certificates to evidence such restrictions.
25. GOVERNING LAW.
The Plan shall be governed and construed in accordance with the laws of
the State of California and the Code.
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MANAGEMENT CONSULTING AGREEMENT
by and among
COMPASS AEROSPACE CORPORATION
DUNHILL BANK CARIBBEAN LTD.
and
HAYES CAPITAL CORPORATION
Dated as of November __, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
RIGHTS AND OBLIGATIONS OF COMPASS AEROSPACE . . . . . ..1
1.1 Rights . . . . . . . . . . . . . . . . . . . . . ..1
1.2 Duties . . . . . . . . . . . . . . . . . . . . . ..1
ARTICLE II
SERVICES OF CONSULTANTS . . . . . . . . . . . . . . . ..2
2.1 Engagement of Services . . . . . . . . . . . . . ..2
2.2 Duties . . . . . . . . . . . . . . . . . . . . . ..2
ARTICLE III
COMPENSATION OF CONSULTANTS . . . . . . . . . . . . . ..2
3.1 Consulting Fee . . . . . . . . . . . . . . . . . ..2
3.2 Withholding. . . . . . . . . . . . . . . . . . . ..3
3.3 Expenses . . . . . . . . . . . . . . . . . . . . ..3
3.4 Dispute Mechanism. . . . . . . . . . . . . . . . ..3
ARTICLE IV
TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . ..4
4.1 Term . . . . . . . . . . . . . . . . . . . . . . ..4
4.2 Termination. . . . . . . . . . . . . . . . . . . ..4
ARTICLE V
INDEMNIFICATIONS AND LIMITATION OF LIABILITY. . . . . ..4
5.1 Indemnification of Consultants . . . . . . . . . ..4
5.2 Limitation of Liability. . . . . . . . . . . . . ..4
5.3 Indemnification of Compass Aerospace . . . . . . ..4
ARTICLE VI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . ..5
6.1 No Partnership or Joint Venture. . . . . . . . . ..5
6.2 Assignment . . . . . . . . . . . . . . . . . . . ..5
6.3 Notices. . . . . . . . . . . . . . . . . . . . . ..5
6.4 Force Majeure. . . . . . . . . . . . . . . . . . ..6
6.5 Severability . . . . . . . . . . . . . . . . . . ..6
6.6 Entire Agreement, Modification . . . . . . . . . ..6
6.7 Governing Law. . . . . . . . . . . . . . . . . . ..6
6.8 Binding Effect . . . . . . . . . . . . . . . . . ..6
6.9 Counterparts . . . . . . . . . . . . . . . . . . ..6
</TABLE>
i
<PAGE>
THIS MANAGEMENT CONSULTING AGREEMENT ("Agreement") is dated as of November
__, 1997 by and among Compass Aerospace Corporation, a Delaware corporation
("Compass Aerospace"), Dunhill Bank Caribbean Ltd., a Barbados bank ("Dunhill"),
and Hayes Capital Corporation, a Delaware corporation ("Hayes") (Hayes and
Dunhill collectively, the "Consultants").
W I T N E S S E T H:
WHEREAS, Compass Aerospace has acquired or anticipates acquiring the
stock or assets of certain companies engaged in operations in the aerospace
industry, which Compass Aerospace intends to own and operate through certain
subsidiary entities (the operations shall be referred to as the "Aerospace
Operations" and each subsidiary entity comprising the Aerospace Operations shall
be referred to as an "Aerospace Entity");
WHEREAS, Consultants have an expertise in acquiring and operating companies
and in developing strategic plans for growth, acquisition, divestiture and
future capitalization of such companies; and
WHEREAS, Compass Aerospace desires Consultants to provide management advice
with respect to its own day-to-day operations and its Aerospace Operations, as
well as to assist Compass Aerospace in developing strategic plans for future
acquisitions, divestitures and investments.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
RIGHTS AND OBLIGATIONS OF COMPASS AEROSPACE
1.1 RIGHTS. Compass Aerospace, through its duly appointed officers and
directors, shall have the right to consult with the Consultants, from time to
time, as may be necessary or desirable on matters related to its day-to-day
operations and those of the Aerospace Entities, including, without limitation,
management decisions made in the ordinary course (all of the preceding
activities referred to herein as the "Ordinary Course Activities") and related
to planning, budgeting and implementing strategic growth plans, future
acquisitions, divestitures and investments, and any financing, refinancing and
capital market transactions related to the growth plans (all of the preceding
activities referred to herein as the "Strategic Activities").
