<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2000
REGISTRATION NO. 333-33438
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRECISION PARTNERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 22-3639336
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
</TABLE>
------------------------
5605 N. MACARTHUR BOULEVARD
SUITE 760
IRVING, TEXAS 75038
(972) 580-1550
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------
RONALD M. MILLER
CHIEF FINANCIAL OFFICER
PRECISION PARTNERS, INC.
5605 N. MACARTHUR BOULEVARD
SUITE 760
IRVING, TEXAS 75038
(972) 580-1550
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------
Copies to:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
NORTH POINT
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114-1190
(216) 586-3939
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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. / /
------------------------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
The address of the principal executive offices of each of the additional
registrants listed below, and the name and address of the agent for service, is
the same as is set forth for Precision Partners, Inc. on the facing page of this
registration statement.
<TABLE>
<CAPTION>
PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
NAME INCORPORATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER
- ---- --------------- --------------------- ---------------------
<S> <C> <C> <C>
Mid State Machine Products................. Maine 3545 01-0280525
Galaxy Industries Corporation.............. Michigan 3545 38-1881019
Certified Fabricators, Inc................. California 3545 95-3316654
General Automation, Inc.................... Illinois 3545 75-2808932
Nationwide Precision Products Corp......... New York 3545 22-3639335
Gillette Machine & Tool Co., Inc........... New York 3545 16-0786135
</TABLE>
<PAGE>
PROSPECTUS
PRECISION PARTNERS, INC.
OFFER TO EXCHANGE OUR 12% SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR OUR OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2009
THESE NOTES ARE GUARANTEED ON A SENIOR SUBORDINATED BASIS BY:
MID STATE MACHINE PRODUCTS
GALAXY INDUSTRIES CORPORATION
CERTIFIED FABRICATORS, INC.
GENERAL AUTOMATION, INC.
NATIONWIDE PRECISION PRODUCTS CORP.
GILLETTE MACHINE & TOOL CO., INC.
---------------------
THE EXCHANGE OFFER
- - Precision Partners will exchange all outstanding notes that are validly
tendered and not validly withdrawn for an equal principal amount of exchange
notes that are freely tradeable.
- - You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on June 6, 2000,
unless extended. We do not currently intend to extend the expiration date.
RESALES OF THE EXCHANGE NOTES
- - We do not intend to list the exchange notes on any securities exchange or to
seek approval through any automated quotation system, and no active public
market for the exchange notes is anticipated.
------------------------
You should carefully consider the risk factors beginning on page 9 of this
prospectus before deciding to participate in the exchange offer.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is May 8, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-Looking Statements........... i
Where You Can Find More Information.. ii
Summary.............................. 1
Risk Factors......................... 9
The Exchange Offer................... 19
Use of Proceeds...................... 27
Capitalization....................... 28
Pro Forma Financial Information...... 29
Selected Historical Financial
Information........................ 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 33
Business............................. 39
Management........................... 49
Security Ownership................... 52
Related Party Transactions........... 53
Description of Credit Facilities..... 54
Description of Exchange Notes........ 56
Book-Entry; Delivery And Form........ 94
Registration Rights For Outstanding
Notes.............................. 97
Plan of Distribution................. 99
Certain U.S. Federal Income Tax
Considerations..................... 101
Legal Matters........................ 103
Experts.............................. 103
Index to Financial Statements........ F-1
</TABLE>
------------------------
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, including those described under "Risk
Factors," many of which are beyond our control. Forward-looking statements are
typically identified by words such as "believe," "expect," "anticipate,"
"intend," "estimate" and similar expressions, and include, among others,
statements concerning:
- our strategy;
- our liquidity and capital expenditures;
- our debt levels and ability to obtain financing and service debt;
- competitive pressures and trends in the precision machining industry;
- cyclicality and economic condition of the industries we currently serve;
- prevailing levels of interest rates;
- legal proceedings and regulatory matters; and
- general economic conditions.
Actual results could differ materially from those contemplated by the
forward-looking statements as a result of factors such as those described in
"Risk Factors." In light of these risks and uncertainties, we cannot assure you
that the results and events contemplated by the forward-looking statements
contained in this prospectus will in fact transpire. You are cautioned not to
place undue reliance on these forward-looking statements. We do not undertake
any obligation to update or revise any forward-looking statements. All
subsequent written or oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements.
i
<PAGE>
------------------------
WHERE YOU CAN FIND MORE INFORMATION
Precision Partners and the subsidiary guarantors have filed a registration
statement on Form S-4 to register with the SEC the exchange notes to be issued
in exchange for the outstanding notes. This prospectus is part of that
registration statement. As allowed by the SEC's rules, this prospectus does not
contain all of the information you can find in the registration statement or the
exhibits to the registration statement. For further information about us and
about the exchange offer and the exchange notes, you should consult the
registration statement, including the exhibits and schedules. A copy of the
registration statement and any exhibits may be obtained from the SEC or by
writing or telephoning us at the following address and telephone number:
Precision Partners, Inc.
5605 N. MacArthur Boulevard
Suite 760
Irving, Texas 75038
(972) 580-1550
Attention: Chief Financial Officer
Upon effectiveness of the registration statement, we will file reports,
proxy statements and other documents with the SEC in accordance with the
requirements of the Securities Exchange Act of 1934. You may read and copy the
registration statement and, when filed, such reports, proxy statements and other
documents at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information regarding the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site, located at http://www.sec.gov., that contains
reports, proxy statements and other documents regarding registrants, including
us, that file electronically with the SEC. In addition, we are required by the
terms of the indenture to furnish the trustee and the holders of exchange and
outstanding notes with quarterly and annual reports and other information within
15 days of filing the reports or other information with the SEC.
You may also find further information about us and the subsidiary guarantors
at our website
http://www.precisionpartnersinc.com. The information contained on our website is
not a part of this prospectus.
------------------------
This exchange offer is not being made to, nor will tenders of outstanding
notes be accepted for exchange from holders of outstanding notes in any
jurisdiction in which this exchange offer or the acceptance thereof would not be
in compliance with the securities or blue sky laws of that jurisdiction.
ii
<PAGE>
SUMMARY
The following summary details the most important features of this offering.
THE COMPANY
GENERAL
Precision Partners is a leading contract mechanical manufacturing services
supplier of complex precision metal parts, tooling and assemblies for original
equipment manufacturers. Our flexible manufacturing facilities and operating
processes enable us to service customers across a wide range of industries and
aggressively pursue new customers in industries where we see the potential for
strong growth. Our customers include industry leaders such as General Electric,
New Venture Gear (a joint venture of General Motors and DaimlerChrysler), Xerox,
LucasVarity (Kelsey Hayes), Boeing, Caterpillar and Dana. We have earned
"Preferred" or "Qualified" supplier status with most of our customers and are
predominantly the sole-source supplier to our customers of the parts we
manufacture. Our pro forma revenues and EBITDA for the year ended December 31,
1999 were $149.8 million and $26.1 million, respectively, representing a 17.5%
EBITDA margin.
Our broad manufacturing capabilities and highly engineered processes allow
us to meet the critical specifications of our customers. We manufacture parts,
ranging in size from approximately 1 ounce to over 100,000 pounds, to extremely
close tolerances. We are also able to maintain tight tolerances across flat
sheets and surfaces with multiple contours. We work with traditional materials
such as steel, aluminum, iron, copper, magnesium and bronze, as well as exotic
and difficult to machine materials such as titanium, inconel, invar and
hastelloy. In addition, we provide our customers with design assistance, process
and product engineering support and quality testing.
Our manufacturing expertise includes precision machining such as milling,
turning, boring, drilling, broaching and grinding, as well as value-added
services such as prototyping, assembly, forming, welding, heat treating and
plating.
The industries we serve and the related precision parts, assemblies and
tooling we machine and manufacture include:
- Power Generation Industry - specialty alloy turbine wheels and spacers,
shrouds and nozzles;
- Automotive Industry - piston valves used primarily for automatic braking
systems in light trucks and sport utility vehicles and machined engine
blocks;
- Business Machines Industry - bases and internal components for high-end
scanners, digital imaging machines and copiers;
- Space and Satellite Industries - adapter rings, thrust rings, casting
chambers and handling and transport aids;
- Aerospace Industry, Commercial and Military - precision tooling including
bond jigs, assembly jigs and mill fixtures;
- Agriculture and Construction Equipment Industries - high tolerance bearing
caps, transmission housings and diesel and gas pump housings; and
- Transportation Industry - class eight heavy truck axles, engine blocks and
related parts.
INDUSTRY
The U.S. precision custom manufacturing industry is highly fragmented and,
excluding precision manufacturing operations owned directly by original
equipment manufacturers, is estimated to be comprised of approximately 7,500
companies representing, over the last several years, annual revenues
1
<PAGE>
in excess of $20 billion. Within this market, precision machine shops and
specialty tool manufacturers represent in excess of $13 billion of these
revenues. As a result of high fragmentation and a large number of captive
original equipment manufacturer operations, we believe there has been and will
continue to be significant consolidation opportunities among industry
participants.
We believe that there are two main trends in the U.S. precision machining
industry:
- an increased amount of outsourced manufacturing by original equipment
manufacturers; and
- increased reliance by original equipment manufacturers on a few
"Preferred" or "Qualified" suppliers that can provide a full line of high
quality manufacturing and sub-assembly services, as well as process
engineering and design assistance.
We intend to continue to capitalize on these industry trends by providing
our customers with a broad array of precision machining capabilities and by
leveraging our competitive strengths. See "Business--Industry."
COMPETITIVE STRENGTHS
We believe that we have the following competitive strengths:
- Leading supplier of high quality, difficult-to-produce parts;
- Broad manufacturing capabilities serving diverse end markets;
- Strong customer relationships;
- Modern, high quality operations; and
- An experienced management team.
BUSINESS STRATEGY
Our business strategies are as follows:
- Capitalize on the industry trends among leading original equipment
manufacturers to increase manufacturing outsourcing and concentrate on
fewer, more reliable suppliers;
- Pursue cross-selling opportunities and broaden our customer base across
the diverse manufacturing capabilities and complementary customer bases of
our operating subsidiaries;
- Implement the best operating practices of each of our operations and
utilize production resources to maximize manufacturing efficiency; and
- Pursue strategic acquisitions.
------------------------
The principal executive offices of Precision Partners and the subsidiary
guarantors are located at 5605 N. MacArthur Boulevard, Suite 760, Irving, Texas
75038 and our telephone number is (972) 580-1550.
2
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................... We are offering to exchange up to $100,000,000 aggregate
principal amount of our registered 12% Senior Subordinated
Notes due 2009 for an equal principal amount of our
outstanding 12% Senior Subordinated Notes due 2009. The
terms of the exchange notes are identical in all material
respects to those of the outstanding notes, except for
transfer restrictions and registration rights relating to
the outstanding notes.
Purpose of the Exchange
Offer.............................. The exchange notes are being offered to satisfy our
obligations under a registration rights agreement.
Expiration Date; Withdrawal of
Tender............................. The exchange offer will expire at 5:00 p.m., New York City
time, on June 6, 2000, or on a later date and time to which
we extend it. The tender of outstanding notes in the
exchange offer may be withdrawn at any time prior to the
expiration date. Any outstanding notes not accepted for
exchange for any reason will be returned without expense to
the tendering holder as promptly as practicable after the
expiration or termination of the exchange offer.
Procedures for Tendering Outstanding
Notes.............................. Each holder of outstanding notes wishing to accept the
exchange offer must complete, sign and date the letter of
transmittal, in accordance with its instructions, and mail
or otherwise deliver it, together with the outstanding notes
and any other required documentation to the exchange agent
at the address listed in the letter of transmittal.
Outstanding notes may be physically delivered, but physical
delivery is not required if a confirmation of a book-entry
transfer of the outstanding notes to the exchange agent's
account at Depository Trust Company, or DTC, is delivered in
a timely fashion. See "The Exchange Offer--Procedures for
Tendering Outstanding Notes."
Conditions to the Exchange Offer..... The exchange offer is not conditioned upon any minimum
aggregate principal amount of outstanding notes being
tendered for exchange. The exchange offer is subject to
certain customary conditions, which may be waived by us. We
currently expect that each of the conditions will be
satisfied and that no waivers will be necessary. See "The
Exchange Offer--Conditions to the Exchange Offer."
Exchange Agent....................... The Bank of New York.
U.S. Federal Income Tax
Considerations..................... Your exchange of an outstanding note for an exchange note
will not constitute a taxable exchange. The exchange will
not result in taxable income, gain or loss being recognized
by you or by us. Immediately after the exchange, you will
have the same adjusted basis and holding period in each
exchange note received as you had immediately prior to the
exchange in the corresponding outstanding note surrendered.
See "Income Tax Considerations."
</TABLE>
3
<PAGE>
THE EXCHANGE NOTES
The terms of the exchange notes are identical in all material respects to
those of the outstanding notes, except for the transfer restrictions and
registration rights relating to the oustanding notes that do not apply to the
exchange notes.
<TABLE>
<S> <C>
Issuer............................... Precision Partners, Inc.
Securities Offered................... $100,000,000 aggregate principal amount of 12% Senior
Subordinated Notes due 2009. The exchange notes will each be
represented by one or more global certificates registered in
the name of DTC. Transfer of exchange notes will be limited
to transfers of book-entry interests within DTC and its
participants.
Maturity............................. March 15, 2009.
Interest............................. The exchange notes will accrue interest from the last
interest payment date. Interest on the notes will be payable
semi-annually in arrears on each March 15 and September 15.
Sinking Fund......................... None.
Optional Redemption.................. We can redeem the exchange notes at any time on or after
March 15, 2004, in whole or in part, at the redemption
prices described under "Description of Exchange
Notes--Optional Redemption," plus accrued and unpaid
interest.
Optional Redemption after Certain
Equity Offerings................... At any time and from time to time on or prior to March 15,
2002, we can redeem up to 35% of the exchange notes and the
outstanding notes with the net cash proceeds of certain
equity offerings, as long as:
- we pay 112% of the principal amount of the notes to be
redeemed, plus accrued and unpaid interest;
- we redeem the notes within 180 days of the completion of
the equity offering; and
- at least 65% of exchange notes and the outstanding notes
remains outstanding afterwards.
Change of Control.................... If we undergo a change of control, you will have the right,
as a holder of exchange notes, to require us to repurchase
all of your exchange notes at a repurchase price equal to
101% of their face amount, plus accrued and unpaid interest.
We might not be able to pay you the required price for
exchange notes you request us to purchase at the time of a
change of control because we may not have enough funds at
that time or the terms of our other indebtedness may prevent
us from doing so.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Ranking.............................. The exchange notes will be unsecured and will be
subordinated in right of payment to all of our existing and
future senior debt, including debt under our credit
facilities. Because the exchange notes are subordinated, in
the event of our bankruptcy, liquidation or dissolution,
holders of notes will not be entitled to receive any payment
until all holders of our senior debt have been paid in full.
As of December 31, 1999, we had approximately
$134.5 million of senior debt outstanding (excluding the
$13.8 million of availability under our new revolving credit
facility).
Guarantees........................... All of our existing and certain of our future subsidiaries
will fully and unconditionally guarantee the exchange notes
on a joint and several basis. The subsidiary guarantees will
each be unsecured and will each be subordinated in right of
payment to each subsidiary guarantor's existing and future
senior debt.
Key Indenture Covenants.............. The indenture governing the exchange notes will contain
covenants that, among other things, limit our and some of
our subsidiaries' ability to:
- incur additional debt;
- pay dividends on or redeem or repurchase capital stock;
- issue or allow any person to own preferred stock of
subsidiaries;
- incur or permit to exist indebtedness senior to the notes,
but subordinated to any of our other indebtedness;
- in the case of certain subsidiaries, guarantee debt
without also guaranteeing the notes;
- in the case of certain subsidiaries, create or permit to
exist dividend or payment restrictions with respect to us;
- make certain investments;
- incur or permit to exist certain liens;
- enter into transactions with affiliates;
- merge, consolidate or amalgamate with another company; and
- transfer or sell assets.
These covenants are subject to a number of important
exceptions and limitations, which are described under the
heading "Description of Exchange Notes." All of our
subsidiaries on the issue date will be restricted for
purposes of the indenture.
</TABLE>
RISK FACTORS
An investment in the notes involves a high degree of risk. We urge you to
review carefully the Risk Factors beginning on page 9 for a discussion of
factors you should consider before making an investment in the exchange notes.
5
<PAGE>
THE ACQUISITIONS
On September 30, 1998 our indirect parent, Precision Partners L.L.C.,
acquired all of the outstanding capital stock of Mid Sate Machine Products and
Galaxy Industries Corporation for an aggregate purchase price of approximately
$54.5 million. On March 19, 1999, we underwent a corporate reorganization under
which we acquired all of the issued and outstanding capital stock of Mid State
and Galaxy. Also on March 19, 1999, we acquired all of the issued and
outstanding capital stock of Certified Fabricators, Inc. and its sister company,
Calbrit Design, Inc. and purchased substantially all of the assets and assumed
some liabilities of General Automation, Inc. and Nationwide Precision Products
Corp. for an aggregate purchase price of approximately $100.7 million, excluding
fees and expenses and an additional conditional payment which may be payable by
our parent, Precision Partners Holding Company. In July 1999, we merged Calbrit
into Certified. On September 1, 1999, we acquired all of the issued and
outstanding stock of Gillette Machine & Tool Co., Inc. for $11.4 million. The
purchase price for one of the companies acquired in March included a
$4.0 million escrow to be paid out upon the company meeting specified EBITDA
targets through April 30, 1999. Since these targets were not met, the
$4.0 million was returned to us, effectively reducing the purchase price by
$4.0 million.
In connection with the March acquisitions, we entered into new credit
facilities. See "Description of Credit Facilities."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
Prior to the acquisitions of Mid State and Galaxy in September 1998,
Precision Partners, L.L.C. had substantially no operations and, prior to the
completion of the reorganization and acquisitions of Certified, Calbrit,
Nationwide and General Automation in March 1999, we had substantially no
operations. As a result, we believe historical financial information for our
company prior to March 1999 and for our predecessor for accounting purposes, Mid
State, is of limited relevance in understanding what our actual results of
operations, financial position or cash flows would have been for historical
periods had we in fact been organized and owned all of our current subsidiaries
for such periods. For this reason, the following table sets forth summary
historical financial information and summary unaudited pro forma financial
information for our company only as of and for the year ended December 31, 1999.
In addition, for financial statement presentation purposes, the
reorganization is accounted for as if it occurred in September 1998 and we are
treated as having commenced operations at that time in a manner similar to a
pooling of interests. See Note 1 to our consolidated financial statements.
The summary unaudited pro forma financial information gives effect to the
following transactions as if each had occurred on January 1, 1999:
- the acquisitions of Certified, Calbrit, Nationwide, General Automation and
Gillette;
- the reorganization under which we received the capital stock of Mid State
and Galaxy as a capital contribution from Precision Partners, L.L.C.; and
- the new credit facilities we entered into in March 1999 and the related
prepayment of an existing term loan.
The summary unaudited pro forma financial information is for illustrative
purposes only and does not purport to be indicative of what the actual results
of operations and financial position of our company would have been as of and
for the periods presented, nor does it purport to represent our future financial
position or results of operations. In addition, the fair value of the net assets
at the actual closing date of the acquisitions could be significantly different
than the fair value of the net assets used for purposes of the unaudited pro
forma financial information. The following summary unaudited pro forma financial
information should be read in conjunction with "Unaudited Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical audited financial statements of our
company, Precision Partners, L.L.C., Mid State, Certified, Nationwide, General
Automation and Gillette including the notes thereto, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
---------------------------------
HISTORICAL PRO FORMA
------------- -----------------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................... $123,188 $149,749
Gross profit................................................ 29,754 36,240
Operating income............................................ 4,914 10,724
Interest expense(1)......................................... 12,567 15,671
Net loss.................................................... (5,515) (3,738)
OTHER FINANCIAL DATA:
EBITDA(2)(3)................................................ 16,820 26,144
EBITDA margin(4)............................................ 13.7% 17.5%
Depreciation and amortization............................... 11,906 15,420
Capital expenditures........................................ 10,260 11,677
Ratio of earnings to fixed charges(5)....................... -- --
Ratio of EBITDA to interest expense(1)...................... 1.3x 1.7x
Ratio of net debt to EBITDA(3)(6)........................... 8.0x 5.1x
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
HISTORICAL
-----------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 313
Working capital............................................. 3,844
Total assets................................................ 206,391
Total debt.................................................. 134,548
Stockholders' equity........................................ 36,132
</TABLE>
- ------------------------
(1) Interest expense is shown net of historical and pro forma interest income of
$245 and $298, respectively. Both historical and pro forma interest expense
include $1,051 of amortization of deferred financing fees.
(2) Historical EBITDA is defined as operating income plus depreciation and
amortization of $11,906. Pro forma EBITDA is defined as pro forma operating
income plus depreciation and amortization of $15,420. EBITDA is not a
measure of performance under generally accepted accounting principles. While
EBITDA should not be used in isolation or as a substitute for net income,
cash flows from operating activities or other income or cash flow statement
data prepared in accordance with generally accepted accounting principles,
or as a measure of profitability or liquidity, management believes that it
may be used by certain investors as supplemental information to evaluate a
company's financial performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." In addition, the
definition of EBITDA used in this prospectus may not be comparable to the
definition of EBITDA used by other companies.
(3) EBITDA includes a jet aircraft lease expense of $186. This lease was
terminated at closing in connection with our acquisition of General
Automation pursuant to the terms of the purchase agreement. Excluding the
effects of this lease for the entire period, EBITDA would have been $17,006
and $26,330, respectively, for historical 1999 and pro forma 1999 and the
ratio of net debt to EBITDA would have been 7.9x and 5.1x, respectively, for
historical 1999 and pro forma 1999.
(4) EBITDA margin is calculated by dividing EBITDA for the period by net sales
for the period, expressed as a percentage.
(5) Earnings is defined as pre-tax income plus fixed charges, excluding
capitalized interest and preferred stock dividend requirements. Fixed
charges are defined as the sum of all interest expense (whether capitalized
or expensed), the amortization of debt issue costs and discount or premium
relating to any indebtedness (whether expensed or capitalized), the interest
portion of rental expense, and preferred stock dividend requirements for
majority-owned subsidiaries. For historical and pro forma 1999, earnings
were insufficient to cover fixed charges by $7,645 and $4,811, respectively.
(6) Net debt is defined as total debt less cash and cash equivalents.
(FOOTNOTES ON NEXT PAGE)
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW AS WELL AS
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS PRIOR TO ACCEPTING THE EXCHANGE
OFFER.
RISK FACTORS ASSOCIATED WITH THE NOTES
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE NOTES IN THE EXCHANGE
OFFER, YOUR EXCHANGE NOTES WILL CONTINUE TO BE SUBJECT TO SIGNIFICANT
RESTRICTIONS ON TRANSFER, AND MAY BE SUBJECT TO A LIMITED TRADING MARKET AND A
SIGNIFICANT DIMINUTION IN VALUE.
If you do not exchange your outstanding notes for the exchange notes in the
exchange offer, you will continue to be subject to the restrictions on transfer
described in the legend on your outstanding notes. In general, you may only
offer or sell the outstanding notes if they are registered under the Securities
Act and applicable state securities laws, or offered or sold pursuant to an
exemption from such requirements. We do not intend to register the outstanding
notes under the Securities Act. To the extent other outstanding notes are
tendered and accepted in the exchange offer, the trading market, if any, for the
remaining outstanding notes would be adversely affected and there could be a
significant diminution in the value of the outstanding notes as compared to the
value of the exchange notes. See "The Exchange Offer--Consequences of the
Failure to Exchange."
AN ACTIVE PUBLIC MARKET MAY NOT DEVELOP FOR THE EXCHANGE NOTES, WHICH COULD
ADVERSELY AFFECT THE MARKET PRICE AND LIQUIDITY OF THE EXCHANGE NOTES.
The exchange notes constitute securities for which there is no established
trading market. We do not intend to list the exchange notes on any securities
exchange or to seek approval for quotation through any automated quotation
system, and no active public market for the exchange notes is currently
anticipated. If a market for the exchange notes should develop, the exchange
notes could trade at a discount from their principal amount and they may be
difficult to sell. Future trading prices of the exchange notes will depend on
many factors, including prevailing interest rates, our operating results and the
market for similar securities. As a result, we can not give you any assurance
that you will be able to resell any exchange notes or, if you are able to resell
the price at which you will be able to do so.
IF YOU PARTICIPATE IN THE EXCHANGE OFFER FOR THE PURPOSE OF PARTICIPATING IN A
DISTRIBUTION OF THE EXCHANGE NOTES YOU COULD BE DEEMED AN UNDERWRITER UNDER THE
SECURITIES ACT.
If you exchange your outstanding notes in the exchange offer for the purpose
of participating in a distribution of the exchange notes, you may be deemed an
underwriter under the Securities Act. If so, you will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the exchange notes.
OUR INABILITY TO GENERATE SUFFICIENT CASH COULD RESULT IN A FAILURE TO MAKE
REQUIRED REPURCHASES OF TENDERED NOTES FOR A CHANGE OF CONTROL.
Upon a change of control, we will be required to make an offer to purchase
all outstanding notes and exchange notes. We would be required to purchase all
of the notes at 101% of their principal amount plus accrued and unpaid interest
up to, but not including, the date of repurchase. The source of funds for any
such purchase would be our available cash or cash generated from other sources.
However, we can not assure you that we will have or will be able to borrow
sufficient funds at the time of any change of control to make any required
repurchases of tendered notes. We also can not assure you that restrictions in
our credit facilities or other senior debt we may incur in the future would
permit us to make such required repurchases. See "Description of Exchange
Notes--Change of Control."
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RISK FACTORS ASSOCIATED WITH OUR INDEBTEDNESS
OUR SUBSTANTIAL DEBT AND THE SIGNIFICANT DEMANDS ON OUR CASH RESOURCES COULD
AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE EXCHANGE NOTES AND ACHIEVE OUR
BUSINESS PLAN.
SUBSTANTIAL DEBT. We have incurred a substantial amount of indebtedness
which requires significant interest payments. As of December 31, 1999, we had
total consolidated debt of $134.5 million and net interest expense of
approximately $12.6 million for the year then ended. Subject to the limits
contained in the indenture governing the notes and the new credit facilities, we
and our subsidiaries may incur additional indebtedness from time to time to
finance capital expenditures, investments or acquisitions or for other general
corporate purposes.
DEMANDS ON CASH RESOURCES. We have substantial demands on our cash
resources in addition to operating expenses and interest expense on the notes,
including, among others, interest and amortization payments under our credit
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
EFFECTS ON YOUR INVESTMENTS AND OUR BUSINESS STRATEGY. Our level of
indebtedness and these significant demands on our cash resources could have
important effects on your investment in the notes. For example they could:
- make it more difficult for us to satisfy our obligations with respect to
the notes and our secured indebtedness;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the amount of
our availability of our cash flow available for working capital, capital
expenditures, acquisitions and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
industry (including the pursuit of our growth strategy);
- place us at a competitive disadvantage compared to our competitors that
have fewer debts and significantly greater operating and financing
flexibility than we do;
- limit, along with the financial and other restrictive covenants applicable
to our indebtedness, among other things, our ability to borrow additional
funds even when necessary to maintain adequate liquidity;
- increase our vulnerability to general adverse economic and industry
conditions; and
- result in an event of default upon a failure to comply with these
covenants which, if not cured or waived, could have a material adverse
effect on our business, financial condition or results of operations.
Our ability to pay interest on the notes, to repay portions of our long-term
indebtedness including under the notes and the credit facilities, and to satisfy
our other debt obligations will depend upon our future operating performance and
the availability of refinancing indebtedness, which will be affected by the
instruments governing our indebtedness, including the indenture and the credit
facilities, prevailing economic conditions and financial, business and other
factors, certain of which are beyond our control.
If we are unable to service our indebtedness and fund our business, we will
be forced to adopt an alternative strategy that may include:
- reducing or delaying capital expenditures;
- seeking additional debt financing or equity capital;
- selling assets; or
- restructuring or refinancing our indebtedness.
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We cannot assure you that any such strategy could be effected on terms
satisfactory to us or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
EFFECT OF ADDITIONAL DEBT. Subject to the limits of our debt instruments,
we may incur additional indebtedness from time to time to finance capital
expenditures, investments or acquisitions for other purposes, including the
borrowing of amounts repaid under our credit facilities. This could further
exacerbate the risks described below.
THE INDENTURE AND OUR CREDIT FACILITIES RESTRICT OUR ABILITY AND THE ABILITY OF
SOME OF OUR SUBSIDIARIES TO ENGAGE IN SOME BUSINESS TRANSACTIONS.
INDENTURE. The indenture restricts our ability and the ability of some of
our subsidiaries to, among other things:
- incur additional debt;
- pay dividends on or redeem or repurchase capital stock;
- issue or allow any person to own preferred stock of subsidiaries;
- incur or permit to exist indebtedness senior to the notes, but
subordinated to any of our other indebtedness;
- in the case of non-guarantor subsidiaries, guarantee debt without also
guaranteeing the notes;
- in the case of restricted subsidiaries, create or permit to exist dividend
or payment restrictions with respect to us;
- make investments;
- incur or permit to exist liens;
- enter into transactions with affiliates;
- merge, consolidate or amalgamate with another company; and
- transfer or sell assets.
CREDIT FACILITIES. The credit facilities also contain similar covenants, as
well as a number of financial covenants requiring us to meet financial ratios
and financial condition tests. Our ability to borrow under our revolving credit
facility depends upon satisfaction of these covenants and our borrowing base
requirements. Our ability to meet these covenants and requirements can be
affected by events beyond our control. There can be no assurance that we will
meet these requirements.
EFFECT OF BREACH. Our failure to comply with the obligations and covenants
in the credit facilities or the indenture could result in an event of default
under the credit facilities or the indenture that, if not cured or waived, could
terminate our ability to borrow under the revolving credit facility, could
permit acceleration of the relevant debt and acceleration of debt under other
instruments and, in the case of the credit facilities, could permit foreclosure
on any collateral granted.
THE EXCHANGE NOTES AND SUBSIDIARY GUARANTEES ARE JUNIOR IN RIGHT OF PAYMENT TO
ALL OF OUR AND OUR SUBSIDIARY GUARANTOR'S INDEBTEDNESS, WHICH COULD ADVERSELY
AFFECT YOUR INVESTMENT.
The payment of principal, premium, if any, interest and additional interest,
if any, on the exchange notes and the subsidiary guarantees will, to the extent
set forth in the indenture, be subordinated in right of payment to all of our
and the subsidiary guarantors' indebtedness, including under the credit
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facilities, except any future indebtedness that expressly provides that it ranks
equal with, or junior in right of payment to, the exchange notes and the
subsidiary guarantees.
SUBSTANTIALLY ALL OF OUR ASSETS AND THOSE OF OUR SUBSIDIARIES SECURE OTHER LONG
TERM DEBT WHICH COULD REQUIRE US TO SATISFY THOSE OBLIGATIONS BEFORE THE
EXCHANGE NOTES IN THE EVENT OF BANKRUPTCY, LIQUIDATION OR REORGANIZATION.
The credit facilities are secured by, among other things, substantially all
of our assets and those of our subsidiaries. Consequently, upon any distribution
to our creditors or the creditors of a subsidiary guarantor in a bankruptcy,
liquidation or reorganization or similar proceeding relating to us or such
subsidiary guarantor or our or its property, the holders of our and its senior
debt, including the lenders under our credit facilities, will be entitled to be
paid in full in cash before any payment may be made with respect to the exchange
notes. Because we and such subsidiary guarantor may not have sufficient funds or
assets to pay all of our or its creditors, holders of exchange notes may receive
less, ratably, than the holders of senior debt.
In addition, the payment of principal, premium, if any, interest and
additional interest, if any, on the exchange notes will be prohibited in the
event of a payment default on any of our or a subsidiary guarantor's senior debt
and may be blocked, at the option of the holders of such senior debt, for up to
179 of 180 consecutive days in the event of specified non-payment defaults.
As of March 21, 2000, we had approximately $144.6 million of consolidated
senior debt outstanding, excluding $3.7 million of availability under our
revolving credit facility. In addition, subject to the terms of the indenture
and the credit facilities, we will be permitted to borrow substantial additional
indebtedness, including senior debt, in the future.
RISK FACTORS ASSOCIATED WITH PRECISION PARTNERS, INC.
WE ARE STRUCTURED AS A HOLDING COMPANY AND WE DEPEND ON OUR SUBSIDIARIES IN
ORDER TO SERVICE OUR DEBT.
We are now, and continue to be, structured as a holding company. Our only
significant asset is the capital stock or other equity interests of our
operating subsidiaries. As a holding company, we conduct all of our business
through our subsidiaries. Consequently, our cash flow and ability to service our
debt obligations, including the exchange notes, are dependent upon the earnings
of our operating subsidiaries and the distribution of those earnings to us, or
upon loans, advances or other payments made by these subsidiaries to us. The
ability of our subsidiaries to pay dividends or make other payments or advances
to us will depend upon their operating results and will be subject to applicable
laws and contractual restrictions contained in the instruments governing their
indebtedness, including our credit facilities and the indenture. Although the
indenture will limit the ability of these subsidiaries to enter into consensual
restrictions on their ability to pay dividends and make other payments to us,
these limitations will be subject to a number of significant qualifications. See
"Description of Exchange Notes--Certain Covenants--Limitations on Dividend and
Other Payment Restrictions Affecting Subsidiaries." There can be no assurance
that the earnings of our operating subsidiaries will be adequate for us to
service our debt obligations, including the exchange notes.
BECAUSE OF OUR LIMITED OPERATING HISTORY, AND THE NUMBER OF ACQUISITIONS WE HAVE
MADE, WE BELIEVE THAT HISTORICAL INFORMATION REGARDING OUR COMPANY PRIOR TO
MARCH 1999 AND FOR OUR PREDECESSOR FOR ACCOUNTING PURPOSES, MID STATE, IS OF
LITTLE RELEVANCE IN UNDERSTANDING OUR BUSINESS AS CURRENTLY CONDUCTED.
Precision Partners, L.L.C. was incorporated in September 1998 and we were
incorporated in February 1999 for the sole purpose of completing acquisitions.
Until the acquisitions of Mid State and
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Galaxy in September 1998, Precision Partners, L.L.C. had substantially no
operations and, until the consummation of the reorganization and the
acquisitions of Certified, Calbrit, Nationwide and General Automation in March
1999, we had substantially no operations. As a result, we believe the historical
financial information presented in this prospectus, other than for 1999, is of
limited relevance in understanding what our results of operations, financial
position or cash flows would have been for the historical periods presented had
we in fact been organized and owned all of our current subsidiaries. See "Pro
Forma Financial Information," "Selected Historical Financial Information" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE SUCCESS OF OUR ACQUISITION STRATEGY DEPENDS ON THE AVAILABILITY OF SUITABLE
ACQUISITION CANDIDATES, DIVERSION OF MANAGEMENT TIME AND RISK OF UNDISCLOSED
LIABILITIES.
A significant aspect of our strategy is to continue to pursue select
strategic acquisitions of companies that we believe can benefit from our
operations, management and access to capital and enhance our relationships with
existing customers or augment our manufacturing capabilities. Our ability to
grow by acquisition is dependent upon, and may be limited by, the availability
of suitable acquisition candidates and capital, and the restrictions contained
in the new credit facilities, the indenture and any future financing
arrangements. In addition, growth by acquisition involves risks that could
adversely affect our operating results, including the substantial amount of
management time that may be diverted from operations in order to pursue and
complete such acquisitions, difficulties in managing the additional operations
and personnel of acquired companies and the potential loss of key employees of
acquired companies. There can be no assurance that we will be able to obtain the
capital necessary to pursue our growth strategy or consummate acquisitions on
satisfactory terms, if at all. Possible future acquisitions could result in the
incurrence of additional debt, costs, contingent liabilities and amortization
expenses related to goodwill and other intangible assets, all of which could
materially adversely affect our business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Although we perform a due diligence investigation of each business that we
acquire, there may be liabilities of the acquired companies, including Mid
State, Galaxy, Certified, General Automation, Nationwide and Gillette, that we
fail or are unable to discover during our due diligence investigation and for
which we, as a successor owner, may be responsible. In connection with
acquisitions, we generally seek to minimize the impact of these liabilities by
obtaining indemnities and warranties from the seller which may be supported by
deferring payment of a portion of the purchase price. However, these indemnities
and warranties, if obtained, may not fully cover the liabilities due to their
limited scope, amount, or duration, the financial limitations of the indemnitor
or warrantor, or other reasons.
OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY OPERATE OUR SUBSIDIARIES ON A
COMBINED BASIS.
Mid State, Galaxy, Certified, Nationwide, General Automation and Gillette
previously operated independently of one another and there can be no assurance
that we will be able to effectively manage these six operating companies on a
combined basis. In addition, to the extent management time may be diverted to
any one or more of the companies, the other operating companies may be adversely
affected. A failure by us to operate these businesses profitably or to manage
them effectively on a combined basis could have a material adverse effect on our
results of operations and financial condition.
THE SUCCESS OF OUR BUSINESS STRATEGY TO REALIZE A NUMBER OF CROSS SELLING
OPPORTUNITIES COULD BE AFFECTED BY A NUMBER OF FACTORS BEYOND OUR CONTROL.
As part of our business strategy, we intend to capitalize on a number of
cross-selling opportunities we believe exist as a result the complementary
customer bases and manufacturing capabilities of the
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acquired companies and to implement certain operating improvements. Our ability
to implement and realize the benefits of this strategy could be affected by a
number of factors beyond our control, such as operating difficulties, increased
operating costs, regulatory developments, general economic conditions, increased
competition, or the inability to obtain adequate financing for our operations on
suitable terms. In addition, after gaining experience with our operations under
this strategy, we may decide to alter or discontinue certain aspects of it. Any
failure to implement aspects of our strategy may adversely affect our results of
operations, financial condition and ability to service debt, including our
ability to make principal and interest payments on the notes. See
"Business--Business Strategy."
OUR INABILITY TO ACCESS ADDITIONAL CAPITAL COULD HAVE A NEGATIVE IMPACT ON OUR
GROWTH STRATEGY.
Our growth strategy will require additional capital investment. Capital will
be required for, among other purposes, completing acquisitions, managing
acquired companies, acquiring new equipment and maintaining the condition of our
existing equipment. We intend to pay for future acquisitions using cash, capital
stock, debt financings and/or assumption of indebtedness. However, our ability
to make acquisitions and the manner in which they are financed will be limited
by the covenants contained in the indenture and our credit facilities. To the
extent that cash generated internally and cash available under our credit
facilities is not sufficient to fund capital requirements, we will require
additional debt and/or equity financing. There can be no assurance, however,
such financing will be available or, if available, will be available on terms
satisfactory to us. Future debt financings, if available, may result in
increased interest and amortization expense, increased leverage and decreased
income available to fund further acquisitions and expansion, and may limit our
ability to withstand competitive pressures and render us more vulnerable to
economic downturns. If we fail to obtain sufficient additional capital in the
future, we could be forced to curtail our growth strategy by reducing or
delaying capital expenditures and acquisitions, selling assets or restructuring
or refinancing our indebtedness. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
A LOSS OF KEY EMPLOYEES AND HIGHLY SKILLED WORKERS COULD ADVERSELY AFFECT OUR
BUSINESS.
Some of our executive officers are key to our management and direction. Our
future success will depend on our ability to retain capable management. To
assist with the integration of the operations of our subsidiaries, we have
retained the services of key personnel of these companies. The success of our
operations may depend, in part, on the successful retention, at least initially,
of these key personnel, as well as our ability to attract and retain additional
talented personnel. Although we believe we will be able to attract and retain
talented personnel and that we could replace key personnel should the need
arise, the inability to attract or retain such personnel could have a material
adverse effect on our business. In addition, because our products and processes
are complex and require a high level of precision, we are generally dependent on
an educated and trained workforce. We would be adversely affected by a shortage
of skilled employees. See "Management--Directors and Executive Officers."
FAILURE TO MAINTAIN RELATIONSHIPS WITH OUR LARGER CUSTOMERS AND FAILURE BY OUR
CUSTOMERS TO CONTINUE TO PURCHASE EXPECTED QUANTITIES DUE TO CHANGES IN MARKET
CONDITIONS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS.
Our largest customer, General Electric, accounted for approximately 26.5% of
our 1999 net sales and our top ten customers accounted for approximately 67% of
our 1999 net sales. The termination by General Electric or any one or more of
our other top 10 customers of its relationship with us could have a material
adverse effect upon our business, financial condition and results of operations.
In addition, we have recently been awarded long-term contracts with
Caterpillar and Dana. We currently anticipate that we will need to enter into up
to approximately $35 million of new operating leases in connection with
financing the new equipment necessary to meet the production requirements
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for these contracts. To the extent we are unable to purchase, integrate and make
operational this equipment on a cost-effective or timely basis, or to the extent
the costs associated with purchasing, integrating or making operational this
equipment are higher than we currently anticipate, our relationship with these
customers and our business and results of operations could be negatively
impacted.
OUR REVENUES AND OPERATING RESULTS MAY BE SUBJECT TO SIGNIFICANT FLUCTUATION.
A significant portion of our revenues is derived from new projects and
contracts, the timing of which is subject to a variety of factors beyond our
control, including customer budgets and modifications in customer products. We
cannot predict the degree to which, on a consolidated basis, these trends will
continue. A portion of our operating expenses are relatively fixed. Because we
typically do not enter into long-term contracts or have volume commitments with
our customers, we must anticipate the future volume of orders based upon the
historic purchasing patterns of our customers and upon discussions with our
customers as to their future requirements. Cancellations, reductions or delays
in orders by a customer or group of customers could have a material adverse
effect on our business, financial condition or results of operations.
Additionally, we may periodically incur cost increases due to hiring and
training of new employees in anticipation of future growth. The size, timing and
integration of possible future acquisitions may also cause substantial
fluctuations in operating results from quarter to quarter. As a result,
operating results for any fiscal quarter may not be indicative of the results
that may be achieved for any subsequent fiscal quarter or for a full fiscal
year.
THERE MAY BE CIRCUMSTANCES IN WHICH THE INTERESTS OF OUR INVESTORS COULD BE IN
CONFLICT WITH YOUR INTERESTS AS A HOLDER OF EXCHANGE NOTES.
Saunders, Karp & Megrue, L.P., a private equity firm, and its co-investors,
including Carlisle Enterprises L.P. and, Harvey Equity Partners, L.L.C., also
private equity firms, members of our management team, employees and some of the
selling stockholders of companies we have acquired or will acquire in the
acquisitions, indirectly own all of our equity securities. In addition, funds
sponsored by Saunders, Karp & Megrue own indirectly 66.8% of our outstanding
equity securities and, pursuant to our bylaws, Saunders, Karp & Megrue has the
right to appoint three of our six directors and the right to have one of its
appointees exercise two votes when all other directors have the right to only
one vote. Carlisle, Harvey and the members of our management team who have
invested in our company each have the right to appoint one of the remaining
three directors. As a result, circumstances may occur in which the interests of
Saunders, Karp & Megrue and/or the other investors could be in conflict with
your interests as a holder of exchange notes. In addition, Saunders, Karp &
Megrue and/or the other investors may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve risks to the
holders of exchange notes.
We may from time to time engage in transactions with related parties and
affiliates which include, among other things, business arrangements, lease
arrangements for certain manufacturing facilities and offices and the payment of
fees or commissions for the transfer of manufacturing by one operating company
to another. Although the indenture will require that these types of transactions
be on terms no less favorable to us or the applicable subsidiary than those
which could be obtained on an arms' length basis from third parties, there can
be no assurance that these transactions will not adversely affect our business,
financial condition or results of operations. See "Related Party Transactions."
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SIGNIFICANT COMPETITION FOR PRECISION PART MANUFACTURING OUTSOURCED BY ORIGINAL
EQUIPMENT MANUFACTURERS MAY AFFECT OUR ABILITY TO SUCCEED.
We operate in an industry which is highly fragmented and competitive. A
variety of suppliers with different subsets of our manufacturing capabilities
compete to supply the stringent demands of large original equipment
manufacturers. In addition, our customers are continually seeking to consolidate
their business among one or more "Preferred" or "Qualified" suppliers. If any
customer becomes dissatisfied with our prices, quality or timeliness of
delivery, among other things, it could award future business or, in an extreme
case, move existing business to our competitors. We cannot assure you that our
products will continue to compete successfully with the products of our
competitors, including original equipment manufacturers themselves, many of
which are significantly larger and have greater financial and other resources
than we do. See "Business--Competition."
THE CYCLICAL NATURE OF THE INDUSTRIES WE CURRENTLY SERVE COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR COMPANY.
A majority of our revenues are derived from customers which are in
industries and businesses that are cyclical in nature and subject to changes in
general economic conditions, such as the construction, aerospace and automotive
industries. General economic or industry specific downturns could have a
material adverse effect on our company and our business, results of operations
and financial condition.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO OBTAIN RAW
MATERIALS AND COMPONENTS FROM OUR SUPPLIERS ON FAVORABLE TERMS.
Generally, our major raw materials consist of traditional materials such as
steel, aluminum, iron, copper, magnesium and bronze, as well as exotic and
difficult to machine materials such as titanium, inconel, invar and hastelloy. A
majority of our raw materials are supplied by our customers on consignment. Raw
materials not supplied by our customers are purchased from several suppliers.
Although all of these materials were available in adequate quantities to meet
our production demands in 1998 and 1999, we can give you no assurance that such
materials will be available in adequate quantities in the future.
We do not presently anticipate any raw material shortages which would
significantly affect production. However, the lead times between the placement
of orders for certain raw materials and actual delivery to us may vary
significantly and we may from time to time be required to order raw materials in
quantities and at prices less than optimal to compensate for the variability of
lead times of delivery. Because we maintain a relatively small inventory of raw
materials and component parts, our business could be adversely affected if we
are unable to obtain these raw materials and components from our suppliers on
favorable terms.
OUR BUSINESS COULD BE ADVERSELY AFFECTED TO THE EXTENT THE U.S. GOVERNMENT
TERMINATED OR MODIFIED A CONTRACT WITH US OR ONE OF OUR CUSTOMERS.
We are generally not a direct party to any contracts with the U.S.
Government. However, a portion of our sales are to customers who use the parts,
assemblies or tooling we supply to them to fill orders under U.S. government
contracts to which they are a party. U.S. government contracts have significant
inherent risks, including:
- the ability of the U.S. government to terminate a contract for
convenience, in which case the other party could be limited to receiving
only costs already incurred or committed;
- modification of U.S. government contracts due to lack of Congressional
funding or changes in such funds; and
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- an extensive and complex regulatory structure, which could subject the
other party to contract termination, civil and criminal penalties and in
some cases, suspension or disbarment from future U.S. government
contracts.
To the extent the U.S. government terminates or modifies a contract with one
of our customers, we could be adversely affected if the affected customer
reduced its purchases from us as a result. In addition, in the few instances
where we are a direct party to a U.S. government contract, the inherent risks
described above, as well as risks associated with the competitive bidding
atmosphere under which U.S. government contracts are awarded and unreimbursed
cost overruns in fixed-price contracts, could have a material adverse effect on
our results of operations and financial condition.
OUR EQUIPMENT, FACILITIES AND OPERATIONS ARE SUBJECT TO NUMEROUS ENVIRONMENTAL
AND OTHER GOVERNMENT REGULATIONS WHICH MAY BECOME MORE STRINGENT IN THE FUTURE
AND MAY RESULT IN INCREASED LIABILITY AND INCREASED CAPTIAL EXPENDITURES.
Our equipment, facilities and operations are subject to increasingly complex
and stringent federal, state and local laws and regulations pertaining to
protection of human health and the environment. These include, among other
things, the discharge of contaminants into the environment and the handling and
disposition of wastes (including industrial, solid and hazardous wastes). In
addition, we are required to obtain and maintain regulatory approvals in the
United States in connection with our operations. Many environmental laws and
regulations provide for substantial fines and criminal sanctions for violations.
It is difficult to predict the future development of such laws and regulations
or their impact on future earnings and operations, but we anticipate that these
laws and regulations will continue to require increased capital expenditures
because environmental standards will become more stringent. We cannot assure you
that material costs or liabilities will not be incurred.
Certain environmental laws provide for strict, joint and several liability
for investigation and remediation of spills and other releases of hazardous
materials. These laws typically impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of any hazardous
materials. Persons who "arrange", as defined under these laws, for the disposal
or treatment of hazardous materials also may be liable for the costs of
investigation, removal or remediation of such materials at the disposal or
treatment site, regardless of whether the affected site is owned or operated by
them. Such liability is strict, and may be joint and several.
Because we own and operate a number of facilities, and because we arrange
for the disposal of hazardous materials at many disposal sites, we may incur
costs for investigation, removal and remediation, as well as capital costs
associated with compliance with environmental laws and regulations. Although
such environmental costs have not been material in the past and are not expected
to be material in the future, changes in environmental laws and regulations or
unexpected investigations and clean-up costs could have a material adverse
effect on our business, financial condition or results of operations. See
"Business--Environmental and Safety Regulation."
A GUARANTEE COULD BE VOIDED IF THE GUARANTOR FRAUDULENTLY TRANSFERRED THE
GUARANTEE AT THE TIME IT INCURRED THE INDEBTEDNESS, WHICH COULD RESULT IN
NOTEHOLDERS BEING ABLE TO RELY ONLY UPON US TO SATISFY CLAIMS.
Under the U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee can be voided, or claims in respect of a guarantee
may be subordinated to all other debts of that guarantor if, among other things,
the guarantor, at the time it incurred the indebtedness evidenced by its
guarantee:
- intended to hinder, delay or defraud any present or future creditor; or
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- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence;
or
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor or to a fund for the benefit
of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the governing law. Generally, however, a guarantor
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets, or
- if the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature, or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that the subsidiary guarantees are being incurred
for proper purposes and in good faith and that each subsidiary guarantor, after
giving effect to its guarantee of the notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as they mature.
There can be no assurance, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the offering of the outstanding notes, we entered into a
registration rights agreement with the initial purchasers of the outstanding
notes. We are making this exchange offer to satisfy our obligations under the
registration rights agreement.
TERMS OF THE EXCHANGE
We are offering to exchange, upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying letter of transmittal,
exchange notes for an equal principal amount of outstanding notes. The terms of
the exchange notes are identical in all material respects to those of the
outstanding notes, except for the transfer restrictions and registration rights
relating to the outstanding notes. The exchange notes will be entitled to the
benefits of the indenture. See "Description of the Notes."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered or accepted for exchange. As of the
date of this prospectus, $100 million aggregate principal amount of the
outstanding notes is outstanding. Outstanding notes tendered in the exchange
offer must be in denominations of a minimum principal amount of $1,000 or any
integral multiple thereof.
Based on certain interpretive letters issued by the staff of the SEC to
third parties in unrelated transactions, holders of outstanding notes, except
any holder who is an "affiliate" of ours within the meaning of Rule 405 under
the Securities Act, who exchange their outstanding notes for exchange notes
pursuant to the exchange offer generally may offer the exchange notes for
resale, resell the exchange notes and otherwise transfer the exchange notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, PROVIDED that the exchange notes are acquired in the
ordinary course of the holders' business and such holders are not participating
in, and have no arrangement or understanding with any person to participate in,
a distribution of the exchange notes.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where the outstanding notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. See "Plan of Distribution." In addition,
to comply with the securities laws of individual jurisdictions, if applicable,
the exchange notes may not be offered or sold unless they have been registered
or qualified for sale in the jurisdiction or an exemption from registration or
qualification is available and complied with. We have agreed, pursuant to our
registration rights agreement to register or qualify the exchange notes for
offer or sale under the securities or blue sky laws of the jurisdictions you
request in writing. If you do not exchange such outstanding notes for exchange
notes pursuant to the exchange offer, your outstanding notes will continue to be
subject to the restrictions on transfer contained in the legend.
If any holder of the outstanding notes is an affiliate of ours, is engaged
in or intends to engage in or has any arrangement or understanding with any
person to participate in the distribution of the exchange notes to be acquired
in the exchange offer, the holder could not rely on the applicable
interpretations of the SEC and must comply with the registration requirements of
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the registration requirement of the Securities Act and
applicable state securities laws.
19
<PAGE>
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer expires on the expiration date, which is 5:00 p.m., New
York City time, on June 6, 2000 unless we in our sole discretion extend the
period during which the exchange offer is open.
We reserve the right to extend the exchange offer at any time and from time
to time prior to the expiration date by giving written notice to The Bank of New
York, the exchange agent, and by public announcement communicated by no later
than 9:00 a.m. on the next business day following the previously scheduled
expiration date, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
exchange offer, all outstanding notes previously tendered will remain subject to
the exchange offer and may be accepted for exchange by us.
The exchange date will be the second business day following the expiration
date. We expressly reserve the right to:
- terminate the exchange offer and not accept for exchange any outstanding
notes for any reason, including if any of the events set forth below under
"--Conditions to the Exchange Offer" shall have occurred and shall not
have been waived by us; and
- amend the terms of the exchange offer in any manner, whether before or
after any tender of the outstanding notes.
If any termination or amendment occurs, we will notify the exchange agent in
writing and will either issue a press release or give written notice to the
holders of the outstanding notes as promptly as practicable.
Unless we terminate the exchange offer prior to 5:00 p.m., New York City
time, on the expiration date, we will exchange the exchange notes for the
tendered outstanding notes on the exchange date. Any outstanding notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder as promptly as practicable after expiration or termination of
the exchange offer. See "--Acceptance of Outstanding Notes for Exchange;
Delivery of Exchange Notes."
This prospectus and the related letter of transmittal and other relevant
materials will be mailed by us to record holders of outstanding notes and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of outstanding notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender of outstanding notes by you pursuant to any one of the procedures
set forth below will constitute an agreement between you and us in accordance
with the terms and subject to the conditions set forth in this prospectus and in
the letter of transmittal.
GENERAL PROCEDURES. You may tender the notes by:
- properly completing and signing the letter of transmittal or a facsimile
and delivering the letter of transmittal together with
-- the certificate or certificates representing the outstanding notes
being tendered and any required signature guarantees, to the
exchange agent at its address set forth in the letter of transmittal
on or prior to the expiration date, or
-- a timely confirmation of a book-entry transfer of the outstanding
notes being tendered, if the procedure is available, into the
exchange agent's account at DTC pursuant to the procedure for
book-entry transfer described below,
20
<PAGE>
- or complying with the guaranteed delivery procedures described below.
If tendered outstanding notes are registered in the name of the signer of
the letter of transmittal and the exchange notes to be issued in exchange
therefor are to be issued, and any untendered outstanding notes are to be
reissued, in the name of the registered holder, the signature of the signer need
not be guaranteed. In any other case, the tendered outstanding notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to us and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a commercial bank or
trust company located or having an office or correspondent in the United States
or by a member firm of a national securities exchange or of the National
Association of Securities Dealers, Inc. or by a member of a signature medallion
program such as "STAMP." If the exchange notes and/or outstanding notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the outstanding notes, the signature
on the letter of transmittal must be guaranteed by an eligible institution.
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 should contact the holder promptly and instruct the
holder to tender outstanding notes on the beneficial owner's behalf. If the
beneficial owner wishes to tender the outstanding notes itself, the beneficial
owner must, prior to completing and executing the letter of transmittal and
delivering the outstanding notes, either make appropriate arrangements to
register ownership of the outstanding notes in the beneficial owner's name or
follow the procedures described in the immediately preceding paragraph. The
transfer of record ownership may take considerable time.
A tender will be deemed to have been received as of the date when:
- the tendering holder's properly completed and duly signed letter of
transmittal accompanied by the outstanding notes is received by the
exchange agent,
- the tendering holder's properly completed and duly signed letter of
transmittal accompanied by a book-entry confirmation is received by the
exchange agent, or
- a notice of guaranteed delivery or letter or facsimile transmission to
similar effect from an eligible institution is received by the exchange
agent.
Issuances of exchange notes in exchange for outstanding notes tendered
pursuant to a notice of guaranteed delivery or letter or facsimile transmission
to similar effect by an eligible institution will be made only against deposit
of the letter of transmittal, the tendered outstanding notes, or book-entry
confirmation, if applicable and any other required documents.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance for exchange of any tender of outstanding notes will be
determined by us, and will be final and binding. We reserve the absolute right
to reject any or all tenders not in proper form or the acceptances for exchange
of which may, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any of the conditions of the exchange offer or any
defects or irregularities in tenders of any particular holder whether or not
similar defects or irregularities are waived in the case of other holders.
Neither we, the exchange agent nor any other person will be under any duty to
give notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. Our interpretation of the
terms and conditions of the exchange offer, including the letter of transmittal
and its instructions, will be final and binding.
The method of delivery of outstanding notes and all other documents is at
the election and risk of the tendering holders, and delivery will be deemed made
only when actually received and confirmed by the exchange agent. If the delivery
is by mail, it is recommended that registered mail properly insured with return
receipt requested be used and that the mailing be made sufficiently in advance
of the
21
<PAGE>
expiration date to permit delivery to the exchange agent prior to 5:00 p.m., New
York City time, on the expiration date. As an alternative to delivery by mail,
holders may wish to consider overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date. No letter of
transmittal or outstanding notes should be sent to us. Holders may request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect the above transactions for the holders.
BOOK-ENTRY TRANSFER. The exchange agent will make a request to establish an
account with respect to the outstanding notes at the book-entry transfer
facility for purposes of the exchange offer within two business days after the
date of the prospectus, and any financial institution that is a participant in
the book-entry transfer facility's systems may make book-entry delivery of
outstanding notes by causing the book-entry transfer facility to transfer the
outstanding notes into the exchange agent's account at the book-entry transfer
facility in accordance with the book-entry transfer facility's procedures for
transfer.
GUARANTEED DELIVERY PROCEDURES. If you desire to tender outstanding notes
pursuant to the exchange offer, but time will not permit a letter of
transmittal, the outstanding notes or other required documents to reach the
exchange agent on or before the expiration date, or if the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if the exchange agent has received at its office a letter or facsimile
transmission from an eligible institution setting forth the name and address of
the tendering holder, the names in which the outstanding notes are registered,
the principal amount of the outstanding notes being tendered and, if possible,
the certificate numbers of the outstanding notes to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange trading days after the expiration date, the outstanding
notes, in proper form for transfer, or a book-entry confirmation, as the case
may be, together with a properly completed and duly executed letter of
transmittal and any other required documents, will be delivered by the eligible
institution to the exchange agent in accordance with the procedures outlined
above. Unless outstanding notes being tendered by the above-described method are
deposited with the exchange agent, including through a book-entry confirmation,
within the time period set forth above and accompanied or preceded by a properly
completed letter of transmittal and any other required documents, we may, at our
option, reject the tender. Copies of a notice of guaranteed delivery which may
be used by eligible institutions for the purposes described in this paragraph
are available from the exchange agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.
The transferring party tendering outstanding notes for exchange thereby
exchanges, assigns and transfers the outstanding notes to us and irrevocably
constitutes and appoints the exchange agent as the transferor's agent and
attorney-in-fact to cause the outstanding notes to be assigned, transferred and
exchanged. The transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the outstanding notes and to
acquire exchange notes issuable upon the exchange of the tendered outstanding
notes and that, when the same are accepted for exchange, we will acquire good
and unencumbered title to the tendered outstanding notes, free and clear of all
liens, restrictions except restrictions on transfer, charges and encumbrances
and not subject to any adverse claim. The transferor also warrants that it will,
upon request, execute and deliver any additional documents deemed by the
exchange agent or us to be necessary or desirable to complete the exchange,
assignment and transfer of tendered outstanding notes. The transferor further
agrees that acceptance of any tendered outstanding notes by us and the issuance
of exchange notes in exchange therefor will constitute performance in full by us
of our obligations under the registration rights agreement and that we will have
no further obligations or liabilities under the registration rights agreement,
except in
22
<PAGE>
certain limited circumstances. All authority conferred by the transferor will
survive the death, bankruptcy or incapacity of the transferor and every
obligation of the transferor will be binding upon the heirs, legal
representatives, successors, assigns, executors, administrators and trustees in
bankruptcy of the transferor.
By tendering outstanding notes and executing the letter of transmittal, the
transferor certifies that:
- it is not an affiliate of Precision Partners, the subsidiary guarantors or
any of our affiliates or, if the transferor is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable;
- the exchange notes are being acquired in the ordinary course of business
of the person receiving the exchange notes, whether or not the person is
the holder;
- the transferor has not entered into an arrangement or understanding with
any other person to participate in the distribution, within the meaning of
the Securities Act, of the exchange notes;
- the transferor is not a broker-dealer who purchased the outstanding notes
for resale pursuant to an exemption under the Securities Act; and
- the transferor will be able to trade the exchange notes acquired in the
exchange offer without restriction under the Securities Act.
Each broker-dealer that receives exchange notes for its own account 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 must acknowledge that it will deliver a prospectus in connection with
any resale of such exchange notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Outstanding notes tendered pursuant to the exchange offer may be withdrawn
at any time prior to the expiration date.
For a withdrawal to be effective, a written letter or facsimile transmission
notice of withdrawal must be received by the exchange agent at its address set
forth in the letter of transmittal not later than the close of business on the
expiration date. Any notice of withdrawal must specify the person named in the
letter of transmittal as having tendered outstanding notes to be withdrawn, the
certificate numbers and principal amount of outstanding notes to be withdrawn,
that the holder is withdrawing its election to have such outstanding notes
exchanged and the name of the registered holder of the outstanding notes, and
must be signed by the holder in the same manner as the original signature on the
letter of transmittal, including any required signature guarantees, or be
accompanied by evidence satisfactory to us that the person withdrawing the
tender has succeeded to the beneficial ownership of the outstanding notes being
withdrawn. The exchange agent will return the properly withdrawn outstanding
notes promptly following receipt of notice of 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. If outstanding notes have been tendered pursuant
to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn outstanding notes and
otherwise comply with the procedures of such facility. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by us, and will be final and binding on all parties.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the exchange offer, the
acceptance for exchange of outstanding notes validly tendered and not withdrawn
and the issuance of the exchange notes will be
23
<PAGE>
made on the exchange date. For purposes of the exchange offer, we will be deemed
to have accepted for exchange validly tendered outstanding notes when, and if we
have given written notice to the exchange agent.
The exchange agent will act as agent for the tendering holders of
outstanding notes for the purposes of receiving exchange notes from us and
causing the outstanding notes to be assigned, transferred and exchanged. Upon
the terms and subject to the conditions of the exchange offer, delivery of
exchange notes to be issued in exchange for accepted outstanding notes will be
made by the exchange agent promptly after acceptance of the tendered outstanding
notes. Any outstanding notes which have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder without cost to the
holder, or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at the book-entry transfer facility pursuant
to the book-entry procedures described above, the outstanding notes will be
credited to an account maintained by the holder with the book-entry transfer
facility for the outstanding notes, as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to issue exchange notes in
exchange for any properly tendered outstanding notes not previously accepted and
may terminate the exchange offer, by oral or written notice to the exchange
agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service, or, at its option, modify or otherwise amend the exchange offer, if:
- there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any
court or governmental agency or other governmental regulatory or
administrative agency or commission
-- seeking to restrain or prohibit the making or consummation of the
exchange offer or any other transaction contemplated by the exchange
offer,
-- assessing or seeking any damages as a result thereof, or
-- resulting in a material delay in our ability to accept for exchange or
exchange some or all of the outstanding notes pursuant to the exchange
offer; or
- the exchange offer shall violate any applicable law or any applicable
interpretation of the staff of the SEC.
The foregoing conditions are for our sole benefit and may be asserted by us
with respect to all or any portion of the exchange offer regardless of the
circumstances, including any action or inaction by us, giving rise to the
condition or may be waived by us in whole or in part at any time or from time to
time in its sole discretion. The failure by us at any time to exercise any of
the foregoing rights will not be deemed a waiver of any such right, and each
right will be deemed an ongoing right which may be asserted at any time or from
time to time. In addition, we have reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
exchange offer.
Any determination by us concerning the fulfillment or non-fulfillment of any
conditions will be final and binding upon all parties.
In addition, we will not accept for exchange any outstanding notes tendered,
and no exchange notes will be issued in exchange for any outstanding notes, if
at such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or
qualification of the indenture under the Trust Indenture Act of 1939.
24
<PAGE>
EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. Questions relating to the procedure for tendering, as well as
requests for additional copies of this prospectus or the letter of transmittal
and requests for notices of guaranteed delivery, should be directed to the
exchange agent addressed as follows:
<TABLE>
<S> <C> <C>
BY REGISTERED OR CERTIFIED FACSIMILE TRANSMISSION BY HAND/OVERNIGHT DELIVERY:
MAIL: NUMBER:
The Bank of New York (FOR ELIGIBLE INSTITUTIONS The Bank of New York
101 Barclay Street, 7E ONLY) 101 Barclay Street
New York, New York 10286 (212) 815-6339 Corporate Trust Services
Attention: Reorganization Window, Ground Level
Section TO CONFIRM BY TELEPHONE OR New York, New York 10286
FOR Attention: Reorganization
INFORMATION CALL: Section
(212) 815-6337
</TABLE>
Delivery of the letter of transmittal to an address other than as set forth
above, or transmission of instructions via facsimile other than as set forth
above, will not constitute a valid delivery.
The Bank of New York also acts as trustee under the indenture.
SOLICITATION OF TENDERS; EXPENSES
We have not retained any dealer-manager or similar agent in connection with
the exchange offer and we will not make any payments to brokers, dealers or
others for soliciting acceptances of the exchange offer. We will, however, pay
the exchange agent reasonable and customary fees for its services and will
reimburse it for reasonable out-of-pocket expenses in connection therewith. The
expenses to be incurred in connection with the exchange offer, including the
fees and expenses of the exchange agent and printing, accounting and legal fees,
will be paid by us and are estimated at approximately $0.5 million.
No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If given or made, the information or representations should
not be relied upon as having been authorized by us. Neither the delivery of this
prospectus nor any exchange made hereunder shall, under any circumstances,
create any implication that there has been no change in our affairs since the
respective dates as of which information is given in this prospectus. The
exchange offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of outstanding notes in any jurisdiction in which the making
of the exchange offer or the acceptance would not be in compliance with the laws
of the jurisdiction. However, we may, at our discretion, take any action as we
may deem necessary to make the exchange offer in any jurisdiction and extend the
exchange offer to holders of outstanding notes in the jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the exchange
offer to be made by a licensed broker or dealer, the exchange offer is being
made on behalf of us by one or more registered brokers or dealers which are
licensed under the laws of the jurisdiction.
APPRAISAL RIGHTS
You will not have dissenters' rights or appraisal rights in connection with
the exchange offer.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the carrying value of the outstanding
notes as reflected in the issuer's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting
25
<PAGE>
purposes will be recognized by the issuer upon the exchange of exchange notes
for outstanding notes. Expenses incurred in connection with the issuance of the
exchange notes will be amortized over the term of the exchange notes.
TRANSFER TAXES
If you tender your outstanding notes, you will not be obligated to pay any
transfer taxes in connection therewith except that unless you instruct us to
register exchange notes in the name of, or request outstanding notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered holder, you will be responsible for the payment of any
applicable transfer tax.
INCOME TAX CONSIDERATIONS
You should consult your own tax advisers with respect to your particular
circumstances and with respect to the effects of state, local or foreign tax
laws to which you may be subject. The following discussion is based upon the
provisions of the Internal Revenue Code of 1986, regulations, rulings and
judicial decisions, in each case as in effect on the date of this prospectus,
all of which are subject to change.
The exchange of an outstanding note for an exchange note will not constitute
a taxable exchange. Such an exchange will not result in taxable income, gain or
loss being recognized by you or by us. Immediately after the exchange, you will
have the same adjusted basis and holding period in each exchange note received
as you had immediately prior to the exchange in the corresponding outstanding
note surrendered. See "Income Tax Considerations."
CONSEQUENCES OF FAILURE TO EXCHANGE
As consequence of the offer or sale of the outstanding notes pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws, holders
of outstanding notes who do not exchange outstanding notes for exchange notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of the outstanding notes as set forth in the legend. In general, the
outstanding notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
currently anticipate that we will register the outstanding notes under the
Securities Act.
Upon consummation of the exchange offer, due to the restrictions on transfer
of the outstanding notes and the absence of such restrictions applicable to the
exchange notes, it is likely that the market, if any, for outstanding notes will
be relatively less liquid than the market for exchange notes. Consequently,
holders of outstanding notes who do not participate in the exchange offer could
experience significant diminution in the value of their outstanding notes,
compared to the value of the exchange notes.
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<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The net proceeds
from the sale of the outstanding notes were approximately $95.3 million, after
deducting discounts, commissions and expenses of the offering. We used these
proceeds, together with borrowings under our credit facilities, an equity
contribution of $10.0 million from our investors and available cash, to finance
the Certified, Calbrit, Nationwide and General Automation acquisitions and to
prepay a term loan. The following table illustrates the sources and uses of
proceeds in connection with the March acquisitions and the sale of the
outstanding notes (in millions):
<TABLE>
<CAPTION>
- ------------------------------------
- ------------------------------------
<S> <C>
Term loan........................... $ 23.0
Cash purchase price for the
Outstanding notes................... $100.0
acquisitions(1)................... 100.7
Equity contribution................. 10.0
Prepayment of indebtedness(2)....... 23.0
Available cash...................... 0.3
Fees and expenses................... 9.6
------
------
Total sources of funds............ $133.3
Total uses of funds............... $133.3
======
======
</TABLE>
- ------------------------
(1) Includes the prepayment of approximately $11.1 of outstanding indebtedness
of Certified plus approximately $0.4 million of related prepayment
penalties.
(2) Consisted of a $23.0 million floating rate term loan with an interest rate
of 7.6% as of February 15, 1999. Amortization payments in respect of this
loan were scheduled to begin December 31, 1999 and continue through
September 30, 2004.
27
<PAGE>
CAPITALIZATION
The following table sets forth our cash and temporary investments and our
consolidated capitalization as at December 31, 1999.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN MILLIONS)
<S> <C>
Cash and temporary investments.............................. $ 0.3
Debt:
Term loan................................................. 23.0
Revolving credit facility(1).............................. 11.2
12% Senior Subordinated Notes due 2009.................... 100.0
Other long-term debt...................................... 0.3
Total debt.............................................. 134.5
Stockholders equity......................................... 36.1
------
Total capitalization.................................... $170.9
======
</TABLE>
- ------------------------
(1) As at December 31, 1999, $11.2 million of our $25.0 million revolving credit
facility was outstanding. As of the closing date for the sale of the
outstanding notes, no indebtedness was outstanding under this facility. As
of March 21, 2000, $21.3 million was outstanding.
28
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1999 gives effect to:
- the acquisitions of Certified, Nationwide, General Automation and
Gillette;
- the reorganization under which we received the capital stock of Mid State
and Galaxy as a capital contribution from Precision Partners, L.L.C.; and
- the new credit facilities we entered into in March 1999 and the related
prepayment of an existing term loan,
as if each such transaction had occurred on January 1, 1999. For purposes of the
unaudited pro forma consolidated statement of operations, the historical
financial information of General Automation and Nationwide has been adjusted to
eliminate the effect of assets not acquired and liabilities not assumed in the
relevant acquisition, in each case in accordance with the terms of the purchase
agreement relating to such acquisition.
The unaudited pro forma consolidated statement of operations should be read
in conjunction with our historical financial statements and those of Mid State,
Certified, Nationwide, General Automation and Gillette, including the notes
thereto, in each case included elsewhere in this prospectus, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The adjustments necessary to fairly present this pro forma consolidated
financial information have been made based on available information and in the
opinion of management are reasonable and are described in the accompanying
notes. The pro forma consolidated financial information should not be considered
indicative of actual results that would have been achieved had the transactions
been consummated on the date indicated and do not purport to indicate results of
operations as of any future date or for any future period. We cannot assure you
that the assumptions used in the preparation of the pro forma consolidated
financial information will prove to be correct.
The acquisitions of Mid State, Galaxy, Certified, Nationwide, General
Automation and Gillette were accounted for using the purchase method of
accounting, pursuant to which the purchase price was allocated among the assets
acquired and liabilities assumed in accordance with estimates of fair value as
of the date of acquisition. However, the unaudited pro forma consolidated
statement of operations reflects management's estimates of fair value as of
January 1, 1999 and not at the actual date of acquisition. In addition, the pro
forma adjustments are based upon available information and certain assumptions
that management considers reasonable under the circumstances. Consequently, the
amounts reflected in the unaudited pro forma consolidated statement of
operations are subject to change, which could be significant.
29
<PAGE>
PRECISION PARTNERS, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
(HISTORICAL) ------------------------------------------------------------------
CONSOLIDATED CERTIFIED NATIONWIDE GENERAL GILETTE
PRECISION FOR THE THREE FOR THE THREE FOR THE THREE FOR THE EIGHT
PARTNERS, INC. MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED PRO FORMA
DECEMBER 31, 1999 MARCH 19, 1999 MARCH 19, 1999 MARCH 19, 1999 AUGUST 31, 1999 ADJUSTMENTS
----------------- -------------- -------------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $123,188 $ 5,739 $6,214 $4,464 $10,144 $ --
Cost of sales............... 93,434 5,110 4,940 2,270 6,810 945 (1)
Selling, general and
administrative expenses... 24,840 1,080 554 509 2,796 (4,263)(2)
Operating income (loss)..... 4,914 (451) 720 1,685 538 3,318
Other income (expense):
Net interest expense...... (12,567) (647) (166) 18 (112) (2,197)(3)
Other, net................ 8 4 (4) -- 128 --
Income (loss) before income
taxes..................... (7,645) (1,094) 550 1,703 554 1,121
Provision (benefit) for
income taxes.............. (2,130) -- -- 18 272 767 (4)
Net income (loss)........... (5,515) (1,094) 550 1,685 282 354
Depreciation................ 8,525 634 453 274 603 831
Amortization................ 3,381 -- -- -- -- 719
EBITDA (5),(6).............. 16,820 183 1,173 1,959 1,141 4,868
<CAPTION>
PRO
FORMA
--------
<S> <C>
Net sales................... $149,749
Cost of sales............... 113,509
Selling, general and
administrative expenses... 25,516
Operating income (loss)..... 10,724
Other income (expense):
Net interest expense...... (15,671)
Other, net................ 136
Income (loss) before income
taxes..................... (4,811)
Provision (benefit) for
income taxes.............. (1,073)
Net income (loss)........... (3,738)
Depreciation................ 11,320
Amortization................ 4,100
EBITDA (5),(6).............. 26,144
</TABLE>
<TABLE>
<S> <C> <C>
- ------------------------
(1) The pro forma adjustments for cost of sales reflect the
following:
Adjustment for additional depreciation for step-up in fair
market value of fixed assets related to the purchase
transactions.............................................. $ 831
Adjustment for new lease terms of facilities renegotiated in
connection with the purchase transaction.................. 114
-------
$ 945
=======
(2) The pro forma adjustments for selling, general and
administrative expenses reflect the following:
Adjustments for termination of executive positions held by
shareholders and related parties as part of the purchase
contract whose positions will not be replaced............. $(4,769)
Adjustment for additional amortization of goodwill related
to the purchase transaction which is being amortized over
twenty years.............................................. 719
Adjustments for professional fees expensed by one of the
acquisitions to negotiate and consummate the purchase
transaction............................................... (213)
-------
$(4,263)
=======
(3) Adjustment to record additional interest expense associated
with the notes offered for exchange herein (net of the
elimination of historical interest expense related to debt
not assumed or refinanced), and amortization of the
related debt issue costs over the ten year term of the
notes totaling $1,051..................................... $(2,197)
=======
(4) Adjustment to record the income tax benefit on pro forma
income before income taxes.
(5) Pro forma EBITDA is defined as operating income plus
depreciation and amortization of $15,420. EBITDA is not a
measure of performance under generally accepted accounting
principles. While EBITDA should not be used in isolation
or as a substitute for net income, cash flows from
operating activities or other income or cash flow
statement data prepared in accordance with generally
accepted accounting principles or as a measure of
profitability or liquidity, management believes that it
may be used by certain investors as supplemental
information to evaluate a company's financial performance.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In addition, the
definition of EBITDA used in this prospectus may not be
comparable to the definition of EBITDA used by other
companies.
(6) EBITDA includes the effect of a jet aircraft lease expense
of $186. This lease was terminated at closing in
connection with the acquisition of General Automation
pursuant to the terms of the purchase agreement. Excluding
the effects of this lease for the entire period, EBITDA
would have been $26,330.
</TABLE>
30
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
Prior to the acquisitions of Mid State and Galaxy in September 1998,
Precision Partners, L.L.C. had substantially no operations and, prior to the
completion of the reorganization and acquisitions of Certified, Calbrit,
Nationwide and General Automation in March 1999, we had substantially no
operations. As a result, we believe historical financial information for our
company prior to March 1999 and for Precision Partners, L.L.C. and our
predecessor for accounting purposes, Mid State, is of limited relevance in
understanding what our actual results of operations, financial position or cash
flows would have been for historical periods had we in fact been organized and
owned all five subsidiaries for such periods. In addition, for financial
statement presentation purposes, the reorganization is accounted for as if it
had occurred in September 1998 and we are treated as having commenced operations
at that time in a manner similar to a pooling of interests. See Note 1 to our
consolidated financial statements. The selected historical financial information
should be read in conjunction with our consolidated financial statements and Mid
State, including the notes thereto, included elsewhere in this prospectus, and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PRECISION
MID STATE (PREDECESSOR) PARTNERS, INC.
--------------------------------------------------- --------------------------------
JANUARY 1, 1998 SEPTEMBER 9, 1998
THROUGH THROUGH
1995 1996 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1998 1999
-------- -------- -------- ------------------ ----------------- ------------
(IN THOUSANDS, EXCEPT RATIO AND DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales...................... $29,824 $28,462 $33,870 $24,106 $12,602 $123,188
Cost of sales.................. 24,206 20,290 24,581 16,326 9,090 93,434
------- ------- ------- ------- ------- --------
Gross profit................... 5,618 8,172 9,289 7,780 3,512 29,754
Selling, general and
administrative expenses...... 4,141 4,322 4,571 3,374 3,134 24,840
------- ------- ------- ------- ------- --------
Operating income............... 1,477 3,850 4,718 4,406 378 4,914
Interest expense, net.......... 108 69 85 37 526 12,567
Other income (expense), net.... 475 1,157 1,220 12 (138) 8
------- ------- ------- ------- ------- --------
Income (loss) before provision
for income taxes............. 1,844 4,938 5,853 4,381 (286) (7,645)
Provision (benefit) for income
taxes........................ 671 1,818 2,310 1,677 109 (2,130)
------- ------- ------- ------- ------- --------
Net income (loss).............. $ 1,173 $ 3,120 $ 3,543 $ 2,704 $ (395) $ (5,515)
======= ======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
PRECISION
MID STATE (PREDECESSOR) PARTNERS, INC.
--------------------------------------------------- --------------------------------
JANUARY 1, 1998 SEPTEMBER 9, 1998
THROUGH THROUGH
1995 1996 1997 SEPTEMBER 30, 1998 DECEMBER 31, 1998 1999
-------- -------- -------- ------------------ ----------------- ------------
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(1)...................... $ 2,287 $ 4,734 $ 5,770 $ 5,212 $ 1,483 $ 16,820
Depreciation and
amortization................. $ 810 $ 884 $ 1,052 $ 806 $ 1,105 $ 11,906
Ratio of earnings to fixed
charges(2)................... 7.2x 20.2x 22.4x 25.6x -- --
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents...... $ 2,638 $ 40 $ 963 $ 313
Working capital................ 14,019 5,769 5,748 3,844
Total assets................... 20,119 11,574 63,321 206,391
Total debt..................... 686 403 23,000 134,548
Stockholders' equity........... 17,094 8,265 31,605 36,132
</TABLE>
- ------------------------
(1) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is not a measure of performance under generally accepted accounting
principles. While EBITDA should
31
<PAGE>
not be used in isolation or as a substitute for net income, cash flows from
operating activities or other income or cash flow statement data prepared in
accordance with generally accepted accounting principles, or as a measure of
profitability or liquidity, management believes that it may be used by
certain investors as supplemental information to evaluate a company's
financial performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, the definition
of EBITDA used in this prospectus may not be comparable to the definition of
EBITDA used by other companies.
(2) Earnings are defined as pre-tax income plus fixed charges, excluding
capitalized interest and preferred stock dividend requirements. Fixed
charges are defined as the sum of all interest (whether capitalized or
expensed), the amortization of debt issue costs and discount or premium
relating to any indebtedness (whether expensed or capitalized), the interest
portion of rental expense, and preferred stock dividend requirements for
majority-owned subsidiaries. For the period from September 9, 1998 through
December 31, 1998 and for 1999, earnings were insufficient to cover fixed
charges by $286 and $7,645, respectively.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a leading contract mechanical manufacturing services supplier of
complex precision metal parts, tooling and assemblies for original equipment
manufacturers. Our broad manufacturing capabilities and highly engineered
processes allow us to meet the critical specifications of our customers across a
wide range of industries. We have earned "Preferred or "Qualified" supplier
status with most of our customers and are predominately the sole-source supplier
to our customers of the parts we manufacture.
Precision Partners, L.L.C. was formed in September 1998 and we were formed
in February 1999 for the sole purpose of consummating acquisitions in the
business of manufacturing and supplying complex precision metal parts, tooling
and assembles for original equipment manufacturers. On September 30, 1998,
Precision Partners, L.L.C. acquired all of the outstanding capital stock of Mid
State and Galaxy. In March 1999, we underwent a corporate reorganization under
which we acuired all of the issued and outstanding capital stock of Mid State
and Galaxy. At the same time, we also purchased all of the issued and
outstanding capital stock of Certified and Calbrit and we purchased
substantially all of the assets and assumed some liabilities of General
Automation and Nationwide. The aggregate purchase price for the March
acquisitions was approximately $100.7 million, excluding fees and expenses, and
was financed through the net proceeds from the sale of the outstanding notes,
borrowings under our credit facilities, an equity contribution and available
cash. In July 1999, we merged Calbrit into Certified and in September 1999 we
acquired Gillette. The purchase price for the Gillette acquisition was
approximately $14.4 million and was financed using existing cash and borrowings
under our revolving credit facility.
Prior to the acquisitions of Mid State and Galaxy, Precision Partners,
L.L.C. had substantially no operations and, prior to the consummation of the
reorganization and the acquisitions of Certified, Calbrit, Nationwide and
General Automation, we had substantially no operations. For financial statement
presentation purposes, and for purposes of the following discussion, the
reorganization is accounted for as if it occurred on September 9, 1998 and we
are treated as having commenced operations at that time. See Note 1 to our
consolidated financial statements. For this reason, the following management's
discussion and analysis relates to the financial condition and results of
operations of:
- a combination of Mid State, as predecessor, for the period from
January 1, 1998 through September 30, 1998 and our company for the period
from September 9, 1998 (inception) through December 31, 1998 on a
consolidated basis, including Mid State and Galaxy for the period from
October 1, 1998 through December 31, 1998 and LLC for the period from
September 9, 1998 through December 31, 1998; and
- a combination of our company for the period from February 9, 1999
(inception) through December 31, 1999 on a consolidated basis, including
Certified, Nationwide and General Automation from March 19, 1999 through
December 31, 1999, Precision Partners, L.L.C. from January 1, 1999 to
March 19, 1999 and Gillette from September 1, 1999 to December 31, 1999.
This discussion and analysis should be read in conjunction with our historical
audited financial statements and those of Mid State, and the Unaudited Pro Forma
Consolidated Statement of Operations, including the notes thereto, included
elsewhere in this prospectus.
As a result, we believe the historical financial information presented in
this prospectus for periods prior to 1999 is of limited relevance in
understanding what our results of operations, financial position or cash flows
would have been for the historical periods presented had we in fact been
organized and owned all of our current subsidiaries for such periods.
33
<PAGE>
A change in the senior management at Galaxy occurred during the third
quarter of 1999, and in connection with this change, we engaged in a review of
the operations (including customer and vendor relations) and accounting
practices and procedures at Galaxy. This review was performed by a team
consisting of internal management and outside professionals and has revealed
administration and accounting practices inconsistent with our policies and
procedures. These inconsistencies include the failure to execute proper cut-off
procedures at month-end and the failure to recognize certain expenses in the
period in which those expenses were incurred. We believe our 1999 financial
results accurately reflect the excess costs associated with these matters, and
after a review, we do not believe that our financial results for 1999 or any
previously reported period have been materially misstated as a result of past
practices at Galaxy.
The following table sets forth, for the periods indicated, information
derived from our audited consolidated statement of operations and the audited
consolidated statements of operations of Mid State, in each case, for the
periods indicated, both in dollars and expressed as a percentage of net sales
(dollars in thousands):
<TABLE>
<CAPTION>
MID STATE (HISTORICAL)
---------------------------------------------------------------
JANUARY 1, 1998
YEAR ENDED DECEMBER 31, THROUGH
----------------------------------------- SEPTEMBER 30,
1996 1997 1998
------------------- ------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............ $28,462 100.0% $33,870 100.0% $24,106 100.0%
Cost of sales........ 20,290 71.3 24,581 72.6 16,326 67.7
Gross profit......... 8,172 28.7 9,289 27.4 7,780 32.3
Selling, general and
administrative
expenses........... 4,322 15.2 4,571 13.5 3,374 14.0
Operating income..... 3,850 13.5 4,718 13.9 4,406 18.3
Net income (loss).... 3,120 11.0 3,543 10.5 2,704 11.2
======= ======= ======= ======= ======= =======
Depreciation and
amortization....... $ 884 3.1% $ 1,052 3.1% $ 806 3.3%
EBITDA(1)............ 4,734 16.6 5,770 17.0 5,212 21.6
<CAPTION>
PRECISION PARTNERS, INC.
(HISTORICAL)
---------------------------------------------------------------
SEPTEMBER 9,
1998
THROUGH YEAR ENDED
DECEMBER 31, COMBINED DECEMBER 31,
1998 1998(2) 1999(3)
------------------- ------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............ $12,602 100.0% $36,708 100.0% $123,188 100.0%
Cost of sales........ 9,090 72.1 25,416 69.2 93,434 75.8
Gross profit......... 3,512 27.9 11,292 30.8 29,754 24.2
Selling, general and
administrative
expenses........... 3,134 24.9 6,508 17.7 24,840 20.2
Operating income..... 378 3.0 4,784 13.0 4,914 4.0
Net income (loss).... (395) (3.1) 2,309 6.3 (5,515) (4.5)
======= ======= ======= ======= ======== =======
Depreciation and
amortization....... $ 1,105 8.8% $ 1,911 5.2% $ 11,906 9.7%
EBITDA(1)............ 1,483 11.8 6,695 18.2 16,820 13.7
</TABLE>
- ---------------
(1) For historical financial information purposes, EBITDA is defined as
operating income plus depreciation and amortization. EBITDA is not a measure
of performance under generally accepted accounting principles. While EBITDA
should not be used in isolation or as a substitute for net income, cash
flows from operating activities or other income or cash flow statements data
prepared in accordance with generally accepted accounting principles, or as
a measure of profitability or liquidity, management believes that it may be
used by certain investors as supplemental information to evaluate a
company's financial performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." In addition, the
definition of EBITDA used in this prospectus may not be comparable to the
definition of EBITDA used by other companies.
(2) Precision Partners combined consists of our results of operations from
September 9, 1998 (inception) through December 31, 1998 and of Mid State
(predecessor) for the nine months ended September 30, 1998.
(3) Our results for the period from February 9, 1999 (inception) through
December 31, 1999, include Certified, Nationwide and General Automation,
Precision Partners, L.L.C.'s results from January 1, 1999 to March 19, 1999
and Gillette's results from September 1, 1999 to December 31, 1999.
HISTORICAL RESULTS OF OPERATIONS
1999 COMPARED TO 1998 COMBINED
NET SALES. Net sales increased 235.6% to $123.2 million in 1999 compared to
$36.7 million in 1998. The increase is due to the March acquisitions of
Certified, General Automation, and Nationwide and the September acquisition of
Gillette with aggregate sales for all of the acquired companies totaling
$58.8 million for the nine months ended December 31, 1999. Sales at Mid State
and Galaxy
34
<PAGE>
increased 40.8% and 24.4%, respectively, to $64.4 million due to increased
orders for gas turbine parts and engine and transmission components for large
construction equipment.
GROSS PROFIT. Gross profit for 1999 increased 163.5% to $29.8 million from
$11.3 million in 1998. Gross margin decreased to 24.2% from 30.8% in 1998. The
increase in gross profit is primarily attributable to the acquisitions of
Certified, General Automation, Nationwide, and Gillette. The decrease in gross
margin results from the lower margin products manufactured by the acquisitions
as well as changes in product mix at Mid State that reduced its gross margin by
1.5% from 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 281.7% to $24.8 million from $6.5 million in
1998. This increase is mainly due to $7.2 million in general and administrative
expense at Precision Partners, including the recognition of $3.0 million in
bonus compensation paid to a selling shareholder of one of the acquired
companies, $0.6 million in aborted acquisition costs, $6.5 million of selling,
general and administrative expenses at Certified, General Automation,
Nationwide, and Gillette expenses, and $4.5 million of goodwill amortization and
additional depreciation expense resulting from a step-up in basis of the
property, plant, and equipment of Certified, General Automation, Nationwide, and
Gillette in connection with their acquisition by us.
OPERATING INCOME. As a result of the foregoing, operating income increased
2.7% to $4.9 million in 1999 from $4.8 million in 1998.
INCOME TAX EXPENSE. We realized an income tax benefit of $2.1 million in
1999 compared to income tax expense of $1.8 million in 1998. Our effective tax
benefit rate was 27.9% in 1999 compared to an effective tax expense rate of
43.6% for 1998. The decrease in income tax expense is primarily due to interest
expense in 1999 of $12.8 million related to the issuance of the outstanding
notes resulting in a loss before taxes. The decrease in the effective benefit
rate is primarily due to the impact of non-deductible goodwill generated from
the 1999 acquisitions of Certified and Gillette and the 1998 acquisitions of Mid
State and Galaxy.
NET INCOME (LOSS). Net income decreased 338.8% to a loss of $5.5 million in
1999 from income of $2.3 million in 1998 for the aforementioned reasons.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1999 was
$11.9 million, which includes $3.4 million of amortization of $77.0 million of
goodwill resulting from the acquisitions of Mid State, Galaxy, Certified,
Nationwide, General Automation, and Gillette. The $8.5 million of depreciation
expense is mainly attributable to the additional depreciation expense associated
with the step-up in basis resulting from the acquisitions of these six
companies.
1998 COMPARED TO 1997
NET SALES. Net sales increased 8.4% to $36.7 million in 1998 compared to
$33.9 million in 1997. The increase is due to the acquisition of Galaxy in
September 1998 with sales of $2.8 million in the fourth quarter of 1998. Sales
at Mid State remained essentially flat. Increased orders for North American gas
turbine parts substantially offset the effect of delayed delivery dates for
hydroelectric turbine parts, which resulted from the downturn in the Asian
economy.
GROSS PROFIT. Gross profit for 1998 increased 21.6% to $11.3 million from
$9.3 million in 1997. Gross margin increased to 30.8% in 1998 from 27.4% in
1997. The increase is primarily attributable to the acquisition of Galaxy in
September 1998, which contributed fourth quarter gross profit of $0.7 million
and Mid State's product mix. Mid State also reduced costs through improved
production processes, increased operating efficiencies and the elimination of
large discretionary management bonuses paid in 1997.
35
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1998 increased 42.4% to $6.5 million from
$4.6 million in 1997. This increase is mainly due to $1.1 million in general and
administrative expense at Precision Partners, L.L.C. from September 9, 1998
(inception) to December 31, 1998, as well as additional Galaxy expenses totaling
$0.5 million in the last quarter of 1998.
OPERATING INCOME. As a result of the foregoing, operating income increased
slightly to $4.8 million in 1998 from $4.7 million in 1997.
INCOME TAX EXPENSE. Income tax expense was $1.8 million in 1998 compared to
$2.3 million in 1997. Our effective tax rate was 43.6% for 1998 compared to
39.5% for Mid State in 1997. The increase in the effective rate for 1998 is
primarily due to non-deductible goodwill generated in the acquisitions of Mid
State and Galaxy.
NET INCOME. Net income decreased 34.8% to $2.3 million for 1998 from
$3.5 million in 1997 for the aforementioned reasons.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
81.7% to $1.9 million in 1998 from $1.1 million in 1997. The increase includes
$0.4 million in amortization of $35.0 million of goodwill resulting from the
acquisitions of Mid State and Galaxy in September 1998, additional depreciation
on the step-up in basis of property, plant and equipment and the inclusion of
$0.3 million of depreciation expense recorded by Galaxy in the three months
ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are available borrowings under our
revolving credit facility and cash flow from operations. We expect that our
principal uses of liquidity will continue to be working capital, capital
expenditures, debt service requirements and permitted acquisitions.
Our credit facilities consist of a $23.0 million term loan facility and a
$25.0 million revolving credit facility, including a $2.0 million sublimit for
letters of credit, each maturing on March 31, 2005, unless terminated sooner
upon an event of default. As of December 31, 1999, we have total debt of
approximately $134.5 million, consisting of our $23.0 million term loan, the
outstanding aggregate principal amount of the notes and $11.2 million of
outstanding borrowings under our revolving credit facility. See
"Capitalization." Our ability to borrow under the revolving credit facility is
subject to our compliance with the financial covenants described below and a
borrowing base based on our eligible accounts receivables and inventory. See
"Description of Credit Facilities."
The indenture and our credit facilities impose limitations on our ability
to, among other things, incur additional indebtedness (including capital
leases), incur liens, pay dividends or make other restricted payments,
consummate asset sales, enter into transactions with affiliates, issue preferred
stock, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of our assets. In
addition, the credit facilities limit our ability to enter into sale and
leaseback transactions and to make capital expenditures. The credit facilities
also require that we meet and maintain certain financial ratios and tests,
including (i) a minimum interest coverage ratio, EBITDA to interest expense,
(ii) a maximum leverage ratio, total debt to EBITDA, and (iii) a minimum fixed
charge coverage ratio, EBITDA to interest expense plus other fixed charges. Our
ability to comply with these covenants and to meet and maintain these financial
ratios and tests may be affected by events beyond our control, such as those
described under "Risk Factors."
As a result of the failure to have an exchange offer registration statement
filed by September 15, 1999, to have it declared effective by September 16, 1999
and to complete the exchange offer by October 15, 1999, we are paying additional
interest on the outstanding notes. The amount of additional interest has ranged
from 0.5% per annum for the period from September 15, 1999 through
36
<PAGE>
December 14, 1999 to 0.75% per annum for the period December 15, 1999 through
March 14, 2000. Beginning March 15, 2000, the amount of additional interest
increased to 1.0% per annum and will continue at that rate until effectiveness
of the registration statement and completion of the exchange offer. The
additional interest is expected to be nonrecurring with no impact on our
continuing operations.
We have limited amortization requirements under our credit facilities over
the next two years. Our other debt service requirements over the next two years
consist primarily of interest expense on the notes. Our short-term cash
requirements for our operations are expected to consist mainly of capital
expenditures to continue to maintain and expand our manufacturing capabilities
and working capital requirements. We currently expect that our capital
expenditures will be approximately $10.6 million in 2000, including maintenance
capital expenditures of approximately $5.0 million. However, our capital
expenditures will be affected by, and may be greater than currently anticipated
depending upon, the size and nature of new business opportunities. We also
expect to have to enter into approximately $35 million of operating leases in
2000 primarily for new equipment related to our recent contracts with
Caterpillar and Dana and increased unit delivery requirements from General
Electric.
The aggregate purchase price for the acquisitions of Certified, Calbrit,
Nationwide and General Automation of $100.7 million does not include fees and
expenses or the potential effects of certain contingent purchase arrangements.
The purchase price for one of the companies acquired included a $4.0 million
escrow to be paid out upon the company meeting specified EBITDA targets through
April 30, 1999. The targets were not met and the escrow has been returned to us,
effectively reducing the purchase price and the resulting goodwill by
$4.0 million. A contingent payment may be payable by our parent, Precision
Partners Holdings Company, in the form of cash or a note payable-in-kind
maturing September 30, 2009, based on one of the companies we acquired in March
1999 achieving specified EBITDA targets in 2000. Payment by Precision Partners
Holding Company of this additional contingent payment, assuming the maximum
amount is earned, would result in an annual increase in our goodwill
amortization of approximately $0.5 million. Additional contingent payments,
which were payable by Precision Partners Holding Company, based on this company
and another company acquired in March 1999 meeting certain EBITDA targets in
1999 were not earned. In addition, a bonus payment of $3.0 million, based on one
of the acquired companies achieving certain 1999 EBITDA targets, is payable in
2000 to the former stockholder of this company who is now an employee of our
company. This bonus payment was accrued in December 1999 as compensation expense
and will be paid no later than April 2000.
We plan to continue our acquisition strategy and expect to finance future
acquisitions using cash, capital stock, notes and/or assumption of indebtedness.
However, the restrictions imposed on us by our long-term debt instruments may
affect this strategy. In addition, to fully implement our growth strategy and
meet the resulting capital requirements, we may be required to request increases
in amounts available under our credit facilities, issue future debt securities
or raise additional capital through equity financings. There can be no assurance
that any such increase to our credit facilities will be available or, if
available, will be on terms satisfactory to us, or that we will be able to
successfully complete any future debt or equity financings on satisfactory
terms, if at all. As a result, we could be placed at a competitive disadvantage
in pursuing acquisitions.
Based upon current operations and the historical results of our
subsidiaries, we believe that our cash flow from operations, together with
available borrowings under our new revolving credit facility, will be adequate
to meet our anticipated requirements for working capital, capital expenditures,
lease payments, and scheduled interest payments over the next 12 months.
However, there can be no assurance that we will continue to generate cash flow
above current levels or that the acquired companies will repeat their historical
performance. In addition, our ability to pay the notes at maturity will depend
on the availability of refinancing. See "Risk Factors--Risks Associated With Our
Indebtedness."
37
<PAGE>
BACKLOG
Firm backlog for 1999 increased 36.1% to $107.7 million from $79.1 million
at December 31, 1998. Firm backlog represents the sales price of all undelivered
products for which we have customer purchase orders or contractual coverage that
will be delivered within the next 12 months. All of our firm backlog is subject
to price renegotiations, terminations or rescheduling at the customer's
convenience. Firm backlog for December 31, 1998 has been restated to be
consistent with the current method of calculating backlog.
DISCLOSURE ABOUT MARKET RISK
Our term loan facility provides for interest to be charged at either the
Eurodollar rate or a base rate determined in accordance with the credit
agreement. Based on our current level of borrowings from our term loan facility,
a 1.0% change in interest rate would result in a $0.2 million annual change in
interest expense. Our revolving line of credit provides for interest to be
charged at either the Eurodollar rate or a base rate determined in accordance
with the credit agreement. Based on our current level of outstanding revolving
line of credit, a 1.0% change in interest rate would result in a $0.1 million
annual change in interest expense. The remainder of our debt is at fixed
interest rates that are not subject to changes in interest rates. We do not own
nor are we obligated for other significant debt or equity securities that would
be affected by fluctuations in market risk.
INFLATION
We do not believe that inflation has had a significant impact on our cost of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued the FASB
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
which is effective for fiscal periods beginning after June 15, 2000. We adopted
this statement during 1999 and such adoption had no material effect on our
financial statements.
YEAR 2000
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
on-going business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
finanical closings at month, quarterly or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
We expended $0.9 million on Year 2000 readiness efforts from 1997 to 1999.
These efforts included replacing some outdated, noncompliant hardware and
noncompliant software as well as indentifying and remediating Year 2000
problems.
38
<PAGE>
BUSINESS
THE COMPANY
We are a leading contract mechanical manufacturing services supplier of
complex precision metal parts, tooling and assemblies for original equipment
manufacturers. Our flexible manufacturing facilities and operating processes
enable us to service customers across a wide range of industries and
aggressively pursue new customers in industries where we see the potential for
strong growth. Our customers include industry leaders such as General Electric,
New Venture Gear, a joint venture of General Motors and DaimlerChrysler, Xerox,
Boeing, Caterpillar and Dana. We have earned "Preferred" or "Qualified" supplier
status with most of our customers and are predominantly the sole-source supplier
to our customers of the parts we manufacture. Our pro forma revenues and EBITDA
for the fiscal year ended December 31, 1999 were $149.8 million and
$26.1 million, respectively, representing a 17.5% EBITDA margin.
Our broad manufacturing capabilities and highly engineered processes allow
us to meet the critical specifications of our customers. We manufacture parts,
ranging in size from approximately 1 ounce to over 100,000 pounds, to extremely
close tolerances. We are also able to maintain tight tolerances, across flat
sheets and surfaces with multiple contours. We work with traditional materials
such as steel, aluminum, iron, copper, magnesium and bronze, as well as exotic
and difficult to machine materials such as titanium, inconel, invar and
hastelloy. In addition, we provide our customers with design assistance, process
and product engineering support and quality testing.
Our manufacturing expertise includes precision machining such as milling,
turning, boring, drilling, broaching and grinding, as well as value-added
services such as prototyping, assembly, forming, welding, heat treating and
plating.
The industries we serve and the related precision parts, assemblies and
tooling we machine and manufacture include:
- Power Generation Industry - specialty alloy turbine wheels and spacers,
shrouds and nozzles;
- Automotive Industry - piston valves used primarily for automatic braking
systems in light trucks and sport utility vehicles and machined engine
blocks;
- Business Machines Industry - bases and internal components for high-end
scanners, digital imaging machines and copiers;
- Space and Satellite Industries - adapter rings, thrust rings, casting
chambers and handling and transport aids;
- Aerospace Industry; Commercial and Military - precision tooling including
bond jigs, assembly jigs and mill fixtures;
- Agriculture and Construction Equipment Industries - high tolerance bearing
caps, transmission housings and diesel and gas pump housings; and
- Transportation Industry - class eight heavy truck axles and related parts
and engine blocks.
INDUSTRY
The U.S. precision custom manufacturing industry is highly fragmented and,
excluding precision manufacturing operations owned directly by original
equipment manufacturers, is estimated to be comprised of approximately 7,500
companies representing, over the last several years, annual revenues in excess
of $20 billion. Within this market, precision machine shops and specialty tool
manufacturers represent in excess of $13 billion of these revenues. As a result
of high fragmentation and a large number of captive original equipment
manufacturer operations, we believe there has been and will
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continue to be significant consolidation opportunities among industry
participants. According to industry sources, since 1992, the U.S. precision
machining industry has grown at a rate of approximately 10% per year. We believe
that a significant component of this growth has been and will continue to be
attributable to an increase in outsourcing by original equipment manufacturers.
Historically, many of the large original equipment manufacturers were
vertically integrated with large in-house component machining capabilities. They
primarily utilized precision machining companies only for short term over-flow
production of parts during periods of great demand. During the past several
years, however, original equipment manufacturers have been increasingly
outsourcing component manufacturing functions and, in many cases, eliminating
their in-house machining capabilities. This outsourcing has been driven by the
original equipment manufacturers' desire to:
- reduce costs;
- increase efficiency;
- improve quality;
- shorten product development cycles; and
- increase their focus on core capabilities.
Furthermore, while original equipment manufacturers continue to increase the
amount of outsourced manufacturing, they have also begun to consolidate their
supplier bases to ensure quality, decrease administrative costs and improve
service, design and assembly coordination. Leading original equipment
manufacturers are increasingly relying on their "Preferred" or "Qualified"
suppliers to provide a full line of high quality manufacturing and sub-assembly
services, as well as manufacturing engineering and design assistance. We intend
to continue to capitalize on these industry trends by providing our customers
with a broad array of precision machining capabilities and by leveraging our
competitive strengths.
COMPETITIVE STRENGTHS
LEADING SUPPLIER OF HIGH QUALITY, DIFFICULT-TO-PRODUCE PARTS. We focus on
manufacturing and supplying precision metal parts and assemblies which require
exceptionally close tolerances and involve complex processes. Many of our parts
also involve microfine surface finishes and exotic, difficult to machine
materials. We manufacture parts ranging in size from approximately 1 ounce to
over 100,000 pounds and from less than 1 inch to over 20 feet in diameter. These
parts are manufactured to tolerances as tight as 50 millionths of an inch. We
are also able to maintain tolerances across flat sheets and surfaces with
multiple contours to within 1/1000 of an inch to produce three-dimensional
sculptured contouring and precise geometric shaping of parts. By focusing
primarily on more complex parts and assemblies with exacting dimensional and
cosmetic requirements, we believe we distinguish ourselves as a unique contract
manufacturer of a variety of high quality, difficult-to-produce parts.
BROAD MANUFACTURING CAPABILITIES SERVING DIVERSE END MARKETS. Our broad
range of manufacturing capabilities allows us to meet the exacting requirements
of customers serving a variety of end markets and reduces the need for our
customers to rely on multiple suppliers. Most of our manufacturing processes and
equipment can, with certain adjustments, produce a variety of parts and
assemblies. We therefore have the flexibility to serve customers in a wide range
of industries. We currently serve such diverse industries as power generation,
automotive, business machines, space and satellites, agriculture and
construction equipment, commercial and military aerospace and surgical supplies.
We believe that our manufacturing adaptability, coupled with our diverse range
of end markets, allows us to mitigate volatility or downturns in any one
particular sector. Additionally, through our ability to produce a wide range of
parts and assemblies we are able to capitalize on the increasing trend among our
customers to focus on a fewer number of "Preferred" or "Qualified" suppliers
capable of servicing their multiple needs.
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<PAGE>
STRONG CUSTOMER RELATIONSHIPS. We have built strong relationships with our
customers by focusing on delivering high-quality complex precision parts and by
consistently offering on-time delivery, quick product turnaround and value-added
services. We have earned "Preferred" or "Qualified" supplier status with most of
our customers and we are predominantly the sole-source supplier to our customers
of the parts we manufacture. Our customer base consists of industry leaders such
as General Electric, New Venture Gear, Xerox, Mannesmann (Rexroth), LucasVarity
(Kelsey Hayes), Raytheon, Boeing, DaimlerChrysler, Robert Bosch, Caterpillar,
Johnson & Johnson, Kodak and Dana. We proactively work with customers and their
engineers to improve the design and manufacturing specifications of the product
material, the part to be produced and the tooling required to produce the
customer's finished product. These initiatives often lead to improved quality
and part performance, increased operating efficiency and reduced manufacturing
costs. We believe that the strong relationships and "Preferred" or "Qualified"
supplier status we have established with our customers present a significant
barrier to entry for our competitors on the parts we manufacture and give us a
competitive advantage procuring additional work.
MODERN, HIGH QUALITY OPERATIONS. We believe that our modern facilities,
diverse manufacturing capabilities and commitment to continuous operational
improvements enable us to consistently meet the demanding quality, tolerance and
cosmetic requirements of our customers. Over the last two years, we have
invested a substantial amount to ensure that our facilities are state-of-the-art
and will remain so for years to come without substantial additional
expenditures. Our modern manufacturing operations utilize advanced computer
numerically controlled machines with automatic tool changers and on-machine
gauging, as well as laser inspection machines. Our facilities and processes meet
demanding customer certification and quality requirements. We participate in
General Electric's Six Sigma program, are a D-1 supplier for Boeing and have
received NASA's coveted Silver Snoopy award for outstanding effort in
contributing to the success of space flight missions based on quality, safety
and cost efficiency. Currently, five of our manufacturing facilities are ISO
9000, DI 9000, and/or QS 9000 certified, with the remaining facility expected to
be certified by August 2000. Management believes that our commitment to modern,
high-quality manufacturing processes has been and will continue to be a key
reason for our strong growth and improvements in operating profitability.
EXPERIENCED MANAGEMENT TEAM. Our management team is comprised of executives
and plant managers who have, on average, over 25 years of manufacturing,
engineering and operational experience. We believe this management team has
demonstrated an ability to attract new customers, adapt to changing industry
trends and continuously improve manufacturing operations and efficiency. We also
believe that this management team will be able to continue to grow our company
and to manage even larger operations as we grow.
BUSINESS STRATEGY
CAPITALIZE ON INDUSTRY TRENDS. We intend to capture additional business
from existing customers and actively pursue new customers by capitalizing on
recent trends among leading original equipment manufacturers to increase
manufacturing outsourcing and concentrate on fewer, more reliable suppliers. By
leveraging our competitive strengths, we believe we can offer customers the
significant competitive advantages that can be obtained from manufacturing
outsourcing, including reduced costs, increased efficiency, improved quality and
shortened product development cycles. By continuing to focus on customer needs
and aggressively marketing our diverse manufacturing capabilities, we believe we
can capture incremental and new business from existing customers as well as
become the supplier of choice and sole-source for a variety of key complex
precision machine parts for new customers with outsourcing needs.
PURSUE CROSS-SELLING OPPORTUNITIES AND BROADEN CUSTOMER BASE. Our operating
subsidiaries' diverse manufacturing capabilities and complementary customer
bases create a number of cross-selling
41
<PAGE>
opportunities which we intend to aggressively pursue. We intend to proactively
market to both current and new customers our full range of process capabilities.
By doing so, we expect to further penetrate certain of the industries we
currently serve, as well as to expand into other industries where we see the
potential for strong growth.
IMPLEMENT OPERATING BEST PRACTICES AND MAXIMIZE EFFICIENCIES. We intend to
continue to focus and capitalize on the best practices of each of our operations
including manufacturing processes, capacity utilization, inventory management
and cycle and flow times from customer order to delivery. Management plans to
utilize production resources to maximize manufacturing efficiency across our
operating subsidiaries. Our operating philosophy is based on increasingly lean
production systems supported by excellence in customer service, as measured by
quality, on-time delivery, quick turnaround and low manufacturing cost. We have
a comprehensive company-wide management system that includes site visits and
periodic operating management meetings to leverage our market and manufacturing
expertise, focus on innovation and benchmarking and solve problems using a team
oriented approach. We believe implementing these best practices and maximizing
operating efficiencies will lead to continuing improvements in labor
productivity, reductions in overhead and scrap rates, decreased manufacturing
flow time and increased working capital turnover.
PURSUE STRATEGIC ACQUISITIONS. We believe we are well-positioned to take
advantage of the high fragmentation in the precision custom manufacturing
industry to continue to build a world class contract manufacturer of precision
parts, assemblies and tooling. We intend to do this by pursuing strategic
acquisitions which will expand, diversify our existing customer base, end
markets served and our portfolio of processing capabilities. We will continue to
focus on acquisitions of financially sound companies that manufacture high
quality, difficult to produce parts, tooling and assemblies and that are the
leading suppliers of those products to their customers.
CUSTOMERS
We currently service customers across a wide range of industries including
the power generation, automotive, business machines, space and satellite,
agriculture and construction equipment, commercial and military aerospace,
surgical supply and transportation industries. We have focused on developing
solid relationships with customers that are leaders in their respective
industries such as General Electric, New Venture Gear, Xerox, Mannesmann
(Rexroth), LucasVarity (Kelsey Hayes), Raytheon, Boeing, DaimlerChrysler, Robert
Bosch, Caterpillar, Johnson & Johnson, Kodak and Dana. Our largest customer,
General Electric, accounted for approximately 26.5% of our 1999 net sales and
our top ten customers represented approximately 67% of our 1999 net sales. We
have earned "Preferred" or "Qualified" supplier status with most of our
customers and we are predominantly the sole-source supplier to our customers of
the parts we manufacture.
We believe that we have developed strong and loyal customer relationships
with leading original equipment manufacturer's based on our ability to reliably
deliver high-precision, high-quality metal parts and our focus on providing the
highest level of service. We believe that the strong relationships and the
"Preferred" and "Qualified" supplier status we have established with our
customers present a significant barrier to entry for our competitors.
We obtain most of our orders for new precision parts, tooling or assemblies
through a presourcing process by which the customer invites one or more
"Preferred" or "Qualified" suppliers to bid on the design and/or manufacture of
a part or assembly that meets certain price, timing and functional parameters.
We then typically receive a blanket purchase order that covers parts and/or
assemblies to be supplied for the particular end-product. These supply
arrangements normally extend over the life of the particular part or assembly.
In addition, we compete to supply parts and assemblies for successor models of a
customer's product, even though we may currently be a preferred supplier of
parts or assemblies on a current or predecessor model. Our customer
relationships, coupled with the essential
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<PAGE>
nature of many of the complex, close tolerance products we manufacture, have
enabled us to participate with our customers in the development of products and
to receive contracts that range in duration from annual blanket purchase orders
to six years.
Bids for new business are based on a target sale price, based on our
experience with making parts or assemblies of a similar nature. Prior to our
commitment for full production, we and the customer generally agree on a final
price, which, in some instances, may be subject to negotiated price reductions
over the life of the project.
MARKETING AND DISTRIBUTION
We market our parts and manufacturing capabilities either through an
internal sales force or an outside agency. We believe that our stable and
experienced sales force, coupled with senior management communication with key
customers, has been a key reason for our success in maintaining customer loyalty
and building new customer relationships. Most of our sales personnel have worked
with the same customers for many years. Prior to their acquisition by our
company, the sales forces at each of our subsidiaries operated independently of
one another. While maintaining the decentralized focus to promote customer
service and expertise, we expect to introduce an additional focus on marketing
our broad operating capabilities to pursue a number of cross-selling
opportunities which we believe exist between the complementary customer bases of
our subsidiaries. We compensate our sales force based on a base salary and/or
commissions.
Our parts either are shipped by common carrier, picked up by customers at
our facilities or delivered to customers by our own truck fleet.
PARTS AND END USES
Many of the parts we manufacture require innovative technical production
solutions to customer-specific requirements, as well as considerable
manufacturing expertise. The following table sets forth a sample of the complex,
precision parts or assembles that we manufacture for our customers, together
with the industry and end-use for such part.
<TABLE>
<CAPTION>
INDUSTRY CUSTOMER PART/ASSEMBLY END USE
- --------------------------- -------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Power Generation General Electric Turbine Wheel Hot section of land-based
power turbine
Automotive LucasVarity (Kelsey Piston/Pump Assembly Anti-lock braking systems
Hayes) Engine Blocks for light trucks
Business Machines Xerox Internal Components and High volume copiers,
Bases digital imaging copiers,
scanners
Agriculture and Caterpillar Bearing Caps Stabilizes engine shaft
Construction Equipment Transmission Housings and
Casings
Automotive New Venture Gear Transmission Housings Transmissions for light
trucks
Surgical Supplies Johnson & Johnson Surgical Saw Shaft Lapthroscopic and
endoscopic disposable
instruments
Military and Commercial Boeing Bond Jig Tooling Tooling for manufacture of
Aerospace nacelle frame
Space Thiokol Assembly Mold Tooling Tooling for Space Shuttle
rocket
Automotive Mannesmann (Rexroth) Diesel Engine Pump Housings Diesel gas pumps
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY CUSTOMER PART/ASSEMBLY END USE
- --------------------------- -------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Business Machines Kodak Internal Components and High and low volume copiers
Bases and thermal printers
Commercial Satellites Northrop Grumman Cure Fixtures Tooling Molds for commercial
satellite rocket components
Specialty Automotive DaimlerChrysler High Performance Engine Holds moving engine parts
Blocks for racing cars
Transportation Dana, Alstom Truck Axles, Switching Class eight trucks and
Signaling and Gears and Engine Blocks railroad switch gears
Caterpillar
Medical Ortho Clinical Base plate Blood analyzer
Diagnostics
</TABLE>
A majority of our parts are manufactured by us in their final configuration
with no additional processing, including brake piston plungers for LucasVarity,
bearing caps and engine blocks for Caterpillar and bond jigs for Boeing. In
concert with our customers, we routinely develop prototype parts. For example,
we have produced prototype parts for Johnson & Johnson's lapthroscopic and
endoscopic disposable instruments, for the joint strike fighter, for General
Electric's land-based power generation systems, for the Delta IV rocket and for
the assembly which links the modules of the International Space Station.
DESIGN, DEVELOPMENT AND ENGINEERING
Our customer-focused approach fosters a close working relationship with our
customers' engineers to improve the design and manufacturing specifications of
the parts we produce. We are able to develop our own tools, processes and
prototypes to test design parameters for minimization of variability and
lead-times. We apply engineering techniques such as computer aided design,
computer aided manufacturing and failure mode and effects analyses to optimize
part functionality and manufacturability. We believe our in-house capability to
develop and produce prototypes using standard and customized manufacturing
equipment and processes is a competitive advantage. We provide our customers
with full systems support to control product timing and ensure part quality and
reliability through all phases of design, launch and production manufacturing.
As a result, we are able to take an innovative, leadership role in the
development, design and assembly of parts, machines and systems to meet or
exceed customer requirements.
Through our computer aided manufacturing and computer aided design systems
we are able to provide virtual prototyping. This process enables hundreds of
design solutions to be visualized quickly and easily and facilitates product
design and manufacturing. Our computer systems are capable of finite element
analyses and simulation, as well as design for manufacturing and assembly. These
processes allow many aspects of a design to be evaluated prior to production,
resulting in lower tooling costs, reduced testing requirements and quicker time
to market.
Our reputation for quality, reliability and design improvement has led to
numerous requests for participation on customer engineering teams. Our
understanding of cutting tool technology and difficult to machine materials
makes our employees value-adding members of these teams. Through this
participation we are able to work with our customers to identify the most cost
effective process, materials and manufacturing methods for any specific
application. Once the design phase of the engineering process is completed, our
expertise and experience allow us to engineer and customize our tooling,
machines and systems to achieve the highest quality path to the customer's
requirements.
The parts we manufacture often have sophisticated tooling requirements which
we internally build or customize. The development costs are either billed to the
customer or amortized over the life of the parts. The tooling development
typically begins early in the engineering cycle and is quickly completed after
being selected as the supplier of choice.
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MANUFACTURING
Our manufacturing expertise includes precision machining capabilities such
as turning, milling, boring, drilling, broaching and grinding, as well as
value-added services such as prototyping, forming, fabrication, welding, heat
treating, plating, painting, tapping and assembly. We believe that the breadth
of our in-house process capability provides us with a significant competitive
advantage in being a sole-source supplier for our customers' multiple needs. To
produce many of our components, we develop innovative solutions to
customer-specific requirements by customizing either the process, the tooling or
the machines.
By highly engineering the process, we are able to utilize general-purpose
machines with computer numerically controlled capabilities to manufacture very
complex and difficult to machine parts in many different configurations with a
high degree of accuracy. Through data feedback, we systematically test for
quality throughout the entire manufacturing process. Our advanced computer
numerically controlled equipment includes machines with automatic tool changers
and on-machine gauging, as well as laser inspection machines. With computer
numerically controlled equipment, we are able to increase efficiency and
turn-around times by identifying, documenting and correcting potential defects
and irregularities and by more accurately shaping or cutting parts, while at the
same time, allowing the parts we are manufacturing to be run quickly and in
small lot sizes.
We are also able to manufacture complex and difficult to machine parts by
customizing our tooling and equipment. We are able to do this by capitalizing on
our substantial expertise and experience with a wide variety of part styles and
sizes, our knowledge of various cutting tools and our highly skilled workforce.
As a result, we are able to design and develop our own tooling, customize
conventional tooling and create customized machinery. Based on our innovative
approach to tooling and fixturing, we are able to tailor-make fixtures that help
hold tolerances and improve repeatability and consistency. We can also
reengineer conventional machines and cutting tools by changing heads, adding
computer numerically controlled capability or combining the most appropriate
aspects of different apparatus to create a better-designed machine to improve
manufacturability of parts. We also utilize functional gauging for quality
inspections to ensure accuracy and precision, thereby also improving
repeatability and consistency.
We emphasize a cellular approach to manufacturing. This approach allows our
processes to utilize such technology as optical measuring devices and robotics.
Further, we utilize a pelletized manufacturing approach which is easily
converted from one product application to another, and has lower reprogramming
costs than the traditional hard automation approach. Cellular manufacturing also
helps promote our team approach for optimizing the manufacturability of a part
by reducing inventory and increasing our through-put rate by better process
control, minimization of set-up times and improved traceability and
correctibility of errors at all stages of the manufacturing process. We also
utilize just-in-time manufacturing and sourcing systems which help us to meet
our customer requirements for faster deliveries while also minimizing inventory
levels.
Our operating philosophy emphasizes delivering a quality product, on time,
at the lowest achievable cost. Continuous improvement on these operating
parameters is achieved by driving our operations toward shorter and shorter lead
and cycle times, which in turn requires increasingly higher standards of
quality. We believe our disciplined approach to our manufacturing operations,
including monthly operations reviews and meetings, facilitates employee
participation and motivates management and employees to strive for better
operational performance. Through this process, we are also able to leverage
market and manufacturing expertise, put a focus on innovation and benchmarking
and solve problems using a team oriented approach. As a result, we can improve
productivity, quality and employee commitment while reducing inventory, floor
space requirements and lead times.
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QUALITY
Product quality is among the most important factors in maintaining
"Preferred" and "Qualified" supplier status with original equipment
manufacturers. In order to meet the exacting requirements of our customers, we
maintain the most stringent standards of quality control. We routinely employ
in-process inspection by using testing equipment as a process aid during all
stages of design, launch and the machining process to assess compliance. These
include state-of-the-art computer assisted design and computer assisted
manufacturing equipment, statistical process control systems, laser tracking
devices, failure mode and effect analysis and coordinate measuring machines. We
are also able to extract numerical control quality control data from our
computer numerically controlled machines, a statistical measurement of the
quality of the parts being manufactured. Our customers use this information in
place of inspections to determine quality assurance. In some cases, we have
installed testing equipment identical to that of our customers, again
eliminating the need for reinspection by our customers. We also perform quality
control tests on all parts we outsource to small machine shops. As a result, we
are able to significantly reduce defective parts and therefore improve
efficiency, quality and reliability.
Currently, five of our manufacturing facilities are ISO 9000, DI 9000,
and/or QS 9000 certified, with the remaining facility expected to be certified
by August 2000. Original equipment manufacturers are increasingly requiring
these standards in lieu of individual certification procedures and as a
condition to awarding business. We participate in General Electric's Six Sigma
program, are a D-1 9000 supplier for Boeing and have received NASA's coveted
Silver Snoopy award for outstanding effort in contributing to the success of
space flight missions based on quality, safety and cost efficiency.
We believe that our commitment to modern, high-quality manufacturing
processes has been and will continue to be a key reason for our strong customer
loyalty and growth and that the expense required to institute and maintain
quality control procedures comparable to ours represents a barrier to entry for
other companies.
COMPETITION
We operate in an industry which is highly fragmented and competitive. A
variety of suppliers with different subsets of our manufacturing capabilities
compete to supply the stringent demands of large original equipment
manufacturers. Competition is generally based on price, quality, timeliness of
delivery, design and engineering support and service and, in some instances, on
our ability to deliver assemblies or sub-assemblies rather than individual
parts. To an extent, the original equipment manufacturers are able to compete
with their suppliers, since they can produce their own components and assemblies
if they so choose. However, during the past several years, original equipment
manufacturers have been increasingly outsourcing component manufacturing
functions and, in many cases, eliminating their in-house machining capabilities,
in an effort to reduce costs, increase efficiency, improve quality and shorten
product development cycles.
A large number of actual or potential competitors exist, including the
internal component operations of the original equipment manufacturers as well as
independent suppliers, some of which are larger and have greater financial and
other resources than we do. However, we believe that none of these competitors
competes with us along all of our manufacturing capabilities. In addition, our
business is increasingly competitive due to the supplier consolidation resulting
from increased outsourcing by original equipment manufacturers and supplier
management policies designed to strengthen their supply base. These policies
include designating a limited number of suppliers as "Preferred" or "Qualified"
suppliers and, in some cases, encouraging new suppliers to begin to supply
selected product groups. We principally compete for new business both at the
beginning of the development of new products and upon the redesign of existing
products by our major customers. Because of the large investment by original
equipment manufacturers in tooling and the long lead time required to commence
production, original equipment manufacturers generally do not change a
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supplier during a program. If, however, a customer becomes dissatisfied with our
prices, quality or timeliness of delivery, it could award future business or, in
an extreme case, move existing business to another supplier.
SUPPLIERS, SUBCONTRACTORS AND RAW MATERIALS
Generally, our raw materials consist of traditional materials such as steel,
aluminum, iron, copper, magnesium and bronze, as well as exotic and difficult to
machine materials such as titanium, inconel, invar and hastelloy. These
materials are typically delivered in the form of bar stock, precision forgings,
castings and flat sheets. A majority of our raw materials are supplied by our
customers on consignment. Raw materials not supplied by our customers are
purchased from several suppliers, and we do not believe that we are dependent on
one or very few of them. All of these materials were available in adequate
quantities to meet our production demands in 1998 and 1999.
We may subcontract certain of our manufacturing or services such as plating
or painting, among others, to third parties. We have an active subcontractor
program that, among other things, assesses subcontractor capabilities and
quality on an on-going basis. We use a limited number of subcontractors based on
their ability to deliver high quality parts or services on a cost effective
basis. We have not experienced any difficulty obtaining necessary raw materials
or subcontractor services.
FACILITIES
In addition to our corporate office, we operate ten manufacturing
facilities, two of which we own and the remainder of which we lease. Leases
expire at various times through April 2007 and we generally have extension
options.
The following table summarizes the location of our manufacturing facilities
and their general size:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE TYPE OF INTEREST
- -------- -------------- ----------------
<S> <C> <C>
FACILITIES:
Buena Park, California (Altura)................ 32,000 Leased
Buena Park, California (Burnham)............... 41,000 Leased
Cerritos, California........................... 28,000 Leased
Plymouth, Michigan............................. 52,000 Owned
Canton, Michigan............................... 29,000 Leased
Canton, Michigan............................... 66,000 Leased
Skokie, Illinois............................... 82,000 Owned
Winslow, Maine................................. 92,000 Leased
Rochester, New York............................ 140,000 Leased
Rochester, New York............................ 73,000 Leased
CORPORATE OFFICE:
Irving, Texas.................................. 3,000 Leased
</TABLE>
BACKLOG
Firm backlog for 1999, increased 36.1% to $107.7 million from $79.1 million
at December 31, 1998. Firm backlog represents the sales price of all undelivered
products for which we have customer purchase orders or contractual coverage that
will be delivered within the next 12 months. All of our firm backlog is subject
to price renegotiations, termination or rescheduling or the customer's
convenience. Firm backlog for December 31, 1998, has been restated to be
consistent with the current method of calculating backlog.
47
<PAGE>
ENVIRONMENTAL AND SAFETY REGULATION
Our equipment, facilities and operations are subject to increasingly complex
and stringent federal, state and local laws and regulations pertaining to the
protection of human health and the environment. These include, among other
things, the discharge of contaminants into the environment and the handling and
disposition of wastes (including industrial, solid and hazardous wastes). In
addition, we are required to obtain and maintain regulatory approvals in the
United States in connection with our operations. Many environmental laws and
regulations provide for substantial fines and criminal sanctions for violations.
Based on the results of Phase I environmental site assessments which were
performed at each of our facilities in 1998 and 1999, we believe that we are in
material compliance with applicable environmental laws and regulations. We
continue to incur capital expenditures to ensure compliance with applicable
environmental laws and regulations. However, in 1998 and 1999, capital
expenditures for environmental control projects were not material. Based on
current information, we estimate that capital expenditures for environmental
control projects in 2000 will also not be material. It is difficult to predict
the future development of such laws and regulations or their impact on future
earnings and operations. The timing and magnitude of costs related to
environmental compliance may vary and we cannot assure you that material costs
or liabilities will not be incurred.
Certain environmental laws provide for strict, joint and several liability
for investigation and remediation of spills and other releases of hazardous
materials. These laws typically impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of any hazardous
materials. Persons who arrange (as defined under these laws) for the disposal or
treatment of hazardous materials also may be liable for the costs of
investigation, removal or remediation of such materials at the disposal or
treatment site, regardless of whether the affected site is owned or operated by
them. Such liability is strict, and may be joint and several.
Because we own and operate a number of facilities, and because we arrange
for the disposal of hazardous materials at many disposal sites, we may incur
costs for investigation, removal and remediation, as well as capital costs
associated with compliance with environmental laws and regulations. Although
such environmental costs have not been material in the past and are not expected
to be material in the future, changes in environmental laws and regulations or
unexpected investigations and clean-up costs could have a material adverse
effect on our business, financial condition or results of operations.
EMPLOYEES
As of December 31, 1999, we had over 1,000 employees, approximately 87.5% of
whom were employed in manufacturing and the remainder of whom were office and
managerial employees. None of our employees is represented by a union or covered
by a collective bargaining agreement. We believe our relations with our
employees are satisfactory.
LEGAL PROCEEDINGS
We are a party to various litigation matters that are incidental to our
business. We do not believe that the outcome of any of these legal proceedings
will have a material adverse effect on our business, financial condition or
results of operations.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors and executive officers as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
James E. Ashton...................... 57 Chief Executive Officer and Director
Ronald M. Miller..................... 55 Chief Financial Officer and Secretary
Melvin D. Johnson.................... 53 Executive Vice-President for Operations
Robert Womack........................ 62 Chairman and Director
John F. Megrue....................... 41 Director
William J. Gumina.................... 29 Director
Richard W. Detweiler................. 58 Director
David W.M. Harvey.................... 35 Director
</TABLE>
Effective as of April 26, 2000, Mr. Womack was appointed to our Board of
Directors to fill the vacancy that was left when John Clark resigned as a
director in February, 2000. Effective as of April 26, 2000, Dr. Ashton resigned
as Chairman of our Company. He will, however, continue to serve as Chief
Executive Officer and director until his successor is named. In addition, on
that same date, we announced that Messrs. Miller and Johnson will also be
resigning. However, each will continue to serve in their current positions until
their successors are named.
DR. JAMES E. ASHTON has been our Chairman of the Board of Directors, Chief
Executive Officer, and a director since our formation. He has over 30 years of
experience in the aerospace, defense, oil service, medical products and
composite materials industries. Prior to joining our company, Dr. Ashton served
as Chairman and CEO of Fiberite, Inc. ("Fiberite"), a manufacturer of composite
materials. From April 1989 to June 1994, he served as Vice President and General
Manager of the Armament Systems division of FMC Corp. (now United Defense,
L.P.), a defense contractor ("FMC"). Prior to 1989, Dr. Ashton served in various
management positions at Rockwell International Corporation, Schlumberger Ltd.,
Healthdyne, Inc. and General Dynamics Corporation.
RONALD M. MILLER has been our Chief Financial Officer since our formation.
Prior to joining our company, he served as the Chief Financial Officer and Vice
President, Finance and Treasurer of Fiberite. Before joining Fiberite in
April 1996, Mr. Miller served in various management positions at Rohr, Inc., an
aerospace manufacturing company, including as its Vice President, Finance &
Treasurer.
MELVIN D. JOHNSON has been our Executive Vice-President for Operations since
our formation. He has over 28 years of experience in the aerospace/defense,
transportation, oilfield services, computer peripherals and photocopying
industries. Prior to joining our company, Mr. Johnson was a member of the
executive team of Fiberite, and served as general manager of Fiberite's Winona,
Minnesota division. From 1970 until 1996, Mr. Johnson held management positions
with Xerox Corporation, CalComp Technology Inc., a manufacturer of computer
graphic peripherals and a subsidiary of Lockheed Martin Corp.,
Schlumberger Ltd., FMC and Trailmobile Trailer Corporation, a manufacturer of
platform trailers.
ROBERT WOMACK has served as our Chairman and as a director since April 26,
2000. Prior thereto, he served as Chairman and Chief Executive Officer of U.S.
Industries Bath and Plumbing Products, a diversified manufacturer of plumbing,
bath and HVAC products. From October, 1994 to January, 2000, he served as
Chairman and Chief Executive Officer of Zurn Industries, a diversified
manufacturing and engineering company. Mr. Womack has over 40 years of
manufacturing and consulting experience.
JOHN F. MEGRUE has been a director since our formation. He also serves as
Chairman of the Board and a director of Hibbett Sporting Goods, Inc., as Vice
Chairman of the Board and a director of
49
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Dollar Tree Stores, Inc., and as a director of The Children's Place Retail
Stores, Inc. Mr. Megrue has been a partner of Saunders, Karp & Megrue since
1992.
WILLIAM J. GUMINA has been a director since our formation. Mr. Gumina has
been a Vice President with Saunders, Karp & Megrue since January 1999 and was an
associate with Saunders, Karp & Megrue from March 1998 until he became a Vice
President. Prior to his association with Saunders, Karp & Megrue, Mr. Gumina was
an associate with Donaldson, Lufkin & Jenrette Merchant Banking Partners.
RICHARD W. DETWEILER has been a director since our formation. He also serves
on the Board of Directors of TreeSource Industries, Inc. Mr. Detweiler has been
a Managing Director with Carlisle since November 1996. Prior thereto he was
Chairman and CEO of Precision Aerotech, Inc., a publicly traded, diversified
manufacturing company. Mr. Detweiler has also held senior general management,
financial and manufacturing positions with Caterpillar, Inc., Sundstrand
Corporation and International Harvester (Navistar).
DAVID W. M. HARVEY has been a director since our formation in September
1998. Mr. Harvey is the President of Harvey & Company LLC, a merchant banking
and advisory services firm, he founded in 1998. Prior thereto, he was a managing
director of W.E. Myers & Co.
BOARD OF DIRECTORS
BOARD CONSTITUTION. Our bylaws provide that our Board of Directors consist
of six directors, four of whom are to be nominated by the Precision Fund, one by
Harvey and one collectively by Messrs. Ashton, Miller and Johnson. Currently,
all directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of our board of directors.
DIRECTOR COMPENSATION. Members of our Board appointed by Harvey, Saunders,
Karp & Megrue and Carlisle are reimbursed for expenses pursuant to certain
advisory agreements. See "Related Party Transactions." Dr. Ashton is reimbursed
by us for travel expenses incurred in connection with attending meetings.
We have established one standing committee of the board of directors, a
compensation committee. The compensation committee reviews and approves
executive salaries and administers our bonus, stock option and incentive
compensation plans. The compensation committee advises and consults with
management regarding significant employee benefit and compensation policies and
practices. Currently, the only member of the committee is Mr. Detweiler. A
replacement has not yet been appointed for Mr. Clark, who had been a member of
the compensation committee until his resignation.
EMPLOYMENT AGREEMENTS
We intend to enter into employment agreements with our senior management but
have not yet done so.
EXECUTIVE COMPENSATION
The following table provides information relating to compensation for our
chief executive officer and our two other most highly compensated executive
officers whose compensation is required to be disclosed by the rules and
regulations of the Securities Act. The compensation information for all of
50
<PAGE>
the named executive officers for 1999 and 1998 is based on their compensation
from us and has been annualized to reflect what their compensation would have
been had we been operating for all of 1998:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION/AWARD
------------------
ANNUAL COMPENSATION OTHER SHARES OF COMMON
------------------- ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------- -------- -------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James E. Ashton........... 1999 $178,000 -- $ 7,868 -- --
Chief Executive Officer 1998 $130,000 $32,500 $ 2,368 -- --
Ronald M. Miller.......... 1999 $107,000 -- 22,809 -- --
Chief Financial Officer 1998 $ 78,000 $ 9,750 2,368 -- --
Melvin D. Johnson......... 1999 $100,000 -- 17,056 -- --
Executive Vice-President 1998 $ 73,000 $ 9,125 2,368 -- --
for Operations
</TABLE>
OPTION GRANTS
None of the executive officers named in the summary compensation table have
options to purchase common stock under Precision Partners Holding Company's 1999
Stock Option Plan.
PRECISION PARTNERS HOLDING COMPANY 1999 STOCK OPTION PLAN
Precision Partners Holding Company adopted its 1999 Stock Option Plan to
provide an incentive to attract, retain and reward certain individuals
performing services for Precision Partners Holding Company, its subsidiaries or
affiliates. The plan provides for the granting of options to purchase shares of
Class B common stock of Precision Partners Holding Company to employees,
directors or consultants. The board of directors of Precision Partners Holding
Company, the members of which are the same as the members of our board of
directors, currently administers the plan. Under the plan the board of the
directors has the power to:
- determine the persons eligible to receive options and the number of shares
subject to each option;
- designate the options as incentive stock options or nonstatutory stock
options;
- determine the fair market value of shares of stock;
- determine the terms and conditions applicable to each option;
- approve one or more forms of option agreements;
- amend, modify or otherwise adjust the exercise price of an option;
- accelerate, continue, extend to defer the exercisability of any option;
and
- otherwise administer and interpret the plan.
As of the date of this prospectus, eligible individuals have been granted
options to purchase 2,669,000, net of forfeitures, under the 1999 plan pursuant
to option agreements. An additional 1,000 shares of common stock are reserved
for issuance under the plan. All of the options were granted at fair market
value. Precision Partners Holdings Company intends that any additional options
granted under the plan will be exercisable at a price per share not less than
the fair market value of the common shares at the date of the grant. The option
agreements provide that the options can vest based upon the period of services
provided to the Precision Partners Holding Company, the attainment of specified
performance objectives, and/or the passage of a specified period of time.
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<PAGE>
SECURITY OWNERSHIP
The following table sets forth information regarding beneficial ownership of
our common stock as of March 1, 2000 held by:
- each person or group believed by us to beneficially own more than 5% of
our common stock;
- our directors, chief executive officer and two other most highly
compensated executive officers; and
- all our directors and executive officers as a group.
Virtually all of our outstanding common stock is owned indirectly by Precision
Partners, L.L.C. through Precision Partners Holding Company. The applicable
percentage ownership for our common stock set forth below is based on 43,683,612
membership units of Precision Partners, L.L.C. outstanding as of March 1, 2000.
Under the rules and regulations of Regulation S-K under the Securities Act,
beneficial ownership is calculated in accordance with Rule 13d-1 under the
Exchange Act. Under these rules, the term includes not only shares owned by a
person or group, but also shares over which the person or group exercises voting
and/or investment power. These rules also treat common stock subject to options,
warrants or other securities that are currently, or within 60 days will be,
convertible into or exchangeable for common stock, including preferred stock, as
outstanding for purposes of calculating the beneficial ownership of the person
owning such option warrant or other convertible or exchangeable security but not
outstanding for purposes of computing the total number of outstanding shares or
the beneficial ownership of any other person. Except as otherwise noted, we
believe that each of the holders listed below has sole voting and investment
power over the shares beneficially owned by them.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF NUMBER OF SHARES COMMON
BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING
- ------------------------------------------------------------ ------------------ -----------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS(1):
James E. Ashton............................................. 2,552,184 5.8%
Ronald M. Miller............................................ 419,494 1.0%
Melvin D. Johnson........................................... 251,697 0.6%
John F. Megrue(2)........................................... -- --
William J. Gumina(2)........................................ -- --
Richard W. Detweiler(2)..................................... -- --
David W.M. Harvey(3)........................................ -- --
All directors and executive officers as a group, 7
persons................................................... 3,223,375 7.4%
5% STOCKHOLDERS:
Precision Partners Investment Fund, L.L.C.(2)............... 36,367,236 83.2%
</TABLE>
- ------------------------
(1) All addresses are in care our company, except for Precision Partners
Investment Fund, L.L.C. whose address is 262 Harbor Drive, Stamford, CT
06902.
(2) Precision Partners Investment Fund, L.L.C. is owned by two private equity
funds sponsored by Saunders, Karp & Megrue, which collectively beneficially
own approximately 66.8% of our outstanding common stock, and by three
private equity funds sponsored by Carlisle, which collectively own
approximately 16.4% of our outstanding common stock. Messrs. Megrue and
Gumina are principals of Saunders, Karp and Megrue and may be deemed to be
beneficially own the shares owned by the two Saunders, Karp & Megrue
sponsored funds. Mr. Detweiler is a Managing Director with Carlisle and may
be deemed to beneficially own the shares owned by the
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<PAGE>
three Carlisle funds. Each of Messrs. Megrue, Gumina and Detweiler disclaim
beneficial ownership of such shares.
(3) Harvey Equity Partners, L.L.C., which owns approximately 3.3% of our
outstanding common stock, is a private equity fund sponsored by Harvey &
Company LLC, a merchant banking and advisory services firm, of which
Mr. Harvey is President and a founder. Mr. Harvey may be deemed to
beneficially own the shares owned by Harvey Equity Partners, L.L.C.
Mr. Harvey disclaims beneficial ownership of such shares.
Founded in 1990, Saunders, Karp & Megrue is a private equity investment firm
currently managing over $800 million of private equity capital. Since its
inception, Saunders, Karp & Megrue has focused on investing in recapitalizations
and buyouts of high-growth, middle market companies in the U.S. and on executing
consolidation strategies of fragmented U.S. industry segments. Saunders, Karp &
Megrue, through its private equity funds, has invested over $475 million in 27
companies concentrated in basic manufacturing, consumer products, restaurant,
retail, financial services and distribution industries.
Thomas A. Saunders, III and Allan W. Karp founded Saunders, Karp & Megrue in
1990 and in 1992 were joined by John F. Megrue (together, the "Saunders, Karp &
Megrue Founders"). Since that time, the Saunders, Karp & Megrue Founders have
invested the Saunders, Karp & Megrue equity funds and actively managed their
respective portfolio investments. The Saunders, Karp & Megrue Founders are
joined by other senior investment professionals and collectively they have
significant experience in both the formation, management and investment of
equity capital pools, and in the global capital markets, including financial
advisory and mergers and acquisitions activity.
RELATED PARTY TRANSACTIONS
A majority of our directors are also principals of Saunders, Karp & Megrue,
Carlisle and Harvey and are therefore in positions involving possible conflicts
of interest. However, our directors and officers and those of our subsidiaries
are subject to fiduciary obligations to act in our and our subsidiaries' best
interests, as the case may be. We maintain with a third party insurer, for the
benefit of our and our subsidiaries' directors and officers, liability insurance
against certain liabilities incurred by these directors and officers in such
capacity.
We may from time to time engage in certain transactions with related parties
and affiliates which include, among other things:
- business arrangements;
- lease arrangements for certain manufacturing facilities and offices; and
- the payment of fees or commissions for the transfer of manufacturing by
one operating company to another.
The indenture governing the outstanding notes and which will govern the
exchange notes generally requires that these types of transactions be on terms
no less favorable to us or the applicable subsidiary than those which could be
obtained on an arms' length basis from third parties. However, we can not
provide you with any assurance that such transactions will not adversely affect
our business, financial condition or results of operations.
Certain consulting and advisory fees were payable to Harvey in connection
with the financial performance of one of the companies acquired in March. In
addition, similar fees may be payable if that company achieves specific
financial performance targets in 2000 in connection with future acquisitions.
From time to time, Saunders, Karp & Megrue, Carlisle and Harvey may also receive
other customary fees in connection with divestitures, acquisitions and other
transactions involving us or our subsidiaries. In addition, Precision Partners
Holding Company has agreed to pay Saunders, Karp & Megrue and Carlisle an annual
monitoring fee.
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<PAGE>
DESCRIPTION OF CREDIT FACILITIES
GENERAL. We have a $23.0 million term loan facility and a $25.0 million
revolving credit facility, including a $2.0 million sublimit for letters of
credit. Each matures on March 31, 2005, unless terminated sooner upon an event
of default. If terminated upon an event of default, all outstanding advances
under the credit facilities may be required to be immediately repaid. The credit
facilities can be used to complete permitted acquisitions, pay fees and
expenses, or for working capital and other general corporate purposes.
Borrowings under the credit facilities bear interest, at our option, at either a
fixed rate equal to the higher of the overnight federal funds rate plus 50 basis
points and the prime rate announced from time to time by Citibank, N.A. plus a
margin of 100 to 200 basis points, based on our leverage ratio, or a floating
rate equal to LIBOR plus a margin of 200 to 300 basis points, also based on our
leverage ratio. Our ability to borrow under the credit facilities is subject to
our compliance with the covenants described below and a borrowing base based on
eligible accounts receivable and eligible inventory. At March 21, 2000,
approximately $44.3 million of borrowings were outstanding under the credit
facilities, consisting of the $23.0 million term loan and $21.3 million
outstanding under our revolver.
GUARANTEES AND SECURITY. All of our obligations under the credit facilities
are guaranteed, jointly and severally, by our existing and future domestic
subsidiaries and by Precision Partners Holding Company. In addition, our
obligations under the credit facilities are secured by a first priority pledge
of and security interest in all of the outstanding capital stock of our existing
subsidiaries and future domestic subsidiaries, 65% of the outstanding capital
stock of any future foreign subsidiary and substantially all of our assets and
the assets of our existing and future domestic subsidiaries, including
inventory, accounts receivable and all of our property, plants and equipment.
Our obligations under the credit facilities are also secured by a pledge by
Precision Partners Holding Company of all of our outstanding capital stock.
CERTAIN FINANCIAL COVENANTS. The credit facilities require that we meet and
maintain certain financial ratios and tests, including:
- a maximum consolidated leverage ratio, total debt to EBITDA;
- a minimum consolidated interest coverage ratio, EBITDA to interest
expense; and
- a minimum consolidated fixed charge coverage ratio, EBITDA to interest
expense plus other fixed charges.
CERTAIN OTHER COVENANTS. The credit facilities also contain covenants that
limit our ability and that of our operating subsidiaries to take various
actions, including:
- incurring additional indebtedness and liens;
- fundamentally changing corporate structure, including mergers,
consolidations and liquidations;
- disposing of property;
- making certain payments, including on indebtedness prior to maturity,
dividends and capital stock purchases;
- making investments;
- making capital expenditures;
- modifying certain instruments;
- changing fiscal periods;
- entering into sale and leaseback transactions;
- entering into affiliate transactions;
- entering into agreements restricting distributions;
- amending the acquisition documents;
- granting negative pledges; and
- entering into unrelated lines of business.
54
<PAGE>
EVENTS OF DEFAULT. The credit facilities contain customary events of
default with respect to us and our operating subsidiaries, including:
- nonpayment of principal, interest or fees when due;
- defaults with respect to other indebtedness;
- noncompliance with covenants and other agreements contained in the new
credit facilities;
- breaches of representations or warranties;
- events of bankruptcy;
- failure to satisfy or stay execution of judgments in excess of $1,500,000;
- incurrence of certain employee benefit liabilities;
- invalidity of any guarantee;
- failure of any new subsidiary to deliver documents necessary to create
valid, preferred security interests in collateral;
- invalidity or non-perfection of security interests in collateral;
- failure of the notes or guarantees thereof to be subordinated; and
- changes of control.
55
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The outstanding notes were, and the exchange notes will be issued under an
indenture among us, the subsidiary guarantors and The Bank of New York, as
trustee, as amended by the First and Second Supplemental Indentures thereto. The
following is a summary of the material provisions of the indenture as so
amended. It does not include all of the provisions of the indenture. We urge you
to read the indenture because it defines your rights. The terms of the exchange
notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939, as amended (the "TIA"). Copies
of the indenture and of the first and second supplemental indentures have been
filed as exhibits to the registration statement of which this prospectus is a
part and may be obtained from the SEC or from us as described under "Where to
Find More Information." You can find definitions of certain capitalized terms
used in this description under "--Certain Definitions." For purposes of this
section, references to the "Company" include only Precision Partners, Inc. and
not our subsidiaries.
BRIEF DESCRIPTION OF THE NOTES
The exchange notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Debt of the Company. The exchange
notes will be obligations of the Company evidencing the same indebtedness as the
outstanding notes.
Except as otherwise indicated, the following description relates to both the
outstanding notes and the exchange notes. The form and terms of the exchange
notes are the same as the form and terms of the outstanding notes in all
material respects, except that:
- The exchange notes have been registered under the Securities Act and
therefore will not bear legends restricting their transfer and will not
contain provisions relating to an increase in the interest rate which were
included in the terms of the outstanding notes in circumstances relating
to the timing of the exchange offer, and
- the holders of the exchange notes will not be entitled to all of the
rights of the holders of the outstanding notes under the registration
rights agreement, which rights shall terminate upon the consummation of
the exchange offer.
The indenture provides that the exchange notes may be issued in fully
registered form only, without coupons, in denominations of $1,000 and integral
multiples thereof. Initially, the exchange notes will be issued in the form of
one or more global notes and the trustee will act as Paying Agent and Registrar
for the notes. See "Book Entry; Delivery and Form." The exchange notes may be
presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
the exchange notes ("Holders"). The Company will pay principal (and premium, if
any) on the exchange notes at the trustee's corporate office in New York, New
York. At the Company's option, interest may be paid at the trustee's corporate
trust office or by check mailed to the registered address of the Holders. Any
outstanding notes that remain outstanding after the completion of the exchange
offer, together with the exchange notes issued in the exchange offer, will be
treated as a single class of securities under the indenture.
PRINCIPAL, MATURITY AND INTEREST
Notes issued under the indenture are limited in aggregate principal amount
to $150 million, of which $100 million was issued in the offer and sale of the
outstanding notes. For each outstanding note accepted for exchange, the Holder
will receive an exchange not having a principal amount equal to that of the
surrendered outstanding note. The exchange notes will mature on March 15, 2009.
Additional notes may be issued from time to time subject to the limitations set
forth under "Certain Covenants--Limitation on Incurrence of Additional
Indebtedness." Holders of such additional notes will have the right to vote
together with Holders of exchange notes and of outstanding notes as a single
class.
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<PAGE>
Interest on the exchange notes will accrue at the rate of 12% per annum and will
be payable semiannually in cash on each March 15 and September 15 to the persons
who are registered Holders at the close of business on the March 1 and
September 1 immediately preceding the applicable interest payment date. Interest
on the exchange notes will accrue from and including the most recent date to
which interest has been paid or, if no interest has been paid, from and
including March 19, 1999, the date of issuance of the outstanding notes. The
interest rate on the exchange notes is subject to increase in the circumstances
described under "Exchange Offer and Registration Rights." Such additional
interest will be payable on the same interest payment dates. As a result of the
failure to have an exchange offer registration statement filed by September 15,
1999, to have it declared effective by September 16, 1999 and to complete the
exchange offer by October 15, 1999, we are paying additional interest. The
amount of additional interest has ranged from 0.5% per annum on September 15,
1999 to 0.75% per annum currently. Unless the registration statement is declared
effective and the exchange offer completed by March 14, 2000, the amount of
additional interest will increase to 1.0% per annum beginning on March 15, 2000
until effectiveness of the registration statement and completion of the exchange
offer.
SINKING FUND
The exchange notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below, the exchange notes are not
redeemable before March 15, 2004. Thereafter, the Company may redeem the
exchange notes at its option, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on March 15 of the year set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004..................................... 106.000%
2005..................................... 104.000%
2006..................................... 102.000%
2007 and thereafter...................... 100.000%
</TABLE>
In addition, the Company must pay accrued and unpaid interest on the
exchange notes redeemed.
OPTIONAL REDEMPTION UPON QUALIFIED EQUITY OFFERINGS. At any time, or from
time to time, on or prior to March 15, 2002, the Company may, at its option, use
the net cash proceeds of one or more Qualified Equity Offerings (as defined
below) to redeem up to 35% of all notes issued under the indenture at a
redemption price equal to 112% of the principal amount thereof plus accrued and
unpaid interest, if any, thereon to the date of redemption; provided that:
(1) at least 65% of the principal amount of notes issued under the indenture
remains outstanding immediately after any such redemption; and
(2) the Company makes such redemption not more than 180 days after the
consummation of any such Qualified Equity Offering.
As used in the preceding paragraph, "Qualified Equity Offering" means a
primary offering of Qualified Capital Stock, or rights, warrants or options to
acquire Qualified Capital Stock, of Precision Partners Holding Company or
Precision Partners, L.L.C. in the United States of at least $25 million to
Persons who are not Affiliates of Precision Partners or Precision Partners
Holding Company provided that, in the case of any such offering of Qualified
Capital Stock of Precision Partners Holdings or Precision Partners, L.L.C., all
the net proceeds thereof necessary to pay the aggregate redemption price (plus
accrued interest to the redemption date) of the notes to be redeemed pursuant to
the preceding paragraph are contributed to the Company.
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SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the notes are to be redeemed at any time,
selection of such notes for redemption will be made by the trustee either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which such notes are listed; or
(2) if such notes are not then listed on a national securities
exchange, on a pro rata basis, by lot or by such method as the trustee shall
deem fair and appropriate.
No notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the proceeds of a Qualified Equity
Offering, selection of the notes or portions thereof for redemption shall be
made by the trustee only on a pro rata basis or on as nearly a pro rata basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of notes to
be redeemed at its registered address. If any note is to be redeemed in part
only, the notice of redemption that relates to such note shall state the portion
of the principal amount thereof to be redeemed. A new note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original note. On and after the redemption
date, interest will cease to accrue on notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the indenture.
SUBORDINATION
The payment of all Obligations on the notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due upon all Senior Debt shall first be paid in
full in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Senior Debt, before any payment or distribution
of any kind or character is made on account of any Obligations on the notes or
for the acquisition of any of the notes for cash or property or otherwise. If
any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Senior Debt, no payment of any kind
or character shall be made by or on behalf of the Company or any other Person on
its behalf with respect to any Obligations on the notes or to acquire any of the
notes for cash or property or otherwise. In addition, if any other event of
default occurs and is continuing with respect to any Designated Senior Debt, as
such event of default is defined in the instrument creating or evidencing such
Designated Senior Debt, permitting the holders of such Designated Senior Debt
then outstanding to accelerate the maturity thereof and if the Representative
for such Designated Senior Debt gives written notice of the event of default to
the trustee (a "Default Notice"),then, unless and until all events of default
with respect to such Designated Senior Debt have been cured or waived or have
ceased to exist or the trustee receives notice from the Representative for such
Designated Senior Debt terminating the Blockage Period (as defined below),
during the 180 days after the delivery of such Default Notice (the "Blockage
Period"), neither the Company nor any other Person on its behalf shall (x) make
any payment of any kind or character with respect to any Obligations on the
notes or (y) acquire any of the notes for cash or property or otherwise.
Notwithstanding anything herein to the contrary, in no event will a Blockage
Period extend beyond 180 days from the date the Default Notice was delivered to
the trustee and only one such Blockage Period may be commenced within any 360
consecutive days. No event of default
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which existed or was continuing on the date of the commencement of any Blockage
Period with respect to the Designated Senior Debt shall be, or be made, the
basis for commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not after a period of 360 consecutive days,
unless such event of default shall have been cured or waived or ceased to exist
for a period of not less than 90 consecutive days (it being acknowledged that
any subsequent action, or any breach of any financial covenants for a period
commencing after the date of commencement of such Blockage Period that, in
either case, would give rise to an event of default pursuant to any provisions
of the Designated Senior Debt under which an event of default previously existed
or was continuing shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders, may recover less, ratably, than holders of Senior Debt.
GUARANTEES
The Guarantors, jointly and severally, will fully and unconditionally
guarantee the Company's obligations under the indenture and the notes. Each
Guarantee will be subordinated to Guarantor Senior Debt on the same basis as the
notes are subordinated to Senior Debt. The obligations of each Guarantor under
its Guarantee will be limited as necessary to prevent the Guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company without limitation, or with other Persons upon the terms and conditions
set forth in the indenture. See "Certain Covenants--Merger, Consolidation and
Sale of Assets." In the event all of the Capital Stock of a Guarantor owned by
the Company or a Restricted Subsidiary is sold by the Company and/or a
Restricted Subsidiary or all or substantially all of the assets of a Guarantor
are sold by such Guarantor and the sale complies with the provisions set forth
in "Certain Covenants--Limitation on Asset Sales," such Guarantor's Guarantee
will be released at the time of such sale.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require that the Company purchase all or a portion of such Holder's notes
pursuant to the offer described below (the "Change of Control Offer"), at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest, if any, thereon to the date of purchase.
Prior to the mailing of the notice referred to below, but in any event
within 30 days following any Change of Control, the Company will be required to
use its reasonable efforts to:
(i) repay in full and terminate all commitments under all Indebtedness under
the Credit Agreement and all other Senior Debt the terms of which
require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer; or
(ii) obtain the requisite consents under the Credit Agreement and all other
Senior Debt to permit the repurchase of the notes as provided below.
The Company shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase notes pursuant to
the provisions described below.
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Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 60 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a note purchased pursuant to a Change of
Control Offer will be required to surrender the note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is required to be made, there can be no
assurance that the Company will be permitted by the terms of its Senior Debt to
make such a Change of Control Offer or that it will have available funds
sufficient to pay the Change of Control purchase price for all the notes that
might be delivered by Holders seeking to accept the Change of Control Offer. In
addition, the exercise by the holders of notes of their right to require the
Company to repurchase the notes upon a Change of Control could cause a default
under such Senior Debt, even if the Change of Control itself does not, due to
the financial effect of such repurchase on the Company, which could cause an
acceleration of such Senior Debt and a foreclosure with respect to any
collateral securing it in the event such Senior Debt was not paid. In the event
the Company is required to purchase outstanding notes pursuant to a Change of
Control Offer, the Company expects that it would seek third party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the trustee (without the
consent of a majority in principal amount of the notes then outstanding) may
waive the covenant relating to a Holder's right to require the purchase of notes
upon a Change of Control. This right and other restrictions in the indenture
described herein on the ability of the Company and the Restricted Subsidiaries
to incur additional Indebtedness, to grant liens on its property, to make
Restricted Payments and to make Asset Sales may also make more difficult or
discourage a sale or takeover of the Company and, as a result, the removal of
incumbent management, whether such sale or takeover is favored or opposed by
such management. This right of the holders to require a repurchase of notes upon
a Change of Control, however, is not part of a plan by management to adopt a
series of anti-takeover provisions. Instead, the Change of Control purchase
feature is a result of negotiations between the Company and the Initial
Purchasers. Management has no present intention to engage in a transaction
involving a Change of Control, although it is possible that the Company may
decide to do so in the future. Subject to the restrictions contained in the
indenture described herein on the ability of the Company to incur additional
Indebtedness, grant liens on its property, make Restricted Payments and make
Asset Sales, the Company could, in the future, enter into certain highly
leveraged transactions, including acquisitions, mergers, refinancings,
restructurings or other recapitalizations, that would not constitute a Change of
Control under the indenture, but that could increase the amount of indebtedness
outstanding at such time or otherwise affect the Company's capital structure or
credit ratings and the holders of the notes. Except for limitations contained in
such covenants, however, the indenture will not contain any covenants or
provisions that would afford the holders of the notes protection in the event of
any such highly leveraged transaction that does not constitute a Change of
Control.
The Company's obligation to make a Change of Control Offer may be discharged
if a third party makes the Change of Control Offer in the manner and at the
times and otherwise in compliance with the requirements applicable to a Change
of Control Offer to be made by the Company and such third party purchases all
notes properly tendered under such Change of Control Offer.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with a Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the indenture,
the Company shall
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comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Change of Control" provisions
of the indenture by virtue thereof.
CERTAIN COVENANTS
The indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and the
Restricted Subsidiaries that are not Guarantors may incur Acquired Indebtedness,
in each case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of the Company is greater than 2.0 to 1.0 if such date of incurrence is on or
prior to March 15, 2002 and 2.25 to 1 thereafter.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness or is entitled to be incurred pursuant to the prior
sentence, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such categories of Permitted Indebtedness (or divided and classified in more
than one of such categories of Permitted Indebtedness) or pursuant to the prior
sentence. Accrual of interest, the accretion of accreted value and the payment
of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of the Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the Company
or in options, warrants or other rights to purchase Qualified Capital Stock
of the Company) on or in respect of shares of the Company's Capital Stock;
(b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock; or
(c) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (a), (b) and (c) being referred to as
a "Restricted Payment"), if at the time of such Restricted Payment or
immediately after giving effect thereto:
(i) a Default or an Event of Default shall have occurred and be
continuing; or
(ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness"; or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the
amount expended for such purpose, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith
by the Board of Directors of the Company) shall exceed the sum of:
(A) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company
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earned during the period beginning on the first day of the fiscal
quarter commencing prior to the Issue Date and through the end of the
most recent fiscal quarter for which financial statements are
available prior to the date such Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting
period); plus
(B) 100% of the aggregate net cash proceeds and the fair market
value of property other than cash (as determined in good faith by the
Company) received by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to
the Issue Date of Qualified Capital Stock of the Company or of other
Indebtedness or securities converted to or exchanged for Qualified
Capital Stock of the Company; plus
(C) without duplication of any amounts included in clause
(iii)(B) above, 100% of the aggregate net cash proceeds of any
contribution to the equity capital of the Company (other than the
Disqualified Capital Stock) received by the Company (excluding, in
the case of clauses (iii)(B) and (C), any net proceeds from a
Qualified Equity Offering to the extent used to redeem the notes);
plus
(D) an amount equal to the lesser of:
(a) the sum of the fair market value of the Capital Stock of
an Unrestricted Subsidiary owned by the Company and/or a
Restricted Subsidiary and the aggregate amount of all
Indebtedness of such Unrestricted Subsidiary owed to the Company
and each Restricted Subsidiary on the date of Revocation of such
Unrestricted Subsidiary as an Unrestricted Subsidiary in
accordance with the covenant described under "--Limitation on
Designations of Unrestricted Subsidiaries;" and
(b) the Designation Amount with respect to such Unrestricted
Subsidiary on the date of the Designation of such Subsidiary as
an Unrestricted Subsidiary in accordance with the covenant
described under "--Limitation on Designations of Unrestricted
Subsidiaries;" plus
(E) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue
Date, an amount equal to the lesser of the return of capital with
respect to such Investment and the initial amount of such Investment
which was treated as a Restricted Payment, less, in either case, the
cost of the disposition of such Investment and net of taxes.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend or distribution within 60 days after
the date of declaration of such dividend if the dividend or distribution
would have been permitted on the date of declaration;
(2) any dividend or distribution in respect of or the repurchase,
redemption, retirement or other acquisition of any shares of Capital Stock
of the Company, either (i) solely by conversion into or in exchange for
shares of Qualified Capital Stock of the Company or (ii) through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a Restricted Subsidiary of the Company) of shares of
Qualified Capital Stock of the Company;
(3) so long as no Default or Event of Default shall have occurred and
be continuing, repurchases of Capital Stock (or options therefor) of the
Company from current or former officers, directors, employees or consultants
pursuant to equity ownership or compensation plans or stockholders
agreements not to exceed $1.0 million in any year (with unused amounts in
any calendar year being carried over to succeeding calendar years, but not
to exceed $1.5 million in any one year);
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(4) payments pursuant to any tax sharing arrangement between the
Company or any of its Restricted Subsidiaries and any other Person with
which the Company or such Restricted Subsidiary files a consolidated tax
return or with which the Company or such Restricted Subsidiary is part of a
consolidated group for tax purposes not to exceed the amount the Company
would be required to pay on a stand-alone basis;
(5) the purchase or redemption of notes following a Change of Control
after the Company shall have complied with the provisions under "--Change of
Control," including payment of the purchase price pursuant to a Change of
Control Offer;
(6) the payment to Holdings of up to $800,000 in the aggregate in any
fiscal year for Holdings to pay annual monitoring fees to Saunders, Karp &
Megrue and Carlisle;
(7) the payment of consulting and advisory fees to Harvey in connection
with the 1999 Acquisitions or any future acquisition and related expenses;
(8) the declaration and payment of dividends to holders of any class or
series of Disqualified Capital Stock of the Company issued in accordance
with the covenant entitled "--Limitation on Incurrence of Additional
Indebtedness;" and
(9) so long as no Default or Event of Default shall have occurred and
be continuing, other Restricted Payments in an aggregate amount not to
exceed $5 million.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1) and (2(ii)) shall be
included in such calculation.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
the Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal
to the fair market value of the assets sold or otherwise disposed of (as
determined in good faith by the Board of Directors of the Company);
(ii) at least 75% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents or Replacement Assets and is received
at the time of such disposition (provided that the amount of (x) any
Indebtedness of the Company or any Guarantor that is actually assumed by the
transferee in such Asset Sale and from which the Company and the Guarantors
are fully and unconditionally released, (y) Indebtedness of a Restricted
Subsidiary that is no longer such as a result of such Asset Sale (to the
extent the Company and each other Restricted Subsidiary us released from any
guarantee thereof) and (z) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash shall each be deemed to be
cash for purposes of clause (i) above); and
(iii) upon the consummation of an Asset Sale, the Company shall apply,
or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating
to such Asset Sale within 360 days of receipt thereof either:
(A) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt or Guarantor Senior Debt under any revolving
credit facility, effect a permanent reduction in the availability under
such revolving credit facility;
(B) to acquire Replacement Assets; or
(C) a combination of prepayment and investment permitted by the
foregoing clauses (iii)(A) and (iii) (B).
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On the 361st day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a
"Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
that have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company to
make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net
Proceeds Offer Payment Date") not less than 30 nor more than 60 days following
the applicable Net Proceeds Offer Trigger Date, all outstanding notes up to a
maximum principal amount of notes equal to the Note Pro Rata Share, at a
purchase price in cash equal to 100% of the principal amount of notes, plus
accrued and unpaid interest (including additional interest, if any) thereon, if
any, to the date of purchase; PROVIDED, HOWEVER, that if at any time any
non-cash consideration received by the Company or any Restricted Subsidiary, as
the case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration) or Cash Equivalents, then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $10 million
resulting from one or more Asset Sales or deemed Asset Sales (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $10 million, shall be applied as required pursuant to this paragraph).
In the event that any other Indebtedness of the Company that ranks equally
to in right of payment with the notes requires that such Indebtedness be repaid
or repurchased upon the consummation of any Asset Sale (the "Other
Indebtedness"), the Company may use the Net Proceeds Offer Amount otherwise
required to be used to repay or repurchase such Other Indebtedness and to make a
Net Proceeds Offer so long as the amount of such Net Proceeds Offer Amount
available to be applied to purchase the notes is not less than the Note Pro Rata
Share. With respect to any Net Proceeds Offer Amount, the Company shall make the
Net Proceeds Offer in respect thereof at the same time as the analogous
repayment or repurchase is made under any Other Indebtedness and the date of
purchase in respect thereof shall be the same under the indenture as the
repayment or purchase of any Other Indebtedness.
With respect to any Net Proceeds Offer effected pursuant to this covenant,
to the extent that the principal amount of the notes tendered pursuant to such
Net Proceeds Offer exceeds the Note Pro Rata Share to be applied to the purchase
thereof, such notes shall be purchased PRO RATA based on the principal amount of
such notes tendered by each holder.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," which transaction does not constitute a Change of Control,
the successor corporation shall be deemed to have sold the properties and assets
of the Company and the Restricted Subsidiaries not so transferred for purposes
of this covenant and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value (as determined in good faith by the Board of Directors of the
Company) of such properties and assets of the Company or the Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 30 days following the Net Proceeds Offer Trigger
Date, with a copy to the trustee, and shall comply with the procedures set forth
in the indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender notes in an amount
exceeding the Net
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Proceeds Offer Amount, notes of tendering Holders will be purchased on a pro
rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 business days or such longer period as may be required by
law. If not fully subscribed, the Company may retain and use the remaining Net
Cash Proceeds for any purpose not otherwise prohibited by the indenture.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the indenture by virtue
thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in respect of
its Capital Stock;
(b) make loans or advances or to pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to the Company or any other
Restricted Subsidiary, except for such encumbrances or restrictions existing
under or by reasons of:
(1) applicable law;
(2) the indenture, the notes or the Guarantees;
(3) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired;
(5) the Credit Agreement;
(6) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(7) any other agreement entered into after the Issue Date that
contains encumbrances and restrictions that are not materially more
restrictive with respect to any Restricted Subsidiary than those in
effect with respect to such Restricted Subsidiary pursuant to agreements
as in effect on the Issue Date;
(8) agreements governing Permitted Indebtedness;
(9) customary bank credit agreements Incurred pursuant to clause
(xv) of the definition of Permitted Indebtedness;
(10) customary restrictions on the transfer of any property or
assets arising under a security agreement governing a Lien permitted
under the indenture;
(11) customary restrictions with respect to a Restricted Subsidiary
pursuant to an agreement that has been entered into in connection with
the sale or disposition of all or substantially all of the Capital Stock
or assets of such Restricted Subsidiary;
(12) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature
discussed in clause (c) above on the property so acquired;
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(13) secured Indebtedness otherwise permitted to be incurred
pursuant to the covenants described under "--Limitations on Incurrence of
Additional Indebtedness" and "--Limitation on Liens" that limit the right
of the debtor to dispose of the assets securing such Indebtedness;
(14) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(15) any agreement governing Refinancing Indebtedness incurred to
Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (2), (4), (5), (6), (8) or (13) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Refinancing Indebtedness are not
materially more restrictive than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such
clause (2), (4), (5), (6), (8) or (13) above.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of the Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Restricted Subsidiary) or permit any Person
(other than the Company or a Restricted Subsidiary) to own any Preferred Stock
of any Restricted Subsidiary.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of the Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless:
(i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the notes, the notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(ii) in all other cases, the notes are equally and ratably secured with
the obligations so secured until such obligations are no longer secured by a
Lien, except for:
(A) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(B) Liens securing Senior Debt, Guarantor Senior Debt or
Indebtedness of a Restricted Subsidiary that is not a Guarantor that is
permitted to be incurred under the indenture;
(C) Liens securing the notes and any Guarantees;
(D) Liens in favor of the Company or a Restricted Subsidiary;
(E) Liens securing Refinancing Indebtedness incurred to Refinance
any Indebtedness which has been secured by a Lien permitted under the
indenture and which has been incurred in accordance with the provisions
of the indenture; provided, however, that such Liens do not extend to or
cover any property or assets of the Company or any of the Restricted
Subsidiaries not securing the Indebtedness so Refinanced (other than
improvements, additions or accessions thereto); and
(F) Permitted Liens.
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PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Company will
not, and will not permit any Guarantor to, incur or suffer to exist Indebtedness
that is senior in right of payment to the notes or the Guarantee of such
Guarantor and subordinate in right of payment to any other Indebtedness of the
Company or such Guarantor, as the case may be.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, and will
not cause or permit any Guarantor (other than any Guarantor whose Guarantee is
to be released in accordance with the terms of the Guarantee and indenture in
connection with any transaction complying with the provisions of the covenant
described under "--Limitation on Asset Sales") to, in a single transaction or
series of related transactions, consolidate or merge with or into any Person, or
sell, assign, transfer, lease, convey or otherwise dispose of (or cause or
permit any Restricted Subsidiary to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless:
(i) either:
(1) the Company or such Guarantor shall be the surviving or
continuing corporation; or
(2) the Person (if other than the Company or such Guarantor)
formed by such consolidation or into which the Company or such
Guarantor is merged or the Person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition the properties and
assets of the Company and the Restricted Subsidiaries substantially
as an entirety (the "Surviving Entity"):
(x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the
District of Columbia; and
(y) shall expressly assume, by supplemental indenture (in
form and substance reasonably satisfactory to the trustee),
executed and delivered to the trustee, the due and punctual
payment of the principal of, and premium, if any, and interest on
all of the notes and the performance of every covenant of the
notes, the Guarantee, if applicable, the indenture and, if then
effect, the Registration Rights Agreement on the part of the
Company or such Guarantor to be performed or observed;
PROVIDED that a Guarantor may merge with or into the Company or
another Guarantor without complying with this clause (i).
(ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction) on a pro forma basis, the Company or such Surviving
Entity, as the case may be, shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness;" PROVIDED that a Guarantor may merge into the Company or
another Guarantor without complying with this clause (ii);
(iii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred and any Lien granted in connection
with or in respect of the transaction), no Default or Event of Default shall
have occurred or be continuing; and
(iv) the Company or the Surviving Entity shall have delivered to the
trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is
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required in connection with such transaction, such supplemental indenture
comply with the applicable provisions of the indenture and that all
conditions precedent in the indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of 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.
The indenture will provide that upon any consolidation, combination or
merger of the Company or a Guarantor or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, in which the
Company or such Guarantor is not the continuing corporation, the Surviving
Entity formed by such consolidation or into which the Company or such Guarantor
is merged or to which such conveyance, lease or transfer is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company or such Guarantor under the indenture, the notes and the Guarantees with
the same effect as if such Surviving Entity had been named as such and, except
in the case of a conveyance, transfer or lease, the Company or such Guarantor,
as the case may be, shall be released from the obligation to pay the principal
of and interest on the notes or in respect of its guarantee, as the case may be,
and all of the Company's or such Guarantor's other obligations and covenants
under the notes, the indenture and its Guarantee, if applicable.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are not materially less favorable than those that would have
reasonably been expected in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary. All Affiliate Transactions (and each series of related
Affiliate Transactions which are similar or part of a common plan) involving
aggregate payments or other property with a fair market value in excess of $5.0
million shall be approved by the Board of Directors of the Company or such
Restricted Subsidiary, as the case may be, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or series of related
Affiliate Transactions related to a common plan) that involves an aggregate fair
market value of more than $10.0 million, the Company or such Restricted
Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain
a favorable opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Restricted Subsidiary, as the case
may be, from a financial point of view, from an Independent Financial Advisor
and file the same with the trustee.
(b) The restrictions set forth in clause (a) shall not apply to:
(i) employment, consulting and compensation arrangements and
agreements of the Company or any Restricted Subsidiary consistent
with past practice or approved by a majority of the disinterested
members of the Board of Directors of the Company (or a committee
comprised of disinterested directors);
(ii) reasonable fees and compensation paid to and indemnity
provided on behalf of, officers, directors, employees, consultants or
agents of the Company or any Restricted Subsidiary as determined in
good faith by the Company's Board of Directors or senior management,
including, without limitation, any issuance or grant of stock
options, bonuses or similar rights to such employees, officers and
directors;
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(iii) transactions exclusively between or among the Company and
any of the Restricted Subsidiaries or exclusively between or among
such Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the indenture;
(iv) Restricted Payments permitted to be made pursuant to the
"--Limitation on Restricted Payments" covenant;
(v) the payment to Holdings of up to $800,000 in the aggregate
in any fiscal year for Holdings to pay annual monitoring fees to
Saunders, Karp & Megrue and Carlisle;
(vi) the payment of consulting and advisory fees to Harvey in
connection with the 1999 Acquisitions or any future acquisition and
related expenses;
(vii) payments to the selling stockholders of Mid State, Galaxy
and Certified pursuant to the relevant acquisition agreements or
documents delivered in connection therewith (whether in cash or in
the form of bonus compensation, a note or other security);
(viii) Permitted Investments,
(ix) in connection with a public offering of Common Stock of the
Company, Holdings or any Restricted Subsidiary, loans or advances,
having a maturity of one year or less after the date first made, to
employees to finance the purchase by such employees of such Common
Stock;
(x) the issuance or sale of any Qualified Capital Stock of the
Company or of any Guarantor; and
(xi) the payment of all fees and expenses related to the 1999
Acquisitions, the new credit facilities and this offering (whether
paid at or subsequent to the closing of such transactions).
ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any Restricted
Subsidiary transfers or causes to be transferred, in one transaction or a series
of related transactions, any property with a book value in excess of $500,000 to
any Domestic Restricted Subsidiary that is not a Guarantor, or if the Company or
any of its Restricted Subsidiaries shall organize, acquire or otherwise invest
in another Domestic Restricted Subsidiary having total assets with a book value
in excess of $500,000, then such transferee or acquired or other Restricted
Subsidiary shall:
(1) execute and deliver to the trustee a supplemental indenture in form
reasonably satisfactory to the trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Company's obligations
under the notes and the indenture on the terms set forth in the indenture;
and
(2) deliver to the trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the
indenture.
The Indebtedness evidenced by any Guarantee (including the payment of
principal of, premium, if any, and interest on the notes) will be subordinated
to Guarantor Senior Debt on terms analogous to those applicable to the notes.
See "--Subordination."
The obligations of each Guarantor under its Guarantee will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including, without limitation, any guarantees
under the Credit Agreement) and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the indenture, result in
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the obligations of the Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment for distribution under a Guarantee is entitled to
a contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Guarantor.
CONDUCT OF BUSINESS. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any businesses which are not either: (i) the
same, similar or related to the businesses in which the Company or any of the
Restricted Subsidiaries are engaged on the Issue Date, (ii) businesses acquired
through an acquisition after the Issue Date which are not material to the
Company and the Restricted Subsidiaries, taken as a whole, or (iii) Permitted
Investments.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
that owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the indenture (a "Designation") only if:
(i) the Subsidiary to be so designated has total assets of $1,000 or
less or
(ii) such Subsidiary has total assets greater than $1,000 and
(a) no Default shall have occurred and be continuing after
giving effect to such Designation; and
(b) the Company would be permitted under the indenture to make
an Investment at the time of Designation (assuming the effectiveness
of such Designation) in an amount (the "Designation Amount") equal to
the sum of (i) the fair market value of the Capital Stock of such
Subsidiary owned by the Company and/or any of the Restricted
Subsidiaries on such date and (ii) the aggregate amount of
Indebtedness of such Subsidiary owed to the Company and the
Restricted Subsidiaries on such date; and
(c) after giving effect to such designation, the Company would
be permitted to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the covenant described under
"--Limitation on Incurrence of Additional Indebtedness" at the time
of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment in the Designation Amount
pursuant to the covenant described under "-- Limitation on Restricted Payments"
for all purposes of the indenture. The indenture will further provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness that provides that the holder
thereof may (upon notice, lapse of time or both) declare a default thereon or
cause the payment thereof to be accelerated or payable prior to its final
scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"--Limitation on Restricted Payments."
The indenture will further provide that the Company may revoke any
Designation of a Subsidiary as an Unrestricted Subsidiary ("Revocation"),
whereupon such Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time and
after giving effect to such Revocation; and
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(b) all Liens and Indebtedness of such Unrestricted Subsidiaries
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of the indenture.
All Designations and Revocations must be evidenced by an officers'
certificate of the Company delivered to the trustee certifying compliance with
the foregoing provisions.
REPORTS TO HOLDERS. The indenture will provide that the Company will
deliver to the trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, that the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Sections 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the trustee and Holders with such annual and quarterly reports and such
information, documents and other reports specified in Section 13 and 15(d) of
the Exchange Act. The Company will also comply with the other provisions of TIA
Section314(a).
EVENTS OF DEFAULT
The following events are defined in the indenture as "Events of Default:"
(i) the failure to pay interest on any notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
indenture);
(ii) the failure to pay the principal on any notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer) (whether or not such
payment shall be prohibited by the subordination provisions of the
indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the indenture which default continues for a period
of 45 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the trustee or the
Holders of at least 25% of the outstanding principal amount of the notes
(except in the case of a default with respect to the covenant described
under "--Certain Covenants--Merger, Consolidation and Sale of Assets," which
will constitute an Event of Default with such notice requirement but without
such passage of time requirement);
(iv) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary (or the payment
of which is guaranteed by the Company or any Restricted Subsidiary), whether
such Indebtedness now exists or is created after the Issue Date, which
default (a) is caused by a failure to pay principal of such Indebtedness
after notice and the lapse of any applicable grace period provided in such
Indebtedness on the date of such default (a "payment default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity (and such acceleration is not rescinded, or such Indebtedness is
not repaid, within 30 days) and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a payment default or the maturity of
which has been so accelerated (and such acceleration is not rescinded, or
such Indebtedness is not repaid, within 30 days), aggregates $7.5 million;
(v) one or more judgments in an aggregate amount in excess of $7.5
million not covered by adequate insurance shall have been rendered against
the Company or any of the Restricted Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such judgment
or judgments become final and nonappealable;
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(vi) certain events of bankruptcy affecting the Company or any of the
Significant Subsidiaries; or
(vii) any Guarantee of a Significant Subsidiary ceases to be in full
force and effect or any Guarantee of a Significant Subsidiary declared to be
null and void and unenforceable or any Guarantee of a Significant Subsidiary
is found to be invalid or any of the Guarantors that is a Significant
Subsidiary denies its liability under its Guarantee (other than by reason of
release of a Guarantor in accordance with the terms of the indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above shall occur and be continuing, the trustee or the Holders of at least
25% in principal amount of outstanding notes may declare the principal of,
premium, if any, and accrued interest on all the notes to be due and payable by
notice in writing to the Company and (if given by the Holders) the trustee
specifying the respective Events of Default and that it is a "notice of
acceleration," and the same shall become immediately due and payable. If an
Event of Default specified in clause (vi) above occurs and is continuing, then
all unpaid principal of, premium, if any, and accrued and unpaid interest on all
of the outstanding notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the trustee or any
Holder.
The indenture will provide that, at any time after a declaration of
acceleration with respect to the notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the then outstanding notes may
rescind and cancel such declaration and its consequences:
(i) if the rescission would not conflict with any judgment or decree;
(ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(iii) to the extent the payment of such interest is lawful, if interest
on overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(iv) if the Company has paid the trustee its reasonable compensation
and reimbursed the trustee for its expenses, disbursements and advances; and
(v) in the event of the cure or waiver of an Event of Default of the
type described in clause (vi) of the description above of Events of Default,
the trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the then outstanding notes
may waive any existing Default or Event of Default under the indenture, and its
consequences, except a default in the payment of the principal of or interest on
any notes.
Holders of the notes may not enforce the indenture or the notes or institute
any proceeding with respect thereto or for any remedy thereunder except as
provided in the indenture and under the TIA. Subject to the provisions of the
indenture relating to the duties of the trustee, the trustee is 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 indemnity. Subject to all provisions of the
indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding notes 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.
Under the indenture, the Company is required to provide an officers'
certificate to the trustee promptly upon the Company obtaining knowledge of any
Default or Event of Default (provided that the Company shall provide such
certification at least annually whether or not it knows of any Default
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or Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of any Guarantors discharged with respect to the
outstanding notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding notes, except for:
(i) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the notes when such payments
are due;
(ii) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payments;
(iii) the rights, powers, trust, duties and immunities of the trustee
and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission or failure 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, bankruptcy,
receivership, reorganization 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 Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the trustee, in trust,
for the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as will be
sufficient (through the payment of principal and interest), to pay the
principal of, premium, if any, and interest on the notes on the stated date
of payment thereof or on the applicable redemption date, as the case may be;
(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 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
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 the trustee confirming that the Holders 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;
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(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or 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 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 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 over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(vii) the Company shall have delivered to the trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(viii) the Company shall have delivered to the trustee an opinion of
counsel to the effect that:
(A) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
indenture; and
(B) 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; and
(ix) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause
(ii) above with respect to a Legal Defeasance need not be delivered if all notes
not theretofore delivered to the trustee for cancellation (1) have become due
and payable or (2) will become due and payable on the maturity date within one
year under arrangements satisfactory to the trustee for the giving of notice of
redemption by the trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding notes
when:
(i) either:
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the trustee
for cancellation; or
(b) all notes not theretofore delivered to the trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the notes not
theretofore delivered to the trustee for cancellation, for principal of,
premium, if any, and interest on the notes to the date of deposit
together with irrevocable instructions from the Company directing the
trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(ii) the Company has paid all other sums payable under the indenture by
the Company; and
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(iii) the Company has delivered to the trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent under the
indenture relating to the satisfaction and discharge of the indenture have
been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the trustee, without the
consent of the Holders, may amend the indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding notes
issued under the indenture, except that, without the consent of each Holder
affected thereby, no amendment may:
(i) reduce the amount of notes whose holders must consent to an
amendment;
(ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any notes;
(iii) reduce the principal of or change or have the effect of changing
the fixed maturity of any notes, or change the date on which any notes may
be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor;
(iv) make any notes payable in money other than that stated in the
notes;
(v) make any change in provisions of the indenture protecting the right
of each Holder to receive payment of principal of and interest on such notes
on or after the stated due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of the then
outstanding notes to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of
the Company to make and consummate a Change of Control Offer after the
occurrence of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify any
of the provisions or definitions with respect thereto;
(vii) modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the notes or any
Guarantee in a manner which adversely affects the Holders; or
(viii) release any Guarantor from any of its obligations under its
Guarantee or the indenture otherwise than in accordance with the terms of
the indenture.
GOVERNING LAW
The indenture will provide that it, the notes and any Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
The indenture will provide that, except during the continuance of an Event
of Default, the trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the trustee
will exercise such rights and powers vested in it by the indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
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The indenture and the provisions of the TIA contain certain limitations on
the rights of the trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
trustee will be permitted to engage in other transactions; provided that if the
trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed by the Company or any Restricted Subsidiary in
connection with the acquisition of assets from such Person and in each case
whether or not such Indebtedness is incurred by such Person in connection with,
or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary or such acquisition, merger or consolidation.
"ADJUSTED NET ASSETS" of a Guarantor at any date means the lesser of the
amount by which (x) the fair value of the property of such Guarantor exceeds the
total amount of its liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under the Guarantee
of such Guarantor at such date, and (y) the present fair salable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date and after giving effect to any collection from any Subsidiary of such
Guarantor in respect of the obligations of such Subsidiary under such
Guarantor's Guarantee), excluding debt in respect of the Guarantee, as they
become absolute and matured.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"AFFILIATE TRANSACTION" has the meaning set forth under "--Certain
Covenants--Limitation on Transactions with Affiliates."
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be merged with or into the Company or any
Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted
Subsidiary of the assets of any Person (other than a Restricted Subsidiary) that
constitute all or substantially all of the assets of such Person or comprise any
division or line of business of such Person or any other properties or assets of
such Person other than in the ordinary course of business.
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"ASSET SALE" means any direct or indirect sale, issuance, conveyance, lease
(other than operating leases entered into in the ordinary course of business),
assignment or other transfer (other than the granting of a Lien in accordance
with the indenture) for value by the Company or any of the Restricted
Subsidiaries (including any Sale and Leaseback Transaction) to any Person other
than the Company or a Restricted Subsidiary of (a) any Capital Stock of any
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary); or (b) any other property or assets of the Company or
any Restricted Subsidiary other than in the ordinary course of business;
provided, however, that Asset Sales shall not include (i) a transaction or
series of related transactions for which the Company or the Restricted
Subsidiaries receive aggregate consideration of less than $1.0 million, (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted by the covenant described under
"--Certain Covenants--Merger, Consolidation and Sale of Assets," (iii) any
Restricted Payment made in accordance with the covenant described under
"--Certain Covenants--Limitation on Restricted Payments," (iv) the sale, lease,
conveyance, disposition or other transfer of property or equipment that has
become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, (v)
the creation or realization of any Permitted Lien, (vi) the sale of receivables
or other assets pursuant to a receivables or asset securitization or similar
program, (vii) any disposition the making of which is a Permitted Investment,
(viii) the sale of any Cash Equivalents owned by the Company or any of its
Subsidiaries and (ix) any exchange of like property pursuant to Section 1031 of
the Internal Revenue Code of 1986, as amended.
"BLOCKAGE PERIOD" has the meaning set forth under "--Subordination."
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the trustee.
"CAPITAL STOCK" means:
(i) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
(ii) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"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.
"CARLISLE" means Carlisle Enterprises, LLC.
"CASH EQUIVALENTS" means:
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one
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year from the date of acquisition thereof and, at the time of acquisition,
having one of the two highest ratings obtainable from either Standard &
Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's");
(iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv)
above; and
(vi) investments in money market funds that invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
indenture);
(ii) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of the indenture); or
(iii) any Person or Group, other than the Permitted Holders, becomes
the beneficial owner, directly or indirectly, of more than 50% of the total
voting power of the Capital Stock of the Company, and the Permitted Holders
beneficially own, directly or indirectly in the aggregate, a lesser
percentage of the total voting power of the Capital Stock of the Company
than such Person or Group and do not have the right or ability by voting
power, contract, or otherwise to elect or designate for election a majority
of the Board of Directors (or any analogous governing body) of the Company;
or
(iv) following the consummation of an initial public offering of the
Company, the replacement of a majority of the Board of Directors of the
Company or Holdings over a two-year period from the directors who
constituted the Board of Directors of the Company or Holdings, as the case
may be, at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of
the Company or Holdings, as the case may be, then still in office who either
were members of such Board of Directors at the beginning of such period or
whose election as a member of such Board of Directors was previously so
approved.
"CHANGE OF CONTROL OFFER" has the meaning set forth under "--Change of
Control."
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth under "--Change
of Control."
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
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"CONSOLIDATED EBITDA" means, with respect to the Company, for any period,
the sum (without duplication) of:
(i) Consolidated Net Income; and
(ii) to the extent Consolidated Net Income has been reduced thereby:
(A) all income taxes of the Company and the Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary or nonrecurring gains or taxes
attributable to Asset Sales outside the ordinary course of business);
(B) Consolidated Interest Expense;
(C) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period,
(D) the net income of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary or is merged or consolidated with the Company or any
Restricted Subsidiary but after the first day of the relevant Four
Quarter Period as used in the definition of "Consolidated Fixed Charge
Coverage Ratio,"
(E) the aggregate amount of any earn-out payments or bonuses paid to
the selling stockholders of Mid State and Galaxy during the relevant Four
Quarter Period;
(F) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of
assets but after the first day of the relevant Four Quarter Period as
used in the definition of "Consolidated Fixed Charge Coverage Ratio," and
(G) monitoring fees paid by Holdings to Saunders, Karp & Megrue and
Carlisle in an amount not to exceed $350,000 in the aggregate during the
Four-Quarter Period
all as determined on a consolidated basis for the Company and the Restricted
Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the four most
recent full consecutive fiscal quarters (the "Four Quarter Period") ending on or
prior to the date of the transaction giving rise to the need to calculate the
Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to
Consolidated Fixed Charges of the Company for the Four Quarter Period. In
addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to:
(i) the incurrence or repayment of any Indebtedness of the Company or
any of the Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any incurrence
or repayment of other Indebtedness (and the application of the proceeds
thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of
the Four Quarter Period; and
(ii) any Asset Sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of the Company
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or one of the Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also
including any Consolidated EBITDA (including any pro forma expense and cost
reductions calculated on a basis consistent with Regulation S-X under the
Exchange Act) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date as if such Asset Sale or Asset Acquisition or other
disposition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter Period.
If the Company or any of the Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if the Company
or any Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based upon
a factor of a prime or similar rate, a eurocurrency interbank offered rate,
or other rates, then the interest rate in effect on the Transaction Date
will be deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness determined on
a fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the rate
per annum resulting after giving effect to the operation of such agreements.
For purposes of this definition, whenever pro forma effect is to be given to
an Asset Acquisition, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, the pro forma calculations shall be determined
on a basis consistent with Regulation S-X under the Exchange Act, which
determination shall be made in good faith by a responsible financial or
accounting officer of the Company and such pro forma calculations may include
such pro forma adjustments for nonrecurring non-cash items that the Company
considers reasonable and quantifiable in order to reflect the ongoing impact of
any such transaction on the Company's results of operations.