1.2 DUTIES. Compass Aerospace, through its duly appointed officers and
directors, shall be obligated to afford Consultants access to its operations and
records and to those of its Aerospace Operations to the extent necessary or
relevant to Consultants' services hereunder.
1
<PAGE>
ARTICLE II
SERVICES OF CONSULTANTS
2.1 ENGAGEMENT OF SERVICES. Compass Aerospace hereby engages Consultants
to render advice and assistance, from time to time, as requested by Compass
Aerospace. Dunhill is hereby engaged to render services related to the
Strategic Activities, and Hayes is hereby engaged to render services related to
the Ordinary Course Activities and all such other services or duties as may
require advice or assistance to be rendered in the United States.
2.2 DUTIES. Consultants shall provide the consulting services as set
forth in Section 2.1 and shall make available to Compass Aerospace sufficient
personnel and other support services as may be necessary or desirable to carry
out their respective obligations hereunder. Dunhill hereby covenants and agrees
that in rendering the services required of it hereunder, Dunhill (a) will not
render any services in the United States and (b) will render services only at
its own facilities, using its own personnel at its offices in Barbados or at
such other locations outside of the United States as Dunhill deems appropriate.
Consultants shall perform all tasks necessary and appurtenant to the engagement
of their services under Section 2.1 hereof but do not guarantee or warrant any
particular financial or operational results. Consultants shall each separately
prepare and submit to Compass Aerospace on a quarterly basis, or more frequently
as requested by Compass Aerospace, an expense budget that estimates all
(x) reimbursable expenses anticipated to be incurred by the Consultant on behalf
of Compass Aerospace or any Aerospace Entity, and (y) nonreimbursable expenses
anticipated to be incurred by Compass Aerospace or any Aerospace Entity at the
recommendation of the Consultant, both for the next preceding calendar quarter.
ARTICLE III
COMPENSATION OF CONSULTANTS
3.1 CONSULTING FEE. Consultants shall be paid, as compensation for the
services of the Consultants hereunder, a fee (the "Consulting Fee") which in the
aggregate shall be equal to four percent (4%) of EBITDA. For purposes of this
Agreement, "EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization of Compass Aerospace on a consolidated basis as shown in its
quarterly financial statements, as prepared by Compass Aerospace, and in its
annual financial statements, as prepared by a nationally-recognized accounting
firm as selected by Compass Aerospace, and all as prepared under generally
accepted accounting principles of the United States. The aggregate fee shall be
payable eighty percent (80%) to Dunhill for its services hereunder, and twenty
percent (20%) to Hayes for its services hereunder. Such Consulting Fee shall be
paid quarterly (in arrears), and shall be due and payable on or before the
first day of each February, May, July and October during the term of this
Agreement; PROVIDED, HOWEVER, that in the event this Agreement is terminated in
accordance with Article IV hereof as of a date that is not the last day of a
quarter, such Consulting Fee shall be prorated on a daily basis and between the
Consultants pro
2
<PAGE>
rata based upon their percentages as set forth in this Section 3.1, and any
excess amount shall be applied against any amounts owed under Section 3.3 or
refunded, as determined by Compass Aerospace in its sole discretion, AND
PROVIDED, HOWEVER, that such Consulting Fee shall be subject to Compass
Aerospace's right of offset as provided in Section 3.2.
3.2 WITHHOLDING. Compass Aerospace is authorized to withhold from
payments of the Consulting Fee or any other payments made to Consultants and
to pay over to any federal, state and local government or any foreign
government, any amounts required to be so withheld pursuant to the Internal
Revenue Code of 1986, as may be amended (the "Code"), or any provisions of
any other federal, state or local law or any foreign law; PROVIDED, HOWEVER,
that should the withholding apply only to one Consultant and not the other,
the withholding shall be made only out of the portion payable to the party on
whom withholding is required, and the other Consultant shall be paid the
gross Consulting Fee or other payment to which it is entitled. All amounts
withheld or paid over pursuant to the Code or any provision of any state,
local or foreign tax law with respect to any payment to a Consultant shall be
treated, for all purposes under this Agreement, as amounts paid to that
Consultant with respect to which such amount was withheld pursuant to this
Section 3.2. If the amount required to be paid over exceeds the current
payment to which that Consultant is entitled under Section 3.1, the amount of
the excess shall be treated as a loan by Compass Aerospace to that
Consultant, and that loan shall be repayable in full, with interest as
determined below, within thirty (30) days of the remittance of the taxes to
the proper taxing authorities. Compass Aerospace shall specifically have the
right to offset and to apply any Consulting Fees due and payable to a
Consultant hereunder against any amounts owing as a loan to that Consultant
from Compass Aerospace under this Section 3.2. The loan shall bear interest
from the date of the remittance to the date of payment at the rate of
interest equal to the lesser of (a) ten percent (10.0%) per annum (compounded
annually and computed on the basis of a 365/366 day year), or (b) the
maximum interest rate permitted by applicable law.