"CONSOLIDATED FIXED CHARGES" means, with respect to the Company for any
period, the sum, without duplication, of:
(i) Consolidated Interest Expense; plus
(ii) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of the Company (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of the Company,
expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any
period, the sum of, without duplication:
(i) the aggregate of the interest expense of the Company and the
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP (excluding fees and expenses incurred in connection
with the offer and sale of the notes), including without limitation,
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(a) any amortization of debt discount, (b) the net costs under Interest Swap
Obligations, (c) all capitalized interest and (d) the interest portion of
any deferred payment obligation; and
(ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(a) after-tax gains and losses from Asset Sales or abandonments or
reserves relating thereto other than in the ordinary course of business;
(b) after tax items classified as extraordinary or nonrecurring gains
or losses;
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or
is merged or consolidated with the Company or any Restricted Subsidiary;
(d) the net income (but not loss) of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation
of law or otherwise (except for restrictions existing pursuant to clause (9)
of the covenant described under "--Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries");
(e) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the Company
or to a Restricted Subsidiary by such Person;
(f) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued); and
(g) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charge that requires an accrual of or a reserve
for cash charges for any future period).
"COVENANT DEFEASANCE" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance."
"CREDIT AGREEMENT" means the Credit Agreement dated as of the Issue Date by
and among the Company, the guarantors named therein, the lenders named therein,
Citibank, N.A., as administrative agent, Bank of America National Trust and
Savings Association, as syndication agent, and Sun Trust Bank, Atlanta, as
documentation agent, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by the
covenant described under "-- Certain Covenants -- Limitation on Incurrence of
Additional Indebtedness" (including the definition of Permitted Indebtedness))
or adding Restricted Subsidiaries as additional borrowers or guarantors
thereunder) all
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or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice of both would be, an Event of Default.
"DEFAULT NOTICE" has the meaning set forth under "--Subordination."
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt that,
at the time of determination, has an aggregate principal amount of at least
$25,000,000 and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by the Company.
"DESIGNATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DESIGNATION AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock that,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event (other than a
Change of Control), matures or is mandatorily redeemable, pursuant to a sinking
fund obligation or otherwise, or is mandatorily exchangeable for Indebtedness,
or is redeemable, or exchangeable for Indebtedness, at the sole option of the
holder thereof (except upon the occurrence of a Change of Control) on or prior
to the final maturity date of the notes.
"DOMESTIC RESTRICTED SUBSIDIARY" means a Restricted Subsidiary incorporated
or otherwise organized or existing under the laws of the United States, any
state thereof or any territory or possession of the United States.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction between a
willing seller and a willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair market value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the trustee.
"FOREIGN RESTRICTED SUBSIDIARY" means any Restricted Subsidiary that is
organized and existing under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accounts and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession
of the United States, which are in effect as of the Issue Date.
"GUARANTEE" means as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or
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payment of damages in the event of non-performance) of all or any part of such
obligation, including, without limiting the foregoing, the payment of amounts
drawn down by letters of credit. A guarantee will include, without limitation,
any agreement to maintain or preserve any other Person's financial condition or
to cause any other Person to achieve certain levels of operating results.
"GUARANTEE" has the meaning set forth under "--Certain Covenants--Additional
Subsidiary Guarantees."
"GUARANTOR" means (i) each Subsidiary of the Company guaranteeing the notes
as of the Issue Date and (ii) each other Person that in the future executes a
Guarantee pursuant to the covenant described under "--Certain
Covenants--Additional Subsidiary Guarantees" or otherwise; provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its Guarantee is released in accordance with the terms of the
indenture.
"GUARANTOR SENIOR DEBT" means, with respect to any Guarantor, (i) the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of such Guarantor,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Guarantor. Without limiting the generality of
the foregoing, "Guarantor Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(x) all monetary obligations of every nature of the Company or any
Guarantor with respect to the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(i) any Indebtedness of such Guarantor owing to a Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries;
(ii) Indebtedness to, or guaranteed on behalf of, any stockholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation);
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by such Guarantor;
(vi) Indebtedness incurred in violation of the covenant described under
"--Certain Covenants--Limitation on Incurrence of Additional Indebtedness";
(vii) Indebtedness that, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to such Guarantor; and
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(viii) any Indebtedness that is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"HARVEY" means Harvey Equity Partners, L.L.C.
"HOLDINGS" means Precision Partners Holding Company or any successor or
assign thereof that owns 100% of the Qualified Capital Stock of the Company.
"INCUR" has the meaning set forth under "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness."
"INDEBTEDNESS" means, with respect to any Person, without duplication:
(i) all Obligations of such Person for borrowed money;
(ii) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all Capitalized Lease Obligations of such Person;
(iv) all Obligations of such Person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations and
all Obligations under any title retention agreement (but excluding trade or
other accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(v) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(vi) guarantees and other contingent obligations in respect of
Indebtedness of any other Person referred to in clauses (i) through (v)
above and clause (viii) below;
(vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) that are secured by any Lien on any property or
asset of such first Person, the amount of such Obligation being deemed to be
the lesser of the fair market value of such property or asset or the amount
of the Obligation so secured;
(viii) all Obligations under currency agreements and all interest swap
obligations of such Person; and
(xi) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that 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 shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) that does not, and whose
directors, officers and employees and Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) that, in the judgment of the
Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
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"INITIAL PURCHASERS" means Salomon Smith Barney Inc. and NationsBanc
Montgomery Securities LLC.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, (i) any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or (ii) any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other Person. "Investment" shall exclude extensions of trade
credit by the Company and the Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. If the Company or any Restricted
Subsidiary sells or otherwise disposes of less than all of the Capital Stock of
any Restricted Subsidiary (the "Referent Subsidiary") such that, after giving
effect to any such sale or disposition the Referent Subsidiary shall cease to be
a Restricted Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Capital Stock of the Referent Subsidiary not sold or disposed of.
"ISSUE DATE" means March 19, 1999.
"LEGAL DEFEASANCE" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"LLC" means Precision Partners, L.L.C.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest), received
by the Company or any of the Restricted Subsidiaries from such Asset Sale net
of:
(a) actual expenses and fees relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, sales
commissions and relocation expenses);
(b) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(c) repayments of Indebtedness secured by the property or assets
subject to such Asset Sale that is required to be repaid in connection with
such Asset Sale;
(d) provision for minority interest holders in any Restricted
Subsidiary as a result of such Asset Sale;
(e) payments of unassumed liabilities (not constituting Indebtedness)
relating to the assets sold at the time of, or within 30 days after, the
date of such Asset Sale; and
(f) appropriate amounts to be determined by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such
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Asset Sale and retained by the Company or any Restricted Subsidiary, as the
case may be, after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"NET PROCEEDS OFFER" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NET PROCEEDS OFFER AMOUNT" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NET PROCEEDS OFFER PAYMENT DATE" had the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NET PROCEEDS OFFER TRIGGER DATE" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"NOTE PRO RATA SHARE" means the amount of the applicable Net Proceeds Offer
Amount obtained by multiplying the amount of such Net Proceeds Offer Amount by a
fraction, (i) the numerator of which is the aggregate principal amount of notes
outstanding at the time of the applicable Asset Sale with respect to which the
Company is required to use the Net Proceeds Offer Amount to repay or make a Net
Proceeds Offer or repay and (ii) the demoninator of which is the sum of (a) the
aggregate accreted value and/or principal amount, as the case may be, of all
Other Indebtedness outstanding at the time of the applicable Asset Sale and (b)
the aggregate principal amount of all notes outstanding at the time of the
applicable Net Proceeds Offer with respect to which the Company is required to
use the applicable Net Proceeds Offer Amount to offer to repay or make a Net
Proceeds Offer or repay.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED HOLDERS" means (i) Saunders, Karp & Megrue and (ii) any Person
"controlled" (as defined in the definition of "Affiliate") by one or more
Persons identified in clause (i) of this definition.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness under the notes, the indenture and any Guarantees
issued in respect thereto, outstanding on the Issue Date, not to exceed an
aggregate principal amount of $100 million;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the greater
of (a) $50 million and (b) the sum of (x) 85% of the book value of the
accounts receivable of the Company and its Restricted Subsidiaries on a
consolidated basis plus (y) 50% of the book value of the inventory of the
Company and its Restricted Subsidiaries on a consolidated basis plus (z) $25
million;
(iii) other Indebtedness of the Company and the Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any proceeds from
Asset Sales used to repay such Indebtedness pursuant to the covenant
"--Limitation on Asset Sales;"
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any Guarantor and Interest Swap Obligations of any Restricted
Subsidiary covering Indebtedness of such Restricted Subsidiary; provided,
however, that such Interest Swap Obligations are entered into to protect the
Company and the Restricted Subsidiaries from fluctuations in interest rates
on Indebtedness incurred in accordance with the indenture to the extent the
notional principal amount of such Interest Swap Obligations does not exceed
the principal amount of the Indebtedness to which such Interest Swap
Obligations relates;
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(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and the
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Restricted Subsidiary; provided that if
as of any date any Person other than the Company or a Restricted Subsidiary
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary for so
long as such Indebtedness is held by a Restricted Subsidiary, in each case
subject to no Lien; provided that if as of any date any Person other than a
Restricted Subsidiary owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds
in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within five business days of incurrence;
(ix) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance, performance or surety bonds entered into in the ordinary
cause of business or similar requirements in the ordinary course of
business;
(x) Refinancing Indebtedness;
(xi) Purchase Money Indebtedness and Capitalized Lease Obligations (and
any Indebtedness incurred to Refinance such Purchase Money Indebtedness or
Capitalized Lease Obligations) not to exceed $10.0 million at any one time
outstanding;
(xii) guarantees of the obligations of Restricted Subsidiaries;
(xiii) Indebtedness of the Company or any of its Restricted
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees,
letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries, incurred
or assumed in connection with the disposition of any business, any Asset
Sale or any disposition of the Capital Stock of a Restricted Subsidiary
other than guarantees or similar credit support by the Company or any of its
Restricted Subsidiaries of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or Capital Stock for the purpose of
financing such acquisition; provided that the maximum aggregate liability in
respect of all such Indebtedness in the nature of such guarantees shall at
no time exceed the gross proceeds actually received by the Company from the
sale of such business, assets or Capital Stock;
(xiv) reimbursement obligations relating to undrawn standby letters of
credit (other than under the Credit Agreement) issued in the ordinary course
of business;
(xv) Indebtedness of Foreign Restricted Subsidiaries in an aggregate
amount not to exceed $7.5 million; and
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(xvi) additional Indebtedness of the Company and the Guarantors in an
aggregate principal amount not to exceed $12.5 million at any one time
outstanding (which amount may, but need not, be incurred under the Credit
Agreement).
"PERMITTED INVESTMENTS" means:
(i) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a Restricted
Subsidiary or that will merge or consolidate into the Company or a
Restricted Subsidiary;
(ii) Investments in the Company or any Restricted Subsidiary by any
Restricted Subsidiary; provided that any Indebtedness evidencing such
Investment is unsecured and subordinate to the notes;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees, officers and directors of the
Company and the Restricted Subsidiaries in the ordinary course of business
for bona fide business purposes not in excess of 1.0 million at any time
outstanding;
(v) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of the Company's or a Restricted Subsidiary's businesses
and otherwise in compliance with the indenture;
(vi) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(vii) Investments made by the Company or the Restricted Subsidiaries as
a result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "-- Certain Covenants --
Limitation on Asset Sales";
(viii) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms, provided that such
trade terms may include such concessionary trade terms as the Company or
such Restricted Subsidiary deems reasonable under the circumstances;
(ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(x) lease, utility and other similar deposits in the ordinary course of
business;
(xi) Investments paid for solely in Qualified Capital Stock of the
Company;
(xii) Investments acquired by the Company or a Restricted Subsidiary as
a result of a foreclosure by, or other transfer of title to, the Company or
such Restricted Subsidiary with respect to any secured Investment;
(xiii) loans and advances to employees, officers and directors of the
Company and the Restricted Subsidiaries in the ordinary course of business
to purchase Capital Stock (or options therefor) of the Company in an amount
not to exceed $1.5 million in the aggregate outstanding at any one time; and
(xiv) additional Investments not to exceed $10.0 million at any one
time outstanding.
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"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any Restricted Subsidiary shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges, restrictions or encumbrances in respect of real property or minor
imperfections of title which do not, in the aggregate, impair in any
material respect the ordinary conduct of the business of the Company and the
Restricted Subsidiaries taken as a whole;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens securing Indebtedness incurred to finance
property or assets of the Company or any Restricted Subsidiary acquired in
the ordinary course of business, and Liens securing Indebtedness which
Refinances any such Indebtedness; provided, however, that (A) the related
purchase money Indebtedness (or Refinancing Indebtedness) shall not exceed
the lesser of the fair market value and the cost of such property or assets
plus the aggregate amount of fees and expenses incurred in connection
therewith and shall not be secured by any property or assets of the Company
or any Restricted Subsidiary other than the property and assets so acquired
and (B) the Lien securing the purchase money Indebtedness shall be created
within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
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(xi) Liens securing Interest Swap Obligations, which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness (and any Indebtedness which
Refinances such Acquired Indebtedness) incurred in accordance with the
covenant described under "-- Certain Covenants -- Limitation on Incurrence
of Additional Indebtedness"; provided that (A) such Liens secured the
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and were not
granted in connection with, or in anticipation of the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and (B) such
Liens do not extend to or cover any property or assets of the Company or of
any of the Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary;
(xiv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xv) Liens arising pursuant to Sale and Leaseback Transactions entered
into in compliance with the indenture;
(xvi) Liens on the Capital Stock or other securities of an Unrestricted
Subsidiary that secures indebtedness or other obligations of such
Unrestricted Subsidiary;
(xvii) any encumbrance or restriction (including put and call
arrangements) with respect to the Capital Stock of any joint venture,
partnership or similar arrangement pursuant to any joint venture,
partnership or similar agreement; and
(xviii) Liens securing Indebtedness that otherwise may be incurred
under the indenture in an aggregate amount not to exceed $5 million.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the fair market value of such property or such purchase
price or cost.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED EQUITY OFFERING" has the meaning set forth under "
- --Redemption--Optional Redemption upon Qualified Equity Offerings."
"REFERENCE DATE" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments."
"REFINANCE" means in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "--Certain Covenants--
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Limitation on Incurrence of Additional Indebtedness" (other than pursuant to
clause (ii), (iv), (v), (vi), (vii), (viii), (ix) and (xi) through (xvi)
inclusive of the definition of Permitted Indebtedness), in each case that does
not:
(1) result in an increase in the aggregate principal amount of any
Indebtedness provided that the amount of any premium reasonably necessary to
Refinance such Indebtedness and the amount of reasonable expenses incurred
by the Company in connection with such Refinancing shall not be deemed an
increase in the aggregate principal amount of the Indebtedness to be
Refinanced;
(2) create Indebtedness (A) the portion of which is scheduled to mature
prior to the notes with a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (B) with a final maturity earlier than the final maturity of
the Indebtedness being Refinanced or the notes, whichever is later; provided
that if such Indebtedness being Refinanced is Indebtedness of the Company or
a Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely
of the Company and/or Guarantors.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated the Issue Date by and among the Company, the Guarantors and the Initial
Purchasers.
"REPLACEMENT ASSETS" means assets and property that will be used in the
business of the Company and/or its Restricted Subsidiaries as existing on the
Issue Date or in a business the same, similar or reasonably related thereto
(including Capital Stock of a Person that becomes a Restricted Subsidiary if
such Person is engaged in businesses that comply with the covenant described
under "--Certain Covenants--Conduct of Business").
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt: provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"RESTRICTED PAYMENT" has the meaning set forth under "--Certain
Covenants--Limitation on Restricted Payments."
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--Limitation on
Designations of Unrestricted Subsidiaries." Any such Designation may be revoked
by a Board Resolution of the Company delivered to the trustee, subject to the
provisions of such covenant.
"REVOCATION" has the meaning set forth under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries."
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property other than
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries.
"SEC" means the U.S. Securities and Exchange Commission, as from time to
time constituted, or if at any time after the execution of the indenture the SEC
is not existing and performing the applicable duties now assigned to it, then
the body or bodies performing such duties at such time.
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"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto, and the rules and regulations of the
Commission promulgated thereunder.
"SENIOR DEBT" means:
(i) the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or
not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include
the principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided
for in the documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law) on, and all other amounts owing in
respect of:
(x) all monetary obligations of every nature of the Company, under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest reimbursement obligations under letters of credit,
fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Currency Agreements, in each case whether
outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(i) any Indebtedness of the Company to a Restricted Subsidiary or
any Affiliate of the Company or any of such Affiliate's Subsidiaries;
(ii) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Restricted Subsidiary
(including without limitation, amounts owed for compensation);
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital Stock;
(v) Indebtedness incurred in violation of the covenant described
under "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness"; and
(vi) any Indebtedness that is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company or a Restricted
Subsidiary and senior in right of payment to the notes.
"SIGNIFICANT SUBSIDIARY" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"SKM" means Saunders Karp & Megrue, L.P.
"SUBSIDIARY," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
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"SURVIVING ENTITY" has the meaning set forth under "--Certain
Covenants--Merger, Consolidation and Sale of Assets."
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--Certain
Covenants--Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
trustee, subject to the provisions of such covenant.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date the making of such payment.
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BOOK-ENTRY; DELIVERY AND FORM
The outstanding notes were issued in the form of two global certificates,
one representing the outstanding notes issued under Rule 144A and the other
representing the notes issued under Regulation S. The exchange notes will be
issued in the form of one or more global certificates. The outstanding global
notes were deposited on the date of closing of the sale of the outstanding
notes, and the exchange global notes will be deposited on the exchange date,
with the trustee as custodian for The Depository Trust Company, or DTC, and
registered in the name of DTC or its nominee for credit to the account of a
direct or indirect participant in DTC, as described below. The term "global
notes" means the outstanding global notes or the exchange global notes, as the
context may require.
Except as set forth below, 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. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the global
notes will not be entitled to receive physical delivery of certificated notes.
Transfers of beneficial interests in the 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.
Initially, the trustee will act as paying agent and registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the registrar.
DEPOSITORY PROCEDURES
The following information regarding the operations and procedures of DTC,
Euroclear and Cedel has been provided by such organizations and is provided
solely as a matter of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are subject to
change by them from time to time. We take no responsibility for these operations
and procedures (or the description thereof) and urge investors to contact the
system or their participants directly to discuss these matters.
DTC has advised us that it is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the company that, pursuant to procedures established by
it, (i) upon deposit of the global notes, DTC will credit the accounts of
Participants designated by the trustee with portions of the principal amount of
the global notes and (ii) ownership of such interests in the global notes will
be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the global notes).
Investors in the exchange notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations, including Euroclear and Cedel, which are Participants in such
system. Euroclear and Cedel will hold interests in the global notes on behalf of
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their participants through customers' securities accounts in their respective
names on the books of their respective depositories, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, and
Citibank, N.A., as operator of Cedel. All interests in a global note, including
those held through Euroclear or Cedel, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also be
subject to the procedures and requirements of such systems. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a global note to such persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants and certain banks, the ability of a person having
beneficial interests in a global note to pledge such interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF 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.
Payments in respect of the principal of, and premium, if any, and interest
on a global note registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered Holder under the indenture. Under the
terms of the indenture, both we and the trustee will treat the persons in whose
names the exchange notes, including the global notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither we, the trustee nor any agent
of ours or of the trustee has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership interest
in the global notes, or for maintaining, supervising or reviewing any of DTC's
records or any Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the global notes or (ii) any other matter
relating to the actions and practices of DTC or any of its Participants or
Indirect Participants. DTC has advised the company that its current practice,
upon receipt of any payment in respect of securities such as the exchange notes,
including principal and interest, is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in the principal amount of beneficial interest in the
relevant security as shown on the records of DTC, unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants, as the case
may be, and will not be the responsibility of DTC, the trustee or us. Neither we
nor the trustee will be liable for any delay by DTC or any of its Participants
or Indirect Participants in identifying the beneficial owners of the exchange
notes, and both we and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interests
in the global notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. See "--Same Day Settlement and
Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through DTC
in accordance with DTC's rules on behalf of Euroclear or Cedel, as the case may
be, by its respective depositary; however, such cross-
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market transactions will require delivery of instructions to Euroclear or Cedel,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the global note in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositories for Euroclear or Cedel.
DTC has advised us that it will take any action permitted to be taken by a
Holder of exchange notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the global notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default with respect to the notes, DTC reserves
the right to exchange the global notes for legended notes in certificated form,
and to distribute such notes to its Participants.
Neither we nor the trustee nor any of our respective agents will have any
responsibility for the performance by DTC, Euroclear or Cedel or our respective
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form only if (i) DTC (x) notifies us that it is unwilling or unable
to continue as depositary for the global notes and fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) we, at our option, notify the trustee in writing
that we elect to cause the issuance of the notes or (iii) there shall have
occurred and be continuing an event of default with respect to the notes. In
addition, beneficial interests in a global note may be exchanged for
certificated notes upon request but only upon prior written notice given to the
trustee by or on behalf of DTC in accordance with the indenture. In all cases,
certificated notes delivered in exchange for any global note or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary, in accordance with
its customary procedures.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the exchange notes
represented by the global notes, including principal, premium, if any, and
interest, be made by wire transfer of immediately available funds to the
accounts specified by the Holder of the global notes. With respect to exchange
notes in certificated form, we will make all payments of principal, premium, if
any, and interest on the exchange notes at the office or agency maintained by us
for such purpose within the City and State of New York, initially the office of
the paying agent maintained for such purpose, or, at our option, by check mailed
to the Holders thereof at their respective addresses set forth in the register
of Holders of exchange notes; PROVIDED that all payments of principal, premium,
if any, and interest on exchange notes in certificated form the Holders of which
have given wire transfer instructions to us will be required to be made by wire
transfer of immediately available funds to the accounts specified by such
Holders. The exchange notes represented by the global notes are expected to
trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such exchange notes will, therefore, be required by
DTC to be settled in immediately available funds. We expect that secondary
trading in any certificated notes will also be settled in immediately available
funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a Participant or
Indirect Participant in DTC will be
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credited, and any such crediting will be reported to the relevant Euroclear or
Cedel participant, during the securities settlement processing day, which must
be a business day for Euroclear and Cedel, immediately following the settlement
date of DTC. DTC has advised us that cash received in Euroclear or Cedel as a
result of sales of interests in a global note by or through a Euroclear or Cedel
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.
REGISTRATION RIGHTS FOR OUTSTANDING NOTES
The following is a summary of the material terms of the registration rights
agreement. Under the registration rights agreement, we were required to:
- by September 15, 1999, file a registration statement relating to the
exchange offer with the SEC;
- by September 16, 1999, use our best efforts to have the registration
statement declared effective; and
- by October 15, 1999, use our best efforts to consummate the exchange
offer.
Under existing SEC interpretations contained in several no-action letters to
unrelated third parties, the exchange notes will be freely transferable by
holders which are not our affiliates after the exchange offer without further
registration under the Securities Act if the holder of the exchange notes can
make the representations described under "Exchange Offer--Terms and Conditions
of the Letter of Transmittal." Broker-dealers receiving exchange notes in the
exchange offer will, however, have a prospectus delivery requirement with
respect to resales of such exchange notes, as described in "Plan of
Distribution." In the no-action letters, the SEC has taken the position that
broker-dealers receiving exchange notes in the exchange offer may fulfill their
prospectus delivery requirements with respect to exchange notes, other than a
resale of an unsold allotment from the original sale of the outstanding notes,
with this prospectus. We have agreed for a period of 180 days after completion
of the exchange offer to make available a prospectus meeting the requirements of
the Securities Act to these broker-dealers and other persons, if any, with
similar prospectus delivery requirements for use in connection with any resale
of exchange notes.
If we are not permitted to consummate the exchange offer because it is not
permitted by applicable law or SEC policy or any holder of outstanding notes
notifies us prior to the 60th day following completion of the exchange offer
that:
- it is prohibited by law or SEC policy from participating in the exchange
offer,
- that it may not resell the exchange notes acquired by it in the exchange
offer to the public without delivering a prospectus and this prospectus is
not appropriate or available for such resale, or
- that it is a broker-dealer and owns outstanding notes acquired directly
from us or one of our affiliates,
we and the subsidiary guarantors have agreed to file with the SEC a shelf
registration statement to cover resales of outstanding notes by holders who
satisfy specified conditions relating to the provision of information in
connection with the shelf registration statement. We have agreed to use our best
efforts to cause the shelf registration statement to be declared effective as
promptly as possible by the SEC.
Upon the occurrence of events which would require an amendment or supplement
to the prospectus, public resales will not be permitted under a shelf
registration statement or this prospectus until the amendment or supplement is
provided to holders, including a period of up to 120 days in any
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calendar year during which we are entitled under the registration rights
agreement to suspend use of the shelf registration statement or this prospectus
to avoid public disclosure of an event that would have a material adverse effect
on us or require public disclosure of a pending material transaction not
previously disclosed.
If we fail to meet any of the deadlines described above for the exchange
offer or a shelf registration statement, additional interest will accrue on the
outstanding notes over and above the stated interest rate of 12% at a rate of
0.50% per annum for the first 90 days after the default and increasing by an
additional 0.25% per annum at the beginning of each subsequent 90-day period.
However, the additional interest rate on the outstanding notes may not exceed in
the aggregate 1.0% per annum. Upon curing the registration default, additional
interest on the outstanding notes as a result of such registration default shall
cease to accrue. If, after curing all registration defaults, there is a
subsequent registration default, the rate of additional interest will initially
be 0.50%, regardless of the additional interest rate in effect with respect to
any prior registration default. As a result of the failure to have an exchange
offer registration statement filed by September 15, 1999, to have it declared
effective by September 16, 1999 and to complete the exchange offer by
October 15, 1999, we are paying additional interest on the outstanding notes.
The amount of additional interest has ranged from 0.5% per annum on
September 15, 1999 to 1.0% per annum currently. Additional interest will
continue to accrue at that rate until effectiveness of the registration
statement and completion of the exchange offer.
Any amount of additional interest that becomes due is payable in cash, on
the same dates as interest payments are made on the outstanding notes. The
amount of additional interest is determined by multiplying the applicable
additional interest rate by the principal amount of the outstanding notes
multiplied by a fraction, the numerator of which is the number of days the
additional interest rate was applicable during such period, determined on the
basis of a 360-day year comprised of twelve 30-day months, and the denominator
of which is 360.
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PLAN OF DISTRIBUTION
Except as provided below, this prospectus may not be used for an offer to
resell, resale or other retransfer of the exchange notes.
Each broker-dealer receiving exchange notes for its own account from the
exchange offer must acknowledge that it will deliver a prospectus if it resells
the exchange notes. This prospectus may be used by a broker-dealer who resells
exchange notes received in exchange for outstanding notes, but only if the
broker-dealer acquired the outstanding notes from its market-making activities
or other trading activities. We have agreed that for 180 days after the exchange
date, we will make this prospectus available to any broker-dealer to use in a
resale of the exchange notes. In addition, until August 4, 2000, 90 days after
the date of this prospectus, all dealers effecting transactions in the exchange
notes may be required to deliver a prospectus. We acknowledge and each holder,
except a broker-dealer, must acknowledge, that it is not engaged in, does not
intend to engage in, and does not have an arrangement or understanding with any
person to participate in any distribution of exchange notes.
We will not receive any proceeds from the exchange of outstanding notes for
exchange notes or from any resale of exchange notes by broker-dealers.
Broker-dealers who receive exchange notes for their own accounts through the
exchange offer may sell using the following resale methods, alone or in
combination:
- resale in the over-the-counter market;
- resale in negotiated transactions; or
- resale by writing options on the exchange notes
Any resale by the preceding methods must be at the prevailing market price
at the time of resale, at some price related to the prevailing market price, or
at negotiated prices. Resales may be made directly to purchasers or to or
through brokers or dealers. Broker-dealers may receive compensation in the form
of commissions or concessions from any other broker-dealer or from the
purchasers of exchange notes. A broker-dealer that resells exchange notes
received for its own account through the exchange offer, and a broker or dealer
that participates in a distribution of the exchange notes, may be deemed an
underwriter within the meaning of the Securities Act. Consequently, any profit
on the resale of exchange notes and any commission or concessions the broker or
dealer receives may be considered underwriting compensation under the Securities
Act. The letter of transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act.
By tendering outstanding notes and executing the letter of transmittal,
holders tendering outstanding notes for exchange notes certifies that:
- it is not an affiliate of ours or of our subsidiaries or affiliates or, if
the tendering party is an affiliate of ours or of our subsidiaries or
affiliates, it will comply with the registration and prospectus
requirements of the Securities Act if applicable;
- the exchange notes are being acquired in the ordinary course of business
of the person receiving the exchange notes, whether or not that person is
the holder of the exchange notes;
- the tendering party has not entered into any arrangement or understanding
with any person to participate in the distribution of exchange notes;
- the tendering party is not a broker-dealer who purchased the outstanding
notes for resale through an exemption under the Securities Act; and
- the tendering party will be able to trade the exchange notes acquired in
the exchange offer without restriction under the Securities Act.
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In addition, any broker-dealer who acquired the outstanding notes for its
own account by its market-making activities or other trading activities must
deliver a prospectus that complies with the Securities Act. Except in the case
where a broker-dealer resells an unsold allotment from the original sale of the
outstanding notes, the SEC has indicated that a participating broker-dealer may
fulfill its prospectus delivery requirements with this prospectus. For 180 days
after the expiration date, we will promptly send additional copies of this
prospectus, and any amendments or supplements, to any participating
broker-dealer that requests the prospectus in the letter of transmittal. We will
pay all expenses incident to the exchange offer. This does not include, however,
any commissions or concessions of any brokers or dealers. Additionally, we will
indemnify the holders of the notes, including participating broker-dealers,
against liabilities, including liabilities under the Securities Act.
By accepting this exchange offer, each participating broker-dealer agrees
that it will discontinue its use of this prospectus if the we should notify it
that an event has occurred that makes a statement in the prospectus materially
false or misleading. Once we provide the participating broker-dealer with an
amendment or supplement to the prospectus correcting any misstatement or
omission, then the broker-dealer may resume using the prospectus with the
amendment or supplement, as the case may be. If we give notice to the
broker-dealer to suspend use of the prospectus, then the 180-day period referred
to above will be extended by the number of days from the date the broker-dealer
received notice until the date the broker-dealer received the amended or
supplemented prospectus. For our part, we agree to promptly notify participating
broker-dealers of material changes that render any statement in the prospectus
false or misleading.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of notes by an initial beneficial owner of notes that, for United States federal
income tax purposes, is not a "United States person" (a "Non-United States
Holder"). This discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively.
When we use the term "United States person," we generally mean a holder of
notes who (for United States Federal income tax purposes):
- is a citizen or resident of the United States;
- is a corporation (including an entity treated as a corporation for federal
income tax purposes) created or organized in or under the laws of the
United States or any state thereof or the District of Columbia;
- is an estate, the income of which is subject to United States Federal
income taxation regardless of its source; or
- is 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 (or,
is a trust that was a "United States person" under the law in effect on
August 20, 1996 and elected to continue to be so treated).
The tax treatment applicable to each holder of the notes may vary depending
upon the particular situation of such holder. United States persons acquiring
the notes are subject to different rules than those discussed below. In
addition, certain other holders (including, but not limited to, insurance
companies, tax exempt organizations, financial institutions, persons who own
notes through partnerships or other pass-through entities, broker-dealers and
individuals who are United States expatriates) may be subject to special rules
not discussed below. WE ADVISE YOU TO CONSULT WITH YOUR OWN TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO YOU OF THE ACQUISITION, OWNERSHIP AND SALE OF
THE NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
INTEREST
Interest paid by the company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not "effectively connected with the conduct of a trade or business within the
United States" (within the meaning of the United States Internal Revenue Code of
1986, as amended (the "Code") carried on by such Non-United States Holder and
such Non-United States Holder:
- does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the company;
- is not a "controlled foreign corporation" (within the meaning of the Code)
with respect to which the company is a "related person" (within the
meaning of the Code); and
- certifies, under penalties of perjury, that it is not a United States
person and provides its name and address (on Internal Revenue Service
Form W-8 or W-8BEN, as appropriate) to the company or an agent appointed
by the company (or, a securities clearing organization, bank or other
financial institution that holds the notes on behalf of the Non-United
States Holder in the ordinary course of its trade or business certifies on
behalf of such holder that it has received such certification from the
holder and provides a copy to the company or its agent).
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If you are not qualified for exemption under these rules, interest paid to
you may be subject to withholding tax at the rate of 30% (or any lower
applicable treaty rate). The payment of interest effectively connected with your
United States trade or business, however, would not be subject to a 30%
withholding tax so long as you provide the company or its paying agent an
adequate certification (on Internal Revenue Service Form W-8ECI or 4224, as
appropriate), but such interest would be subject to United States federal income
tax on a net basis at the rates applicable to United States persons generally
(and, if you are a corporation, you may also be subject to branch profits tax at
a rate of 30% or a lower treaty rate).
GAIN ON DISPOSITION
If you are a Non-United States Holder, you will generally not be subject to
United States federal income tax on gain recognized on a sale, exchange, (other
than pursuant to this exchange offer), redemption or other disposition of a
note, unless any of the following is true:
- your investment in the notes is effectively connected with a United States
trade or business that is carried on by you; or
- if you are a nonresident alien individual and you hold the note as a
capital asset or you are present in the United States for 183 or more days
in the taxable year within which such sale, exchange, redemption or other
disposition takes place and, in each case, certain other requirements are
met.
If you have a United States trade or business and the investment in the
notes is effectively connected with such United States trade or business, any
gain recognized on a sale, redemption or other disposition of notes may be
subject to United States federal income tax on a net basis at the rates
applicable to United States persons generally (and, if you are a corporation,
you may also be subject to branch profits tax at a rate of 30% or a lower treaty
rate).
If you exchange our outstanding notes for our exchange notes pursuant to
this exchange offer, you wil not recognize any taxable gain or loss because of
that exchange. Your tax basis in the exchange notes you receive in the exchange
will be the same as your tax basis (immediately before the exchange) in the
outstanding notes you surrended in the exchange. Your holding period for the
exchange notes you receive in the exchange will include your holding period for
the outstanding notes you surrendered in the exchange.
FEDERAL ESTATE TAXES
If interest on the notes is not effectively connected with a United States
trade or business, and is exempt from withholding of United States federal
income tax under the rules described above (other than by treaty), the notes
will not be included in the estate of a deceased Non-United States Holder for
United States federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The company will, where required, report to the holders of notes and the
Internal Revenue Service the amount of any interest paid on the notes in each
calendar year and the amounts of tax withheld, if any, from those payments.
In the case of payments of interest to Non-United States Holders, temporary
Treasury regulations provide that the 31% backup withholding tax and certain
information reporting requirements will not apply to payments for which the
requisite certification, as described above, has been received or an exemption
has otherwise been established, provided that neither the company nor its
payment agent has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not in fact satisfied. Under
temporary Treasury regulations, these information reporting
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and backup withholding requirements will apply, however, to the gross proceeds
paid to a Non-United States Holder on the disposition of the notes by or through
a United States office of a United States or foreign broker, unless the holder
certifies to the broker under penalties of perjury as to its name, address and
status as a foreign person or the holder otherwise establishes an exemption. As
a general matter, information reporting and backup withholding will not apply to
a payment of the proceeds of a disposition of the notes by or through a foreign
office of a foreign broker. Information reporting (but not backup withholding)
will apply, however, to a payment of the proceeds of a sale of notes by a
foreign office of a broker that:
- is a United States person;
- derives 50% or more of its gross income for certain periods from
activities that are effectively connected with the conduct of a trade or
business in the United States; or
- is a "controlled foreign corporation."
Even if a broker meets one of these three conditions, information reporting
will not apply if the broker has documentary evidence in its records that the
holder is not a United States person and certain other conditions are met.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
You should be aware that the Treasury Department promulgated revised final
regulations regarding the withholding and information reporting rules discussed
above. In general, the final regulations do not significantly change the
substantive withholding and information reporting requirements, but unify
current certification procedures and forms. The final regulations are generally
effective for payments made after December 31, 2000, subject to certain
transition rules. WE STRONGLY URGE PROSPECTIVE NON-UNITED STATES HOLDERS TO
CONSULT THEIR OWN TAX ADVISORS FOR INFORMATION ON THE IMPACT, IF ANY, OF THE NEW
FINAL REGULATIONS.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Jones Day
Reavis & Pogue, New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998 and
the year ended December 31, 1999, and for the period from September 9, 1998
(inception) to December 31, 1998 (Precision), and of Mid State (Predecessor) for
the nine month period ended September 30, 1998, appearing in this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of Mid State (Predecessor) for the
year ended December 31, 1997, appearing in this prospectus and registration
statement, have been audited by Baker Newman & Noyes, independent auditors, as
indicated in their report thereon appearing elsewhere herein and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of General Automation as of March 19, 1999 and
December 31, 1998 and for the period from January 1, 1999 to March 19, 1999 and
the years ended December 31, 1998 and 1997, appearing in this prospectus and
registration statement, have been audited by
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Ernst & Young, LLP independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firms as experts in accounting and auditing.
The combined financial statements of Certified and Calbrit as of March 19,
1999 and October 31, 1998 and for the period from November 1, 1998 to March 19,
1999 and the years ended October 31, 1998 and 1997, appearing in this prospectus
and registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The financial statements of Nationwide as of March 19, 1999 and for the
period from June 1, 1998 to March 19, 1999, included in this prospectus and
registration statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The financial statements of Nationwide for years ended May 31, 1998 and
1997, included in this prospectus, have been audited by Insero, Kasperski,
Ciaccia & Co., P.C., independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The financial statements of Gillette as of August 31, 1999 and for the
period from March 1, 1999 to August 31, 1999, included in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The financial statements of Gillette as of February 28, 1999 and for the
year then ended, included in this Prospectus and Registration Statement, have
been audited by Bonadio & Co., LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
104
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF PRECISION PARTNERS,
INC. (PRECISION) AND MID STATE MACHINE PRODUCTS
(PREDECESSOR)
Report of Independent Auditors, Ernst & Young LLP........... F-3
Report of Independent Auditors, Ernst & Young LLP........... F-4
Report of Independent Auditors, Baker Newman & Noyes........ F-5
Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998 (Precision)............................. F-6
Consolidated Statements of Operations for the year ended
December 31, 1999 and the period from September 9, 1998
(Inception) to December 31, 1998 (Precision), and the nine
months ended September 30, 1998 and year ended
December 31, 1997 (Predecessor)........................... F-7
Consolidated Statements of Stockholders' Equity for the year
ended December 31, 1999 and the period from September 9,
1998 (Inception) to December 31, 1998 (Precision), and the
nine months ended September 30, 1998 and year ended
December 31, 1997 (Predecessor)........................... F-8
Consolidated Statements of Cash Flows for the year ended
December 31, 1999 and the period from September 9, 1998
(Inception) to December 31, 1998 (Precision), and the nine
months ended September 30, 1998 and year ended
December 31, 1997 (Predecessor)........................... F-9
Notes to Consolidated Financial Statements.................. F-11
FINANCIAL STATEMENTS OF GENERAL AUTOMATION, INC.
Report of Independent Auditors, Ernst &Young LLP............ F-22
Balance Sheets as of March 19, 1999 and December 31, 1998... F-23
Statements of Income for the period from January 1, 1999 to
March 19, 1999, and the years ended December 31, 1998 and
1997...................................................... F-24
Statements of Stockholders' Equity for the period from
January 1, 1999 to March 19, 1999, and the years ended
December 31, 1998 and 1997................................ F-25
Statements of Cash Flows for the period from January 1, 1999
to March 19, 1999, and the years ended December 31, 1998
and 1997.................................................. F-26
Notes to Financial Statements............................... F-27
COMBINED FINANCIAL STATEMENTS OF CERTIFIED FABRICATORS, INC.
AND CALBRIT DESIGN, INC.
Report of Independent Auditors, Ernst & Young LLP........... F-31
Combined Balance Sheets as of March 19, 1999 and
October 31, 1998.......................................... F-32
Combined Statements of Operations for the period from
November 1, 1998 to March 19, 1999, and for the years
ended October 31, 1998 and 1997........................... F-33
Combined Statements of Stockholders' Equity for the period
from November 1, 1998 to March 19, 1999, and the years
ended October 31, 1998 and 1997........................... F-34
Combined Statements of Cash Flows for the period from
November 1, 1998 to March 19, 1999, and for the years
ended October 31, 1998 and 1997........................... F-35
Notes to Combined Financial Statements...................... F-36
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS OF NATIONWIDE PRECISION PRODUCTS CORP.
Report of Independent Auditors, Ernst & Young LLP........... F-46
Report of Independent Auditors, Insero, Kasperski, Ciaccia &
Co., P.C.................................................. F-47
Balance Sheets as of March 19, 1999 and May 31, 1998........ F-48
Statements of Income for the period from June 1, 1999 to
March 19, 1999, and the years ended May 31, 1998 and
1997...................................................... F-49
Statements of Stockholders' Equity for the period from
June 1, 1999 to March 19, 1999, and the years ended
May 31, 1998 and 1997..................................... F-50
Statements of Cash Flows for the period from June 1, 1999 to
March 19, 1999, and the years ended May 31, 1998 and
1997...................................................... F-51
Notes to Financial Statements............................... F-52
FINANCIAL STATEMENTS OF GILLETTE MACHINE & TOOL CO., INC.
Report of Independent Auditors, Ernst & Young LLP........... F-59
Report of Independent Auditors, Bonadio & Co., LLP.......... F-60
Balance Sheets as of August 31, 1999 and February 28,
1999...................................................... F-61
Statements of Income and Retained Earnings for the period
from March 1, 1999 to August 31, 1999, and the year ended
February 28, 1999......................................... F-62
Statements of Cash Flows for the period from March 1, 1999
to August 31, 1999, and the year ended February 28,
1999...................................................... F-63
Notes to Financial Statements............................... F-64
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
The Board of Directors
Precision Partners, Inc.
We have audited the consolidated balance sheets of Precision Partners, Inc.
("Precision") as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1999 and the period from September 9, 1998 (inception) through
December 31, 1998. These financial statements are the responsibility of
Precision's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 Precision
Partners, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for the year ended December 31, 1999 and the
period from September 9, 1998 (inception) through December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
March 17, 2000 /s/ Ernst & Young LLP
Dallas, Texas
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
The Management Committee
Precision Partners, Inc.
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Mid State Machine Products (the "Predecessor") for the nine
month period ended September 30, 1998. These financial statements are the
responsibility of the Predecessor's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 of Mid State Machine Products referred
to above present fairly, in all material respects, the consolidated results of
its operations and its cash flows for the nine month period ended September 30,
1998 in conformity with accounting principles generally accepted in the United
States.
January 19, 1999 /s/ Ernst & Young LLP
Boston, Massachusetts
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS, BAKER NEWMAN & NOYES
The Board of Directors
Mid State Machine Products
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of Mid State Machine Products for the year ended December 31,
1997. These financial statements are the responsibility of 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 of Mid State Machine Products referred
to above present fairly, in all material respects, the consolidated results of
its operations and its cash flows for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
February 2, 1998 /s/ Baker Newman & Noyes LLC
Portland, Maine
F-5
<PAGE>
PRECISION PARTNERS, INC. (PRECISION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 313 $ 963
Trade accounts receivable, less allowance for doubtful
accounts of $260,838 and $85,000 at December 31, 1999
and 1998, respectively 23,613 5,719
Inventories 18,404 4,340
Current deferred income taxes 1,303 37
Other current assets 1,916 499
-------- -------
Total current assets 45,549 11,558
Property, plant and equipment, at cost, net 71,611 15,224
Goodwill, net 77,429 34,589
Non-compete agreement, net 933 1,000
Other assets 10,869 950
-------- -------
Total assets $206,391 $63,321
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 11,200 $ --
Accounts payable 7,703 3,215
Accrued expenses 11,406 1,613
Income taxes payable 1,014 232
Deferred revenue 4,700 --
Current installments of long-term debt 2,611 750
Other current liabilities 3,071 --
-------- -------
Total current liabilities 41,705 5,810
Long-term debt, less current portion 120,737 22,250
Non-current deferred taxes 7,817 3,656
Stockholders' equity:
Common stock, Class A, $.01 par value, 100 shares
authorized, issued and outstanding -- --
Additional paid-in capital 42,042 32,000
Accumulated deficit (5,910) (395)
-------- -------
Total stockholders' equity 36,132 31,605
-------- -------
Total liabilities and stockholders' equity $206,391 $63,321
======== =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRECISION
---------------------------------
PERIOD FROM PREDECESSOR
SEPTEMBER 9, ----------------------------------
YEAR ENDED 1998 (INCEPTION) NINE MONTH PERIOD YEAR ENDED
DECEMBER 31, THROUGH ENDED SEPTEMBER 30, DECEMBER 31,
1999 DECEMBER 31, 1998 1998 1997
------------- ----------------- ------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales $123,188 $12,602 $24,106 $33,870
Cost of sales 93,434 9,090 16,326 24,581
-------- ------- ------- -------
Gross profit 29,754 3,512 7,780 9,289
Selling, general and administrative
expenses 24,840 3,134 3,374 4,571
-------- ------- ------- -------
Operating income 4,914 378 4,406 4,718
Other income (expense):
Investment income 245 -- 103 1,197
Interest expense (12,812) (526) (37) (85)
Gain on sale of property and
equipment -- -- -- 29
Other 8 (138) (91) (6)
-------- ------- ------- -------
(Loss) income before income taxes (7,645) (286) 4,381 5,853
(Benefit) provision for income
taxes (2,130) 109 1,677 2,310
-------- ------- ------- -------
Net (loss) income $ (5,515) $ (395) $ 2,704 $ 3,543
======== ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON RETAINED
STOCK STOCK EARNINGS TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
PREDECESSOR:
Balance at January 1, 1997 $25 $25 $13,701 $13,751
Net income -- -- 3,543 3,543
Dividend paid -- -- (200) (200)
--- --- ------- -------
Balance at December 31, 1997 25 25 17,044 17,094
Net income -- -- 2,704 2,704
Redemption of shares (6) (6) (11,521) (11,533)
--- --- ------- -------
Balance at September 30, 1998 $19 $19 $ 8,227 $ 8,265
=== === ======= =======
</TABLE>
<TABLE>
<CAPTION>
CLASS A ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
PRECISION:
Initial capitalization at September 9, 1998.......... $ -- $32,000 $ -- $32,000
Net loss............................................. -- -- (395) (395)
------- ------- ------- -------
Balance at December 31, 1998......................... -- 32,000 (395) $31,605
Additional capitalization at time of
reorganization..................................... -- 10,035 -- 10,035
Capital contributions................................ -- 7 -- 7
Net loss............................................. -- -- (5,515) (5,515)
------- ------- ------- -------
Balance at December 31, 1999......................... $ -- $42,042 $(5,910) $36,132
======= ======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PRECISION
--------------------------------------- PREDECESSOR
PERIOD FROM SEPTEMBER 9, ----------------------------------
YEAR ENDED 1998 (INCEPTION) NINE MONTH PERIOD YEAR ENDED
DECEMBER 31, THROUGH DECEMBER 31, ENDED SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
------------ ------------------------ ------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (5,515) $ (395) $ 2,704 $ 3,543
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation 8,525 658 806 1,052
Amortization 4,432 447 -- --
Gain on sale of fixed assets -- -- -- (29)
Loss (gain) on trading securities -- -- 200 (836)
Purchase of trading securities -- -- (3,382) (4,826)
Proceeds from the sale of trading
securities -- -- 9,564 3,197
Deferred income taxes (1,510) (22) (315) 115
Changes in operating assets and
liabilities, net of
acquisitions:
Trade accounts receivable (5,531) 772 (805) (1,277)
Inventories (4,345) 1,413 (1,623) (471)
Income taxes receivable -- -- 364 --
Other current assets (7,190) (267) 4 57
Accounts payable 1,551 385 87 (184)
Accrued expenses 7,553 (130) 97 142
Income taxes payable (192) (107) 354 (674)
Deferred revenue -- -- 183 (53)
Other current liabilities 7,620 -- -- --
-------- -------- -------- -------
Net cash provided by (used in)
operating activities 5,398 2,754 8,238 (244)
INVESTING ACTIVITIES
Proceeds from sale of property, plant
and equipment -- -- -- 30
Proceeds from sale of Sukee Arena -- -- 260 --
Purchase of property, plant and
equipment (10,260) (751) (623) (928)
Payment of deferred acquisition costs -- (342) -- --
Acquisition of subsidiaries, net of
cash (111,277) (53,483) -- --
Payment for non-compete agreement -- (1,000) -- --
Proceeds from available-for-sale
securities -- -- 500 (500)
Proceeds from maturities of held-to-
maturity securities -- -- 808 1,382
Proceeds from note receivable,
stockholder 90 -- 175 100
-------- -------- -------- -------
Net cash (used in) provided by
investing activities (121,447) (55,576) 1,120 84
FINANCING ACTIVITIES
Proceeds from revolving line of credit 11,200
Repayment of long-term debt (250) (595) (283) (305)
Proceeds from long-term debt 100,000 23,000 -- 400
</TABLE>
F-9
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
PRECISION
--------------------------------------- PREDECESSOR
PERIOD FROM SEPTEMBER 9, ----------------------------------
YEAR ENDED 1998 (INCEPTION) NINE MONTH PERIOD YEAR ENDED
DECEMBER 31, THROUGH DECEMBER 31, ENDED SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
------------ ------------------------ ------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Contribution of capital $ 10,042 $ 32,000 $ -- $ --
Payment of debt issue costs (5,593) (660) -- --
Common stock redemption -- -- (11,673) --
Dividends paid -- -- -- (200)
-------- -------- -------- -------
Net cash provided by (used in)
financing activities 115,399 53,745 (11,956) (105)
-------- -------- -------- -------
Net increase (decrease) in cash and
cash equivalents (650) 923 (2,598) (265)
Cash and cash equivalents, beginning
of period 963 40 2,638 2,903
-------- -------- -------- -------
Cash and cash equivalents, end of
period $ 313 $ 963 $ 40 $ 2,638
======== ======== ======== =======
SUPPLEMENTARY INFORMATION FOR THE
STATEMENT OF CASH FLOWS:
Interest payments $ 7,897 $ 548 $ 34 $ 84
Income tax payments $ 547 $ 253 $ 1,276 $ 2,868
Non-cash investing and financing
activities - purchase of software
under financing agreements $ 344 $ -- $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES.
F-10
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Precision Partners, L.L.C. (LLC) was incorporated on September 9, 1998 for
the purpose of acquiring and operating companies in the business of
manufacturing and supplying complex precision metal parts, toolings and
assemblies for original equipment manufacturers ("OEMS").
On September 30, 1998, investors contributed approximately $32 million of
capital to LLC which was then contributed by LLC to two wholly-owned
subsidiaries, Mid State Acquisition Corp. and Galaxy Acquisition Corp.,
established to acquire on September 30, 1998 all of the outstanding capital
stock of Mid State Machine Products ("Mid State") and Galaxy Industries
Corporation ("Galaxy") (the "1998 Acquisitions"). The total purchase price
including transaction expenses was approximately $54,483,000 and was financed by
the proceeds of the contributed capital and borrowings under the Company's
credit facility. The purchase price was allocated to the estimated fair value of
the assets acquired and liabilities assumed in accordance with the purchase
method of accounting as follows:
<TABLE>
<S> <C>
Current assets $12,472,000
Property, plant and equipment 15,131,000
Goodwill 35,036,000
Other assets 1,007,000
Current liabilities (5,553,000)
Deferred taxes, non-current (3,610,000)
</TABLE>
In February, 1999 Precision Partners, Inc. ("Precision" or "Company") was
formed as a wholly-owned subsidiary of Precision Partners Holdings, Inc.
(Holdings) which is a wholly-owned subsidiary of LLC. On March 19, 1999 as part
of a reorganization, LLC contributed through Holdings to Precision its
investments and related equity in Galaxy, Mid State and Precision Partners
Management Corporation ("Management Corporation"), which comprised substantially
all of the equity of LLC. Simultaneous with this reorganization, Precision
issued $100,000,000 of 12% Senior Subordinated Notes (the "Notes") in order to
purchase all of the issued and outstanding capital stock of Certified
Fabricators, Inc. and its sister company Calbrit Design, Inc. (together,
"Certified") and to purchase substantially all of the assets and assume certain
liabilities of General Automation, Inc. ("General Automation") and Nationwide
Precision Products Corp. ("Nationwide"). Also, on September 1, 1999, Precision
purchased all of the issued and outstanding capital stock of Gillette Machine &
Tool, Inc. ("Gillette") using existing cash and borrowings under Precision's
credit facility. The acquisitions of Certified, General Automation, Nationwide,
and Gillette are referred to collectively as the "1999 Acquisitions." Subsequent
to this reorganization, capital totaling approximately $42 million had been
contributed to LLC by investors; this capital has been contributed through
Holdings to Precision.
F-11
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 1999 Acquisitions were financed through the net proceeds of the issuance
of the Notes, together with borrowings under our credit facilities, an equity
contribution of approximately $10,000,000 and available cash. The total purchase
price, including transaction expenses, was approximately $116,388,000, and the
purchase price was allocated to estimated fair value of the assets acquired and
liabilities assumed in accordance with the purchase method of accounting as
follows:
<TABLE>
<S> <C>
Current assets $27,848,000
Property, plant, and equipment 54,658,000
Goodwill 45,641,000
Other assets 309,000
Current liabilities (6,466,000)
Deferred taxes, non-current (5,602,000)
</TABLE>
The excess of the purchase price over the net fair value of the assets
acquired was allocated to goodwill, which is being amortized over 20 years. We
are still in the process of obtaining appraisals for certain assets and there
are also contingent payments which may subject the purchase price to future
refinements. The purchase price for one company acquired in 1999 included a
$4 million escrow to be paid out upon the company meeting certain operating
targets through April 30, 1999. Such targets were not met and, accordingly, the
escrow has been returned to Precision, thereby reducing the purchase price and
the resulting goodwill by $4 million. The acquisitions which have been accounted
for under the purchase method of accounting have been included in results of
operations since the date of the acquisitions.
The Company's unaudited pro forma revenues and net loss, after giving effect
to the 1999 and 1998 Acquisitions, as if each such acquisition had occurred on
January 1, 1998, were $149,749,000 and $3,738,000 and $147,078,000 and $488,000
for 1999 and 1998, respectively.
Prior to the 1998 Acquisitions, LLC had substantially no operations and
prior to the 1999 Acquisitions, Precision had substantially no operations. For
financial statement presentation purposes, the reorganization is being accounted
for as if it had occurred on September 9, 1998 in a manner similar to a pooling
of interests. Therefore, operations for the period from September 9, 1998
through December 31, 1998 are shown only for Precision and consist of the
operations of Mid State and Galaxy from the date of acquisition through
December 31, 1998 and of LLC from inception (September 9, 1998) through
December 31, 1998. Similarly, 1999 operations are shown for Precision and
consist of the operations of Mid State and Galaxy for the entire year, of LLC
from January 1, 1999 through March 19, 1999 and the 1999 Acquisitions from the
date of acquisition through December 31, 1999. Since Precision is treated as
having commenced operations in September 1998, Mid State is considered the
predecessor for financial reporting purposes. The predecessor financial
statements include the operations of Mid State and its wholly-owned subsidiaries
for the periods reported. All significant intercompany balances and transactions
for both the Company's financial statements and the Predecessor's financial
statements have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the actual amounts reported in the financial statement
and accompanying notes. Actual results could differ from those estimates.
F-12
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash in bank demand deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk with respect to cash.
The Company is materially dependent on a small group of customers. During
the year ended December 31, 1999, 26.5%, 7.4%, and 6.8% of the Company's sales
were to three customers. As of December 31, 1999, the Company's receivables from
these three customers were approximately $4,674,000, $4,717,000 and $1,125,000.
During the period from September 9, 1998 through December 31, 1998, 60.5%,
14.8%, and 11.2% of the Company's sales were to three customers. As of
December 31, 1998, the Company's receivables from these three customers were
approximately $1,906,000, $782,000, and $686,000. The Predecessor was materially
dependent on a single customer representing 74% and 72% of sales for the nine
month period ended September 30, 1998 and year ended December 31, 1997,
respectively. The Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts receivable
credit risk exposure is limited. The Company does not require collateral or
security for these receivables.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash with original maturities of 90 days or
less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments consisting of cash and cash
equivalents, trade accounts receivable, accounts payable and accrued liabilities
are stated at expected settlement amounts which approximate fair value. The
carrying amounts of the note payable to the bank and the line of credit
approximate fair value due to the variable rate interest feature on the related
debt. Management believes the carrying amount of the subodinated notes is not
materially different from the estimated fair value based on prevailing interest
rates for similar notes.
INVENTORIES
Inventories are stated at the lower of cost or market. The Predecessor used
the first-in, first out (FIFO) method for pricing material and the last-in,
first-out (LIFO) method for labor and overhead. At the acquisition date, the
Company valued the inventories at fair value which approximated the FIFO method
and will account for inventories on a FIFO basis.
DEBT ISSUE COSTS
The Company incurred costs related to obtaining financing. These costs are
being amortized on a straight line basis over the term of the related debt. The
difference between the straight line method and interest method for amortizing
debt issue costs is not significant.
F-13
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEFERRED ACQUISITION AND OFFERING COSTS
The Company has deferred $6,261,617 of costs related to issuance of the
Notes. The costs related to the Notes will be amortized over the term of the
Notes and the accumulated amortization of those costs totaled $1,077,137 as of
December 31, 1999.
DEPRECIATION AND AMORTIZATION
Buildings, machinery and equipment, and furniture and fixtures are
depreciated using both straight line and declining balance methods over the
estimated useful lives of the individual assets. The lives are five to seven
years on furniture and fixtures, five to ten years for machinery and equipment,
twenty years for land improvements and forty years for building and
improvements. Leasehold improvements are amortized on a straight line basis over
the lesser of the estimated service lives or the terms of the leases.
LONG-LIVED ASSETS
The Company accounts for its long-lived assets under FASB No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, which requires impairment losses to be recognized for long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are not
sufficient to recover the assets' carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount.
INTANGIBLES
The excess of cost over the fair market value of net assets acquired
(goodwill) is amortized on a straight-line basis over 20 years. Accumulated
amortization was $3,831,100 and $450,000 as of December 31, 1999 and 1998,
respectively.
In connection with the acquisition of one of its subsidiaries, the Company
entered into a non-compete agreement with the seller for $1,000,000. The
$1,000,000 is amortized on a straight line basis over the non-compete period.
Accumulated amortization at December 31, 1999 is approximately $67,000.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued FASB Statement No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION which is
effective for fiscal years beginning after December 15, 1997. This statement
changes the way that companies report information about operating segments in
financial statements. The Company adopted this statement during 1998 and
determined that it is one reportable segment and such adoption had no material
effect on the financial statements.
In June 1998, the Financial Accounting Standards Board issued FASB Statement
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
effective for fiscal periods beginning after June 15, 2000. The adoption of this
statement is not expected to have a material effect on the financial statements.
F-14
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to approximately
$214,408 for the year ended December 31, 1999, $61,188 for the period from
September 9, 1998 through December 31, 1998 and $222,738 and $230,115 for the
nine month period ended September 30, 1998 and the year ended December 31, 1997,
respectively.
INCOME TAXES
The Company accounts for taxes under the liability method where deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
REVENUE RECOGNITION
Sales are recorded when products are shipped to customers. Revenues from
long-term contracts are recognized on the percentage-of-completion method,
measured by the percentage of total costs incurred to date to estimated total
costs of the contract. Total costs include all direct material and labor costs
and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Contract revisions are
recognized in the period in which the revisions are determined. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.
STOCK COMPENSATION
Precision has elected to account for stock-based compensation to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the fair market value of the Company's stock at the date
of the grant over the amount an employee must pay to acquire the stock.
EARNINGS PER SHARE
Earnings per share is not presented for either Precision or the Predecessor
since such amounts are not considered meaningful.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
F-15
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES AND COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Inventories consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Raw material $ 2,575 $1,122
Work in process 13,978 2,968
Finished goods 2,365 300
------- ------
18,918 4,390
Less reserves for obsolescence 514 50
------- ------
$18,404 $4,340
======= ======
</TABLE>
Information regarding contract costs, estimating earnings, and progress
billings consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
1999
------------
<S> <C>
Costs incurred on uncompleted contracts $ 9,510
Estimated earnings 1,187
-------
10,697
Less net progress billings 7,893
-------
Costs and estimated earnings on uncompleted contracts
included in work in process inventory $ 2,804
=======
</TABLE>
There were no significant billings in excess of net costs and estimated
earnings on uncompleted contracts.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which are valued at cost, consists of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Building and improvements $ 4,799 $ 2,034
Leasehold improvements 2,079 749
Machinery and equipment 72,868 12,935
Furniture, fixtures and other 2,567 164
------- -------
82,313 15,882
Less accumulated depreciation and amortization 10,702 658
------- -------
$71,611 $15,224
======= =======
</TABLE>
4. INVESTMENT SECURITIES
Gross unrealized holding gains for investments categorized as held to
maturity were $0 and $3,615 for the nine month period ended September 30, 1998,
and for the year ended December 31, 1997, respectively.
F-16
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT SECURITIES (CONTINUED)
Net income includes gross realized gains (losses) of approximately
($200,000) and $652,000 for the nine month period ended September 30, 1998 and
the year ended December 31, 1997, respectively.
5. DEBT
Precision maintains a line of credit of $25,000,000, which matures on
March 31, 2005, under which it can borrow funds or secure letters of credit at
prevailing market rates. As of December 31, 1999, we had outstanding draws on
the line of credit totaling $11,200,000 (9.85% at December 31, 1999). The
revolving line of credit is secured by accounts receivable and inventory of
Precision. Advances under the line are available to us based upon 85% of
outstanding eligible accounts receivable and 50% of eligible inventories.
Associated with the line of credit is a commitment fee of 0.5% per annum payable
in arrears on the last day of each quarter. The fee is calculated from the
closing date, March 19, 1999, to the date the revolving commitments have been
terminated, computed at the committment fee rate on the actual daily amount of
available revolving commitment of such lending during the period. As of
December 31, 1999, the Company had approximately $12,600,000 available under the
revolving credit facility.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Precision Partners, Inc. 12% Senior Subordinated Notes due
2009, interest paid semiannually on March 15 and
September 15 commencing on September 15, 1999. $100,000 $ --
Note payable to a bank, due in quarterly principal
installments plus interest at a variable rate (8.44% as of
December 31, 1999), maturing March 31, 2005. Quarterly
principal installments of $805,000 begin on June 30, 2000,
increasing to $920,000 on June 30, 2001, $1,150,000 on
June 30, 2002, $1,380,000 on June 30, 2003, and $1,495,000
on June 30, 2004, secured by all assets of Precision
Partners and its subsidiaries. 23,000 --
Financial software financing agreement, due in twelve
quarterly installments of $32,471, including interest at
7.8%. 265 --
Director and officer insurance premium financing agreement
due in six quarterly installments of $28,997, including
interest at 7.15%. 83 --
Note payable to a bank, due in quarterly principal
installments plus interest at a variable rate (9.00% at
December 31, 1998), refinanced on March 19, 1999. -- 23,000
-------- -------
123,348 23,000
Less current installments 2,611 750
-------- -------
$120,737 $22,250
======== =======
</TABLE>
Pursuant to the terms entered into in conjunction with the March 19, 1999
issuance of the Notes, the interest payable on the Notes increased from 12.00%
to 12.50% on September 16, 1999 and from 12.50% to 12.75% on December 16, 1999.
This increase in the interest rate is a contractual obligation which has arisen
because the Notes were not registered with the SEC within 180 days of their
initial issuance. Until the registration of the Notes is complete and effective,
the interest rate will increase by an additional 0.25% per annum for each 90-day
period subsequent to December 16, 1999, but the additional interest shall not
exceed 1.0% per annum regardless of the effective date of the registration.
F-17
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
The company has unamortized deferred costs of $5,184,480 related to the
Notes and the $23,000,000 term loan and credit facility. The costs are being
amortized over the life of the related Notes, term loan and credit facility.
Aggregate future maturities of long-term debt are as follows:
2000--$2,611,000; 2001--$3,686,000; 2002--$4,402,000; 2003--$5,290,000;
2004--$5,865,000; thereafter--$101,494,000.
Under the terms of the note payable to the bank, the Company is required to
maintain certain leverage, interest coverage, and fixed charge coverage ratios
on a consolidated basis. The company was in compliance with all of the
restrictive covenants at December 31, 1999.
The indenture governing the Notes contains covenants that limit our and some
of our subsidiaries' ability to incur additional debt, pay dividends on or
redeem or repurchase capital stock, enter into transactions with affiliates and
transfer or sell assets, among other things.
6. INCOME TAXES
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
PRECISION
-------------------------------
PERIOD FROM PREDECESSOR
SEPTEMBER 9, ----------------------------
1998 (INCEPTION) NINE MONTH
YEAR ENDED THROUGH PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Current federal $ -- $ 40 $1,553 $1,723
Current state 303 91 439 472
------- ---- ------ ------
Total current tax provision 303 131 1,992 2,195
------- ---- ------ ------
Deferred federal (1,917) (28) (237) 46
Deferred state (516) 6 (78) 69
------- ---- ------ ------
Total deferred tax provision (benefit) (2,433) (22) (315) 115
------- ---- ------ ------
Total tax provision $(2,130) $109 $1,677 $2,310
======= ==== ====== ======
</TABLE>
The difference between the effective rate reflected in the income tax
expense (benefit) and the amount determined by applying the statutory U.S. rate
of 34% to income (loss) before income tax
F-18
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
expense (benefit) for the period September 9, 1998 through December 31, 1998,
the nine month period ended September 30, 1998 and the year ended December 31,
1997 is analyzed below:
<TABLE>
<CAPTION>
PRECISION
-------------------------------
PERIOD FROM PREDECESSOR
SEPTEMBER 9, ----------------------------
1998 (INCEPTION) NINE MONTH
YEAR ENDED THROUGH PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Income tax expense (benefit) at statutory
rate $(2,599) $(97) $1,489 $1,990
Permanent differences, primarily goodwill 672 159 (46) (56)
State income tax, net of federal income
tax benefit (203) 47 239 376
Other -- -- (5) --
------- ---- ------ ------
Total tax provision $(2,130) $109 $1,677 $2,310
======= ==== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the deferred tax assets and (liabilities) are as follows:
<TABLE>
<CAPTION>
PRECISION
---------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Net operating losses $ 1,097 $ 5
Tax credit carryforwards 576 243
Other accruals and reserves 1,806 217
Property, plant and equipment (9,041) (3,708)
Inventories (176) (176)
Goodwill amortization (433) --
Deferred tax asset valuation allowance (343) (200)
------- -------
Net deferred tax liability $(6,514) $(3,619)
======= =======
Net non-current deferred tax liability $(7,817) $(3,656)
Net current deferred tax asset 1,303 37
------- -------
Net deferred tax liability $(6,514) $(3,619)
======= =======
</TABLE>
7. PROFIT SHARING/401K PLANS
The Company's subsidiaries sponsor defined contribution plans covering all
their employees. Pension expense related to these plans, which are generally
based on partial matching of employee contributions, amounted to $672,643 for
the year ended December 31, 1999, $123,447 for the period from September 9, 1998
(inception) to December 31, 1998 and $335,950 and $407,426 for the nine month
period ended September 30, 1998 and the year ended December 31, 1997,
respectively.
F-19
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under operating leases.
Rent expense totaled approximately $2,407,000 and $276,898 for the year ended
December 31, 1999 and the period from September 9, 1998 (inception) to
December 31, 1998, respectively. Rent expense for the nine month period ended
September 30, 1998 and year ended December 31, 1997, was $369,378 and $564,500,
respectively. Minimum rental commitments under noncancellable operating leases
are as follows: 2000--$3,441,181; 2001--$3,499,464; 2002--$3,242,202;
2003--$2,330,696; 2004--$2,054,525; thereafter--$3,219,614.
9. STOCK OPTION PLAN
In April 1999 Holdings approved an Incentive Stock Option Plan (Plan) for
certain employees including employees of Precision and Precision's wholly-owned
subsidiaries for the issuance of up to 2,700,000 shares of Holdings common
stock. During 1999, 2,454,000 options were granted with an exercise price of
$.1875, which was the market value of Holdings common stock at the date of grant
as determined by management and the Board of Directors. At December 31, 1999,
74,343 options had been exercised and 645,000 options had been forfeited leaving
1,734,657 options outstanding at December 31, 1999. These options vest up to a
period of four years. The impact of accounting for the employee stock options
under the fair value method provided for under Financial Accounting Standards
Board Statement No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION is immaterial to
the Company's financial statements.
10. LITIGATION
Precision or its subsidiaries are defendants from time to time in lawsuits
and disputes arising in the normal course of business. Management believes that
the ultimate outcome of those matters will not have a materially adverse effect
on the consolidated financial position, results of operations, or cash flows.
11. YEAR 2000 (UNAUDITED)
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
on-going business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarterly, or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
We expended $0.9 million on Year 2000 readiness efforts in 1999. These
efforts including replacing some outdated, non-compliant hardware and
noncompliant software, as well as identifying and remediating Year 2000
problems.
F-20
<PAGE>
PRECISION PARTNERS, INC. (PRECISION) AND
MID STATE MACHINE PRODUCTS (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
To support recently signed sales contracts, which will require new
facilities, machinery, and equipment of approximately $35,000,000, the Company
plans to enter into operating lease agreements to meet those requirements.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
To the Board of Directors of
Precision Partners, Inc.
We have audited the accompanying balance sheets of General Automation, Inc. as
of March 19, 1999 and December 31, 1998, and the related statements of income,
stockholder's equity, and cash flows for the period from January 1, 1999 to
March 19, 1999 and each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 General Automation, Inc. at
March 19, 1999 and December 31, 1998, and the results of its operations and its
cash flows for the period from January 1 to March 19, 1999 and for each of the
two years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
March 10, 2000 /s/ Ernst & Young LLP
Dallas, Texas
F-22
<PAGE>
GENERAL AUTOMATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 19, DECEMBER 31,
1999 1998
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 464 $ 678
Trade accounts receivable, net of allowance for doubtful
accounts of $65,000 at March 19, 1999 and December 31,
1998 2,952 2,734
Inventories 870 694
Prepaid expenses and other 20 31
------- -------
Total current assets 4,306 4,137
Property, plant and equipment, at cost, net 8,731 9,046
Receivables from employees 131 135
------- -------
Total assets $13,168 $13,318
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 89 $ 89
Accounts payable 471 631
Accrued state income taxes 27 141
Accrued real estate tax 211 272
Other accrued expenses 244 153
------- -------
Total current liabilities 1,042 1,286
Long-term debt, less current portion 50 57
Stockholder's equity:
Common stock, $100 par value; 1,000 authorized shares; 900
issued shares (including 616 shares in treasury stock);
and 284 shares outstanding 90 90
Retained earnings 12,841 12,740
Less: Cost of common stock in treasury (855) (855)
------- -------
Total stockholder's equity 12,076 11,975
------- -------
Total liabilities and stockholder's equity $13,168 $13,318
======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-23
<PAGE>
GENERAL AUTOMATION, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED DECEMBER 31,
JANUARY 1 TO -------------------------
MARCH 19, 1999 1998 1997
--------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales $ 4,464 $19,776 $16,520
Cost of sales 2,270 11,080 10,388
------- ------- -------
Gross profit 2,194 8,696 6,132
Selling, general and administrative expenses 525 2,055 1,855
Special recovery -- (70) (720)
Other operating (income) expenses (16) 23 35
------- ------- -------
Operating income 1,685 6,688 4,962
Other income (expense):
Interest income 19 86 97
Interest expense (1) (16) (32)
------- ------- -------
Income before income taxes 1,703 6,758 5,027
Provision for state income taxes 18 102 76
------- ------- -------
Net income $ 1,685 $ 6,656 $ 4,951
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
GENERAL AUTOMATION, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON TREASURY RETAINED
STOCK STOCK EARNINGS TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $90 $ (855) $ 8,238 $ 7,473
Net income -- -- 4,951 4,951
Distributions -- -- (2,329) (2,329)
--- ------ ------- -------
Balance at December 31, 1997 90 (855) 10,860 10,095
Net income -- -- 6,656 6,656
Distributions -- -- (4,776) (4,776)
--- ------ ------- -------
Balance at December 31, 1998 90 (855) 12,740 11,975
Net income -- -- 1,685 1,685
Distributions -- -- (1,584) (1,584)
--- ------ ------- -------
Balance at March 19, 1999 $90 $ (855) $12,841 $12,076
=== ====== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
GENERAL AUTOMATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JANUARY 1 TO DECEMBER 31,
MARCH 19, -------------------
1999 1998 1997
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,685 $6,656 $4,951
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 340 1,427 1,178
(Gain) loss on sale of property, plant and equipment -- (9) 13
Changes in operating assets and liabilities:
Trade accounts receivable (218) (578) (945)
Inventories (176) (6) (144)
Receivables from employees 4 80 44
Prepaid expenses and other 11 (10) 1
Accounts payable (160) (415) (132)
Accrued expenses and taxes (83) 124 99
------- ------ ------
Net cash provided by operating activities 1,403 7,269 5,065
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net of deposit on
machinery (26) (3,612) (1,907)
Proceeds from sale of property, plant and equipment -- 153 9
Proceeds from (payments on) cash surrender value
stockholder's life insurance -- 197 (17)
------- ------ ------
Net cash used in investing activities (26) (3,262) (1,915)
FINANCING ACTIVITIES
Distributions to stockholder (1,584) (4,776) (2,329)
Payment of long-term debt (7) (81) (79)
Payment on note payable to bank -- -- (487)
------- ------ ------
Net cash used in financing activities (1,591) (4,857) (2,895)
------- ------ ------
Net (decrease) increase in cash and cash equivalents (214) (850) 255
Cash and cash equivalents, beginning of period 678 1,528 1,273
------- ------ ------
Cash and cash equivalents, end of period $ 464 $ 678 $1,528
======= ====== ======
Supplementary information for the statement of cash flows:
Interest payments $ 1 $ 16 $ 32
State income tax payments $ 21 -- 35
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
GENERAL AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
General Automation, Inc. (the Company) machines and sells precision screw
machine and other products to serve as component parts to a wide variety of
manufacturers (e.g., automotive, surgical equipment, and aerospace).
BASIS OF PRESENTATION
The financial statements include all accounts of General Automation, Inc.
Pursuant to a contract with Precision Partners Holdings, Inc. ("Holdings") that
was signed on February 5, 1999, the Company agreed to sell substantially all of
the Company's assets and Holdings agreed to assume substantially all of the
Company's liabilities. The contract was assigned by Holdings to its wholly-owned
subsidiary, Precision Partners, Inc., and the transaction was closed on March
19, 1999. The financial statements are presented on a historical cost basis and
do not include any adjustments related to the purchase transaction.
USE OF ESTIMATES
The preparation of the 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash with original maturities of 90 days or
less.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
first in, first out (FIFO) method of determining cost for its inventories.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash in bank demand deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk with respect to cash. The Company is materially
dependent on a small group of customers. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
DEPRECIATION
Buildings, machinery and equipment, and furniture and fixtures are
depreciated using the straight-line method over the estimated useful lives of
the individual assets. The general range of estimated lives is 15 to 39 years
for buildings and improvements, five to seven years for machinery and equipment,
five years for automobiles, and five to seven years for office furniture and
equipment.
F-27
<PAGE>
GENERAL AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company elected by consent of its stockholder to be taxed under the
provisions of subchapter S of the Internal Revenue Code. Under these provisions,
the taxable income of the Company is reported directly in the sole stockholder's
individual tax returns.
LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets under
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are not sufficient to recover
the assets' carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount.
REVENUE RECOGNITION
Sales are recorded when products are shipped to a customer.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 19, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $234 $205
Work in process 432 318
Finished goods 204 171
---- ----
$870 $694
==== ====
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 19, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Land $ 480 $ 480
Buildings 4,099 4,099
Machinery and equipment 12,761 12,741
Furniture, fixtures and other 728 723
------- ------
18,068 18,043
Less accumulated depreciation 9,337 8,997
------- ------
Property, plant and equipment, net $ 8,731 $9,046
======= ======
</TABLE>
F-28
<PAGE>
GENERAL AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEBT
As of March 19, 1999 and December 31, 1998, the Company had no outstanding
bank borrowings.
The Company has a note payable to a former stockholder (a party related to the
current stockholder) related to the purchase of the former stockholder's
interest in the Company. The note payable requires a monthly payment of $8,333,
which includes annual interest at 10.0%. Aggregate future maturities as of
March 19, 1999 of the note payable are as follows, remainder of 1999--$89,477
and 2000--$49,414.
As of March 19, 1999 and December 31, 1998 the Company was technically in
default on its note payable to a former stockholder because the Company
terminated an insurance policy that served as collateral for the note payable,
and the proceeds from the policy were distributed to the sole stockholder. No
actions have been taken by the former stockholder and the note payable
obligation was current at March 19, 1999.
5. BENEFIT PLAN 401(K)
The Company sponsors a 401(k) plan covering substantially all full-time
employees who meet age and service requirements. Discretionary contributions to
the 401(k) plan amounted to $70,000 and $78,000 for the years ended
December 31, 1998 and 1997, respectively. The contribution for the period ended
March 19, 1999 has not yet been determined.
6. RELATED PARTY TRANSACTIONS, LEASE OBLIGATIONS, AND CONTINGENCIES
The Company leases certain warehouse space from a limited liability company
whose owners are the sole stockholder and his children. The lease is for a term
of one year through May 1999 and requires payments of $10,000 per month plus the
payment of all insurance, real estate tax, and maintenance costs. The Company
paid and expensed $24,000, $131,970, and $0 related to such lease for the period
ended March 19, 1999 and the years ended December 31, 1998 and 1997,
respectively. Also, in conjunction with such arrangement, the Company guaranteed
a mortgage loan related to the warehouse. The guaranteed mortgage was originally
$275,000 and as of March 19, 1999, was approximately $233,000.
The Company leases a jet aircraft from a business owned by the sole
stockholder. The jet aircraft lease was for a term of three years through
December 31, 1999, and requires payments of $10,000 per month, plus $60 per
engine hour operated, and plus all operating expenses. In conjunction with the
jet aircraft lease, the Company has a sublease obligation for a hangar that
houses the jet aircraft. The current hangar lease was renewed on March 31, 1998,
for a term of three years and requires payments of $5,650 per month. The Company
recorded expenses of $186,928, $528,962 and $576,339; for the jet aircraft and
hangar leases in the period ended March 19, 1999 and the years ended
December 31, 1998 and 1997, respectively.
Future minimum lease commitments for the jet aircraft, hangar and warehouse
amount to $140,850 for 1999; $67,800 for 2000; and $16,950 for 2001.
7. SPECIAL CHARGE (RECOVERY)
The Company incurred a $1,315,000 loss due to the embezzlement of funds by a
former contracted (i.e., not an employee of the Company) accountant. The loss
was discovered and expensed in 1996.
F-29
<PAGE>
GENERAL AUTOMATION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SPECIAL CHARGE (RECOVERY) (CONTINUED)
Recoveries of amounts from the accountant and insurance company were received
and recorded as income in 1997 and 1998.
8. MAJOR CUSTOMERS
The Company has two major customers which accounted for 57.2%, 48.1% and
54.4% of the Company's sales for the period ended March 19, 1999 and the years
ended December 31, 1998 and 1997, respectively. As of March 19, 1999 and
December 31, 1998, the Company's receivables from these two customers were
$1,849,780 and $1,651,905, respectively.
9. YEAR 2000 (UNAUDITED)
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
on-going business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarterly, or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
The Board of Directors
Precision Partners, Inc.
We have audited the accompanying combined balance sheets as of March 19, 1999
and October 31, 1998, of the companies listed in Note 1, and the related
combined statements of operations, stockholders' equity, and cash flows for the
period from November 1, 1998 to March 19, 1999, and for each of the two years in
the period ended October 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 at March 19, 1999 and
October 31, 1998, of the companies listed in Note 1, and the combined results of
their operations and their cash flows for the period from November 1, 1998 to
March 19, 1999, and for each of the two years in the period ended October 31,
1998, in conformity with accounting principles generally accepted in the United
States.
March 10, 2000 /s/ Ernst & Young LLP
Dallas, Texas
F-31
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,859 $ 2,890
Trade accounts receivable 2,889 4,086
Net costs and estimated earnings in excess of billings on
uncompleted contracts 4,131 4,641
Other current assets 153 7
------- -------
Total current assets 10,032 11,624
Property and equipment, net 10,785 11,338
Due from related parties 760 795
Notes receivable from stockholders 768 727
Deposits and other assets 35 210
------- -------
Total assets $22,380 $24,694
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,400 $ 1,400
Accounts payable 906 1,520
Accrued expenses 1,042 1,304
Current portion of notes payable and capital lease
obligations 1,949 2,042
Billings in excess of net costs and estimated earnings on
uncompleted contracts 225 185
Notes payable to stockholders 95 25
Income taxes payable 977 1,795
------- -------
Total current liabilities 6,594 8,271
Notes payable and capital lease obligations, less current
portion 6,879 7,354
Deferred income taxes 943 896
Commitments
Stockholders' equity:
Common stock, no par value:
Authorized shares - 25,000 Certified; 1,000,000 Calbrit
Issued and outstanding shares at March 19, 1999 and
October 31, 1998 - 9,305 Certified; 2,041 Calbrit 93 93
Retained earnings 7,871 8,080
------- -------
Total stockholders' equity 7,964 8,173
------- -------
Total liabilities and stockholders' equity $22,380 $24,694
======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-32
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER
PERIOD FROM 31,
NOVEMBER 1, 1998 -------------------
TO MARCH 19, 1999 1998 1997
------------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales $ 9,465 $37,433 $30,377
Cost of sales 7,712 27,209 21,136
------- ------- -------
Gross profit 1,753 10,224 9,241
Selling, general and administrative expenses 1,347 4,813 4,999
Related party rent expense 268 460 352
------- ------- -------
Operating income 138 4,951 3,890
Other income (expense):
Interest income 43 126 80
Interest expense (362) (1,092) (651)
Miscellaneous income 2 7 79
------- ------- -------
(317) (959) (492)
------- ------- -------
(Loss) income before income taxes (179) 3,992 3,398
Provision for income taxes 30 1,689 1,315
------- ------- -------
Net income (loss) $ (209) $ 2,303 $ 2,083
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-33
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED EARNINGS TOTAL
------------ ----------------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Balance at October 31, 1996 $93 $3,694 $3,787
Net income -- 2,083 2,083
--- ------ ------
Balance at October 31, 1997 93 5,777 5,870
Net income -- 2,303 2,303
--- ------ ------
Balance at October 31, 1998 93 8,080 8,173
Net loss -- (209) (209)
--- ------ ------
Balance at March 19, 1999 $93 $7,871 $7,964
=== ====== ======
</TABLE>
SEE ACCOMPANYING NOTES.
F-34
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
PERIOD FROM NOVEMBER 1, -----------------------
1998 TO MARCH 19, 1999 1998 1997
----------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (209) $ 2,303 $ 2,083
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 821 2,027 1,242
Provision for deferred income taxes 47 378 205
Changes in operating assets and liabilities:
Trade accounts receivable 1,197 118 (1,605)
Net costs and estimated earnings in excess
of billings on uncompleted contracts 510 (426) (974)
Other current assets (146) (4) 1
Deposits and other assets 175 47 (2)
Due from stockholders (41) (436) (16)
Accounts payable (614) 308 280
Accrued expenses (262) (259) 388
Billings in excess of net costs and
estimated earnings on uncompleted
contracts 40 52 7
Income taxes payable (818) (54) 112
------ ------- -------
Net cash provided by operating activities 700 4,054 1,721
INVESTING ACTIVITIES
Purchases of property and equipment (14) (724) (447)
------ ------- -------
Net cash used in investing activities (14) (724) (447)
FINANCING ACTIVITIES
Proceeds from stockholders' notes payable 117 125 420
Repayments of stockholders' notes payable (47) (170) (350)
Payments on line of credit -- -- 218
Repayments of notes payable and capital lease
obligations (822) (2,096) (1,202)
Repayments (advances) from related parties 35 (163) (546)
------ ------- -------
Net cash used in financing activities (717) (2,304) (1,460)
------ ------- -------
Net increase (decrease) in cash and cash equivalents (31) 1,026 (186)
Cash and cash equivalents, beginning of period 2,890 1,864 2,050
------ ------- -------
Cash and cash equivalents, end of period $2,859 $ 2,890 $ 1,864
====== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-35
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Certified Fabricators, Inc.'s principal activities relate to the manufacture
and assembly of highly sophisticated structural steel components. Calbrit
Design, Inc.'s principal activity is the technical design and drawings of parts
used in the aerospace industry.
BASIS OF PRESENTATION
The combined financial statements include all accounts of Certified
Fabricators, Inc. and Calbrit Design, Inc. ("the Company") which are under
common control. All significant intercompany balances and transactions have been
eliminated in the combination. On November 6, 1998, the Company entered into an
agreement with Precision Partners, L.L.C. ("LLC") to sell all of the outstanding
common stock of the Company. The agreement was assigned by LLC to a wholly-owned
subsidiary, Precision Partners Holdings, Inc. ("Holdings") which was in turn
assigned to Holdings' wholly-owned subsidiary, Precision Partners, Inc. The
transaction was completed on March 19, 1999. The combined financial statements
are presented on a historical cost basis and do not include any adjustments
related to the purchase transaction.
USE OF ESTIMATES
The preparation of the 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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers highly
liquid investments with original maturities of 90 days or less to be cash
equivalents.
The following table sets forth certain non-cash transactions excluded from
the statements of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM OCTOBER 31,
NOVEMBER 1, 1998 ---------------
TO MARCH 19, 1999 1998 1997
---------------------- ------ ------
<S> <C> <C> <C>
(IN THOUSANDS)
Acquisition of equipment through notes payable and
capital leases $254 $3,678 $5,807
Forgiveness of advances to former stockholder -- -- 21
</TABLE>
REVENUE RECOGNITION
Revenues from contracts are recognized on the percentage-of-completion
method, measured by the percentage of total costs incurred to date to estimated
total costs of the contract. Total costs include all direct material and labor
costs and those indirect costs related to contract performance, such as indirect
labor, supplies, tools, repairs and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Contract revisions are
recognized in the period in which the revisions are determined. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.
F-36
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Profit incentives are included in revenues when their realization is
reasonably assured. An amount equal to contract costs attributable to claims is
included in revenues when realization is probable and the amount can be
reasonably estimated.
The asset, "Net costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of net costs and estimated earnings
on uncompleted contracts," represents billings in excess of revenues recognized.
CONCENTRATION OF CREDIT RISK
The Company sells to customers throughout the United States. The Company is
materially dependent on a small group of customers. During the period ended
March 19, 1999 and the years ended October 31, 1998 and 1997, the Company had a
total of four customers whose sales represented 10% or more of sales in certain
or all years. Sales to these customers were approximately 79%, 81% and 79% of
total sales for the period ended March 19, 1999 and the years ended October 31,
1998 and 1997, respectively. These customers also represented 71% and 72% of the
accounts receivable balance at March 19, 1999 and October 31, 1998,
respectively. Sales to customers are subject to cancellation which can occur due
to cancellation clauses given by the manufacturer to its customer. The Company
has, nevertheless, maintained a strong relationship with these customers and,
providing it continues to meet shipment schedules and quality standards,
management believes that its trade accounts receivable credit risk exposure is
limited.
No other customer represented more than 10% of the Company's annual total
sales.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Credit losses have been
within management's expectations and amounts have been provided for doubtful
accounts as deemed necessary.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
expenses are calculated using the straight-line method. The depreciation and
amortization methods are designed to amortize the cost of the assets over their
estimated useful lives, in years, of the respective assets as follows:
<TABLE>
<S> <C>
Machinery and equipment 3 to 20
Furniture, fixtures and
other 3 to 14
Leasehold improvements 5 to 39
</TABLE>
Leasehold improvements are amortized over the shorter of the term of the
lease or the life of the improvements. Maintenance and repairs are charged to
expense as incurred. Renewals and improvements of a major nature are
capitalized. At the time of retirement or other disposition of property and
equipment, the cost and accumulated depreciation are removed from the accounts
and any resulting gains or losses are reflected in income.
LONG-LIVED ASSETS
The Company accounts for its long-lived assets under FASB No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, which requires
F-37
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are not sufficient to recover the assets'
carrying amount. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were approximately $12,000,
$191,000 and $66,000 for the period ended March 19, 1999 and years ended
October 31, 1998 and 1997, respectively.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as
set forth in FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES. Under the
liability method, deferred taxes are determined based on the differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash
equivalents, receivables, net costs and estimated earnings in excess of billings
on uncompleted contracts, payables, and billings in excess of net costs and
estimated earnings on uncompleted contracts. The Company believes all of the
financial instruments' recorded values approximate current values.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Information regarding contract costs, estimated earnings, and progress
billings consisted of the following at:
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Costs incurred on uncompleted contracts $ 11,867 $11,077
Estimated earnings 2,197 1,552
-------- -------
14,064 12,629
Less net progress billings 10,158 8,173
-------- -------
$ 3,906 $ 4,456
======== =======
</TABLE>
F-38
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (CONTINUED)
The above amounts are included in the Company's balance sheets under the
following captions at:
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
Net costs and estimated earnings in excess of
billings on uncompleted contracts $ 4,131 $ 4,641
Billings in excess of net costs and estimated
earnings on uncompleted contracts (225) (185)
-------- -------
$ 3,906 $ 4,456
======== =======
</TABLE>
3. DUE FROM RELATED PARTIES
The Company has advanced monies to a partnership for use in financing
various properties. The partnership is 100% owned by the stockholders of the
Company. At March 19, 1999 and October 31, 1998, the Company has advanced
$760,000 and $795,000, respectively.
4. NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders consisted of the following at:
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
6% note receivable, interest accrues monthly, due on
demand $220 $215
6% note receivable, interest accrues monthly, due on
demand 91 89
10% note receivable, interest accrues monthly, with
principal and interest due November 2002 85 82
10% note receivable, interest accrues monthly, with
principal and interest due November 2002 28 27
Note receivable, interest and payment terms undetermined 172 157
Note receivable, interest and payment terms undetermined 172 157
---- ----
$768 $727
==== ====
</TABLE>
F-39
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
<TABLE>
<CAPTION>
OCTOBER
MARCH 19, 31,
1999 1998
--------- --------
<S> <C> <C>
(IN THOUSANDS)
Machinery and equipment $17,416 $17,152
Furniture, fixtures and other 1,877 1,876
Leasehold improvements 1,117 1,114
------- -------
20,410 20,142
Less accumulated depreciation and amortization 9,625 8,804
------- -------
$10,785 $11,338
======= =======
</TABLE>
6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
The Company maintains a $3,000,000 credit line under which it can borrow
funds or secure letters of credit at prevailing market rates. The credit line is
renewable each year on April 30. As of March 19, 1999, $1,400,000 was
outstanding. The revolving line of credit is secured by accounts receivable and
all other assets of the Company. Interest accrues beginning at the date of
advance at the bank's base rate plus .25% (the bank's base rate at March 31,
1999 was 8.00%). Advances under the line are available to the Company based upon
80% of outstanding eligible accounts receivable. Eligible accounts receivable
consist of those accounts which are less than ninety days from the date of
invoice. The unused portion of the credit line is subject to withdrawal at the
discretion of the Company.
Under the terms of the line of credit, the Company is required to maintain
minimum levels of tangible net worth, current ratio, working capital and maximum
level of debt to tangible net worth. Subsequent to the balance sheet date, the
Company sold all of the outstanding common stock to Precision Partners, Inc. The
outstanding draws on the credit line were paid off as a result of that
transaction.
Notes payable, including capital lease obligations, consisted of the
following at (in thousands):
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to stockholders, interest of 8.5%, monthly
installments range from $2 to $3, due 12/31/97 to 1/31/98 $ -- $ 25
Notes payable to stockholders, interest of 8.5%, monthly
installments, $2, due 1/5/00 95 --
------ ------
$ 95 $ 25
====== ======
Installment contracts with vendors, interest ranging from
10.1% to 25.7%, monthly installments totaling from $1 to
$14, due 1/31/98 to 3/31/00, secured by equipment $ 93 $ 238
Term loans with finance companies, interest ranging from
4.7% to 10.8%, monthly installments totaling from $1 to
$71, due 2/28/00 to 7/31/01, secured by equipment 8,402 8,726
</TABLE>
F-40
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT, NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Installment loans with finance companies, interest ranging
from 6.2% to 10.3%, monthly installments totaling from $1
to $6, secured by equipment $ 333 $ 294
Interim loan with finance companies, bearing 11.3% interest,
fixed interest paid monthly, due on demand, secured by
equipment -- 138
------ ------
8,828 9,396
Less current portion 1,949 2,042
------ ------
$6,879 $7,354
====== ======
</TABLE>
Aggregate future maturities of notes payables at March 19, 1999 are as
follows, in thousands:
<TABLE>
<S> <C>
1999 $1,527
2000 1,924
2001 1,873
2002 1,994
2003 1,510
</TABLE>
Interest paid to third parties was $362,000, $1,092,000 and $651,000, for
the period from November 1, 1998 to March 19, 1999, and for the years ended
October 31, 1998, and 1997, respectively. Pursuant to the purchase transaction
completed on March 19, 1999, the Company's debt was paid by Precision Partners,
Inc.
7. INCOME TAXES
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 1, 1998 TO OCTOBER 31,
MARCH 19, -------------------
1999 1998 1997
------------------------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current federal $ 31 $1,256 $1,084
Current state 12 55 26
---- ------ ------
Total current tax provision 43 1,311 1,110
Deferred federal (12) 274 257
Deferred state (1) 104 (52)
---- ------ ------
Total deferred tax provision
(benefit) (13) 378 205
---- ------ ------
Total tax provision $ 30 $1,689 $1,315
==== ====== ======
</TABLE>
The difference between the effective rate reflected in the income tax
provision for income taxes and the amount determined by applying the statutory
U.S. rate to income before income taxes for the
F-41
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
period from November 1, 1998 to March 19, 1999 and the years ended October 31,
1998 and 1997 is analyzed below:
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, YEAR ENDED
1998 TO OCTOBER 31,
MARCH 19, -------------------
1999 1998 1997
----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision (benefit) at statutory rate $(61) $1,357 $1,155
Valuation allowance 65 -- --
State income tax, net of federal income tax
benefit 8 104 (17)
Permanent differences 12 44 27
Other 6 184 150
---- ------ ------
Total income tax provision $ 30 $1,689 $1,315
==== ====== ======
</TABLE>
The Company reported deferred tax liabilities and assets as follows at:
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $(1,096) $(1,013)
------- -------
Total deferred tax liabilities (1,096) (1,013)
Deferred tax assets:
Accrued expenses 18 11
Tax credit carryforwards 90 60
Other 45 46
------- -------
Total deferred tax assets 153 117
------- -------
Net deferred tax liabilities $ (943) $ (896)
======= =======
</TABLE>
At March 19, 1999, the Company has approximately $60,000 of California
manufacturing investment credits and $30,000 of federal alternative minimum tax
credits, which do not expire. In addition, the Company has approximately
$190,000 of net operating loss carryforwards which expire in 2020.
Income taxes paid in the period 1999, 1998 and 1997 were approximately
$100,000, $1,365,000 and $943,000, respectively.
8. COMMITMENTS WITH RELATED AND UNRELATED PARTIES
The Company's operations are conducted in four buildings, all of which are
owned by a partnership that includes the Company's principal stockholders (the
Partnership). The principal stockholders own a 100% interest in the Partnership
at March 31, 1999. One building is leased from the Partnership under a
noncancellable ten year lease agreement with a monthly rent of $15,000. The
lease agreement dated February 1, 1993 expires February 1, 2003. Under the
leasing agreement, the
F-42
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS WITH RELATED AND UNRELATED PARTIES (CONTINUED)
Company is required to pay property taxes and common area charges (maintenance,
utilities and property insurance) attributable to the lease. Total rent expense
for the related party operating lease for the period from November 1, 1998 to
March 19, 1999 and the years ended October 31, 1998, and 1997 was $75,000,
$180,000 and $180,000, respectively.
The second building is leased from the Partnership under a noncancellable
ten year lease agreement with varying monthly rents starting at $25,000 on
May 1, 1997 and increasing to $30,000 on May 1, 1999. The lease agreement dated
May 1, 1997 expires April 30, 2007. Total rent expense for the related party
operating lease for the period from November 1, 1998 to March 19, 1999 and the
years ended October 31, 1998 and 1997 was $125,000, $269,000 and $184,000,
respectively. The Company subleases a portion of this space under a
non-cancelable two year agreement with monthly rental income of approximately
$11,000. The sublease is dated May 1, 1997 and expires on April 30, 2000. Total
rent expense, net of sublease income, for the period from November 1, 1998 to
March 19, 1999 and the years ended October 31, 1998 and 1997 was $70,000,
$135,000 and $117,000, respectively.
The third building was previously leased from an unrelated party under a
noncancellable lease agreement expiring December 31, 1998 with an option to
purchase the property. The lease provided for monthly rents of $10,000 through
December 31, 1997 and $10,000 through December 31, 1998. The Partnership
exercised the option to purchase the property in May 1997.
The Company now leases from the Partnership under a noncancellable five year
lease agreement with a monthly rent of $10,000. The agreement, dated May 16,
1997 expires May 16, 2002. Total rent expense for this related party operating
lease for the period from November 1, 1998 to March 19, 1999 and the years ended
October 31, 1998, and 1997 was $50,000, $120,000, and $118,000, respectively.
The fourth building is leased from the Partnership under a noncancellable
ten year lease agreement with a monthly rent of $2,500. The lease agreement
dated January 1, 1998 expires on December 31, 2003. Total rent expense for the
related party operating lease for the period from November 1, 1998 to March 19,
1999 and the year ended October 31, 1998 was $12,500 and $25,000, respectively.
The Company leased an additional warehouse facility under a noncancellable
lease agreement with an unrelated party. The monthly rent on the aforementioned
lease was $10,000 and expired on August 31, 1998. The Company subsequently
entered into a new lease agreement with the same monthly rent of $11,000 that
will expire on August 31, 2001. Total rent expense for the operating lease for
the period from November 1, 1998 to March 19, 1999 and the years ended
October 31, 1998, and 1997 was $56,000, $121,000 and $118,000, respectively.
Total rent expense for all of the Company's facilities under noncancellable
operating lease agreements, net of sublease income, for the period from
November 1, 1998 to March 19, 1999 and the years ended October 31, 1998, and
1997 was $264,000, $632,000, and $586,000, respectively.
The Company leases machinery and equipment from a related party under a
month to month lease agreement with monthly rents of $4,000.
The Company has assisted two affiliated entities in obtaining financing. The
affiliated entities have recorded the assets and liabilities on their books. The
Company, however, has guaranteed the indebtedness outstanding of $3,395,000 and
$3,490,000 at March 31, 1999 and October 31, 1998, respectively.
F-43
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS WITH RELATED AND UNRELATED PARTIES (CONTINUED)
Future rental commitments for the remaining years of all noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
UNRELATED
RELATED PARTIES-- SUBLEASE TOTAL
PARTIES FACILITIES INCOME COMMITMENTS
-------- ---------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Years ending October 31:
1999 $ 357 $240 $ (78) $ 519
2000 713 270 (134) 849
2001 738 194 (45) 887
2002 700 32 -- 732
2003 550 5 -- 555
Thereafter 1,648 -- -- 1,648
------ ---- ----- ------
$4,706 $741 $(257) $5,190
====== ==== ===== ======
</TABLE>
9. CAPITAL LEASES
The following is an analysis of leased property under capital leases
included in property and equipment (Note 5) at:
<TABLE>
<CAPTION>
MARCH 19, OCTOBER 31,
1999 1998
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment $ 1,507 $ 1,507
Furniture, fixtures and other 714 714
Leasehold improvements 10 10
------- -------
2,231 2,231
Less accumulated amortization 1,388 1,268
------- -------
$ 843 $ 963
======= =======
</TABLE>
Amortization of equipment under capital leases is included in depreciation
and amortization in the accompanying Combined Statements of Cash Flows.
F-44
<PAGE>
CERTIFIED FABRICATORS, INC. AND CALBRIT DESIGN, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
9. CAPITAL LEASES (CONTINUED)
The following is a schedule of future minimum lease payments under capital
lease agreements together with the present value of the net minimum lease
payments included in notes payable (Note 6) as of March 19, 1999, in thousands:
<TABLE>
<S> <C>
Years ending October 31:
1999 $163
2000 137
2001 27
----
327
Less amount representing interest at rates from 6.2% to
16.5% 26
----
Present value of net minimum lease payments $301
====
</TABLE>
10. PROFIT SHARING/401K PLANS
The Company sponsors a profit sharing plan covering all eligible employees
whereby the Company may contribute the lesser of $30,000 or 15% of annual
compensation. The Company may make discretionary contributions to the profit
sharing plan annually in amounts determined by management. Profit sharing
contributions for the period from November 1, 1998 to March 19, 1999 and the
years ended October 31, 1998, and 1997 were $0, $150,000, and $500,000,
respectively.
The Company also sponsors a 401K plan (the Plan) covering all eligible
employees whereby the Company may make matching contributions on the first 6% of
employee contributions in an amount or percentage determined by the Company, if
any. Matching contributions vest over a seven year period or 100% at normal
retirement as defined by the Plan. No matching contributions have been made
through March 19, 1999.
11. YEAR 2000 (UNAUDITED)
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
on-going business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarterly, or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adveresly affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
F-45
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
The Board of Directors
Precision Partners, Inc.
We have audited the balance sheet of Nationwide Precision Products Corp. as of
March 19, 1999, and the related statements of income, stockholders' equity and
cash flows for the period from June 1, 1998 to March 19, 1999. These financial
statements are the responsibility of the management of Nationwide Precision
Products Corp. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of Parlec, Inc. (a
corporation in which Nationwide Precision Products Corp. has a 44% interest),
have been audited by other auditors whose report has been furnished to us;
insofar as our opinion on the financial statements relates to data included for
Parlec, it is based solely on their report.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 and the report of other auditors provide
a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Nationwide Precision Products Corp. as of March 19,
1999, and the results of its operations and its cash flows for the period from
June 1, 1998 to March 19, 1999 in conformity with accounting principles
generally accepted in the United States.
February 25, 2000 /s/ Ernst & Young LLP
Dallas, Texas
F-46
<PAGE>
REPORT OF INDEPENDENT AUDITORS, INSERO, KASPERSKI, CIACCIA & CO., P.C.
The Board of Directors
Nationwide Precision Products Corp.
We have audited the balance sheet of Nationwide Precision Products Corp., as of
May 31, 1998, and the related statements of income, stockholders' equity and
cash flows for each of the two years in the period ended May 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nationwide Precision Products
Corp. at May 31, 1998, and the results of its operations and its cash flows for
each of the two years in the period ended May 31, 1998, in conformity with
generally accepted accounting principles.
June 29, 1998 /s/ Insero, Kasperski, Ciaccia & Co., P.C.
Rochester, New York
F-47
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 19, MAY 31,
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 442 $ 183
Accounts receivable, net of allowance for doubtful
accounts of $30,838 at March 19, 1999 and May 31, 1998 3,522 3,590
Accounts receivable from affiliate -- 592
Inventories 2,683 3,301
Prepaid expenses and other current assets 98 133
------- -------
Total current assets 6,745 7,799
Property, plant and equipment, at cost, net 17,580 17,008
Investment in Parlec, Inc. 4,821 2,598
Notes receivable from officers -- 295
Notes receivable from employee -- 105
Cash surrender value of officers' life insurance, net of
loans of $0 at
March 19, 1999 and $769,523, at May 31, 1998 -- 297
Debt issue costs, net 82 100
Federal tax deposit 273 274
------- -------
Total assets $29,501 $28,476
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,109 $ --
Accounts payable and accrued expenses 1,329 4,258
Current maturities of long-term debt and capital lease
obligations 2,564 2,065
------- -------
Total current liabilities 5,002 6,323
Long-term debt and capital lease obligations, less current
portion 9,370 8,842
Stockholders' equity:
Common stock, no par value; 700 shares authorized, 600
issued and outstanding 3 3
Additional paid-in capital 275 275
Retained earnings 14,851 13,033
------- -------
Total stockholders' equity 15,129 13,311
------- -------
Total liabilities and stockholders' equity $29,501 $28,476
======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-48
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED MAY 31,
JUNE 1, 1998 -------------------
TO MARCH 19, 1999 1998 1997
------------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales $22,141 $28,440 $23,251
Cost of sales 17,056 22,239 18,549
------- ------- -------
Gross profit 5,085 6,201 4,702
Bonuses 773 895 640
Selling, general and administrative expenses 1,880 2,113 1,938
------- ------- -------
Operating income 2,432 3,193 2,124
Interest expense, net 529 682 646
------- ------- -------
Income before equity in net (loss) income of investee 1,903 2,511 1,478
Equity in net (loss) income of investee (85) 373 284
------- ------- -------
Net income $ 1,818 $ 2,884 $ 1,762
======= ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-49
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL PAID-IN RETAINED
COMMON STOCK CAPITAL EARNINGS TOTAL
------------ ------------------ -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at June 1, 1996 $3 $275 $ 9,767 $10,045
Net income -- -- 1,762 1,762
Distributions -- -- (800) (800)
-- ---- ------- -------
Balance at May 31, 1997 3 275 10,729 11,007
Net income -- -- 2,884 2,884
Distributions -- -- (580) (580)
-- ---- ------- -------
Balance at May 31, 1998 3 275 13,033 13,311
Net income -- -- 1,818 1,818
-- ---- ------- -------
Balance at March 19, 1999 $3 $275 $14,851 $15,129
== ==== ======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-50
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED MAY 31,
JUNE 1, 1998 -------------------
TO MARCH 19, 1999 1998 1997
------------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,818 $ 2,884 $ 1,762
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,469 1,662 1,532
Equity in net loss (income) of investee 85 (373) (284)
Changes in operating assets and liabilities:
Accounts receivable 68 (1,287) 867
Accounts receivable from affiliate 592 (424) 49
Inventories (650) (634) (766)
Prepaid expenses 35 (35) 14
Federal tax deposit 1 197 87
Accounts payable and accrued expenses (2,929) 2,136 267
------- ------- -------
Net cash provided by operating activities 489 4,126 3,528
INVESTING ACTIVITIES
Purchase of property, plant and equipment (2,023) (4,945) (557)
Increase in investment in minority interest of investee (1,040) -- --
Cash surrender value of officers' life insurance 297 (14) (41)
Repayments from officers and employees 400 135 175
------- ------- -------
Net cash used in investing activities (2,366) (4,824) (423)
FINANCING ACTIVITIES
Borrowings of long-term debt 3,000 3,500 --
Repayments of long-term debt (1,973) (2,228) (2,207)
Borrowings under line of credit 1,109 -- --
Distributions -- (580) (800)
------- ------- -------
Net cash provided by (used in) financing activities 2,136 692 (3,007)
------- ------- -------
Net increase (decrease) in cash and cash equivalents 259 (6) 98
Cash and cash equivalents, beginning of period 183 189 91
------- ------- -------
Cash and cash equivalents, end of period $ 442 $ 183 $ 189
======= ======= =======
Supplementary information for the statement of cash flows:
Interest payments $ 600 $ 748 $ 750
Note receivable and inventory converted to equity in
investee $ 1,618 -- --
</TABLE>
SEE ACCOMPANYING NOTES.
F-51
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Nationwide Precision Products Corp. ("the Company"), located in Rochester,
New York, manufactures precision machined parts, extrusions and castings for a
customer base primarily in the United States. The Company has a 44% interest in
Parlec, Inc., a producer of tooling and tool measuring equipment utilized by
manufacturing companies primarily in the United States, Canada and Western
Europe, located in Rochester, New York. On December 4, 1998, the Company entered
into an agreement with Precision Partners, L.L.C. ("LLC") to sell substantially
all of its assets exclusive of its investment in Parlec and certain other
assets, and for LLC to assume certain liabilities. The agreement was assigned by
LLC to a wholly-owned subsidiary, Precision Partners Holdings, Inc. ("Holdings")
which was in turn assigned to Holdings' wholly-owned subsidiary, Precision
Partners, Inc. The acquistion was completed on March 19, 1999. The financial
statements are presented on a historical cost basis and do not include any
adjustments related to the purchase transaction.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the actual amounts reported in the financial statement
and accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash in bank demand deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk with respect to cash. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash with original maturities of 90 days or
less.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
first-in, first-out (FIFO) method of determining cost for the majority of its
inventories.
REVENUE RECOGNITION
Sales are recorded when products are shipped to a customer.
DEPRECIATION
Buildings, machinery and equipment, and furniture and fixtures are
depreciated using both straight-line and declining balance methods over the
estimated useful lives of the individual assets. The
F-52
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
lives are five to ten years for equipment, twenty years for land improvements
and forty years for building and improvements.
INCOME TAXES
The Company has elected to be treated as an S Corporation for Federal and
New York State income tax purposes under the provisions of subchapter S of the
Internal Revenue Code. Under these provisions, the taxable income of the Company
is reported directly on the stockholders' individual tax returns.
LONG-LIVED ASSETS
The Company accounts for its long-lived assets under Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to
be recognized for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are not sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing the fair value of the asset to its
carrying amount.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 19, MAY 31,
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $1,353 $2,416
Work-in-process 206 449
Finished goods 1,357 686
------ ------
2,916 3,551
Reserve for obsolescence (233) (250)
------ ------
$2,683 $3,301
====== ======
</TABLE>
F-53
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are valued at cost and consist of the
following:
<TABLE>
<CAPTION>
MARCH 19, MAY 31,
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements $ 980 $ 980
Buildings and improvements 5,343 5,187
Machinery and equipment 26,585 24,778
Furniture, fixtures and other 670 610
------- -------
33,578 31,555
Less accumulated depreciation 15,998 14,547
------- -------
Property, plant and equipment, net $17,580 $17,008
======= =======
</TABLE>
4. DEBT
At March 19, 1999, the Company has $4,862,219 of unused letters-of-credit
with a bank to guarantee payment of the Industrial Revenue Bonds. A
letter-of-credit fee is charged at approximately 1% of the outstanding balance.
The Company has available a $2,000,000 working capital line-of-credit.
Borrowings on the line bear interest at the Bank's prime rate (7.75% at
March 31, 1999). The outstanding balance on this line is $1,109,000 at
March 19, 1999. There was no outstanding balance at May 31, 1998.
The Company has available a $600,000 equipment line-of-credit to fund future
equipment purchases for specific contracts. Borrowings on this line bear
interest at the Bank's prime rate (7.75% at March 19, 1999). There were no
outstanding balances on this line at March 19, 1999 and May 31, 1998.
F-54
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, MAY 31,
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligation consisting of a Tax Exempt
Industrial Revenue Bond, variable interest on outstanding
balance (3.10% at March 31, 1999), maturing 2004. No
principal payments are required until 2003. $ 3,325 $ 3,325
Capital lease obligation consisting of a Taxable Industrial
Revenue Bond, variable interest rate on outstanding
balance (5.20% at March 31, 1999), maturing 2003.
Principal installment of $180,000 began in fiscal 1996 and
increase by $20,000 per year through maturity. 1,435 1,675
Note payable to bank, $68,750 monthly plus 7.67% interest,
matured July, 1998. -- 138
Note payable to bank, $25,000 monthly plus 8.25% interest,
maturing December, 1999. 225 475
Note payable to bank, $31,250 monthly plus 8.035% interest,
maturing April, 2000. 406 719
Note payable to bank, $41,667 monthly plus 7.74% interest,
maturing May, 2000. 583 1,000
Note payable to bank, $71,445 monthly, including interest at
7.7%, maturing July, 2003. 3,101 3,500
Note payable to bank, $58,698 monthly, including interest at
6.5%, maturing September, 2003. 2,792 --
Deferred compensation payable to a former employee requiring
yearly payments of $15,000, including imputed interest at
9%, maturing 2005. 67 75
------- -------
11,934 10,907
Less current portion 2,564 2,065
------- -------
$ 9,370 $ 8,842
======= =======
</TABLE>
The Company's debt is collateralized by substantially all of the Company's
assets.
Aggregate future maturities of long-term debt are as follows:
2000--$2,564,000; 2001--$1,686,000; 2002--$1,680,000; 2003--$1,792,000;
2004--$4,194,000; thereafter--$18,000.
CAPITAL LEASE OBLIGATION
On December 1, 1994, the Company entered into an agreement to purchase land,
construct an addition to its facility in Henrietta, New York and to extend the
County of Monroe Industrial Development Agency (COMIDA) lease term of the 1986
bonds which related to the original building construction. The new bonds are
ten-year Industrial Development Revenue Bonds (IRB) issued through the COMIDA
and originally totaled $5,600,000. The Company leases the building under a
ten-year agreement with COMIDA. At the end of the lease term, the Company has an
option to purchase the property for one dollar, thus the lease has been
capitalized for financial reporting purposes.
F-55
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. DEBT (CONTINUED)
The present value of future minimum lease payments based on current
prevailing interest rates as of March 31, 1999, is as follows, in thousands:
<TABLE>
<S> <C>
Years ending March 31,
2000 $ 470
2001 477
2002 481
2003 485
2004 488
Thereafter 3,381
-------
5,782
Less amount representing interest 1,022
-------
Present value of future minimum lease payments $ 4,760
=======
</TABLE>
5. PROFIT SHARING/401(K) PLANS
The Company, along with Parlec, Inc., sponsors a profit sharing and 401(k)
plan covering their employees. The Plan is a discretionary profit sharing plan
where contributions are determined annually by the Board of Directors. No
contributions were made during the periods presented. In addition, the Company
makes matching contributions equal to 50% of the employee's elective deferrals
up to a maximum of $250 per year. Matching contributions totaled approximately
$28,000, $27,400, and $16,500 for the period from June 1, 1998 to March 19,
1999, and the years ended May 31, 1998 and 1997, respectively.
6. RELATED PARTIES
NOTES RECEIVABLE FROM OFFICERS
During 1991 and 1993, the President of the Company (Michael Nuccitelli)
borrowed various monies to purchase interests in Parlec, Inc. (Parlec), a
manufacturing company related through common management and the real estate
partnership that owns the Parlec facility. Interest accrues at rates that
approximate market rates (6.25% at March 19, 1999) and is payable annually. The
balance outstanding on these notes was $0 and $295,000 at March 19, 1999 and
May 31, 1998, respectively.
INVESTMENT IN PARLEC, INC.
In May 1994, the Company purchased 30% of the outstanding shares of
Parlec, Inc. The aggregate purchase price for these share was $1,200,000. The
investment has been accounted for using the equity method of accounting. At the
date of acquisition, the investment in Parlec exceeded the Company's share of
the underlying net assets by $1,055,400. This amount is being amortized as
goodwill on a straight-line basis over 40 years.
In December 1998, the Company purchased 200,000 shares, or an additional 14%
of the outstanding shares of Parlec. The aggregate purchase price for the shares
was $2,658,000, which consisted of cash and inventory of $1,040,000 and
$1,268,000, respectively, and the "forgiveness" of a 1993 loan due to the
Company from Parlec of $350,000 which was included in the Investment in
F-56
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTIES (CONTINUED)
Parlec, Inc. On the date of the transaction, the additional investment in Parlec
exceeded the Company's share of the underlying net assets by approximately
$1,576,000. This amount will be amortized over 40 years beginning in 1999.
The following summarized balance sheet is presented for Parlec, Inc. as of
March 19, 1999 and May 31, 1998:
<TABLE>
<CAPTION>
MARCH 19, MAY 31,
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Assets
Current assets $ 9,554 $ 8,564
Fixed and other assets 7,194 7,323
------- -------
$16,748 $15,887
======= =======
Liabilities
Current liabilities $ 6,663 $ 7,086
Long-term debt 3,452 4,149
Other long-term debt (Nationwide) -- 350
------- -------
10,115 11,585
Stockholders' Equity 6,633 4,302
------- -------
Total $16,748 $15,887
======= =======
</TABLE>
The following summarized statements of operations is presented for
Parlec, Inc. for the period from June 1, 1998 to March 19, 1999 and the years
ended May 31, 1998 and 1997:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED MAY 31,
JUNE 1, 1998 TO -------------------
MARCH 19, 1999 1998 1997
---------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales $20,133 $24,541 $17,381
Cost of sales 15,819 16,650 11,053
------- ------- -------
Gross profit $ 4,314 $ 7,891 $ 6,328
======= ======= =======
Net (loss) income, before tax $ (327) $ 1,329 $ 1,033
======= ======= =======
</TABLE>
SALES
During the period from June 1, 1998 to March 19, 1999 and the years ended
May 31, 1998 and 1997 the Company had sales to Parlec, Inc. of approximately
$1,617,550, $2,672,000 and $2,559,000 respectively. As of March 19, 1999 and
May 31, 1998, amounts due from Parlec, Inc. were approximately $309,000 and
$572,000, respectively.
F-57
<PAGE>
NATIONWIDE PRECISION PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MAJOR CUSTOMERS
During the period from June 1, 1998 to March 19, 1999 and the years ended
May 31, 1998 and 1997, 68%, 70% and 71%, respectively, of the Company's sales
were to three customers. As of March 19, 1999 and May 31, 1998, the Company's
receivables from these three customers were approximately $1,734,541 and
$2,701,000, respectively.
8. YEAR 2000 (UNAUDITED)
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
on-going business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarterly, or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
F-58
<PAGE>
REPORT OF INDEPENDENT AUDITORS, ERNST & YOUNG LLP
The Board of Directors
Precision Partners, Inc.
We have audited the balance sheet of Gillette Machine & Tool Co., Inc.
("Gillette") as of August 31, 1999, and the related statements of income and
retained earnings and cash flows for the period from March 1, 1999 to
August 31, 1999. These financial statements are the responsibility of Gillette's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 Gillette at August 31, 1999,
and the results of its operations and its cash flows for the period from
March 1, 1999 to August 31, 1999 in conformity with accounting principles
generally accepted in the United States.
March 10, 2000 /s/ Ernst & Young LLP
Dallas, Texas
F-59
<PAGE>
REPORT OF INDEPENDENT AUDITORS, BONADIO & CO., LLP
The Board of Directors
Precision Partners, Inc.
We have audited the combined balance sheet of Gillette Machine & Tool Co., Inc.
("Gillette") as of February 28, 1999, and the related statements of income and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of Gillette'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 Gillette at February 28, 1999,
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
August 27, 1999 /s/ Bonadio & Co., LLP
Rochester, New York
F-60
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, 1999 FEBRUARY 28, 1999
--------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ 68
Accounts receivable 1,948 1,742
Due from related party -- 87
Inventories 3,159 3,489
Prepaid expenses 142 50
---------- ----------
Total current assets 5,249 5,436
Property, plant and equipment, net 1,698 1,890
Deferred tax asset, net 97 163
---------- ----------
Total assets $ 7,044 $ 7,489
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 224 $ --
Demand note payable 267 300
Current portion of long-term debt 170 164
Accounts payable 832 906
Accrued expenses 290 363
Accrued income taxes 43 171
Due to related party 57 134
Due to stockholders -- 323
---------- ----------
Total current liabilities 1,883 2,361
Long-term debt, net of current portion 480 640
Stockholders' equity:
Common stock, Class A, voting, par value $2, 5,000 shares
authorized, 375 shares issued and outstanding 1 1
Common stock, Class B, non-voting, par value $2,
45,000 shares authorized, 3,375 shares issued and
outstanding 7 7
Retained earnings 4,673 4,480
---------- ----------
Total stockholders' equity 4,681 4,488
---------- ----------
Total liabilities and stockholders' equity $ 7,044 $ 7,489
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-61
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM MARCH 1, 1999
TO YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
------------------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Sales $ 7,977 $ 13,469
Cost of goods sold 5,387 10,195
-------- --------
Gross profit 2,590 3,274
Selling, general and administrative expenses 2,345 2,724
-------- --------
Income from operations 245 550
Other income (expense):
Miscellaneous income 46 62
Interest expense (50) (94)
Gain on sale of equipment 62 38
-------- --------
Other income, net 58 6
-------- --------
Income before income taxes 303 556
Income tax expense 110 199
-------- --------
Net income 193 357
Retained earnings, beginning of period 4,480 4,123
-------- --------
Retained earnings, end of period $ 4,673 $ 4,480
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
F-62
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 1, 1999
TO
AUGUST 31, YEAR ENDED
1999 FEBRUARY 28, 1999
------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Net income $ 193 $ 357
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred tax expense (benefit) 66 (30)
Depreciation and amortization 247 620
Gain on sale of equipment (62) (38)
Changes in operating assets and liabilities:
Accounts receivable (206) (1)
Due to/from related party 10 67
Inventories 330 (1,074)
Prepaid expenses (92) (6)
Prepaid income taxes -- 16
Accounts payable and cash overdraft 150 175
Accrued expenses (73) 80
Accrued income taxes (128) 171
Customer advances -- (69)
----- -------
Net cash provided by operating activities 435 268
Investing activities:
Purchases of property, plant and equipment (58) (357)
Proceeds from the sale of equipment 65 38
----- -------
Net cash provided by (used in) investing
activities 7 (319)
Financing activities:
Payments on demand note payable (33) (116)
Borrowings on long-term debt -- 115
Payments on long-term debt (154) (126)
(Decrease) increase in due to stockholders (323) 203
----- -------
Net cash (used in) provided by financing
activities (510) 76
----- -------
(Decrease) increase in cash (68) 25
Cash at beginning of period 68 43
----- -------
Cash at end of period $ -- $ 68
===== =======
</TABLE>
SEE ACCOMPANYING NOTES.
F-63
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Gillette Machine & Tool Co., Inc. (the "Company") is a manufacturer of
precision machined components for customers located primarily in the northeast
United States operating in a variety of industries.
BASIS OF PRESENTATION
On June 17, 1999 the Company entered into an agreement with Precision
Partners, Inc. to sell all of the outstanding common stock of the Company. The
transaction was completed on September 1, 1999. The financial statements are
presented on a historical cost basis and do not include any adjustments related
to the purchase.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid investments
which are readily convertible into cash with original maturities of 90 days or
less.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash in bank demand deposit accounts
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk with respect to cash. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
REVENUE RECOGNITION
Sales are recorded when products are shipped to a customer.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
first-in, first-out (FIFO) method of determining cost.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
which range from three to twenty-four years.
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.
F-64
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The company accounts for its long-lived assets under Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to
be recognized for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are not sufficient to recover the assets' carrying amount. The
impairment loss is measured by comparing to the fair value of the asset to its
carrying amount.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
2. INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1999 1999
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $ 74 $ 71
Work-in-process 2,607 2,596
Finished goods 528 872
----------- -----------
3,209 3,539
Less reserve for obsolescence 50 50
----------- -----------
$ 3,159 $ 3,489
=========== ===========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1999 1999
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment $ 7,922 $ 8,207
Leasehold improvements 1,187 1,184
Office equipment 460 437
Vehicles 181 170
----------- -----------
9,750 9,998
Less accumulated depreciation and amortization 8,052 8,108
----------- -----------
$ 1,698 $ 1,890
=========== ===========
</TABLE>
F-65
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. FINANCING ARRANGEMENTS
The Company may borrow up to $3,500,000 under the terms of an annually
renewable line-of-credit agreement with a bank. Amounts borrowed bear interest
at the bank's prime rate, are collateralized by substantially all assets of the
Company, and are guaranteed by the estate of Frank P. Gillette. There were no
amounts outstanding at August 31, 1999.
Long term debt consists of the following at:
<TABLE>
<CAPTION>
FEBRUARY 28,
AUGUST 31, 1999 1999
---------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank in monthly installments of $7,397,
including interest at 7.94% through November 2001 $ 194 $ 223
Note payable to the estate of Frank P. Gillette in monthly
installments of $3,029, including interest at 9.5% through
February 2007 197 206
Note payable to the estate of Frank P. Gillette in monthly
installments of $500, including interest at 9.5% through
May 2025 155 158
Note payable to bank in monthly installments of $2,282,
including interest at 7.25% through February 2004 104 115
Note payable to bank in monthly installments of $4,437,
including interest at 7.55% through February 2001 -- 102
---------- --------
650 804
Less current portion 170 164
---------- --------
$ 480 $ 640
========== ========
</TABLE>
The notes payable to bank are collateralized by substantially all assets of
the Company and are guaranteed by the stockholders of the Company and the estate
of Frank P. Gillette.
All debt was subsequently paid at September 1, 1999 pursuant to the terms of
the Stock Purchase Agreement between the former stockholders of Gillette and
Precision Partners, Inc. (See Note 1).
Interest paid for the period ended August 31, 1999 and year ended February
28, 1999 was approximately $50,000 and $91,000, respectively.
5. INCOME TAXES
Deferred taxes are provided in the financial statements for significant
temporary differences arising from assets and liabilities whose bases are
different for financial reporting and income tax purposes. The primary
differences are attributable to inventory, depreciation, alternative minimum tax
credit carryforwards and investment tax credit carryforwards.
F-66
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The benefit (provision) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM MARCH 1, 1999 FEBRUARY 28,
TO AUGUST 31, 1999 1999
------------------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Current $ 46 $ 229
Deferred 64 (30)
--------- ---------
$ 110 $ 199
========= =========
</TABLE>
The tax effect of temporary differences that give rise to the net deferred
tax asset are as follows:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1999 1999
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset:
Inventory reserve $ 19 $ 20
Accrued expenses 22 20
Alternative minimum tax credit 157 192
Net operating loss carryforward--New York -- 10
New York State investment tax credit 187 187
--------- ---------
385 429
Deferred tax liability:
Accelerated depreciation (288) (266)
--------- ---------
Net deferred tax asset $ 97 $ 163
========= =========
</TABLE>
At August 31, 1999, the Company has investment tax credits of approximately
$290,000 available to reduce future New York State tax liabilities. These
credits will begin to expire in 2005.
The provision for income taxes differs from the "expected" provision for the
periods (computed by applying the U.S. Federal corporate income tax rate of 34%
to income before income taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM MARCH 1, 1999 FEBRUARY 28,
TO AUGUST 31, 1999 1999
------------------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Computed "expected" tax expense $ 105 $ 189
State income taxes, net of Federal income
tax benefit 7 33
Other, net (2) (23)
--------- ---------
$ 110 $ 199
========= =========
</TABLE>
F-67
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. RELATED PARTY TRANSACTIONS
LEASING
The Company has a lease for its facilities with the estate of Frank
P. Gillette through 2001. This lease is renewable for additional five year
periods. Rent expense was approximately $87,667 and $158,200 for the period
March 1, 1999 to August 31, 1999 and the year ended February 28, 1999,
respectively.
Pursuant to the terms of the Stock Purchase Agreement between Precision
Partners and the former stockholders, a new lease was executed as of
September 1, 1999 with two five year terms plus two additional five year options
to renew. Future minimum annual lease payments for the years ending August 31
are:
<TABLE>
<S> <C>
2000 $ 282,438
2001 282,438
2002 282,438
2003 282,438
2004 282,438
Thereafter 1,412,190
</TABLE>
MANUFACTURING SERVICES
The Company purchases machining services at agreed upon rates from a
partnership in which the Company's stockholders are the partners. The Company
also sells labor to the partnership at agreed upon rates.
The Company sold labor totaling $193,662 and $400,577 to the partnership and
purchased machining services totaling $401,349 and $817,540 from the partnership
for the six months ended August 31, 1999 and the year ended February 28, 1999,
respectively.
Pursuant to the terms of the Stock Purchase Agreement between Precision
Partners and the former shareholders of the Company, the Partnership was
dissolved effective September 1, 1999.
7. PROFIT-SHARING PLAN
The Company contributes to a profit sharing and 401(k) plan. The Company
matched employee contributions up to 3% of their eligible compensation in 1999.
Profit-sharing contributions to the plan are at the discretion of the Board of
Directors and are allocated to eligible employees based on wages. The Company
accrued approximately $106,000 for the six months ended August 31, 1999 and
contributed approximately $182,000 to the Plan for the year ended February 28,
1999.
8. MAJOR CUSTOMERS
During the period from March 1, 1999 to August 31, 1999, 68% of the
Company's sales were to two customers. As of August 31, 1999, the Company's
receivables from these two customers were approximately $1,421,000. During the
year ended February 28, 1999, 78% of the Company's sales were to four customers.
As of February 28, 1999, the Company's receivables from these four customers
were approximately $1,399,000.
F-68
<PAGE>
GILLETTE MACHINE & TOOL CO., INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. YEAR 2000 (UNAUDITED)
We did not experience any significant malfunctions or errors in our
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, we do not expect any significant impact to our
on-going business as a result of the "Year 2000 issue." However, it is possible
that the full impact of the date change, which was of concern due to computer
programs that use two digits instead of four digits to define years, has not
been fully recognized. For example, it is possible that Year 2000 or similar
issues such as leap year-related problems may occur with billing, payroll, or
financial closings at month, quarterly, or year end. We believe that any such
problems are likely to be minor and correctable. In addition, we could still be
negatively impacted if our customers or suppliers are adversely affected by the
Year 2000 or similar issues. We currently are not aware of any significant Year
2000 or similar problems that have arisen for our customers and suppliers.
F-69
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRECISION PARTNERS, INC.
OFFER TO EXCHANGE
12% SENIOR SUBORDINATED NOTES DUE 2009
FOR ITS OUTSTANDING
12% SENIOR SUBORDINATED NOTES DUE 2009
[LOGO]
--------
PROSPECTUS
MAY 8, 2000
--------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
DELAWARE GENERAL CORPORATION LAW
The Delaware General Corporation Law ("DGCL") permits a corporation to
indemnify any person made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by or in
the right of the corporation), whether civil, criminal, administrative or
investigative, by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding. Such expenses may be paid by
the corporation in advance in accordance with the provisions of the DGCL. To be
indemnified, such person must have acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, that the
person had no reasonable cause to believe such person's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
does not of itself create a presumption that the person did not act in good
faith and in a manner which the person 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 such person's
conduct was unlawful.
The DGCL also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the DGCL.
CERTIFICATE OF INCORPORATION
Article Seven of the Certificate of Incorporation (the "Certificate of
Incorporation") for Precision Partners, Inc. (the "Company") provides that the
Company will, to the fullest extent permitted or required by Section 145 of the
General Corporation Law of the State of Delaware, as the same may be amended and
supplemented, indemnify any and all persons to whom it will have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein will not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and will continue as to a person who has ceased to be a director,
officer, employee or agent and will inure to the benefit of the heirs, executors
and administrators of such person. Any repeal or modification of Article Seven
will not adversely affect any right or protection existing thereunder
immediately prior to such repeal or modification.
BY-LAWS
Article Four of the Company's By-laws ("Article Four") provides that the
Company (1) shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Company) by reason of the fact that he or
she is or was
II-1
<PAGE>
a director or an officer of the Company and (2) except as otherwise required by
Section 3 of Article Four, may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he or she is or was an employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee, agent of
or participant in another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he or she 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 Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. 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 such
person reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his or her conduct was unlawful.
The By-laws further provide that the Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Company to procure a
judgment in its favor by reason of the fact that he or she is or was a director,
officer, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent of or participant in
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if he or she 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 Company and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to the Company 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.
To the extent that a person who is or was a director, officer, employee or
agent of the Company has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in Section 1 or Section 2 of
Article Four, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
Any indemnification under Section 1 or Section 2 of Article Four (unless
ordered by a court) shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in said Sections 1 and 2.
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
Expenses incurred by any person who may have a right of indemnification
under Article Four in defending a civil or criminal action, suit or proceeding
may be paid by the Company in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the specific case
upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount unless it shall ultimately be determined
that he or she is entitled to be indemnified by the. Company pursuant to Article
Four.
II-2
<PAGE>
The indemnification provided by Article Four shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
The Company may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of or participant in another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of such person's status as
such, whether or not the Company would have the power to indemnify him or her
against such liability under the provisions of Article Four, Section 145 of the
General Company Law of the State of Delaware or otherwise.
NATIONWIDE
NEW YORK BUSINESS CORPORATION LAW
The New York Business Corporation Law ("NYBCL") permits a corporation to
indemnify any person made or threatened to be made a party to an action or
proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor), including an action by or in the right of
another corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
which any director of officer of the corporation served in any capacity at the
request of the corporation, by reason of the fact that the person, the person's
testator or intestate, was a director or officer of the corporation, or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees actually and
necessarily incurred as a result of such action or any appeal therein. To be
indemnified, such person must have acted in good faith, for a purpose which he
reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the corporation, and in
criminal action or proceedings, in addition, had no reasonable cause to believe
that such person's conduct was unlawful.
The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, does not of itself create a presumption that the person did not act
in good faith, for a purpose which such person reasonably believed to be in, or,
in the case of service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to, the
best interests of the corporation, or that such person had reasonable cause to
believe such person's conduct was unlawful.
Where indemnification is sought by judicial action, the court may allow a
person such reasonable expenses, including attorneys' fees, during the pendency
of the litigation as are necessary in connection with such person's defense
therein, if the court shall find that such person has, by such person's
pleadings or during the course of the litigation, raised genuine issues of fact
or law.
The NYBCL also permits a corporation to purchase and maintain insurance
(1) to indemnify the corporation for any obligation which it incurs as a result
of the indemnification of directors and officers under the NYBCL, (2) to
indemnify directors and officers in instances in which they may be indemnified
by the corporation under the NYBCL, and (3) to indemnify directors and officers
in instances in which they may not otherwise be indemnified by the corporation
under the NYBCL.
AMENDED CERTIFICATE OF INCORPORATION AND BYLAWS
Nationwide's Certificate of Incorporation, as amended, and its Bylaws,
provide for indemnification of all persons to the fullest extent permitted by
the NYBCL, and also authorize Nationwide to
II-3
<PAGE>
purchase and maintain insurance to indemnify such persons, whether or not such
persons can be indemnified under the NYBCL; except that Nationwide's bylaws do
not extend indemnification to persons who were or are serving at Nationwide's
request as an agent of or participant in an employee benefit plan. Nationwide's
bylaws also permit the advancement of expenses under certain circumstances.
MID STATE
MAINE BUSINESS CORPORATION ACT
The Maine Business Corporation Act (the "MBCA") permits a corporation to
indemnify any person made or 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 such person was or
is a director, officer, employee or agent of the corporation, or was or is
serving at the request of the corporation as a director, officer, trustee,
partner, fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan, or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding. Such expenses may be paid by the corporation in
advance in accordance with the provisions of the MBCA. To be indemnified, such
person must have acted (i) honestly or (ii) in the reasonable belief that his or
her action was in or not opposed to the best interests of the corporation or its
shareholders or, in the case of a person serving as a fiduciary of an employee
benefit plan or trust, in or not opposed to the best interests of that plan or
trust, or its participants or beneficiaries, or, in the case of any criminal
action or proceeding, such person must have acted without reasonable cause to
believe that such person's conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order or
conviction adverse to convict that person, or by settlement or pleas of NOLO
CONTENDERE or its equivalent, does not of itself create a presumption that the
person did not act honestly or in the reasonable belief that his or her action
was in or not opposed to the best interests of the corporation or its
shareholders or, in the case of a person serving as a fiduciary of an employee
benefit plan or trust, in or not opposed to the best interests of that plan or
trust or its participants or beneficiaries and, with respect to any criminal
action or proceeding, had reasonable cause to believe that such person's conduct
was unlawful.
The MBCA also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or who is or was serving at the request of the corporation as a
director, officer, trustee, partner, fiduciary, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of his
or her status as such, whether or not the corporation would have the power to
indemnify such person against such liability under the MBCA.
CERTIFICATE OF ORGANIZATION AND AMENDED AND RESTATED BYLAWS
Mid State's Certificate of Organization contains no provision for
indemnification. However, its Amended and Restated Bylaws provide that Mid State
shall indemnify persons to the extent permitted by the MBCA, including the
advancement of expenses, except that such indemnification does not extend to
trustees, partners, fiduciaries, or employees or agents of a pension or other
employee benefit plan.
The Amended and Restated Bylaws of Mid State also provide that Mid State may
purchase and maintain insurance on behalf of such persons to the extent
permitted by the MBCA, whether or not such persons can be indemnified under its
bylaws; except that Mid State may not purchase or maintain such insurance to
indemnify trustees, partners, fiduciaries, or employees or agents of a pension
or other employee benefit plan.
II-4
<PAGE>
GENERAL AUTOMATION
ILLINOIS BUSINESS CORPORATION ACT
The Illinois Business Corporation Act ("IBCA") permits a corporation to
indemnify any person made or 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
a director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred or paid by such person in connection with such action, suit or
proceeding. Such expenses may be paid by the corporation in advance in
accordance with the provisions of the IBCA. To be indemnified, such person must
have acted in good faith and in a manner the person 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 such
person's conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
does not of itself create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of General Automation, and, with respect to any
criminal action or proceeding, that the person had no reasonable cause to
believe that his or her conduct was unlawful.
The IBCA also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the IBCA.
ARTICLES OF INCORPORATION AND BYLAWS
General Automation's Articles of Incorporation contain no provision for
indemnification. However, its Bylaws provide that General Automation will
indemnify persons to the extent permitted by the IBCA; except that such
indemnification does not extend to persons who were or are serving at General
Automation's request as an agent of or participant in an employee benefit plan.
The bylaws also permit General Automation to purchase and maintain insurance to
indemnify such persons, whether or not such persons can be indemnified under its
bylaws.
CERTIFIED
CALIFORNIA GENERAL CORPORATION LAW
The California General Corporation Law (the "CGCL") permits a corporation to
indemnify any person who was or is a director, officer, employee or other agent
of the corporation, or who is or was serving at the request of the corporation
as a director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise, or who was a
director, officer, employee or agent of a foreign or domestic corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of the predecessor corporation, (other than an action by or in right of
the corporation), against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred by such
person in connection with any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative. To be
indemnified, such person must have acted (i) in good faith and (ii) in a manner
he or she reasonably believed to be in the best interests of the corporation;
and, in the case of a criminal
II-5
<PAGE>
proceeding, such person must have acted without reasonable cause to believe that
his or her conduct was unlawful.
The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent does not of
itself create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of the
corporation or that the person had reasonable cause to believe that the person's
conduct was unlawful.
In respect of any action by or in right of the corporation, a corporation
may indemnify any person who was or is an agent of the corporation against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of the action if he or she acted (i) in good faith and
(ii) in a manner he or she believed to be in the best interests of the
corporation and its shareholders.
The CGCL also permits a corporation to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation , or is or was serving at the request of the corporation as a
director, officer, employee or agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under its
bylaws, the CGCL, or otherwise.
ARTICLES OF INCORPORATION AND AMENDED AND RESTATED BYLAWS
Certified's Articles of Incorporation contain no provision for
indemnification. However, its Amended and Restated Bylaws provide that Certified
will indemnify all persons to the extent permitted by the CGCL and may purchase
and maintain insurance to indemnify such persons, whether or not such persons
can be indemnified under its bylaws, the CGCL, or otherwise. Certified's bylaws
also permit the advancement of expenses.
GILLETTE
NEW YORK GENERAL CORPORATION LAW
See the discussion of applicable provisions of the NYBCL above under
"--Nationwide."
RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
Gillette's Restated Certificate of Incorporation and its Bylaws provide for
indemnification of all persons to the fullest extent permitted by the NYBCL, and
also authorize Gillette to purchase and maintain insurance to indemnify such
persons, whether or not such persons can be indemnified under the NYBCL.
Gillette's bylaws also permit the advancement of expenses under certain
circumstances.
GALAXY
MICHIGAN BUSINESS CORPORATION ACT
The Michigan Business Corporation Act (the "Michigan BCA") permits a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal (other than an action by or in the right of the corporation),
by reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding 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 or its shareholders, and with respect to any
II-6
<PAGE>
criminal action or proceeding, if the person had no reasonable cause to believe
his conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
does 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 or its shareholders, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
The Michigan BCA also permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation, or who is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her in
any such capacity or arising out of his or her status as such, whether or not
the corporation would have power to indemnify him or her against liability under
the Michigan BCA.
ARTICLES OF INCORPORATION AND AMENDED AND RESTATED BYLAWS
Galaxy's Articles of Incorporation contain no provision for indemnification.
However, its Amended and Restated Bylaws provide that Galaxy will indemnify all
persons to the fullest extent authorized or by the Michigan BCA and also
authorize Galaxy to purchase and maintain insurance to indemnify such persons,
whether or not such persons can be indemnified under the Michigan BCA. Galaxy's
bylaws also permit the advancement of expenses under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- --------------------- ----
<C> <S>
2.1 Merger Agreement dated September 30, 1998 by and among
Galaxy Industries Corporation, Kenneth Smith, Galaxy Holding
Co., Inc., Robert H. Leidel Revocable Living Trust, Betty A.
Leidel Revocable Living Trust, Michael Leidel, Cheryl
Brooks, and Galaxy Acquisition, Inc.
2.2 Redemption and Merger Agreement dated September 17, 1998 by
and among Mid State Machine Products, S. Douglas Sukeforth,
Mid State Holdings Co., Inc. and Mid State Acquisition Inc.
2.3 Asset Purchase Agreement dated February 5, 1999 by and among
General Automation, Inc., Max Starr, and Precision Partners
Holding Company
2.4 Asset Purchase Agreement dated February 11, 1999 by and
among Nationwide Precision Products Corp., certain of its
stockholders and Nationwide Acquisition Delaware, Inc.
2.5 Stock Purchase Agreement dated February 19, 1999 by and
among Certified Fabricators Inc., Calbrit Design, Inc.,
certain of their selling shareholders and Precision
Partners, Inc.
2.6 Stock Purchase Agreement dated August 27, 1999 by and among
Gillette Machine & Tool Co., Inc., Gillette Machine &
Equipment Company, certain of their selling shareholders and
and Precision Partners, Inc.
2.7 Agreement of Merger dated as of May 28, 1999 by and among
Certified Fabricators Inc., Calbrit Design, Inc. and
Precision Partners, Inc. and filed with the Secretary of
State of the State of California on July 7, 1999
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- --------------------- ----
<C> <S>
3.1 Amended & Restated Certificate of Incorporation of Precision
Partners, Inc.
3.2 Bylaws of Precision Partners, Inc.
3.3 Certificate of Incorporation of Nationwide (together with
all amendments thereto)
3.4 By-laws of Nationwide
3.5 Certificate of Incorporation of Mid State (together with all
amendments thereto)
3.6 Amended and Restated By-laws of Mid State
3.7 Articles of Incorporation of General Automation (together
with all amendments thereto)
3.8 By-laws of General Automation
3.9 Articles of Incorporation of Certified (together with all
amendments thereto)
3.10 Amended and Restated By-laws of Certified
3.11 Restated Certificate of Incorporation of Gillette
3.12 By-laws of Gillette
3.13 Articles of Incorporation of Galaxy
3.14 Amended and Restated By-laws of Galaxy
*4.1 Indenture dated as of March 19, 1999 among Precision
Partners, Inc., as Company, the Guarantors named therein and
The Bank of New York, as trustee
4.2 First Supplemental Indenture dated October 15, 1999, among
Precision Partners, Inc. and The Bank of New York, as
trustee.
4.3 Second Supplemental Indenture dated October 29, 1999, among
Precision Partners, Inc. and The Bank of New York, as
trustee.
*4.4 Form of Initial Notes (included in Exhibit 4.1)
*4.5 Form of Exchange Notes (included in Exhibit 4.1)
4.6 Registration Rights Agreement dated as of March 19, 1999
among Precision Partners, Inc., Salomon Smith Barney and
NationsBanc Montgomery Securities LLC
*5.1 Opinion of Jones, Day, Reavis & Pogue, counsel to Precision
Partners, Inc.
*5.2 Opinion of Robert Gregory, Attorney at Law, counsel to Mid
State
*5.3 Opinion of Thav Gross Steinway & Bennett, counsel to Galaxy
*10.1 Credit Agreement (the "Credit Agreement") dated as of March
19, 1999 among Precision Partners, Inc., the guarantors and
lenders named therein, Citibank, N.A., as Administrative
Agent, Bank of America National Trust and Savings
Association, as Syndication Agent, and Sun Trust Bank,
Atlanta, as Documentation Agent
10.2 Waiver and Amendment to the Credit Agreement dated
August 9, 1999 among Precision Partners, Inc., the
guarantors and lenders named therein, and Citicorp U.S.A.,
Inc.
10.3 General Electric Gas Turbine Systems Source Operation
Agreement dated December 1, 1998 by and between General
Electric and Mid State
10.4 Purchase Agreement dated October 26, 1999 between
Caterpillar Inc. and Galaxy.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- --------------------- ----
<C> <S>
10.5 Purchase Agreement dated February 1, 2000 between Dana
Corporation--Spicer Heavy Axle & Brake Division and
Nationwide.
12.1 Statement re: computation of ratios
21.1 List of subsidiaries of the Company
*23.1 Consent of Ernst & Young LLP
*23.2 Consent of Baker Newman & Noyes
*23.3 Consent of Insero, Kasperski Ciaccia & Co., P.C.
*23.4 Consent of Bonadio & Co., LLP
*23.5 Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1)
*24.1 Powers of Attorney
*25.1 Statement on Form T-1 of the eligibility of the trustee
27.1 Financial Data Schedule of the Company
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Clients
99.5 Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------------
* Filed herewith. All other exhibits have been previously filed.
ITEM 22. UNDERTAKINGS.
The Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission (the "Commission") pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
II-9
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) 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.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities 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 Commission such indemnification is
against public policy as expressed in the Securities 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
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 Securities Act and will be governed by
the final adjudication of such issue.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Precision
Partners, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irving, in
the State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
PRECISION PARTNERS, INC.
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chief Executive Officer and Director
------------------------------------------- (Principal Executive Officer)
Dr. James E. Ashton
* Vice President and Chief Financial Officer
------------------------------------------- (Principal Financial and Accounting Officer)
Ronald M. Miller
* Vice President--Operations
-------------------------------------------
Melvin Johnson
* Director
-------------------------------------------
David W.M. Harvey
* Director
-------------------------------------------
Richard Detweiler
* Director
-------------------------------------------
John F. Megrue
* Director
-------------------------------------------
William J. Gumina
/s/ ROBERT WOMACK Chairman and Director
-------------------------------------------
Robert Womack
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Certified
Fabricators, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irving,
in the State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
CERTIFIED FABRICATORS, INC.
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT, TREASURER
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
Richard Fagan
* Vice President, Treasurer,
------------------------------------------- Secretary and Director
Ronald M. Miller (Principal Financial and Accounting Officer)
* Chairman and Director
-------------------------------------------
Dr. James E. Ashton
* Director
-------------------------------------------
William J. Gumina
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Galaxy Industries
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irving, in
the State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
GALAXY INDUSTRIES CORPORATION
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT, TREASURER
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
Byrdell C. Goldsmith
* Vice President, Treasurer,
------------------------------------------- Secretary and Director
Ronald M. Miller (Principal Financial and Accounting Officer)
* Chairman and Director
-------------------------------------------
Dr. James E. Ashton
* Director
-------------------------------------------
William J. Gumina
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Mid State Machine
Products. has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Irving, in the
State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
MID STATE MACHINE PRODUCTS
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT, TREASURER
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
S. Douglas Sukeforth
* Vice President, Treasurer,
------------------------------------------- Secretary and Director
Ronald M. Miller (Principal Financial and Accounting Officer)
* Chairman and Director
-------------------------------------------
Dr. James E. Ashton
* Director
-------------------------------------------
William J. Gumina
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, General
Automation, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irving, in
the State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
GENERAL AUTOMATION, INC.
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT, TREASURER
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
Edward R. Gajewski
* Vice President, Treasurer,
------------------------------------------- Secretary and Director
Ronald M. Miller (Principal Financial and Accounting Officer)
* Chairman and Director
-------------------------------------------
Dr. James E. Ashton
* Director
-------------------------------------------
William J. Gumina
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Nationwide Precision
Products Corp. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irving, in
the State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
NATIONWIDE PRECISION PRODUCTS CORP.
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT, TREASURER
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Chief Executive Officer
------------------------------------------- (Principal Executive Officer)
Ronald S. Ricotta
* Vice President, Treasurer,
------------------------------------------- Secretary and Director
Ronald M. Miller (Principal Financial and Accounting Officer)
* Chairman and Director
-------------------------------------------
Dr. James E. Ashton
* Director
-------------------------------------------
William J. Gumina
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Gillette Machine & Tool
Co., Inc. has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Irving, in the
State of Texas, on May 5, 2000.
<TABLE>
<S> <C> <C>
GILLETTE MACHINE & TOOL CO., INC.
By: /s/ RONALD M. MILLER
-----------------------------------------
Ronald M. Miller
VICE PRESIDENT, TREASURER
AND SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President
------------------------------------------- (Principal Executive Officer)
Darren J. Gillette
* Vice President, Treasurer,
------------------------------------------- Secretary and Director
Ronald M. Miller (Principal Financial and Accounting Officer)
* Chairman and Director
-------------------------------------------
Dr. James E. Ashton
* Director
-------------------------------------------
William J. Gumina
</TABLE>
<TABLE>
<S> <C> <C>
* By: /s/ RONALD M. MILLER
----------------------------------------
Ronald M. Miller
Pursuant to Powers of Attorney
filed herewith or previously with the
Securities and Exchange Commission
</TABLE>
II-17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- --------------------- ----
<C> <S>
2.1 Merger Agreement dated September 30, 1998 by and among
Galaxy Industries Corporation, Kenneth Smith, Galaxy Holding
Co., Inc., Robert H. Leidel Revocable Living Trust, Betty A.
Leidel Revocable Living Trust, Michael Leidel, Cheryl
Brooks, and Galaxy Acquisition, Inc.
2.2 Redemption and Merger Agreement dated September 17, 1998 by
and among Mid State Machine Products, S. Douglas Sukeforth,
Mid State Holdings Co., Inc. and Mid State Acquisition Inc.
2.3 Asset Purchase Agreement dated February 5, 1999 by and among
General Automation, Inc., Max Starr, and Precision Partners
Holding Company
2.4 Asset Purchase Agreement dated February 11, 1999 by and
among Nationwide Precision Products Corp., certain of its
stockholders and Nationwide Acquisition Delaware, Inc.
2.5 Stock Purchase Agreement dated February 19, 1999 by and
among Certified Fabricators Inc., Calbrit Design, Inc.,
certain of their selling shareholders and Precision
Partners, Inc.
2.6 Stock Purchase Agreement dated August 27, 1999 by and among
Gillette Machine & Tool Co., Inc., Gillette Machine &
Equipment Company, certain of their selling shareholders and
and Precision Partners, Inc.
2.7 Agreement of Merger dated as of May 28, 1999 by and among
Certified Fabricators Inc., Calbrit Design, Inc. and
Precision Partners, Inc. and filed with the Secretary of
State of the State of California on July 7, 1999
3.1 Amended and Restated Certificate of Incorporation of
Precision Partners, Inc.
3.2 Bylaws of Precision Partners, Inc.
3.3 Certificate of Incorporation of Nationwide (together with
all amendments thereto)
3.4 By-laws of Nationwide
3.5 Certificate of Incorporation of Mid State (together with all
amendments thereto)
3.6 Amended and Restated By-laws of Mid State
3.7 Articles of Incorporation of General Automation (together
with all amendments thereto)
3.8 By-laws of General Automation
3.9 Articles of Incorporation of Certified (together with all
amendments thereto)
3.10 Amended and Restated By-laws of Certified
3.11 Restated Certificate of Incorporation of Gillette
3.12 By-laws of Gillette
3.13 Articles of Incorporation of Galaxy
3.14 Amended and Restated By-laws of Galaxy
*4.1 Indenture dated as of March 19, 1999 among Precision
Partners, Inc., as Company, the Guarantors named therein and
The Bank of New York, as trustee
4.2 First Supplemental Indenture dated October 15, 1999, among
Precision Partners, Inc. and The Bank of New York, as
trustee.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- --------------------- ----
<C> <S>
4.3 Second Supplemental Indenture dated October 29, 1999, among
Precision Partners, Inc. and The Bank of New York, as
trustee.
*4.4 Form of Initial Notes (included in Exhibit 4.1)
*4.5 Form of Exchange Notes (included in Exhibit 4.1)
4.6 Registration Rights Agreement dated as of March 19, 1999
among Precision Partners, Inc., Salomon Smith Barney and
NationsBanc Montgomery Securities LLC
*5.1 Opinion of Jones, Day, Reavis & Pogue, counsel to Precision
Partners, Inc.
*5.2 Opinion of Robert Gregory, Attorney at Law, counsel to Mid
State
*5.3 Opinion of Thav Gross Steinway & Bennett, counsel to Galaxy
*10.1 Credit Agreement (the "Credit Agreement") dated as of March
19, 1999 among Precision Partners, Inc., the guarantors and
lenders named therein, Citibank, N.A., as Administrative
Agent, Bank of America National Trust and Savings
Association, as Syndication Agent, and Sun Trust Bank,
Atlanta, as Documentation Agent
10.2 Waiver and Amendment to the Credit Agreement dated
August 9, 1999 among Precision Partners, Inc., the
guarantors and lenders named therein, and Citicorp U.S.A.,
Inc.
*10.3 General Electric Gas Turbine Systems Source Operation
Agreement dated December 1, 1998 by and between General
Electric and Mid State
*10.4 Purchase Agreement dated October 26, 1999 between
Caterpillar Inc. and Galaxy.
*10.5 Purchase Agreement dated February 1, 2000 between Dana
Corporation--Spicer Heavy Axle & Brake Division and
Nationwide.
12.1 Statement re: computation of ratios
21.1 List of subsidiaries of the Company
*23.1 Consent of Ernst & Young LLP
*23.2 Consent of Baker Newman & Noyes
*23.3 Consent of Insero, Kasperski Ciaccia & Co., P.C.
*23.4 Consent of Bonadio & Co., LLP
*23.5 Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 5.1)
*24.1 Powers of Attorney
*25.1 Statement on Form T-1 of the eligibility of the trustee
27.1 Financial Data Schedule of the Company
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to DTC Participants
99.4 Form of Letter to Clients
99.5 Form of Instruction to Book-Entry Transfer Participants
</TABLE>
- ------------------------
* Filed herewith. All other exhibits have been previously filed.
<PAGE>
PRECISION PARTNERS, INC.,
as Company,
THE GUARANTORS named herein
and
THE BANK OF NEW YORK,
as Trustee
up to $150,000,000
12% Senior Subordinated Notes due 2009
--------------------
INDENTURE
Dated as of March 19, 1999
--------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA SECTION INDENTURE SECTION
310(a)(1).................................................. 7.9; 7.10
(a)(2).................................................. 7.10
(a)(3).................................................. N.A.
(a)(4).................................................. N.A.
(b)..................................................... 7.10
(c)..................................................... N.A.
311(a)..................................................... 7.11
(b)..................................................... 7.11
312(a)..................................................... N.A.
(b)..................................................... 13.3
(c)..................................................... 13.3
313(a)..................................................... 7.6
(b)(1).................................................. 7.6
(b)(2).................................................. N.A.
(c)..................................................... N.A.
(d)..................................................... N.A.
314(a)..................................................... 4.2; 4.10; 13.2
(a)(4).................................................. 4.9
(b)..................................................... N.A.
(c)(1).................................................. N.A.
(c)(2).................................................. N.A.
(c)(3).................................................. N.A.
(d)..................................................... N.A.
(e)..................................................... N.A.
(f)..................................................... 4.10
315(a)..................................................... N.A.
(b)..................................................... N.A.
(c)..................................................... N.A.
(d)..................................................... N.A.
(e)..................................................... N.A.
316(a)..................................................... 13.6
(a)(1)(A)............................................... 6.5
(a)(1)(B)............................................... 6.4
(a)(2).................................................. N.A.
(b)..................................................... 6.7
317(a)(1).................................................. 6.9
(a)(2).................................................. 6.9
(b)..................................................... 2.4
318(a)..................................................... 13.1
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions....................................................1
SECTION 1.2. Other Definitions.............................................35
SECTION 1.3. Incorporation by Reference of Trust
Indenture Act.................................................36
SECTION 1.4. Rules of Construction.........................................36
ARTICLE 2
THE SECURITIES
SECTION 2.1. Form and Dating...............................................37
SECTION 2.2. Execution and Authentication..................................38
SECTION 2.3. Registrar and Paying Agent....................................39
SECTION 2.4. Paying Agent To Hold Money in Trust...........................40
SECTION 2.5. Securityholder Lists..........................................40
SECTION 2.6. Transfer and Exchange.........................................41
SECTION 2.7. Replacement Securities........................................44
SECTION 2.8. Outstanding Securities........................................45
SECTION 2.9. Temporary Securities..........................................46
SECTION 2.10. Cancellation..................................................46
SECTION 2.11. Defaulted Interest............................................46
SECTION 2.12. CUSIP Numbers.................................................46
SECTION 2.13. Restrictive Legends...........................................47
SECTION 2.14. Special Transfer Provisions...................................49
ARTICLE 3
REDEMPTION
SECTION 3.1. Optional Redemption...........................................52
SECTION 3.2. Notices to Trustee............................................53
SECTION 3.3. Selection of Securities To Be Redeemed........................54
SECTION 3.4. Notice of Redemption..........................................54
SECTION 3.5. Effect of Notice of Redemption................................55
SECTION 3.6. Deposit of Redemption Price...................................55
SECTION 3.7. Securities Redeemed in Part...................................56
-i-
<PAGE>
ARTICLE 4
COVENANTS
SECTION 4.1. Payment of Securities........................................56
SECTION 4.2. Reports to Holders...........................................56
SECTION 4.3. Limitation on Incurrence of Additional
Indebtedness.................................................57
SECTION 4.4. Limitation on Restricted Payments............................58
SECTION 4.5. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries.................................................62
SECTION 4.6. Limitation on Asset Sales....................................64
SECTION 4.7. Limitation on Transactions with Affiliates...................69
SECTION 4.8. Change of Control............................................71
SECTION 4.9. Compliance Certificate.......................................74
SECTION 4.10. Further Instruments and Acts.................................75
SECTION 4.11. Limitation on Liens..........................................75
SECTION 4.12. Limitation on Preferred Stock of
Restricted Subsidiaries......................................76
SECTION 4.13. Payment of Taxes and Other Claims............................76
SECTION 4.14. Additional Subsidiary Guarantees.............................76
SECTION 4.15. Prohibition on Incurrence of Senior Subordinated Debt........77
SECTION 4.16. Conduct of Business..........................................77
SECTION 4.17. Limitation on Designations of Unrestricted Subsidiaries......78
SECTION 4.18. Maintenance of Office or Agency..............................79
SECTION 4.19. Corporate Existence..........................................80
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. Merger, Consolidation and Sale of Assets.....................81
SECTION 5.2. Successor Corporation Substituted............................83
-ii-
<PAGE>
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default............................................83
SECTION 6.2. Acceleration.................................................86
SECTION 6.3. Other Remedies...............................................87
SECTION 6.4. Waiver of Past Defaults......................................87
SECTION 6.5. Control by Majority..........................................88
SECTION 6.6. Limitation on Suits..........................................88
SECTION 6.7. Rights of Holders To Receive Payment.........................89
SECTION 6.8. Collection Suit by Trustee...................................89
SECTION 6.9. Trustee May File Proofs of Claim.............................89
SECTION 6.10. Priorities...................................................89
SECTION 6.11. Undertaking for Costs........................................90
SECTION 6.12. Waiver of Stay or Extension Laws.............................90
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee............................................91
SECTION 7.2. Rights of Trustee............................................93
SECTION 7.3. Individual Rights of Trustee.................................94
SECTION 7.4. Trustee's Disclaimer.........................................94
SECTION 7.5. Notice of Defaults...........................................94
SECTION 7.6. Reports by Trustee to Holders................................95
SECTION 7.7. Compensation and Indemnity...................................95
SECTION 7.8. Replacement of Trustee.......................................97
SECTION 7.9. Successor Trustee by Merger..................................98
SECTION 7.10. Eligibility; Disqualification................................99
SECTION 7.11. Preferential Collection of Claims Against Company............99
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on Securities;
Defeasance...................................................99
SECTION 8.2. Conditions to Defeasance....................................101
SECTION 8.3. Application of Trust Money..................................104
SECTION 8.4. Repayment to Company........................................104
SECTION 8.5. Indemnity for Government Obligations........................105
SECTION 8.6. Reinstatement...............................................105
-iii-
<PAGE>
ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders..................................106
SECTION 9.2. With Consent of Holders.....................................107
SECTION 9.3. Compliance with Trust Indenture Act.........................108
SECTION 9.4. Revocation and Effect of Consents and Waivers...............108
SECTION 9.5. Notation on or Exchange of Securities.......................109
SECTION 9.6. Trustee To Sign Amendments..................................109
ARTICLE 10
SUBORDINATION OF THE SECURITIES
SECTION 10.1. Agreement To Subordinate....................................109
SECTION 10.2. Liquidation; Dissolution; Bankruptcy........................111
SECTION 10.3. No Payment on Securities in Certain
Circumstances...............................................112
SECTION 10.4. Payments May Be Paid Prior to
Dissolution.................................................114
SECTION 10.5. When Securities Must Be Paid Over...........................115
SECTION 10.6. Notices by the Company......................................115
SECTION 10.7. Subrogation.................................................115
SECTION 10.8. Relative Rights.............................................115
SECTION 10.9. Subordination May Not Be Impaired by the
Company.....................................................116
SECTION 10.10. Distribution of Notice to Representative....................116
SECTION 10.11. Rights of Trustee and Paying Agent..........................117
SECTION 10.12. Consent of Holders of Specified Senior
Debt........................................................117
SECTION 10.13. Contractual Subordination...................................118
ARTICLE 11
GUARANTEES
SECTION 11.1. Guarantees..................................................118
SECTION 11.2. Limitation on Liability.....................................121
-iv-
<PAGE>
SECTION 11.3. Successors and Assigns......................................121
SECTION 11.4. No Waiver...................................................121
SECTION 11.5. Modification................................................122
SECTION 11.6. Release of Guarantor........................................122
SECTION 11.7. Execution of Supplemental Indenture for
Future Guarantors...........................................122
ARTICLE 12
SUBORDINATION OF GUARANTEES
SECTION 12.1. Agreement To Subordinate....................................123
SECTION 12.2. Liquidation; Dissolution; Bankruptcy........................124
SECTION 12.3. No Payment on Securities in Certain
Circumstances...............................................125
SECTION 12.4. Payments May Be Paid Prior to Dissolution...................127
SECTION 12.5. When Securities Must Be Paid Over...........................128
SECTION 12.6. Notices by a Guarantor......................................128
SECTION 12.7. Subrogation.................................................128
SECTION 12.8. Relative Rights.............................................129
SECTION 12.9. Subordination May Not Be Impaired by the
Guarantor...................................................129
SECTION 12.10. Distribution or Notice to
Representative..............................................130
SECTION 12.11. Rights of Trustee and Paying Agent..........................130
SECTION 12.12. Consent of Holders of Guarantor Senior
Debt........................................................131
SECTION 12.13. Contractual Subordination...................................131
ARTICLE 13
MISCELLANEOUS
SECTION 13.1. Trust Indenture Act Controls................................131
SECTION 13.2. Notices.....................................................131
SECTION 13.3 Communication by Holders with Other
Holders.....................................................133
SECTION 13.4. Certificate and Opinion as to Conditions
Precedent...................................................133
SECTION 13.5. Statements Required in Certificate or
Opinion.....................................................133
SECTION 13.6. When Securities Disregarded.................................134
-v-
<PAGE>
SECTION 13.7. Rules by Trustee, Paying Agent and
Registrar...................................................134
SECTION 13.8. Legal Holidays..............................................134
SECTION 13.9. Governing Law...............................................134
SECTION 13.10. No Recourse Against Others..................................135
SECTION 13.11. Successors..................................................135
SECTION 13.12. Multiple Originals..........................................135
SECTION 13.13. Table of Contents; Headings.................................135
SECTION 13.14. Severability Clause.........................................135
Signatures...................................................................136
Exhibit A - Form of Security.................................................A-1
Exhibit B - Form of Exchange Security........................................B-1
Exhibit C - Form of Certificate To Be Delivered in
Connection with Transfers to Non-QIB
Accredited Investors.............................................C-1
Exhibit D - Form of Certificate To Be Delivered in
Connection with Transfers Pursuant to
Regulation S.....................................................D-1
Exhibit E - Form of Guarantee................................................E-1
Note: This Table of Contents shall not, for any purpose,
be deemed to be part of the Indenture.
-vi-
<PAGE>
INDENTURE dated as of March 19, 1999, among PRECISION
PARTNERS, INC.,a Delaware corporation (the "Company"), the
Company's subsidiaries signatory hereto (each a "Guarantor") and
THE BANK OF NEW YORK, a New Yorkbanking corporation, as trustee(the "Trustee").
Each party agrees as follows for the benefit of the other
parties and for the equal and ratable benefit of the Holders of
the Company's 12% Senior Subordinated Notes due 2009 (the"Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1.......DEFINITIONS.
"1999 Acquisitions" means the acquisition on the Issue Date of all of
the issued and outstanding capital stock of Certified and of certain assets
and liabilities of General Automation, Inc. and Nationwide Precision
Products Corp..
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary or at the time it merges or consolidates with the Company or any
of the Restricted Subsidiaries or assumed by the Company or any Restricted
Subsidiary in connection with the acquisition of assets from such Person
and in each case whether or not such Indebtedness is incurred by such
Person in connection with, or in anticipation or contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition, merger or
consolidation.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of
the amount by which (x) the fair value of the property of such Guarantor
exceeds the total amount of its liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under the Guarantee of such Guarantor at such date, and (y) the
present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts
<PAGE>
-2-
(after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary of such Guarantor in respect of the obligations of such
Subsidiary under such Guarantor's Guarantee), excluding debt in respect of the
Guarantee, as they become absolute and matured.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such
specified Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged with or into the
Company or any Restricted Subsidiary, or (b) the acquisition by the Company
or any Restricted Subsidiary of the assets of any Person (other than a
Restricted Subsidiary) that constitute all or substantially all of the
assets of such Person or comprise any division or line of business of such
Person or any other properties or assets of such Person other than in the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
lease (other than operating leases entered into in the ordinary course of
business), assignment or other transfer (other than the granting of a Lien
in accordance with this Indenture) for value by the Company or any of the
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of (a) any
Capital Stock of any Restricted Subsidiary (other than directors'
qualifying shares or shares required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary); or (b) any other
property or assets of the Company or any Restricted Subsidiary other than
in the ordinary course of business; PROVIDED, HOWEVER, that Asset Sales
will not include (i) a transaction or series of related transactions for
which the Company or the Restricted Subsidiar
<PAGE>
-3-
ies receive aggregate consideration of less than $1.0 million, (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted by Section 5.1, (iii) any
Restricted Payment made in accordance with Section 4.4, (iv) the sale, lease,
conveyance, disposition or other transfer of property or equipment that has
become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, (v)
the creation or realization of any Permitted Lien, (vi) the sale of receivables
or other assets pursuant to a receivables or asset securitization or similar
program, (vii) any disposition the making of which is a Permitted Investment,
(viii) the sale of any Cash Equivalents owned by the Company or any of its
Subsidiaries and (ix) any exchange of like property pursuant to Section 1031 of
the Code.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such
Person to have been duly adopted by the Board of Directors of such Person
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means each day that is not a Legal Holiday.
"Capital Stock" means:
(i)with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
(ii) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
<PAGE>
-4-
"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.
"Carlisle" means Carlisle Enterprises L.P.
"Cash Equivalents" means:
(i) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(iii) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000;
(v) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered
into with any bank
<PAGE>
-5-
meeting the qualifications specified in clause (iv) above; and
(vi) investments in money market funds that invest substantially all
their assets in securities of the types described in clauses (i) through
(v) above.
"Certified" means Certified Fabricators, Inc. and Calbrit Design, Inc.
"Change of Control" means the occurrence of one or more of the
following events:
(i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any Person or group of related Persons for purposes of
Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of this
Indenture);
(ii) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of this
Indenture); or
(iii) any Person or Group, other than the Permitted Holders, becomes
the beneficial owner, directly or indirectly, of more than 50% of the total
voting power of the Capital Stock of the Company, and the Permitted Holders
beneficially own, directly or indirectly in the aggregate, a lesser
percentage of the total voting power of the Capital Stock of the Company
than such Person or Group and do not have the right or ability by voting
power, contract, or otherwise to elect or designate for election a majority
of the Board of Directors (or any analogous governing body) of the Company;
or
(iv) following the consummation of an initial public offering of the
Company, the replacement of a majority of the Board of Directors of the
Company or Holdings over a two-year period from the directors who
constituted the Board of Directors of the Company or Holdings, as the case
may be, at the beginning of such period, and such replacement shall not
have been approved by a vote of at least a majority of the Board of
Directors of the Company or Holdings, as the case
<PAGE>
-6-
may be, then still in office who either were members of such Board of
Directors at the beginning of such period or whose election as a member of
such Board of Directors was previously so approved.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and
whether voting or non-voting) of, such Person's common stock, whether
outstanding on the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to the Company, for any
period, the sum (without duplication) of:
(i) Consolidated Net Income; and
(ii) to the extent Consolidated Net Income has been reduced thereby:
(A) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary or nonrecurring
gains or taxes attributable to Asset Sales outside the ordinary course
of business);
(B) Consolidated Interest Expense;
(C) Consolidated Non-cash Charges, less any non-cash items
increasing Consolidated Net Income for such period;
(D) the net income of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a
Restricted Subsidiary or is merged or consolidated with the Company or
any Restricted Subsidiary but after the first day of the
<PAGE>
-7-
relevant Four Quarter Period as used in the definition of
"Consolidated Fixed Charge Coverage Ratio";
(E) the aggregate amount of any earn-out payments or bonuses paid
to the selling stockholders of Mid State and Galaxy during the
relevant Four Quarter Period;
(F) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer
of assets but after the first day of the relevant Four Quarter Period
as used in the definition of "Consolidated Fixed Charge Coverage
Ratio"; and
(G) monitoring fees paid by Holdings to SKM and Carlisle in an
amount not to exceed $350,000 in the aggregate during the Four-Quarter
Period;
all as determined on a consolidated basis for the Company and the Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the four
most recent full consecutive fiscal quarters (the "Four-Quarter Period")
ending on or prior to the date of the transaction giving rise to the need
to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction
Date") to Consolidated Fixed Charges of the Company for the Four-Quarter
Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for
the period of such calculation to:
(i) the incurrence or repayment of any Indebtedness of the Company or
any of the Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repay
<PAGE>
-8-
ment of Indebtedness in the ordinary course of business for working
capital purposes pursuant to working capital facilities, occurring during
the Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four-Quarter Period;
and
(ii) any Asset Sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of the Company or one of the
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness) and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Exchange
Act) occurring during the Four-Quarter Period or at any time subsequent to
the last day of the Four-Quarter Period and on or prior to the Transaction
Date as if such Asset Sale or Asset Acquisition or other disposition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four-Quarter Period. If the
Company or any of the Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence will give
effect to the incurrence of such guaranteed Indebtedness as if the Company
or any Restricted Subsidiary had directly incurred or otherwise assumed
such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter will be deemed to have accrued at a fixed rate per
annum equal to
<PAGE>
-9-
the rate of interest on such Indebtedness in effect on the Transaction
Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, will be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
For purposes of this definition, whenever pro forma effect is to be
given to an Asset Acquisition, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness incurred in connection therewith, the pro forma calculations
shall be determined on a basis consistent with Regulation S-X under the
Exchange Act, which determination shall be made in good faith by a
responsible financial or accounting officer of the Company and such pro
forma calculations may include such pro forma adjustments for nonrecurring
non-cash items that the Company considers reasonable and quantifiable in
order to reflect the ongoing impact of any such transaction on the
Company's results of operations.
"Consolidated Fixed Charges" means, with respect to the Company for
any period, the sum, without duplication, of:
(i) Consolidated Interest Expense; plus
(ii) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of the Company (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective
consolidated federal, state and local income tax rate of the Company,
expressed as a decimal.
<PAGE>
-10-
"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication:
(i) the aggregate of the interest expense of the Company and the
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP (excluding fees and expenses incurred in connection
with the offer and sale of the Securities), including without limitation,
(a) any amortization of debt discount, (b) the net costs under Interest
Swap Obligations, (c) all capitalized interest and (d) the interest portion
of any deferred payment obligation; and
(ii) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by the Company and the
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the
Restricted Subsidiaries for such period on a consolidated basis, determined
in accordance with GAAP; provided that there shall be excluded therefrom:
(a) after-tax gains and losses from Asset Sales or abandonments or
reserves relating thereto other than in the ordinary course of business;
(b) after tax items classified as extraordinary or nonrecurring gains
or losses;
(c) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or
is merged or consolidated with the Company or any Restricted Subsidiary;
(d) the net income (but not loss) of any Restricted Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation
of law
<PAGE>
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or otherwise (except for restrictions existing pursuant to clause (9) of
Section 4.5);
(e) the net income of any Person, other than a Restricted Subsidiary,
except to the extent of cash dividends or distributions paid to the Company
or to a Restricted Subsidiary by such Person;
(f) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued); and
(g) in the case of a successor to the Company by consolidation or
merger or as a transferee of the Company's assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Non-cash Charges" means, with respect to the Company,
for any period, the aggregate depreciation, amortization and other non-cash
expenses of the Company and the Restricted Subsidiaries reducing
Consolidated Net Income of the Company for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charge that
requires an accrual of or a reserve for cash charges for any future
period).
"Credit Agreement" means the Credit Agreement dated as of the Issue
Date by and among the Company, the guarantors named therein, the lenders
named therein, Citibank, N.A., as administrative agent, Bank of America
National Trust and Savings Association, as syndication agent, and Sun Trust
Bank, Atlanta, as documentation agent, together with the related documents
thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended
(including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that
such increase in borrowings is permitted by Section 4.3 (including the
definition of Permitted Indebtedness)) or adding Restricted Subsidiaries as
additional borrowers or guarantors thereunder)
<PAGE>
-12-
all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice of both would be, an Event
of Default.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Designated Senior Debt" means (i) Indebtedness under or in respect of
the Credit Agreement and (ii) any other Indebtedness constituting Senior
Debt that, at the time of determination, has an aggregate principal amount
of at least $25,000,000 and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock
that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event (other than a Change of Control), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
mandatorily exchangeable for Indebtedness, or is redeemable, or
exchangeable for Indebtedness, at the sole option of the holder thereof
(except upon the occurrence of a Change of Control) on or prior to the
final maturity date of the Securities.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary
incorporated or otherwise organized or existing under the laws of the
United States, any state thereof or any territory or possession of the
United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto,
<PAGE>
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and the rules and regulations of the SEC promulgated thereunder.
"Exchange Securities" means the 12% Senior Subordinated Notes due 2009
to be issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement or, with respect to the Initial Securities
issued under this Indenture subsequent to the Issue Date pursuant to
Section 2.2, a registration agreement substantially identical to the
Registration Rights Agreement.
"fair market value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction
between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value will be determined by the Board of Directors of the Company acting
reasonably and in good faith and will be evidenced by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that
is organized and existing under the laws of a jurisdiction other than the
United States, any State thereof or the District of Columbia.
"Four-Quarter Period" has the meaning set forth under the definition
of "Consolidated Fixed Charge Coverage Ratio".
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accounts and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession of the United States, which are in effect as
of the Issue Date.
"Galaxy" means Galaxy Industries Corporation.
"guarantee" means as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or
<PAGE>
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indirect, in any manner, of any part or all of such obligation
and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee will include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.
"Guarantee" means the guarantee of the Securities by each Guarantor,
substantially in the form of Exhibit E.
"Guarantor" means (i) each Subsidiary of the Company guaranteeing the
Securities as of the Issue Date and (ii) each other Person that in the
future executes a Guarantee pursuant to Section 4.14 or otherwise; provided
that any Person constituting a Guarantor as described above shall cease to
constitute a Guarantor when its Guarantee is released in accordance with
the terms of this Indenture.
"Guarantor Senior Debt" means, with respect to
any Guarantor, (i) the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable
law) on any Indebtedness of such Guarantor, whether outstanding on the
Issue Date or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the Guarantee
of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of
a petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
<PAGE>
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(x) all monetary obligations of every nature of the Company or any
Guarantor with respect to the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not
include:
(i) any Indebtedness of such Guarantor owing to a Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries;
(ii) Indebtedness to, or guaranteed on behalf of, any stockholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor including, without limitation, amounts owed for compensation);
(iii) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital Stock;
(v) any liability for federal, state, local or other taxes owed or
owing by such Guarantor;
(vi) Indebtedness incurred in violation of Section 4.3;
(vii) Indebtedness that, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to such Guarantor; and
<PAGE>
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(viii) any Indebtedness that is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Harvey" means Harvey Equity Partners, L.L.C.
"Holder" or "Securityholder" means a Person in whose name a
Security is registered. The Holder of a Security will be treated as
the owner of such Security for all purposes.
"Holdings" means Precision Partners Holding Company or any
successor or assign thereof that owns 100% of the Qualified Capital
Stock of the Company.
"incur" has the meaning set forth under Section 4.3.
"Indebtedness" means, with respect to any Person, without
duplication:
(i) all Obligations of such Person for borrowed money;
(ii) all Obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(iii) all Capitalized Lease Obligations of such Person;
(iv) all Obligations of such Person issued or assumed as the
deferred purchase price of property or services, all conditional sale
obligations and all Obligations under any title retention agreement
(but excluding trade or other accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days
or more or are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted);
(v) all Obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction;
<PAGE>
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(vi) guarantees and other contingent obligations in respect of
Indebtedness of any other Person referred to in clauses (i) through
(v) above and clause (viii) below;
(vii) all Obligations of any other Person of the type referred to
in clauses (i) through (vi) that are secured by any Lien on any
property or asset of such first Person, the amount of such Obligation
being deemed to be the lesser of the fair market value of such
property or asset or the amount of the Obligation so secured;
(viii) all Obligations under currency agreements and all interest
swap obligations of such Person; and
(ix) all Disqualified Capital Stock issued by such Person with
the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary
liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price
will 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 will be required to be determined
pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock,
such fair market value will be determined reasonably and in good faith
by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"Indenture" means this Indenture as amended or supplemented from
time to time by one or more supplemental indentures entered into
pursuant to the applicable provisions hereof or otherwise in
accordance with the terms hereof.
<PAGE>
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"Independent Financial Advisor" means a firm (i) that does not,
and whose directors, officers and employees and Affiliates do not,
have a direct or indirect financial interest in the Company and (ii)
that, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it
is to be engaged.
"Initial Purchasers" means Salomon Smith Barney Inc. and
NationsBanc Montgomery Securities LLC.
"Initial Securities" means, collectively, (i) the 12% Senior
Subordinated Notes due 2009 of the Company issued on the Issue Date
and (ii) one or more series securities that are issued under this
Indenture subsequent to the Issue Date pursuant to Section 2.2, in
each case for so long as such securities constitute Restricted
Securities.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly
or indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed
rate of interest on a stated notional amount in exchange for periodic
payments made by such other Person calculated by applying a fixed or a
floating rate of interest on the same notional amount and will
include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, (i) any direct or
indirect loan or other extension of credit (including, without
limitation, a guarantee) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for
property or services for the account or use of others), or (ii) any
purchase or acquisition by such Person of any Capital Stock, bonds,
notes, debentures or other securities or evidences of Indebtedness
issued by, any other Person. "Investment" shall exclude extensions of
trade credit by the Company and the Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade
practices of the Company or such Restricted Subsidiary, as the case
may be. If the Company or any Restricted Subsidiary sells or otherwise
disposes of less than all of the Capital Stock of any Restricted
Subsidiary (the "Referent Subsidiary") such that, af
<PAGE>
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ter giving effect to any such sale or disposition, the Referent Subsidiary shall
ceaseto be a Restricted Subsidiary, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal
to the fair market value of the Capital Stock of the Referent
Subsidiary not sold or disposed of.
"Issue Date" means March 19, 1999.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the State of New
York.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
"LLC" means Precision Partners, L.L.C.
"Mid State" means Mid State Machine Products.
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents, including payments
in respect of deferred payment obligations when received in the form
of cash or Cash Equivalents (other than the portion of any such
deferred payment constituting interest), received by the Company or
any of the Restricted Subsidiaries from such Asset Sale net of:
(a) actual expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment
banking fees, sales commissions and relocation expenses);
(b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements;
<PAGE>
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(c) repayments of Indebtedness secured by the property or assets
subject to such Asset Sale that is required to be repaid in connection
with such Asset Sale;
(d) provision for minority interest holders in any Restricted
Subsidiary as a result of such Asset Sale;
(e) payments of unassumed liabilities (not constituting
Indebtedness) relating to the assets sold at the time of, or within 30
days after, the date of such Asset Sale; and
(f) appropriate amounts to be determined by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance
with GAAP, against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Non-U.S. Person" means a person who is not a U.S. Person, as
defined in Regulation S.
"Note Pro Rata Share" means the amount of the applicable Net
Proceeds Offer Amount obtained by multiplying the amount of such Net
Proceeds Offer Amount by a fraction, (i) the numerator of which is the
aggregate principal amount of Securities outstanding at the time of
the applicable Asset Sale with respect to which the Company is
required to use the Net Proceeds Offer Amount to repay or make a Net
Proceeds Offer or repay and (ii) the demoninator of which is the sum
of (a) the aggregate accreted value and/or principal amount, as the
case may be, of all Other Indebtedness outstanding at the time of the
applicable Asset Sale and (b) the aggregate principal amount of all
Securities outstanding at the time of the applicable Net Proceeds
Offer with respect to which the Company is required to use the
applicable Net Proceeds Offer Amount to offer to repay or make a Net
Proceeds Offer or repay.
<PAGE>
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"Obligations" means all obligations for principal, premium,
interest, penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Officer" means the Chairman of the Board, any Vice Chairman, the
Chief Executive Officer, the Chief Financial Officer, Chief Operating
Officer, the President, any Executive Vice President, any Vice
President (or any such other officer that performs similar duties),
the Secretary, the Treasurer, the Assistant Secretary or the Assistant
Treasurer of the Company.
"Officers' Certificate" means with respect to any Person a
certificate signed by two Officers, one of which is the Chairman of
the Board, the Chief Executive Officer, the Chief Financial Officer,
the President, any Executive Vice President, or any such other officer
that performs similar duties.
"Opinion of Counsel" means a written opinion from legal counsel
who is reasonably acceptable to the Trustee. The counsel may be an
employee of or counsel to the Company or the Trustee.
"Permitted Holders" means (i) SKM and (ii) any Person
"controlled" (as defined in the definition of "Affiliate") by one or
more Persons identified in clause (i) of this definition.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Securities, this Indenture and any
Guarantees issued on the Issue Date, not to exceed an aggregate
principal amount of $100 million;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the
greater of (a) $50 million and (b) the sum of (x) 85% of the book
value of the accounts receivable of the Company and its Restricted
Subsidiaries on a consolidated basis plus (y) 50% of the book
<PAGE>
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value of the inventory of the Company and its Restricted Subsidiaries
on a consolidated basis plus (z) $25 million;
(iii) other Indebtedness of the Company and the Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of
any proceeds from Asset Sales used to repay such Indebtedness pursuant
to Section 4.6;
(iv) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any Guarantor and Interest Swap
Obligations of any Restricted Subsidiary covering Indebtedness of such
Restricted Subsidiary; PROVIDED, HOWEVER, that such Interest Swap
Obligations are entered into to protect the Company and the Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional
principal amount of such Interest Swap Obligations does not exceed the
principal amount of the Indebtedness to which such Interest Swap
Obligations relates;
(v) Indebtedness under Currency Agreements; provided that in the
case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company
and the Restricted Subsidiaries outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary to the Company or
another Restricted Subsidiary for so long as such Indebtedness is held
by the Company or a Restricted Subsidiary, in each case subject to no
Lien held by a Person other than the Company or a Restricted
Subsidiary; provided that if as of any date any Person other than the
Company or a Restricted Subsidiary owns or holds any such Indebtedness
or holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary for
so long as such Indebtedness is held by a Re
<PAGE>
-23-
stricted Subsidiary, in each case subject to no Lien; provided that if
as of any date any Person other than a Restricted Subsidiary owns or
holds any such Indebtedness or any Person holds a Lien in respect of
such Indebtedness, such date will be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn
against insufficient funds in the ordinary course of business;
PROVIDED, HOWEVER, that such Indebtedness is extinguished within five
Business Days of incurrence;
(ix) Indebtedness of the Company or any of the Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations
in connection with self-insurance, performance or surety bonds entered
into in the ordinary cause of business or similar requirements in the
ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Purchase Money Indebtedness and Capitalized Lease
Obligations (and any Indebtedness incurred to Refinance such Purchase
Money Indebtedness or Capitalized Lease Obligations) not to exceed
$10.0 million at any one time outstanding;
(xii) guarantees of the obligations of Restricted Subsidiaries;
(xiii) Indebtedness of the Company or any of its Restricted
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from
guarantees, letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries, incurred or assumed in connection with the disposition
of any business, any Asset Sale or any disposition of the
<PAGE>
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Capital Stock of a Restricted Subsidiary other than guarantees or
similar credit support by the Company or any of its Restricted
Subsidiaries of Indebtedness incurred by any Person acquiring all or
any portion of such business, assets or Capital Stock for the purpose
of financing such acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness in the nature of such
guarantees will at no time exceed the gross proceeds actually received
by the Company from the sale of such business, assets or Capital
Stock;
(xiv) reimbursement obligations relating to undrawn standby
letters of credit (other than under the Credit Agreement) issued in
the ordinary course of business;
(xv) Indebtedness of Foreign Restricted Subsidiaries in an
aggregate amount not to exceed $7.5 million; and
(xvi) additional Indebtedness of the Company and the Guarantors
in an aggregate principal amount not to exceed $12.5 million at any
one time outstanding (which amount may, but need not, be incurred
under the Credit Agreement).
"Permitted Investments" means:
(i) Investments by the Company or any Restricted Subsidiary in
any Person that is or will become immediately after such Investment a
Restricted Subsidiary or that will merge or consolidate into the
Company or a Restricted Subsidiary;
(ii) Investments in the Company or any Restricted Subsidiary by
any Restricted Subsidiary; provided that any Indebtedness evidencing
such Investment is unsecured and subordinate to the Securities;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees, officers and directors of
the Company and the Restricted Subsidiaries in the ordinary course of
business for bona fide business
<PAGE>
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purposes not in excess of $1.0 million
at any time outstanding;
(v) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or a Restricted
Subsidiary's businesses and otherwise in compliance with this
Indenture;
(vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or
customers;
(vii) Investments made by the Company or the Restricted
Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with Section 4.6;
(viii) receivables owing to the Company or any Restricted
Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms,
provided that such trade terms may include such concessionary trade
terms as the Company or such Restricted Subsidiary deems reasonable
under the circumstances;
(ix) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments;
(x) lease, utility and other similar deposits in the ordinary
course of business;
(xi) Investments paid for solely in Qualified Capital Stock of
the Company;
(xii) Investments acquired by the Company or a Restricted
Subsidiary as a result of a foreclosure by, or other transfer of title
to, the Company or such Restricted Subsidiary with respect to any
secured Investment;
(xiii) loans and advances to employees, officers and directors of
the Company and the Restricted Subsidiaries
<PAGE>
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in the ordinary course of
business to purchase Capital Stock (or options therefor) of the
Company in an amount not to exceed $1.5 million in the aggregate
outstanding at any one time; and
(xiv) additional Investments not to exceed $10.0 million at any
one time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or any Restricted
Subsidiary will have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as will be required by
GAAP will have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure
the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
<PAGE>
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(v) easements, rights-of-way, zoning restrictions and other
similar charges, restrictions or encumbrances in respect of real
property or minor imperfections of title which do not, in the
aggregate, impair in any material respect the ordinary conduct of the
business of the Company and the Restricted Subsidiaries taken as a
whole;
(vi) any interest or title of a lessor under any Capitalized
Lease Obligation; provided that such Liens do not extend to any
property or assets which is not leased property subject to such
Capitalized Lease Obligation;
(vii) purchase money Liens securing Indebtedness incurred to
finance property or assets of the Company or any Restricted Subsidiary
acquired in the ordinary course of business, and Liens securing
Indebtedness which Refinances any such Indebtedness; PROVIDED,
HOWEVER, that (A) the related purchase money Indebtedness (or
Refinancing Indebtedness) shall not exceed the lesser of the fair
market value and the cost of such property or assets plus the
aggregate amount of fees and expenses incurred in connection therewith
and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary other than the property and assets so
acquired and (B) the Lien securing the purchase money Indebtedness
will be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect
of bankers' acceptances issued or created for the account of such
Person to facilitate the purchase, shipment or storage of such
inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and proceeds
thereof;
(x) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of
the Company or any of the Re
<PAGE>
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stricted Subsidiaries, including rights of
offset and set-off;
(xi) Liens securing Interest Swap Obligations, which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted
under this Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness (and any Indebtedness
which Refinances such Acquired Indebtedness) incurred in accordance
with Section 4.3; provided that (A) such Liens secured the Acquired
Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and
were not granted in connection with, or in anticipation of the
incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary and (B) such Liens do not extend to or cover any
property or assets of the Company or of any of the Restricted
Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or a Restricted Subsidiary;
(xiv) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(xv) Liens arising pursuant to Sale and Leaseback Transactions
entered into in compliance with this Indenture;
(xvi) Liens on the Capital Stock or other securities of an
Unrestricted Subsidiary that secures indebtedness or other obligations
of such Unrestricted Subsidiary;
(xvii) any encumbrance or restriction (including put and call
arrangements) with respect to the Capital Stock of any joint venture,
partnership or similar arrangement pursuant to any joint venture,
partnership or similar agreement; and
<PAGE>
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(xviii) Liens securing Indebtedness that otherwise may be
incurred under this Indenture in an aggregate amount not to exceed $5
million.
"Person" means an individual, partnership, corporation,
unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of
such Person that has preferential rights to any other Capital Stock of such
Person with respect to dividends or redemptions or upon liquidation.
"Principal" of a Security means the principal of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
"Private Exchange Securities" has the meaning provided in the
Registration Rights Agreement.