3.3 EXPENSES. Consultants may incur obligations or expenses for the
account of and on behalf of Compass Aerospace, itself, or for any Aerospace
Entity. Each Consultant will receive reimbursements directly from Compass
Aerospace equal to all costs incurred by that Consultant which are directly
related to and for the benefit of Compass Aerospace or any Aerospace Entity
which shall include, but not be limited to, salaries, travel expenses, legal
expenses, and the cost of outside consultants. Each Consultant's expense
budgets shall be periodically reviewed and compared to actual charges
incurred hereunder, as provided in Section 2.2.
3.4 DISPUTE MECHANISM. Any disputes that may arise over expenses
incurred by Consultants on behalf of Compass Aerospace or any Aerospace
Entity or reimbursement thereof, shall be resolved by a committee composed of
three (3) members (the "Committee"). The powers of the Committee shall be
limited to resolution of expense reimbursement disputes as provided hereunder
and those actions necessary or desirable to implement any agreed resolution
thereof. One member of the Committee shall be appointed by Compass Aerospace
from among its officers, one shall be appointed by Dunhill from among its
officers, and the last shall be appointed by Hayes from among its officers.
The Committee members shall serve indefinite terms, and each can be removed
3
<PAGE>
by its respective appointing authority with or without cause. Each member
shall have one vote, and any resolution shall be approved by majority vote.
Compass Aerospace and Consultants shall be bound by the Committee's
determination as to the resolution of fee disputes.
ARTICLE IV
TERM OF AGREEMENT
4.1 TERM. This Agreement shall commence on the date first written
above and shall continue until the end of business on November ___, 2003, on
which date this Agreement shall automatically renew on the same terms for
multiple, subsequent one year terms unless and until terminated as of the end
of the then existing term by any party providing written notice to the other
parties on or before ninety (90) days prior to the end of the then existing
term.
4.2 TERMINATION. This Agreement shall terminate on the earlier of (a)
the date that is the last day of the then existing term during which notice
was provided as specified in Section 4.1, or (b) the date determined by the
mutual written agreement of the parties hereto.
ARTICLE V
INDEMNIFICATIONS AND LIMITATION OF LIABILITY
5.1 INDEMNIFICATION OF CONSULTANTS. Consultants shall not be liable
for decisions or actions taken by them in their good faith exercise of
business judgment in carrying out their respective powers or duties pursuant
to this Agreement, even if harm, damage or loss may result thereby to Compass
Aerospace, any Aerospace Entity, their affiliates, directors, officers,
employees, or agents. Compass Aerospace agrees to indemnify and hold
harmless Consultants, their respective directors, officers, employees and
subcontractors for any claim, loss, damage, liability, cost or fees related
to, or arising in connection with, any act or failure to act by Consultants,
their respective directors, officers, employees or subcontractors under the
terms of this Agreement, except for matters determined by a court of
competent jurisdiction to have been caused by willful misconduct. This
indemnity by Compass Aerospace shall survive termination of this Agreement.
5.2 LIMITATION OF LIABILITY. Consultants shall not be liable to
Compass Aerospace for any debts, losses or obligations incurred directly by
Compass Aerospace or any Aerospace Entity, or to any creditor of Compass
Aerospace for any products, materials, supplies or services purchased
directly by Compass Aerospace or any Aerospace Entity during the term of this
Agreement. In no event shall Consultants have any liability for special,
indirect, incidental or other consequential damages.
5.3 INDEMNIFICATION OF COMPASS AEROSPACE. Each Consultant agrees to
indemnify and hold harmless Compass Aerospace, its directors, officers and
employees for any claim, loss, damage, liability, cost or fees related to, or
arising in connection with, any withholding obligation or any
4
<PAGE>
federal, state, local or foreign income tax, interest and penalties incurred by
Compass Aerospace as a result of services performed by that Consultant. This
indemnity by the Consultants shall survive termination of this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 NO PARTNERSHIP OR JOINT VENTURE. Nothing in this Agreement shall
be deemed or be construed to create a partnership or joint venture between
Compass Aerospace and Consultants or to cause Consultants to be responsible
in any way for the debts or obligations of Compass Aerospace or any other
party, it being the intention of the parties that the only relationship
hereunder is that of independent contractors, and Consultants shall not
represent to anyone that their relationship to Compass Aerospace is other
than that set forth herein.
6.2 ASSIGNMENT. No party shall have the right to assign, transfer or
convey any of its right, title or interest hereunder, or to delegate any of
the obligations or duties required to be kept and performed by it hereunder,
without the prior written consent of all of the parties hereto.
6.3 NOTICES. All notices, demands, consents, approvals and requests
given by any party to the others hereunder shall be in writing and shall be
sent by certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses, or to addresses as might be provided in
writing from time to time by the parties:
IF TO COMPASS AEROSPACE:
Compass Aerospace Corporation
2029 Century Park East
Suite 1112
Los Angeles, CA 90067
Attention: Douglas M. Hayes
IF TO DUNHILL:
Dunhill Bank Caribbean Ltd.
Unit 2 [Marlane]
Poui Avenue
Sunset Crest, St. James
Barbados, West Indies
Attention: William Steen
5
<PAGE>
IF TO HAYES:
Hayes Capital Corporation
2029 Century Park East
Suite 1112
Los Angeles, CA 90067
Attention: Douglas M. Hayes
6.4 FORCE MAJEURE. If Consultants are rendered unable, wholly or in
part, by force majeure to carry out their obligations under this Agreement,
Consultants shall give to Compass Aerospace prompt written notice of such
fact, and thereupon the obligations of Consultants, as far as they are
effected by the force majeure, shall be suspended during, but not longer
than, the continuance of the force majeure. The term "force majeure" as used
herein shall include an act of God, civil commotion, enemy action, strike,
lock-out, fire, storm, hurricane, earthquake, flood, explosion or other
casualty, unavailability of equipment, severe dysfunction of the economy, or
other cause, whether of the kind specifically mentioned above or otherwise,
which is not reasonably within the control of Consultants.
6.5 SEVERABILITY. If any term or provision of this Agreement shall be
invalid, void or unenforceable under or prohibited by applicable law, for any
reason, then such term or provision shall be invalid or prohibited only to
the extent of such invalidity or prohibition, without invalidating,
prohibiting, impairing or otherwise affecting the remainder of such term or
provision or the remaining terms or provisions of this Agreement or the
enforcement thereof.
6.6 ENTIRE AGREEMENT, MODIFICATION. This Agreement contains the entire
agreement between the parties hereto with respect to the matters herein
contained, and any agreement hereafter made shall be ineffective to effect
any change or modification in whole or in part, unless such agreement is in
writing and signed by the party against whom enforcement of the change or
modification is sought.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of Delaware.
6.8 BINDING EFFECT. This Agreement and all the provisions hereof shall
bind and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
6.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute but one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed by their authorized representatives effective as of the day and
year first written above.
COMPASS AEROSPACE :
Compass Aerospace Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
--------------------------------
Name: Douglas M. Hayes
Title: Chairman of the Board
DUNHILL:
Dunhill Bank Caribbean, Ltd,
a Barbados bank
By: /s/ William Steen
----------------------------------
Name: William Steen
Title: President
HAYES CAPITAL CORPORATION:
By: /s/ Douglas M. Hayes
----------------------------------
Name: Douglas M. Hayes
Title: President
7
<PAGE>
AMENDMENT NO. 1
Reference is made to that certain Management Consulting Agreement, dated
November 26, 1997, by and among Compass Aerospace Corporation, Dunhill Bank
Caribbean Ltd. and Hayes Capital Corporation (the "Agreement"). Capitalized
terms used without definition herein shall have the meanings given to them in
the Agreement.
The parties thereto desire to amend the Agreement as described below,
and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. Section 3.1 of the Agreement is amended in its entirety to read as
follows:
Consultants shall be paid, as compensation for the services of the
Consultants hereunder, a fee (the "Consulting Fee") which in the aggregate
shall be equal to $200,000 plus one and one-half percent (1 1/2%) of EBITDA.