"Private Placement Legend" means the legend initially set
forth on the securities in the form set forth in Section 2.13.
"Purchase Money Indebtedness" means Indebtedness of the
Company or any Restricted Subsidiary incurred for the purpose of financing all
or any part of the purchase price or the cost of construction or improvement of
any property, provided that the aggregate principal amount of such Indebtedness
does not exceed the lesser of the fair market value of such property and such
purchase price or cost.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" has the meaning
specified in Rule 144A under the Securities Act.
"Refinance" means in respect of any security or Indebtedness,
to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire,
or to issue a security or Indebtedness in exchange or replacement for, such
security or Indebted
<PAGE>
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ness in whole or in part. "Refinanced" and "Refinancing"
will have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the
Company or any Restricted Subsidiary of Indebtedness incurred in accordance with
Section 4.3 (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii),
(ix) and (xi) through (xvi) inclusive of the definition of Permitted
Indebtedness), in each case that does not:
(1) result in an increase in the aggregate principal amount of
any Indebtedness provided that the amount of any premium reasonably
necessary to Refinance such Indebtedness and the amount of reasonable
expenses incurred by the Company in connection with such Refinancing
shall not be deemed an increase in the aggregate principal amount of
the Indebtedness to be Refinanced;
(2) create Indebtedness (A) the portion of which is scheduled
to mature prior to the Securities with a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) with a final maturity earlier than
the final maturity of the Indebtedness being Refinanced or the
Securities, whichever is later; provided that if such Indebtedness
being Refinanced is Indebtedness of the Company or a Guarantor, then
such Refinancing Indebtedness will be Indebtedness solely of the
Company and/or Guarantors.
"Registration Rights Agreement" means the Registration Rights
Agreement dated the Issue Date
by and among the Company, the Guarantors and the Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Replacement Assets" means assets and property that will be
used in the business of the Company and/or its Restricted Subsidiaries as
existing on the Issue Date or in a business the same, similar or reasonably
related thereto (including Capital Stock of a Person that becomes a Restricted
<PAGE>
-31-
Subsidiary if such Person is engaged in businesses that comply with Section
4.16).
"Representative" means the indenture trustee or other trustee,
agent or representative in respect of any Designated Senior Debt; provided that
if, and for so long as, any Designated Senior Debt lacks such a representative,
then the Representative for such Designated Senior Debt will at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Responsible Officer" means, when used with respect to the
Trustee, any officer assigned to the Corporate Trust Office, including any vice
president, assistant vice president, assistant treasurer or any other officer of
the Trustee to whom any corporate trust matter is referred because of his or her
knowledge or familiarity with the particular subject.
"Restricted Security" has the meaning assigned to such term in
Rule 144(a)(3) under the Securities Act; PROVIDED, HOWEVER, that the Trustee
will be entitled to request and conclusively rely on an Opinion of Counsel with
respect to whether any Security constitutes a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company
that has not been designated by the Board of Directors of the Company, by a
Board Resolution delivered to the Trustee, as an Unrestricted Subsidiary
pursuant to and in compliance with Section 4.17. Any such Designation may be
revoked by a Board Resolution of the Company delivered to the Trustee, subject
to the provisions of such covenant.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by
<PAGE>
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such Person on the security of such Property
other than between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries.
"SEC" means the U.S. Securities and Exchange Commission, as
from time to time constituted, or if at any time after the execution of this
Indenture the SEC is not existing and performing the applicable duties now
assigned to it, then the body or bodies performing such duties at such time.
"Securities" means the Initial Securities, the Exchange
Securities and the Private Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor statute or statutes thereto, and the rules and regulations of
the SEC promulgated thereunder.
"Senior Debt" means:
(i) the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on any Indebtedness of the Company, whether outstanding
on the Issue Date or thereafter created, incurred or assumed, unless,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right
of payment to the Securities. Without limiting the generality of the
foregoing, "Senior Debt" shall also include the principal of, premium,
if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in
respect of:
(x) all monetary obligations of every nature of the
Company, under the Credit Agreement, including, without
limitation, obligations to pay principal and
<PAGE>
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interest
reimbursement obligations under letters of credit, fees,
expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Currency Agreements, in
each case whether outstanding on the Issue Date or thereafter
incurred.
Notwithstanding the foregoing, "Senior Debt" will not include:
(i) any Indebtedness of the Company to a Restricted
Subsidiary or any Affiliate of the
Company or any of such Affiliate's Subsidiaries;
(ii) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of the Company or any
Restricted Subsidiary (including without limitation, amounts owed for
compensation);
(iii) Indebtedness to trade creditors and other amounts
incurred in connection with obtaining goods, materials or services;
(iv) Indebtedness represented by Disqualified Capital
Stock;
(v) Indebtedness incurred in violation of Section 4.3; and
(vi) any Indebtedness that is, by its express terms,
subordinated in right of payment to any other Indebtedness of the
Company or a Restricted Subsidiary and senior in right of payment to
the Securities.
"Significant Subsidiary" means, with respect to any Person,
any Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Act.
"SKM" means Saunders Karp & Megrue, L.P.
<PAGE>
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"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subsidiary," with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances will at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned by
such Person.
"S&P" means Standard and Poor's Ratings Service.
"TIA" means the Trust Indenture Act of 1939
(15 U.S.C.77aaa-77bbbb) as in effect on the
date of this Indenture, except as provided in Section 9.3.
"Transaction Date" has the meaning set forth under the
definition of Consolidated Fixed Charge Coverage Ratio.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time
to time.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 4.17. Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including
<PAGE>
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any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
SECTION 1.2.......OTHER DEFINITIONS.
TERM DEFINED IN SECTION
---- ------------------
"Affiliate Transaction" 4.7
"Agent Members" 2.6
"Bankruptcy Law" 6.1
"Change of Control Offer" 4.8
"Change of Control Payment Date" 4.8
"Covenant Defeasance" 8.1
"Custodian" 6.1
"Default Notice" 10.3(a)
"Designation" 4.17
"Designation Amount" 4.17
"Event of Default" 6.1
"Global Securities" 2.1(b)
"Guaranteed Obligations" 11.1
"Guarantor Default Notice" 12.3(a)
"Guarantor Non-payment Default" 12.3(a)
"Guarantor Payment Blockage Period 12.3(a)
"Guarantor Payment Default" 12.3(a)
"Legal Defeasance" 8.1
"Net Proceeds Offer" 4.6
"Net Proceeds Offer Amount" 4.6
"Net Proceeds Offer Payment Date" 4.6
"Net Proceeds Offer Trigger Date" 4.6
"Non-payment Default" 10.3(a)
"notice of acceleration" 6.2
<PAGE>
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"Other Indebtedness" 4.6
"Participants" 2.6
"Paying Agent" 2.3
"Payment Blockage Period" 10.3(c)
"payment default" 6.1
"Payment Default" 10.3(a)
"Physical Securities" 2.1
"Qualified Equity Offering" 3.1
"Reference Date" 4.4
"Registrar" 2.3
"Restricted Payment" 4.4
"Revocation" 4.17
"Securities Register" 2.3
"Surviving Entity" 6.1
SECTION 1.3. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
This Indenture is subject to the mandatory provisions of the TIA,
which are incorporated by reference in and made a part of this
Indenture. The following TIA terms have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC
rule have the meanings assigned to them by such definitions.
SECTION 1.4. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
<PAGE>
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(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) the principal amount of any non-interest-bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the Company dated such date
prepared in accordance with GAAP;
(7) all references to $, US$, dollars or United States dollars
shall refer to the lawful currency of the United States; and
(8) "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.
ARTICLE 2
THE SECURITIES
SECTION 2.1. FORM AND DATING. (a) The Securities and the
Trustee's certificate of authentication shall be substantially in the
form of EXHIBIT A, which is hereby incorporated in and expressly made
a part of this Indenture. The Exchange Securities and the Trustee's
certificate of authentication relating thereto shall be substantially
in the form of EXHIBIT B hereto. The Securities may have notations,
legends or endorsements required by law, stock exchange rules,
agreements to which the Company is subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its
authentication. If required, the Securities may bear the appropriate
legend regarding any original issue dis
<PAGE>
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count for federal income tax
purposes. Each Security shall have an executed Guarantee from each of
the Guarantors.
The terms and provisions contained in the Securities, annexed
hereto as EXHIBITS A AND B, shall constitute, and are hereby expressly
made, a part of this Indenture and, to the extent applicable, the
Company, the Guarantors and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
(b) GLOBAL SECURITIES. The Securities offered and sold in
reliance on Rule 144A and Securities offered and sold in reliance on
Regulation S shall be issued initially in the form of one or more
permanent Global Securities ("Global Securities") in definitive, fully
registered form without interest coupons, in substantially the form of
EXHIBIT A, which shall be deposited on behalf of the purchasers of the
Securities represented thereby with the Trustee, at the Trustee's
principal corporate trust office in New York City, as custodian for
the Depository, and registered in the name of the Depository or a
nominee of the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided and shall bear
the legend set forth in Section 2.13. The aggregate principal amount
of the Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the
Depository or its nominee in the limited circumstances hereinafter
provided.
Securities issued in exchange for interests in Global Securities
pursuant to Section 2.6 may be issued in the form of permanent
certificated Securities in registered form in substantially the form
set forth in EXHIBIT A (the "Physical Securities"). All Securities
offered and sold in reliance on Regulation S shall remain in the form
of a Global Security until the consummation of the Exchange Offer
pursuant to the Registration Rights Agreement; PROVIDED, HOWEVER, that
all of the time periods specified in the Registration Rights Agreement
to be complied with by the Company have been so complied with.
SECTION 2.2. EXECUTION AND AUTHENTICATION. An Officer of the
Company shall sign the Securities and an Officer of each Guarantor
shall sign such Guarantor's Guarantee, in each
<PAGE>
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case by manual or
facsimile signature. If an Officer whose signature is on a Security no
longer holds that office at the time the Trustee authenticates the
Security, the Security shall be valid nevertheless. A Security shall
not be valid until an authorized signatory of the Trustee manually
signs the certificate of authentication on the Security. The signature
shall be conclusive evidence that the Security has been authenticated
under this Indenture. The Trustee shall authenticate and make
available for delivery (i) Initial Securities for original issue in an
aggregate principal amount of $150,000,000, $100,000,000 of which is
being issued on the Issue Date and (ii) Exchange Securities and
Private Exchange Securities, as the case may be, from time to time for
issue only in exchange for a like principal amount of Initial
Securities, in each case, upon a written order of the Company signed
by an Officer of the Company. Such order shall specify the amount of
the 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 $150,000,000 except
as provided in Section 2.7. The Trustee may appoint an authenticating
agent acceptable to the Company to authenticate the Securities, upon
the consent of the Company to such appointment. Unless limited by the
terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as any
Registrar, Paying Agent or agent for service of notices and demands.
SECTION 2.3. REGISTRAR AND PAYING AGENT. The Company shall
maintain an office or agency where Securities may be presented for
registration of transfer or for exchange (the "Registrar") and an
office or agency where Securities may be presented for payment (the
"Paying Agent"). The Registrar, acting on behalf of and as agent for
the Company, shall keep a register (the "Securities Register") of the
Securities and of their transfer and exchange. The Company may have
one or more co-registrars and one or more additional paying agents.
The term "Paying Agent" includes any additional paying agent. The
Company shall enter into an appropriate agency
<PAGE>
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agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such agent.
The Company shall notify the Trustee of the name and address of any
such agent. If the Company fails to maintain a Registrar or Paying
Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.7. The Company
may act as Paying Agent, Registrar, co-Registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities, until such time as the
Trustee has resigned or a successor has been appointed. Any of the
Registrar, the Paying Agent or any other agent may resign upon 30
days' notice to the Company.
SECTION 2.4. PAYING AGENT TO HOLD MONEY IN TRUST. On or prior to
each due date of the principal and interest on any Security, the
Company shall deposit with the Paying Agent a sum sufficient to pay
such principal and interest when so becoming due. The Company shall
require each Paying Agent (other than the Trustee) to agree in writing
that the Paying Agent shall hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall
notify the Trustee of any default by the Company in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate the money held by it as Paying Agent and hold it as a
separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and to account for
any funds disbursed by the Paying Agent. Upon complying with this
Section, the Paying Agent shall have no further liability for the
money delivered to the Trustee.
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 Securityholders. If the
Trustee is not the Registrar, the Company shall furnish to the
Trustee, in writing at least five Business Days before each interest
payment date and at such other times as the Trustee may request in
writing, a
<PAGE>
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list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Securityholders; PROVIDED that as long as the Trustee
is the Registrar, no such list need be furnished.
SECTION 2.6. TRANSFER AND EXCHANGE. The Securities shall be
issued in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
and the Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Registrar shall record in the
Securities Register the transfer as requested, and thereupon one or more new
Securities in the same aggregate principal amount shall be issued to the
designated assignee or transferee and the old Security will be returned to the
Company. When Securities are presented to the Registrar or a co-registrar with a
request to exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested, in the same
manner, if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities and each of the Guarantors shall execute a Guarantee thereon at the
Registrar's or co-registrar's request. The Company may require payment of a sum
sufficient to pay all taxes, assessments or other governmental charges in
connection with any transfer or exchange pursuant to this Section. The Company
shall not be required to make and the Registrar need not register transfers or
exchanges of Securities selected for redemption (except, in the case of
Securities to be redeemed in part, the portion thereof not to be redeemed) or
any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue,
<PAGE>
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and none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant
to the terms of this Indenture will evidence the same debt and will be entitled
to the same benefits under this Indenture as the Securities surrendered upon
such transfer or exchange.
With respect to Global Securities:
(1) Each Global Security authenticated under this Indenture
shall (i) be registered in the name of the Depository designated for
such Global Security or a nominee thereof, (ii) be deposited with such
Depository or a nominee thereof or custodian therefor, (iii) bear
legends as set forth in Section 2.13 and (iv) constitute a single
Security for all purposes of this Indenture.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository, or the Trustee as its
custodian, or under the Global Securities, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
(2) Transfers of a Global Security shall be limited to
transfers in whole but not in part to the Depository, its successors or
their respective nominees. Interests of beneficial owners in a Global
Security may be transferred or exchanged for Physical Securities in
accordance with the rules and procedures of the Depository and the
provisions of Section 2.14. In addition, a Global Security is
exchangeable for certificated Securities if (i) the Depository (x)
notifies the Company that it is unwilling or unable to continue as a
Depository for such Global Security and fails to appoint a successor
depository within 90 days or (y) if at any time the Depository ceases
to be a clearing agency registered under the Exchange Act,(ii) the
Company, at its option executes and delivers to the Trus-
<PAGE>
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tee a notice that such Global Security shall be so transferable,
registrable, and exchangeable, and such transfers shall be registrable
or (iii) there shall have occurred and be continuing an Event of
Default or an event that, with the giving of notice or lapse of time or
both, would constitute an Event of Default with respect to the
Securities represented by such Global Security. Any Global Security
that is exchangeable for certificated Securities pursuant to the
preceding sentence will be transferred to, and registered and exchanged
for, certificated Securities in authorized denominations, without
legends applicable to a Global Security, and registered in such names
as the Depository holding such Global Security may direct. Subject to
the foregoing, a Global Security is not exchangeable, except for a
Global Security of like denomination to be registered in the name of
the Depository or its nominee. In the event that a Global Security
becomes exchangeable for certificated Securities, (i) certificated
Securities will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, any repurchase price, and interest on the certificated
Securities will be payable, and the transfer of the certificated
Securities will be registrable, at the office or agency of the Company
maintained for such purposes, and (iii) no service charge will be made
for any registration or transfer or exchange of the certificated
Securities, although the Company may require payment of a sum
sufficient to cover any tax or governmental charge imposed in
connection therewith.
(3) Securities issued in exchange for a Global Security or any
portion thereof shall have an aggregate principal amount equal to that
of such Global Security or portion thereof to be so exchanged, shall be
registered in such names and be in such authorized denominations as the
Depository shall designate and shall bear the applicable legends
provided for herein. Any Global Security to be exchanged in whole shall
be surrendered by the Depository to the Trustee. With respect to any
Global Security to be exchanged in part, either such Global Security
shall be so surrendered for exchange or, if the Trustee is acting as
custodian for the Depository or its nominee with respect to such Global
Security, the principal amount thereof
<PAGE>
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shall be reduced, by an amount equal to the portion thereof to be so
exchanged, by means of an appropriate adjustment made on the records of
the Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such exchange to or
upon the order of the Depository or an authorized representative
thereof.
(4) Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Global
Security or any portion thereof, whether pursuant to this Section 2.6,
Section 2.7, 2.9, 2.14 or otherwise, shall be authenticated and
delivered in the form of, and shall be, a Global Security, unless such
Security is registered in the name of a Person other than the
Depository for such Global Security or a nominee thereof. Members of,
or participants in, the Depository ("Participants") shall have no
rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of
the Depository or under such Global Security, and the Depository may be
treated by the Company, the Trustee and any agent of the Company or the
Trustee as the absolute owner of such Global Security for all purposes
whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee
from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the
Depository and its Participants, the operation of customary practices
of such Depository governing the exercise of the rights of a holder of
a beneficial interest in any Global Security.
SECTION 2.7. REPLACEMENT SECURITIES. If a mutilated Security
is surrendered to the Trustee or Registrar or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Security and the
Guarantors shall execute a Guarantee thereof if the requirements of Section
8-405 of the Uniform Commercial Code are met and the Holder satisfies any other
reasonable requirements of the Trus-
<PAGE>
-45-
tee and the Company. Such Holder shall furnish an indemnity bond sufficient in
the judgment of the Company, the Guarantors and the Trustee to protect the
Company, the Guarantors, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss that any of them may suffer if a Security is
replaced. The Company and the Trustee may charge the Holder for their expenses
in replacing a Security.
Every replacement Security issued pursuant to the terms of
this Section shall constitute an additional obligation of the Company and the
Guarantors under this Indenture.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.8. OUTSTANDING SECURITIES. Securities outstanding at
any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. Subject to the provisions of Section 13.6, a
Security does not cease to be outstanding because the Company or an Affiliate of
the Company holds the security.
If a Security is replaced pursuant to Section 2.7, it ceases
to be outstanding unless the Trustee and the Company receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date or,
pursuant to Section 8.1(a), within 91 days prior thereto, money sufficient to
pay all principal and interest payable on that redemption or maturity date with
respect to the Securities (or portions thereof) to be redeemed or maturing, as
the case may be, then on and after such date such Securities (or portions
thereof) cease to be outstanding and on and after such redemption or maturity
date interest on them ceases to accrue.
<PAGE>
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SECTION 2.9. 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
considers appropriate for temporary Securities. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate definitive Securities
and deliver them in exchange for temporary securities.
SECTION 2.10. 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 of transfer, exchange or payment. The Trustee and no one else shall
cancel all Securities surrendered for registration of transfer, exchange,
payment or cancellation and deliver such canceled Securities to the Company. The
Trustee shall from time to time provide the Company a list of all Securities
that have been canceled as requested by the Company. The Company may not issue
new Securities to replace Securities it has redeemed, paid or delivered to the
Trustee for cancellation.
SECTION 2.11. DEFAULTED INTEREST. If the Company defaults in a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner in accordance with Section 4.1. The Company may pay the defaulted
interest to the persons who are Securityholders on a subsequent special record
date. The Company shall fix or cause to be fixed any such special record date
and payment date to the reasonable satisfaction of the Trustee and shall
promptly mail to each Securityholder a notice that states the special record
date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP NUMBERS. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use), and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided 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
<PAGE>
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reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the CUSIP numbers.
SECTION 2.13. RESTRICTIVE LEGENDS. Each Global Security and
Physical Security that constitutes a Restricted Security or is sold in
compliance with Regulation S shall bear the following legend (the "Private
Placement Legend") on the face thereof until after the second anniversary of the
later of the Issue Date and the last date on which the Company or any Affiliate
of the Company was the owner of such Security (or any predecessor security) (or
such shorter period of time as permitted by Rule 144(k) under the Securities Act
or any successor provision thereunder) (or such longer period of time as may be
required under the Securities Act or applicable state securities laws in the
Opinion of Counsel for the Company, unless otherwise agreed by the Company and
the Holder thereof):
THIS NOTE (AND ANY GUARANTEE THEREOF) HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND NEITHER
THIS SECURITY (NOR ANY GUARANTEE THEREOF) NOR ANY INTEREST OR PARTICIPATION
HEREIN (OR THEREIN) MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER HEREOF, BY ITS ACCEPTANCE OF THIS
SECURITY, AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE EXPIRATION OF THE
HOLDING PERIOD APPLICABLE THERETO UNDER RULE 144(k) UNDER THE SECURITIES ACT
WHICH IS APPLICABLE TO THIS SECURITY (THE "RESALE RESTRICTION TERMINATION DATE")
OTHER THAN (1) TO THE ISSUER OR ITS SUBSIDIARIES, (2) SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144a UNDER THE SECURITIES ACT ("RULE
144a"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" WITHIN THE MEANING OF RULE 144a PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE TO
WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFI-
<PAGE>
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CATE OF TRANSFER ON THE REVERSE OF THIS SECURITY IF THIS SECURITY IS NOT IN
BOOK-ENTRY FORM), (3) TO A NON-"U.S. PERSON" IN AN "OFFSHORE TRANSACTION" (AS
SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE
WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY
THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY IF
THIS SECURITY IS NOT IN BOOK-ENTRY FORM), (4) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING
THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE, OR
(5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE
DISPOSITION OF ITS PRIORITY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS
BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL, AND SUBJECT TO THE RIGHT OF THE
ISSUER OR THE TRUSTEE FOR THE SECURITIES PRIOR TO ANY SUCH SALE, PLEDGE OR OTHER
TRANSFER PURSUANT TO CLAUSE (4) ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON REQUEST OF THE HOLDER ON OR AFTER THE RESALE
RESTRICTION TERMINATION DATE.
Each Global Security shall also bear the following legend on
the face thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
securities IN DEFINITIVE FORM, THIS security MAY NOT BE TRANSFERRED EXCEPT AS A
WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE
OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY
OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER 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 IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO 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 INAS-
<PAGE>
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MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
SECTION 2.14. SPECIAL TRANSFER PROVISIONS. (a) TRANSFERS TO
NON-QIB INSTITUTIONAL ACCREDITED INVESTORS AND NON-U.S. PERSONS. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Security constituting a Restricted Security to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any
Security constituting a Restricted Security whether or not such
Security bears the Private Placement Legend, if (x) the requested
transfer is after the second anniversary of the Issue Date (PROVIDED,
HOWEVER, that neither the Company nor any Affiliate of the Company has
held any beneficial interest in such Security, or portion thereof, at
any time on or prior to the second anniversary of the Issue Date) or
(y)in the case of a transfer to a Non-U.S. Person, the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of EXHIBIT D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Security, upon receipt by the
Registrar of (x) the certificate, if any, required by paragraph (i)
above and (y) written instructions given in accordance with the
Depository's and the Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Securities)
a decrease in the principal amount of such Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security to be
transferred, and (b) if the transfer includes a transfer of outstanding Physical
Securities the Company shall execute,
<PAGE>
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the Guarantors shall execute the Guarantees in respect of, and the Trustee shall
authenticate and deliver, one or more Physical Securities of like tenor and
amount.
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Security stating, or has otherwise advised
the Company and the Registrar in writing, that the sale has been made
in compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Security stating,
or has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Security for its own account or an account with
respect to which it exercises sole investment discretion and that it
and any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in a Global Security, upon
receipt by the Registrar of written instructions given in accordance
with the Depository's and the Registrar's procedures, the Registrar
shall reflect on its books and records the date and an increase in the
principal amount of such Global Security in an amount equal to the
principal amount of the Physical Securities to be transferred, and the
Trustee shall cancel the Physical Securities so transferred.
<PAGE>
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(c) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) the requested transfer is after the
second anniversary of the Issue Date (PROVIDED, HOWEVER, that neither the
Company nor any Affiliate of the Company has held any beneficial interest in
such Security, or portion thereof, at any time prior to or on the second
anniversary of the Issue Date), or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act.
(d) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.6 or this Section
2.14. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time during
the Registrar's normal business hours upon the giving of reasonable written
notice to the Registrar.
(e) TRANSFERS OF SECURITIES HELD BY AFFILIATES. Any
certificate (i) evidencing a Security that has been transferred to an Affiliate
of the Company within two years after the Issue Date, as evidenced by a notation
on the Assignment Form for such transfer or in the representation letter
delivered in respect thereof or (ii) evidencing a Security that has been
acquired from an Affiliate (other than by an Affiliate) in a transaction or a
chain of transactions not involving any public offering, shall, until two years
after the last date on which either the Company or any Affiliate of the Company
was an owner
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of such Security, in each case, bear a legend in substantially the form set
forth in Section 2.13 hereof, unless otherwise agreed by the Company (with
written notice thereof to the Trustee).
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 Agent Members
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 hereof.
ARTICLE 3
REDEMPTION
SECTION 3.1 OPTIONAL REDEMPTION.
(a) Except as set forth in the following paragraph, the
Securities are not redeemable before March 15, 2004. Thereafter, the Company may
redeem the Securities at its option, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on March 15th of the year set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004 ................................................... 106.000%
2005 ................................................... 104.000%
2006 ................................................... 102.000%
2007 and thereafter .................................... 100.000%
</TABLE>
<PAGE>
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In addition, the Company must pay accrued and unpaid interest
on the Securities redeemed.
(b) At any time, or from time to time, on or prior to March
15, 2002, the Company may, at its option, use the net cash proceeds of one or
more Qualified Equity Offerings (as defined below) to redeem up to 35% of the
Securities originally issued at a redemption price equal to 112.000% of the
principal amount thereof plus accrued and unpaid interest, if any, thereon to
the date of redemption; provided that:
(1) at least 65% of the principal amount of Securities
originally issued remains outstanding immediately after any such
redemption; and
(2) the Company makes such redemption not more than 180 days
after the consummation of any such Qualified Equity Offering.
As used in the preceding paragraph, "Qualified Equity
Offering" means a primary offering of Qualified Capital Stock, or rights,
warrants or options to acquire Qualified Capital Stock, of the Company, Holdings
or LLC in the United States of at least $25 million to Persons who are not
Affiliates of the Company or Holdings; PROVIDED that, in the case of any such
offering of Qualified Capital Stock of Holdings or LLC, all the net proceeds
thereof necessary to pay the aggregate redemption price (plus accrued interest
to the redemption date) of the Securities to be redeemed pursuant to the
preceding paragraph are contributed to the Company.
SECTION 3.2. NOTICES TO TRUSTEE. If the Company elects to
redeem Securities pursuant to Section 3.1, it shall notify the Trustee in
writing of the redemption date, the principal amount of Securities to be
redeemed and the paragraph of the Securities pursuant to which the redemption
will occur. The Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the provisions herein.
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SECTION 3.3. SELECTION OF SECURITIES TO BE REDEEMED. If less
than all the Securities are to be redeemed at any time, the Trustee shall select
the Securities to be redeemed either (i) in compliance with the requirements of
the principal national securities exchange, if any, on which the Securities are
listed or (ii) if the Securities are not then listed on a national securities
exchange, on a PRO RATA basis, by lot or by such other method that the Trustee
in its sole discretion shall deem to be fair and appropriate. The Trustee shall
make the selection from outstanding Securities not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed. In the event the Company is required to make an offer
to repurchase Securities pursuant to Sections 4.6 or 4.8 and the amount
available for such offer is not evenly divisible by $1,000, the Trustee shall
promptly refund to the Company any remaining funds, which in no event will
exceed $1,000.
SECTION 3.4. NOTICE OF REDEMPTION. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to the registered address
appearing in the Security Register of each Holder of Securities to be redeemed.
The notice shall identify the Securities (including CUSIP numbers, if any) to be
redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
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(5) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular
Securities to be redeemed;
(6) that, unless the Company defaults in making such
redemption payment, interest on Securities (or portion thereof) called
for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's sole expense. In such
event, the Company shall provide the Trustee with the information required by
this Section.
SECTION 3.5. EFFECT OF NOTICE OF REDEMPTION. Once notice of
redemption is mailed, Securities called for redemption shall become due and
payable on the redemption date and at the redemption price stated in the notice.
Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price stated in the notice, plus accrued interest to the redemption
date. Such notice if mailed in the manner herein provided shall be conclusively
presumed to have been given, whether or not the Holder receives such notice.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.6. DEPOSIT OF REDEMPTION PRICE. Prior to 11:00 a.m.
(New York City time) on the redemption date, the Company shall deposit with the
Trustee or Paying Agent (or, if the Company or a Subsidiary is the Paying Agent,
shall segregate and hold in trust) money sufficient to pay the redemption price
of and accrued interest (if any) on all Securities or
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portions thereof to be redeemed on that date other than Securities or portions
of Securities called for redemption which have been delivered by the Company to
the Trustee for cancellation.
SECTION 3.7. SECURITIES REDEEMED IN PART. Upon surrender of a
Security that is redeemed in part (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security without
service charge, a new Security or Securities of any authorized denomination as
requested by such Holder, in aggregate principal amount equal to and in exchange
for the unredeemed portion of the principal of the Security so surrendered,
except that if a Global Security is so surrendered, the Company shall execute,
and the Trustee shall authenticate and deliver to the Depository for such Global
Security, without service charge, a new Global Security in denomination equal to
and in exchange for the unredeemed portion of the principal of the Global
Security so surrendered.
ARTICLE 4
COVENANTS
SECTION 4.1. PAYMENT OF SECURITIES. The Company will promptly
pay the principal of and interest on the Securities on the dates and in the
manner provided in the Securities and in this Indenture. Principal and interest
will be considered paid on the date due if on such date the Trustee or the
Paying Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due. The Company will pay interest on overdue
principal at 1% per annum in excess of the rate per annum set forth in the
Securities, and it will pay interest on overdue installments of interest at the
same rate to the extent lawful.
SECTION 4.2. REPORTS TO HOLDERS. The Company will deliver to
the Trustee within 15 days after the filing of the same with the SEC, copies of
the quarterly and annual reports and of the information, documents and other
reports, if any, that the Company is required to file with the SEC pursuant to
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Section 13 or 15(d) of the Exchange Act. Furthermore, notwithstanding that the
Company may not be subject to the reporting requirements of Sections 13 or 15(d)
of the Exchange Act, the Company will file with the SEC, to the extent
permitted, and provide the Trustee and Holders with copies of such annual and
quarterly reports and such information, documents and other reports specified in
Section 13 and 15(d) of the Exchange Act. The Company will also comply with the
other provisions of TIA Section 314(a).
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable form information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.3. LIMITATION ON INCURRENCE OF ADDITIONAL
INDEBTEDNESS.
The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly, create, incur, assume,
guarantee, acquire, become liable, contingently or otherwise, with respect to,
or otherwise become responsible for payment of (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness); PROVIDED, HOWEVER, that if no
Default or Event of Default shall have occurred and be continuing at the time of
or as a consequence of the incurrence of any such Indebtedness, the Company or
any Guarantor may incur Indebtedness (including, without limitation, Acquired
Indebtedness) and the Restricted Subsidiaries that are not Guarantors may incur
Acquired Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0 if such
date of incurrence is on or prior to March 15, 2002 and 2.25 to 1 thereafter.
For purposes of determining compliance with this Section 4.3,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness or is entitled to be incurred pursuant
to the prior
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sentence, the Company will, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.3 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such categories of Permitted Indebtedness (or divided and classified in more
than one of such categories of Permitted Indebtedness) or pursuant to the prior
sentence. Accrual of interest, the accretion of accreted value and the payment
of interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this Section 4.3.
SECTION 4.4. LIMITATION ON RESTRICTED PAYMENTS. The Company
will not, and will not cause or permit any of the Restricted Subsidiaries to,
directly or indirectly:
(a) declare or pay any dividend or make any distribution
(other than dividends or distributions payable in Qualified Capital
Stock of the Company or in options, warrants or other rights to
purchase Qualified Capital Stock of the Company) on or in respect of
shares of the Company's Capital Stock;
(b) purchase, redeem or otherwise acquire or retire for value
any Capital Stock of the Company or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock; or
(c) make any Investment (other than Permitted Investments)
(each of the foregoing actions set forth in clauses (a), (b) and (c)
being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto:
(i) a Default or an Event of Default shall have
occurred and be continuing; or
(ii) the Company is not able to incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness)
in compliance with Section 4.3; or
(iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for
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such purpose, if other than in cash, being the fair market
value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed
the sum of:
(A) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the
Company earned during the period beginning on the
first day of the fiscal quarter commencing prior to
the Issue Date and through the end of the most recent
fiscal quarter for which financial statements are
available prior to the date such Restricted Payment
occurs (the "Reference Date") (treating such period
as a single accounting period); plus
(B) 100% of the aggregate net cash proceeds
and the fair market value of property other than cash
(as determined in good faith by the Company) received
by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale
subsequent to the Issue Date of Qualified Capital
Stock of the Company or of other Indebtedness or
securities converted to or exchanged for Qualified
Capital Stock of the Company; plus
(C) without duplication of any amounts
included in clause (iii)(B) above, 100% of the
aggregate net cash proceeds of any contribution to
the equity capital of the Company (other than the
Disqualified Capital Stock) received by the Company
(excluding, in the case of clauses (iii)(B) and (C),
any net proceeds from a Qualified Equity Offering to
the extent used to redeem the Securities); plus
(D) an amount equal to the lesser of:
(a) the sum of the fair market
value of the Capital Stock of an
Unrestricted Subsidiary owned by the
Company and/or a
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Restricted Subsidiary and the aggregate
amount of all Indebtedness of such
Unrestricted Subsidiary owed to the Company
and each Restricted Subsidiary on the date
of Revocation of such Unrestricted
Subsidiary as an Unrestricted Subsidiary in
accordance with Section 4.17; and
(b) the Designation Amount with
respect to such Unrestricted Subsidiary on
the date of the Designation of such
Subsidiary as an Unrestricted Subsidiary in
accordance with Section 4.17; plus
(E) in the case of the disposition or
repayment of any Investment constituting a Restricted
Payment made after the Issue Date, an amount equal to
the lesser of the return of capital with respect to
such Investment and the initial amount of such
Investment which was treated as a Restricted Payment,
less, in either case, the cost of the disposition of
such Investment and net of taxes.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend or distribution within 60 days
after the date of declaration of such dividend if the dividend or
distribution would have been permitted on the date of declaration;
(2) any dividend or distribution in respect of or the
repurchase, redemption, retirement or other acquisition of any shares
of Capital Stock of the Company, either (i) solely by conversion into
or in exchange for shares of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Restricted Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company;
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(3) so long as no Default or Event of Default shall have
occurred and be continuing, repurchases of Capital Stock (or options
therefor) of the Company from current or former officers, directors,
employees or consultants pursuant to equity ownership or compensation
plans or stockholders agreements not to exceed $1.0 million in any year
(with unused amounts in any calendar year being carried over to
succeeding calendar years, but not to exceed $1.5 million in any one
year);
(4) payments pursuant to any tax sharing arrangement between
the Company or any of the Restricted Subsidiaries and any other Person
with which the Company or such Restricted Subsidiary files a
consolidated tax return or with which the Company or such Restricted
Subsidiary is part of a consolidated group for tax purposes not to
exceed the amount the Company would be required to pay on a stand-alone
basis;
(5) the purchase or redemption of Securities following a
Change of Control after the Company shall have complied with the
provisions under Section 4.8, including payment of the purchase price
pursuant to a Change of Control Offer;
(6) the payment to Holdings of up to $800,000 in the aggregate
in any fiscal year for Holdings to pay annual monitoring fees to SKM
and Carlisle;
(7) the payment of consulting and advisory fees to Harvey in
connection with the 1999 Acquisitions or any future acquisition and
related expenses;
(8) the declaration and payment of dividends to holders of any
class or series of Disqualified Capital Stock of the Company issued in
accordance with Section 4.3; and
(9) so long as no Default or Event of Default shall have
occurred and be continuing, other Restricted Payments in an aggregate
amount not to exceed $5 million.
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In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date in accordance with clause (iii) of the
immediately preceding paragraph, amounts expended pursuant to clauses (1) and
(2)(ii) will be included in such calculation.
SECTION 4.5. LIMITATION ON DIVIDEND AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES. The Company will not, and will not cause or
permit any of the Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(a) pay dividends or make any other distributions on or in
respect of its Capital Stock;
(b) make loans or advances or to pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary; or
(c) transfer any of its property or assets to the Company or
any other Restricted Subsidiary;
except for such encumbrances or restrictions existing under or
by reasons of:
(1) applicable law;
(2) this Indenture, the Securities or the Guarantees;
(3) customary non-assignment provisions of any
contract or any lease governing a leasehold interest of any
Restricted Subsidiary;
(4) any instrument governing Acquired Indebtedness,
which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than
the Person or the properties or assets of the Person so
acquired;
(5) the Credit Agreement;
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(6) agreements existing on the Issue Date to the
extent and in the manner such agreements are in effect on the
Issue Date;
(7) any other agreement entered into after the Issue
Date that contains encumbrances and restrictions that are not
materially more restrictive with respect to any Restricted
Subsidiary than those in effect with respect to such
Restricted Subsidiary pursuant to agreements as in effect on
the Issue Date;
(8) agreements governing Permitted Indebtedness;
(9) customary bank credit agreements Incurred
pursuant to clause (xv) of the definition of Permitted
Indebtedness;
(10) customary restrictions on the transfer of any
property or assets arising under a security agreement
governing a Lien permitted under this Indenture;
(11) customary restrictions with respect to a
Restricted Subsidiary pursuant to an agreement that has been
entered into in connection with the sale or disposition of all
or substantially all of the Capital Stock or assets of such
Restricted Subsidiary;
(12) purchase money obligations for property acquired
in the ordinary course of business that impose restrictions of
the nature discussed in clause (c) above on the property so
acquired;
(13) secured Indebtedness otherwise permitted to be
incurred pursuant to Section 4.3 and Section 4.11 that limit
the right of the debtor to dispose of the assets securing such
Indebtedness;
(14) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the
ordinary course of business; and
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(15) any agreement governing Refinancing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clause (2),
(4), (5), (6), (8) or (13) above; PROVIDED, HOWEVER, that the
provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are not
materially more restrictive than the provisions relating to
such encumbrance or restriction contained in agreements
referred to in such clause (2), (4), (5), (6), (8) or (13)
above.
SECTION 4.6. LIMITATION ON ASSET SALES. The Company will not,
and will not permit any of the Restricted Subsidiaries to, consummate an Asset
Sale unless:
(i) the Company or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale
at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Board of Directors of
the Company);
(ii) at least 75% of the consideration received by the
Company or the Restricted Subsidiary, as the case may be, from such
Asset Sale shall be in the form of cash or Cash Equivalents or
Replacement Assets and is received at the time of such disposition
(provided that the amount of (x) any Indebtedness of the Company or any
Guarantor that is actually assumed by the transferee in such Asset Sale
and from which the Company and the Guarantors are fully and
unconditionally released, (y) Indebtedness of a Restricted Subsidiary
that is no longer such as a result of such Asset Sale (to the extent
the Company and each other Restricted Subsidiary us released from any
guarantee thereof) and (z) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted
by the Company or such Restricted Subsidiary into cash shall each be
deemed to be cash for purposes of clause (i) above); and
(iii) upon the consummation of an Asset Sale, the Company
shall apply, or cause such Restricted Subsidiary to
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apply, the Net Cash Proceeds relating to such Asset Sale within 360
days of receipt thereof either:
(A) to prepay any Senior Debt or Guarantor Senior
Debt and, in the case of any Senior Debt or Guarantor Senior
Debt under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit
facility;
(B) to acquire Replacement Assets; or
(C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii) (B).
On the 361st day after an Asset Sale or such earlier date, if
any, as the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence
(each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds that have not been applied on or before such Net Proceeds Offer Trigger
Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the
Company to make an offer to purchase (the "Net Proceeds Offer") on a date (the
"Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days
following the applicable Net Proceeds Offer Trigger Date, all outstanding
Securities up to a maximum principal amount of Securities equal to the Note Pro
Rata Share, at a purchase price in cash equal to 100% of the principal amount of
Securities, plus accrued and unpaid interest (including additional interest, if
any) thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that if at any
time any non-cash consideration received by the Company or any Restricted
Subsidiary, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration) or Cash Equivalents, then such
conversion or disposition will be deemed to constitute an Asset Sale hereunder
and the Net Cash Proceeds thereof will be applied in accordance with this
Section 4.6.
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The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10
million resulting from one or more Asset Sales or deemed Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $10 million, shall be applied as required pursuant to this
paragraph).
In the event that any other Indebtedness of the Company that
ranks equally to in right of payment with the Securities requires that such
Indebtedness be repaid or repurchased upon the consummation of any Asset Sale
(the "Other Indebtedness"), the Company may use the Net Proceeds Offer Amount
otherwise required to be used to repay or repurchase such Other Indebtedness and
to make a Net Proceeds Offer so long as the amount of such Net Proceeds Offer
Amount available to be applied to purchase the Securities is not less than the
Note Pro Rata Share. With respect to any Net Proceeds Offer Amount, the Company
shall make the Net Proceeds Offer in respect thereof at the same time as the
analogous repayment or repurchase is made under any Other Indebtedness and the
date of purchase in respect thereof shall be the same under this Indenture as
the repayment or purchase of any Other Indebtedness.
With respect to any Net Proceeds Offer effected pursuant to
this covenant, to the extent that the principal amount of the Securities
tendered pursuant to such Net Proceeds Offer exceeds the Note Pro Rata Share to
be applied to the purchase thereof, such Securities will be purchased PRO RATA
based on the principal amount of such Securities tendered by each holder.
In the event of the transfer of substantially all (but not
all) of the property and assets of the Company and the Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under Section 5.1, which
transaction does not constitute a Change of Control, the successor corporation
will be deemed to have sold the properties and assets of the Company and the
Restricted Subsidiaries not so transferred for purposes of this Section 4.6 and
shall comply with the provisions of this Section 4.6 with respect to such deemed
sale as if it were an Asset Sale. In addition, the fair market value of such
properties and assets of the Company or the Restricted Subsidiaries
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deemed to be sold will be deemed to be Net Cash Proceeds for purposes of this
Section 4.6.
Each Net Proceeds Offer will be mailed to the record Holders
as shown on the register of Holders within 30 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and will comply with the
procedures set forth below. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Securities in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Securities in an amount exceeding the Net Proceeds Offer Amount, Securities of
tendering Holders will be purchased on a PRO RATA basis (based on amounts
tendered). A Net Proceeds Offer will remain open for a period of 20 Business
Days or such longer period as may be required by law. If not fully subscribed,
the Company may retain and use the remaining Net Cash Proceeds for any purpose
not otherwise prohibited by this Indenture.
The notice, that will govern the terms of the Net Proceeds
Offer, will include such disclosures as are required by law and shall state:
(i) that the Net Proceeds Offer is being made pursuant to this
Section 4.6;
(ii) the purchase price (including the amount of accrued
interest, if any) to be paid for Securities purchased pursuant to the
Net Proceeds Offer and the purchase date;
(iii) that any Security not tendered for payment will continue
to accrue interest in accordance with the terms thereof;
(iv) that, unless the Company defaults on making the payment,
any Security accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Net Proceeds Offer Payment
Date;
(v) that Holders accepting the offer to have their Securities
purchased pursuant to the Net Proceeds Offer will be required to
surrender their Securities to the Pay-
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ing Agent at the address specified in the notice prior to the close of
business on the purchase date;
(vi) that Holders will be entitled to withdraw their
acceptance if the Paying Agent receives, not later than the close of
business on the second Business Day prior to the purchase date, a
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing his election
to have such Securities purchased;
(vii) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; PROVIDED that each
Security purchased and each such new Security issued shall be in an
original principal amount in denominations of $1,000 and integral
multiples thereof;
(viii) any other procedures that a Holder must follow to accept
an Net Proceeds Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the purchase date, the Company will (i) accept for payment
Securities or portions thereof tendered pursuant to the Net Proceeds Offer in
accordance with this Section 4.6, (ii) deposit with the Paying Agent U.S. Legal
Tender sufficient to pay the purchase price, plus accrued interest, if any, of
all Securities to be purchased in accordance with this Section 4.6 and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof tendered to and accepted
for payment by the Company.
For purposes of this Section 4.6, the Trustee will act as the
Paying Agent. The Paying Agent will promptly (but in any case no later than 10
calendar days after the Net Proceeds Payment Date) mail or deliver to the
Holders of Securities so accepted payment in an amount equal to the purchase
price for such Securities, and the Company shall execute and
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issue, and the Trustee shall promptly authenticate and mail to such Holders, a
new Note equal in principal amount to any unpurchased portion of the Security
surrendered; PROVIDED that each such new Security shall be issued in an original
principal amount in denominations of $1,000 and integral multiples thereof. The
Company will send to the Trustee and the Holders of Securities on or as soon as
practicable.
The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of this Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of this Indenture by virtue
thereof.
SECTION 4.7. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under paragraph (b) below and (y) Affiliate Transactions on terms that
are not materially less favorable than those that would have reasonably been
expected in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $5.0 million shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted
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Subsidiary enters into an Affiliate Transaction (or series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $10.0 million, the Company or such Restricted Subsidiary, as
the case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply
to:
(i) employment, consulting and compensation arrangements and
agreements of the Company or any Restricted Subsidiary consistent with
past practice or approved by a majority of the disinterested members of
the Board of Directors of the Company (or a committee comprised of
disinterested directors);
(ii) reasonable fees and compensation paid to and indemnity
provided on behalf of officers, directors, employees, consultants or
agents of the Company or any Restricted Subsidiary as determined in
good faith by the Company's Board of Directors or senior management,
including, without limitation, any issuance or grant of stock options,
bonuses or similar rights to such employees, officers and directors;
(iii) transactions exclusively between or among the Company
and any of the Restricted Subsidiaries or exclusively between or among
such Restricted Subsidiaries, PROVIDED such transactions are not
otherwise prohibited by this Indenture;
(iv) Restricted Payments permitted to be made pursuant to
Section 4.4;
(v) the payment to Holdings of up to $800,000 in the aggregate
in any fiscal year for Holdings to pay annual monitoring fees to SKM
and Carlisle;
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(vi) the payment of consulting and advisory fees to Harvey in
connection with the 1999 Acquisitions or any future acquisition and
related expenses;
(vii) payments to the selling stockholders of Mid State,
Galaxy and Certified pursuant to the relevant acquisition agreements or
documents delivered in connection therewith (whether in cash or in the
form of bonus compensation, a note or other security);
(viii) Permitted Investments;
(ix) in connection with a public offering of Common Stock of
the Company, Holdings or any Restricted Subsidiary, loans or advances,
having a maturity of one year or less after the date first made, to
employees to finance the purchase by such employees of such Common
Stock;
(x) the issuance or sale of any Qualified Capital Stock of
the Company or of any Guarantor; and
(xi) the payment of all fees and expenses related to the 1999
Acquisitions, the Credit Agreement and the offering of the Securities
on the Issue Date (whether paid at or subsequent to the closing of such
transactions).
SECTION 4.8. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder
will have the right to require that the Company purchase all or a portion of
such Holder's Securities pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued interest, if any, thereon to the date of purchase.
(b) Prior to the mailing of the notice referred to below, but
in any event within 30 days following any Change of Control, the Company will be
required to use its reasonable efforts to:
(i) repay in full and terminate all commitments under all
Indebtedness under the Credit Agreement and all other Senior Debt the
terms of which require repayment upon a Change of Control or offer to
repay in full and
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terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer; or
(ii) obtain the requisite consents under the Credit Agreement
and all other Senior Debt to permit the repurchase of the Securities as
provided below.
The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase
Securities pursuant to the provisions described below.
(c) Within 30 days following the date upon which the Change of
Control occurred, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders electing to have a Note purchased
pursuant to a Change of Control Offer will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day prior to the Change of
Control Payment Date. Such notice shall state:
(i) that the Change of Control Offer is being made pursuant
to this Section 4.8 and that all Securities tendered and not withdrawn
shall be accepted for payment;
(ii) the purchase price (including the amount of accrued
interest) and the Change of Control Payment Date;
(iii) that any Security not tendered shall continue to accrue
interest;
(iv) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant
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to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(v) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer shall 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
at the address specified in the notice prior to the close of business
on the third business day prior to the Change of Control Payment Date;
(vi) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than the second
business day prior to the Change of Control Payment Date, a facsimile
transmission or letter setting forth the name of the Holder, the
principal amount of the Securities the Holder delivered for purchase
and a statement that such Holder is withdrawing his election to have
such Securities purchased;
(vii) that Holders whose Securities are purchased only in part
shall be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; PROVIDED, HOWEVER,
that each Security purchased and each new Note issued shall be in an
original principal amount of $1,000 or integral multiples thereof; and
(viii) the circumstances and relevant facts regarding such
Change of Control.
On the Change of Control Payment Date, the Company shall, to
the extent permitted by law, (i) accept for payment all Securities or portions
thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit
with the Paying Agent an amount equal to the aggregate Change of Control Payment
in respect of all Securities or portions thereof so tendered and (iii) deliver,
or cause to be delivered, to the Trustee for cancellation the Securities so
accepted together with an Officers' Certificate stating that such Securities or
portions thereof have been tendered to and purchased by the Company. The Paying
Agent will promptly either (x) pay to the
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Holder against presentation and surrender (or, in the case of partial payment,
endorsement) of the Global Notes or (y) in the case of certificated Securities,
mail to each Holder of Securities the Change of Control Payment for such
Securities, and the Trustee will promptly authenticate and deliver to the Holder
of the Global Notes a new Global Note or Securities or, in the case of
Definitive Notes, mail to each Holder new certificated Securities, as
applicable, equal in principal amount to any unpurchased portion of the
Securities surrendered, if any, provided that each new certificated Securities.
(d) The Company's obligation to make a Change of Control Offer
may be discharged if a third party makes the Change of Control Offer in the
manner and at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer to be made by the Company and such third
party purchases all Securities properly tendered under such Change of Control
Offer.
(e) The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of this Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the "Change of Control" provisions of this Indenture by virtue thereof.
SECTION 4.9. COMPLIANCE CERTIFICATE. The Company will deliver
to the Trustee within 120 days after the end of each fiscal year of the Company
an Officers' Certificate, one of the signers of which shall be the principal
executive, financial or accounting officer of the Company, stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA Section 314(a)(4).
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SECTION 4.10. FURTHER INSTRUMENTS AND ACTS. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11 LIMITATION ON LIENS. The Company will not, and
will not cause or permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or permit or suffer to exist any Liens of any
kind against or upon any property or assets of the Company or any of the
Restricted Subsidiaries whether owned on the Issue Date or acquired after the
Issue Date, or any proceeds therefrom, or assign or otherwise convey any right
to receive income or profits therefrom unless:
(i) in the case of Liens securing Indebtedness that is
expressly subordinate or junior in right of payment to the Securities,
the Securities are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens; and
(ii) in all other cases, the Securities are equally and
ratably secured with the obligations so secured until such obligations
are no longer secured by a Lien, except for:
(A) Liens existing as of the Issue Date to the extent
and in the manner such Liens are in effect on the Issue Date;
(B) Liens securing Senior Debt, Guarantor Senior Debt
or Indebtedness of a Restricted Subsidiary that is not a
Guarantor that is permitted to be incurred under this
Indenture;
(C) Liens securing the Securities and any Guarantees;
(D) Liens in favor of the Company or a Restricted
Subsidiary;
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(E) Liens securing Refinancing Indebtedness incurred
to Refinance any Indebtedness which has been secured by a Lien
permitted under this Indenture and which has been incurred in
accordance with the provisions of this Indenture; PROVIDED,
HOWEVER, that such Liens do not extend to or cover any
property or assets of the Company or any of the Restricted
Subsidiaries not securing the Indebtedness so Refinanced
(other than improvements, additions or accessions thereto);
and
(F) Permitted Liens.
SECTION 4.12 LIMITATION ON PREFERRED STOCK OF RESTRICTED
SUBSIDIARIES. The Company will not permit any of the Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a Restricted
Subsidiary) or permit any Person (other than the Company or a Restricted
Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
SECTION 4.13 PAYMENT OF TAXES AND OTHER CLAIMS. The
Company will, and will cause each of its Subsidiaries to, pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, all
taxes, assessments and governmental charges levied or imposed upon its or its
Subsidiaries' income, profits or property; PROVIDED, HOWEVER, that neither the
Company nor any of its Subsidiaries 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 negotiations or proceedings and for which disputed amounts adequate
reserves have been made in accordance with GAAP.
SECTION 4.14 ADDITIONAL SUBSIDIARY GUARANTEES. If the
Company or any Restricted Subsidiary transfers or causes to be transferred, in
one transaction or a series of related transactions, any property with a book
value in excess of $500,000 to any Domestic Restricted Subsidiary that is not a
Guarantor, or if the Company or any of its Restricted Subsidiaries shall
organize, acquire or otherwise invest in another Domestic Restricted Subsidiary
having total assets with a book value in excess of $500,000, then such
transferee or acquired or other Restricted Subsidiary shall:
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(1) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to
which such Restricted Subsidiary shall unconditionally guarantee all of
the Company's obligations under the Securities and this Indenture on
the terms set forth in this Indenture; and
(2) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered
by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary. Thereafter,
such Restricted Subsidiary shall be a Guarantor for all purposes of
this Indenture.
The obligations of each Guarantor under its Guarantee will be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including, without
limitation, any guarantees under the Credit Agreement) and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under this Indenture, result in the
obligations of the Guarantor under the Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Guarantor
that makes a payment for distribution under a Guarantee is entitled to a
contribution from each other Guarantor in a PRO RATA amount based on the
Adjusted Net Assets of each Guarantor.
SECTION 4.15 PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED
DEBT. The Company will not, and will not permit any Guarantor to, incur or
suffer to exist Indebtedness that is senior in right of payment to the
Securities or the Guarantee of such Guarantor and subordinate in right of
payment to any other Indebtedness of the Company or such Guarantor, as the case
may be.
SECTION 4.16. CONDUCT OF BUSINESS. The Company will not, and
will not permit any Restricted Subsidiary to, engage in any businesses which are
not either: (i) the same, similar or related to the businesses in which the
Company or any of the
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Restricted Subsidiaries are engaged on the Issue Date, (ii) businesses acquired
through an acquisition after the Issue Date which are not material to the
Company and the Restricted Subsidiaries, taken as a whole, or (iii) Permitted
Investments.
SECTION 4.17 LIMITATION ON DESIGNATIONS OF UNRESTRICTED
SUBSIDIARIES. The Company may designate any Subsidiary of the Company (other
than a Subsidiary of the Company that owns Capital Stock of a Restricted
Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a
"Designation") only if:
(i) the Subsidiary to be so designated has total assets of
$1,000 or less or
(ii) such Subsidiary has total assets greater than $1,000 and
(a) no Default shall have occurred and be continuing
after giving effect to such Designation; and
(b) the Company would be permitted under this
Indenture to make an Investment at the time of Designation
(assuming the effectiveness of such Designation) in an amount
(the "Designation Amount") equal to the sum of (i) the fair
market value of the Capital Stock of such Subsidiary owned by
the Company and/or any of the Restricted Subsidiaries on such
date and (ii) the aggregate amount of Indebtedness of such
Subsidiary owed to the Company and the Restricted Subsidiaries
on such date; and
(c) after giving effect to such designation, the
Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to
Section 4.3 at the time of Designation (assuming the
effectiveness of such Designation).
In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment in the
Designation Amount pursuant to Section 4.4 for all purposes of this Indenture.
The Company will not,
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and will not permit any Restricted Subsidiary to, at any time (x) provide direct
or indirect credit support for or a guarantee of any Indebtedness of any
Unrestricted Subsidiary (including of any undertaking agreement or instrument
evidencing such Indebtedness), (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness that provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except, in the case of clause (x) or (y), to the
extent permitted under Section 4.4.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary ("Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the
time and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted
Subsidiaries outstanding immediately following such Revocation would,
if incurred at such time, have been permitted to be incurred for all
purposes of this Indenture.
All Designations and Revocations must be evidenced by an
Officers' Certificate of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.
SECTION 4.18 MAINTENANCE OF OFFICE OR AGENCY. The Company
shall maintain, in the Borough of Manhattan, the City of New York, an office or
agency (which may be an office or agency of the Trustee, Registrar or
co-Registrar), where Securities may be surrendered for registration of transfer
or exchange or for presentation for payment and where notices and demands to or
upon the Company in respect of the Securities and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
any change
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in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee's principal
corporate trust office in New York City as set forth in Section 13.2.
The Company 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 of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes. The
Company will give prompt written notice to the Trustee 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 Trustee's
principal corporate trust office in New York City as set forth in Section 13.2
as an agency of the Company in accordance with Section 2.3.
SECTION 4.19 CORPORATE EXISTENCE. Subject to Article 5 and
Section 4.6, the Company will do or cause to be done, at its own cost and
expense, all things necessary to, and will cause each of its Restricted
Subsidiaries to, preserve and keep in full force and effect the corporate or
partnership existence and rights (charter and statutory), licenses and/or
franchises of the Company and each of its Restricted Subsidiaries; PROVIDED,
HOWEVER, that the Company or any of its Restricted Subsidiaries shall not be
required to preserve any such rights, licenses or franchises if the Board of
Directors shall reasonably determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and the Subsidiaries,
taken as a whole.
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ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. MERGER, CONSOLIDATION AND SALE OF ASSETS. The
Company will not, and will not cause or permit any Guarantor (other than any
Guarantor whose Guarantee is to be released in accordance with the terms of the
Guarantee and this Indenture in connection with any transaction complying with
the provisions of Section 4.6) to, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless:
(i) either:
(1) the Company or such Guarantor shall be the
surviving or continuing corporation; or
(2) the Person (if other than the Company or such
Guarantor) formed by such consolidation or into which the
Company or such Guarantor is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and
the Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity"):
(x) shall be a corporation organized and
validly existing under the laws of the United States
or any State thereof or the District of Columbia; and
(y) shall expressly assume, by supplemental
indenture (in form and substance reasonably
satisfactory to the Trustee), executed and delivered
to the Trustee, the due and punctual payment of the
principal of, and premium, if
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any, and interest on all of the Securities and the
performance of every covenant of the Securities, the
Guarantee, if applicable, this Indenture and, if then
effect, the Registration Rights Agreement on the part
of the Company or such Guarantor to be performed or
observed.
(ii) immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including,
without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction) on a pro forma basis, the Company or
such Surviving Entity, as the case may be, shall be able to incur at
least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.3; PROVIDED that a Guarantor may
merge into the Company or another Guarantor without complying with this
clause (ii);
(iii) immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including,
without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no
Default or Event of Default shall have occurred or be continuing; and
(iv) the Company or the Surviving Entity shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if a supplemental indenture
is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of this Indenture and
that all conditions precedent in this Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries the Capital Stock of which constitutes all or
substantially all of
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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. Upon any
consolidation, combination or merger of the Company or a Guarantor or any
transfer of all or substantially all of the assets of the Company in accordance
with the this Article V, in which the Company or such Guarantor is not the
continuing corporation, the Surviving Entity formed by such consolidation or
into which the Company or such Guarantor is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Guarantor under this
Indenture, the Securities and the Guarantees with the same effect as if such
Surviving Entity had been named as such and, except in the case of a conveyance,
transfer or lease, the Company or such Guarantor, as the case may be, shall be
released from the obligation to pay the principal of and interest on the
Securities or in respect of its Guarantee, as the case may be, and all of the
Company's or such Guarantor's other obligations and covenants under the
Securities, this Indenture and its Guarantee, if applicable.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. EVENTS OF DEFAULT. An "Event of Default" occurs
upon:
(i) the failure to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of
30 days (whether or not such payment shall be prohibited by Article 10
or Article 12 of this Indenture);
(ii) the failure to pay the principal on any Securities, when
such principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase
Securities tendered pursuant to a Change of Control Offer or a Net
Proceeds Of-
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fer) (whether or not such payment shall be prohibited by Article 10 or
Article 12 of this Indenture);
(iii) a default in the observance or performance of any other
covenant or agreement contained in this Indenture, which default
continues for a period of 45 days after the Company receives written
notice specifying the default (and demanding that such default be
remedied) from the Trustee or the Holders of at least 25% of the
outstanding principal amount of the Securities (except in the case of a
default with respect to Section 5.1, which will constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(iv) a default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness of the Company or of any Restricted
Subsidiary (or the payment of which is guaranteed by the Company or any
Restricted Subsidiary), whether such Indebtedness now exists or is
created after the Issue Date, which default (a) is caused by a failure
to pay principal of such Indebtedness after notice and the lapse of any
applicable grace period provided in such Indebtedness on the date of
such default (a "payment default") or (b) results in the acceleration
of such Indebtedness prior to its express maturity (and such
acceleration is not rescinded, or such Indebtedness is not repaid,
within 30 days) and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated (and such acceleration is not
rescinded, or such Indebtedness is not repaid, within 30 days),
aggregates $7.5 million;
(v) one or more judgments in an aggregate amount in excess
of $7.5 million not covered by adequate insurance shall have been
rendered against the Company or any of the Restricted Subsidiaries and
such judgments remain undischarged, unpaid or unstayed for a period of
60 days after such judgment or judgments become final and
nonappealable;
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(vi) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case in which it is the debtor;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(vii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary of the Company in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for any substantial
part of the property of the Company or Significant Subsidiary;
(C) orders the winding up or liquidation of the
Company or any Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the order
or decree remains unstayed and in effect for 60 days; and
(viii) any Guarantee of a Significant Subsidiary ceases to be
in full force and effect or any Guarantee of a Significant Subsidiary
declared to be null and void and unenforceable or any Guarantee of a
Significant Subsidiary is found to be invalid or any of the Guarantors
that is a Significant Subsidiary denies its liability under its
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Guarantee (other than by reason of release of a Guarantor in accordance
with the terms of this Indenture).
The term "Bankruptcy Law" means Title 11, United States Code,
as amended, or any similar federal or state law for the relief of debtors. The
term "Custodian" means any receiver, Trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
The Company will provide an Officers' Certificate to the
Trustee promptly upon the Company obtaining knowledge of any Default or Event of
Default (PROVIDED that the Company shall provide such certification at least
annually whether or not it knows of any Default or Event of Default) that has
occurred and, if applicable, describe such Default or Event of Default and the
status thereof.
SECTION 6.2. ACCELERATION. If an Event of Default (other than
an Event of Default specified in Section 6.1(vi) or (vii)) shall occur and be
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Securities may declare the principal of, premium, if any, and
accrued interest on all the Securities to be due and payable by notice in
writing to the Company and (if given by the Holders) the Trustee specifying the
respective Events of Default and that it is a "notice of acceleration," and the
same shall become immediately due and payable. If an Event of Default specified
in Section 6.1(vi) or (vii) occurs and is continuing, then all unpaid principal
of, premium, if any, and accrued and unpaid interest on all of the outstanding
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect
to the Securities as described in the preceding paragraph, the Holders of a
majority in principal amount of the then outstanding Securities may rescind and
cancel such declaration and its consequences:
(i) if the rescission would not conflict with any judgment or
decree;
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(ii) if all existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due
solely because of the acceleration;
(iii) to the extent the payment of such interest is lawful, if
interest on overdue installments of interest and overdue principal,
which has become due otherwise than by such declaration of
acceleration, has been paid;
(iv) if the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements
and advances; and
(v) in the event of the cure or waiver of an Event of
Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an Officers'
Certificate and an Opinion of Counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.3. OTHER REMEDIES. If an Event of Default occurs and
is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy.
All available remedies are, to the extent permitted by law, cumulative.
SECTION 6.4. WAIVER OF PAST DEFAULTS. The Holders of a
majority in aggregate principal amount of the Securities then outstanding by
notice to the Trustee may waive any past or existing Default and its
consequences except for (i) a Default in the payment of the principal of or
interest on a Security or (ii) a Default in respect of a provision that under
Section 9.2 cannot be amended without the consent of each Securityholder
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affected. When a Default is waived, it is deemed cured, and any Event of Default
arising therefrom shall be deemed to have been cured, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right.
SECTION 6.5. CONTROL BY MAJORITY. The Holders of a majority in
aggregate principal amount of the Securities then outstanding may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.1, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification from the Securityholders satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.6. LIMITATION ON SUITS. A Holder may not pursue any
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount
of the Securities then outstanding make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in aggregate principal amount of
the Securities then outstanding do not give the
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Trustee a direction inconsistent with the request during such 60-day
period.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over another Holder.
SECTION 6.7. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal, premium (if any) or interest on the Securities
held by such Holder, on or after the respective due dates expressed in the
Securities, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.8. COLLECTION SUIT BY TRUSTEE. If an Event of
Default specified in Section 6.1(i) or (ii) occurs and is continuing, the
Trustee may recover judgment in its own name and as Trustee of an express trust
against the Company for the whole amount then due and owing (together with
interest on any unpaid interest to the extent lawful) and the amounts provided
for in Section 7.7.
SECTION 6.9. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may
file such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.7.
SECTION 6.10. PRIORITIES. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay
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out the money or property in the following order, subject to applicable law:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Holders for amounts due and unpaid on the
Securities for principal (including any premium) and interest, ratably,
without preference or priority of any kind, according to the amounts
due and payable on the Securities for principal (including any premium)
and interest, respectively; and
THIRD: to the Company.
The Trustee may, upon prior written notice to the Company, fix
a record date and payment date for any payment to Securityholders pursuant to
this Section. At least 15 days before such record date, the Company shall mail
to each Securityholder and the Trustee a notice that states the record date, the
payment date and amount to be paid.
SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7
or a suit by Holders of more than 10% in aggregate principal amount of the
outstanding Securities.
SECTION 6.12. WAIVER OF STAY OR EXTENSION LAWS. The Company
(to the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Company (to the extent that it may lawfully do so)
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hereby expressly waives all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.1. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a prudent Person
would exercise or use under the circumstances in the conduct of such Person's
own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, 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 (but need not confirm or investigate the
accuracy of mathematical calculations or other facts stated therein).
(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:
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(1) this paragraph does not limit the effect of paragraph (b)
of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible 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 Sections 6.2 and 6.5 hereof.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
and to the provisions of the TIA.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) The Trustee shall have no responsibility to examine or
review and shall have no liability for the contents of any documents submitted
to or delivered to any Holder of Securities by the Company in the nature of a
solicitation or an official statement or offering circular, whether preliminary
or final.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
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SECTION 7.2. RIGHTS OF TRUSTEE. Subject to Section 7.1,
(a) The Trustee may conclusively rely on any document
reasonably believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any reasonable action
it takes or omits to take in good faith which it believes to be
authorized or within its rights or powers; PROVIDED, HOWEVER, that the
Trustee's conduct does not constitute willful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and
the advice or Opinion of Counsel with respect to legal matters relating
to this Indenture and the Securities shall be full and complete
authorization and protection from liability in respect to any action
taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel;
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction.
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(g) Except with respect to Section 4.1, the Trustee shall have
no duty to inquire as to the performance of the Company's covenants in
Article 4. In addition, the Trustee shall not be deemed to have
knowledge of any Default of Event of Default except (i) any Default or
Event of Default occurring pursuant to Sections 6.1(i), 6.1(ii) and 4.1
or (ii) any Default or Event of Default of which a Responsible Officer
shall have received written notification or obtained actual knowledge.
(h) The rights, privileges, protections, immunities and
benefits given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in each
of its capacities hereunder, and to each agent, custodian and other Person
employed by the Trustee with due care.
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 or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.4. TRUSTEE'S DISCLAIMER. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.5. NOTICE OF DEFAULTS. If a Default occurs and is
continuing and if it is known to a responsible Officer of the Trustee, the
Trustee shall mail to each Securityholder notice of the Default within 30 days
after it is known by a Responsible Officer or written notice is received by the
Trustee. Except in the case of a Default in payment of principal of or interest
on any Security (including payments pursuant to the mandatory redemption
provisions of such Security, if
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any), the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Securityholders.
SECTION 7.6. REPORTS BY TRUSTEE TO HOLDERS. As promptly as
practicable after each May 15 beginning with the May 15 following the date of
this Indenture, and in any event prior to July 15 in each year, the Trustee
shall mail to each Securityholder a brief report dated as of May 15 that
complies with TIA Section 313(a). The Trustee also shall comply with TIA Section
313(b). Prior to delivery to the Holders, the Trustee shall deliver to the
Company a copy of any report it delivers to Holders pursuant to this Section
7.6.
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange (if any) on
which the Securities are listed. The Company agrees to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.7. COMPENSATION AND INDEMNITY. The Company shall pay
to the Trustee from time to time such reasonable compensation for its services
as the Company and the Trustee shall from time to time agree in writing. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to such compensation for its
services, except any such expense, disbursement or advance as may arise from its
negligence, willful misconduct or bad faith. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and experts. The Trustee shall provide
the Company reasonable notice of any expenditure not in the ordinary course of
business; PROVIDED that prior approval by the Company of any such expenditure
shall not be a requirement for the making of such expenditure nor for
reimbursement by the Company thereof. The Company shall indemnify each of the
Trustee and any predecessor Trustees against any and all loss, damage, claim,
liability or expense (including attorneys' fees and expenses and taxes,
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other than taxes applicable to the Trustee's compensation hereunder) incurred by
it in connection with the acceptance or administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee to
so notify the Company shall not relieve the Company of its obligations
hereunder. The Company will be entitled to participate therein and may assume
the defense thereof, including the employment of counsel reasonably acceptable
to such Trustee and payment of all fees and expenses relating to the assumption
of the defense by the Company. A Trustee shall have the right to employ separate
counsel in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Trustee unless (i) the Company has agreed in writing to pay such fees and
expenses, (ii) the Company has failed to assume the defense and employ counsel
on a timely basis or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such Trustee and the
Company and such shall have reasonably concluded, based on the advice of its
counsel, that representation of such indemnified party and the Company by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Company shall not have the right to assume the defense of such action,
suit or proceeding on behalf of the Trustee. The Trustee may have separate
counsel at its own expense. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own willful misconduct, negligence or bad faith. The Company need
not pay for any settlement made without its written consent, which shall not
be unreasonably withheld.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section
shall survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default
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specified in Section 6.1(vi) or (vii) with respect to the Company, the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.8. REPLACEMENT OF TRUSTEE. The Trustee may resign at
any time upon 30 days notice to the Company. The Holders of a majority in
principal amount of the Securities then outstanding may remove the Trustee by so
notifying the Trustee and may appoint a successor Trustee. The Company shall
remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
Subject to the TIA, the Trustee is permitted to engage in
other transactions; PROVIDED that if the Trustee acquires any conflicting
interest as described in the TIA, it must eliminate such conflict or resign.
If the Trustee resigns, is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the
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successor Trustee, subject to the lien provided for in Section 7.7.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9. SUCCESSOR TRUSTEE BY MERGER. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee, PROVIDED that such corporation shall
be eligible under this Article 7 and TIA Section 310(a).
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of the
successor to the Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have.
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SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). 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); PROVidED, HOWever, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
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.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. DISCHARGE OF LIABILITY ON SECURITIES; DEFEASANCE.
(a) This Indenture will be discharged and will cease to be of
further effect (except as to surviving rights or registration of transfer or
exchange of the Securities, as expressly provided for in this Indenture) as to
all outstanding Securities when:
(1) either:
(i) all the Securities theretofore authenticated and
delivered (except lost, stolen or destroyed Securities which
have been replaced or paid and Securities for whose payment
money has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to
the Trustee for cancellation; or
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(ii) all Securities not theretofore delivered to the
Trustee for cancellation have become due and payable and the
Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Securities not
theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Securities
to the date of deposit together with irrevocable instructions
from the Company directing the Trustee to apply such funds to
the payment thereof at maturity or redemption, as the case may
be;
(2) the Company has paid all other sums payable under this
Indenture by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel stating that all conditions
precedent under this Indenture relating to the satisfaction and
discharge of this Indenture have been complied with.
The Trustee shall acknowledge satisfaction and discharge of this Indenture on
demand of the Company accompanied by an Officers' Certificate from the Company
that all conditions precedent provided for herein relating to satisfaction and
discharge of this Indenture have been complied with and at the cost and expense
of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any
time may terminate (i) all of its obligations under the Securities and this
Indenture ("Legal Defeasance") or (ii) its obligations under Sections 4.2
through 4.8 and 4.11 through 4.17 and the operation of Sections 6.1(iii),
6.1(iv), 6.1(v), 6.1(vi) and 6.1(vii) (but only with respect to a Significant
Subsidiary), 6.1(viii) and 5.1 ("Covenant Defeasance"). The Company may exercise
Legal Defeasance notwithstanding its prior exercise of Covenant Defeasance.
Such Legal Defeasance means that the Company shall be deemed
to have paid and discharged the entire indebtedness represented by the
outstanding Securities, except for:
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(i) the rights of Holders to receive payments in respect of
the principal of, premium, if any, and interest on the Securities when
such payments are due;
(ii) the Company's obligations with respect to the Securities
concerning issuing temporary Securities, registration of Securities,
mutilated, destroyed, lost or stolen Securities and the maintenance of
an office or agency for payments;
(iii) the rights, powers, trust, duties and immunities of the
Trustee and the Company's obligations in connection therewith; and
(iv) the Legal Defeasance provisions of this Indenture.
If the Company exercises Covenant Defeasance, a failure to
comply with such obligations shall not constitute a Default or Event of Default
with respect to the Securities. In the event of Covenant Defeasance, those
events described under Section 6.1 (except those events described in Section
6.1(i), (ii), (iv),(vi) and (vii)) will no longer constitute an Event of Default
with respect to the Securities. If the Company exercises Legal Defeasance or
Covenant Defeasance, each Guarantor will be released from all of its obligations
under Article 11.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7, 7.8, 8.3, 8.4, 8.5 and 8.6
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.7, 8.4 and 8.5 shall survive.
SECTION 8.2. CONDITIONS TO DEFEASANCE. The Company may
exercise Legal Defeasance or Covenant Defeasance only if:
(1) the Company irrevocably deposits with the Trustee, in
trust, for the benefit of the Holders cash in U.S.
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dollars, non-callable U.S. Government Obligations, or a combination
thereof, in such amounts as will be sufficient (through the payment of
principal and interest), to pay the principal of, premium, if any, and
interest on the Securities on the stated date of payment thereof or on
the applicable redemption date, as the case may be;
(2) 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 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;
(3) 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 the Trustee confirming that the Holders 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;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or 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;
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(5) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under this
Indenture or any other 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;
(6) 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 over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with;
(8) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that:
(A) the trust funds will not be subject to any rights
of holders of Senior Debt, including, without limitation,
those arising under this Indenture; and
(B) 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;
(9) such Legal Defeasance or Covenant Defeasance shall not
cause the Trustee to have a conflicting interest with respect to any
securities of the Company;
(10) such Legal Defeasance or Covenant Defeasance shall not
result in the trust arising from such deposit constituting an
investment company within the meaning of the Investment Company Act of
1940, as amended, unless such trust shall be registered under such Act
or exempt from registration thereunder;
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(11) no event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and
interest on the Securities on the date of such deposit; and
(12) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent under this Indenture to either Legal Defeasance or
Covenant Defeasance, as the case may be, have been complied with.
Notwithstanding the foregoing, the Opinion of Counsel required
by clauses (2)(B) and (3) above with respect to a Legal Defeasance need not be
delivered if all Securities not theretofore delivered to the Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
on the maturity date within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company.
Opinions of Counsel required to be delivered under this
Section may have qualifications customary for opinions of the type required and
counsel delivering such Opinions of Counsel may rely on certificates of the
Company or government or other officials customary for opinions of the type
required, including certificates certifying as to matters of fact.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.3. APPLICATION OF TRUST MONEY. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant to
this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations either directly or through the Paying Agent (including
the Company acting as its own Paying Agent as the Trustee may determine) and in
accordance with this Indenture to the payment of principal of and interest on
the Securities.
SECTION 8.4. REPAYMENT TO COMPANY. The Trustee and the Paying
Agent shall notify the Company of any excess money or Securities held by them at
any time and shall promptly turn
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over to the Company upon request any excess money or securities held by them at
any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon written request any money
held by them for the payment of principal or interest that remains unclaimed for
two years, and, thereafter, Securityholders entitled to the money must look to
the Company for payment as general creditors.
SECTION 8.5. INDEMNITY FOR GOVERNMENT OBLIGATIONS. The Company
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations other than
any such tax, fee or other charge which by law is for the account of the Holders
of the defeased Securities; PROVIDED that the Trustee shall be entitled to
charge any such tax, fee or other charge to such Holder's account.
SECTION 8.6. REINSTATEMENT. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; PROVIDED, HOWEVER, that, (a) if
the Company has made any payment of interest on or principal of any Securities
following the reinstatement of their obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent and (b) unless otherwise required by any legal proceeding or any
order or judgment of any court or governmental authority, the Trustee or Paying
Agent shall return all such money and U.S. Government Obligations to the Company
promptly after receiving a written request therefor at any time, if such
reinstatement of the Company's obligations has occurred and continues to be in
effect.
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ARTICLE 9
AMENDMENTS
SECTION 9.1. WITHOUT CONSENT OF HOLDERS. The Company, the
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to or consent of any Securityholder, so long as such change does not, in
the opinion of the Trustee, adversely affect the rights of any of the Holders in
any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an Opinion of Counsel:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to comply with Article 5 of this Indenture;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(4) to add Guarantees with respect to the Securities;
(5) to release Guarantors when permitted by this
Indenture;
(6) to secure the Securities;
(7) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company;
(8) to make any change that does not adversely affect the
rights of any Securityholder; or
(9) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the TIA.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not
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impair or affect the validity of an amendment under this section.
SECTION 9.2. WITH CONSENT OF HOLDERS. The Company, the
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in principal amount of the Securities then outstanding.
However, without the consent of each Securityholder affected, an amendment may
not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted
interest, on any Securities;
(3) reduce the principal of or change or have the effect of
changing the fixed maturity of any Securities, or change the date on
which any Securities may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefor;
(4) make any Securities payable in money other than that
stated in the Securities;
(5) make any change in provisions of this Indenture protecting
the right of each Holder to receive payment of principal of and
interest on such Securities on or after the stated due date thereof or
to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of the then outstanding Securities to
waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer after the occurrence of a Change of Control or make and
consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with
respect thereto;
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(7) modify or change any provision of this Indenture or the
related definitions affecting the subordination or ranking of the
Securities or any Guarantee in a manner which adversely affects the
Holders; or
(8) release any Guarantor from any of its obligations under
its Guarantee or this Indenture otherwise than in accordance with the
terms of this Indenture.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.3. COMPLIANCE WITH TRUST INDENTURE ACT. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.4. REVOCATION AND EFFECT OF CONSENTS AND WAIVERS. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. An amendment or
waiver becomes effective once the requisite number of consents are received by
the Company or the Trustee. After an amendment or waiver becomes effective, it
shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Securityholders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were
Securityholders at such record date (or their duly designated
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proxies), and only those Persons, shall be entitled to give such consent or to
revoke any consent previously given or to take any such action, whether or not
such Persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 120 days after such record date.
SECTION 9.5. NOTATION ON OR EXCHANGE OF SECURITIES. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder.
Alternatively, if the Company or the Trustee so determine, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate notation or to issue a new Security shall not affect the validity of
such amendment.
SECTION 9.6. TRUSTEE TO SIGN AMENDMENTS. The Trustee shall
sign any amendment authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.1) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment complies with the provisions of Article 9 of this
Indenture.
ARTICLE 10
SUBORDINATION OF THE SECURITIES
SECTION 10.1. AGREEMENT TO SUBORDINATE. Notwithstanding any
other provision to the contrary in this Indenture, the Company covenants and
agrees, and each Holder by accepting a Security covenants and agrees, that the
payment of all Obligations under or in connection with the Indebtedness now or
hereafter evidenced by the Securities is subordinate in right
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of payment, to the extent and in the manner provided in this Article, to the
prior payment in full of all Senior Debt of the Company, whether outstanding on
the Issue Date or thereafter incurred, including all Obligations of the Company
under the Credit Agreement. The subordination provisions set forth in this
Article are for the benefit of, and shall be enforceable directly by, the
holders of Senior Debt.
Each Holder authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate, in the
sole discretion of the Trustee, to acknowledge or effectuate the subordination
between the Holders and the holders of Senior Debt of the Company as provided in
this Article and appoints the Trustee as such Holder's attorney-in-fact for any
and all such purposes, including, in the event of any voluntary or involuntary
liquidation or dissolution of the Company, whether total or partial, or in a
bankruptcy, reorganization, insolvency, receivership, dissolution, assignment
for the benefit of creditors, marshalling of assets or similar proceeding
relating to the Company or its property, the timely filing of a claim for the
unpaid balance of such Holder's Securities in the form required in said
proceeding and cause said claim to be approved. If the Trustee does not file a
proper claim or proof of debt in the form required in such proceeding prior to
20 days before the expiration of the time to file such claim or claims, then the
Representative is hereby authorized to have the right to file and is hereby
authorized to file an appropriate claim for and on behalf of the Holders;
PROVIDED, HOWEVER, that any such claim filed by the Representative shall be
superseded by the claim, if any, subsequently filed by the Trustee.
Each Holder by accepting a Security acknowledges and agrees
that the subordination provision set forth in this Article are, and are intended
to be, an inducement and consideration to each holder of any Senior Debt of the
Company, whether such Senior Debt was created before or after the issuance of
the Securities, to acquire and continue to hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied upon such subordination provisions in acquiring and continuing to hold,
or in continuing to hold, such Senior Debt, and such holder is made an obli-
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gee hereunder and may enforce directly such subordination provisions.
SECTION 10.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any
payment or distribution of the assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any liquidation,
dissolution, winding up reorganization, assignment for the benefit or creditors
or marshaling of assets of the Company or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to the Company of
its properties, whether voluntary or involuntary:
(a) all Obligations due upon all Senior Debt shall first be
paid in full in cash or Cash Equivalents, or such payment is duly
provided for to the satisfaction of the holders of Senior Debt, before
any payment or distribution of any kind or character is made on account
of any Obligations on the Securities or for the acquisition of any of
the Securities for cash or property or otherwise; and
(b) until the Senior Debt of the Company is paid in full in
cash any payment or distribution to which Holders would be entitled but
for this Article shall be made to holders of such Senior Debt, as their
interests may appear.
Upon any prepayment, payment or distribution referred to in
this Article, the Trustee and the Holders shall be entitled to rely upon any
order or decree of a court of competent jurisdiction in which such proceedings
are pending for the purpose of ascertaining the identity of Persons entitled to
participate in such payment or distribution, the holders of Senior Debt, the
amount thereof or payable thereon and all other facts pertinent thereto or to
this Article, and the Trustee and the Holders shall be entitled to rely upon a
certificate of the liquidating trustee or agent or other Person (including any
Representative of holders of Senior Debt of the Company) making any payment or
distribution to the Trustee or to the Holders for the purpose of ascertaining
the identity of Persons entitled to participate in such payment or distribution,
the holders of Senior Debt, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other
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facts pertinent thereto or to this Article. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person, as a holder of Senior Debt, to participate in any payment
or distribution pursuant to this Section, the Trustee may requires such Person
(at the expense of the Holders) to furnish evidence to the reasonable
satisfaction of the Trustee, acting in good faith, as to the amount of such
Senior Debt held by such Person, as to the extent to which such Person is
entitled to participate in such payment or distribution, and as to other facts
pertinent to the rights of such Person under this Section, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive payment.
The consolidation or merger of the Company with or into any
Person, or the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the Company's assets to any Person,
upon the terms and conditions set forth in Article 5, shall not be deemed to be
liquidation, dissolution or reorganization or similar proceeding relating to the
Company for purposes of this Section if the Person formed by or surviving such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition is made, shall, as a part of such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition,
comply with the conditions set forth in Article 5.
If a payment or distribution is made to Holders that, due to
the subordination provisions, should not have been made to them, such Holders
are required to hold it in trust for the holders of Senior Debt of the Company
and pay it over to them as their interests may appear.
SECTION 10.3. NO PAYMENT ON SECURITIES IN CERTAIN
CIRCUMSTANCES.
(a) If any default occurs and is continuing in the payment
when due, whether at maturity, upon any redemption, by declaration or otherwise,
of any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Senior Debt (a
"Payment Default"), no payment of any kind of character shall
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be made by or on behalf of the Company or any other Person on its behalf with
respect to any Obligations on the Securities or to acquire any of the Securities
for cash or property or otherwise. In addition, if any event of default other
than a Payment Default (a "Non-payment Default") occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the Non-payment Default to the
Trustee (a "Default Notice"), then, unless and until all Non-payment Defaults
have been cured or waived or have ceased to exist or the Trustee receives notice
from the Representative for the respective issue of Designated Senior Debt
terminating the Payment Blockage Period (as defined below), during the 180 days
after the delivery of such Default Notice (the "Payment Blockage Period"),
neither the Company nor any other Person on its behalf shall (x) make any
payment of any kind or character with respect to any Obligations on the
Securities or (y) acquire any of the Securities for cash or property or
otherwise. For all purposes of this Section 10.3(a), in no event will a Payment
Blockage Period extend beyond 180 days from the date the payment on the
Securities was due and only one such Payment Blockage Period may be commenced
within any 360 consecutive days. No Non-payment Default which existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Payment Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such Non-payment Default shall have been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action or any breach of any financial covenants for a period commencing after
the date of commencement of such Payment Blockage Period, that in either case,
would give rise to a Non-payment Default pursuant to any provisions under which
a Non-payment Default previously existed or was continuing shall constitute a
new Non-payment Default for this purpose).
(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder
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when such payment is prohibited by Section 10.3(a), such payment shall be held
in trust for the benefit of, and shall be paid over or delivered to, the holders
of Senior Debt (PRO RATA to such holders on the basis of the respective amount
of Senior Debt held by such holders) or their respective Representatives, as
their respective interests may appear. The Trustee shall be entitled to rely on
information regarding amounts then due and owing on the Senior Debt, if any,
received from the holders of Senior Debt (or their Representatives) or, if such
information is not received from such holders or their Representatives, from the
Company and only amounts included in the information provided to the Trustee
shall be paid to the holders of Senior Debt.
Nothing contained in this Article 10 shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; PROVIDED that all Senior Debt thereafter due or declared to
be due shall first be paid in full in cash or Cash Equivalents before the
Holders are entitled to receive any payment to any kind or character with
respect to the Obligations on the Securities.
SECTION 10.4. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article 10 or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Sections 10.2
and 10.3, from making payments at any time for the purposes of making payments
of principal of and interest on the Securities, or from depositing with the
Trustee any moneys for such payments, or (ii) in the absence of actual knowledge
of the Trustee that a given payment would be prohibited by Section 10.2 or 10.3,
the application by the Trustee of any moneys deposited with it for the purpose
of making such payments of principal of and interest on the Securities to the
Holders entitled thereto unless at least one Business Day prior to the date upon
which such payment would otherwise become due and payable, the Trustee shall
have received the written notice provided for in Section 10.2(a) or in Section
10.6 (PROVIDED that, notwithstanding the foregoing, such application shall
otherwise be subject to the provisions of the first sentence of Section 10.2(a)
and Section 10.3). The Company shall give prompt written notice to the Trustee
of
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any dissolution, winding-up, liquidation or reorganization of the Company.
SECTION 10.5. WHEN SECURITIES MUST BE PAID OVER. In the event
that any payment on the Securities is made to the Trustee or the Holders that,
because of this Article, should not have been so made or may not be paid over to
the Holders, such payment shall be held by the Trustee or the Holders who
receive such payment, as the case may be, for the benefit of, and shall
forthwith be paid over or delivered to, the holders of the Senior Debt of the
Company remaining unpaid or their Representatives, as their interests may
appear, to the extent necessary to irrevocably and indefeasibly pay such Senior
Debt in full in cash in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of such Senior Debt.
SECTION 10.6. NOTICES BY THE COMPANY. The Company shall
promptly notify the Trustee, each Paying Agent and the Representative of any
facts known to the Company that would cause a payment on the Securities to
violate this Article, but failure to give such notice shall not affect the
subordination provided in this Article of the Securities to Senior Debt. Without
limiting the foregoing, if payment of the Securities is accelerated because of
an Event of Default, the Company shall promptly notify the Representative of the
acceleration.
SECTION 10.7. SUBROGATION. After all Senior Debt is
irrevocably and indefeasibly paid in full in cash and until the Securities are
paid in full, Holders shall be subrogated to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to Holders have been applied to the payment of
Senior Debt. A distribution made under this Article to holders of Senior Debt
which otherwise would have been made to Holders is not, as between the Company
and the Holders, payment by the Company on Senior Debt.
SECTION 10.8. RELATIVE RIGHTS. This Article defines the
relative rights of Holders and holders of Senior Debt. Nothing in this Indenture
shall:
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(a) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay
the principal of, premium (if any) and interest on the Securities in
accordance with their terms;
(b) affect the relative rights of Holders and creditors of the
Company other than holders of Senior Debt; or
(c) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Debt to receive prepayment, payments and
distributions otherwise payable to Holders.
If the Company fails because of this Article to pay the
principal of, premium (if any) or interest on a Security on the due date or upon
the acceleration thereof, the failure is still a Default or Event of Default.
SECTION 10.9. SUBORDINATION MAY NOT BE IMPAIRED BY THE
COMPANY. No right of any holder of Senior Debt of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by (a) any act or failure to act by the Company or by its failure to comply with
this Indenture, (b) any release of any collateral or any guarantor or any Person
of the Company's obligations under the Senior Debt, (c) any amendment,
supplement, extension, renewal, restatement or other modification of the Senior
Debt, (d) any settlement or compromise of any Senior Debt, (e) the
unenforceability of any of the Senior Debt or (f) the failure of any holder of
Senior Debt to pursue claims against the Company. The terms of the subordination
provisions contained in this Article 10 will not apply to payments from money or
the proceeds of U.S. Government Obligations held in trust by the Trustee for the
payment of principal of and interest on the Securities pursuant to and in
accordance with the provisions described in Article 8.
SECTION 10.10. DISTRIBUTION OF NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of Senior
Debt of the Company, the distribution may be made and the notice given to their
Representative (if any).
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SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT. The Trustee
or any Paying Agent may continue to make payments in respect of the Securities
and shall not be charged with knowledge of the existence of facts that would
prohibit the making of any such payment unless, not less than three Business
Days prior to the date of any such payment, a Responsible Officer of the Trustee
receives written notice reasonably satisfactory to it that payments in respect
of the Securities may not be made under this Article. Only the Company, a
Representative (satisfactorily identified to the Trustee) or a holder of a class
of Senior Debt that has no Representative (satisfactorily identified to the
Trustee) may give the notice. Prior to the receipt of such notice, the Trustee
and any Paying Agent shall be entitled in all respects to assume that no such
facts exist. In any case, the Trustee shall have no responsibility to the
holders of Senior Debt for payments made to Holders by the Company or any Paying
Agent unless cash payments are made at the direction of the Trustee after
receipt of such notice referred to above.
Neither the Trustee nor any Paying Agent shall be deemed to
owe any fiduciary duty to the holders of Senior Debt.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. With
respect to the holders of Senior Debt, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set forth
in this Article 10, and no implied covenants or obligations with respect to the
holders of Senior Debt shall be read into this Indenture against the Trustee.
The Trustee shall not be liable to any holder of Senior Debt if it shall
mistakenly pay over or deliver to Holders, the Company or any other Person
moneys or assets to which any holder of Senior Debt shall be entitled by virtue
of this Article 10 or otherwise.
SECTION 10.12. CONSENT OF HOLDERS OF SENIOR DEBT. The
provisions of this Article (including the definitions contained in this Article
and references to this Article contained in this Indenture) shall not be
amended, waived or modified in a manner that would adversely affect the rights
of the holders of any Senior Debt of the Company, and no such amendment, waiver
or modification shall become effective, unless the hold-
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ers of such Senior Debt shall have consented in writing (in accordance with the
provisions of the agreement governing such Senior Debt) to such amendment,
waiver or modification.
SECTION 10.13. CONTRACTUAL SUBORDINATION. This Article 10
represents a bona fide agreement of contractual subordination pursuant to
Section 510(b) of the United States Bankruptcy Code.
ARTICLE 11
GUARANTEES
SECTION 11.1. GUARANTEES. Each Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of, premium, if any, and interest on the
Securities when due, whether at maturity, by acceleration, by redemption or
otherwise, and all other monetary obligations of the Company under this
Indenture and the Securities and (b) the full and punctual performance within
applicable grace periods of all other obligations of the Company under this
Indenture and the Securities (all the foregoing being hereinafter collectively
called the "Guaranteed Obligations"). Each Guarantor further agrees that the
Guaranteed Obligations may be extended or renewed, in whole or in part, without
notice or further assent from such Guarantor and that such Guarantor will remain
bound under this Article 11 notwithstanding any extension or renewal of any
Guaranteed Obligation.
Each Guarantor waives presentation to, demand of, payment from
and protest to the Company of any of the Guaranteed Obligations and also waives
notice of protest for nonpayment. Each Guarantor waives notice of any default
under the Securities or the Guaranteed Obligations. The obligations of each
Guarantor hereunder shall not be affected by (a) the failure of any Holder or
the Trustee to assert any claim or demand or to enforce any right or remedy
against the Company or any other Person under this Indenture, the Securities or
any other agreement or otherwise; (b) any extension or renewal of any thereof;
(c) any rescission, waiver, amendment or modification of any of the terms or
provisions of this Indenture, the Secu-
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rities or any other agreement; (d) the release of any security held by any
Holder or the Trustee for the Guaranteed Obligations or any of them; (e) the
failure of any Holder or the Trustee to exercise any right or remedy against any
other guarantor of the Guaranteed Obligations; or (f) any change in the
ownership of such Guarantor.
Each Guarantor further agrees that its Guarantee herein
constitutes a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waives any right to require that any resort be
had by any Holder or the Trustee to any security held for payment of the
Guaranteed Obligations.
Each Guarantee is, to the extent and in the manner set forth
in Article 12, subordinated and subject in right of payment to the prior payment
in full of the principal of and premium, if any, and interest on all Guarantor
Senior Debt giving such Guarantee and each Guarantee is made subject to such
provisions of this Indenture.
Except as expressly set forth in Sections 8.2, 11.2 and 11.6,
the obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense of setoff, counterclaim, recoupment or termination
whatsoever or by reason of the invalidity, illegality or unenforceability of the
Guaranteed Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of each Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of any Holder or the Trustee to
assert any claim or demand or to enforce any remedy under this Indenture, the
Securities or any other agreement, by any waiver or modification of any thereof,
by any default, failure or delay, willful or otherwise, in the performance of
the Guaranteed Obligations, or by any other act or thing or omission or delay to
do any other act or thing which may or might in any manner or to any extent vary
the risk of such Guarantor or would otherwise operate as a discharge of such
Guarantor as a matter of law or equity.