For purposes of this Agreement, "EBITDA" shall mean earnings before interest,
taxes, depreciation and amortization of Compass Aerospace on a consolidated
basis as shown in its quarterly financial statements, as prepared by Compass
Aerospace, and in its annual financial statements, as prepared by a
nationally-recognized accounting firm as selected by Compass Aerospace, and
all as prepared under generally accepted accounting principles of the United
States. The aggregate fee shall be payable fifty percent (50%) to Dunhill
for its services hereunder, and fifty percent (50%) to Hayes for its services
hereunder. Such Consulting Fee shall be paid quarterly (in arrears), and
shall be due and payable on or before the first day of each February, May,
July and October during the term of this Agreement; PROVIDED, HOWEVER, that
in the event this Agreement is terminated in accordance with Article IV
hereof as of a date that is not the last day of a quarter, such Consulting
Fee shall be prorated on a daily basis and between the Consultants pro rata
based upon their percentages as set forth in this Section 3.1, and any excess
amount shall be applied against any amounts owed under Section 3.3 or
refunded, as determined by Compass Aerospace in its sole discretion, AND
PROVIDED, HOWEVER, that such Consulting Fee shall be subject to Compass
Aerospace's right of offset as provided in Section 3.2.
2. NO FURTHER AMENDMENT. Except as expressly amended by this
Amendment, the Agreement shall remain in full force and effect without
further modification except as expressly provided in the Agreement. All
unmodified provisions of the Agreement are expressly incorporated into this
Amendment by this reference.
3. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed by the
parties as of the 9th day of March, 1998.
COMPASS AEROSPACE:
Compass Aerospace Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
----------------------------
Name: Douglas M. Hayes
Title: Chairman of the Board
DUNHILL:
Dunhill Bank Caribbean, Ltd.,
a Barbados bank
By: /s/ William Steen
-----------------------------
Name: William Steen
Title: President
HAYES CAPITAL CORPORATION:
Hayes Capital Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
-----------------------------
Name: Douglas M. Hayes
Title: President
-2-
<PAGE>
AMENDMENT NO. 2
Reference is made to that certain Management Consulting Agreement, dated
November 26, 1997, by and among Compass Aerospace Corporation ("Compass
Aerospace"), Dunhill Bank Caribbean Ltd. ("Dunhill") and Hayes Capital
Corporation ("Hayes"), as amended March 9, 1998 (the "Agreement").
Capitalized terms used without definition herein shall have the meanings
given to them in the Agreement.
The parties thereto desire to amend the Agreement as described below,
and for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
1. The Agreement is amended by the addition of Section 3.5 which reads
in its entirety as follows:
"3.5 Dunhill and Hayes acknowledge and agree:
(i) that the Consulting Fee shall not be payable if and to the extent
prohibited by the terms of (a) that certain Revolving Credit Agreement
dated as of April 14, 1998 ("Revolving Credit Agreement"), by and among
Compass Aerospace as borrower, BankBoston, N.A. as lender, BankBoston,
N.A., a national banking association, and any other lending institutions
that may become lenders thereunder (the "Lenders"), BankBoston, N.A., as
administrative agent for the Lenders, DLJ Capital Funding, Inc., as
documentation agent for the Lenders, and BancBoston Securities, Inc. as
Arranger, (b) that certain Indenture by and among Compass Aerospace and IBJ
Schroder Bank & Trust Company as Trustee, relating to the issuance and sale
of an aggregate of $100,000,000 in senior subordinated notes ("Indenture"),
or (c) any agreement, instrument, or document executed by Compass Aerospace
in connection with an amendment or modification of the Revolving Credit
Agreement or the Indenture or any refinancing of the obligations described
in the Revolving Credit Agreement or the Indenture;
(ii) the terms and conditions of the Revolving Credit Agreement and
the Indenture prohibit payment of the Consulting Fee after the occurrence
and during the continuation of an Event of Default, and Dunhill and Hayes
agree to be bound by such terms and conditions;
(iii) Compass Aerospace may, from time to time, agree to
modifications and amendments to the Revolving Credit Agreement, Indenture,
and any related documents, agreements, and instruments without impairing or
effecting the provisions of this Section 3.5, and Dunhill and Hayes
acknowledge that such modifications and amendments may,
<PAGE>
among other things, result in further restrictions of the payment of the
Consulting Fee; and
(iv) if any bankruptcy or other insolvency proceeding is commenced by
or against Compass Aerospace, no further payments of the Consulting Fee
shall be made unless and until all (a) "Obligations" have been paid in
full under the Revolving Credit Agreement and the Indenture, and (b) other
obligations owing in connection with any refinancing of such Obligations
have been paid in full."
2. NO FURTHER AMENDMENT. Except as expressly amended by this
Amendment, the Agreement shall remain in full force and effect without
further modification except as expressly provided in the Agreement. All
unmodified provisions of the Agreement are expressly incorporated into this
Amendment by this reference.
3. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute but one and the same instrument.
[signatures on next page)
-2-
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 2 has been duly executed by the
parties as of the 14th day of April, 1998.
COMPASS AEROSPACE:
Compass Aerospace Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
---------------------------
Name: Douglas M. Hayes
Title: Chairman of the Board
DUNHILL:
Dunhill Bank Caribbean, Ltd.,
a Barbados bank
By:/s/ William Steen
----------------------------
Name: William Steen
Title: President
HAYES CAPITAL CORPORATION:
Hayes Capital Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
-------------------------------
Name: Douglas M. Hayes
Title: President
-3-
<PAGE>
AMENDMENT NO. 3
Reference is made to that certain Management Consulting Agreement, dated
November 26, 1997 (the "Agreement"), by and among Compass Aerospace Corporation
("Compass Aerospace"), Dunhill Bank Caribbean Ltd. ("Dunhill") and Hayes Capital
Corporation ("Hayes"), as amended March 9, 1998 and as amended April 14, 1998.
Capitalized terms used without definition herein shall have the meanings given
to them in the Agreement.
The parties thereto desire to amend the Agreement as described below, and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. Section 3.5 of the Agreement is amended by deleting 3.5(i)(a) and
adding the following:
(a) that certain Credit Agreement dated as of November 20, 1998
("Revolving Credit Agreement"), by and among Compass Aerospace as borrower,
the Lending Institutions listed therein as lenders (the "Lenders"),
BankBoston, N.A., as administrative agent for the Lenders, and BancBoston
Robertson Stephens, Inc. as Arranger.
2. The fourth sentence of Section 3.1 of the Agreement is hereby
amended by deleting the words "February, May, July and October" and inserting
in their place "January, April, July and October."
3. NO FURTHER AMENDMENT. Except as expressly amended by this
Amendment, the Agreement shall remain in full force and effect without
further modification except as expressly provided in the Agreement. All
unmodified provisions of the Agreement are expressly incorporated into this
Amendment by this reference.
4. COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which
shall together constitute but one and the same instrument.
[signatures on next page)
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 3 has been duly executed by the
parties as of the ____ day of November, 1998.
COMPASS AEROSPACE:
Compass Aerospace Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
---------------------------
Name: Douglas M. Hayes
Title: Chairman of the Board
DUNHILL:
Dunhill Bank Caribbean, Ltd.,
a Barbados bank
By: /s/ William Steen
----------------------------
Name: William Steen
Title: President
HAYES CAPITAL CORPORATION:
Hayes Capital Corporation,
a Delaware corporation
By: /s/ Douglas M. Hayes
-----------------------------
Name: Douglas M. Hayes
Title: President
-2-
<PAGE>
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
Brittain Machine, Inc.(1) Corporation
for the years ended June 30 Nine for the
Months and 36 Days Year Ended
21 days ended December 31, December 31,
1994 1995 1996 1997 April 21, 1998 1997 1998
-------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest (income) expense, net 293 301 411 779 386 166 8,493
Interest portion of Net Rental 42 42 40 52 17 53 416
Expense
-------------------------------------------------------- -------------------------
Total Fixed Charges 335 343 451 831 403 219 8,909
======================================================== =========================
Earnings
Income (loss) before taxes 3,154 (414) 4,383 6,114 7,878 117 2,347
Fixed Charges 335 343 451 831 403 219 8,909
-------------------------------------------------------- -------------------------
Total Adjusted Earnings 3,489 (71) 4,834 6,945 8,281 336 11,256
======================================================== =========================
Ratio of earnings to fixed charges 10.4 (0.2) 10.7 8.4 20.5 1.5 1.3
======================================================== =========================
</TABLE>
(1) Brittain Machine, Inc. is included as the predecessor of Compass Aerospace
Corporation.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report, dated March 5, 1999, relating to the financial statements of Lamsco
West, Inc. We also consent to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ McGladrey & Pullen, LLP
New Haven, Connecticut
March 29, 1999
<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 YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<NAME> COMPASS AEROSPACE CORPORATION
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