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Each Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of, premium, if any, or interest on
any Guaranteed Obligation is rescinded or must otherwise be restored by any
Holder or the Trustee upon the bankruptcy or reorganization of the Company or
otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of the Company to pay the principal
of, premium, if any, or interest on any Obligation when and as the same shall
become due, whether at maturity, by acceleration, by redemption or otherwise, or
to perform or comply with any other Guaranteed Obligation, each Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Guaranteed Obligations, (ii) accrued
and unpaid interest on such Guaranteed Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary Guaranteed Obligations of the
Company to the Holders and the Trustee.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in respect of any Guaranteed Obligations guaranteed hereby
until payment in full of all Guaranteed Obligations and all obligations to which
the Guaranteed Obligations are subordinated as provided in Article 12. Each
Guarantor further agrees that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the Guaranteed
Obligations hereby may be accelerated as provided in Article 6 for the purposes
of such Guarantor's Guarantee herein, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such Obligations as provided in Article 6, such Obligations (whether or not due
and payable) shall forthwith become due and payable by such Guarantor for the
purposes of this Section.
Each Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by
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the Trustee or any Holder in enforcing any rights under this Section.
SECTION 11.2. LIMITATION ON LIABILITY. Any term or provision
of this Indenture to the contrary notwithstanding, the maximum aggregate amount
of the obligations guaranteed hereunder by any Guarantor shall not exceed the
maximum amount that can be hereby guaranteed without rendering this Indenture,
as it relates to such Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. To effectuate the foregoing intention, the
obligations of each Guarantor shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations
hereunder, result in the obligations of such Guarantor under its Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal, state
or foreign law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in an
amount based on the consolidated net worth of each Guarantor.
SECTION 11.3. SUCCESSORS AND ASSIGNS. This Article 11 shall be
binding upon each Guarantor and its successors and assigns and shall enure to
the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee,
the rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 11.4. NO WAIVER. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article 11 shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified
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are cumulative and not exclusive of any other rights, remedies or benefits which
either may have under this Article 11 at law, in equity, by statute or
otherwise.
SECTION 11.5. MODIFICATION. No modification, amendment or
waiver of any provision of this Article 11, nor the consent to any departure by
any Guarantor therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Trustee, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
No notice to or demand on any Guarantor in any case shall entitle such Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.
SECTION 11.6. RELEASE OF GUARANTOR. A Guarantor may, by
execution and delivery to the Trustee of a supplemental indenture satisfactory
to the Trustee, be released from its Guarantee upon the sale of all of its
Capital Stock, or all or substantially all of the assets of the applicable
Guarantor, to any Person that is not a Subsidiary of the Company, if such sale
is made in compliance with this Indenture.
SECTION 11.7. EXECUTION OF SUPPLEMENTAL INDENTURE FOR FUTURE
GUARANTORS. Each Subsidiary which is required to become a Guarantor pursuant to
Section 4.14 shall, and the Company shall cause each such Subsidiary to,
promptly execute and deliver to the Trustee a supplemental indenture in the form
of Exhibit F hereto pursuant to which such Subsidiary shall become a Guarantor
under this Article 11 and shall guarantee the Obligations. Concurrently with the
execution and delivery of such supplemental indenture, the Company shall deliver
to the Trustee an Opinion of Counsel to the effect that such supplemental
indenture has been duly authorized, executed and delivered by such Subsidiary
and that, subject to the application of bankruptcy, insolvency, moratorium,
fraudulent conveyance or transfer and other similar laws relating to creditors'
rights generally and to the principles of equity, whether considered in a
proceeding at law or in equity, the Guarantee of such Guarantor is a legal,
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms.
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ARTICLE 12
SUBORDINATION OF GUARANTEES
SECTION 12.1. AGREEMENT TO SUBORDINATE. Notwithstanding any
other provision to the contrary in this Indenture, each Guarantor covenants and
agrees, and each Holder by accepting a Security covenants and agrees, that all
payments by such Guarantor in respect of its Guarantee are subordinated in right
of payment, to the extent and in the manner provided in this Article, to the
prior payment in full of all Guarantor Senior Debt, whether outstanding on the
Issue Date or thereafter incurred, including all Obligations of the Company and
such Guarantor under the Credit Agreement. The subordination provisions set
forth in this Article are for the benefit of, and shall be enforceable directly
by, the holders of Guarantor Senior Debt.
Each Holder authorizes and directs the Trustee on such
Holder's behalf to take such action as may be necessary or appropriate, in the
sole discretion of the Trustee, to acknowledge or effectuate the subordination
between the Holders and the holders of Guarantor Senior Debt as provided in this
Article and appoints the Trustee as such Holder's attorney-in-fact for any and
all such proposes, including, in the event of any voluntary or involuntary
liquidation or dissolution of a Guarantor, whether total or partial, or in a
bankruptcy, reorganization, insolvency, receivership, dissolution, assignment
for the benefit of creditors, marshalling of assets or similar proceeding
relating to a Guarantor or its property, the timely filing of a claim for the
unpaid balance of such Holder's Securities in the form required in said
proceeding and cause said claim to be approved. If the Trustee does not file a
property claim or proof to debt in the form required in such proceeding prior to
20 days before the expiration of the time to exile such claim or claims, then
the Representative is hereby authorized to have the right to file and is hereby
authorized to file an appropriate claim for and on behalf of the Holders;
PROVIDED, HOWEVER, that any such claim filed by such Representative shall be
superseded by the claim, if any, subsequently filed by the Trustee.
Each Holder by accepting a Security acknowledges and agrees
that the subordination provisions set forth in this Ar-
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ticle are, and are intended to be, an inducement and consideration to each
holder of Guarantor Senior Debt, whether such Guarantor Senior Debt was created
before or after the issuance of the Securities, to acquire and continue to hold,
or to continue to hold, such Guarantor Senior Debt, and such holder of Guarantor
Senior Debt shall be deemed conclusively to have relied upon such subordination
provisions in acquiring and continuing to hold, or in continuing to hold, such
Guarantor Senior Debt, and such holder is made an obligee hereunder and may
enforce directly such subordination provisions.
SECTION 12.2. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any
payment or distribution of the assets of any Guarantor of any kind or character,
whether in cash, property or securities, to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of creditors
or marshalling of assets of the Company or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to the Company of
its properties, whether voluntary or involuntary:
(a) all Obligations due upon all Guarantor Senior Debt shall
first be paid in cash or Cash Equivalents, or such payment is duly
provided for to the satisfaction of the holders of Guarantor Senior
Debt, before any payment or distribution of any kind or character is
made on account of any Obligations on the Securities or for the
acquisitions of any of the Securities for cash or property or
allowances; and
(b) until the Guarantor Senior Debt of such Guarantor is paid
in full, any payment or distribution to which Holders would be entitled
but for this Article shall be made to holders of Guarantor Senior Debt,
as their interests may appear.
Upon any payment or distribution referred to in this Article,
the Trustee and the Holders shall be entitled to rely upon any order or decree
of a court of competent jurisdiction in which such proceedings are pending for
the purpose of ascertaining the identity of Persons entitled to participate in
such payment or distribution, the holders of Guarantor Senior Debt, the amount
thereof or payable thereon and all other facts per-
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tinent thereto or to this Article, and the Trustee and the Holders shall be
entitled to rely upon a certificate of the liquidating trustee or agent or other
Person (including any Representative of holders of Guarantor Senior Debt) making
any payment or distribution to the Trustee or to the Holders for the purpose of
ascertaining the identity of Persons entitled to participate in such payment or
distribution, the holders of Guarantor Senior Debt, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any Person, as a holder of Guarantor Senior Debt, to participate in any
payment or distribution pursuant to this Section, the Trustee may request such
Person (at the expense of the Holders) to furnish evidence to the reasonable
satisfaction of the Trustee, acting in good faith, as to the amount of such
Guarantor Senior Debt held by such Person, as to the extent to which such Person
is entitled to participate in such payment or distribution, and as to the other
facts pertinent to the rights of such Person under this Section, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive
payment.
The consolidation or merger of a Guarantor with or into any
Person, or the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of such Guarantor's assets to any
Person, in compliance with the terms and conditions set forth in Article 5,
shall not be deemed to be a liquidation, dissolution or reorganization or
similar proceeding relating to such Guarantor for purposes of this Section.
SECTION 12.3. NO PAYMENT ON SECURITIES IN CERTAIN
CIRCUMSTANCES.
(a) If any default occurs and is continuing in the payment
when due, whether at maturity, upon any redemption, by declaration or otherwise,
of any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Guarantor Senior
Debt (a "Guarantor Payment Default"), no payment of any kind or character shall
be made by or on behalf of the Company or any
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other Person on its behalf with respect to any Obligations on the Securities or
to acquire any of the Securities for cash or property or otherwise. In addition,
if any event of default other than a Guarantor Payment Default (a "Guarantor
Non-payment Default") occurs and is continuing with respect to any Designated
Senior Debt, as such event of default is defined in the instrument creating or
evidencing such Designated Senior Debt, permitting the holders of such
Designated Senior Debt then outstanding to accelerate the maturity thereof and
if the Representative for the respective issue of Designated Senior Debt gives
written notice of the Guarantor Non-payment Default to the Trustee (a "Guarantor
Default Notice"), then, unless and until all Guarantor Non-payment Defaults have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Guarantor Payment Blockage Period (as defined below), during the
180 days after the delivery of such Guarantor Default Notice (the "Guarantor
Payment Blockage Period"), neither the Company nor any other Person on its
behalf shall (x) make any payment of any kind or character with respect to any
Obligations on the Securities or (y) acquire any of the Securities for cash or
property or otherwise. For all purposes of this Section 12.3(a), in no event
will a Guarantor Payment Blockage Period extend beyond 180 days from the date
the payment on the Securities was due and only one such Guarantor Payment
Blockage Period may be commenced within any 360 consecutive days. No Guarantor
Non-payment Default which existed or was continuing on the date of the
commencement of any Guarantor Payment Blockage Period with respect to the
Designated Senior Debt shall be, or be made, the basis for commencement of a
second Guarantor Payment Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such Guarantor Non-payment Default shall have been cured or waived for a
period of not less than 90 consecutive days (it being acknowledged that any
subsequent action or any breach of any financial covenants for a period
commencing after the date of commencement of such Guarantor Payment Blockage
Period, that in either case, would give rise to a Guarantor Non-payment Default
pursuant to any provisions under which a Guarantor Non-payment Default
previously existed or was continuing shall constitute a new Guarantor
Non-payment Default for this purpose).
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(b) In the event that, notwithstanding the foregoing, any
payment shall be received by the Trustee or any Holder when such payment is
prohibited by Section 12.3(a), such payment shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holders of Guarantor
Senior Debt (PRO RATA to such holders on the basis of the respective amount of
Guarantor Senior Debt held by such holders) or their respective Representatives,
as their respective interests may appear. The Trustee shall be entitled to rely
on information regarding amounts then due and owing on the Guarantor Senior
Debt, if any, received from the holders of Guarantor Senior Debt (or their
Representatives) or, if such information is not received from such holders or
their Representatives, from the Company and only amounts included in the
information provided to the Trustee shall be paid to the holders of Guarantor
Senior Debt.
Nothing contained in this Article 12 shall limit the right of
the Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; PROVIDED that all Guarantor Senior Debt thereafter due or
declared to be due shall first be paid in full in cash or Cash Equivalents
before the Holders are entitled to receive any payment to any kind or character
with respect to the Obligations on the Securities.
SECTION 12.4. PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Article 12 or elsewhere in this Indenture shall
prevent (i) the Company, except under the conditions described in Sections 12.2
and 12.3, from making payments at any time for the purposes of making payments
of principal of and interest on the Securities, or from depositing with the
Trustee any moneys for such payments, or (ii) in the absence of actual knowledge
of the Trustee that a given payment would be prohibited by Section 12.2 or 12.3,
the application by the Trustee of any moneys deposited with it for the purpose
of making such payments of principal of and interest on the Securities to the
Holders entitled thereto unless at least one Business Day prior to the date upon
which such payment would otherwise become due and payable, the Trustee shall
have received the written notice provided for in Section 12.2(a) or in Section
12.6 (PROVIDED that, notwithstanding the foregoing, such application shall
otherwise be subject to the provisions
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of the first sentence of Section 12.2(a) and Section 12.3). The Company shall
give prompt written notice to the Trustee of any dissolution, winding-up,
liquidation or reorganization of the Company.
SECTION 12.5. WHEN SECURITIES MUST BE PAID OVER. In the event
that any payment is made on the Securities to the Trustee or the Holders that,
because of this Article, should not have been so made or may not be paid over to
the Holders, such payment shall be held by the Trustee or the Holders who
receive such payment, as the case may be, for the benefit of, and shall
forthwith be paid over or delivered to, the holders of the Guarantor Senior Debt
remaining unpaid or their Representatives, as their interests may appear, to the
extent necessary to irrevocably and indefeasibly pay such Guarantor Senior Debt
in full in cash or in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of such Guarantor
Senior Debt.
SECTION 12.6. NOTICES BY A GUARANTOR. Each Guarantor shall
promptly notify the Trustee, each Paying Agent and the Representative of any
facts known to such Guarantor that would cause a payment on the Securities to
violate this Article, but failure to give such notice shall not affect the
subordination provided in this Article of any Subsidiary Guarantee to holders of
Guarantor Senior Debt. Without limiting the foregoing, if payment of the
Securities is accelerated because of an Event of Default, the Guarantors shall
promptly notify the Representative of the acceleration.
SECTION 12.7. SUBROGATION. After all Guarantor Senior Debt is
irrevocably and indefeasibly paid in full in cash and until the Securities are
paid in full, Holders shall be subrogated to the rights of holders of Guarantor
Senior Debt of the respective Guarantors to receive distributions applicable to
Guarantor Senior Debt to the extent that distributions otherwise payable to
Holders have been applied to the payment of Guarantor Senior Debt. A
distribution made under this Article to holders of Guarantor Senior Debt which
otherwise should have been made to Holders is not, as between a Guarantor and
the Holders, payment by such Guarantor on Guarantor Senior Debt.
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SECTION 12.8. RELATIVE RIGHTS. This Article defines the
relative rights of Holders and holders of Guarantor Senior Debt. Nothing in this
Indenture shall:
(a) impair, as between a Guarantor and the Holders, the
obligation of a Guarantor, which is absolute and unconditional, to make
any payment in accordance with the terms of its Guarantee;
(b) affect the relative rights of Holders and creditors of a
Guarantor other than holders of Guarantor Senior Debt; or
(c) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Guarantor Senior Debt to receive prepayment,
payments and distributions otherwise payable to Holders.
If a Guarantor fails because of this Article to pay the
principal of (or premium, if any) or interest on a Security on the due date or
upon the acceleration thereof, the failure is still a Default or Event of
Default.
SECTION 12.9. SUBORDINATION MAY NOT BE IMPAIRED BY THE
GUARANTOR. No right of any holder of Guarantor Senior Debt to enforce the
subordination of the Obligation of a Guarantor pursuant to its Guarantee shall
be impaired by (a) any act or failure to act by such Guarantor or by its failure
to comply with this Indenture, (b) any release of any collateral or any
guarantor or any Person or such Guarantor's obligations under Guarantor Senior
Debt, (c) any amendment, supplement, extension, renewal, restatement or other
modification of any Guarantor Senior Debt, (d) any settlement or compromise of
any Guarantor Senior Debt, (e) the unenforceability of any of the Guarantor
Senior Debt or (f) the failure of any holder of Guarantor Senior Debt to pursue
claims against such Guarantor. The terms of the subordination provisions
contained in this Article 12 will not apply to payments from money or the
proceeds of U.S. Government Obligations held in trust by the Trustee for the
payment of principal of and interest on the Securities pursuant to and in
accordance with the provisions described in Article 8.
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SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of Guarantor
Senior Debt, the distribution may be made and the notice given to their
Representative (if any).
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT. The Trustee
or any Paying Agent may continue to make payments in respect of the Securities
and shall not be charged with knowledge of the existence of facts that would
prohibit the making of any such payment unless, not less than three Business
Days prior to the date of any such payment, a Responsible Officer of the Trustee
receives written notice reasonably satisfactory to it that payments in respect
of the Securities may not be made under this Article. Only a Guarantor, a
Representative (satisfactorily identified to the Trustee) or a holder of a class
of Guarantor Senior Debt that has no Representative (satisfactorily identified
to the Trustee) may give the notice. Prior to the receipt of such notice, the
Trustee and any Paying Agent shall be entitled in all respects to assume that no
such facts exist. In any case, the Trustee shall have no responsibility to the
holders of Guarantor Senior Debt for payments made to Holders by a Guarantor or
any Paying Agent unless such payments are made at the direction of the Trustee
after receipt of such notice referred to above.
Neither the Trustee nor any Paying Agent shall be deemed to
owe any fiduciary duty to the holders of Guarantor Senior Debt. With respect to
the holders of Guarantor Senior Debt, the Trustee undertakes to perform or to
observe only such of its covenants and obligations as are specifically set forth
in this Article 12, and no implied covenants or obligations with respect to the
holders of Guarantor Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be liable to any holders of Guarantor Senior Debt
if it shall mistakenly pay over or deliver to Holders, the Company or any other
Person moneys or assets to which any holder of Guarantor Senior Debt shall be
entitled by virtue of this Article 12 or otherwise.
The Trustee in its individual or any other capacity may hold
Guarantor Senior Debt with the same rights it would have if it were not Trustee.
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This Section is solely for the benefit of the Trustee and any
Paying Agent and shall not limit the obligations of the Holders under Section
12.5.
SECTION 12.12. CONSENT OF HOLDERS OF GUARANTOR SENIOR DEBT.
The provisions of this Article (including the definitions contained in this
Article and references to this Article contained in this Indenture) shall not be
amended, waived or modified in a manner that would adversely affect the rights
of the holders of any Guarantor Senior Debt, and no such amendment, waiver or
modification shall become effective, unless the holders of such Guarantor Senior
Debt shall have consented in writing (in accordance with the provisions of the
Agreement governing such Guarantor Senior Debt) to such amendment, waiver or
modification.
SECTION 12.13. CONTRACTUAL SUBORDINATION. This Article
represents a bona fide agreement of contractual subordination pursuant to
Section 510(b) of the United States Bankruptcy Code.
ARTICLE 13
MISCELLANEOUS
SECTION 13.1. TRUST INDENTURE ACT CONTROLS. If any provision
of this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control. If this Indenture excludes any provision of the TIA that is
required to be included, such provision shall be deemed included herein.
SECTION 13.2. NOTICES. Any notice or communication shall be in
writing and delivered in person, by overnight courier or facsimile (if to the
Company, with receipt confirmed by an Officer) or mailed by first-class mail
addressed as follows:
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IF TO THE COMPANY OR ANY GUARANTOR:
Precision Partners, Inc.
5605 N. MacArthur Blvd.
Suite 760
Irving, Texas 75038
Attention: Chief Financial Officer
With copies to:
Jones Day Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Sandy Kaynor, Esq.
IF TO THE TRUSTEE:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Trustee Administration
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed or sent by overnight
courier or facsimile to a Securityholder shall be sent to the Securityholder at
the Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so sent within the time prescribed.
Failure to send 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 sent in the manner provided
above, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice.
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SECTION 13.3. COMMUNICATION 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 anyone else 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 to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee to the extent required by the TIA or this Indenture:
(1) an Officers' Certificate (which in connection with the
original issuance of the Securities need only be executed by one
Officer for the Company) in form and substance reasonably satisfactory
to the Trustee stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 13.5. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion
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as to whether or not such covenant or condition has been complied with;
and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with;
PROVIDED, that an Opinion of Counsel can rely as to matters of fact on
an Officers' Certificate or a certificate of a public official.
SECTION 13.6. WHEN SECURITIES DISREGARDED. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee actually knows are so owned shall
be so disregarded. Also, subject to the foregoing, only Securities outstanding
at the time shall be considered in any such determination.
SECTION 13.7. RULES BY TRUSTEE, PAYING AGENT AND REGISTRAR.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Trustee shall provide the Company reasonable notice of such
rules. The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 13.8. LEGAL HOLIDAYS. If a payment date is a Legal
Holiday, payment shall be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period. If a regular
record date is a Legal Holiday, the record date shall not be affected.
SECTION 13.9. GOVERNING LAW. This Indenture and the Securities
shall be governed by, and construed in accordance with, the laws of the State of
New York without giving effect to applicable principles of conflict of laws to
the extent that the application of the laws of another jurisdiction would be
required thereby.
<PAGE>
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SECTION 13.10. NO RECOURSE AGAINST OTHERS. No recourse for the
payment of the principal of, premium, if any, or interest on any of the
Securities or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture, or in any of the Securities or because of the creation of any
Indebtedness represented hereby and thereby, shall be had against any
incorporator, stockholder, officer, director, employee or controlling person of
the Company or any Successor Person thereof. Each Holder, by accepting a
Security, waives and releases all such liability. The waiver and release shall
be part of the consideration for the issuance of the Securities.
SECTION 13.11. SUCCESSORS. All agreements of the Company in
this Indenture and the Securities shall bind the Company's successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 13.12. MULTIPLE ORIGINALS. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.
SECTION 13.13. TABLE OF CONTENTS; HEADINGS. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
SECTION 13.14. SEVERABILITY CLAUSE. In case any provision in
this Indenture or in the Securities shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
<PAGE>
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IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
THE COMPANY:
PRECISION PARTNERS, INC.
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Chief Financial Officer
GUARANTORS:
CERTIFIED FABRICATORS, INC.
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Vice President
GENERAL AUTOMATION, INC.
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Vice President
NATIONWIDE PRECISION PRODUCTS CORP
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Vice President
<PAGE>
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MID STATE MACHINE PRODUCTS
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Vice President
GALAXY INDUSTRIES CORPORATION
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Vice President
CALBRIT DESIGN, INC.
By: /s/ Ronald M. Miller
----------------------------------
Name: Ronald M. Miller
Title: Vice President
TRUSTEE:
THE BANK OF NEW YORK,
as Trustee
By: /s/ Remo J. Reale
----------------------------------
Name: Remo J. Reale
Title: Assistant Vice President
<PAGE>
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO 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. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE (AND ANY GUARANTEE THEREOF) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND NEITHER THIS
SECURITY (NOR ANY GUARANTEE THEREOF) NOR ANY INTEREST OR PARTICIPATION HEREIN
(OR THEREIN) MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT. THE HOLDER HEREOF, BY ITS ACCEPTANCE OF THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY MAY NOT BE OFFERED, SOLD
PLEDGED OR OTHERWISE TRANSFERRED PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE THERETO UNDER RULE 144(K) UNDER THE SECURITIES ACT WHICH IS
APPLICABLE TO THIS SECURITY (THE "RESALE RESTRICTION TERMINATION DATE") OTHER
THAN (1) TO THE ISSUER OR ITS SUBSIDIARIES, (2) SO LONG AS THIS SECURITY IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLE BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN
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ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE TO
WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICTED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OR TRANSFER ON THE REVERSE OF THIS SECURITY IF THIS SECURITY IS NOT
IN BOOK-ENTRY FORM), (3) TO A NON-"U.S. PERSON" IN AN "OFFSHORE TRANSACTION" (AS
SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE SECURITIES ACT) IN ACCORDANCE
WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY
THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY IF
THIS SECURITY IS NOT IN BOOK-ENTRY FORM), (4) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING
THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE OR (5)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE
DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNT
BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL, AND SUBJECT TO THE RIGHT OF THE
ISSUER OR THE TRUSTEE FOR THE SECURITIES PRIOR TO ANY SUCH SALE, PLEDGE OR OTHER
TRANSFER PURSUANT TO CLAUSE (4) ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THIS LEGEND WILL BE REMOVED UPON REQUEST OF THE HOLDER ON OR AFTER THE RESALE
RESTRICTION TERMINATION DATE.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER 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 IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRE-
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<PAGE>
SENTATIVE 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.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
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<PAGE>
No.
$100,000,000
12% Senior Subordinated Notes Due 2009
CUSIP No. 740301 AA4
PRECISION PARTNERS, INC., a Delaware corporation, promises to pay to Cede
& Co., or registered assigns, the principal sum of One Hundred Million Dollars
on March 19, 2009.
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Additional provisions of this Security are set forth on the reverse side
of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
PRECISION PARTNERS, INC.
By:
------------------------------------
Name:
Title:
Dated: March 19, 1999
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York, as Trustee, certifies that this is one of the Securities
referred to in the within-mentioned Indenture.
By: The Bank of New York,
as Trustee
------------------------------------
Authorized Signatory
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<PAGE>
Date of Authentication:
March 19, 1999
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<PAGE>
REVERSE OF SECURITY
12% SENIOR SUBORDINATED note DUE 2009
1. INTEREST
PRECISION PARTNERS, INC., a Delaware corporation (such entity, and its
successors and assigns under the Indenture hereinafter referred to, and each
other entity which is required to become the Company pursuant to the Indenture,
and its successors and assigns under the Indenture, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semiannually on
March 15th and September 15th of each year, commencing September 15, 1999.
Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from, March 19, 1999.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at 1% per annum in
excess of the rate borne by the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the record date immediately preceding the interest payment date
even if Securities are canceled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the applicable
Registration Rights Agreement)) after the record date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by its check payable in such
U.S. Legal Tender. The Company may deliver any such interest
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<PAGE>
payment to the Paying Agent or to a Holder's registered address.
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of March
19, 1999 (the "Indenture"), among the Company, the Guarantors and the Trustee.
This Security is one of a duly authorized issue of Initial Securities of the
Company designated as its 12% Senior Subordinated Notes due 2009 (the "Initial
Securities"). The Securities include the Initial Securities, the Exchange
Securities (as defined in the Indenture) and the Unrestricted Securities, as
defined below, issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement or, with respect to the Initial Securities issued
under the Indenture subsequent to the Issue Date, a registration agreement
substantially identical to the Registration Rights Agreement with the Initial
Purchasers. The Initial Securities and the Unrestricted Securities are treated
as a single class of securities under the Indenture. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in
effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture
and not defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the TIA for a statement of those terms. Any conflict between
this Security and the Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the
Company limited to $150,000,000 aggregate principal amount (subject to Section
2.7 of the Indenture),
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<PAGE>
$100,000,000 aggregate principal amount of which was issued on the Issue Date.
The Indenture imposes certain limitations on the incurrence of Indebtedness by
the Company and its Restricted Subsidiaries, the existence of liens, the payment
of dividends on, and redemption of, the Capital Stock of the Company and its
Subsidiaries, restricted payments, the sale or transfer of assets and Subsidiary
stock, the issuance or sale of Capital Stock of Restricted Subsidiaries, the
investments of the Company and the Restricted Subsidiaries, consolidations,
mergers and transfers of all or substantially all the assets of the Company, and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and certain of its Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal, premium and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Guarantors have unconditionally
guaranteed the Obligations on a SENIOR SUBORDINATED basis pursuant to the terms
of the Indenture.
5. OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Securities are not
redeemable before March 15, 2004. Thereafter, the Company may redeem the
Securities at its option, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on March 15th of the year set forth below:
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<PAGE>
YEAR PERCENTAGE
---- ----------
2004 ................................................. 106.000%
2005 ................................................. 104.000%
2006 ................................................. 102.000%
2007 and thereafter .................................. 100.000%
In addition, the Company must pay accrued and unpaid interest on the
Securities redeemed.
At any time, or from time to time, on or prior to March 15, 2002, the
Company may, at its option, use the net cash proceeds of one or more Qualified
Equity Offerings (as defined below) to redeem up to 35% of the Securities issued
at a redemption price equal to 112.000% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon to the date of redemption; provided
that:
(1) at least 65% of the principal amount of Securities
originally issued remains outstanding immediately after any such
redemption; and
(2) the Company makes such redemption not more than 180 days
after the consummation of any such Qualified Equity Offering.
As used in the preceding paragraph, "Qualified Equity Offering" means a
primary offering of Qualified Capital Stock, or rights, warrants or options to
acquire Qualified Capital Stock, of the Company, Holdings or LLC in the United
States of at least $25 million to Persons who are not Affiliates of the Company
or Holdings; provided that, in the case of any such offering of Qualified
Capital Stock of Holdings or LLC, all the net proceeds thereof necessary to pay
the aggregate redemption price (plus accrued interest to the redemption date) of
the Securities to be redeemed pursuant to the preceding paragraph are
contributed to the Company.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the re-
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<PAGE>
demption date to each Holder of Securities to be redeemed at his registered
address. Securities in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. If money sufficient to pay the redemption
price of and accrued interest on all Securities (or portions thereof) to be
redeemed on the redemption date is deposited with the Paying Agent on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption. If a notice or communication is sent in the
manner provided in the Indenture, it is duly given, whether or not the addressee
receives it. Failure to send a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
7. CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Securities
will have the right to require the Company to purchase all or any part of the
Securities of such Holder at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. THE REGISTRATION RIGHTS AGREEMENT
The holder of this Security is entitled to the benefits of a Registration
Rights Agreement, dated as of [ ], 1999, among the Company, the Guarantors and
the Initial Purchasers named therein (as such may be amended from time to time,
the "Registration Rights Agreement"). Capitalized terms used in this subsection
but not defined herein have the meanings assigned to them in the Registration
Rights Agreement.
In the event that (i) neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the SEC within 180 days
after the Closing Date, (ii) the Exchange Offer Registration Statement has not
been de-
A-10
<PAGE>
clared effective within 181 days after the Closing Date, (iii) neither the
Registered Exchange Offer has been consummated nor the Shelf Registration
Statement has been declared effective within 210 days after the Closing Date, or
(iv) after either the Exchange Offer Registration Statement or the Shelf
Registration Statement has been declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of the Securities at any time that the Company is
obligated to maintain the effectiveness thereof pursuant to the Registration
Rights Agreement (each such event referred to in clauses (i) through (iv) above
being referred to herein as a "Registration Default"), interest ("Special
Interest") will accrue on this Security (in addition to the interest described
above) from and including the date on which any Registration Default shall occur
but excluding the date on which all Registration Defaults have been cured.
Special Interest shall accrue at a rate of 0.50% per annum during the 90-day
period immediately following the occurrence of any Registration Default and
shall increase by 0.25% per annum at the end of each subsequent 90-day period,
but in no event shall Special Interest accrue at a rate in excess of 1.00% per
annum.
9. SUBORDINATION
The Securities are subordinated to Senior Debt of the Company, as defined
in the Indenture. To the extent provided in the Indenture, Senior Debt of the
Company must be paid before the Securities may be paid. In addition, each
Guarantee is subordinated to Guarantor Senior Debt of the relevant Guarantor, as
defined in the Indenture. The Company and each Guarantor agrees, and each Holder
by accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
10. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accor-
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<PAGE>
dance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture, including any
transfer tax or other similar governmental charge payable in connection
therewith. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
11. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of it
for all purposes.
12. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
13. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
14. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or compliance with any provision may be waived with the consent
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<PAGE>
of the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company, the Guarantors and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, to comply with Article 5 of the Indenture, to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to add guarantees with respect to the Securities, to secure the Securities, to
add additional covenants or surrender rights and powers conferred on the
Company, to make any change that does not adversely affect the rights of any
Securityholder or to comply with any request of the SEC in connection with
qualifying the Indenture under the TIA.
15. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include:
(i) the failure to pay interest on any notes when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination
provisions of the indenture);
(ii) the failure to pay the principal on any notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the indenture);
(iii) a default in the observance or performance of any other
covenant or agreement contained in the indenture which default continues
for a period of 45 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the trustee or the Holders of at least 25% of the outstanding principal
amount of the notes (except in the case of a default with respect to
Section 5.1, which will constitute
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<PAGE>
an Event of Default with such notice requirement but without such passage
of time requirement);
(iv) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness of the Company or of any Restricted Subsidiary (or the
payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness now exists or is created after the
Issue Date, which default (a) is caused by a failure to pay principal of
such Indebtedness after notice and the lapse of any applicable grace
period provided in such Indebtedness on the date of such default (a
"payment default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity (and such acceleration is not
rescinded, or such Indebtedness is not repaid, within 30 days) and, in
each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a payment default or the maturity of which has been so accelerated
(and such acceleration is not rescinded, or such Indebtedness is not
repaid, within 30 days), aggregates $7.5 million;
(v) one or more judgments in an aggregate amount in excess of
$7.5 million not covered by adequate insurance shall have been rendered
against the Company or any of the Restricted Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days
after such judgment or judgments become final and nonappealable;
(vi) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against
it in an involuntary case in which it is the debtor;
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<PAGE>
(C) consents to the appointment of a Custodian of it or
for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for any substantial part
of the property of the Company or Significant Subsidiary;
(C) orders the winding up or liquidation of the Company
or any Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the order
or decree remains unstayed and in effect for 60 days; or
(viii) any Guarantee of a Significant Subsidiary ceases to be in
full force and effect or any Guarantee of a Significant Subsidiary
declared to be null and void and unenforceable or any Guarantee of a
Significant Subsidiary is found to be invalid or any of the Guarantors
that is a Significant Subsidiary denies its liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with the
terms of the indenture).
If an Event of Default occurs and is continuing (other than under clauses
(vi) or (vii)), the Trustee or the Holders of at least 25% in principal amount
of the Securities then outstanding may declare all the Securities to be due and
payable. If an Event of Default pursuant to clause (vi) or
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<PAGE>
(vii) occurs, the Securities will become immediately due and payable due and
payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
16. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
17. NO RECOURSE AGAINST OTHERS
No recourse for the payment of the principal of, premium, if any, or
interest on any of the Securities or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture, or in any of the Securities or
because of the creation of any Indebtedness represented hereby and thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company, a Guarantor or any Successor Person
thereof. Each Holder, by accepting a Security, waives and releases all such
liability.
A-16
<PAGE>
18. GUARANTEES
This Security will be entitled to the benefits of certain Guarantees, if
any, made for the benefit of the Holders. Reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights,
duties and obligations thereunder of the Guarantors, the Trustee and the
Holders.
19. GOVERNING LAW
The Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
20. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
21. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of re-
A-17
<PAGE>
demption and reliance may be placed only on the other identification numbers
placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture. Requests may be
made as follows:
A-18
<PAGE>
If to the Company:
Precision Partners, Inc.
5605 N. MacArthur Blvd.
Suite 760
Irving, Texas 75038
Attention: Chief Financial Officer
If to the Trustee:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
A-19
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: Your Signature:
---------------------- -----------------------------
Sign exactly as your name
appears on the other side of
this Security.
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the [Registrar], which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the [Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at
A-20
<PAGE>
the date of the transfer) and (ii) [ ], the undersigned confirms that it has
not utilized any general solicitation or general advertising in connection
with the transfer:
A-21
<PAGE>
[CHECK ONE]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has furnished to the Trustee a signed letter containing
certain representations and agreements (the form of which letter can
be obtained from the Trustee); or
(4) __ outside the United states to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as amended;
or
(5) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
|_| The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; PROVIDED, HOWEVER, that if item (3),
(4), (5) or (7) is checked, the Company or the Trustee may require,
A-22
<PAGE>
prior to registering any such transfer of the Securities, in their sole
discretion, such written legal opinions, certifications (including an investment
letter in the case of box (3) or (4)) and other information as the Trustee or
the Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or Registrar
shall not be obligated to register this Security in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.14 of the Indenture shall have
been satisfied.
Date: Your Signature:
---------------------- -----------------------------
(Sign exactly as name appears
on the other side of this
Security.)
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the [Registrar], which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the [Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-23
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
------------------- -------------------------------------------
NOTICE: To be executed by an executive
officer
A-24
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: |_|
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: Your Signature:
---------------------- -----------------------------
(Sign exactly as your name
appears on the other side of
the Security)
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the [Registrar], which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the [Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-25
<PAGE>
EXHIBIT B
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO 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. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR securities IN
DEFINITIVE FORM, THIS security MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER 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 IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO 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.
B-1
<PAGE>
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
B-2
<PAGE>
No.
$100,000,000
12% Senior Subordinated Notes Due 2009
CUSIP No. [ ]
PRECISION PARTNERS, INC., a Delaware corporation, promises to pay to Cede
& Co., or registered assigns, the principal sum of One Hundred Million Dollars
on March 19, 2009. Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Additional provisions of this Security are set forth on the reverse side
of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
PRECISION PARTNERS, INC.
By:
------------------------------------
Name:
Title:
Dated: March 19, 1999
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York, as Trustee, certifies that this is one of the Securities
referred to in the within-mentioned Indenture.
By: The Bank of New York,
as Trustee
----------------------------------------
Authorized Signatory
B-3
<PAGE>
Date of Authentication:
March 19, 1999
B-4
<PAGE>
REVERSE OF SECURITY
12% SENIOR SUBORDINATED NOTE DUE 2009
1. INTEREST
PRECISION PARTNERS, INC., a Delaware corporation (such entity, and its
successors and assigns under the Indenture hereinafter referred to, and each
other entity which is required to become the Company pursuant to the Indenture,
and its successors and assigns under the Indenture, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semiannually on
March 15th and September 15th of each year, commencing September 15, 1999.
Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from, March 19, 1999.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at 1% per annum in
excess of the rate borne by the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. METHOD OF PAYMENT
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the record date immediately preceding the interest payment date
even if Securities are canceled on registration of transfer or registration of
exchange (including pursuant to an Exchange Offer (as defined in the applicable
Registration Rights Agreement)) after the record date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by its check payable in such
U.S. Legal Tender. The Company may deliver any such interest
B-5
<PAGE>
payment to the Paying Agent or to a Holder's registered address.
3. PAYING AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation
("Trustee"), will act as Paying Agent and Registrar. The Company may appoint and
change any Paying Agent, Registrar or co-registrar without notice. The Company
may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. INDENTURE
The Company issued the Securities under an Indenture dated as of March
19, 1999 (the "Indenture"), among the Company, the Guarantors and the Trustee.
This Security is one of a duly authorized issue of Unrestricted Securities of
the Company designated as its 12% Senior Subordinated Notes due 2009 (the
"Unrestricted Securities"). The Securities include the 12% Senior Subordinated
Notes due 2009 (the "Initial Securities"), the Exchange Securities (as defined
in the Indenture) and the Unrestricted Securities, as defined below issued in
exchange for the Initial Securities pursuant to the Registration Rights
Agreement or, with respect to the Initial Securities issued under the Indenture
subsequent to the Issue Date, a registration agreement substantially identical
to the Registration Rights Agreement with the Initial Purchasers. The Initial
Securities and the Unrestricted Securities are treated as a single class of
securities under the Indenture. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in effect on the date of
the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of those terms. Any conflict between this Security and the
Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the
Company limited to $150,000,000 aggregate
B-6
<PAGE>
principal amount (subject to Section 2.7 of the Indenture). The Indenture
imposes certain limitations on the incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the existence of liens, the payment of dividends
on, and redemption of, the Capital Stock of the Company and its Subsidiaries,
restricted payments, the sale or transfer of assets and Subsidiary stock, the
issuance or sale of Capital Stock of Restricted Subsidiaries, the investments of
the Company and Restricted Subsidiaries, consolidations, mergers and transfers
of all or substantially all the assets of the Company, and transactions with
Affiliates. In addition, the Indenture limits the ability of the Company and
certain of its Subsidiaries to restrict distributions and dividends from
Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal, premium and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Guarantors have unconditionally
guaranteed the Obligations on a SENIOR SUBORDINATED basis pursuant to the terms
of the Indenture.
5. OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Securities are not
redeemable before March 15, 2004. Thereafter, the Company may redeem the
Securities at its option, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) if redeemed during the twelve-month
period commencing on March 15th of the year set forth below:
B-7
<PAGE>
YEAR PERCENTAGE
---- ----------
2004 .............................................. 106.000%
2005 .............................................. 104.000%
2006 .............................................. 102.000%
2007 and thereafter ............................... 100.000%
In addition, the Company must pay accrued and unpaid interest on the
Securities redeemed.
At any time, or from time to time, on or prior March 15, 2002, the
Company may, at its option, use the net cash proceeds of one or more Qualified
Equity Offerings (as defined below) to redeem up to 35% of the Securities issued
at a redemption price equal to 112.000% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon to the date of redemption; provided
that:
(3) at least 65% of the principal amount of Securities
originally issued remains outstanding immediately after any such
redemption; and
(4) the Company makes such redemption not more than 180 days
after the consummation of any such Qualified Equity Offering.
As used in the preceding paragraph, "Qualified Equity Offering" means a
primary offering of Qualified Capital Stock, or rights, warrants or options to
acquire Qualified Capital Stock, of the Company, Holdings or LLC in the United
States of at least $25 million to Persons who are not Affiliates of the Company
or Holdings; provided that, in the case of any such offering of Qualified
Capital Stock of Holdings or LLC, all the net proceeds thereof necessary to pay
the aggregate redemption price (plus accrued interest to the redemption date) of
the Securities to be redeemed pursuant to the preceding paragraph are
contributed to the Company.
6. NOTICE OF REDEMPTION
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the re-
B-8
<PAGE>
demption date to each Holder of Securities to be redeemed at his registered
address. Securities in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. If money sufficient to pay the redemption
price of and accrued interest on all Securities (or portions thereof) to be
redeemed on the redemption date is deposited with the Paying Agent on or before
the redemption date and certain other conditions are satisfied, on and after
such date interest ceases to accrue on such Securities (or such portions
thereof) called for redemption. If a notice or communication is sent in the
manner provided in the Indenture, it is duly given, whether or not the addressee
receives it. Failure to send a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders.
7. CHANGE OF CONTROL
Upon the occurrence a Change of Control, each Holder of Securities will
have the right to require the Company to purchase all or any part of the
Securities of such Holder at a purchase price in cash equal to 101% of the
principal amount of the Securities thereof plus accrued and unpaid interest, if
any, to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. SUBORDINATION
The Securities are subordinated to Senior Debt of the Company, as defined
in the Indenture. To the extent provided in the Indenture, Senior Debt of the
Company must be paid before the Securities may be paid. In addition, each
Guarantee is subordinated to Guarantor Senior Debt of the relevant Guarantor, as
defined in the Indenture. The Company and each Guarantor agrees, and each Holder
by accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give it effect and appoints the Trustee
as attorney-in-fact for such purpose.
B-9
<PAGE>
9. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. PERSONS DEEMED OWNERS
The registered Holder of this Security may be treated as the owner of it
for all purposes.
11. UNCLAIMED MONEY
If money for the payment of principal or interest remains unclaimed for
two years, the Trustee or Paying Agent shall pay the money back to the Company
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. DISCHARGE AND DEFEASANCE
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
B-10
<PAGE>
13. AMENDMENT, WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or compliance with any provision may be waived with the consent of
the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company, the Guarantors and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, to comply with Article 5 of the Indenture, to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to add guarantees with respect to the Securities, to secure the Securities, to
add additional covenants or surrender rights and powers conferred on the
Company, to make any change that does not adversely affect the rights of any
Securityholder or to comply with any request of the SEC in connection with
qualifying the Indenture under the TIA.
14. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include:
(i) the failure to pay interest on any notes when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination
provisions of the indenture);
(ii) the failure to pay the principal on any notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the indenture);
B-11
<PAGE>
(iii) a default in the observance or performance of any other
covenant or agreement contained in the indenture which default continues
for a period of 45 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the trustee or the Holders of at least 25% of the outstanding principal
amount of the notes (except in the case of a default with respect to
Section 5.1, which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced
any Indebtedness of the Company or of any Restricted Subsidiary (or the
payment of which is guaranteed by the Company or any Restricted
Subsidiary), whether such Indebtedness now exists or is created after the
Issue Date, which default (a) is caused by a failure to pay principal of
such Indebtedness after notice and the lapse of any applicable grace
period provided in such Indebtedness on the date of such default (a
"payment default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity (and such acceleration is not
rescinded, or such Indebtedness is not repaid, within 30 days) and, in
each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has
been a payment default or the maturity of which has been so accelerated
(and such acceleration is not rescinded, or such Indebtedness is not
repaid, within 30 days), aggregates $7.5 million;
(v) one or more judgments in an aggregate amount in excess of
$7.5 million not covered by adequate insurance shall have been rendered
against the Company or any of the Restricted Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days
after such judgment or judgments become final and nonappealable;
B-12
<PAGE>
(vi) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against
it in an involuntary case in which it is the debtor;
(C) consents to the appointment of a Custodian of it or
for any substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case;
(B) appoints a Custodian of the Company or any
Significant Subsidiary of the Company or for any substantial part
of the property of the Company or Significant Subsidiary;
(C) orders the winding up or liquidation of the Company
or any Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the order
or decree remains unstayed and in effect for 60 days; or
(viii) any Guarantee of a Significant Subsidiary ceases to be in
full force and effect or any Guarantee of a Significant Subsidiary
declared to be null and void and unenforceable or any Guarantee of a
Significant Subsidiary is
B-13
<PAGE>
found to be invalid or any of the Guarantors that is a Significant
Subsidiary denies its liability under its Guarantee (other than by reason
of release of a Guarantor in accordance with the terms of the indenture).
If an Event of Default occurs and is continuing (other than under clauses
(vi) or (vii)), the Trustee or the Holders of at least 25% in principal amount
of the Securities then outstanding may declare all the Securities to be due and
payable. If an Event of Default pursuant to clause (vi) or (vii) occurs, the
Securities will become immediately due and payable due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
15. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
16. NO RECOURSE AGAINST OTHERS
No recourse for the payment of the principal of, premium, if any, or
interest on any of the Securities or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of
B-14
<PAGE>
the Company in the Indenture, or in any of the Securities or because of the
creation of any Indebtedness represented hereby and thereby, shall be had
against any incorporator, stockholder, officer, director, employee or
controlling person of the Company, a Guarantor or any Successor Person thereof.
Each Holder, by accepting a Security, waives and releases all such liability.
17. GUARANTEES
This Security will be entitled to the benefits of certain Guarantees, if
any, made for the benefit of the Holders. Reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights,
duties and obligations thereunder of the Guarantors, the Trustee and the
Holders.
18. GOVERNING LAW
The Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
19. AUTHENTICATION
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
20. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
B-15
<PAGE>
21. CUSIP NUMBERS
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request and
without charge to the Securityholder a copy of the Indenture. Requests may be
made as follows:
If to the Company:
Precision Partners, Inc.
5605 N. Mac Arthur Blvd.
Suite 760
Irving, Texas 75038
Attention: Chief Financial Officer
If to the Trustee:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Corporate Trust Trustee Administration
B-16
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: Your Signature:
---------------------- -----------------------------
Sign exactly as your name
appears on the other side of
this Security.
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the [Registrar], which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the [Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
B-17
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: [ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: Your Signature:
---------------------- -----------------------------
(Sign exactly as your name
appears on the other side of
the Security)
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the [Registrar], which requirements include
membership or participation in the Security Transfer Agent Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the [Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
B-18
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[ ], [ ]
[ ]
[ ]
[ ]
Ladies and Gentlemen:
In connection with our proposed purchase of 12% Senior Subordinated Notes
due 2009 (the "Securities") of Precision Partners, Inc., a Delaware corporation
(the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated March 16, 1999, relating to the Securities
and such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Notice to Investors" of such
Offering Memorandum.
2. We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth in
the Indenture relating to the Securities (the "Indenture") as described
in the Offering Memorandum and the undersigned agrees to be bound by, and
not to resell, pledge or otherwise transfer the Securities except in
compliance with, such restrictions and conditions and the Securities Act
of 1933, as amended (the "Securities Act"), and all applicable State
securities laws.
3. We understand that the offer and sale of the Securities
have not been registered under the Securities Act, and that the
Securities may not be offered or sold
C-1
<PAGE>
within the United States or to, or for the account or benefit of, U.S.
persons except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Securities, we will do so
only (i) to the Company or any subsidiary thereof, (ii) inside the United
States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined in Rule 144A promulgated
under the Securities Act), (iii) inside the United States to an
institutional "accredited investor" (as defined below) that, prior to
such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee (as defined in the Indenture) a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Securities (the form of which letter can
be obtained from the Trustee), (iv) outside the United States in
accordance with Rule 904 of Regulation S promulgated under the Securities
Act to non-U.S. persons, (v) pursuant to the exemption from registration
provided by Rule 144 under the Securities Act (if available), or (vi)
pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any of the
Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
4. We understand that, on any proposed resale of any
Securities, we will be required to furnish to the Trustee and the Company
such certification, legal opinions and other information as the Trustee
and the Company may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that the
Securities purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
invest-
C-2
<PAGE>
ment in the Securities, and we and any accounts for which we are acting
are each able to bear the economic risk of our or their investment, as
the case may be.
6. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
C-3
<PAGE>
You, the Company, the Trustee and others are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
------------------------------------
Name:
Title:
C-4
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
------------------------
[ ], [ ]
[ ]
[ ]
[ ]
[ ]
Re: Precision Partners, Inc. (the "Company")
12% Senior Subordinated Notes due 2009
(the "Securities")
----------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $100,000,000 aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable;
D-1
<PAGE>
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
------------------------------------
Authorized Signature
D-2
<PAGE>
EXHIBIT E
GUARANTEE
For value received, the undersigned hereby unconditionally guarantees, as
principal obligor and not only as a surety, to the Holder of this Security the
cash payments in United States dollars of principal of, premium, if any, and
interest on this Security (and including Additional Interest payable thereon) in
the amounts and at the times when due and interest on the overdue principal,
premium, if any, and interest, if any, of this Security, if lawful, and the
payment or performance of all other obligations of the Company under the
Indenture (as defined below) or the Securities, to the Holder of this Security
and the Trustee, all in accordance with and subject to the terms and limitations
of this Security, Article Eleven of the Indenture and this Guarantee. This
Guarantee will become effective in accordance with Article Eleven of the
Indenture and its terms shall be evidenced therein. The validity and
enforceability of any Guarantee shall not be affected by the fact that it is not
affixed to any particular Security. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Indenture dated as of
March 19, 1999, among Precision Partners, Inc., a Delaware corporation, as
issuer (the "Company"), each of the Guarantors named therein and The Bank of New
York, as trustee (the "Trustee"), as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Securities and to
the Trustee pursuant to this Guarantee and the Indenture are expressly set forth
in Article Eleven of the Indenture and reference is hereby made to the Indenture
for the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of
the courts of
E-1
<PAGE>
the State of New York in any action or proceeding arising out of or relating to
this Guarantee.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
E-2
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly
executed.
CERTIFIED FABRICATORS, INC.
By:
------------------------------------
Name:
Title:
GENERAL AUTOMATION, INC.
By:
------------------------------------
Name:
Title:
NATIONWIDE PRECISION PRODUCTS CORP.
By:
------------------------------------
Name:
Title:
MID STATE MACHINE PRODUCTS
By:
------------------------------------
Name:
Title:
E-3
<PAGE>
GALAXY INDUSTRIES CORPORATION
By:
------------------------------------
Name:
Title:
CALBRIT DESIGN, INC.
By:
------------------------------------
Name:
Title:
E-4
<PAGE>
Exhibit 5.1
May 5, 2000
Precision Partners, Inc. and the Subsidiary Guarantors
named on Annex A hereto
c/o Precision Partners, Inc.
5605 N. MacArthur Boulevard, Suite 760
Irving, Texas 75038
Re: $100,000,000 12% Senior Subordinated Notes Due 2009
---------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Precision Partners, Inc., a
Delaware corporation (the "Company"), and the Subsidiary Guarantors listed in
Annex A hereto (the "Subsidiary Guarantors"), in connection with the proposed
issuance and exchange of up to $100,000,000 aggregate principal amount of the
Company's 12% Senior Subordinated Notes due 2009 (the "New Notes") for an equal
principal amount of the Company's 12% Senior Subordinated Notes due 2009
outstanding on the date hereof (the "Old Notes"), to be issued pursuant to the
Indenture dated as of March 19, 1999 (as amended by the First Supplemental
Indenture thereto, dated October 15, 1999, and the Second Supplemental Indenture
thereto, dated October 29, 1999, the "Indenture"), by and among the Company, as
issuer, the Subsidiary Guarantors, as guarantors, and The Bank of New York, as
trustee (the "Trustee"). The Old Notes are, and the New Notes will be,
guaranteed (each a "Subsidiary Guarantee") on a joint and several basis by each
of the Subsidiary Guarantors.
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereupon we
are of the opinion that:
1. The New Notes have been duly authorized, and when duly executed by
authorized officers of the Company and authenticated by the Trustee, and issued
in accordance with the Indenture and the Registration Rights Agreement, will be
binding obligations of the Company.
2. Each Subsidiary Guarantee has been duly authorized, executed and
delivered by authorized officers of each Subsidiary Guarantor, and constitutes a
valid and binding obligation of the applicable Subsidiary Guarantor.
<PAGE>
Precision Partners, Inc.
May 5, 2000
Page 2
For purposes of the opinions expressed in Paragraph 2 above
with respect to Galaxy Industries Corporation and Mid State Machine Products, we
have assumed the due authorization, execution and delivery of their respective
Subsidiary Guarantee.
The opinions expressed herein are limited to the federal laws
of the United States of America, the laws of the States of New York, Illinois
and California the General Corporation Law of the State of Delaware, as
currently in effect.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement on Form S-4 filed by the Company and the
Subsidiary Guarantors to register the exchange of the New Notes for the Old
Notes (and the Guarantee by each Subsidiary Guarantor of the New Notes) under
the Securities Act of 1933 and to the reference to us under the caption "Legal
Matters" in the Prospectus constituting a part of such Registration Statement.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE>
Annex A
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
Mid State Machine Products Maine
Galaxy Industries Corporation Michigan
Certified Fabricators, Inc. California
General Automation, Inc. Illinois
Nationwide Precision Products Corp. New York
Gillette Machine & Tool Co., Inc. New York
<PAGE>
Robert B. Gregory
Attorney at Law
PO Box 760
Damariscotta, Maine 04543
May 5, 2000
Mid State Machine Products
c/o Precision Partners, Inc.
5605 N. MacArthur Boulevard, Suite 760
Irving, Texas 75038
Re: Guarantee of $100,000,000 12% Senior Subordinated Notes
-------------------------------------------------------
due 2009 of Precision Partners, Inc.
------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Mid State Machine Products, a
Maine corporation (the "Company") in connection with the proposed issuance and
exchange of up to $100,000,000 aggregate principal amount of 12% Senior
Subordinated Notes due 2009 (the "New Notes") of Precision Partners, Inc., the
Company's parent ("Precision"), for an equal principal amount of Precision's 12%
Senior Subordinated Notes due 2009 outstanding on the date hereof (the "Old
Notes"), to be issued pursuant to the Indenture dated as of March 19, 1999 (as
amended by the First Supplemental Indenture thereto, dated October 15, 1999, and
the Second Supplemental Indenture thereto, dated October 29, 1999, the
"Indenture"), by and among Precision, as issuer, the Company and the other
Subsidiary Guarantors named therein, as guarantors, and The Bank of New York, as
trustee (the "Trustee"). The Old Notes are, and the New Notes will be,
guaranteed (each a "Subsidiary Guarantee") on a joint and several basis by the
Company and each of the other Subsidiary Guarantors.
We have examined such documents, records and matters of law as
we have deemed necessary for purposes of this opinion, and based thereupon we
are of the opinion that the Subsidiary Guarantee has been duly authorized,
executed and delivered by the Company.
The opinions expressed herein are limited to the laws of the
State of Maine, as currently in effect.
We hereby consent to the filing of this opinion as Exhibit 5.2
to the Registration Statement on Form S-4 filed by the Company to register its
Subsidiary Guarantee of the New Notes under the Securities Act of 1933 and to
the reference to us under the caption "Legal Matters" in the Prospectus
constituting a part of such Registration Statement.
Very truly yours,
/s/ Robert B. Gregory
Robert B. Gregory
<PAGE>
[LETTERHEAD OF THAV, GROSS, STEINWAY & BENNETT]
May 5, 2000
Galaxy Industries Corporation
c/o Precision Partners, Inc.
5605 N. MacArthur Boulevard, Suite 760
Irving, Texas 75038
Re: Guarantee of $100,000,000 12% Senior Subordinated
-------------------------------------------------
Notes due 2009 OF Precision Partners, Inc.
------------------------------------------
Ladies and Gentlemen:
As local counsel to Galaxy Industries Corporation, a
Michigan corporation (the "Company") we are furnishing this opinion in
connection with the proposed issuance and exchange of up to $100,000,000
aggregate principal amount of 12% Senior Subordinated Notes due 2009 (the
"New Notes") of Precision Partners, Inc., the Company's parent ("Precision"),
for an equal principal amount of Precision's 12% Senior Subordinated Notes
due 2009 outstanding on the date hereof (the "Old Notes"), to be issued
pursuant to the Indenture dated as of March 19, 1999 (as amended by the First
Supplemental Indenture thereto, dated October 15, 1999, and the Second
Supplemental Indenture thereto, dated October 29, 1999, the "Indenture"), by
and among Precision, as issuer, the Company and the other Subsidiary
Guarantors named therein, as guarantors, and The Bank of New York, as trustee
(the "Trustee"). The Old Notes are, and the New Notes will be, guaranteed
(each a "Subsidiary Guarantee") on a joint and several basis by the Company
and each of the other Subsidiary Guarantors.
In so acting, we have examined the following documents
received from the Company: Unanimous Written Consent Action of the Board of
Directors of Galaxy Industries Corporation, Officer's Certificate in Support
of Legal Opinion - Galaxy Industries Corporation(1), Officer's Certificate in
Support of Legal Opinion - Precision Partners, Inc., and the Subsidiary
Guarantee. We have relied upon the accuracy of such documents as of the date
and time this opinion is tendered to the designated recipient and have
assumed the completeness of such documents, as well as the genuineness of the
signatures, authenticity of the documents and the conformity of such
documents to originals of all documents purporting to be copies, as well as
the delivery of such documents. We have also assumed that: (i) the Subsidiary
Guarantee, the New Notes, Old Notes and the Indenture, and all related
instruments and documents do not contain within such documents an express or
implied requirement or representation that the entry into such documents be
approved by the stockholders of the Company; (ii) the Unanimous Written
Consent Action of the Board of Directors of Galaxy Industries Corporation, a
copy of which is atttached hereto as Exhibit "A," has not been rescinded or
modified since such date; and (iii) that the Bylaws and Articles of
Incorporation of the Company have not been amended or otherwise modified
since March 30, 2000.
Based upon the foregoing, we are of the opinion that the
Subsidiary Guarantee has been duly authorized, executed and delivered by the
Company.
The opinions expressed herein are limited to the laws of the
State of Michigan, as currently in effect.
We hereby consent to the filing of this opinion as Exhibit 5.3
to the Registration Statement on Form S-4 filed by the Company to register its
Subsidiary Guarantee of the New Notes under the Securities Act of 1933 and to
the reference to us under the caption "Legal Matters" in the Prospectus
constituting a part of such Registration Statement.
Very truly yours,
- -----------
(1) The Unanimous Written Consent Action of the Board of Directors of Galaxy
Industries Corporation and the Subsidiary Guarantee are attached as exhibits
to the Officer's Certificate in Support of Legal Opinion - Galaxy Industries
Corporation.
<PAGE>
Exhibit 10.1
EXECUTION COPY
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
PRECISION PARTNERS, INC.,
as Borrower,
The Several Guarantors From Time to Time Hereof,
The Several Lenders
from Time to Time Parties Hereto.
CITICORP U.S.A., INC.,
as Administrative Agent
NATIONSBANK, N.A.,
as Syndication Agent,
and
SUNTRUST BANK, ATLANTA,
as Documentation Agent,
Dated as of March 19, 1999
SALOMON SMITH BARNEY INC.,
as Arranger
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS........................................................................................1
1.1 Defined Terms......................................................................................1
1.2 Other Definitional Provisions.....................................................................30
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS...................................................................31
2.1 Term Commitments..................................................................................31
2.2 Revolving Commitments; Borrowing Base Prepayments.................................................31
2.3 Procedure for Borrowing; Scheduled Repayments.....................................................31
2.4 Commitment Fees, etc..............................................................................33
2.5 Termination or Reduction of Commitments...........................................................33
2.6 Optional Prepayments..............................................................................33
2.7 Mandatory Prepayments and Commitment Reductions...................................................33
2.8 Conversion and Continuation Options...............................................................35
2.9 Limitations on Eurodollar Tranches................................................................35
2.10 Interest Rates and Payment Dates..................................................................36
2.11 Computation of Interest and Fees..................................................................36
2.12 Inability to Determine Interest Rate..............................................................37
2.13 Pro Rata Treatment and Payments...................................................................37
2.14 Requirements of Law...............................................................................39
2.15 Taxes.............................................................................................40
2.16 Indemnity.........................................................................................41
2.17 Change of Lending Office..........................................................................42
2.18 Replacement of Lenders............................................................................42
SECTION 3. LETTERS OF CREDIT.................................................................................43
3.1 L/C Commitment....................................................................................43
3.2 Procedure for Issuance of Letter of Credit........................................................43
3.3 Fees and Other Charges............................................................................44
3.4 L/C Participations................................................................................44
3.5 Reimbursement Obligation of the Borrower..........................................................45
3.6 Indemnification; Nature of Issuing Lender's Duties................................................45
3.7 Letter of Credit Payments.........................................................................47
3.8 Applications......................................................................................47
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................................................47
4.1 Financial Condition...............................................................................47
4.2 No Change.........................................................................................49
4.3 Corporate Existence; Compliance with Law..........................................................49
4.4 Corporate Power; Authorization; Enforceable Obligations...........................................50
4.5 No Legal Bar......................................................................................50
4.6 Litigation........................................................................................50
4.7 No Default........................................................................................50
4.8 Ownership of Property; Liens......................................................................50
4.9 Intellectual Property.............................................................................51
4.10 Taxes.............................................................................................51
4.11 Federal Regulations...............................................................................51
4.12 Labor Matters.....................................................................................51
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C> <C>
4.13 ERISA.............................................................................................51
4.14 Investment Company Act; Other Regulations.........................................................52
4.15 Subsidiaries......................................................................................52
4.16 Use of Proceeds...................................................................................52
4.17 Environmental Matters.............................................................................52
4.18 Accuracy of Information, etc......................................................................54
4.19 Security Documents................................................................................54
4.20 Solvency..........................................................................................55
4.21 Senior Debt.......................................................................................55
4.22 Year 2000 Matters.................................................................................55
4.23 Regulation H......................................................................................56
4.24 Licenses and Permits; Compliance with Laws........................................................56
SECTION 5. CONDITIONS PRECEDENT..............................................................................56
5.1 Conditions to Initial Extension of Credit.........................................................56
5.2 Conditions to Each Extension of Credit............................................................62
SECTION 6. AFFIRMATIVE COVENANTS.............................................................................62
6.1 Financial Statements..............................................................................62
6.2 Certificates; Other Information...................................................................63
6.3 Payment of Obligations............................................................................65
6.4 Maintenance of Existence; Compliance..............................................................65
6.5 Maintenance of Property; Insurance................................................................65
6.6 Inspection of Property; Books and Records; Discussions............................................65
6.7 Notices...........................................................................................66
6.8 Environmental Laws................................................................................67
6.9 Additional Collateral, etc........................................................................68
6.10 Year 2000 Matters.................................................................................70
6.11 Post-Closing Surveys..............................................................................70
SECTION 7. NEGATIVE COVENANTS................................................................................70
7.1 Financial Condition Covenants.....................................................................70
7.2 Indebtedness......................................................................................72
7.3 Liens.............................................................................................73
7.4 Fundamental Changes...............................................................................75
7.5 Disposition of Property...........................................................................75
7.6 Restricted Payments...............................................................................76
7.7 Investments.......................................................................................76
7.8 Modifications of Certain Instruments..............................................................78
7.9 Transactions with Affiliates......................................................................78
7.10 Sales and Leasebacks..............................................................................78
7.11 Changes in Fiscal Periods.........................................................................78
7.12 Negative Pledge Clauses...........................................................................78
7.13 Clauses Restricting Precision Group Member Distributions..........................................78
7.14 Lines of Business.................................................................................79
7.15 Amendments to Acquisition Documents...............................................................79
7.16 Designated Senior Debt Provisions.................................................................79
7.17 Limitation on Holdco Business.....................................................................79
SECTION 8. EVENTS OF DEFAULT.................................................................................80
SECTION 9. THE AGENTS........................................................................................83
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C> <C>
9.1 Appointment.......................................................................................83
9.2 Delegation of Duties..............................................................................84
9.3 Exculpatory Provisions............................................................................84
9.4 Reliance by Agents................................................................................84
9.5 Notice of Default.................................................................................85
9.6 Non-Reliance on Any Agent and Other Lenders.......................................................85
9.7 Indemnification...................................................................................86
9.8 Agent in Its Individual Capacity..................................................................86
9.9 Successor Agents..................................................................................86
9.10 Authorization to Release Liens....................................................................87
SECTION 10. MISCELLANEOUS.....................................................................................87
10.1 Amendments and Waivers............................................................................87
10.2 Notices...........................................................................................88
10.3 No Waiver; Cumulative Remedies....................................................................89
10.4 Survival of Representations and Warranties........................................................89
10.5 Payment of Expenses and Taxes.....................................................................90
10.6 Successors and Assigns; Participations and Assignments............................................91
10.7 Adjustments; Setoff...............................................................................93
10.8 Counterparts......................................................................................93
10.9 Severability......................................................................................94
10.10 Integration.......................................................................................94
10.11 Governing Law.....................................................................................94
10.12 Submission to Jurisdiction; Waivers...............................................................94
10.13 Acknowledgments...................................................................................95
10.14 Confidentiality...................................................................................95
10.15 Waivers of Jury Trial.............................................................................95
</TABLE>
- iii -
<PAGE>
ANNEX:
A Pricing Grid
SCHEDULES:
1.1A Commitments
1.lB Mortgaged Property
4.4 Consents, Authorizations, Filings and Notices
4.15 Subsidiaries
4.19(a) UCC Filing Jurisdictions - Security Agreement
4.19(b) UCC Filing Jurisdictions - Securities Pledge Agreement
4.19(c) Mortgage Recording Jurisdictions
5.1 (b) Precision Reorganization
5.1(e) Indebtedness
7.2(d) Existing Indebtedness
7.3(f) Existing Liens
7.5 Certain Property to Be Sold
7.7 Existing Investments
EXHIBITS:
A-1 Form of Holdco Guarantee
A-2 Form of Subsidiary Guarantee
B-1 Form of Borrowing Base Certificate
B-2 Form of Compliance Certificate
C-1 Form of Closing Certificate
C-2 Form of Solvency Certificate
C-3 Form of Environmental Certificate
D Form of Mortgage
E Form of Assignment and Acceptance
F Form of Legal Opinion of Jones, Day, Reavis & Pogue
G Form of Exemption Certificate
H-1 Form of Notice of Borrowing
H-2 Form of Notice of Conversion/Continuation
I Form of Security Agreement
J Form of Local Counsel Opinion
K Form of Securities Pledge Agreement
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<PAGE>
CREDIT AGREEMENT, dated as of March 19, 1999, among PRECISION
PARTNERS, INC., a Delaware corporation (the "BORROWER"), PRECISION PARTNERS
HOLDING COMPANY, a Delaware corporation, MID STATE MACHINE PRODUCTS, a Maine
corporation, GALAXY INDUSTRIES CORPORATION, a Michigan corporation, CERTIFIED
FABRICATORS, INC., a California corporation, CALBRIT DESIGN, INC., a California
corporation, GENERAL AUTOMATION, INC., an Illinois corporation, and NATIONWIDE
PRECISION PRODUCTS CORP., a New York corporation, the several banks and other
financial institutions or entities from time to time parties to this Agreement
(the "LENDERS"), CITICORP U.S.A., INC., as administrative agent, NATIONSBANK,
N.A., as syndication agent, and SUNTRUST BANK, ATLANTA, as documentation agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the terms listed
in this Section 1.1 shall have the respective meanings set forth in this
Section 1.1.
"ACQUISITION AGREEMENTS": the collective reference to the
Galaxy Acquisition Agreement, the Mid State Acquisition Agreement, the Certified
Fabricators Acquisition Documentation, the General Automation Acquisition
Documentation and the Nationwide Acquisition Documentation.
"ACQUISITION DOCUMENTATION": collectively, (a) the Acquisition
Agreements and all schedules, exhibits and annexes thereto and all side letters
and agreements affecting the terms thereof or entered into in connection
therewith and (b) the employment agreements entered into on September 30, 1998
with S. Douglas Sukeforth and Kenneth Smith, in each case as amended,
supplemented or otherwise modified from time to time in accordance with
Section 7.15.
"ACQUISITIONS" means, collectively, the Certified Acquisition,
the General Automation Acquisition and the Nationwide Acquisition.
"ADJUSTMENT DATE": as defined in the Pricing Grid.
"ADMINISTRATIVE AGENT": Citicorp U.S.A., Inc., together with
its affiliates, as the administrative agent for the Lenders under this Agreement
and the other Loan Documents, together with any of its successors.
"AFFILIATE": as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
persons performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"AGENT-RELATED PERSONS": the Agents, and any successor agent
pursuant to Section 9.9, together with their respective Affiliates (including,
in the case of Citicorp U.S.A., Inc., as a Lender and Salomon Smith Barney Inc.,
as Arranger), and the officers, directors, employees, agents, advisors and
attorneys-in-fact of such Persons and Affiliates.
"AGENTS": means the Administrative Agent, Syndication Agent
and Documentation Agent.
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"AGGREGATE EXPOSURE": with respect to any Lender at any time,
an amount equal to (a) until the Closing Date, the aggregate amount of such
Lender's Commitments at such time and (b) thereafter, the sum of (i) the
aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the
amount of such Lender's Revolving Commitments then in effect or, in the case of
Revolving Lenders, if the Revolving Commitments have been terminated, the amount
of such Lender's Revolving Extensions of Credit then outstanding.
"AGGREGATE EXPOSURE PERCENTAGE": with respect to any Lender at
any time, the ratio (expressed as a percentage) of such Lender's Aggregate
Exposure at such time to the Aggregate Exposure of all Lenders at such time.
"AGREEMENT": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"APPLICABLE MARGIN": a rate PER ANNUM equal to 225 bps in the
case of Eurodollar Loans and 200 bps in the case of Base Rate Loans; PROVIDED,
that on and after the date that is three months after the Closing Date, the
Applicable Margin will be determined pursuant to the Pricing Grid.
"APPLICATION": an application, in such form as the Issuing
Lender may specify from time to time, requesting the Issuing Lender to open a
Letter of Credit.
"ASSET SALE": (a) any Disposition of property or series of
related Dispositions of property (excluding any such Disposition permitted by
clause (a), (b), (c) or (d) of Section 7.5) that yields net proceeds after all
reasonable third-party transaction costs to the Precision Group Members (valued
at the initial principal amount thereof in the case of non-cash proceeds
consisting of notes or other debt securities and valued at fair market value in
the case of other non-cash proceeds) in excess of $1,000,000 and (b) any sale or
issuance by any Precision Group Member (other than Holdco) of its Capital Stock
(excluding sales or issuances to a Wholly Owned Qualified Precision Group
Member).
"ASSIGNEE": as defined in Section 10.6(c).
"ASSIGNMENT AND ACCEPTANCE": an Assignment and Acceptance,
substantially in the form of Exhibit E.
"ASSIGNOR": as defined in Section 10.6(c).
"AVAILABLE REVOLVING COMMITMENT": as to any Revolving Lender
at any time, an amount equal to the excess, if any, of (a) such Lender's
Revolving Commitment then in effect over (b) such Lender's Revolving Extensions
of Credit then outstanding.
"BANK OF AMERICA": Bank of America National Trust and Savings
Association.
"BASE RATE": a fluctuating interest rate PER ANNUM in effect
from time to time, which rate PER ANNUM shall at all times be equal to the
higher of (a) the rate of interest announced publicly by Citibank, N.A. in New
York, New York, from time to time, as Citibank, N.A.'s base rate and (b) 0.50%
PER ANNUM above the Federal Funds Effective Rate. Each change in any interest
rate provided for herein based upon the Base Rate resulting from a change in the
Base Rate shall take effect at the time of such change in the Base Rate.
"BASE RATE LOANS": Loans the rate of interest applicable to
which is based upon the Base Rate.
"BENEFITTED LENDER": as defined in Section 10.7(a).
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"BOARD": the Board of Governors of the Federal Reserve System
of the United States (or any successor).
"BORROWER": as defined in the preamble hereto.
"BORROWING BASE": as of any date of determination, an amount
equal to the sum of (a) 85% of Eligible Receivables as of such date and (b) 50%
of Eligible Inventory as of such date.
"BORROWING BASE CERTIFICATE": a certificate substantially in
the form of Exhibit B-1.
"BORROWING DATE": any Business Day specified by the Borrower
as a date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
"BUSINESS": as defined in Section 4.17(b).
"BUSINESS DAY": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close, PROVIDED, that with respect to notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
such day is also a day for trading by and between banks in Dollar deposits in
the interbank eurodollar market
"CAPITAL ASSET EXCHANGE": a substantially contemporaneous
exchange, or series of related exchanges, of assets constituting property, plant
or equipment for like-kind assets that are useful in the business of the
Precision Group Members and that have a fair market value (determined in good
faith by the Borrower) at least equal to the fair market value of the exchanged
assets; PROVIDED that no Capital Asset Exchange shall exceed $3,000,000 in fair
market value.
"CAPITAL EXPENDITURES": for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its Subsidiaries
for the acquisition or leasing (pursuant to a capital lease) of fixed or capital
assets or additions to equipment (including replacements, capitalized repairs
and improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"CAPITAL LEASE OBLIGATIONS": as to any Person, the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property or a
combination thereof which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"CARLISLE GROUP": the collective reference to Carlisle
Enterprises and its Control Investment Affiliates.
"CASH EQUIVALENTS": means (a) securities issued or directly
and fully guaranteed or insured by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated time deposits
and certificates of deposit of (i) any Lender, (ii) any domestic commercial bank
of recognized standing having capital and surplus in excess of $500,000,000 or
(iii) any bank whose short-term
<PAGE>
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commercial paper rating from S&P is at least A-1 or the equivalent thereof or
from Moody's is at least P-1 or the equivalent thereof (any such bank being an
"APPROVED BANK"), in each case with maturities of not more than 270 days from
the date of acquisition, (c) commercial paper and variable or fixed rate notes
issued by any Approved Bank (or by the parent company thereof) or any variable
rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or
the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or
better by Moody's and maturing within six months of the date of acquisition, (d)
repurchase agreements entered into by any Person with a bank or trust company
(including any of the Lenders) or recognized securities dealers having capital
and surplus in excess of $500,000,000 for direct obligations issued by or fully
guaranteed by the Untied States in which such Person shall have a perfected
first priority security interest (subject to no other Liens) and having, on the
date of purchase thereof, a fair market value of at least 100% of the amount of
the repurchase obligations, (e) Investments, classified in accordance with GAAP
as current assets, in money market investment programs registered under the
Investment Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $500,000,000 and the
portfolios of which are limited to Investments of the character described in the
foregoing clauses (a) through (d) and (f) securities with maturities of six
months or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b)(ii) or (iii).
"CERTIFIED ACQUISITION": the acquisition by the Borrower of
100% of the Capital Stock of Certified Fabricators pursuant to the Certified
Fabricators Acquisition Documentation and on terms satisfactory to the
Administrative Agent.
"CERTIFIED FABRICATORS": the collective reference to Certified
Fabricators, Inc., a California corporation, and Calbrit Design, Inc., a
California corporation.
"CERTIFIED FABRICATORS ACQUISITION DOCUMENTATION": the
documentation effecting the Certified Acquisition, including all schedules,
exhibits and annexes thereto and all side letters and agreements affecting the
terms thereof and entered into in connection therewith.
"CITICORP USA": Citicorp U.S.A., Inc.
"CLOSING DATE": the date on which the conditions precedent set
forth in Section 5.1 shall have been satisfied, which date is March 19, 1999.
"CODE": the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL": all property of the Loan Parties, now owned or
hereafter acquired, of whatever kind or nature pledged as collateral for the
obligations under any Security Document.
"COLLATERAL ASSIGNMENT": the Collateral Assignment of
Sublease, Subordination, Non-disturbance and Attornment to be executed and
delivered by Nationwide in favor of and for the benefit of the Administrative
Agent for the benefit of the Lenders.
"COMMITMENT": as to any Lender, the sum of the Term Commitment
and the Revolving Commitment of such Lender.
"COMMITMENT FEE RATE": 50 bps PER ANNUM; PROVIDED, that on and
after the date that is three months after the Closing Date, the Commitment Fee
Rate will be determined pursuant to the Pricing Grid.
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"COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.
"COMPLIANCE CERTIFICATE": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit B-2.
"CONFIDENTIAL INFORMATION MEMORANDUM": a Confidential
Information Memorandum relating to the credit facilities contemplated by this
Agreement in the form approved by the Borrower and provided to potential
Lenders.
"CONSOLIDATED CURRENT ASSETS": at any date, all amounts (other
than cash and Cash Equivalents) that would, in conformity with GAAP, be set
forth opposite the caption "total current assets" (or any like caption) on a
consolidated balance sheet of any Person at such date.
"CONSOLIDATED CURRENT LIABILITIES": at any date, all amounts
that would, in conformity with GAAP, be set forth opposite the caption "total
current liabilities" (or any like caption) on a consolidated balance sheet of
any Person at such date, but excluding (a) the current portion of any Funded
Debt of such Person and (b) without duplication of clause (a) above, all
Indebtedness consisting of Revolving Loans to the extent otherwise included
therein.
"CONSOLIDATED EBITDA": for any Person for any period,
Consolidated Net income for such period PLUS, without duplication and to the
extent reflected as a charge in the statement of such Consolidated Net Income
for such period, the sum of (a) income tax expense, (b) interest expense,
amortization or write-off of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with Indebtedness
(including the Loans and any Subordinated Indebtedness), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) accruals for or expenses of
performance-based bonus payments made to S. Douglas Sukeforth pursuant to his
employment agreement in an aggregate amount not to exceed $3,000,000 and
performance-based bonus payments made to Kenneth Smith pursuant to his
employment agreement in an aggregate amount not to exceed $3,000,000, (f) any
extraordinary, unusual or non-recurring expenses (including expenses incurred in
connection with the Acquisitions and any Permitted Acquisition) or losses
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, non-cash losses on
sales of assets outside of the ordinary course of business) acceptable to the
Lenders, PROVIDED that any cash amounts referred to in this clause (f)
(excluding any amounts referred to in the first parenthetical) shall not, in the
aggregate, exceed $1,500,000 for any fiscal year of the Borrower, (g) management
fees described in the first parenthetical of Section 7.9, and (h) any other
non-cash charges, and MINUS, to the extent included in the statement of such
Consolidated Net Income for such period, the sum of (a) interest income, (b) any
extraordinary, unusual or nonrecurring income or gains (including, whether or
not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets outside of
the ordinary course of business) and (c) any other noncash income, all as
determined on a consolidated basis. For the purposes of calculating Consolidated
EBITDA for any period of four consecutive fiscal quarters (each, a "REFERENCE
PERIOD") pursuant to any determination of the Consolidated Leverage Ratio, if
during such Reference Period any Precision Group Member shall have made a
Material Disposition or Material Acquisition, Consolidated EBITDA for such
Reference Period shall be calculated after giving PRO FORMA effect thereto,
reasonably acceptable to the Administrative Agent, as if such Material
Disposition or Material Acquisition occurred on the first day of such Reference
Period.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO": for any Person for
any period, the ratio of (a) Consolidated EBITDA for such period to (b)
Consolidated Fixed Charges for such period, with Consolidated Fixed Charges
calculated after giving PRO FORMA effect to the incurrence or discharge of any
Fixed Charge with relation to
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any Material Acquisition or Material Disposition during such period as if such
incurrence or discharge had occurred on the first day of such period.
"CONSOLIDATED FIXED CHARGES": for any Person for any period,
the sum (without duplication) of (a) Consolidated Interest Expense for such
period, (b) Consolidated Lease Expense for such period, (c) total cash tax
expense of such Person for such period, (d) scheduled payments made during such
period on account of principal of Indebtedness of such Person (including
scheduled principal payments in respect of the Term Loans) and (e) Capital
Expenditures for such period.
"CONSOLIDATED INTEREST COVERAGE RATIO": for any Person for any
period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period, with Consolidated Interest Expense calculated
after giving effect to the incurrence or repayment of any Indebtedness of such
Person with relation to any Material Acquisition or Material Disposition during
such period as if such incurrence or repayment had occurred on the first day of
such period.
"CONSOLIDATED INTEREST EXPENSE": for any Person for any
period, total cash interest expense (including that attributable to Capital
Lease Obligations) of such Person on a consolidated basis for such period with
respect to all outstanding Indebtedness of such Person (including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Hedge Agreements
in respect of such Indebtedness to the extent such net costs are allocable to
such period in accordance with GAAP).
"CONSOLIDATED LEASE EXPENSE": for any Person for any period,
the aggregate amount of fixed and contingent rentals payable by such Person for
such period with respect to capital leases of real and personal property,
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED LEVERAGE RATIO": as at the last day of any
period for any Person, the ratio of (a) Consolidated Total Debt on such day to
(b) Consolidated EBITDA for such period.
"CONSOLIDATED NET INCOME": for any period for any Person, the
consolidated net income (or loss) of such Person, determined on a consolidated
basis in accordance with GAAP; PROVIDED that there shall be excluded (a) except
as otherwise expressly provided herein, the income (or deficit) of any Person
accrued prior to the date it becomes a Subsidiary of such Person or is merged
into or consolidated with such Person, (b) the income (or deficit) of any Person
in which such Person has an ownership interest, except to the extent that any
such income is actually received by such Person in the form of dividends or
similar distributions, and (c) the undistributed earnings of any Subsidiary of
such Person to the extent that the distribution of such earnings to such Person
is not at the time permitted by the terms of any Contractual Obligation or
Requirement of Law applicable to such Subsidiary.
"CONSOLIDATED SENIOR LEVERAGE RATIO": as at the last day of
any period, the ratio of (a) Consolidated Total Senior Debt on such day to (b)
Consolidated EBITDA for such period.
"CONSOLIDATED TOTAL DEBT": at any date for any Person, the
aggregate principal amount of all Indebtedness less Excess Cash Balances of such
Person at such date, determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED TOTAL SENIOR DEBT": at any date for any Person,
the aggregate principal amount of all Indebtedness of such Person at such date
other than Subordinated Indebtedness, less Excess Cash Balances, determined on a
consolidated basis in accordance with GAAP.
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"CONSOLIDATED WORKING CAPITAL": at any date for any Person,
the excess of Consolidated Current Assets on such date over Consolidated Current
Liabilities on such date.
"CONTRACTUAL OBLIGATION": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"CONTROL": as to any Person, the ability of any other Person,
directly or indirectly, to exclusively direct or cause the direction of the
management and policies of the first Person, whether by contract or otherwise.
"CONTROL INVESTMENT AFFILIATE": as to any Person, any other
Person that (a) directly or indirectly, is in Control of, is Controlled by, or
is under common Control with, such Person and (b) is organized by such Person
primarily for the purpose of making equity or debt investments in one or more
companies.
"DEFAULT": any of the events specified in Section 8, whether
or not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"DISPOSITION": with respect to any property, any sale, lease,
sale and leaseback, assignment, conveyance, transfer or other disposition
thereof (including by way of merger or consolidation and any sale- leaseback
transaction). The terms "DISPOSE" and "DISPOSED OF" shall have correlative
meanings.
"DOCUMENTATION AGENT": Sun Trust, as the documentation agent
for the Lenders under this Agreement and the other Loan Documents, together with
any of its successors.
"DOLLARS" and "$": dollars in lawful currency of the United
States.
"DOMESTIC SUBSIDIARY": any Subsidiary of the Borrower
organized under the laws of any jurisdiction within the United States.
"ELIGIBLE ACCOUNT DEBTOR": each of General Electric
Corporation, Caterpillar Inc., Daimler Chrysler Corporation, New Venture Gear,
Mannesmann (Rexroth), LucasVarity (Kelsey-Hayes), Boeing and Xerox Corporation.
"ELIGIBLE INVENTORY": all inventory of the Precision Group
Members ("INVENTORY"), other than Ineligible Inventory (as defined below),
valued at the lower of cost or market value (in each case determined in
accordance with GAAP), reduced by the value of reserves which have been recorded
by any Precision Group Member with respect to obsolete, slow-moving or excess
Inventory. For the purposes of this definition, an item of Inventory shall
constitute "Ineligible Inventory" if:
(a) such item of Inventory is not assignable or a first
priority security interest in such item of Inventory in favor of the
Administrative Agent for the benefit of the Lenders has not been
obtained and fully perfected by filing Uniform Commercial Code
financing statements against the relevant Precision Group Member;
(b) such item of Inventory is subject to any Lien whatsoever,
other than Liens in favor of the Administrative Agent for the benefit
of the Lenders;
(c) such item of Inventory (i) is damaged or not in good
condition and not saleable consistent with past practices (to the
extent not provided for by reserves as described above) or (ii) does
not meet all
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material standards imposed by any Governmental Authority having
regulatory authority over such item of Inventory, its use or its sale;
(d) such item of Inventory is not currently either readily
usable or saleable, at prices approximating at least the cost thereof,
in the normal course of the business of the relevant Precision Group
Member (to the extent not provided for by reserves as described above);
(e) any event shall have occurred or any condition shall exist
with respect to such item of Inventory which would substantially impede
the ability of the relevant Precision Group Member to continue to use
or sell such item of Inventory in the normal course of business;
(f) any claim disputing the title of the relevant Precision
Group Member to, or right to possession of or dominion over, such item
of Inventory shall have been asserted;
(g) any representation or warranty contained in this Agreement
or in any other Loan Document applicable to either Inventory in general
or to any such specific item of Inventory has been breached with
respect to such item of Inventory;
(h) the relevant Precision Group Member does not have good and
marketable title as sole owner of such item of Inventory;
(i) such item of Inventory has been consigned to other
Persons, or is located at, or in the possession of, a vendor of any
Precision Group Member, or is in transit to or from, or held or stored
by, third parties, unless (i) the Person holding such Inventory has
entered into an agreement, satisfactory in form and substance to the
Administrative Agent, providing for the waiver or subordination of any
applicable Lien on the part of such Person with respect to such
Inventory and providing the Administrative Agent with the right to
repossess such Inventory upon the occurrence and during the continuance
of an Event of Default and (ii) in the case of consigned inventory, the
relevant Precision Group Member, in its capacity as consignor, shall
have filed appropriate Uniform Commercial Code financing statements
with respect to such Inventory;
(j) such item of Inventory is located on a leasehold as to
which the lessor has not entered into a landlord's waiver and consent,
satisfactory in form and substance to the Administrative Agent,
providing a waiver of any applicable Lien and providing the
Administrative Agent with the right to receive notice of default, the
right to repossess such item of Inventory at any time upon the
occurrence or during the continuance of a Default or Event of Default
and such other rights as may be acceptable to the Administrative Agent;
provided, however, an item of Inventory shall not constitute
"Ineligible Inventory" if (i) with respect to each of the Mortgaged
Properties located in the state of California, there has been no Lien
(either statutorily or at common law) created, incurred or imposed upon
any Inventory by the landlord or (ii) with respect to the Mortgaged
Properties located in the state of California as of the Closing Date,
the landlord has delivered to Administrative Agent within 30 days of
the Closing Date a letter whereby such landlord has agreed to provide
Administrative Agent with a notice of default by Certified Fabricators
under its lease;
(k) such item of Inventory is located outside one of the
states of the United States;
(l) such item of Inventory is evidenced by an Account;
(m) such item of Inventory is subject to any licensing,
patent, royalty, trademark, trade name or copyright agreements with any
third party from whom any Precision Group Member has received notice of
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a dispute in respect of any such agreement, other than such claim which
such Precision Group Member reasonably believes to be immaterial or
without merit;
(n) except in the case of Inventory owned by Galaxy,
Nationwide and Certified, such item of Inventory consists of packing,
packaging and/or shipping supplies or materials; or
(o) such item of Inventory has been otherwise determined by
the Administrative Agent (after consultation with the Borrower),
exercising its commercially reasonable discretion, to be unacceptable
because the Administrative Agent believes that such item of Inventory
is not readily saleable under the customary terms on which it is
usually sold (to the extent not provided for by reserves as specified
above).
"ELIGIBLE RECEIVABLES": the gross outstanding balance,
determined in accordance with GAAP and stated on a basis consistent with the
historical practices of the Precision Group Members as of the Closing Date, of
accounts receivable of any Precision Group Member arising out of sales of goods
or services made by any Precision Group Member in the ordinary course of
business ("ACCOUNTS"), other than Ineligible Accounts (as defined below), less
all finance charges, late fees and other fees that are unearned, and less the
value of any accrual which has been recorded by any Precision Group Member with
respect to downward price adjustments. For the purposes of this definition, an
Account shall constitute an "Ineligible Account" if:
(a) the Precision Group Members have not complied with all
material Requirements of Law, including, without limitation, all laws,
rules, regulations and orders of any governmental or judicial authority
relating to truth in lending, billing practices, fair credit reporting,
equal credit opportunity, debt collection practices and consumer debtor
protection, applicable to such Account (or any related contracts) or
affecting the collectability of such Account;
(b) such Account is not assignable or a first priority
security interest in such Account in favor of the Administrative Agent
for the benefit of the Lenders has not been obtained and fully
perfected by filing Uniform Commercial Code financing statements
against the relevant Precision Group Member;
(c) such Account is subject to any Lien whatsoever, other than
Liens in favor of the Administrative Agent for the benefit of the
Lenders;
(d) the relevant Precision Group Member, in order to be
entitled to collect such Account, is required to perform any additional
service for, or perform or incur any additional obligation to, the
Account debtor in respect of such Account;
(e) such Account does not constitute a legal, valid and
binding irrevocable payment obligation of the Account debtor in respect
of such Account to pay the balance thereof in accordance with its terms
or is subject to any defense, setoff, recoupment or counterclaim;
(f) the Account debtor in respect of such Account is a
Precision Group Member or an Affiliate, division or employee of any
Precision Group Member;
(g) such Account is an account of any Governmental Authority,
unless all rights of the relevant Precision Group Member with respect
to such Account have been assigned to the Administrative Agent in
accordance with the Assignment of Claims Act of 1940, as amended;
(h) an estimated or actual loss has been recognized in respect
of such Account, as determined in accordance with the usual business
practices of the relevant Precision Group Member (each such Account, a
"DEFAULTED ACCOUNT");
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(i) 20% or more of the aggregate outstanding amount of all
Accounts from the Account debtor in respect of such Account and its
Affiliates constitutes Defaulted Accounts;
(j) any representation or warranty contained in this Agreement
or in any other Loan Documents applicable either to Accounts in general
or to any such specific Account has been breached with respect to such
Account;
(k) 50% or more of the outstanding amount of all Accounts from
the Account debtor in respect of such Account has become ineligible;
(l) the Account debtor in respect of such Account has filed a
petition for relief under the United States Bankruptcy Code (or similar
action under any successor law or under any comparable law), made a
general assignment for the benefit of creditors, had filed against it
any petition or other application for relief under the United States
Bankruptcy Code (or similar action under any successor law or under any
comparable law), failed, suspended business operations, become
insolvent, called a meeting of its creditors for the purpose of
obtaining any financial concession or accommodation, or had or suffered
a receiver or a trustee to be appointed for all or a significant
portion of its assets or affairs, in each case except to the extent
such matters have been dismissed or terminated or otherwise ceased to
be applicable;
(m) any portion of such Account has remained unpaid for a
period exceeding 90 days from the due date (but only to the extent of
such overdue portion) or any Precision Group Member has reason to
believe such Account is uncollectable;
(n) the sale represented by such Account is to an Account
debtor organized or located outside one of the states of the United
States;
(o) the Account debtor in respect of such Account is a
supplier or creditor of any Precision Group Member (but only to the
extent of the lesser of (i) the amount owing from such Account debtor
to the relevant Precision Group Member pursuant to Accounts that are
otherwise eligible and (ii) the amount owing to such Account debtor by
the relevant Precision Group Member);
(p) such Account is not denominated in Dollars or is payable
outside the United States;
(q) the sale represented by such Account is on a guaranteed
sale, sale-or-return, consignment, or sale on approval basis or is
subject to any right of return, setoff or chargeback;
(r) the relevant Precision Group Member, or any other party to
such Account, is in default in the performance or observance of any of
the terms thereof in any material respect;
(s) the relevant Precision Group Member does not have good and
marketable title to such Account as sole owner of such Account;
(t) such Account does not arise from the sale and delivery of
goods or rendition of services in the ordinary course of business to
the Account debtor in respect of such Account;
(u) such Account is on terms other than those normal or
customary in the business of the relevant Precision Group Member;
(v) such Account has associated payment terms exceeding 100
days from invoice date;
<PAGE>
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(w) except in the case of Accounts owing by any Eligible
Account Debtor, if such Account were to constitute an Eligible
Receivable, more than 15% of all Eligible Receivables would be owing
from the Account debtor in respect of such Account or any of its
Affiliates, in which case only that portion of the Eligible Receivables
owing from such Account debtor representing amounts in excess of 15% of
all Eligible Receivables shall constitute Ineligible Accounts;
(x) any amounts payable under or in connection with such
Account are evidenced by chattel paper, promissory notes or other
instruments, unless such chattel paper, promissory notes or instruments
have been endorsed and delivered to the Administrative Agent;
(y) such Account has been paid by a check which has been
returned for insufficient funds if such check is in an amount of at
least $100,000; or
(z) such Account has been placed with an attorney or other
third party for collection.
"ENVIRONMENTAL CERTIFICATE": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit C-3.
"ENVIRONMENTAL LAWS": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment as
now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"EUROCURRENCY LIABILITIES": the meaning specified in
Regulation D of the Board, as in effect from time to time.
"EURODOLLAR LOANS": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"EURODOLLAR RATE": for any Interest Period for each Eurodollar
Tranche, an interest rate PER ANNUM equal to the rate PER ANNUM obtained by
DIVIDING (a) the average (rounded upward to the nearest whole multiple of 1/16
of 1% PER ANNUM, if such average is not such a multiple) of the rates PER ANNUM
at which deposits in U.S. Dollars are offered by the principal office of each of
the Reference Banks in London, England to prime banks in the London interbank
market at approximately 10:00 A.M. (New York time) three Business Days before
the first day of such Interest Period in an amount substantially equal to such
Eurodollar Tranche and for a period equal to such Interest Period by (b) a
percentage equal to 100% MINUS the Eurodollar Rate Reserve Percentage for such
Interest Period. The Eurodollar Rate for each Interest Period for each
Eurodollar Tranche shall be determined by the Administrative Agent on the basis
of applicable rates furnished to and received by the Administrative Agent from
the Reference Banks two Business Days before the first day of such Interest
Period, SUBJECT, HOWEVER, to the provisions of Section 2.13.
"EURODOLLAR RATE RESERVE PERCENTAGE": for any Interest Period
for each Eurodollar Tranche the reserve percentage (if any) applicable three
Business Days before the first day of such Interest Period under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York City
with deposits exceeding $1,000,000,000 with respect to liabilities or assets
consisting of or including Eurocurrency
<PAGE>
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Liabilities (or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Tranche is
determined) having a term equal to such Interest Period.
"EURODOLLAR TRANCHE": the collective reference to Eurodollar
Loans the then current Interest Periods with respect to all of which begin on
the same date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"EVENT OF DEFAULT": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of time, or
both, has been satisfied.
"EXCESS CASH BALANCES": at any date for any Person, the
greater of (i) zero and (ii) existing cash balances minus $250,000.
"EXCESS CASH FLOW": for any fiscal year of the Precision Group
Members, the excess, if any, of (a) the sum, without duplication, of (i)
Consolidated Net Income for such fiscal year, (ii) an amount equal to the amount
of all non-cash charges (including depreciation and amortization) deducted in
arriving at such Consolidated Net Income, (iii) decreases in Consolidated
Working Capital for such fiscal year, and (iv) an amount equal to the aggregate
net non-cash loss on the Disposition of property by the Precision Group Members
during such fiscal year (other than sales of inventory in the ordinary course of
business), to the extent deducted in arriving at such Consolidated Net Income,
over (b) the sum, without duplication, of (i) an amount equal to the amount of
all non-cash income included in arriving at such Consolidated Net Income, (ii)
the aggregate amount actually paid by the Precision Group Members in cash during
such fiscal year on account of Capital Expenditures (excluding the principal
amount of Indebtedness (other than Revolving Loans) incurred in connection with
such expenditures and any such expenditures financed with the proceeds of any
Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of
Revolving Loans during such fiscal year to the extent accompanying permanent
optional reductions of the Revolving Commitments and all optional prepayments of
the Term Loans during such fiscal year, (iv) the aggregate amount of all
regularly scheduled principal payments of Funded Debt (including the Term Loans)
of the Precision Group Members made during such fiscal year (including any such
payments resulting from scheduled permanent reductions of any revolving credit
facility), (v) increases in Consolidated Working Capital for such fiscal year,
and (vi) an amount equal to the aggregate net non-cash gain on the Disposition
of property by the Precision Group Members during such fiscal year (other than
sales of inventory in the ordinary course of business), to the extent included
in arriving at such Consolidated Net Income.
"EXCESS CASH FLOW APPLICATION DATE": as defined in
Section 2.7(c).
"EXCLUDED FOREIGN SUBSIDIARY": any Foreign Subsidiary in
respect of which either (a) the pledge of all of the Capital Stock of such
Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the
Obligations, would, in the good faith judgment of the Borrower, result in
adverse tax consequences to the Precision Group Members.
"EXISTING CREDIT FACILITY": the credit facility, dated as of
September 30, 1998 and as amended to the date hereof, among the Borrower, Galaxy
Hold Co., Inc., Mid State Holding Co., Inc., the lenders party thereto and Bank
of America National Trust and Savings Association, as administrative agent.
"FACILITY": each of (a) the Term Commitments and the Term
Loans made thereunder (the "TERM FACILITY") and (b) the Revolving Commitments
and the extensions of credit made thereunder (the "REVOLVING FACILITY").
"FEDERAL FUNDS EFFECTIVE RATE": for any period, a fluctuating
interest rate PER ANNUM equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with
<PAGE>
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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 for such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.
"FOREIGN SUBSIDIARY": any Subsidiary of Precision that is not
a Domestic Subsidiary.
"FUNDED DEBT": as to any Person, all Indebtedness of such
Person that matures more than one year from the date of its creation or matures
within one year from such date but is renewable or extendible, at the option of
such Person, to a date more than one year from such date or arises under a
revolving credit or similar agreement that obligates the lender or lenders to
extend credit during a period of more than one year from such date, including
all current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation and, in the case of the Borrower, Indebtedness in respect of the
Loans.
"FUNDING OFFICE": the office of the Administrative Agent
specified in Section 10.2 or such other office as may be specified from time to
time by the Administrative Agent as its funding office by written notice to the
Borrower and the Lenders.
"GAAP": generally accepted accounting principles in the United
States as in effect from time to time, except that for purposes of Section 7.1,
GAAP shall be determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the most recent
audited financial statements delivered pursuant to Section 4.1 (b). In the event
that any "Accounting Change" (as defined below) shall occur and such change
results in a change in the method of calculation of financial covenants,
standards or terms in this Agreement, then the Borrower and the Administrative
Agent agree to enter into negotiations in order to amend such provisions of this
Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the financial condition of the Precision
Group Members shall be the same after such Accounting Changes as if such
Accounting Changes had not been made. Until such time as such an amendment shall
have been executed and delivered by the Borrower, the Administrative Agent and
the Required Lenders, all financial covenants, standards and terms in this
Agreement shall continue to be calculated or construed as if such Accounting
Changes had not occurred. "ACCOUNTING CHANGES" refers to changes in accounting
principles required by the promulgation of any rule, regulation, pronouncement
or opinion by the Financial Accounting Standards Board of the American Institute
of Certified Public Accountants or, if applicable, the SEC.
"GALAXY": Galaxy Industries Corporation, a Michigan
corporation.
"GALAXY ACQUISITION": the acquisition of 100% of the Capital
Stock of Galaxy pursuant to the Galaxy Acquisition Agreement.
"GALAXY ACQUISITION AGREEMENT": the Merger Agreement, dated as
of September 30, 1998, among Galaxy, the Persons listed on Schedule I thereto,
Galaxy Hold Co., Inc. and Galaxy Acquisition, Inc.
"GENERAL AUTOMATION": GA Acquisition Illinois, Inc., an
Illinois corporation to be renamed General Automation, Inc. after the General
Automation Acquisition.
"GENERAL AUTOMATION ACQUISITION": the acquisition by General
Automation of substantially all of the assets and certain of the liabilities of
General Automation, Inc., an Illinois corporation, on terms satisfactory to the
Administrative Agent.
<PAGE>
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"GENERAL AUTOMATION ACQUISITION DOCUMENTATION": the
documentation effecting the General Automation Acquisition, including all
schedules, annexes and exhibits thereto and all side letters and agreements
affecting the terms thereof or entered into in connection therewith.
"GOVERNMENTAL AUTHORITY": any nation or government, any state
or other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"GUARANTEES": the Holdco Guarantee and the Subsidiary
Guarantees, substantially in the form of Exhibits A-1 and A-2, respectively, as
the same may be amended, supplemented or otherwise modified from time to time.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), any obligation of (a) the guaranteeing person or (b) another Person
(including any bank under any letter of credit) to induce the creation of which
the guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS")
of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; PROVIDED, HOWEVER, that the term "Guarantee Obligation" shall not
include endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"GUARANTORS": the collective reference to Holdco and the
Subsidiary Guarantors.
"HARVEY GROUP": the collective reference to Harvey & Co. and
its Control Investment Affiliates.
"HEDGE AGREEMENTS": all swaps, caps, collars or similar
arrangements providing for protection against fluctuations in interest rates,
currency exchange rates or commodities prices or the exchange of nominal
interest obligations, either generally or under specific contingencies.
"HOLDCO" means Precision Partners Holding Company, a Delaware
corporation.
"HOLDCO GUARANTEE": the guarantee by Holdco, substantially in
the form of Exhibit A-1.
"HOLDCO PREFERRED" means the up to $27 million initial
liquidation preference amount of preferred equity issued by Holdco and not
paying or accruing dividends.
<PAGE>
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"INDEBTEDNESS": of any Person means, without duplication:
(a) all obligations of such Person for borrowed money; (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments; (c) all obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such
Person; (d) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (excluding trade accounts payable and
accrued obligations incurred in the ordinary course of business); (e) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such person, whether or not the obligations
secured thereby have been assumed (provided that the amount of such Indebtedness
will be limited to the value of the properly subject to such Lien); (f) all
guarantees by such Person of Indebtedness of others; (g) all Capital Lease
Obligations of such Person; (h) all net payment obligations of such Person in
respect of Hedge Agreements; (i) all obligations of such Person with respect to
redeemable preferred Capital Stock (or Capital Stock convertible or exchangeable
for redeemable preferred stock or Indebtedness) issued by such Person as to
which dividends are required to be paid in cash, with the amount of Indebtedness
represented thereby being equal to the greater of its voluntary or involuntary
purchase price or liquidation preference and maximum repurchase price; and (j)
all obligations of such Person as an account party in respect of letters of
credit and bankers' acceptances. The Indebtedness of any Person shall include
the Indebtedness of any partnership in which such Person is a general partner.
"INSOLVENCY": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTELLECTUAL PROPERTY": the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including copyrights, copyright licenses, patents, patent licenses, trademarks,
trademark licenses, technology, know-how and processes, and all rights to sue at
law or in equity for any infringement or other impairment thereof, including the
right to receive all proceeds and damages therefrom.
"INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the
last Business Day of each March, June, September and December to occur while
such Loan is outstanding and the final maturity date of such Loan, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the last day
of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period
longer than three months, each day that is three months, or a whole multiple
thereof, after the first day of such Interest Period and the last day of such
Interest Period and (d) as to any Loan (other than any Revolving Loan that is a
Base Rate Loan), the date of any repayment or prepayment made in respect
thereof.
"INTEREST PERIOD": as to any Eurodollar Loan, (a) initially,
the period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the last day of
the then current Interest Period with respect thereto; PROVIDED that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension
<PAGE>
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would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the immediately preceding
Business Day;
(ii) the Borrower may not select an Interest Period for a
particular Facility that would extend beyond the Scheduled Revolving
Termination Date or beyond the date final payment is due on the Term
Loans, as the case may be; and
(iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
"INVESTMENTS": as defined in Section 7.7.
"ISSUING LENDER": Bank of America, in its capacity as issuer
under the Existing Credit Facility of the Letter of Credit outstanding on the
Closing Date, and Citicorp USA, in its capacity as issuer of any other Letter of
Credit hereunder.
"L/C COMMITMENT": $2,000,000.
"L/C FEE PAYMENT DATE": the last Business Day of each
March, June, September and December and the last day of the Revolving
Commitment Period.
"L/C OBLIGATIONS": at any time, an amount equal to the sum of
(a) the aggregate then undrawn and unexpired amount of the then outstanding
Letters of Credit and (b) the aggregate amount of drawings under Letters of
Credit that have not then been reimbursed pursuant to Section 3.5.
"L/C PARTICIPANTS": the collective reference to all the
Revolving Lenders other than the Issuing Lender.
"LENDERS": as defined in the preamble hereto.
"LETTERS OF CREDIT": as defined in Section 3.1(a).
"LIEN": any mortgage, deed of trust, pledge, hypothecation,
assignment, claim, charge, deposit arrangement, encumbrance, lien (statutory or
other), charge or other security interest or any preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any conditional sale or other title retention agreement and any
capital lease having substantially the same economic effect as any of the
foregoing) or any filing of any financing statement under the Uniform Commercial
Code or any other similar notice of Lien under any similar notice or recording
statute of any Governmental Authority, including any easement, right-of-way or
other encumbrance on title to real property, in each of the foregoing cases
whether voluntary or imposed by law, and any agreement to give any of the
foregoing.
"LOAN": any loan made by any Lender pursuant to this
Agreement.
"LOAN DOCUMENTS": this Agreement, the Letters of Credit, the
Security Documents and the Notes and each of the other documents, agreements,
instruments, opinions and certificates now or hereafter executed and delivered
in connection herewith and therewith.
"LOAN PARTIES": the collective reference to Holdco, the
Borrower and each Subsidiary Guarantor.
<PAGE>
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"MAJORITY FACILITY LENDERS": with respect to any Facility, the
holders of more than 50% of that portion of the Aggregate Exposure allocated to
such Facility.
"MATERIAL ACQUISITION" means any acquisition of property or
series of related acquisitions of property that (a) constitutes assets
comprising all or substantially all of an operating unit of a business or
constitutes all or substantially all of the common stock of a Person and (b)
involves the payment of consideration by the Precision Group Members in excess
of $3,000,000.
"MATERIAL ADVERSE EFFECT": (a) a materially adverse effect on
the business, condition (financial or otherwise), operations, performance or
properties of the Precision Group Members, taken as a whole, (b) a material
impairment of the ability of the Precision Group Members, taken as a whole, to
perform their collective obligations under the Loan Documents, or (c) a material
impairment of the rights of or benefits available to the Administrative Agent
and the Lenders under the Loan Documents.
"MATERIAL DISPOSITION": means any Disposition of property or
series of related Dispositions of property that yields gross proceeds to the
Precision Group Members in excess of $3,000,000.
"MATERIALS OF ENVIRONMENTAL CONCERN": any pollutant,
contaminant, gasoline or petroleum (including crude oil or any fraction thereof)
or petroleum products or any hazardous, toxic or other substances, materials,
wastes, constituents or chemicals defined or regulated under any applicable
Environmental Law, including without limitation, asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.
"MID STATE": Mid State Machine Products, a Maine corporation.
"MID STATE ACQUISITION": the acquisition of 100% of the
Capital Stock of Mid State pursuant to the Mid State Acquisition Agreement.
"MID STATE ACQUISITION AGREEMENT": the Redemption and Merger
Agreement, dated as of September 17, 1998, among Mid State, S. Douglas
Sukeforth, Mid State Holding Co., Inc. and Mid State Acquisition, Inc.
"MID STATE FOUNDATION": Mid State Foundation, a foundation
organized under the laws of the State of Maine.
"MORTGAGED PROPERTIES": the real properties listed on Schedule
1.1B, as to which the Administrative Agent for the benefit of the Lenders shall
be granted a Lien pursuant to the Mortgages.
"MORTGAGES": each of the fee and leasehold mortgages and deeds
of trust made by any Loan Party in favor of or for the benefit of the
Administrative Agent for the benefit of the Lenders, substantially in the form
of Exhibit D (with such changes thereto as shall be advisable under the law of
the jurisdiction in which such mortgage or deed of trust is to be recorded and
which shall include, without limitation, the Collateral Assignment), as the same
may be amended, supplemented or otherwise modified from time to time.
"MULTIEMPLOYER PLAN": a Plan that is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"NATIONSBANK": NationsBank, N.A.
"NATIONWIDE": Nationwide Acquisition Delaware, Inc., a
Delaware corporation to be renamed Nationwide Precision Products Corp. after the
Nationwide Acquisition.
<PAGE>
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"NATIONWIDE ACQUISITION": the acquisition by Nationwide of
substantially all of the assets and certain of the liabilities of Nationwide
Precision Products Corporation, a New York corporation, on terms satisfactory to
the Administrative Agent.
"NATIONWIDE ACQUISITION DOCUMENTATION": the documentation
effecting the Nationwide Acquisition including all schedules, annexes and
exhibits thereto and all side letters and agreements affecting terms thereof or
entered into in connection therewith.
"NET CASH PROCEEDS": (a) in connection with any Asset Sale or
any Recovery Event, the proceeds thereof in the form of cash and Cash
Equivalents (including any such proceeds received by way of deferred payment of
principal pursuant to a note or installment receivable or purchase price
adjustment receivable or otherwise, but only as and when received) of such Asset
Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment
banking fees, amounts required to be applied to the repayment of Indebtedness
secured by a Lien expressly permitted hereunder on any asset that is the subject
of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security
Document) and other customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated to be payable currently
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and (b) in connection with any
issuance or sale of equity securities or debt securities or instruments or the
incurrence of loans, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants' fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred in connection therewith.
"NON-EXCLUDED TAXES": as defined in Section 2.16(a).
"NON-U.S. LENDER": as defined in Section 2.16(d).
"NOTES": the collective reference to any promissory note
evidencing Loans.
"OBLIGATIONS": the unpaid principal of and interest on
(including interest accruing after the maturity of the Loans and Reimbursement
Obligations and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of the Borrower to the Agents or to any Lender (or,
in the case of Hedge Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Hedge Agreement
entered into with any Lender or any affiliate of any Lender or any other
document made, delivered or given in connection herewith or therewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including all fees, charges and disbursements of counsel to the
Agents or to any Lender that are required to be paid by the Borrower pursuant
hereto) or otherwise.
"OTHER TAXES": any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.
"PARTICIPANT": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).
<PAGE>
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"PERMITTED ACQUISITIONS": One or more acquisitions (whether by
asset acquisition or the acquisition of Capital Stock of the target) of a
Person, division or line of business as an entirety, PROVIDED that: (i) no
Default or Event of Default shall have occurred and be continuing (and none
shall occur as a result of such acquisition); (ii) no single acquisition exceeds
$15 million calculated on the basis of the value ("Value") of the Person,
division or line of business being so acquired, including assumed Indebtedness;
(iii) the aggregate Value for all such acquisitions during a twelve month period
shall not exceed $60 million; (iv) the subject acquisition is of a Person,
division or business line similar to the businesses of the Borrower; (v) the
substantive terms and conditions of such acquisition are acceptable to the
Administrative Agent and (vi) after giving effect to such acquisitions, the
Borrower will be in PRO FORMA compliance with the covenants set forth in
Section 7.1.
"PERMITTED INVESTORS": the collective reference to the
Carlisle Group, the Harvey Group and the Saunders Group.
"PERMITTED LIENS": as defined in Section 7.3.
"PERMITTED SENIOR SUBORDINATED ADD-ON INDEBTEDNESS":
Indebtedness of the Borrower issued in original aggregate principal amount not
to exceed $60 million in a form and pursuant to terms substantially similar to
the Senior Subordinated Notes, the proceeds of which are used solely to fund
Permitted Acquisitions.
"PERSON": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"PLAN": at a particular time, any employee benefit plan that
is covered by Title IV of ERISA or Section 412 of the Code or Section 302 of
ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"PRECISION": Precision Partners L.L.C., a Delaware limited
liability company.
"PRECISION GROUP MEMBERS": the collective reference to the
Borrower and each direct or indirect Subsidiary of the Borrower.
"PRECISION REORGANIZATION": the corporate reorganization of
Precision as set forth in the organizational structure flip-book previously
delivered to the Administrative Agent and set forth as Schedule 5.1(b).
"PRICING GRID": the pricing grid attached hereto as Annex A.
"PRIOR LIENS": Liens which, pursuant to the provisions of any
Security Document, are or may be superior to the Lien of such Security Document.
"PRO FORMA FINANCIAL STATEMENTS": as defined in
Section 4.l(a).
"PROJECTIONS": as defined in Section 6.2(c).
"PROPERTIES": as defined in Section 4.17(a).
"RECOVERY EVENT": shall mean, with respect to any property,
real or personal, of any Person, any loss of title with respect to real property
or any loss of or damage to or destruction of, or any condemnation or other
taking (including by any Governmental Authority) of, such property (including
real property) for which such Person
<PAGE>
-20-
receives insurance proceeds or proceeds of a condemnation award or other
compensation. "Recovery Event" shall include but not be limited to any taking of
any Mortgaged Property or real property of any Loan Party or any part thereof,
in or by condemnation or other eminent domain proceedings pursuant to any law,
general or special, or by reason of the temporary requisition of the use or
occupancy of any Mortgaged Property or real property of any Loan Party or any
part thereof, by any Governmental Authority, civil or military.
"REFERENCE BANKS": Citicorp U.S.A., Inc.
"REFERENCE RATE": the rate of interest in effect for such day
as publicly announced from time to time by Citibank, N.A. in New York, New York,
as its "reference rate". The "reference rate" is a rate set by Citibank, N.A.
based upon various factors including Citibank, N.A.'s costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate. Any change in the reference rate announced by Citibank, N.A. shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"REGISTER": as defined in Section 10.6(d).
"REGULATION U": Regulation U of the Board as in effect from
time to time.
"REIMBURSEMENT OBLIGATION": the obligation of the Borrower to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
"REINVESTMENT DEFERRED AMOUNT": with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds received by any Precision
Group Member in connection therewith that are not applied to prepay the Term
Loans or reduce the Revolving Commitments pursuant to Section 2.7(c) as a result
of the delivery of a Reinvestment Notice.
"REINVESTMENT EVENT": any Asset Sale or Recovery Event in
respect of which the Borrower has delivered a Reinvestment Notice.
"REINVESTMENT NOTICE": a written notice executed by a
Responsible Officer stating that no Event of Default has occurred and is
continuing and that the Borrower (directly or indirectly through another
Precision Group Member) intends and expects to use all or a specified portion of
the Net Cash Proceeds (i) in connection with an Asset Sale to acquire assets
useful in its business or (ii) in connection with a Recovery Event to perform a
Restoration (as defined in the applicable Security Document).
"REINVESTMENT PREPAYMENT AMOUNT": with respect to any
Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any
amount expended prior to the relevant Reinvestment Prepayment Date to acquire
assets useful in the business of the Precision Group Members.
"REINVESTMENT PREPAYMENT DATE": with respect to any
Reinvestment Event, the earlier of (a) the date occurring twelve months after
such Reinvestment Event and (b) the date on which the Borrower shall have
determined not to, or shall have otherwise ceased to, acquire assets useful in
the business of the Precision Group Members with all or any portion of the
relevant Reinvestment Deferred Amount.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
<PAGE>
-21-
"REPORTABLE EVENT": any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of
PBGC Reg. Section 4043.
"REQUIRED LENDERS": at any time, the holders of more than 50%
of (a) until the Closing Date, the Commitments then in effect and (b)
thereafter, the sum of (i) the aggregate unpaid principal amount of the Term
Loans then outstanding and (ii) the Revolving Commitments then in effect or, in
the case of the Revolving Facility, if the Revolving Commitments have been
terminated, the Total Revolving Extensions of Credit then outstanding.
"REQUIRED PREPAYMENT LENDERS": the Majority Facility Lenders
in respect of each Facility.
"REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other 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.
"RESPONSIBLE OFFICER": the chief executive officer, president
or chief financial officer of the Borrower, but in any event, with respect to
financial matters, the chief financial officer of the Borrower.
"RESTRICTED PAYMENTS": as defined in Section 7.6.
"REVOLVING COMMITMENT": as to any Lender, the obligation of
such Lender, if any, to make Revolving Loans and participate in Letters of
Credit in an aggregate principal and/or face amount not to exceed the amount set
forth under the heading "Revolving Commitment" opposite such Lender's name on
Schedule 1.1A or in the Assignment and Acceptance pursuant to which such Lender
became a party hereto, as the same may be changed from time to time pursuant to
the terms hereof.
"REVOLVING COMMITMENT PERIOD": the period from and including
the Closing Date to the Scheduled Revolving Termination Date.
"REVOLVING EXTENSIONS OF CREDIT": as to any Revolving Lender
at any time, an amount equal to the sum of (a) the aggregate principal amount of
all Revolving Loans held by such Lender then outstanding and (b) such Lender's
Revolving Percentage of the L/C Obligations then outstanding.
"REVOLVING LENDER": each Lender that has a Revolving
Commitment or that holds Revolving Loans.
"REVOLVING LOANS": as defined in Section 2.2(a).
"REVOLVING PERCENTAGE": as to any Revolving Lender at any
time, the percentage which such Lender's Revolving Commitment then constitutes
of the Total Revolving Commitments (or, at any time after the Revolving
Commitments shall have expired or terminated, the percentage which the aggregate
principal amount of such Lender's Revolving Loans then outstanding constitutes
of the aggregate principal amount of the Revolving Loans then outstanding).
"SAUNDERS GROUP": the collective reference to Saunders Karp &
Megrue and its Control Investment Affiliates.
"SCHEDULED REVOLVING TERMINATION DATE": March 31, 2005.
<PAGE>
-22-
"SEC": the Securities and Exchange Commission, any successor
thereto and any analogous Governmental Authority.
"SECURITIES PLEDGE AGREEMENT": the Securities Pledge Agreement
to be executed and delivered by Holdco as of the Closing Date, substantially in
the form of Exhibit K hereto, as the same may be amended, supplemented or
otherwise modified from time to time.
"SECURITY AGREEMENT": the Security Agreement to be executed
and delivered by the Borrower and each Subsidiary Guarantor, substantially in
the form of Exhibit I, as the same may be amended, supplemented or otherwise
modified from time to time.
"SECURITY DOCUMENTS": the collective reference to the Holdco
Guarantee, Subsidiary Guarantees, the Security Agreement, the Securities Pledge
Agreement, the Mortgages and all other security documents hereafter delivered to
the Administrative Agent granting a Lien on any property of any Person to secure
the obligations and liabilities of any Loan Party under any Loan Document.
"SENIOR SUBORDINATED INDENTURE" means the Indenture pursuant
to which the Borrower issued the Senior Subordinated Notes.
"SENIOR SUBORDINATED NOTES" means the 12% Senior Subordinated
Notes due 2009 issued by the Borrower on or immediately prior to the date of the
initial funding hereunder, the proceeds of which will be used to pay a portion
of the consideration payable in connection with the Acquisitions.
"SINGLE EMPLOYER PLAN": any Plan that is covered by Title IV
of ERISA, but that is not a Multiemployer Plan.
"SOLVENCY CERTIFICATE": a certificate duly executed by a
Responsible Officer substantially in the form of Exhibit C-2.
"SOLVENT": when used with respect to any Person, means that,
as of any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the amount of
all "liabilities of such Person, contingent or otherwise," as of such date, as
such quoted terms are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim," and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured, or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
"SPONSORS": the collective reference to Saunders Karp &
Megrue, Carlisle Enterprises and Harvey & Co.
"SUBORDINATED INDEBTEDNESS": any Indebtedness which is
subordinate or junior in right of payment to the Loans by the express terms of
such Indebtedness or pursuant to a separate written agreement, in each case in
form and substance satisfactory to the Required Lenders.
<PAGE>
-23-
"SUBSIDIARY": as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the relevant Precision Group Member. Mid
State Foundation shall not constitute a Subsidiary for the purposes of this
Agreement and the other Loan Documents.
"SUBSIDIARY GUARANTEE": each guarantee by a Subsidiary
Guarantor, substantially in the form of Exhibit A-2.
"SUBSIDIARY GUARANTOR": each Subsidiary of the Borrower, other
than Mid State Foundation and any Excluded Foreign Subsidiary.
"SUNTRUST": SunTrust Bank, Atlanta.
"SYNDICATION AGENT": NationsBank, as the syndication agent for
the Lenders under this Agreement and the other Loan Documents, together with any
of its Successors.
"TERM COMMITMENT": as to any Lender, the obligation of such
Lender, if any, to make Term Loans to the Borrower hereunder in an aggregate
principal amount not to exceed the amount set forth under the heading "TERM
COMMITMENT" opposite such Lender's name on Schedule 1.1A.
"TERM LENDER": each Lender that has a Term Commitment or that
holds Term Loans.
"TERM LOANS": as defined in Section 2.1.
"TERM PERCENTAGE": as to any Term Lender at any time, the
percentage which such Lender's Term Commitment then constitutes of the aggregate
Term Commitments (or, at any time after the Term Commitments have terminated,
the percentage which the aggregate principal amount of such Lender's Term Loans
then outstanding constitutes of the aggregate principal amount of the Term Loans
then outstanding).
"TOTAL REVOLVING COMMITMENTS": at any time, the aggregate
amount of the Revolving Commitments then in effect. The amount of the Total
Revolving Commitment as of the Closing Date is $25,000,000, including the L/C
Commitment.
"TOTAL REVOLVING EXTENSIONS OF CREDIT": at any time, the
aggregate amount of the Revolving Extensions of Credit of the Revolving Lenders
outstanding at such time.
"TRANSFEREE": any Assignee or Participant.
"TYPE": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"UNAPPLIED EXCESS CASH FLOW": with respect to any fiscal year
of the Precision Group Members, an amount equal to 50% of the Excess Cash Flow
for such fiscal year.
"UNIFORM CUSTOMS": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
<PAGE>
-24-
"UNITED STATES": the United States of America.
"WHOLLY OWNED QUALIFIED PRECISION GROUP MEMBER": any Loan
Party that is a Wholly Owned Subsidiary of the Borrower.
"WHOLLY OWNED SUBSIDIARY": as to any Person, any other Person
all of the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other Wholly
Owned Subsidiaries.
"YEAR 2000 PROBLEM": the inability of computers, as well as
embedded microchips in non- computing devices, to perform properly
date-sensitive functions with respect to certain dates prior to and after
December 31, 1999.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to the Precision Group Members not deLmed in Section
1.1 and accounting terms partly defined in Section 1.1, to the extent not
defined, shall have the respective meanings given to them under GAAP, (ii) the
words "include," "includes" and "including" shall be deemed to be followed by
the phrase "without limitation" and (iii) the words "asset" and "property" shall
be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, Capital Stock,
securities, revenues, accounts, leasehold interests and contract rights.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 TERM COMMITMENTS. Subject to the terms and conditions
hereof, each Term Lender severally agrees to make a term loan (a "TERM LOAN") to
the Borrower on the Closing Date in an amount not to exceed the Term Commitment
of such Lender. The Term Loans may from time to time be Eurodollar Loans or Base
Rate Loans, as determined by the Borrower and notified to the Administrative
Agent in accordance with Sections 2.3 and 2.9. The Term Commitments shall
automatically terminate on the Closing Date (after giving effect to the
borrowings thereunder made on such date).
2.2 REVOLVING COMMITMENTS; BORROWING BASE PREPAYMENTS. (a)
Subject to the terms and conditions hereof, each Revolving Lender severally
agrees to make revolving credit loans ("REVOLVING LOANS") to the Borrower from
time to time during the Revolving Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Percentage of the L/C Obligations then outstanding, does not exceed the amount
of such Lender's Revolving Commitment. During the Revolving Commitment Period
the Borrower may use the Revolving Commitments by borrowing, prepaying the
Revolving Loans in whole or in part, and reborrowing, all in accordance with the
terms and conditions hereof. The Revolving Loans may from time to time be
Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified
to the Administrative Agent in accordance with Sections 2.3 and 2.9.
<PAGE>
-25-
(b) If on any date (including any date on which a Borrowing
Base Certificate is delivered pursuant to Section 6.2(e)) the Total Revolving
Extensions of Credit as of such date exceed the then applicable Borrowing Base,
then, without notice or demand, the Borrower shall, on such date, prepay the
Revolving Loans and, if necessary, cash collateralize the Letters of Credit by
depositing an amount equal to such excess in a cash collateral account
established with the Administrative Agent for the benefit of the Lenders on
terms and conditions satisfactory to the Administrative Agent
2.3 PROCEDURE FOR BORROWING; SCHEDULED REPAYMENTS. The
Borrower shall give the Administrative Agent irrevocable notice in the form of
Exhibit H-1 (which notice must be received by the Administrative Agent prior to
(a) 12:00 Noon, New York City time, three Business Days prior to the requested
Borrowing Date, in the case of Eurodollar Loans, or (b) 11:00 A.M., New York
City time, on the requested Borrowing Date, in the case of Base Rate Loans),
specifying (i) the amount and Type of Loans to be borrowed, (ii) the requested
Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts
of each such Type of Loan and the respective lengths of the initial Interest
Period therefor. Any Loans made on the Closing Date shall initially be Base Rate
Loans and, unless otherwise agreed by the Administrative Agent in its sole
discretion, no Loan may be made as, converted into or continued as a Eurodollar
Loan having an Interest Period in excess of one month prior to the date that is
60 days after the Closing Date. Each borrowing shall be in an amount equal to
(x) in the case of Base Rate Loans, $500,000 or a whole multiple of $100,000 in
excess thereof (or, if the then aggregate unutilized Commitments under the
relevant Facility are less than $500,000, such lesser amount) and (y) in the
case of Eurodollar Loans, $500,000 or a whole multiple of $100,000 in excess
thereof. Upon receipt of any such notice from the Borrower, the Administrative
Agent shall promptly notify each relevant Lender thereof. Each relevant Lender
will make the amount of its PRO RATA share of each borrowing available to the
Administrative Agent for the account of the Borrower at the Funding Office prior
to 12:00 Noon, New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
relevant Lenders and in like funds as received by the Administrative Agent.
(a) The Term Loans of each Term Lender shall mature in 20
quarterly installments, each of which shall be in an amount equal to such
Lender's Term Percentage multiplied by the amount set forth below opposite such
installment:
<TABLE>
<CAPTION>
INSTALLMENT PRINCIPAL AMOUNT
----------- ----------------
<S> <C>
June 30, 2000 $ 805,000.00
September 30, 2000 $ 805,000.00
December 31, 2000 $ 805,000.00
March 31, 2001 $ 805,000.00
June 30, 2001 $ 920,000.00
September 30, 2001 $ 920,000.00
December 31, 2001 $ 920,000.00
March 31, 2002 $ 920,000.00
June 30, 2002 $ 1,150,000.00
September 30, 2002 $ 1,150,000.00
December 31, 2002 $ 1,150,000.00
March 31, 2003 $ 1,150,000.00
June 30, 2003 $ 1,380,000.00
September 30, 2003 $ 1,380,000.00
December 31, 2003 $ 1,380,000.00
March 31, 2004 $ 1,380,000.00
</TABLE>
<PAGE>
-26-
<TABLE>
<CAPTION>
INSTALLMENT PRINCIPAL AMOUNT
----------- ----------------
<S> <C>
June 30, 2004 $ 1,495,000.00
September 30, 2004 $ 1,495,000.00
December 31, 2004 $ 1,495,000.00
March 31, 2005 $ 1,495,000.00
</TABLE>
(b) The Borrower shall repay all outstanding Revolving Loans
on the Scheduled Revolving Termination Date.
2.4 COMMITMENT FEES, ETC. (a) The Borrower agrees to pay to
the Administrative Agent for the account of each Revolving Lender a commitment
fee for the period from and including the Closing Date to the date the Revolving
Commitments have been terminated, computed at the Commitment Fee Rate on the
actual daily amount of the Available Revolving Commitment of such Lender during
the period for which payment is made, payable quarterly in arrears on the last
Business Day of each March, June, September and December and on the date the
Revolving Commitments have been terminated, commencing on the first of such
dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the
fees in the amounts and on the dates previously agreed to in writing by the
Borrower and the Administrative Agent.
2.5 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower
shall have the right, upon not less than two Business Days' notice to the
Administrative Agent, to terminate the Commitments under any Facility or, from
time to time, to reduce the amount of such Commitments; PROVIDED that no such
termination or reduction of Revolving Commitments shall be permitted if, after
giving effect thereto and to any prepayments of the Revolving Loans made on the
effective date thereof, the Total Revolving Extensions of Credit would exceed
the Total Revolving Commitments. Any such reduction shall be in an amount equal
to $500,000, or a whole multiple thereof, and shall reduce permanently the
relevant Commitments then in effect
2.6 OPTIONAL PREPAYMENTS. The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon irrevocable notice delivered to the Administrative Agent at least
two Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of Base Rate Loans, which notice shall
specify the date and amount of prepayment and whether the prepayment is of
Eurodollar Loans or Base Rate Loans; PROVIDED, that if a Eurodollar Loan is
prepaid on any day other than the last day of the Interest Period applicable
thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.16.
Upon receipt of any such notice the Administrative Agent shall promptly notify
each relevant Lender thereof. If any such notice is given, the amount specified
in such notice shall be due and payable on the date specified therein, together
with (except in the case of Revolving Loans that are Base Rate Loans) accrued
interest to such date on the amount prepaid. Partial prepayments of Term Loans
and Revolving Loans shall be in an aggregate principal amount equal to (a) in
the case of Base Rate Loans, $100,000 or a whole multiple thereof and (b) in the
case of Eurodollar Loans, $500,000 or a whole multiple of $100,000 in excess
thereof.
2.7 MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS. (a)
Unless the Required Prepayment Lenders shall otherwise agree, if any Capital
Stock shall be issued or sold by Holdco or the Borrower or if any Indebtedness
shall be incurred by any Precision Group Member (excluding any Indebtedness
incurred in accordance with Section 7.2), an amount equal to 50% of the Net Cash
Proceeds thereof (in the case of Capital Stock) or 100% of the Net Cash Proceeds
thereof (in the case of Indebtedness) shall be applied on the date of such
issuance or incurrence first towards the prepayment of the Term Loans and then
towards the reduction of the Revolving Commitments as set forth in Section
2.7(e); PROVIDED, that no such prepayment will be required with respect to any
capital contribution made by any Sponsor directly or indirectly to Holdco (and
contributed as common equity to the
<PAGE>
-27-
Borrower) for the purpose of funding a particular Capital Expenditure or
Permitted Acquisition if such proceeds are used for such Capital Expenditure or
Permitted Acquisition substantially concurrently with the making of such capital
contribution.
(b) Unless the Required Prepayment Lenders shall otherwise
agree, if on any date any Precision Group Member shall receive Net Cash Proceeds
from any Asset Sale or Recovery Event, then, unless a Reinvestment Notice shall
be delivered in respect thereof, such Net Cash Proceeds shall be applied on such
date first towards the prepayment of the Term Loans and then towards the
reduction of the Revolving Commitments as set forth in Section 2.7(d); PROVIDED,
that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of
Asset Sales and Recovery Events that may be excluded from the foregoing
requirement pursuant to a Rein-vestment Notice shall not exceed $5,000,000 in
any fiscal year of the Precision Group Members and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Term Loans and the reduction of the Commitments as set forth
in Section 2.7(d).
(c) Unless the Required Prepayment Lenders shall otherwise
agree, if, for any fiscal year of the Precision Group Members commencing with
the fiscal year ending December 31, 1999, there shall be Excess Cash Flow, the
Borrower shall, on the relevant Excess Cash Flow Application Date, apply 50% of
such Excess Cash Flow first towards the prepayment of the Term Loans and then
towards the reduction of the Revolving Commitments as set forth in Section
2.7(d); PROVIDED that no such prepayment will be required for so long as the
Consolidated Leverage Ratio then in effect is less than 3.0 to 1.0. Each such
prepayment and commitment reduction shall be made on a date (an "EXCESS CASH
FLOW APPLICATION DATE") no later than five days after the earlier of (i) the
date on which the financial statements of the Precision Group Members referred
to in Section 6.1 (a), for the final year with respect to which such prepayment
is made, are required to be delivered to the Lenders and (ii) the date such
financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.7 shall be applied, first to
prepay the Term Loans and, second, to reduce permanently the Revolving
Commitments. Amounts applied to prepay Term Loans shall reduce future
amortization payments on a PRO RATA basis. Any such reduction of the Revolving
Commitments shall be accompanied by prepayment of the Revolving Loans to the
extent, if any, that the Total Revolving Extensions of Credit exceed the amount
of the Total Revolving Commitments as so reduced, PROVIDED that if the aggregate
principal amount of Revolving Loans then outstanding is less than the amount of
such excess (because L/C Obligations constitute a portion thereof), the Borrower
shall, to the extent of the balance of such excess, replace outstanding Letters
of Credit and/or deposit an amount in cash in a cash collateral account
established with the Administrative Agent for the benefit of the Lenders on
terms and conditions satisfactory to the Administrative Agent. The application
of any prepayment pursuant to Section 2.7 shall be made, FIRST, to Base Rate
Loans and, SECOND, to Eurodollar Loans. Each prepayment of the Loans under
Section 2.7 (except in the case of Revolving Loans that are Base Rate Loans)
shall be accompanied by accrued interest to the date of such prepayment on the
amount prepaid.
(e) Concurrently with the application of any amount pursuant
to this Section 2.7, the Borrower shall furnish to the Administrative Agent a
certificate setting forth in reasonable detail a calculation of the amount
required to be so applied.
2.8 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving
the Administrative Agent irrevocable notice of such election in the form of
Exhibit H-2 no later than 12:00 Noon, New York City time, one Business Day prior
to the effective date thereof, PROVIDED that any such conversion of Eurodollar
Loans may only be made on the last day of an Interest Period with respect
thereto. The Borrower may elect from time to time to convert Base Rate Loans to
Eurodollar Loans by giving the Administrative Agent at least three Business
Days' prior irrevocable notice of such
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election in the form of Exhibit H-2 no later than 12:00 Noon, New York City
time, three Business Days prior to the effective date thereof, PROVIDED that no
Base Rate Loan under a particular Facility may be converted into a Eurodollar
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent or the Majority Facility Lenders in respect of such
Facility have determined in its or their sole discretion not to permit such
conversions. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent in the form of
Exhibit H-2, and in accordance with the applicable provisions of the term
"Interest Period" set forth in Section 1.1, of the length of the next Interest
Period to be applicable to such Loans, PROVIDED that no Eurodollar Loan under a
particular Facility may be continued as such when any Event of Default has
occurred and is continuing and the Administrative Agent has or the Majority
Facility Lenders in respect of such Facility have determined in its or their
sole discretion not to permit such continuations, and PROVIDED, FURTHER, that if
the Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso such Loans shall be automatically converted to Base Rate Loans on the
last day of such then expiring Interest Period. Upon receipt of any such notice
the Administrative Agent shall promptly notify each relevant Lender thereof.
2.9 LIMITATIONS ON EURODOLLAR TRANCHES. Notwithstanding
anything to the contrary in this Agreement, all borrowings, conversions and
continuations of Eurodollar Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that (a) after giving effect thereto, the aggregate principal
amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal
to $500,000 or a whole multiple of $100,000 in excess thereof and (b) no more
than six Eurodollar Tranches shall be outstanding at any one time.
2.10 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate PER ANNUM equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each Base Rate Loan shall bear interest at a rate PER
ANNUM equal to the Base Rate plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any
Loan or Reimbursement Obligation shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), all outstanding Loans and
Reimbursement Obligations (whether or not overdue) shall bear interest at a rate
PER ANNUM equal to (x) in the case of the Loans, the rate that would otherwise
be applicable thereto pursuant to the foregoing provisions of this Section PLUS
200 bps or (y) in the case of Reimbursement Obligations, the rate applicable to
Base Rate Loans under the Revolving Facility plus 200 bps, and (ii) if all or a
portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate PER ANNUM equal to the rate then applicable
to Base Rate Loans under the relevant Facility PLUS 200 bps (or, in the case of
any such other amounts that do not relate to a particular Facility, the rate
then applicable to Base Rate Loans under the Revolving Facility plus 200 bps),
in each case, with respect to clauses (i) and (ii) above, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, PROVIDED that interest accruing pursuant to paragraph (c) of this
Section shall be payable from time to time on demand.
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2.11 COMPUTATION OF INTEREST AND FEES. (a) Interest and fees
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to Base Rate Loans the rate
of interest on which is calculated on the basis of the Prime Rate, the interest
thereon shall be calculated on the basis of a 365- (or 366-, as the case may be)
day year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the Base Rate or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the relevant Lenders of the effective date and the amount of each
such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error. The Administrative Agent shall, at the request of the Borrower,
deliver to the Borrower a statement showing the quotations used by the
Administrative Agent in determining any interest rate pursuant to
Section 2.11(a).
2.12 INABILITY TO DETERMINE INTEREST RATE. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Majority Facility Lenders in respect of the relevant Facility that
the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given, (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as Base Rate
Loans, (y) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
continued as Base Rate Loans and (z) any outstanding Eurodollar Loans under the
relevant Facility shall be converted, on the last day of the then current
Interest Period, to Base Rate Loans. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans under the relevant Facility
shall be made or continued as such, nor shall the Borrower have the right to
convert Loans under the relevant Facility to Eurodollar Loans.
2.13 PRO RATA TREATMENT AND PAYMENTS. (a) Each borrowing by
the Borrower from the Lenders hereunder, each payment by the Borrower on account
of any commitment fee and any reduction of the Commitments of the Lenders shall
be made PRO RATA according to the respective Term Percentages or Revolving
Percentages, as the case may be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Term Loans shall be made PRO RATA
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Lenders. The amount of each principal prepayment of the Term
Loans shall be applied to reduce the then remaining installments of the Term
Loans PRO RATA based upon the then remaining principal amount thereof. Amounts
prepaid on account of the Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower
on account of principal of and interest on the Revolving Loans shall be made PRO
RATA according to the respective outstanding principal amounts of the Revolving
Loans then held by the Revolving Lenders.
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(d) All payments (including prepayments) to be made by the
Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Administrative
Agent, for the account of the Lenders, at the Funding Office, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt in like funds as received. If any
payment hereunder (other than payments on the Eurodollar Loans) becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day. If any payment on a Eurodollar Loan becomes
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day unless the result of such
extension would be to extend such payment into another calendar month, in which
event such payment shall be made on the immediately preceding Business Day. In
the case of any extension of any payment of principal pursuant to the preceding
two sentences, interest thereon shall be payable at the then applicable rate
during such extension.
(e) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate PER ANNUM applicable to
Base Rate Loans under the relevant Facility, on demand, from the Borrower.
(f) Unless the Administrative Agent shall have been notified
in writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective PRO RATA shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate PER ANNUM equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.14 REQUIREMENTS OF LAW. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application
or any Eurodollar Loan made by it, or change the basis of taxation of
payments to such Lender in respect thereof (except for Non-Excluded
Taxes covered by Section 2.15 and changes in the rate of tax on the
overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of
advances,
<PAGE>
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loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Lender that is not otherwise included in
the determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional amounts pursuant to this paragraph, it shall promptly
notify the Borrower (with a copy to the Administrative Agent) of the event by
reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Leader to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
PROVIDED that the Borrower shall not be required to compensate a Lender pursuant
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor, and PROVIDED FURTHER that, if the circumstances giving
rise to such claim have a retroactive effect, then such six-month period shall
be extended to include the period of such retroactive effect.
(c) A certificate as to any additional amounts payable
pursuant to this Section submitted by any Lender to the Borrower (with a copy to
the Administrative Agent) shall be conclusive in the absence of manifest error.
The obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.15 TAXES. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("NON-EXCLUDED TAXES") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, PROVIDED, HOWEVER, that the Borrower shall not be required to
increase any such amounts payable to any Lender with respect to any Non-Excluded
Taxes (i) that are attributable to such Lender's failure to comply with the
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requirements of paragraph (d) or (e) of this Section or (ii) that are United
States withholding taxes imposed on amounts payable to such Lender at the time
the Lender becomes a party to this Agreement, except to the extent that such
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable
by the Borrower, as promptly as possible thereafter the Borrower shall send to
the Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or
resident of the United States of America, a corporation, partnership or other
entity created or organized in or under the laws of the United States of America
(or any jurisdiction thereof), or any estate or trust that is subject to federal
income taxation regardless of the source of its income (a "NON-U.S. LENDER")
shall deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit G and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or
reduction of non-U.S. withholding tax under the law of the jurisdiction in which
the Borrower is located, or any treaty to which such jurisdiction is a party,
with respect to payments under this Agreement shall deliver to the Borrower
(with a copy to the Administrative Agent), at the time or times prescribed by
applicable law or reasonably requested by the Borrower, such properly completed
and executed documentation prescribed by applicable law as will permit such
payments to be made without withholding or at a reduced rate, PROVIDED that such
Lender is legally entitled to complete, execute and deliver such documentation
and in such Lender's judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
(f) The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.16 INDEMNITY. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense that such Lender may
sustain or incur as a consequence of (a) default by the
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Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same in accordance
with the provisions of this Agreement, (b) default by the Borrower in making any
prepayment of or conversion from Eurodollar Loans after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement or (c) the
making of a prepayment of Eurodollar Loans on a day that is not the last day of
an Interest Period with respect thereto. Such indemnification may include an
amount equal to the excess, if any, of (i) the amount of interest that would
have accrued on the amount so prepaid, or not so borrowed, convened or
continued, for the period from the date of such prepayment or of such failure to
borrow, convert or continue to the last day of such Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein (excluding, however, the
Applicable Margin included therein, if any) OVER (ii) the amount of interest (as
reasonably determined by such Lender) that would have accrued to such Lender on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. A certificate as to any
amounts payable pursuant to this Section submitted to the Borrower by any Lender
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Loans and all
other amounts payable hereunder.
2.17 CHANGE OF LENDING OFFICE. Each Lender agrees that, upon
the occurrence of any event giving rise to the operation of Section 2.14 or
2.15(a) with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; PROVIDED, that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and PROVIDED, FURTHER, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.14 or 2.15(a).
2.18 REPLACEMENT OF LENDERS. The Borrower shall be permitted
to replace any Lender that (a) requests reimbursement for amounts owing pursuant
to Section 2.14 or 2.15(a) or (b) defaults in its obligation to make Loans
hereunder, with a replacement financial institution; PROVIDED that (i) such
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) prior to any such replacement, such Lender shall have taken no action
under Section 2.17 so as to eliminate the continued need for payment of amounts
owing pursuant to Section 2.14 or 2.15(a), (iv) the replacement financial
institution shall purchase, at par, all Loans and other amounts owing to such
replaced Lender on or prior to the date of replacement, (v) the Borrower shall
be liable to such replaced Lender under Section 2.16 if any Eurodollar Loan
owing to such replaced Lender shall be purchased other than on the last day of
the Interest Period relating thereto, (vi) the replacement financial
institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of Section 10.6 (provided that,
unless such replacement Lender agrees to pay such fee, the Borrower shall be
obligated to pay the registration and processing fee referred to therein),
(viii) until such time as such replacement shall be consummated, the Borrower
shall pay all additional amounts (if any) required pursuant to Section 2.14 or
2.15(a), as the case may be, and (ix) any such replacement shall not be deemed
to be a waiver of any rights that the Borrower, the Administrative Agent or any
other Lender shall have against the replaced Lender.
SECTION 3. LETTERS OF CREDIT
3.1 L/C COMMITMENT. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Revolving
Lenders set forth in Section 3.4(a), agrees to issue standby letters of credit
("LETTERS OF CREDIT") for the account of the Borrower on any Business Day during
the Revolving Commitment Period in such form as may be approved from time to
time by the Issuing Lender; PROVIDED that the Issuing Lender shall have no
obligation to issue any Letter of Credit if after giving effect to such
issuance, (i) the
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L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of
the Available Revolving Commitments would be less than zero. Each Letter of
Credit shall (i) be denominated in Dollars and (ii) expire no later than the
earlier of (x) the first anniversary of its date of issuance and (y) the date
that is five Business Days prior to the Scheduled Revolving Termination Date,
PROVIDED that any Letter of Credit with a one-year term may provide for the
renewal thereof for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (y) above).
(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
(d) The Letter of Credit outstanding on the Closing Date,
issued by Bank of America pursuant to the Existing Credit Facility, shall
continue to be outstanding pursuant to the terms of this Agreement.
3.2 PROCEDURE FOR ISSUANCE OF LETTER OF CREDIT. The Borrower
may from time to time request that the Issuing Lender issue a Letter of Credit
by delivering to the Issuing Lender at its address for notices specified herein
an Application therefor, with a copy to the Administrative Agent, completed to
the satisfaction of the Issuing Lender, and such other certificates, documents
and other papers and information as the Issuing Lender may request. Upon receipt
of any Application, the Issuing Lender will process such Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and shall
promptly issue the Letter of Credit requested thereby (but in no event shall the
Issuing Lender be required to issue any Letter of Credit earlier than three
Business Days after its receipt of the Application therefor and all such other
certificates, documents and other papers and information relating thereto) by
issuing the original of such Letter of Credit to the beneficiary thereof or as
otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing
Lender shall furnish a copy of such Letter of Credit to the Borrower promptly
following the issuance thereof. The Issuing Lender shall promptly furnish to the
Administrative Agent, which shall in turn promptly furnish to the Lenders,
notice of the issuance of each Letter of Credit (including the amount thereof).
Any amendment to an outstanding Letter of Credit shall be effected pursuant to
procedures comparable to those specified in this Section 3.2.
3.3 FEES AND OTHER CHARGES. (a) The Borrower will pay a fee on
all outstanding Letters of Credit at a PER ANNUM rate equal to the Applicable
Margin then in effect with respect to Eurodollar Loans under the Revolving
Facility, shared ratably among the Revolving Lenders and payable to the
Administrative Agent for the account of the Revolving Lenders quarterly in
arrears on each L/C Fee Payment Date after the issuance date. In addition, the
Borrower shall pay to the Issuing Lender for its own account a fronting fee of
1/4 of 1% PER ANNUM on the undrawn and unexpired amount of each Letter of
Credit, payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date.
(b) In addition to the foregoing fees, the Borrower shall pay
or reimburse the Issuing Lender for such normal and customary costs and expenses
as are incurred or charged by the Issuing Lender in issuing, negotiating,
effecting payment under, amending or otherwise administering any Letter of
Credit.
3.4 L/C PARTICIPATIONS. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Leader to issue Letters of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of
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Credit issued hereunder and the amount of each draft paid by the Issuing Lender
thereunder. Each L/C Participant unconditionally and irrevocably agrees with the
Issuing Lender that, if a draft is paid under any Letter of Credit for which the
Issuing Lender is not reimbursed in full by the Borrower in accordance with the
terms of this Agreement, such L/C Participant shall pay to the Issuing Lender
upon demand at the Issuing Lender's address for notices specified herein an
amount equal to such L/C Participant's Revolving Percentage of the amount of
such draft, or any part thereof that is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under any Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, times (iii) 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 L/C Participant pursuant to
Section 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate PER ANNUM applicable to Base Rate Loans under the Revolving Facility. A
certificate of the Issuing Lender submitted to any L/C Participant with respect
to any amounts owing under this Section shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under any Letter of Credit and has received from any L/C Participant its
PRO RATA share of such payment in accordance with Section 3.4(a), the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the Issuing Lender), or any payment of interest on account thereof, the
Issuing Lender will distribute to such L/C Participant its PRO RATA share
thereof; PROVIDED, HOWEVER, that in the event that any such payment received by
the Issuing Lender shall be required to be returned by the Issuing Lender, such
L/C Participant shall return to the Issuing Lender the portion thereof
previously distributed by the Issuing Lender to it.
3.5 REIMBURSEMENT OBLIGATION OF THE BORROWER. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second Business Day following the date of the applicable drawing,
Section 2.11 (b) and (ii) thereafter, Section 2.11(c).
3.6 INDEMNIFICATION; NATURE OF ISSUING LENDER'S DUTIES.
(a) In addition to its other obligations under this Section 3,
the Borrower hereby agrees to pay, and protect, indemnify and save each Lender
harmless from and against, any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees) that
such lender may incur or be subject to as a consequence, direct or indirect, of
(A) the issuance of any Letter of Credit or (B) the failure of such Lender to
honor a drawing under a Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
government or Governmental Authority (all such acts or omissions, herein called
"GOVERNMENT ACTS").
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(b) As between the Borrower and the Lenders (including the
Issuing Lender), the Borrower shall assume all risks of the acts, omissions or
misuse of any Letter of Credit by the beneficiary thereof. No Lender (including
the Issuing Lender) shall be responsible: (A) for the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for and issuance of any Letter of
Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) for errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (D) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under a Letter of Credit or of the proceeds thereof; and (E) for any
consequences arising from causes beyond the control of such Lender, including,
without limitation, any Government Acts. None of the above shall affect, impair,
or prevent the vesting of the Issuing Lender's rights or powers hereunder.
(c) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by any
Lender (including the Issuing Lender), under or in connection with any Letter of
Credit or the related certificates, if taken or omitted in good faith, shall not
put such Lender under any resulting liability to the Borrower or any other Loan
Party. It is the intention of the parties that this Credit Agreement shall be
construed and applied to protect and indemnify each Lender (including the
Issuing Lender) against any and all risks involved in the issuance of the
Letters of Credit, all of which risks are hereby assumed by the Borrower (on
behalf of itself and each of the other Credit Parties), including, without
limitation, any and all Government Acts. No lender (including the Issuing
Lender) shall, in any way be, be liable for any failure by such Lender or anyone
else to pay any drawing under any Letter of Credit as a result of any Government
Acts or any other cause beyond the control of such Lender.
(d) Nothing in this Section 3.6 is intended to limit the
reimbursement obligations of the Borrower contained elsewhere herein. Unless all
Letters of Credit are cash collateralized in amounts and pursuant to
arrangements satisfactory to the Issuing Lender or secured by back-up standby
letters of credit in form and substance, and issued by an issuer satisfactory to
the Issuing Lender (in either case to the extent and in a manner reasonably
satisfactory to the Agent and the Issuing Lender), the obligations of the
Borrower under this Section 3.6 shall survive the termination of this Credit
Agreement. No act or omission of any current or prior beneficiary of a Letter of
Credit shall in any way affect or impair the rights of the Lenders (including
the Issuing Lender) to enforce any right, power or benefit under this Credit
Agreement.
(e) Notwithstanding anything to the contrary contained in this
Section 3.6, the Borrower shall have no obligation to indemnify any Lender
(including the Issuing Lender) in respect of any liability incurred by such
Lender (A) arising solely out of the gross negligence or willful misconduct of
such Lender, as determined by a court of competent jurisdiction, or (B) caused
by such Lender's failure to pay under any Letter of Credit after presentation to
it of a request strictly complying with the terms and conditions of such Letter
of Credit, as determined by a court of competent jurisdiction, unless such
payment is prohibited by any law, regulation, court order or decree.
3.7 LETTER OF CREDIT PAYMENTS. If any draft shall be presented
for payment under any Letter of Credit, the Issuing Lender shall promptly notify
the Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
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3.8 APPLICATIONS. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Agents and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdco and the Borrower hereby jointly and severally represent and
warrant to the Agents and each Lender that:
4.1 FINANCIAL CONDITION. (a) The unaudited PRO FORMA
consolidated balance sheet and statements of income and cash flows of the
Borrower as at, or for the period ending, December 31, 1998 (but using October
31, 1998 latest twelve month figures for Certified) (the "PRO FORMA FINANCIAL
STATEMENTS"), copies of which have heretofore been furnished to each Lender,
have been prepared giving effect (as if such events had occurred on such date or
at the beginning of such period, as applicable) to (i) the consummation of the
Acquisitions, (ii) the loans to be made on the Closing Date and the use of
proceeds thereof and (iii) the payment of fees and expenses in connection with
the foregoing. The Pro Forma Financial Statements have been prepared based on
the best information available to the Borrower as of the date of delivery
thereof, and present fairly in all material respects on a PRO FORMA basis the
estimated financial position of the Borrower as at, or for the period ending,
December 31, 1998 (but using October 31, 1998 latest twelve month figures for
Certified), assuming that the events specified in the preceding sentence had
actually occurred at such date or at the beginning of such period, as
applicable.
(b) The unaudited consolidated balance sheets of Galaxy as at
August 31, 1996, August 31, 1997 and August 31, 1998 and the related
consolidated statements of earnings and of retained earnings stockholders'
equity and cash flows for the fiscal years ended on such date reviewed by Rehman
Robson, CPAs and Consultants, P.C. (with respect to the August 31, 1996
financial statements) and Jenkens, Magnus, Volk & Carroll (with respect to the
August 31, 1997 financial statements), present fairly in all material respects
the consolidated financial condition of Galaxy as at such date, and the
consolidated results of its operations and its consolidated retained earnings,
stockholders' equity and cash flows for the respective fiscal years then ended.
The unaudited consolidated balance sheet of Galaxy as at September 30, 1998, and
the related unaudited consolidated statements of earnings and retained earnings,
stockholders' equity and cash flows for the one-month period ended on such date,
present fairly in all material respects the consolidated financial condition of
Galaxy as at such date, and the consolidated results of its operations and its
consolidated cash flows for the one-month period then ended (subject to normal
year-end audit adjustments). During the period from September 30, 1998 to and
including the date hereof there has been no Disposition by Galaxy of any
material part of its business or property.
(c) The audited consolidated balance sheets of Mid State as at
December 31, 1995, December 31, 1996 and December 31, 1997, reported on by and
accompanied by an unqualified report from Baker, Newman & Noyes LLC and the
audited consolidated balance sheet of Mid State as at September 30, 1998,
reported on by and accompanied by an unqualified report from Ernest & Young LLP,
and the related consolidated statements of earnings and of retained earnings,
stockholders' equity and cash flows for the fiscal years ended on such dates
(for nine months in the case of the September 30, 1998 balance sheet), present
fairly in all material respects the consolidated financial condition of Mid
State as at such date, and the consolidated results of its operations and its
consolidated retained earnings, stockholders' equity and cash flows for the
respective fiscal years then ended. All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). During the period
from September 30, 1998 to and including the date hereof there has been no
Disposition by Mid State of any material part of its business or property.
(d) The audited balance sheets of the entity to be acquired in
the General Automation Acquisition as at December 31, 1997 and December 31,
1998, and the related statements of earnings and of retained earnings,
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stockholders' equity and cash flows for the fiscal years ended on such dates and
December 31, 1996 reported on by and accompanied by an unqualified report from
Ernst & Young LLP, present fairly in all material respects the financial
condition of such entity as at such date, and the results of its operations and
its retained earnings, stockholders' equity and cash flows for the respective
fiscal years then ended. All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). During the period
from December 31, 1998 to and including the date hereof there has been no
Disposition by the entity to be acquired in the General Automation Acquisition
of any material part of the business or property of such entity.
(e) The audited combined balance sheets of the entities to be
acquired in the Certified Acquisition as at October 31, 1997 and October 31,
1998, and the related combined statements of earnings and of retained earnings,
stockholders' equity and cash flows for the fiscal years ended on such dates and
on October 31, 1996 reported on by and accompanied by an unqualified report from
Ernst & Young LLP, present fairly in all material respects the combined
financial condition of such entities as at such date, and the combined results
of its operations and its combined retained earnings, stockholders' equity and
cash flows for the respective fiscal years then ended. All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by the aforementioned firm of accountants and
disclosed therein). During the period from October 31, 1998 to and including the
date hereof there has been no Disposition by the entities to be acquired in the
Certified Acquisition of any material part of the business or property of such
entities.
(f) The audited balance sheets of the entity to be acquired in
the Nationwide Acquisition as at December 31, 1998, May 31, 1998, and May 31,
1997, and the related statements of earnings and of retained earnings,
stockholders' equity and cash flows for the fiscal years ended on such dates and
May 31, 1996 reported on by and accompanied by unqualified reports from Ernst &
Young LLP and Insero, Kasperski, Ciaccia & Co., P.C., present fairly in all
material respects the financial condition of such entity as at such date, and
the results of its operations and its retained earnings, stockholders' equity
and cash flows for the respective fiscal years then ended (for seven months in
the case of the December 31, 1998 balance sheet). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by the aforementioned firm of accountants and disclosed
therein). During the period from December 31, 1998 to and including the date
hereof there has been no Disposition by the entities to be acquired in the
Nationwide Acquisition of any material part of the business or property of such
entities.
(g) As of the Closing Date, the Precision Group Members do not
have any material Guarantee obligations, contingent liabilities and liabilities
for taxes, or any long-term leases or unusual forward or long-term commitments,
including any interest rate or foreign currency swap or exchange transaction or
other obligation in respect of derivatives, that are not reflected in the most
recent financial statements referred to in paragraph (b) or (c) above, as the
case may be, other than obligations pursuant to the Loan Documents.
4.2 NO CHANGE. Since October 31, 1998 there has been no
development or event that has had or could reasonably be expected to have a
Material Adverse Effect.
4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Loan Party
(a) is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, (b) has the corporate power and authority,
and the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification except as, in the
aggregate, could not reasonably be expected to have a Material
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Adverse Effect and (d) is in compliance with all Requirements of Law except to
the extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each Loan Party has the corporate power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and, in the
case of the Borrower, to borrow hereunder. Each Loan Party has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Loan Documents to which it is a party and, in the case of the Borrower,
to authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Acquisitions and the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect, except as
disclosed in Schedule 4.4 and (ii) the filings referred to in Section 4.19. Each
Loan Document has been duly executed and delivered on behalf of each Loan Party
party thereto. This Agreement constitutes, and each other Loan Document upon
execution will constitute, a legal, valid and binding obligation of each Loan
Party party thereto, enforceable against each such Loan Party in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 NO LEGAL BAR. The execution, delivery and performance of
this Agreement and the other Loan Documents, the issuance of Letters of Credit,
the borrowings hereunder and the use of the proceeds thereof will not violate
any Requirement of Law or any Contractual Obligation of any Precision Group
Member and will not result in, or require, the creation or imposition of any
Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or any such Contractual Obligation (other than the Liens
created by the Security Documents). No Requirement of Law or Contractual
Obligation applicable to any Precision Group Member could reasonably be expected
to have a Material Adverse Effect.
4.6 LITIGATION. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against any Loan Party or against
any of its properties or revenues (a) with respect to any of the Loan Documents
or any of the transactions contemplated hereby or thereby or (b) that could
reasonably be expected to have a Material Adverse Effect.
4.7 NO DEFAULT. No Loan Party is in default under or with
respect to any of its Contractual Obligations in any respect that could
reasonably be expected to have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing.
4.8 OWNERSHIP OF PROPERTY; LIENS. Each Loan Party (i) has good
and marketable title to all the real properties owned in fee or acquired after
the date thereof and (ii) has valid leasehold interests in all leased real
properties and is in possession of the real properties purported to be leased
thereunder, in each case, free and clear of all Liens, except Liens of the type
described as Prior Liens in the Mortgages. Title to all property other than real
property is held by each respective Loan Party free and clear of all Liens
except for Prior Liens and other Liens expressly permitted to exist on such type
of property by the terms of the applicable Security Document.
4.9 INTELLECTUAL PROPERTY. Each Loan Party owns, or is
licensed to use, all Intellectual Property necessary for the conduct of its
business as currently conducted. No material claim has been asserted and is
pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Borrower know of any valid basis for any such claim. The use of Intellectual
Property by each Precision Group Member does not infringe on the rights of any
Person in any material respect.
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4.10 TAXES. Each Loan Party has filed or caused to be filed
all Federal, state and other material tax returns that are required to be filed
and has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its property and all other taxes, fees or
other charges imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being contested in
good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the relevant Loan Party,
PROVIDED that in the case of Galaxy any such reserves made prior to the Closing
Date need not be in conformity with GAAP so long as they are in a reasonable
amount); no tax Lien has been filed, and, to the knowledge of Holdco and the
Borrower, no claim is being asserted, with respect to any such tax, fee or other
charge.
4.11 FEDERAL REGULATIONS. No part of the proceeds of any Loans
will be used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-l, as applicable, referred to in Regulation U.
4.12 LABOR MATTERS. Except as, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect: (a) there are no
strikes or other labor disputes against any Precision Group Member pending or,
to the knowledge of the Borrower, threatened; (b) hours worked by and payment
made to employees of the Precision Group Members have not been in violation of
the Fair Labor Standards Act or any other applicable Requirement of Law dealing
with such matters; and (c) all payments due from any Precision Group Member on
account of employee health and welfare insurance have been paid or accrued as a
liability on the books of the relevant Precision Group Member.
4.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits by a material amount. Neither the Borrower nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan that has resulted or could reasonably be expected to result
in a material liability under ERISA, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any material liability under ERISA if
the Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most closely preceding the
date on which this representation is made or deemed made. No such Multiemployer
Plan is in Reorganization or Insolvent.
4.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party
is an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
No Loan Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
4.15 SUBSIDIARIES. Except as disclosed to the Administrative
Agent by the Borrower in writing from time to time after the Closing Date, (a)
Schedule 4.15 sets forth the name and jurisdiction of incorporation of each
Subsidiary of the Borrower and, as to each such Subsidiary, the percentage of
each class of Capital Stock owned by the Borrower or any Precision Group Member,
(b) there are no outstanding subscriptions, options, warrants, calls, rights or
other agreements or commitments (other than directors' qualifying shares) of any
nature
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relating to any Capital Stock of any Precision Group Member, except as created
by the Loan Documents, and (c) there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
options granted to employees or directors) of any nature relating to any Capital
Stock of Holdco.
4.16 USE OF PROCEEDS. The proceeds of the Term Loans shall be
used to finance a portion of the purchase price for the Acquisitions and to
refinance the Existing Credit Facility. The proceeds of the Revolving Loans
shall be used for working capital and general corporate purposes.
4.17 ENVIRONMENTAL MATTERS. Except as, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by
any Precision Group Member (the "PROPERTIES") do not contain, and have
not previously contained, any Materials of Environmental Concern in
amounts or concentrations or under circumstances that constitute or
constituted a violation of, or could give rise to liability under, any
Environmental Law;
(b) no Precision Group Member has received or is aware of any
claim or notice of violation, alleged violation, non-compliance,
liability or potential liability under any Environmental Law of or by
any Precision Group Member or with regard to any of the Properties or
the business operated by the Precision Group Members (the "BUSINESS"),
nor does the Borrower have knowledge or reason to believe that any such
claim or notice will be received or is being threatened;
(c) Materials of Environmental Concern have not been
transported or disposed of by any Precision Group Member or from any of
the Properties or in connection with the Business in violation of or in
a manner or to a location that could give rise to liability under any
Environmental Law, nor have any Materials of Environmental Concern been
used, handled, generated, treated, stored or disposed of or released
at, on, under or from any of the Properties in violation of, or in a
manner that could give rise to liability under, any applicable
Environmental Law;
(d) no judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Borrower, threatened
under any Environmental Law to which any Precision Group Member is or
will be named as a party, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or
other administrative or judicial requirements or agreements outstanding
which impose any requirements or obligations upon or among Precision
Group Members under any Environmental Law;
(e) there has been no release or threat of release of
Materials of Environmental Concern at, on, under or from any of the
Properties, or arising from or related to the operations of the
Precision Group Members in connection with any of the Properties or
otherwise in connection with the Business, in violation of or in
amounts, in a manner or under circumstances that could give rise to
liability under Environmental Laws;
(f) each of the Properties and all operations at the
Properties are in compliance, and have in the last five years been in
compliance, with all applicable Environmental Laws, and there are no
Materials of Environmental Concern at, on, under or emanating from the
Properties or in violation of any Environmental Law with respect to the
Properties or the Business;
(g) no Precision Group Member has assumed any liability of any
other Person under Environmental Laws;
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(h) there is no lien imposed on any of the Properties or any
other assets of any Precision Group Member under any Environmental Law;
and
(i) all material environmental investigations, studies, audits
or assessments which have been conducted and which are in the
possession, custody or control of any Precision Group Member relating
(i) to the current or prior business, operations, facilities or
Properties of any Precision Group Member or any of their respective
predecessors in interest or (ii) to any facility, Properties or other
asset now or previously owned, operated, leased or used by any
Precision Group Member or any of their respective predecessors in
interest have been made available to Lenders.
4.18 ACCURACY OF INFORMATION, ETC. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum, or any other document, certificate or statement
furnished by or on behalf of any Loan Party to the Administrative Agent or the
Lenders, or any of them, for use in connection with the transactions
contemplated by this Agreement or the other Loan Documents, contained as of the
date such statement, information, document or certificate was so furnished any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements contained herein or therein not misleading. The
projections and PRO FORMA financial information contained in the materials
referenced above are based upon good faith estimates and assumptions believed by
management of the Borrower to be reasonable at the time made, it being
recognized by the Lenders that such financial information as it relates to
future events is not to be viewed as fact and that actual results during the
period or periods covered by such financial information may differ from the
projected results set forth therein by a material amount. As of the date hereof,
the representations and warranties contained in the Acquisition Documentation
are true and correct in all material respects. There is no fact known to any
Loan Party that could reasonably be expected to have a Material Adverse Effect
that has not been expressly disclosed herein, in the other Loan Documents, the
Confidential Information Memorandum or in any other documents, certificates and
statements furnished to the Administrative Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.
4.19 SECURITY DOCUMENTS. (a) The Security Agreement is
effective to create in favor of the Administrative Agent, for the benefit of the
Agents and the Lenders, a legal, valid and enforceable security interest in the
Collateral described therein and proceeds thereof. In the case of the Pledged
Stock described in the Security Agreement, when stock certificates representing
such Pledged Stock are delivered to the Administrative Agent, and in the case of
the other Collateral described in the Security Agreement, when financing
statements and other filings specified on Schedule 4.19(a) in appropriate form
are filed in the offices specified on Schedule 4.19(a), the Security Agreement
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Borrower and the Subsidiary Guarantors in such
Collateral and the proceeds thereof, in each case to the extent a Lien on the
relevant Collateral may be perfected by taking any of the actions of the type
referred to in this paragraph (a), as security for the Secured Obligations (as
defined in the Security Agreement), in each case prior and superior in right to
any other Person (except for Prior Liens and other Liens expressly permitted to
exist on such type of property by the terms of the Security Agreement).
(b) The Securities Pledge Agreement is effective to create in
favor of the Administrative Agent, for the benefit of the Agents and the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Securities Pledge Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Security Agreement, when
financing statements and other filings specified on Schedule 4.19(b) in
appropriate form are filed in the offices specified on Schedule 4.19(b), the
Securities Pledge Agreement shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of Holdco in such Collateral
and the proceeds thereof, in each case to the extent a Lien on the relevant
Collateral may be perfected by taking any of the actions of the type referred to
in this paragraph (b), as security for the Secured Obligations (as defined in
the Security Pledge Agreement), in each case prior and superior in right to
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any other Person (except for Liens expressly permitted to exist on such type of
property by the terms of the Securities Pledge Agreement).
(c) Each of the Mortgages is effective to create in favor of
the Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof and when the Mortgages are filed in the offices specified on Schedule
4.19(c), each such Mortgage except for the Collateral Assignment shall
constitute a fully perfected first priority Lien on, and security interest in,
all right title and interest of the applicable Loan Parties in the Mortgaged
Properties and the proceeds thereof, as security for the Secured Obligations (as
defined in the relevant Mortgage), in each case prior and superior in right to
any other Person (except for Prior Liens and other Liens expressly permitted to
exist on such type of property by the terms of the relevant Mortgage).
(d) Except with respect to Prior Liens and other Liens
expressly permitted by the terms of the applicable Security Document and the
Liens created by the Security Documents, there is no currently effective
financing statement, security agreement, chattel mortgage, real estate mortgage
or other document filed or recorded with any filing records, registry, or other
public office, that purports to cover, affect or give notice of any present or
possible future Lien on, or security interest in, any assets or Property of any
Loan Party or rights thereunder.
4.20 SOLVENCY. Each Loan Party is, and after giving effect to
any Acquisition and the incurrence of all Indebtedness and obligations being
incurred in connection herewith and therewith will be and will continue to be,
Solvent.
4.21 SENIOR DEBT. If any Loan Party has issued, or may issue,
Subordinated Indebtedness, the Obligations of such Loan Party will constitute
"Senior Debt" (or such equivalent term) of such Loan Party with respect to such
Subordinated Indebtedness; the Obligations of each Loan Party constitute such
Senior Debt with respect to the Senior Subordinated Notes.
4.22 YEAR 2000 MATTERS. Each of the Loan Parties is making a
commercially reasonable effort (i) to assess all areas within its and each of
its Subsidiaries' businesses and operations that could be adversely affected by
the Year 2000 Problem and (ii) to develop and implement a plan for addressing
the Year 2000 Problem on a timely basis. Each Loan Party believes that all
computer applications that are material to its or any of its Subsidiaries'
business and operations are reasonably expected on a timely basis to be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "YEAR 2000 COMPLIANT"). The Borrower reasonably believes
that the Year 2000 Problem, including costs of redemption, could not reasonably
be expected to have a Material Adverse Effect.
4.23 REGULATION H. No Mortgage encumbers improved real
property that is located in an area that has been identified by the Secretary of
Housing and Urban Development as an area having special flood hazards and in
which flood insurance has been made available under the National Flood Insurance
Act of 1968.
4.24 LICENSES AND PERMITS; COMPLIANCE WITH LAWS. The Loan
Parties hold all governmental permits, licenses, authorizations, consents and
approvals (none of which has been modified or rescinded and all of which are in
full force and effect) (collectively, the "PERMITS") necessary for the Loan
Party to own, lease, and operate their respective Properties and to carry on
their respective businesses as now being conducted, except for Permits the
failure of which to obtain could not reasonably be expected to have a Material
Adverse Effect.
The business of the Loan Parties are not being conducted in
violation of any applicable requirement of law, permit, concession, grant or
other authorization of any Governmental Authority, except for violations that
could not reasonably be expected to have a Material Adverse Effect.
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SECTION 5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL EXTENSION OF CREDIT. The agreement
of each Lender to make the initial extension of credit requested to be made by
it is subject to the satisfaction, prior to or concurrently with the making of
such extension of credit on the Closing Date, of the following conditions
precedent:
(a) CREDIT AGREEMENT; GUARANTEES, ETC. The Administrative
Agent shall have received (i) this Agreement, executed and delivered by
the Agents, Holdco, the Borrower and each Person listed on Schedule 1.1
A, (ii) the Guarantees, executed and delivered by Holdco and each
Subsidiary Guarantor, and (iii) a Borrowing Base Certificate, dated the
Closing Date and setting forth a calculation of the Borrowing Base as
of February 28, 1999.
(b) PRECISION REORGANIZATION. The Precision Reorganization
shall have occurred on the terms set forth on Schedule 5.1(b). The
Administrative Agent shall be satisfied with the tax and organizational
effects of the Precision Reorganization.
(c) ACQUISITION, ETC. The following transactions shall have
been consummated and each of the Acquisitions shall have been
consummated without any amendment or waiver not approved by the Lenders
or all conditions to consummation have been met, but for the financing
as a result of this transaction, and in each case on terms and
conditions reasonably satisfactory to the Administrative Agent:
(i) the General Automation Acquisition Documentation,
the Nationwide Acquisition Documentation and the Certified
Fabricators Acquisition Documentation shall be reasonably
acceptable to the Administrative Agent; and
(ii) the Administrative Agent shall have received
satisfactory evidence that the fees and expenses to be
incurred by such Companies in connection with the Acquisitions
and the financing thereof shall not exceed $10,000,000.
(d) SENIOR SUBORDINATED NOTES. The Borrower shall have
received gross proceeds of $100 million from the issuance of the Senior
Subordinated Notes. The terms and conditions of the Senior Subordinated
Notes (including, without limitation, as to maturity, interest rate,
events of default, subordination and covenants) shall be satisfactory
to the Administrative Agent.
(e) REPAYMENT OF EXISTING INDEBTEDNESS. Except as set forth in
Schedule 5.1(e) hereto, all Indebtedness of the Borrower and Holdco
shall have been repaid in full, and all obligations thereunder and
security interests relating thereto shall have been discharged, and the
Administrative Agent shall have received satisfactory evidence of such
repayment and discharge; PROVIDED, that, as to Indebtedness of the
Borrower which is to be repaid upon Closing with proceeds hereof
(including the Existing Credit Facility), the Administrative Agent
shall have received satisfactory evidence in the form of definitive
payoff letters verifying that all obligations thereunder and security
interests relating thereto shall be repaid and discharged immediately
upon receipt by the lenders thereunder (or their agents) of the amounts
stated in such payoff letters.
(f) REVOLVING DRAW-DOWN. After giving effect to the
Acquisitions and the making of any extensions of credit hereunder on
the Closing Date, the Total Revolving Extensions of Credit outstanding
shall not exceed $1,000,000.
(g) PRO FORMA EBITDA; CONSOLIDATED LEVERAGE RATIO. At December
31, 1998 (but using October 31, 1998 latest twelve month figures for
Certified), after giving effect to the Acquisitions, the
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issuance of the Senior Subordinated Notes, the extension of credit
hereunder and the repayment of Indebtedness in connection therewith,
Consolidated EBITDA shall be no less than $29.9 million and the
Consolidated Leverage Ratio shall not exceed 4.1 to 1.
(h) FINANCIAL STATEMENTS; ETC. The Administrative Agent shall
have received (i) the Pro Forma Financial Statements, (ii) the
financial statements referred to in Section 4.1 (b) through (f), (iii)
projected financial statements, (which in each case shall be
satisfactory to the Administrative Agent), (iv) a certificate of a
Responsible Officer of the Borrower demonstrating in reasonable detail
that, after giving effect to the Acquisitions, the Borrower shall be in
PRO FORMA compliance with the covenants set forth in Section 7.1(a),
(b) and (c), and (v) a Solvency Certificate.
(i) LEGAL AND CAPITAL STRUCTURE. The Lenders and their counsel
shall be satisfied with the capitalization, structure and equity
ownership of the Borrower and Holdco after the Acquisitions, including
a minimum total common equity investment in the Borrower of $42
million; PROVIDED that if any portion of any investment in Holdco is
not in the form of common equity, the terms thereof shall be
satisfactory to the Administrative Agent.
(j) APPROVALS. All governmental and third party approvals
(including landlords' and other consents) necessary in connection with
the Acquisitions, the continuing operations of the Precision Group
Members and the transactions contemplated hereby shall have been
obtained and be in full force and effect, and all applicable waiting
periods shall have expired without any action being taken or threatened
by any competent authority that would restrain, prevent or otherwise
impose adverse conditions on the Acquisitions or the financing
contemplated hereby.
(k) LIEN SEARCHES. The Administrative Agent shall have
received the results of a Requests for Information (Form UCC-11), tax
lien, judgment lien and pending lawsuit searches or equivalent reports
or lien search reports, each of a recent date listing all effective
financing statements, lien notices or comparable documents that name
any Loan Party as debtor in each of the jurisdictions where assets of
the Loan Parties are located (after giving effect to the Acquisitions)
and each such Loan Party's principal place of business is located, and
such search shall reveal no liens on any of the assets of the Loan
Parties except for Prior Liens or discharged on or prior to the Closing
Date pursuant to documentation satisfactory to the Administrative
Agent.
(l) ENVIRONMENTAL AUDIT. The Administrative Agent shall have
received (i) an environmental audit with respect to the real properties
of the Precision Group Members specified by the Administrative Agent
and (ii) an Environmental Certificate.
(m) FEES. The Lenders and the Administrative Agent shall have
received all fees required to be paid, and all expenses for which
invoices have been presented (including the reasonable fees and
expenses of legal counsel), on or before the Closing Date. All such
amounts will be paid with proceeds of Loans made on the Closing Date
and will be reflected in the funding instructions given by the Borrower
to the Administrative Agent on or before the Closing Date.
(n) CLOSING CERTIFICATES. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of each
Loan Party, dated the Closing Date, substantially in the form of
Exhibit C, with appropriate insertions and attachments.
(o) LEGAL OPINIONS. The Administrative Agent shall have
received the following executed legal opinions:
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(i) the legal opinion of Jones, Day, Reavis & Pogue,
counsel to the Precision Group Members, substantially in the
form of Exhibit F;
(ii) to the extent consented to by the relevant
counsel, each legal opinion, if any, delivered in connection
with the Acquisition Agreements, accompanied by a reliance
letter in favor of the Lenders; and
(iii) the legal opinion of local counsel to the
Precision Group Members, substantially in the form of Exhibit
J, in each jurisdiction where Collateral is located in form
and substance reasonably satisfactory to Administrative Agent.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(p) PLEDGED STOCK; STOCK POWERS; PLEDGED NOTES. The
Administrative Agent shall have received (i) the certificates
representing the shares of Capital Stock pledged pursuant to any
Security Document, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the
pledgor thereof and (ii) each promissory note (if any) pledged to the
Administrative Agent pursuant to the Security Agreement endorsed
(without recourse) in blank (or accompanied by an executed transfer
form in blank) by the pledgor thereof.
(q) FILINGS, REGISTRATIONS AND RECORDINGS. Each document
(including any Uniform Commercial Code financing statement or United
States Patent, Trademark and Copyright office filings) required by the
Security Documents or under law or reasonably requested by the
Administrative Agent to be filed, registered or recorded in order to
create in favor of the Administrative Agent, for the benefit of the
Lenders, a perfected Lien on the Collateral described therein, prior
and superior in right to any other Person (other than with respect to
Liens expressly permitted by any Security Document), shall be in proper
form for filing, registration or recordation.
(r) MORTGAGES, ETC.
(i) The Administrative Agent shall have received a
Mortgage, duly authorized, executed and delivered encumbering
each Mortgaged Property in favor of Administrative Agent, for
the benefit of the Agents and the Lenders, in form for
recording office of each jurisdiction where each such
Mortgaged Property is situated, together with such other
instruments as shall be necessary or appropriate (in the
reasonable judgment of the Administrative Agent) to create a
Lien under applicable law, all of which shall be in form and
substance reasonably satisfactory to Administrative Agent,
which Mortgage (other than the Collateral Assignment) and
other instruments shall be effective to create a first
priority Lien on such Mortgaged Property subject to no Liens
other than Prior Liens applicable to such Mortgaged Property.
(ii) The Administrative Agent shall have received,
and the title insurance company issuing the policy referred to
in clause (iii) below (the "TITLE INSURANCE COMPANY") shall
have received, maps or plats of an as-built survey of the
sites of the Mortgaged Properties certified to the
Administrative Agent and the Title Insurance Company in a
manner satisfactory to them, dated a date satisfactory to the
Administrative Agent and the Title Insurance Company by an
independent professional licensed land surveyor satisfactory
to the Administrative Agent and the Title Insurance Company,
which maps or plats and the surveys on which they are based
shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and
adopted by the American Land Title Association and the
American
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Congress on Surveying and Mapping in 1992, and, without
limiting the generality of the foregoing, there shall be
surveyed and shown on such maps, plats or surveys the
following: (A) the locations on such sites of all the
buildings, structures and other improvements and the
established building setback lines; (B) the lines of streets
abutting the sites and width thereof; (C) all access and other
easements appurtenant to the sites; (D) all roadways, paths,
driveways, easements, encroachments and overhanging
projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the
sites or otherwise known to the surveyor; (E) any
encroachments on any adjoining property by the building
structures and improvements on the sites; (F) if the site is
described as being on a filed map, a legend relating the
survey to said map; and (G) the flood zone designations, if
any, in which the Mortgaged Properties are located.
(iii) The Administrative Agent shall have received in
respect of each Mortgaged Property a mortgagee's title
insurance policy (or policies) or marked up unconditional
binder for such incurrence. Each such policy shall (A) be in
an amount satisfactory to the Administrative Agent; (B) be
issued at ordinary rates; (C) insure that the Mortgage insured
thereby creates a valid first Lien on such Mortgaged Property
free and clear of all defects and encumbrances, except as
disclosed therein; (D) name the Administrative Agent for the
benefit of the Lenders as the insured thereunder; (E) be in
the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and
10/17/84) (or equivalent policies); (F) contain such
endorsements and affirmative coverage as the Administrative
Agent may reasonably request (including, without limitation,
endorsements on matters relating to usury, first loss, last
dollar, zoning, contiguity, revolving credit, doing business,
road access, variable rate and so-called comprehensive
coverage over covenants and restrictions); (G) contain no
exceptions to title other than exceptions for Prior Liens (as
set forth in the applicable Mortgage) and other exceptions
reasonably acceptable to Administrative Agent; and (H) be
issued by title companies satisfactory to the Administrative
Agent (including any such title companies acting as
co-insurers or reinsurers, at the option of the Administrative
Agent). The Administrative Agent shall have received evidence
satisfactory to it that all premiums in respect of each such
policy, all charges for mortgage recording tax, and all
related expenses, if any, have been paid.
(iv) The Administrative Agent shall have received,
for each parcel of Mortgaged Property located in an area
identified by the Federal Emergency Management Agency as an
area having special flood hazards pursuant to the National
Flood Insurance Act of 1968 or the Flood Disaster Protection
Act of 1973, each as amended, or any successor laws, flood
insurance with policy limits and deductibles in such amounts
as set forth under the Mortgage relating to that parcel of
Mortgaged Property, and, if no such amount has been
established, in such amounts as would be maintained by a
prudent operator of property similar in use and configuration
to such parcel of Mortgaged Property and located in the
locality where such parcel of Mortgaged Property is located.
(v) The Administrative Agent shall have received a
copy of all recorded documents referred to, or listed as
exceptions to title in, the title policy or policies referred
to in clause (iii) above and a copy of all other material
documents affecting the Mortgaged Properties.
(vi) The Administrative Agent shall have received an
officer's certificate or other evidence reasonably
satisfactory to the Administrative Agent that as of the date
thereof to such officer's knowledge there (x) has been issued
and is in effect a valid and proper certificate of occupancy
or other local equivalent, if any, for the use then being made
of such Mortgaged Property and that there is not outstanding
any citation, violation or similar notice indicating that
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such Mortgaged Property contains conditions which are not in
compliance (except where non-compliance would not result in a
material impairment of the value or utility of such Mortgaged
Property) with local codes or ordinances relating to building
or fire safety or structural soundness, (y) has not occurred
any Recovery Event affecting all or any material portion of
any Mortgaged Property and (z) are no disputes regarding
boundary lines, location, encroachment or possession of any
portions of such Mortgaged Property and no state of facts
existing which could give rise to any such claim.
(s) INSURANCE. The Administrative Agent shall have received
insurance certificates satisfying the requirements of the Security
Documents.
(t) SECURITY AGREEMENT AND SECURITIES PLEDGE AGREEMENT. The
Administrative Agent shall have received a Security Agreement executed
and delivered by the Borrower, each Subsidiary Guarantor and the
Administrative Agent in substantially the form of Exhibit I and the
Administrative Agent shall have received a Securities Pledge Agreement
executed and delivered by Holdco, in substantially the form of Exhibit
K.
(u) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on the date of issuance or after giving
effect to (1) the Senior Subordinated Notes, (2) any extensions of
credit requested to be made on such date, (3) the General Automation
Acquisition, (4) the Nationwide Acquisition and (5) the Certified
Acquisition.
(v) COVENANT COMPLIANCE. After giving effect to the issuance
of the Senior Subordinated Notes, the Acquisitions and the payment of
related fees and expenses, the Borrower shall be in PRO FORMA
compliance with the Financial covenants set forth in Section 7.1 (a),
(b) and (c).
5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of
each Lender to make any extension of credit requested to be made by it on any
date (including its initial extension of credit) is subject to the satisfaction
of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by any Loan Party in or pursuant to
the Loan Documents shall be true and correct in all material respects
on and as of such date as if made on and as of such date, except for
any such representation and warranty that expressly relates solely to a
particular date, in which case such representation and warranty shall
have been true and correct on and as of such particular date.
(b) NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
extensions of credit requested to be made on such date.
(c) CREDIT LIMITATION. In the case of extensions of credit
under the Revolving Facility, after giving effect to such extension of
credit, the Total Revolving Extensions of Credit shall not exceed the
Borrowing Base then in effect.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.3 have been satisfied.
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SECTION 6. AFFIRMATIVE COVENANTS
The Loan Parties hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each Loan Party shall and, to the extent
applicable, shall cause each other Loan Party to:
6.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent
and each Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the
audited consolidated balance sheet and unaudited consolidating balance
sheet of the Borrower as at the end of such year and the related
audited consolidated statements of income and of cash flows and the
unaudited consolidating statements of income and cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, with such audited financial statements reported on
without a "going concern" or like qualification or exception,
qualification arising out of the scope of the audit or qualification as
to possible errors generated by financial reporting and related systems
due to the Year 2000 Problem, by Ernst & Young or other independent
certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated and
consolidating balance sheets of the Borrower as at the end of such
quarter and the related unaudited consolidated and consolidating
statements of income and of cash flows for such quarter and the portion
of the fiscal year through the end of such quarter, setting forth in
each case in comparative form the figures for the previous year,
certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45
days after the end of each month occurring during each fiscal year of
the Borrower (other than the third, sixth, ninth and twelfth such
month), the unaudited consolidated and consolidating balance sheets of
the Borrower as at the end of such month and the related unaudited
consolidated and consolidating statements of income and of cash flows
for such month and the portion of the fiscal year through the end of
such month, setting forth in each case in comparative form the figures
for the previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end
audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the cast may be,
and disclosed therein).
6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the
Administrative Agent (with sufficient copies for each Lender) or, in the case of
clause (i) below, to the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1 (a), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1, (i) a certificate of a Responsible Officer
stating that, to the best of each such Responsible Officer's knowledge,
each Loan Party during such period has observed or performed all of its
covenants and other agreements,
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and satisfied every condition, contained in this Agreement and the
other Loan Documents to which it is a party to be observed, performed
or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in
such certificate and (ii) in the case of quarterly or annual financial
statements, (x) a Compliance Certificate containing all information and
calculations necessary for determining compliance by the Borrower with
the provisions of this Agreement referred to therein as of the last day
of the fiscal quarter or fiscal year of the Precision Group Members, as
the case may be, and (y) to the extent not previously disclosed to the
Administrative Agent, a listing of each new Subsidiary of the Borrower,
of any new county or state within the United States where any Loan
Party keeps inventory or equipment and of any new fee-owned real
property or Intellectual Property acquired by any Loan Party since the
date of the most recent list delivered pursuant to this clause (y) (or,
in the case of the first such list so delivered, since the Closing
Date);
(c) as soon as available, and in any event no later than 60
days after the end of each fiscal year of the Borrower, a detailed
consolidated and consolidating budget for the following fiscal year
(including projected consolidated and consolidating balance sheets of
the Borrower as of the end of the following fiscal year, the related
consolidated and consolidating statements of projected cash flow,
projected changes in financial position and projected income and a
description of the underlying assumptions applicable thereto), and, as
soon as available, significant revisions, if any, of such budget and
projections with respect to such fiscal year (collectively, the
"PROJECTIONS"), which Projections shall in each case be accompanied by
a certificate of a Responsible Officer stating that such Projections
are based on reasonable estimates, information and assumptions and that
such Responsible Officer has no reason to believe that such Projections
are incorrect or misleading in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial
condition and results of operations of the Borrower for such fiscal
quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the
portion of the Projections covering such periods and to the comparable
periods of the previous year;
(e) as soon as practicable, but in no event later than 15 days
after the end of each month, a Borrowing Base Certificate, certifying
in reasonable detail the Borrowing Base as of the last day of such
month;
(f) (i) promptly upon sending or receipt, copies of any and
all management letters, and correspondence relating to management
letters, sent or received by any Loan Party to or from its auditors and
(ii) no later than June 30, 1999, a copy of the Precision Group
Members' plan, timetable and budget to address the Year 2000 Problem,
together with periodic updates thereof and expenses incurred to date,
any third party assessment of the Precision Group Members' Year 2000
remediation efforts, and any Year 2000 contingency plans;
(g) no later than 10 Business Days prior to the effectiveness
thereof, copies of substantially final drafts of any proposed
amendment, supplement, waiver or other modification with respect to the
Acquisition Documentation;
(h) within five days after the same are sent, copies of all
financial statements and reports that any Loan Party sends to the
holders of any class of its debt securities or public equity securities
and, within five days after the same are filed, copies of all financial
statements and reports that any Loan Party may make to, or file with,
the SEC; and
(i) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
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6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the relevant Precision Group Member.
6.4 MAINTENANCE OF EXISTENCE; COMPLIANCE. (a) (i) Preserve,
renew and keep in full force and effect its corporate existence and (ii) take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted by Section 7.4 and except, in the case of clause
(ii) above, to the extent that failure to do so could not reasonably be expected
to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted, and (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability (effective by April 1, 1999) and business
interruption) as are usually insured against in the same general area by
companies engaged in the same or a similar business.
6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS.
(a) Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of any Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Precision Group Members with officers and employees of the Precision Group
Members and with its independent certified public accountants.
6.7 NOTICES. Promptly give notice to the Administrative Agent
and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of any Loan Party or (ii) litigation, investigation or
proceeding that may exist at any time between any Loan Party and any
Governmental Authority, that in either case, if not cured or if
adversely determined, as the case may be, could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding affecting any Loan Party in
which the amount involved is $500,000 or more and not covered by
insurance or in which injunctive or similar relief is sought;
(d) any environmental matter of the type described in Section
4.17 (whether or not such matter could reasonably be expected to have a
Material Adverse Effect) affecting any Loan Party in which the amount
involved is $500,000 or more and not covered by insurance;
(e) the following events, as soon as possible and in any event
within 30 days after Holdco or the Borrower knows or has reason to know
thereof: (i) the occurrence of any Reportable Event with respect to any
Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal
from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or (ii) the institution of proceedings or the taking
of any other action by the PBGC or
<PAGE>
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the Borrower or any Commonly Controlled Entity or any Multiemployer
Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Plan;
(f) any event or condition which, on any day, to the knowledge
of the Borrower, has caused the Borrowing Base to change since the date
of the most recent Borrowing Base Certificate delivered pursuant to
Section 6.2(e) if as a result of such change the Total Revolving
Extensions of Credit exceed the Borrowing Base determined as of such
day; and
(g) any development or event that has had or could reasonably
be expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the relevant Loan Party proposes to take with
respect thereto.
6.8 ENVIRONMENTAL LAWS. (a) Comply in all material respects
with, and ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with and maintain, any
and all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
(c) In the event of the presence of any Materials of
Environmental Concern at, on, under or emanating from any Properties which could
reasonably be expected to result in liability under or a violation of any
Environmental Law, in each case which could reasonably be expected to have a
Material Adverse Effect, the applicable Precision Group Member shall undertake,
and/or cause any of their respective tenants or occupants to undertake, at their
sole expense, any action required pursuant to Environmental Laws to mitigate and
eliminate such presence; PROVIDED, HOWEVER, that no Precision Group Member shall
be required to comply with any order or directive of any Governmental Authority
which is being contested in good faith and by proper proceedings so long as it
has maintained adequate reserves with respect to such compliance to the extent
required in accordance with GAAP.
(d) Each Precision Group Member shall promptly notify the
Administrative Agent of the occurrence of any event specified in clause (c) of
this Section 6.8 and shall periodically thereafter keep the Administrative Agent
informed of any material actions taken in response to such event and the results
of such actions.
(e) At the written request of Administrative Agent at any time
and from time to time, each Precision Group Member shall provide, at such
Precision Group Member's sole cost and expense, an environmental site assessment
(including, without limitation, the results of any soil, groundwater or other
testing conducted if the Administrative Agent directs that such testing be
conducted) concerning any Properties or any real property hereafter owned,
leased or operated by any Precision Group Member, conducted by an environmental
consulting firm proposed by such Precision Group Member and approved by the
Administrative Agent indicating the presence or absence of Materials of
Environmental Concern and the potential cost of any required investigation or
other response or any corrective action in connection with any Materials of
Environmental Concern on, at, under or emanating from such Properties and real
properties; PROVIDED, HOWEVER, that such request may be made only if (a) there
has occurred and is continuing an Event of Default, (b) the Administrative Agent
reasonably believes that any
<PAGE>
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Precision Group Member or any Properties and real property is not in material
compliance with Environmental Law or (c) circumstances exist that reasonably
could be expected to form the basis of a claim under any Environmental Law
against such Precision Group Member or any such Properties or real property
which could materially and adversely affect the business, condition (financial
or otherwise), operations, performance or properties of any Precision Group
Member. If any Precision Group Member fails to provide the same within 60 days
after such request was made, the Administrative Agent may but is under no
obligation to conduct the same, and such Precision Group Member shall grant and
hereby grants to the Administrative Agent and its agents access to such
Properties and real property and specifically grants the Administrative Agent an
irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment, all at such Precision Group Member's sole cost and
expense.
6.9 ADDITIONAL COLLATERAL, ETC. (a) With respect to any
property acquired after the Closing Date by any Precision Group Member (other
than (x) any property described in paragraph (b), (c) or (d) below, (y) any
property subject to a Lien expressly permitted by Section 7.3(g,) and (z)
property acquired by Mid State Foundation or any Excluded Foreign Subsidiary) as
to which the Administrative Agent, for the benefit of the Lenders, does not have
a perfected Lien, promptly (i) execute and deliver to the Administrative Agent
such amendments to the Security Agreement, the Securities Pledge Agreement, any
Mortgage or such other documents as the Administrative Agent deems necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
a security interest in such property and (ii) take all actions necessary or
advisable to grant to the Administrative Agent, for the benefit of the Lenders,
a perfected first priority security interest in such property, including the
filing of Uniform Commercial Code financing statements in such jurisdictions as
may be required by the Security Agreement, the Securities Pledge Agreement, any
Mortgage or by law or as may be requested by the Administrative Agent.
(b) With respect to any fee interest in any real property
having a value (together with improvements thereof) of at least $250,000
acquired after the Closing Date by any Precision Group Member (other than (x)
any such real property subject to a Lien expressly permitted by Section 7.3(g)
and (y) real property acquired by any Excluded Foreign Subsidiary), promptly (i)
execute and deliver a first priority Mortgage, in favor of the Administrative
Agent, for the benefit of the Lenders, covering such real property, (ii) if
requested by the Administrative Agent, provide the Lenders with (x) title and
extended coverage insurance covering such real property in an amount at least
equal to the purchase price of such real property (or such other amount as shall
be reasonably specified by the Administrative Agent) as well as a current ALTA
survey thereof, together with a surveyor's certificate and (y) any consents or
estoppels reasonably deemed necessary or advisable by the Administrative Agent
in connection with such mortgage or deed of trust, each of the foregoing in form
and substance reasonably satisfactory to the Administrative Agent and (iii)
deliver to the Administrative Agent legal opinions relating to the matters
described above, which opinions shall be in form and substance, and from
counsel, reasonably satisfactory to the Administrative Agent. In addition, the
relevant Precision Group Member shall cause the relevant documents described
above to be delivered in respect of the leasehold properties of Mid State
promptly after the earlier of (i) the date on which its purchase option in
respect thereof is exercised and (ii) the date that is 30 days after the Closing
Date.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by a Precision
Group Member (which, for the purposes of this paragraph (c), shall include any
existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), promptly
(i) execute and deliver to the Administrative Agent a securities pledge
amendment to the Security Agreement as the Administrative Agent deems necessary
or advisable to grant to the Administrative Agent, for the benefit of the
Lenders, a perfected first priority security interest in the Capital Stock of
such new Subsidiary that is owned by any Precision Group Member, (ii) deliver to
the Administrative Agent the certificates representing such Capital Stock,
together with undated stock powers, in blank, executed and delivered by a duly
authorized officer of the relevant Precision Group Member, (iii) cause such new
Subsidiary (A) to execute and deliver to Administrative Agent a joinder
agreement to the Security Agreement or the Securities Pledge Agreement, as
applicable, (B) to take such actions necessary or advisable to grant to the
Administrative Agent for the benefit of the Lenders a perfected security
interest (subject only to Liens
<PAGE>
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permitted by the applicable Security Document) in the Collateral described in
the Security Agreement or the Securities Pledge Agreement, as applicable, with
respect to such new Subsidiary, including the filing of Uniform Commercial Code
financing statements in such jurisdictions as may be required by the Security
Agreement or the Securities Pledge Agreement, as applicable, or by law or as may
be requested by the Administrative Agent, and (C) to deliver to the
Administrative Agent a certificate of such Subsidiary, substantially in the form
of Exhibit C-1, with appropriate insertions and attachments, and (iv) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary
created or acquired after the Closing Date by any Precision Group Member,
promptly (i) execute and deliver to the Administrative Agent a securities pledge
amendment to the Security Agreement or the Securities Pledge Agreement, as
applicable, as the Administrative Agent deems necessary or advisable to grant to
the Administrative Agent, for the benefit of the Lenders, a perfected first
priority security interest in the Capital Stock of such new Subsidiary that is
owned by any Precision Group Member (other than by any Precision Group Member
that is a Foreign Subsidiary) (PROVIDED that in no event shall more than 65% of
the total outstanding Capital Stock of any such new Subsidiary be required to be
so pledged), (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of the relevant Precision
Group Member, and take such other action as may be necessary or, in the opinion
of the Administrative Agent, desirable to perfect the Administrative Agent's
security interest therein, and (iii) deliver to the Administrative Agent legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the
Administrative Agent.
6.10 YEAR 2000 MATTERS. No later than June 30, 1999, deliver
to the Lenders a report reasonably satisfactory to the Administrative Agent
demonstrating that each Precision Group Member has developed feasible
contingency plans adequately to ensure uninterrupted and unimpaired business
operation in the event of failure of its own or a third party's systems or
equipment due to the Year 2000 Problem, including those of vendors, customers
and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.
6.11 POST-CLOSING SURVEYS. As soon as reasonably possible but
in no event later than one month after the Closing Date, the Borrower shall, and
shall cause each of its applicable Subsidiary Guarantors to, obtain and deliver
to the Administrative Agent, counsel to the Administrative Agent and the title
company, with respect to the Mortgaged Properties located at (i) 6291 Burnham
Avenue, Buena Park, CA 90621, (ii) 6351 Burnham Avenue, Buena Park, CA 90621,
(iii) 16031 Carmenita Road, Cerritos, CA 90703, (iv) 200 Tech Park Drive, Town
of Henrietta, NY 14623 and (v) 3300 Oakton Street, Skokie, IL 60076, a survey
sufficient to cause the title company to (a) remove the survey and unrecorded
easements exceptions from, and (b) issue, zoning, survey and so-called
comprehensive endorsements to, the title commitments and/or title policies
coveting such Mortgaged Properties.
SECTION 7. NEGATIVE COVENANTS
The Loan Parties hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each Loan Party shall not, and shall not permit
any other Loan Party to, directly or indirectly:
7.1 FINANCIAL CONDITION COVENANTS.
(a) CONSOLIDATED LEVERAGE RATIO. Permit the Consolidated
Leverage Ratio of the Borrower as at the last day of any period of four
consecutive fiscal quarters ending during any period set forth below (i) if the
<PAGE>
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Consolidated Senior Leverage Ratio at such time is less than or equal to 2.0 to
1.0, to exceed the ratio set forth below in column A opposite such period, or
(ii) if the Consolidated Senior Leverage Ratio at such time is greater than 2.0
to 1.0, to exceed the ratio set forth below in column B opposite such period:
<TABLE>
<CAPTION>
Consolidated
PERIOD LEVERAGE RATIO
---------- ----------------
A B
<S> <C> <C>
Closing Date - December 31, 1999 5.50 to 1.0 1.90 5.00 to 1.0
January 1, 2000 - December 31, 2000 5.00 to 1.0 4.75 to 1.0
January 1, 2001 - December 31, 2001 4.50 to 1.0 4.25 to 1.0
January 1, 2002 - and thereafter 4.50 to 1.0 3.75 to 1.0
</TABLE>
(b) CONSOLIDATED INTEREST COVERAGE RATIO. Permit the
Consolidated Interest Coverage Ratio of the Borrower for any period of four
consecutive fiscal quarters ending during any period set forth below (i) if the
Consolidated Senior Leverage Ratio at the end of any such period for four
consecutive fiscal quarters is less than or equal to 2.0 to 1.0, the ratio shall
not be less than that set forth below in column A opposite such period, or (ii)
if the Consolidated Senior Leverage Ratio is greater than 2.0 to 1.0, the ratio
shall not be less than that set forth below in column B opposite such period:
<TABLE>
<CAPTION>
Consolidated
PERIOD INTEREST COVERAGE RATIO
------------ ----------------------------
A B
<S> <C> <C>
Closing Date - March 31, 1999 1.90 to 1.0 1.90 to 1.0
April 1, 1999 - December 31, 1999 2.00 to 1.0 2.00 to 1.0
January 1, 2000 - December 31, 2000 2.00 to 1.0 2.25 to 1.0
January 1, 2001 - December 31, 2001 2.25 to 1.0 2.50 to 1.0
January 1, 2002 - and thereafter 2.50 to 1.0 2.75 to 1.0
</TABLE>
(c) CONSOLIDATED FIXED CHARGE COVERAGE RATIO. Permit the
Consolidated Fixed Charge Coverage Ratio of the Borrower (i) for the quarter
ending March 31, 1999 to be less than 0.9 to 1.0; (ii) for the two quarters
ending June 30, 1999, to be less than 1.0 to 1.0; (iii) for the three quarters
ending September 30, 1999, to be less than 1.0 to 1.0; and (iv) for any period
of four consecutive fiscal quarters ending at and after December 31, 1999, to be
less than 1.0 to 1.0.
(d) CAPITAL EXPENDITURES. Permit the aggregate amount of
Capital Expenditures made by the Precision Group Members to exceed the amounts
set forth below:
<TABLE>
<CAPTION>
YEAR CAPITAL EXPENDITURES
----- ---------------------
<S> <C>
Closing Date - December 31, 1999 $10,500,000
January 1, 2000 - December 31, 2000 $10,500,000
January 1, 2001 - December 31, 2001 $11,000,000
JANUARY 1, 2002 - DECEMBER 31, 2002 $12,000,000
JANUARY 1, 2003 - DECEMBER 31, 2003 $12,000,000
JANUARY 1, 2004 AND THEREAFTER $13,000,000
</TABLE>
PROVIDED, HOWEVER, that up to an aggregate of $1 million at any one time of
unused Capital Expenditures amounts may be carried forward to future periods;
and, PROVIDED, FURTHER, that the limits set forth above following the Senior
Subordinated Notes shall apply to Capital Expenditures made by the Precision
Group Members for the full applicable period. In addition, should any Precision
Group Member make an acquisition of the property, assets or
<PAGE>
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capital stock of any entity, the Capital Expenditures limits set forth above
shall be increased (i) in the annual period in which such acquisition is
effected, by an amount equal to the product of the number of whole fiscal
quarters remaining in such annual period and 6% of consolidated net revenue
(calculated in accordance with GAAP) of such acquired entity for its most recent
four quarter fiscal period ending prior to the date of such acquisition and (ii)
in subsequent annual periods, by an amount equal to 6% of the consolidated net
revenue (calculated in accordance with GAAP) of the acquired entity for the
12-month period ending on the December 31 prior to the start of each such
subsequent annual period.
7.2 INDEBTEDNESS. Create, issue, incur, assume, become liable
in respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan
Document;
(b) Indebtedness (including, if applicable, Indebtedness under
any Subordinated Note) of any Wholly Owned Qualified Precision Group
Member to the Borrower or any other Wholly Owned Qualified Precision
Group Member;
(c) Guarantee Obligations incurred in the ordinary course of
business by any Precision Group Member of obligations of the Borrower
or any Wholly Owned Qualified Precision Group Member;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(d) and any refinancings, refundings, renewals,
replacements or extensions thereof (without increasing, or shortening
the maturity of, the principal amount thereof on the date hereof);
(e) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 7.3(g) in an
aggregate principal amount not to exceed $2.5 million at any one time
outstanding;
(f) Indebtedness consisting of promissory notes issued in lieu
of cash payment of bonuses to chief executive officers of Galaxy and
Mid State under their employment agreements as in effect on September
30, 1998;
(g) Indebtedness of the Borrower and the guarantors thereof
under the Senior Subordinated Notes in an aggregate principal amount
not to exceed $100,000,000;
(h) Indebtedness of the Borrower and the guarantors thereof
consisting of Permitted Senior Subordinated Add-On Indebtedness in
aggregate principal amount not to exceed $60 million at any one time
outstanding;
(i) Indebtedness in connection with any Hedge Agreements
entered into to protect the Company from fluctuations in interest rates
on its outstanding indebtedness;
(j) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn
against insufficient funds in the ordinary course of business; provided
that such Indebtedness is extinguished within 3 Business Days of its
incurrence;
(k) Guarantee Obligations in respect of the Senior
Subordinated Notes or the Permitted Senior Subordinated Add-On
Indebtedness;
<PAGE>
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(l) Indebtedness up to $1,000,000 in respect of performance
bonds, bid bonds, appeal bonds, surety bonds and similar obligations
and trade-related letters of credit, including any of the foregoing
incurred to secure health, safety and environmental obligations in the
ordinary course of business, and any extension, renewal or refinancing
of the foregoing; and
(m) additional Indebtedness of the Precision Group Members in
an aggregate principal amount (for the Precision Group Members taken
together) not to exceed $5.0 million at any one time outstanding.
7.3 LIENS. (i) Create, incur, assume or suffer to exist any
Lien upon or with respect to any Collateral except for Prior Liens, Liens in
favor of the Administrative Agent for the benefit of the Lenders and other Liens
expressly permitted by the terms of the applicable Security Documents and (ii)
create, incur, assume or suffer to exist any Lien upon any of their respective
property that does not constitute Collateral, whether now owned or hereafter
acquired, or sell any such property subject to an understanding or agreement,
contingent or otherwise, to repurchase such property (including the sale of
accounts receivable with recourse to any Loan Party) or assign any right to
receive income, except for Liens expressly permitted by the applicable Security
Document and except for the following, which are herein collectively referred to
as "PERMITTED LIENS":
(a) Liens for taxes, assessments or other governmental charges
or liens that are not yet delinquent or are for less than $1,000,000 in
the aggregate, that are being contested in good faith by appropriate
proceedings; PROVIDED that adequate reserves with respect thereto are
maintained on the books of the relevant Precision Group Member in
conformity with GAAP;
(b) (i) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, suppliers', sellers', landlords' or other like Liens and
(ii) Liens that have not been registered in accordance with applicable
law, in each case arising in the ordinary course of business and not
overdue for a period of more than 30 days or that are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, customs or performance bonds,
government contracts or other obligations of a like nature incurred in
the ordinary course of business and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions, title defects or
irregularities, governmental restrictions on the use of property and
other similar encumbrances incurred in the ordinary course of business
that, in the aggregate, are not substantial in amount and that do not
in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of the
business of the Precision Group Members;
(f) Liens in existence on the date hereof listed on Schedule
7.3(f) (including extensions and renewals); PROVIDED that no such Lien
is spread to cover any additional property (or category of property,
other than proceeds) after the Closing Date and that the principal
amount of Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of any Precision Group Member
incurred pursuant to Section 7.2(e) to finance the acquisition of fixed
or capital assets; PROVIDED that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or
capital assets, (ii) such Liens do not at
<PAGE>
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any time encumber any property other than the property financed by such
Indebtedness and (iii) the amount of Indebtedness secured thereby is
not increased;
(h) any interest or title of a lessor under any lease entered
into by any Precision Group Member in the ordinary course of its
business and coveting only the assets so leased;
(i) Liens not otherwise permitted by this Section so long as
neither (i) the aggregate outstanding principal amount of the
obligations secured thereby nor (ii) the aggregate fair market value
(determined as of the date such Lien is incurred) of the assets subject
thereto exceeds (for the Precision Group Members taken together)
$500,000 at any one time;
(j) Liens existing on property or assets of any Wholly Owned
Subsidiary of the Borrower prior to the acquisition thereof by the
Borrower; PROVIDED that (i) any such Lien is not created in
contemplation of or in connection with the acquisition of such
Wholly-Owned Subsidiary, (ii) such Lien does not apply to any other
property or asset of the Borrower or any other Loan Party and (iii) the
Indebtedness secured by such Lien is permitted to be incurred
hereunder;
(k) Liens to secure other Indebtedness permitted under Section
7.2(i);
(l) Liens securing judgments for the payment of money in an
aggregate amount not in excess of $1,500,000 (except to the extent
covered by insurance, which coverage has been affirmed by the insurer),
unless such judgments shall remain undischarged for a period of more
than 30 consecutive days during which execution shall not be
effectively stayed;
(m) any leases or subleases to other persons of properties or
assets owned or leased by a Precision Group Member;
(n) Liens that are contractual rights of setoff (i) relating
to the establishment of depository relations with banks not given in
connection with the issuance of Indebtedness or (ii) pertaining to
pooled deposit and/or sweep accounts of a Precision Group Member to
permit satisfaction of overdraft or similar obligations incurred in the
ordinary course of business of such Precision Group Member;
(o) Liens on proceeds and products and (to the extent
constituting a trade-in, substitution or casualty replacement)
replacements of, chattel paper and other evidences of ownership of, and
accessions to, and general intangibles directly relating to, property
to the extent they relate to liens on such property to the extent they
relate to Liens on such property that are permitted by any other
provision of this Section 7.3;
(p) Liens in favor of the Borrower or any Subsidiary
Guarantor;
(q) Liens in favor of the Trustee under the Senior
Subordinated Indenture; and
(r) other general Liens not to exceed $1,000,000.
7.4 FUNDAMENTAL CHANGES. Enter into any merger, consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) any Precision Group Member may be merged or consolidated
with or into the Borrower (PROVIDED that the Borrower shall be the
continuing or surviving corporation) or, except in the case of the
<PAGE>
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Borrower, with or into any Wholly Owned Qualified Precision Group
Member (PROVIDED that a Wholly Owned Qualified Precision Group Member
shall be the continuing or surviving corporation); and
(b) any Precision Group Member may Dispose of any or all of
its assets (upon voluntary liquidation or otherwise) to the Borrower
or, except in the case of the Borrower, to any Wholly Owned Qualified
Precision Group Member.
7.5 DISPOSITION OF PROPERTY. Dispose of any of its property,
whether now owned or hereafter acquired, or issue or sell any shares of its
Capital Stock to any Person, except:
(a) (i) the Disposition of obsolete or worn out property in
the ordinary course of business and (ii) the Disposition of the
property listed on Schedule 7.5;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) (i) the sale or issuance of any Precision Group Member's
Capital Stock to any Wholly Owned Qualified Precision Group Member or
the Borrower, or (ii) the issuance of Capital Stock of Holdco to
Holdco's parent and employees of the Precision Group Members;
(e) the Disposition of other property having a fair market
value not to exceed $500,000 in the aggregate for any fiscal year of
the Precision Group Members;
(f) sales, leases or other dispositions of equipment or real
or personal property (other than inventory sold in the ordinary course
of business), of a Precision Group Member determined by the Board of
Directors or senior management of such Precision Group Member to be no
longer useful or necessary in the operation of the business of
Precision Group Member; PROVIDED that the Net Proceeds thereof shall be
applied in accordance with Section 2.7(b);
(g) sales, leases or other dispositions of inventory of a
Precision Group Member not made in the ordinary course of business
determined by the Board of Directors or senior management of such
Precision Group Member to be obsolete; PROVIDED that the Net Cash
Proceeds thereof shall be applied in accordance with Section 2.7(b);
and
(h) sales, leases or other dispositions of assets through
Capital Asset Exchanges.
7.6 RESTRICTED PAYMENTS. (i) Make any principal payment on, or
purchase, defease, repurchase, redeem or otherwise acquire or retire for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness, or (ii) declare or pay any dividend (other than
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of any Precision Group Member, whether now or
hereafter outstanding, or make any other distribution in respect thereof either
directly or indirectly, whether in cash or property or in obligations of any
Precision Group Member (collectively, "RESTRICTED PAYMENTS"), except that (x)
any Precision Group Member may make Restricted Payments to any Wholly Owned
Qualified Precision Group Member or the Borrower and (y) the Borrower may make
payments to Holdco to pay management and advisory fees to the Saunders Group and
the Carlisle Group in an aggregate amount not to exceed $800,000 in any fiscal
year or acquisition transaction fees payable to Saunders Group, Carlisle Group
and Harvey Group pursuant to past practice and the Acquisitions.
<PAGE>
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7.7 INVESTMENTS. Make any advance, loan, extension of credit
(by way of guaranty or otherwise) or capital contribution to, or purchase any
Capital Stock, bonds, notes, debentures or other debt securities of, or any
assets constituting a business unit of, or make any other investment in, any
other Person (all of the foregoing, "INVESTMENTS"), except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of the Precision Group
Members in the ordinary course of business (including for travel,
entertainment and relocation expenses) in an aggregate amount for the
Precision Group Members not to exceed $500,000 at any one time
outstanding;
(e) (i) the Certified Acquisition, (ii) the General Automation
Acquisition and the Nationwide Acquisition if made in connection with
the Senior Subordinated Notes and (iii) Permitted Acquisitions;
(f) intercompany loans in the ordinary course of business by
any Precision Group Member in any Person that, prior to such loan, is a
Wholly Owned Qualified Precision Group Member or the Borrower;
(g) any endorsement of a check or other medium of payment for
deposit or collection, or any similar transaction, in each case in the
ordinary course of business;
(h) Investments acquired by any Precision Group Member in
connection with a Disposition permitted by Section 7.5;
(i) Investments by any Precision Group Member in Hedge
Agreements other than for speculative purposes;
(j) Investments acquired by any Precision Group Member (i) in
exchange for any other Investment held by any Precision Group Member in
connection with or as a result of a bankruptcy, workout, reorganization
or recapitalization of the issuer of such other Investment or (ii) as a
result of the foreclosure by any Precision Group Member with respect to
any secured Investment or other transfer of title with respect to any
secured Investment in default;
(k) existing Investments described on Schedule 7.7;
(l) loans in an aggregate amount of up to $1,000,000 made to
holders of Capital Stock of Precision (other than the Sponsors) to
finance the purchase of Capital Stock of Precision, so long as
promissory notes are issued in connection therewith and pledged as
Collateral pursuant to the appropriate Security Document;
(m) loans and advances to management of the Precision Group
Members to purchase Capital Stock of any Precision Group Member not to
exceed $2,000,000 at any one time outstanding, provided that such
Capital Stock is pledged to the lender of such Indebtedness on
customary terms; and
(n) any other investments approved by the Required Lenders.
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7.8 MODIFICATIONS OF CERTAIN INSTRUMENTS. Amend, modify, waive
or otherwise change, or consent or agree to any material amendment,
modification, waiver or other change to, any of the terms of the Indebtedness of
any Precision Group Member or the Holdco Preferred; PROVIDED, HOWEVER, that
Holdco may engage in stock splits and reclassifications in respect of the Holdco
Preferred.
7.9 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees (other
than management and advisory fees payable to the Saunders Group and the Carlisle
Group in an aggregate amount not to exceed $800,000 in any fiscal year or
acquisition transaction fees payable to the Saunders Group, the Carlisle Group
and the Harvey Group pursuant to past practice and the Acquisitions), with any
Affiliate (other than Wholly Owned Qualified Precision Group Members) unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of business of the relevant Precision Group Member and (c) upon
fair and reasonable terms no less favorable to the relevant Precision Group
Member than it would obtain in a comparable arm's-length transaction with a
Person that is not an Affiliate.
7.10 SALES AND LEASEBACKS. Enter into any arrangement
providing for the leasing to any Precision Group Member of real or personal
property that has been or is to be (a) sold or transferred by any Precision
Group Member or (b) constructed or acquired by a third party in anticipation of
a program of leasing to any Precision Group Member.
7.11 CHANGES IN FISCAL PERIODS. Permit the fiscal year of the
Precision Group Members to end on a day other than December 31 or change the
Precision Group Members' method of determining fiscal quarters, except that
Galaxy shall be permitted to have a fiscal year end of August 31, to change such
fiscal year end to December 31 and to correspondingly change its fiscal quarter
end dates.
7.12 NEGATIVE PLEDGE CLAUSES. Enter into or suffer to exist or
become effective any agreement that prohibits or limits the ability of any
Precision Group Member to create, incur, assume or suffer to exist any Lien upon
any of its property or revenues, whether now owned or hereafter acquired, other
than (a) this Agreement and the other Loan Documents and (b) any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise
permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby).
7.13 CLAUSES RESTRICTING PRECISION GROUP MEMBER DISTRIBUTIONS.
Enter into or suffer to exist or become effective any consensual encumbrance or
restriction, other than this Agreement and the other Loan Documents, on the
ability of any Precision Group Member to (a) make Restricted Payments in respect
of any Capital Stock of such Precision Group Member held by, or pay any
Indebtedness owed to, any other Precision Group Member, (b) make loans or
advances to, or other Investments in, any other Precision Group Member or (c)
transfer any of its assets to any other Precision Group Member, except for such
encumbrances or restrictions existing under or by reason of (i) any restrictions
existing under the Loan Documents, (ii) in the case of clause (c) above,
customary non-assignment clauses in leases and other contracts entered into in
the ordinary course of business and (iii) any restrictions with respect to a
Precision Group Member imposed pursuant to an agreement that has been entered
into in connection with the Disposition of all or substantially all of the
Capital Stock or assets of such Precision Group Member that is otherwise
permitted hereby.
7.14 LINES OF BUSINESS. (a) Enter into any business, either
directly or through any other Precision Group Member, except for those
businesses in which the Precision Group Members are engaged on the date of this
Agreement (after giving effect to the Acquisition) or that are reasonably
related thereto or (b) permit Mid State Foundation to engage in any business
activities other than those directly associated with operating a charitable
foundation.
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7.15 AMENDMENTS TO ACQUISITION DOCUMENTS. (a) Amend,
supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and
conditions of the indemnities, licenses, purchase price adjustments or executive
bonus payments (collectively, "SPECIFIED PROVISIONS") contained in the
Acquisition Documentation such that after giving effect thereto such Specified
Provisions shall be materially less favorable to the interests of the Loan
Parties or the Lenders with respect thereto or (b) otherwise amend, supplement
or otherwise modify the terms and conditions of the Acquisition Documentation or
any such other documents except for any such amendment, supplement or
modification that could not reasonably be expected to have a Material Adverse
Effect.
7.16 DESIGNATED SENIOR DEBT PROVISIONS. If any Subordinated
Indebtedness issued by a Loan Party contains provisions which enable such Loan
Party to designate specifically any "Senior Debt" (or comparable term as defined
therein) for the purpose of giving payment blockage notices or any other purpose
beneficial to the lenders, or holders, of any such "Senior Debt", such Loan
Party shall so designate Indebtedness hereunder and not any other Indebtedness,
whether or not such other Indebtedness may constitute "Senior Debt" of such Loan
Party.
7.17 LIMITATION ON HOLDCO BUSINESS. Holdco will not engage in
businesses other than the holding of the Capital Stock of Precision Partners,
Inc., the issuance of unsecured subordinated promissory notes with respect to
the consummation of the Acquisitions and the granting of options in respect of
its Capital Stock in respect of employee benefit plans of the Precision Group
Members.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan
or Reimbursement Obligation when due in accordance with the terms
hereof; or the Borrower shall fail to pay any interest on any Loan or
Reimbursement Obligation, or any other amount payable hereunder or
under any other Loan Document, within five days after any such interest
or other amount becomes due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any
Loan Party herein or in any other Loan Document or that is contained in
any certificate, document or financial or other statement furnished by
it at any time under or in connection with this Agreement or any such
other Loan Document shall prove to have been inaccurate in any material
respect on or as of the date made or deemed made; or
(c) any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) or (ii) of Section
6.4(a), Section 6.7(a) or Section 7 of this Agreement or Sections 5(e)
and 10 of the Security Agreement; or
(d) any Loan Party shall default in the observance or
performance of any other agreement contained in this Agreement or any
other Loan Document (other than as provided in paragraphs (a) through
(c) of this Section), and such default shall continue unremedied for a
period of 30 days after notice to the Borrower from the Administrative
Agent or the Required Lenders; or
(e) any Precision Group Member shall (i) default in making any
payment of any principal of any Indebtedness (including any Guarantee
Obligation, but excluding the Loans) on the scheduled or original due
date with respect thereto; or (ii) default in making any payment of any
interest on any such Indebtedness beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness
was created; or (iii) default in the observance or performance of any
other agreement or condition relating to any such Indebtedness or
contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist,
the effect of which default or
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other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of
such holder or beneficiary) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity
or (in the case of any such Indebtedness constituting a Guarantee
Obligation) to become payable; PROVIDED, that a default, event or
condition described in clause (i), (ii) or (iii) of this paragraph (e)
shall not at any time constitute an Event of Default unless, at such
time, one or more defaults, events or conditions of the type described
in clauses (i), (ii) and (iii) of this paragraph (e) shall have
occurred and be continuing with respect to Indebtedness the outstanding
principal amount of which exceeds in the aggregate $1,500,000; or
(f) (i) any Loan Party shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization
or relief of debtors, seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to
it or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or
any substantial part of its assets, or any Loan Party shall make a
general assignment for the benefit of its creditors; or (ii) there
shall be commenced against any Loan Party any case, proceeding or other
action of a nature referred to in clause (i) above that (A) results in
the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against any Loan
Party any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, dismount or similar process against
all or any substantial part of its assets that results in the entry of
an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) any Loan Party shall take any action in
furtherance of, or indicating its consent to, approval of or
acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) any Loan Party shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(g) (i) any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated finding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower or any Commonly Controlled
Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could, in the sole judgment of the
Required Lenders, reasonably be expected to have a Material Adverse
Effect; or
(h) one or more judgments or decrees shall be entered against
any Precision Group Member involving in the aggregate a liability (not
paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $1,500,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
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(i) any Guarantee shall cease, for any reason, to be in full
force and effect or any Loan Party or any Affiliate of any Loan Party
shall so assert; or
(j) (i) any of the Security Documents shall cease, for any
reason, to be in full force and effect, or any Loan Party or any
Affiliate of any Loan Party shall so assert, or any Lien created by any
of the Security Documents shall cease to be enforceable and of the same
effect and priority purported to be created thereby or (ii) Precision
shall fail to cause any of its new Subsidiaries to comply with Section
6.9(c); or
(k) (i) the Permitted Investors shall cease to have the power
to Control Holdco; (ii) any of the Carlisle Group, the Harvey Group or
the Saunders Group shall cease to own of record and beneficially an
amount of Capital Stock of Precision equal in the aggregate to at least
51% of the amount of Capital Stock of Precision owned by such Group of
record and beneficially as of the Closing Date; (iii) any "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")),
excluding the Permitted Investors, shall become, or obtain rights
(whether by means of warrants, options or otherwise) to become, the
"beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of more than 20% of the
outstanding Capital Stock of Holdco; or (iv) Holdco shall cease to own,
of record and beneficially, directly or indirectly, 100% of each class
of outstanding Capital Stock of the Borrower, in each case free and
clear of all Liens (except Permitted Liens and Liens created by the
Security Agreement); or
(l) Holdco shall (i) conduct, transact or otherwise engage in,
or commit to conduct, transact or otherwise engage in, any business or
operations other than those incidental to its ownership of the Capital
Stock of the Borrower, (ii) incur, create, assume or suffer to exist
any Indebtedness or other liabilities or financial, obligations, except
(x) nonconsensual obligations imposed by operation of law, (y) pursuant
to the Loan Documents to which it is a party and (z) obligations with
respect to its Capital Stock, or (iii) own, lease, manage or otherwise
operate any properties or assets other than the ownership of shares of
Capital Stock of any other Precision Group Member;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower
declare the Revolving Commitments to be terminated forthwith, whereupon the
Revolving Commitments shall immediately terminate; and (ii) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. Amounts held in such cash collateral
account shall be applied by the Administrative Agent to the payment of drafts
drawn under such Letters of Credit, and the unused portion thereof after all
such Letters of Credit shall have expired or been fully drawn upon, if any,
shall be applied to repay other obligations of the
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Borrower hereunder and under the other Loan Documents. After all such Letters of
Credit shall have expired or been fully drawn upon, all Reimbursement
Obligations shall have been satisfied and all other obligations of the Borrower
hereunder and under the other Loan Documents shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower (or such other Person as may be lawfully entitled thereto). Except as
expressly provided above in this Section, presentment, demand, protest and all
other notices of any kind are hereby expressly waived by the Borrower.
SECTION 9. THE AGENTS
9.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Agents as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes each Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or any other Loan Document, no Agent shall have any
duties or responsibilities, except those expressly set forth herein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against any Agent.
Without limiting the foregoing, the use of the term "agent" with respect to each
Agent is used as a matter of market custom and is intended to create or reflect
only an administrative relationship between independent contracting parties.
The Issuing Lender shall act on behalf of the Lenders with
respect to Letters of Credit. It is understood and agreed that the Issuing
Lender (a) shall have all of the benefits and immunities (i) provided to the
Agents in this Section 9 with respect to acts taken or omissions suffered by the
Issuing Lender in connection with Letters of Credit as fully as if the term
"Agent", as used in this Section 9, included the Issuing Lender with respect to
such acts or omissions and (ii) as additionally provided in this Agreement and
(b) shall, with respect to the Revolving Lenders, (i) have all of the benefits
of the provisions of Section 9.7 as fully as if the term "Agent", as used in
Section 9.7, included the Issuing Lender and (ii) have all of the benefits of
the provisions of Sections 9.3 and 9.6 as fully as if the term "Agent-Related
Persons", as used in Sections 9.3 and 9.6, included the Issuing Lender.
9.2 DELEGATION OF DUTIES. Each Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
9.3 EXCULPATORY PROVISIONS. None of the Agent-Related Persons
shall be (i) liable for any action lawfully taken or omitted to be taken by any
of them under or in connection with this Agreement or any other Loan Document or
the transactions contemplated hereby (except to the extent that any of the
foregoing are found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from such Person's own gross negligence
or willful misconduct) or (ii) responsible in any manner to any of the Lenders
for any recitals, statements, representations or warranties made by any Loan
Party or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by any Agent-Related Person under or in
connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Loan Party to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Loan Party. The Administrative Agent shall maintain a
record of the principal amount of the Loans and L/C Obligations from time to
time outstanding and the
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respective amounts thereof owing to each Lender. Any records maintained by any
Agent-Related Person setting forth the names and addresses of the Lenders and
the Commitments of, and the principal amount of the Loans owing to, each Lender
from time to time shall be conclusive, in the absence of manifest error.
9.4 RELIANCE BY AGENTS. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any instrument, writing,
resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or
telephone message, statement, order or other document or conversation 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
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by such Agent. The Administrative Agent
may deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. Each Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the 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.
Each Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement and the other Loan Documents in accordance
with a request of the Required Lenders (or, if so specified by this Agreement,
all Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
9.5 NOTICE OF DEFAULT. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); PROVIDED that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
9.6 NON-RELIANCE ON ANY AGENT AND OTHER LENDERS. Each Lender
expressly acknowledges that none of the Agent-Related Persons has made any
representations or warranties to it and that no act by any Agent-Related Person
hereafter taken, including any review of the affairs of a Loan Party or any
affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
each Agent that it has, independently and without reliance upon any
Agent-Related Person or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates and all
applicable bank regulatory laws relating to the transactions contemplated hereby
and made its own decision to enter into this Agreement and to extend credit to
the Borrower hereunder. Each Lender also represents that it will, independently
and without reliance upon any Agent-Related Person 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 analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of the Loan Parties and their affiliates. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Administrative Agent hereunder, no Agent-Related Person shall have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party which may come into the possession of any of the Agent-Related
Persons.
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9.7 INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, the Lenders agree to indemnify each Agent
and its respective officers, directors, trustees, professional advisors,
employees, affiliates, agents and controlling persons (each, a "SECTION 9.7
INDEMNITEE") (to the extent not reimbursed by the Borrower and without limiting
the obligation of the Borrower to do so), ratably according to their respective
Aggregate Exposure Percentages in effect on the date on which indemnification is
sought under this Section 9.7 (or, if indemnification is sought after the date
upon which the Commitments shall have terminated and the Loans shall have been
paid in full, ratably in accordance with such Percentages immediately prior to
such date), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including, without limitation, at
any time following the payment of the Loans) be imposed on, incurred by or
asserted against such Section 9.7 indemnitee in any way relating to or arising
out of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by such Section
9.7 indemnitee under or in connection with any of the foregoing; PROVIDED that
no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements which are found by a final and nonappealable decision
of a court of competent jurisdiction to have resulted from the relevant Section
9.7 indemnitee's gross negligence or willful misconduct. The agreements in this
Section 9.7 shall survive the repayment of the Loans and all other amounts
payable hereunder.
9.8 AGENT IN ITS INDIVIDUAL CAPACITY. Each Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Precision Group Members as though such Agent were not
an Agent hereunder and under the other Loan Documents and without notice to or
consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, each Agent and its Affiliates may receive information regarding the
Precision Group Members or their Affiliates (including information that may be
subject to confidentiality obligations in favor of the Precision Group Members
or their Affiliates) and acknowledge that neither any Agent nor its Affiliates
shall be under an obligation to provide such information to them. With respect
to its Loans made or renewed by it and with respect to any Letter of Credit
issued or participated in by it, each Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include each Agent in its individual capacity.
9.9 SUCCESSOR AGENTS. Each Agent may resign as an Agent upon
30 days' notice to the Lenders and the Borrower. If an Agent shall resign under
this Agreement and the other Loan Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be approved by the Borrower (which approval shall not be
unreasonably withheld or delayed), whereupon such successor agent shall succeed
to the rights, powers and duties of such Agent hereunder. If no successor agent
is appointed prior to the effective date of the resignation of the an Agent,
such Agent may appoint, after consulting with the Lenders and the Borrower, a
successor agent from among the Lenders. Effective upon such appointment by the
Required Lenders or by an Agent, and the term "Administrative Agent,"
"Documentation Agent" or "Syndication Agent," as the case may be, shall mean
such successor agent effective upon such appointment and approval, and the
former Agent's rights, powers and duties as such Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or any holders of the Loans. After any retiring
Agent's resignation as an Agent, the provisions of this Section 9 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was an
Agent under this Agreement and the other Loan Documents. If no successor agent
has accepted appointment as an Agent by the date which is 30 days following a
retiring Agent's notice of resignation, the retiring an Agent's resignation
shall nevertheless thereupon become effective and the Lenders shall assume and
perform all of the duties of such Agent hereunder until such time, if any, as
the Required Lenders appoint a successor agent as provided for above.
<PAGE>
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9.10 AUTHORIZATION TO RELEASE LIENS. The Administrative Agent
is hereby irrevocably authorized by each of the Lenders to release any Lien
covering any property of the Precision Group Members that is the subject of a
Disposition which is permitted by this Agreement or which has been consented to
in accordance with Section 10.1.
SECTION 10. MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment,
supplement or modification shall (i) forgive the principal amount or extend the
final scheduled date of maturity of any Loan, extend the scheduled date of any
amortization payment in respect of any Term Loan, reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Lender's
Revolving Commitment, in each case without the consent of each Lender directly
affected thereby; (ii) amend, modify or waive any provision of Section 2.2(b) or
increase any percentage specified in the definition of Borrowing Base, in each
case without the written consent of all Revolving Lenders; (iii) reduce any
percentage specified in the definition of Required Lenders, Majority Facility
Lenders or Required Prepayment Lenders, or consent to the assignment or transfer
by any Precision Group Member of any of its rights and obligations under this
Agreement and the other Loan Documents, in each case without the written consent
of all Lenders, (iv) except in connection with any Disposition permitted hereby
or approved by the Required Lenders, release any significant part of the
Collateral or release any significant Subsidiary Guarantor from its obligations
under the Guarantee or any Security Document, in each case without the written
consent of all Lenders; (v) reduce the percentage specified in the definition of
Majority Facility Lenders with respect to any Facility without the written
consent of all Lenders under such Facility; (vi) amend, modify or waive any
provision of Section 9 relating to any Agent without the written consent of such
Agent; or (vii) amend, modify or waive any provision of Section 3 without the
written consent of the Issuing Lender. Notwithstanding anything to the contrary
in this Section 10.1, any amendment, supplement or modification to this
Agreement made in order to provide additional financing under this Agreement in
connection with any Investment permitted hereby or otherwise approved by the
Required Lenders, including pursuant to increases in the amount of any Facility
or the addition of new facilities (together with changes made to accommodate any
such increased Facility or new facility, including those relating to payment
application matters and voting matters), may be effected with the approval of
the Majority Facility Lenders under each Facility. Any waiver and any amendment,
supplement or modification made in accordance with this Section 10.1 shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Agents and all future holders of the Loans. In the case of any
waiver, the Loan Parties, the Lenders and the Agents shall be restored to their
former position and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdco, the
<PAGE>
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Borrower and the Agents, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
The Borrower and Holdco: Precision Partners, Inc.
5605 North McArthur Blvd., Suite 760
Irving, Texas 75038
Attention: Ron Miller
Telecopy: (972) 580-1550
Telephone: (972) 580-1551
The Administrative Agent:
For notices of borrowing, payments
and other administrative matters:
Citicorp U.S.A., Inc.
399 Park Avenue
New York, NY 10022-4600
Attention: Nicolas Erni
Telecopy: (212) 793-3963
Telephone: (212) 559-8977
For all other notices (including Compliance Certificates and
notices with respect to amendments and waivers):
Citicorp U.S.A., Inc.
Global Loans Support Services
2 Penns Way
Suite 200
New Castle, DE 19720
Attention: Christian Laughton
Telecopy: (302) 894-6120
Telephone: (302) 894-6005
The Syndication Agent: NationsBank, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, NC 28255-0001
Attention: John J. O'Neill
The Documentation Agent: SunTrust Bank, Atlanta
25 Park Place
26th Floor
Atlanta, GA 30303
Attention: Susan Hall
PROVIDED that any notice, request or demand to or upon any Agent or the Lenders
shall not be effective until received.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise
and no delay in exercising, on the part of any Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan
<PAGE>
-70-
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans and other extensions of credit hereunder.
10.5 PAYMENT OF EXPENSES AND TAXES. Each of Holdco and the
Borrower agrees (a) to pay or reimburse the Administrative Agent for all its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of, and any amendment, supplement or modification to,
this Agreement and the other Loan Documents and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including the reasonable fees and
disbursements of counsel to the Administrative Agent and filing and recording
fees and expenses, with statements with respect to the foregoing to be submitted
to the Borrower prior to the Closing Date (in the case of amounts to be paid on
the Closing Date) and from time to time thereafter on a quarterly basis or such
other periodic basis as the Administrative Agent shall deem appropriate, (b) to
pay or reimburse each Lender and each Agent for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
this Agreement, the other Loan Documents and any such other documents, including
the fees and disbursements of counsel to each Lender and of counsel to such
Agent, (c) to pay, indemnify, and hold each Lender and each Agent harmless from,
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from any delay in paying, stamp, excise and other taxes, if
any, that may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Lender and each Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "INDEMNITEE") harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including any of the foregoing relating to the use of
proceeds of the Loans or the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Precision Group
Members or any of the Properties and the reasonable fees and expenses of legal
counsel in connection with claims, actions or proceedings by any Indemnitee
against any Loan Party under any Loan Document (all the foregoing in this clause
(d), collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED that Holdco and the
Borrower shall have no obligation hereunder to any Indemnitee with respect to
Indemnified Liabilities to the extent such Indemnified Liabilities are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of such Indemnitee.
Without limiting the foregoing, and to the extent permitted by applicable law,
Holdco and the Borrower agree not to assert and to cause the other Precision
Group Members not to assert, and hereby waives and agrees to cause the other
Precision Group Members to so waive, all rights for contribution or any other
rights of recovery with respect to all claims, demands, penalties, frees,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, under or related to Environmental Laws, that any of them might have by
statute or otherwise against any Indemnitee. All amounts due under this Section
10.5 shall be payable not later than 15 days after written demand therefor.
Statements payable by Holdco or the Borrower pursuant to this Section 10.5 shall
be submitted to Ron Miller (Telephone No. (619) 565-7881) (Telecopy No. (619)
565-4660), at the address of the Borrower set forth in Section 10.2, or to such
other Person or address as may be hereafter designated by the Borrower in a
written notice to the Administrative Agent. The agreements in this Section 10.5
shall survive repayment of the Loans and all other amounts payable hereunder.
<PAGE>
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10.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of Holdco, the
Borrower, the Subsidiary Guarantors, the Lenders, the Agents, all future holders
of the Loans and their respective successors and assigns.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "PARTICIPANT") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement and the other Loan Documents, in no event shall any Participant
under any such participation have any right to approve any amendment or waiver
of any provision of any Loan Document, or any consent to any departure by any
Loan Party therefrom, except to the extent that such amendment, waiver or
consent would reduce the principal of, or interest on, the Loans or any fees
payable hereunder, or postpone the date of the final maturity of the Loans, in
each case to the extent subject to such participation. The Borrower agrees that
if amounts outstanding under this Agreement and the Loans are due or unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall, to the maximum extent
permitted by applicable law, be deemed to have the right of setoff in respect of
its participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under this Agreement; PROVIDED that, in purchasing such
participating interest, such Participant shall be deemed to have agreed to share
with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as
if it were a Lender hereunder. The Borrower also agrees that each Participant
shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 with respect
to its participation in the Commitments and the Loans outstanding from time to
time as if it was a Lender; PROVIDED that, in the case of Section 2.16, such
Participant shall have complied with the requirements of said Section; and
PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater
amount pursuant to any such Section than the transferor Lender would have been
entitled to receive in respect of the amount of the participation transferred by
such transferor Lender to such Participant had no such transfer occurred.
(c) Any Lender (an "ASSIGNOR") may, in accordance with
applicable law, at any time and from time to time assign to any Lender or any
affiliate thereof or, with the consent of the Borrower (which consent shall not
be unreasonably withheld or delayed), the Issuing Lender (in the case of
assignments of Revolving Commitments) and the Administrative Agent, to an
additional bank, financial institution or other entity (an "ASSIGNEE") all or
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, executed by such Assignee, such Assignor and any
other Person whose consent is required pursuant to this paragraph, and delivered
to the Administrative Agent for its acceptance and recording in the Register;
PROVIDED that no such assignment to an Assignee (other than any Lender or any
affiliate thereof) shall be in an aggregate principal amount of less than
$5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement), unless otherwise agreed by the Borrower and the
Administrative Agent. Any such assignment need not be ratable as among the
Facilities. Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) 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 with a Commitment and/or Loans as set forth therein, and (y) the
Assignor thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of an Assignor's rights and
obligations under this Agreement, such Assignor shall cease to be a party
hereto). Notwithstanding any provision of this Section 10.6, the consent of the
Borrower shall not be required for any assignment that occurs when an Event of
Default pursuant to Section 8(a) or 8(f) shall have occurred and be continuing
with respect to the Borrower.
<PAGE>
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(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Commitment of, and
the principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, each other Loan Party, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of the Loans and any Notes evidencing the Loans recorded therein for all
purposes of this Agreement. Any assignment of any Loan, whether or not evidenced
by a Note, shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide).
(e) Upon its receipt of an Assignment and Acceptance executed
by an Assignor, an Assignee and any other Person whose consent is required by
Section 10.6(c), together with payment to the Administrative Agent of a
registration and processing fee of $4,000, the Administrative Agent shall (i)
promptly accept such Assignment and Acceptance and (ii) record the information
contained therein in the Register on the effective date determined pursuant
thereto.
(f) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section 10.6 concerning assignments of
Loans and Notes relate only to absolute assignments and that such provisions do
not prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the
relevant Lender, agrees to issue Notes to any Lender requiring Notes to
facilitate transactions of the type described in paragraph (f) above.
10.7 ADJUSTMENTS; SETOFF. (a) Except to the extent that this
Agreement expressly provides for payments to be allocated to a particular Lender
or to the Lenders under a particular Facility, if any Lender (a "BENEFITTED
LENDER") shall, at any time after the Loans and other amounts payable hereunder
shall immediately become due and payable pursuant to Section 8, receive any
payment of all or part of the Obligations owing to it or receive any collateral
in respect thereof (whether voluntarily or involuntarily, by setoff, pursuant to
events or proceedings of the nature referred to in Section 8(f), or otherwise),
in a greater proportion than any such payment to or collateral received by any
other Lender, if any, in respect of the Obligations owing to such other Lender,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of the Obligations owing to each such
other Lender, or shall provide such other Lenders with the benefits of any such
collateral, as shall be necessary to cause such Benefitted Lender to share the
excess payment or benefits of such collateral ratably with each of the Lenders;
PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits
is thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to
Holdco or the Borrower, any such notice being expressly waived by Holdco and the
Borrower to the extent permitted by applicable law, upon any amount becoming due
and payable by Holdco or the Borrower hereunder (whether at the stated maturity,
by acceleration or otherwise), to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of Holdco or the Borrower, as
the case may be. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such setoff and application made by such Lender;
PROVIDED that the failure to give such notice shall not affect the validity of
such setoff and application.
<PAGE>
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10.8 COUNTERPARTS. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. Delivery of an executed signature page of this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Administrative Agent.
10.9 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of Holdco, the Borrower, the Subsidiary Guarantors, the
Agents and the Lenders with respect to the subject matter hereof, and there are
no promises, undertakings, representations or warranties by any Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 SUBMISSION TO JURISDICTION; WAIVERS. Each of Holdco and
the Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States for
the Southern District of New York, and appellate courts from any
thereof;
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to Holdco or the Borrower, as the case may be, at its address
set forth in Section 10.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or
consequential damages.
10.13 ACKNOWLEDGMENTS. Each of Holdco and the Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
<PAGE>
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(b) neither any Agent nor any Lender has any fiduciary
relationship with or duty to Holdco or the Borrower arising out of or
in connection with this Agreement or any of the other Loan Documents,
and the relationship between Agents and Lenders, on one hand, and
Holdco and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among Holdco, the Borrower and
the Lenders.
10.14 CONFIDENTIALITY. Each Agent and each Lender agrees to
keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement and the other Loan Documents that is designated by
such Loan Party as confidential; PROVIDED that nothing herein shall prevent any
Agent or any Lender from disclosing any such information (a) to any other Agent,
any other Lender or any affiliate of any Lender, (b) to any Transferee or
prospective Transferee that agrees to comply with the provisions of this
Section, (c) to its employees, directors, agents, attorneys, accountants and
other professional advisors or those of any of its affiliates, (d) upon the
request or demand of any Governmental Authority, (e) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (f) if requested or required to do so in
connection with any litigation or similar proceeding, (g) that has been publicly
disclosed, (h) to the National Association of Insurance Commissioners or any
similar organization or any nationally recognized rating agency that requires
access to information about a Lender's investment portfolio in connection with
ratings issued with respect to such Lender, or (i) in connection with the
exercise of any remedy hereunder or under any other Loan Document.
10.15 WAIVERS OF JURY TRIAL. HOLDCO, THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PRECISION PARTNERS, INC.
By: /s/ R. M. MILLER
-------------------------------------
Name: Ronald Miller
Title: Vice President
PRECISION PARTNERS HOLDING COMPANY
By: /s/ R. M. MILLER
-------------------------------------
Name: Ronald Miller
Title: Vice President
MID STATE MACHINE PRODUCTS
By: /s/ R. M. MILLER
------------------------------------
Name: Ronald Miller
Title: Vice President
GALAXY INDUSTRIES CORPORATION
By: /s/ R. M. MILLER
-----------------------------------
Name: Ronald Miller
Title: Vice President
NATIONWIDE PRECISION PRODUCTS CORP.
By: /s/ R. M. MILLER
-----------------------------------
Name: Ronald Miller
Title: Vice President
<PAGE>
GENERAL AUTOMATION, INC.
By: /s/ R. M. MILLER
-------------------------------------
Name: Ronald Miller
Title: Vice President
CERTIFIED FABRICATORS, INC.
By: /s/ R. M. MILLER
-------------------------------------
Name: Ronald Miller
Title: Vice President
CALBRIT DESIGN. INC.
By: /s/ R. M. MILLER
------------------------------------
Name: Ronald Miller
Title: Vice President
CITICORP U.S.A. INC.
as Administrative Agent
By: /s/ NICOLAS ERNI
--------------------------------------
Name: NICOLAS T. ERNI
Title: ATTORNEY IN FACT
CITICORP U.S.A.. INC.
as a Lender and as Issuing Lender
By: /s/ NICOLAS ERNI
-------------------------------------
Name: NICOLAS T. ERNI
Title: ATTORNEY IN FACT
<PAGE>
NATIONSBANK, N.A., as Syndication Agent
By: /s/ JOHN J. O'NEILL
--------------------------------------
Name: John J. O'Neill
Title: Senior Vice President
NATIONSBANK, N.A., as a Lender
and as Issuing Lender
By: /s/ JOHN J. O'NEILL
-------------------------------------
Name: John J. O'Neill
Title: Senior Vice President
SUNTRUST BANK, ATLANTA
as Documentation Agent
By: /s/ S. M. HALL
-------------------------------------
Name: Susan M. Hall
Title: Director
SUNTRUST BANK, ATLANTA
as a Lender
By: /s/ S.M. HALL
-------------------------------------
Name: Susan M. Hall
Title: Director
SUNTRUST BANK, ATLANTA
as Documentation Agent
By: /s/ C. JONES
-------------------------------------
Name: Chris T. Jones
Title: Vice President
SUNTRUST BANK, ATLANTA
as a Lender
By: /s/ C. JONES
-------------------------------------
Name: Chris T. Jones
Title: Vice President
<PAGE>
[EXHIBIT A-1]
FORM OF HOLDCO GUARANTEE
GUARANTEE, dated as of March 19, 1999 ("Guarantee"), by Precision
Partners Holding Company, a Delaware corporation ("Guarantor"), in favor and for
the benefit of Citicorp U.S.A., Inc., having an office at 399 Park Avenue, New
York, New York 10022-4600, in its capacity as Administrative Agent (in such
capacities and together with any successors in such capacity, the
"Administrative Agent") for the ratable benefit of the lending institutions (the
"Lenders") from time to time party to the Credit Agreement (as hereinafter
defined).
RECITALS:
A. Pursuant to the Credit Agreement, dated as of March 19, 1999 (as
amended from time to time, the "Credit Agreement"), among PRECISION PARTNERS
INC., a Delaware Corporation (the "Borrower"), the guarantors from time to time
thereunder, the Lenders, the Administrative Agent, NATIONSBANK, N.A., as
Syndication Agent, and SUNTRUST BANK, ATLANTA, as Documentation Agent (together
with the Syndication Agent and the Administrative Agent, the "Agents"), the
Lenders have agreed (i) to make to or for the account of the Borrower certain
Term Loans up to an aggregate principal amount of $23,000,000 and certain
Revolving Loans up to an aggregate principal amount of $25,000,000 and (ii) to
issue certain Letters of Credit for the account of the Borrower. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed
thereto in the Credit Agreement.
B. It is a condition to the obligations of the Lenders to make the
Loans under the Credit Agreement and a condition to the Issuing Lender issuing
Letters of Credit under the Credit Agreement that the Guarantor shall have
executed and delivered this Guarantee and that this Guarantee shall be in full
force and effect.
C. This Guarantee is given by the Guarantor in favor of the
Administrative Agent for its benefit and the benefit of the Lenders to guarantee
all of the Obligations of the Borrower in accordance with the terms of the
Credit Agreement.
D. All of the Guarantor's obligations hereunder shall be secured
pursuant to the Security Documents to which the Guarantor is a party.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Guarantor hereby agrees as follows:
1. Guarantee. (a) To induce the Lenders to execute and deliver the
Credit Agreement and to make the Loans and issue the Letters of Credit upon the
terms and conditions set forth in the Credit Agreement, and in consideration
thereof, the Guarantor hereby unconditionally and irrevocably (i) guarantees to
the Lenders and their respective successors, indorsees, transferees and assigns,
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) and at all times thereafter of the
Obligations of the Borrower (including amounts which would become due but for
the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code); and (ii) agrees to pay any and all reasonable expenses (including
reasonable attorneys' fees and disbursements) which may be paid or incurred by
the Lenders or the Agents in
<PAGE>
-2-
enforcing any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against,
the Guarantor under this Guarantee (collectively, the "Guaranteed Obligations").
(b) The Guarantor agrees that this Guarantee constitutes a guarantee
of payment when due and not of collection and waives any right to require that
any resort be had by the Agents or any Lender to any of the security held for
payment of any of the Guaranteed Obligations or to any balance of any deposit
account or credit on the books of the Agents or any Lender in favor of the
Borrower or any other Person.
(c) No payment or payments made by the Guarantor or any other Person
or received or collected by the Lenders (or the Agents on behalf of the Lenders)
from the Guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Guaranteed Obligations shall be deemed to
modify, release or otherwise affect the liability or obligations of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments on the Guaranteed Obligations made to the Lenders (or the
Agents on behalf of the Lenders) by the Guarantor or any other Person or
payments received or collected by the Lenders (or the Administrative Agent or
Agents on behalf of the Lenders) from the Guarantor or any other Person, remain
liable for the Guaranteed Obligations until the Guaranteed Obligations are paid
in full in cash or cash equivalents.
2. Waiver by Guarantor. The Guarantor hereby waives absolutely and
irrevocably any claim which it may have against the Borrower or any of its
respective Affiliates by reason of any payment to the Agents, Administrative
Agent or any Lender, or to any other Person pursuant to or in respect of this
Guarantee, including any claims by way of subrogation, contribution,
reimbursement, indemnity or otherwise, until the Guaranteed Obligations have
been paid in full.
3. Consent by Guarantor. The Guarantor hereby consents and agrees
that, without the necessity of any reservation of rights against the Guarantor
and without notice to or further assent by the Guarantor, any demand for payment
of any of the Guaranteed Obligations made by the Agents, or any Lender may be
rescinded by the Lenders (or the Agents on behalf of the Lenders) and any of the
Guaranteed Obligations continued, and the Guaranteed Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Lenders (or the
Agents on behalf of the Lenders); and the Credit Agreement or any other Loan
Document, or other guarantee or documents in connection therewith, or any of
them, may be amended, modified, supplemented or terminated, in whole or in part,
as the Lenders (or the Agents on behalf of the Lenders) may deem advisable from
time to time (in accordance with the terms thereof); and any Guarantee or right
of offset or any collateral may be sold, exchanged, waived, surrendered or
released, all without the necessity of any reservation of rights against the
Guarantor and without notice to or further assent by the Guarantor, which will
remain bound hereunder, notwithstanding any such renewal, extension,
modification, acceleration, compromise, amendment, supplement, termination,
sale, exchange, waiver, surrender or release. Neither the Lenders nor the Agents
shall have any obligation to protect, secure, perfect or insure any collateral
or property at any time held as security for the Guaranteed Obligations or this
Guarantee. When making any demand hereunder against the Guarantor, the Agents or
the Lenders may, but shall be under no obligation to, make a similar demand on
any other Loan Party or any such other guarantor, and any failure by the Agents
or the Lenders to make any such demand or to collect any payments from such
other Loan Party
<PAGE>
-3-
or any such other guarantor or any release of such other Loan Party or any such
other guarantor or of the Guarantor's obligations or liabilities hereunder shall
not impair or affect the rights and remedies, express or implied, or as a matter
of law, of the Agents or the Lenders against the Guarantor hereunder. For the
purposes hereof "demand" shall include the commencement and continuance of any
legal proceedings.
4. Waivers: Successors and Assigns. The Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Guaranteed
Obligations and notice of or proof of reliance by the Lenders upon this
Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guarantee, and all dealings between the Guarantor and any other Loan
Party, on the one hand, and the Lenders, on the other hand, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or non-payment to or upon any Loan Party or the
Guarantor with respect to the Guaranteed Obligations. This Guarantee shall be
construed as a continuing, absolute and unconditional Guarantee of payment
without regard to the validity, regularity or enforceability of the Credit
Agreement, the other Loan Documents, any of the Guaranteed Obligations or any
guarantee therefor or right of offset with respect thereto at any time or from
time to time held by the Lenders and without regard to any defense (other than
the defense of payment), set off or counterclaim which may at any time be
available to or be asserted by any Loan Party against the Lenders, or by any
other circumstance whatsoever (with or without notice to or knowledge of the
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Guaranteed Obligations, or of the Guarantor under this
Guarantee, in bankruptcy or in any other instance, and the obligations and
liabilities of the Guarantor hereunder shall not be conditioned or contingent
upon the pursuit by the Lenders or any other Person at any time of any right or
remedy against any Loan Party or against any other Person which may be or become
liable or obligated in respect of all or any part of the Guaranteed Obligations
or against any collateral security or guarantee therefor or right of offset with
respect thereto. This Guarantee shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon the Guarantor and
the successors and assigns thereof, and shall inure to the benefit of the
Lenders, and their respective successors, indorsees, transferees and assigns
permitted under the Credit Agreement (including each holder from time to time of
Guaranteed Obligations) until all of the Guaranteed Obligations and the
obligations of the Guarantor under this Guarantee shall have been satisfied by
payment in full in Cash or Cash Equivalents, notwithstanding that from time to
time during the term of the Credit Agreement any Loan Party may be released from
all of its Guaranteed Obligations thereunder.
5. Guarantee Secured. Payment under this Guarantee is secured by
pledges, encumbrances and mortgages of Collateral pursuant to applicable
Security Documents in accordance with the Credit Agreement. Reference is hereby
made to the Credit Agreement and the applicable Security Documents for a
description of the Collateral pledged and the right of the respective parties to
such property, to secure all the obligations of the Guarantor hereunder.
6. Rights of Set-Oft. The Lenders, and the Agents on behalf of the
Lenders, are each hereby irrevocably authorized upon the occurrence and during
the continuance of an Event of Default without notice to the Guarantor (any such
notice being expressly waived by the Guarantor to the extent permitted by
applicable law) to set off and appropriate and apply any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect or contingent or matured or unmatured, at any time held or
owing by the Lenders to or for the credit or the account of the Guarantor, or
any part
<PAGE>
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thereof, in such amounts as the Lenders, or the Agents on behalf of the Lenders,
may elect, against and on account of the obligations and liabilities of the
Guarantor to the Lenders, in any currency, whether arising hereunder or
otherwise, as the Lenders, or the Agents on behalf of the Lenders, may elect,
whether or not the Lenders, or the Agents on behalf of the Lenders, have made
any demand for payment but only to the extent that such obligations, liabilities
and claims shall have become due and payable (whether as stated, by acceleration
or otherwise). The Lenders, or the Agents on behalf of the Lenders, agree to
notify the Guarantor promptly of any such set-off and the application made by
the Lenders, or the Agents on behalf of the Lenders; provided, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lenders, or the Agents or Administrative Agent on
behalf of the Lenders, under this Section 6 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Lenders, or the Agents on behalf of the Lenders, may otherwise have.
7. Effectiveness; Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by the Lenders upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of any Loan Party, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, any Loan Party or any substantial part of
its property, or otherwise, all as though such payments had not been made.
8. Payments of Guaranteed Obligations. The Guarantor hereby
guarantees that the Guaranteed Obligations will be paid for the ratable benefit
of the Lenders without set-off or counterclaim in lawful currency of the United
States of America at the office of the Administrative Agent located at 399 Park
Avenue, New York, New York 10022-4600. The Guarantor shall make any payments
required hereunder upon receipt of written notice thereof from the Agents or
Administrative Agent or any Lender; provided, however, that the failure of the
Agents or Administrative Agent or any Lender to give such notice shall not
affect Guarantor's obligations hereunder.
9. Default. a) To the extent permitted by applicable law, if the
Borrower has failed to pay or perform when due its Obligations, accounting for
any time periods provided in the Credit Agreement for cure of such failure to
pay or perform, then all of the Guaranteed Obligations with respect to the
Borrower shall be immediately due and payable by the Guarantor, regardless of
whether the payment of the Guaranteed Obligations has been accelerated.
b) To the extent permitted by applicable law, if the Guarantor's
Obligations, if any, under the Credit Agreement are accelerated, then all of the
Guaranteed Obligations shall be immediately due and payable by the Guarantor,
regardless of whether the Borrower is in default with respect to its
Obligations.
10. Representations and Warranties. To induce the Lenders to enter
into the Credit Agreement and to make Loans and to issue the Letter of Credit,
the Guarantor represents and warrants to each Lender that the following
statements are true, correct and complete on and as of the Closing Date:
A. Organization and Powers. (a) The Guarantor is a duly organized
and validly existing corporation in good standing under the laws of the
jurisdiction of its organization and has the corporate power and authority to
own its property and assets and to transact the business in which it is
currently engaged. (b) The Guarantor has duly qualified as a foreign corporation
and is in good standing in all jurisdictions in which the conduct of its
business or the ownership of its properties requires such
<PAGE>
-5-
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect. (c) The Guarantor has the corporate power and authority
and all governmental licenses, authorizations, consents and approvals necessary
for the Guarantor to own and carry on its business as now conducted, without
limitation, those in compliance with or required by the Environmental Laws other
than such licenses, authorizations, consents and approvals the failure to obtain
could not reasonably be expected to have a Material Adverse Effect. (d) The
Guarantor has all authority to enter into each of the Security Documents to
which it is or is to be a party and to carry out the transactions contemplated
thereby and to execute and deliver this Guarantee.
B. No Violations. Neither the execution, delivery or performance by
the Guarantor of any of the Loan Documents to which it is, or is to be, a party,
nor compliance with any of the terms and provisions thereof, nor the
consummation of any of the transactions contemplated therein, nor the grant and
perfection of the security interests pursuant to the Security Documents (a) will
contravene any provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any Governmental Authority, (b) will conflict or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute (with notice or lapse of time or
both) a default under any material contractual obligation of the Guarantor, or
(other than as contemplated by the Security Documents) result in the creation or
imposition of (or the obligation to create or impose), any Lien upon any of the
property or assets of the Guarantor pursuant to any material contractual
obligation or (c) will violate any provision of the organizational documents of
the Guarantor.
C. Approvals. The execution, delivery and performance by the
Guarantor of the Loan Documents to which it is, or is to be, a party do not and
will not require any, consent or authorization of, filing with, notice to, or
other action to, with or by, any Governmental Authority or other Person except
as set forth in Section 4.4 of the Credit Agreement. All consents and approvals
from or notices to or filings with any Governmental Authority or other Person
required to be obtained by Guarantor have been obtained and are in full force
and effect except as disclosed in Schedule 4.4 of the Credit Agreement.
D. Binding Obligation. This Guarantee constitutes the legal, valid
and binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles (whether
enforcement is sought by proceedings in equity or at law).
E. Investment Company. The Guarantor is not an "investment company"
or a company "controlled" by an "investment company" (as each of such quoted
terms is defined or used in the Investment Company Act of 1940, as amended) or
subject to regulation under any Requirement of Law (other than Regulation X of
the Board) limiting its ability to incur indebtedness for money borrowed or
guarantee such indebtedness as contemplated hereby or by any other Credit
Document.
11. Ratable Sharing. The Lenders by acceptance of this Guarantee
agree among themselves that with respect to all amounts received by them which
are applicable to the payment of obligations of the Guarantor under this
Guarantee, if the Lenders, or the Agents or Administrative Agent on behalf of
the Lenders, exercise their rights hereunder, including, without limitation,
acceleration of the obligations of the Guarantor hereunder, equitable adjustment
will be made so that, in effect, all such amounts will be shared among the
Lenders pro rata based on the relative outstanding Guaranteed Obligations.
<PAGE>
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12. Merger. If the Guarantor shall merge into or consolidate with
another corporation, or liquidate, wind up or dissolve itself in a transaction
not prohibited by the Credit Agreement, or if all of the stock of the Guarantor
shall be sold or otherwise disposed of in a manner not prohibited by the Credit
Agreement, the Guarantor hereby covenants and agrees, that upon any such merger,
consolidation, liquidation, or dissolution, the guarantee given in this
Guarantee and the due and punctual performance and observance of all of the
covenants and conditions of the Credit Agreement to be performed by the
Guarantor, shall be expressly assumed (in the event that the Guarantor is not
the surviving corporation in the merger) by supplemental agreements
substantially similar to this Guarantee reasonably satisfactory in form to the
Administrative Agent by the corporation or corporations formed by such
consolidation, or into which the Guarantor shall have been merged, or by the
corporation or corporations which shall have acquired such property. In
addition, the Guarantor shall deliver to the Administrative Agent an Officers'
Certificate and an opinion of counsel, each stating that such merger,
consolidation or transfer and such supplemental agreements comply with this
Guarantee and that all conditions precedent herein provided relating to such
transaction have been complied with. In case of any such consolidation, merger,
sale or conveyance and upon the assumption by the successor corporation or
corporations, by supplemental agreements substantially similar to this guarantee
executed and delivered to the Lenders or the Agents or Administrative Agent and
reasonably satisfactory in form to the Administrative Agent of the guarantee
given in this Guarantee and the due and punctual performance of all of the
covenants and conditions of the Credit Agreement to be performed by the
Guarantor, such successor corporation or corporations shall succeed to and be
substituted for the Guarantor, with the same effect as if it or they had been
named herein as a Guarantor.
13. No Waiver. (a) No failure to exercise and no delay in
exercising, on the part of the Lenders, or the Agents or Administrative Agent on
behalf of the Lenders, any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege preclude any other or further exercise thereof, or the exercise of
any other power or right. The rights and remedies herein provided are cumulative
and not exclusive of any rights or remedies provided by law. (b) In the event
the Lenders, the Agents or the Administrative Agent on behalf of the Lenders,
shall have instituted any proceeding to enforce any right, power or remedy under
this Guarantee by sale or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Lenders, the Agents or the Administrative Agent on behalf of the Lenders,
then and in every such case, the Guarantor, the Lenders and the Agents or the
Administrative Agent on behalf of the Lenders, and each Lender shall be restored
to its respective former position and rights hereunder, and all rights, remedies
and powers of the Lenders, and the Agents or the Administrative Agent on behalf
of the Lenders, shall continue as if no such proceeding had been instituted.
14. Notices. All notices, demands, instructions or other
communications required or permitted to be given to or made upon any party
hereto shall be given in accordance with the provisions of the Credit Agreement
and at the address either set forth therein or as provided on the signature page
hereof.
15. Amendments, Waivers, etc. No provision of this Guarantee shall
be waived, amended, terminated or supplemented except by a written instrument
executed by the Guarantor and the Administrative Agent, on behalf of the Lenders
and the other Agents.
16. Notice of Exercise. Upon exercise of its rights hereunder, the
Lenders, or the Agents or Administrative Agent on behalf of the Lenders, as the
case may be, shall provide written notice
<PAGE>
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on the date of such exercise to the Lenders, or the Agents or the Administrative
Agent on behalf of the Lenders, as the case may be, of such exercise; provided,
however, that the failure by the Agents, the Administrative Agent, or any of the
Lenders to provide such written notice shall not in any way relieve the
Guarantor of its obligations under this Guarantee.
17. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
18. Submission to Jurisdiction; Waivers. The Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and any Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Guarantor as provided in Section 14 hereof;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
19. WAIVERS OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE, THE CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
20. Severability of Provisions. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
21. Headings. The Section headings used in this Guarantee are for
convenience of reference only and shall not affect the construction of this
Guarantee.
22. Future Advances. This Guarantee shall guarantee the payment of
any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
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23. Counterparts. This Guarantee and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
<PAGE>
-9-
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer on the day and year
first above written.
PRECISION PARTNERS HOLDING
COMPANY
By: ______________________
Name:
Title:
<PAGE>
[EXHIBIT A-2]
FORM OF GUARANTEE
OF
[SUBSIDIARY]
GUARANTEE, dated as of March 19, 1999 ("Guarantee"), by
[SUBSIDIARY], a [ ] corporation ("Guarantor"), in favor and for the benefit of
CITICORP U.S.A., INC., having an office at 399 Park Avenue, New York, New York
10022-4600, in its capacity as Administrative Agent (in such capacities and
together with any successors in such capacity, the "Administrative Agent") for
the ratable benefit of the lending institutions (the "Lenders") from time to
time party to the Credit Agreement (as hereinafter defined).
RECITALS:
A. Pursuant to the Credit Agreement, dated as of March 19, 1999 (as
amended from time to time, the "Credit Agreement"), among PRECISION PARTNERS
INC., a Delaware Corporation (the "Borrower"), the guarantors from time to time
thereunder, the Lenders, the Administrative Agent, NATIONSBANK, N.A., as
Syndication Agent, and SUNTRUST BANK, ATLANTA, as Documentation Agent (together
with the Syndication Agent and the Administrative Agent, the "Agents"), the
Lenders have agreed (i) to make to or for the account of the Borrower certain
Term Loans up to an aggregate principal amount of $23,000,000 and certain
Revolving Loans up to an aggregate principal amount of $25,000,000 and (ii) to
issue certain Letters of Credit for the account of the Borrower. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed
thereto in the Credit Agreement.
B. It is a condition to the obligations of the Lenders to make the
Loans under the Credit Agreement and a condition to any Lender issuing Letters
of Credit under the Credit Agreement that the Guarantor shall have executed and
delivered this Guarantee and that this Guarantee shall be in full force and
effect.
C. This Guarantee is given by the Guarantor in favor of the
Administrative Agent for its benefit and the benefit of the Lenders to guarantee
all of the Obligations of the Borrower in accordance with the terms of the
Credit Agreement.
D. All of the Guarantor's obligations hereunder shall be secured
pursuant to the Security Documents to which the Guarantor is a party.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Guarantor hereby agrees as follows:
1. Guarantee. (a) To induce the Lenders to execute and deliver the
Credit Agreement and to make the Loans and issue the Letters of Credit upon the
terms and conditions set forth in the Credit Agreement, and in consideration
thereof, the Guarantor hereby unconditionally and irrevocably (i) guarantees to
the Lenders and their respective successors, indorsees, transferees and assigns,
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) and at all times thereafter of the
Obligations of the Borrower (including
<PAGE>
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amounts which would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code); and (ii) agrees to pay any and all
reasonable expenses (including reasonable attorneys' fees and disbursements)
which may be paid or incurred by the Lenders or the Agents in enforcing any
rights with respect to, or collecting, any or all of the Obligations and/or
enforcing any rights with respect to, or collecting against, the Guarantor under
this Guarantee (collectively, the "Guaranteed Obligations").
(b) The Guarantor agrees that this Guarantee constitutes a guarantee
of payment when due and not of collection and waives any right to require that
any resort be had by the Agents or any Lender to any of the security held for
payment of any of the Guaranteed Obligations or to any balance of any deposit
account or credit on the books of the Agents, or any Lender in favor of the
Borrower or any other Person.
(c) No payment or payments made by the Guarantor or any other Person
or received or collected by the Lenders (or the Agents on behalf of the Lenders)
from the Guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Guaranteed Obligations shall be deemed to
modify, release or otherwise affect the liability or obligations of the
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments on the Guaranteed Obligations made to the Lenders (or the
Agents on behalf of the Lenders) by the Guarantor or any other Person or
payments on the Guaranteed Obligations received or collected by the Lenders (or
the Agents on behalf of the Lenders) from the Guarantor or any other Person,
remain liable for the Guaranteed Obligations until the Guaranteed Obligations
are paid in full in cash or cash equivalents, subject to the provisions of
Section 1(d) hereof.
(d) Notwithstanding any other provisions of this Guarantee, the
maximum aggregate amount of Guaranteed Obligations which Guarantor agrees to
guarantee pursuant to this Guarantee shall equal the lesser of (i) the excess of
the fair saleable value of the property of the Guarantor over the total
liabilities of the Guarantor (including the maximum amount reasonably expected
to become due in respect of contingent liabilities, other than any such
contingent liabilities under the Credit Agreement and the other Loan Documents),
such excess to be determined on the date of this Guarantee or the date on which,
from time to time, such enforcement or realization is effected, whichever is
higher and (ii) that amount of Guaranteed Obligations which does not result in a
violation of applicable laws relating to fraudulent conveyance, after giving
effect to the value of any rights to subrogation, reimbursement, indemnification
or contribution (including without limitation rights to contribution from any
other Subsidiary Guarantor that has guaranteed the Guaranteed Obligations)
whether by agreement or under applicable law. The obligations of the Guarantor
hereunder shall be joint and several with the obligations of each other
Subsidiary Guarantor. Subject to the preceding sentences, the Guarantor
understands, agrees and confirms that this is a guarantee of payment when due
and not of collection and that each Lender may, from time to time, enforce this
Guarantee up to the full amount of the Guaranteed Obligations owed to such
Lender without proceeding against any other Loan Party, against any security for
the Guaranteed Obligations, against any other guarantor or under any other
guarantee covering the Guaranteed Obligations.
Each Subsidiary Guarantor that makes a payment or distribution under
its Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor.
<PAGE>
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2. Waiver by Guarantor. The Guarantor hereby waives absolutely and
irrevocably any claim which it may have against the Borrower or any of its
respective Affiliates by reason of any payment to the Agents, Administrative
Agent or any Lender, or to any other Person pursuant to or in respect of this
Guarantee, including any claims by way of subrogation, contribution,
reimbursement, indemnity or otherwise, until the Guaranteed Obligations are paid
in full.
3. Consent by Guarantor. The Guarantor hereby consents and agrees
that, without the necessity of any reservation of rights against the Guarantor
and without notice to or further assent by the Guarantor, any demand for payment
of any of the Guaranteed Obligations made by the Agents or any Lender may be
rescinded by the Lenders (or the Agents on behalf of the Lenders) and any of the
Guaranteed Obligations continued, and the Guaranteed Obligations, or the
liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Lenders (or the
Agents on behalf of the Lenders); and the Credit Agreement or any other Loan
Document, or other guarantee or documents in connection therewith, or any of
them, may be amended, modified, supplemented or terminated, in whole or in part,
as the Lenders (or the Agents on behalf of the Lenders) may deem advisable from
time to time (in accordance with the terms thereof); and any Guarantee or right
of offset or any collateral may be sold, exchanged, waived, surrendered or
released, all without the necessity of any reservation of rights against the
Guarantor and without notice to or further assent by the Guarantor, which will
remain bound hereunder, notwithstanding any such renewal, extension,
modification, acceleration, compromise, amendment, supplement, termination,
sale, exchange, waiver, surrender or release. Neither the Lenders nor the Agents
shall have any obligation to protect, secure, perfect or insure any collateral
or property at any time held as security for the Guaranteed Obligations or this
Guarantee. When making any demand hereunder against the Guarantor, the Agents or
the Lenders may, but shall be under no obligation to, make a similar demand on
any other Loan Party or any such other guarantor, and any failure by the Agents
or the Lenders to make any such demand or to collect any payments from such
other Loan Party or any such other guarantor or any release of such other Loan
Party or any such other guarantor or of the Guarantor's obligations or
liabilities hereunder shall not impair or affect the rights and remedies,
express or implied, or as a matter of law, of the Agents or the Lenders against
the Guarantor hereunder. For the purposes hereof "demand" shall include the
commencement and continuance of any legal proceedings.
4. Waivers; Successors and Assigns. The Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Guaranteed
Obligations and notice of or proof of reliance by the Lenders upon this
Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guarantee, and all dealings between the Guarantor and any other Loan
Party, on the one hand, and the Lenders, on the other hand, shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or non-payment to or upon any Loan Party or the
Guarantor with respect to the Guaranteed Obligations. This Guarantee shall be
construed as a continuing, absolute and unconditional Guarantee of payment
without regard to the validity, regularity or enforceability of the Credit
Agreement, the other Loan Documents, any of the Guaranteed Obligations or any
guarantee therefor or right of offset with respect thereto at any time or from
time to time held by the Lenders and without regard to any defense (other than
the defense of payment), set off or counterclaim which may at any time be
available to or be asserted by any Loan Party against the Lenders, or by any
other circumstance whatsoever (with or without notice to or knowledge of the
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Guaranteed Obligations, or of the Guarantor under this
Guarantee, in bankruptcy or in any other instance, and the obligations and
liabilities
<PAGE>
-4-
of the Guarantor hereunder shall not be conditioned or contingent upon the
pursuit by the Lenders or any other Person at any time of any right or remedy
against any Loan Party or against any other Person which may be or become liable
or obligated in respect of all or any part of the Guaranteed Obligations or
against any collateral security or guarantee therefor or right of offset with
respect thereto. This Guarantee shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon the Guarantor and
the successors and assigns thereof, and shall inure to the benefit of the
Lenders, and their respective successors, indorsees, transferees and assigns
permitted under the Credit Agreement (including each holder from time to time of
Guaranteed Obligations) until all of the Guaranteed Obligations and the
obligations of the Guarantor under this Guarantee shall have been satisfied by
payment in full in Cash or Cash Equivalents, notwithstanding that from time to
time during the term of the Credit Agreement any Loan Party may be released from
all of its Guaranteed Obligations thereunder.
5. Guarantee Secured. Payment under this Guarantee is secured by
pledges, encumbrances and mortgages of Collateral pursuant to applicable
Security Documents in accordance with the Credit Agreement. Reference is hereby
made to the Credit Agreement and the applicable Security Documents for a
description of the Collateral pledged and the right of the respective parties to
such property, to secure all the obligations of the Guarantor hereunder.
6. Rights of Set-Off. The Lenders, and the Agents on behalf of the
Lenders, are each hereby irrevocably authorized upon the occurrence and during
the continuance of an Event of Default without notice to the Guarantor (any such
notice being expressly waived by the Guarantor to the extent permitted by
applicable law) to set off and appropriate and apply any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect or contingent or matured or unmatured, at any time held or
owing by the Lenders to or for the credit or the account of the Guarantor, or
any part thereof, in such amounts as the Lenders, or the Agents on behalf of the
Lenders, may elect, against and on account of the obligations and liabilities of
the Guarantor to the Lenders, in any currency, whether arising hereunder or
otherwise, as the Lenders, or the Agents on behalf of the Lenders, may elect,
whether or not the Lenders, or the Agents on behalf of the Lenders, have made
any demand for payment but only to the extent that such obligations, liabilities
and claims shall have become due and payable (whether as stated, by acceleration
or otherwise). The Lenders, or the Agents on behalf of the Lenders, agree to
notify the Guarantor promptly of any such set-off and the application made by
the Lenders, or the Agents on behalf of the Lenders; provided, that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of the Lenders, or the Agents on behalf of the Lenders,
under this Section 6 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Lenders, or the Agents on
behalf of the Lenders, may otherwise have.
7. Effectiveness; Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by the Lenders upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of any Loan Party, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, any Loan Party or any substantial part of
its property, or otherwise, all as though such payments had not been made.
8. Payments of Guaranteed Obligations. The Guarantor hereby
guarantees that the Guaranteed Obligations will be paid for the ratable benefit
of the Lenders without set-off or counterclaim in lawful currency of the United
States of America at the office of the Administrative Agent located at 399 Park
Avenue, New York, New York 10022-4600. The Guarantor shall make any payments
required
<PAGE>
-5-
hereunder upon receipt of written notice thereof from the Agents or
Administrative Agent or any Lender; provided, however, that the failure of the
Agents or Administrative Agent or any Lender to give such notice shall not
affect Guarantor's obligations hereunder.
9. Default. a) To the extent permitted by applicable law, if the
Borrower has failed to pay or perform when due its Obligations, accounting for
any time periods provided in the Credit Agreement for cure of such failure to
pay or perform, then all of the Guaranteed Obligations with respect to the
Borrower shall be immediately due and payable by the Guarantor, regardless of
whether the payment of the Guaranteed Obligations has been accelerated.
b) To the extent permitted by applicable law, if the Guarantor's
Obligations, if any, under the Credit Agreement are accelerated, then all of
Guaranteed Obligations shall be immediately due and payable by the Guarantor,
regardless of whether the Borrower is in default with respect to its
Obligations.
10. Representations and Warranties. To induce the Lenders to enter
into the Credit Agreement and to make Loans and to issue the Letter of Credit,
the Guarantor represents and warrants to each Lender that the following
statements are true, correct and complete on and as of the Closing Date:
A. Organization and Powers. (a) The Guarantor is a duly organized
and validly existing corporation in good standing under the laws of the
jurisdiction of its organization and has the corporate power and authority to
own its property and assets and to transact the business in which it is
currently engaged. (b) The Guarantor has duly qualified as a foreign corporation
and is in good standing in all jurisdictions in which the conduct of its
business or the ownership of its properties requires such qualification, except
where the failure to be so qualified would not have a Material Adverse Effect.
(c) The Guarantor has the corporate power and authority and all governmental
licenses, authorizations, consents and approvals necessary for the Guarantor to
own and carry on its business as now conducted, including, without limitation,
those in compliance with or required by the Environmental Laws other than such
licenses, authorizations, consents and approvals the failure to obtain could not
reasonably be expected to have a Material Adverse Effect. (d) The Guarantor has
the corporate authority to enter into each of the Security Documents to which it
is or is to be a party and to carry out the transactions contemplated thereby
and to execute and deliver this Guarantee.
B. No Violations. Neither the execution, delivery or performance by
the Guarantor of any of the Loan Documents to which it is, or is to be, a party,
nor compliance with any of the terms and provisions thereof, nor the
consummation of any of the transactions contemplated therein, nor the grant and
perfection of the security interests pursuant to the Security Documents (a) will
contravene any provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any Governmental Authority, (b) will conflict or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute (with notice or lapse of time or
both) a default under any material contractual obligation of the Guarantor, or
(other than as contemplated by the Security Documents) result in the creation or
imposition of (or the obligation to create or impose), any Lien upon any of the
property or assets of the Guarantor pursuant to any material contractual
obligation or (c) will violate any provision of the organizational documents of
the Guarantor.
C. Approvals. The execution, delivery and performance by the
Guarantor of the Loan Documents to which it is, or is to be, a party do not and
will not require any consent or authorization of, filing with, notice to, or
other action to, with or by, any Governmental Authority or other Person except
as set forth in Section 4.4 of the Credit Agreement. All consents and approvals
from or notices to
<PAGE>
-6-
or filings with any Governmental Authority or other Person required to be
obtained by Guarantor have been obtained and are in full force and effect except
as disclosed in Schedule 4.4 of the Credit Agreement.
D. Binding Obligation. This Guarantee constitutes the legal, valid
and binding obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles (whether
enforcement is sought by proceedings in equity or at law).
E. Investment Company. The Guarantor is not an "investment company"
or a company "controlled" by an "investment company" (as each of such quoted
terms is defined or used in the Investment Company Act of 1940, as amended) or
subject to regulation under any Requirement of Law (other than Regulation X of
the Board) limiting its ability to incur indebtedness for money borrowed or
guarantee such indebtedness as contemplated hereby or by any other Credit
Document.
11. Ratable Sharing. The Lenders by acceptance of this Guarantee
agree among themselves that with respect to all amounts received by them which
are applicable to the payment of obligations of the Guarantor under this
Guarantee, if the Lenders, or the Agents or Administrative Agent on behalf of
the Lenders, exercise their rights hereunder, including, without limitation,
acceleration of the obligations of the Guarantor hereunder, equitable adjustment
will be made so that, in effect, all such amounts will be shared among the
Lenders pro rata based on the relative outstanding Guaranteed Obligations.
12. Merger. If the Guarantor shall merge into or consolidate with
another corporation, or liquidate, wind up or dissolve itself in a transaction
not prohibited by the Credit Agreement, or if all of the stock of the Guarantor
shall be sold or otherwise disposed of in a manner not prohibited by the Credit
Agreement, the Guarantor hereby covenants and agrees, that upon any such merger,
consolidation, liquidation, or dissolution, the guarantee given in this
Guarantee and the due and punctual performance and observance of all of the
covenants and conditions of the Credit Agreement to be performed by the
Guarantor, shall be expressly assumed (in the event that the Guarantor is not
the surviving corporation in the merger) by supplemental agreements
substantially similar to this guarantee reasonably satisfactory in form to the
Administrative Agent, by the corporation or corporations formed by such
consolidation, or into which the Guarantor shall have been merged, or by the
corporation or corporations which shall have acquired such property. In
addition, the Guarantor shall deliver to the Administrative Agent on behalf of
the Lenders, an Officers' Certificate stating that such merger, consolidation or
transfer and such supplemental agreements comply with this Guarantee and that
all conditions precedent herein provided relating to such transaction have been
complied with. In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation or corporations, by
supplemental agreements substantially similar to this guarantee executed and
delivered to the Administrative Agent on behalf of the Lenders, and reasonably
satisfactory in form to the Administrative Agent of the guarantee given in this
Guarantee and the due and punctual performance of all of the covenants and
conditions of the Credit Agreement to be performed by the Guarantor, such
successor corporation or corporations shall succeed to and be substituted for
the Guarantor, with the same effect as if it or they had been named herein as a
Guarantor.
13. No Waiver. (a) No failure to exercise and no delay in
exercising, on the part of the Lenders, or the Agents or Administrative Agent on
behalf of the Lenders, any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any right,
<PAGE>
-7-
power or privilege preclude any other or further exercise thereof, or the
exercise of any other power or right. The rights and remedies herein provided
are cumulative and not exclusive of any rights or remedies provided by law. (b)
In the event the Lenders, the Agents or the Administrative Agent on behalf of
the Lenders, shall have instituted any proceeding to enforce any right, power or
remedy under this Guarantee by sale or otherwise, and such proceeding shall have
been discontinued or abandoned for any reason or shall have been determined
adversely to the Lenders, the Agents or the Administrative Agent on behalf of
the Lenders, then and in every such case, the Guarantor, the Lenders, the Agents
or the Administrative Agent on behalf of the Lenders, and each Lender shall be
restored to its respective former position and rights hereunder, and all rights,
remedies and powers of the Lenders and the Agents or the Administrative Agent on
behalf of the Lenders, shall continue as if no such proceeding had been
instituted.
14. Notices. All notices, demands, instructions or other
communications required or permitted to be given to or made upon any party
hereto shall be given in accordance with the provisions of the Credit Agreement
and at the address either set forth therein or as provided on the signature page
hereof.
15. Amendments, Waivers, etc. No provision of this Guarantee shall
be waived, amended, terminated or supplemented except by a written instrument
executed by the Guarantor and the Agents or Administrative Agent, on behalf of
the Lenders and the other Agents.
16. Notice of Exercise. Upon exercise of its rights hereunder, the
Lenders, or the Agents or Administrative Agent on behalf of the Lenders, as the
case may be, shall provide written notice on the date of such exercise to the
Lenders, or the Agents or the Administrative Agent on behalf of the Lenders, as
the case may be, of such exercise; provided, however, that the failure by the
Agents, the Administrative Agent, or any of the Lenders to provide such written
notice shall not in any way relieve the Guarantor of its obligations under this
Guarantee.
17. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
18. Submission to Jurisdiction; Waivers. The Guarantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and any Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the
State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
<PAGE>
-8-
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Guarantor as provided in Section 14 hereof;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential
damages.
19. WAIVERS OF JURY TRIAL. THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE, THE CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
20. Severability of Provisions. Any provision of this Guarantee
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
21. Headings. The Section headings used in this Guarantee are for
convenience of reference only and shall not affect the construction of this
Guarantee.
22. Future Advances. This Guarantee shall guarantee the payment of
any amounts advanced from time to time pursuant to the Credit Agreement.
23. Counterparts. This Guarantee and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
<PAGE>
-9-
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer on the day and year
first above written.
[GUARANTOR]
By: ___________________
Name:
Title:
<PAGE>
[EXHIBIT B-1]
FORM OF BORROWING BASE CERTIFICATE
Citicorp U.S.A., Inc.
as Administrative Agent
399 Park Avenue
New York, NY 10022-4600
This certificate is delivered pursuant to Section 6.2(e) of the
Credit Agreement dated as of March 19, 1999 (as amended from time to time, the
"Credit Agreement") among PRECISION PARTNERS INC., a Delaware Corporation (the
"Borrower"), the Guarantors from time to time thereunder, the several banks and
other financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), CITICORP U.S.A., INC.. as Administrative Agent,
NATIONSBANK, N.A., as Syndication Agent, and SUNTRUST BANK. ATLANTA. as
Documentation Agent. Capitalized terms defined in the Credit Agreement and not
otherwise defined herein are used herein as therein defined.
The undersigned hereby certifies that (s)he is an officer of the
Borrower and that, as such, is authorized to execute this certificate on behalf
of the Precision Group Members and further certifies that:
(a) For purposes of this Certificate, the date of determination of
the Borrowing Base is[ ], [ ].
(b) the amounts set forth below are a true and correct statement of
the calculation of the Borrowing-Base in accordance with the provisions of the
Credit Agreement:
Gross Accounts ___________
Less Accounts to which the following apply:
1. the Precision Group Members have not complied ___________
with all material Requirements of Law, including,
without limitation, all laws, rules, regulations and
orders of any governmental or judicial authority
relating to truth in lending, billing practices, fair
credit reporting, equal credit opportunity, debt
collection practices and consumer debtor protection,
applicable to such Account (or any related contracts)
or affecting the collectibility of such Account;
2. such Account is not assignable or a first ___________
priority security interest in such Account in favor of
the Administrative Agent for the benefit of the
Lenders has not been obtained and fully perfected by
filing Uniform Commercial Code financing statements
against the rele-
B1-1
<PAGE>
vant Precision Group Member;
3. such Account is subject to any Lien ___________
whatsoever, other than Liens in favor of the
Administrative Agent for the benefit of the Lenders;
4. the relevant Precision Group Member, in order ___________
to be entitled to collect such Account, is required to
perform any additional service for, or perform or
incur any additional obligation to, the Account debtor
in respect of such Account;
5. such Account does not constitute a legal ___________
valid, and binding irrevocable payment obligation of
the Account debtor in respect of such Account to pay
the balance thereof in accordance with its terms or is
subject to any defense, setoff, recoupment or
counterclaim;
6. the Account debtor in respect of such Account ___________
is a Precision Group Member or an Affiliate, division
or employee of any Precision Group Member;
7. such Account is an account of any ___________
Governmental Authority, unless all rights of the
relevant Precision Group Member with respect to such
Account have been assigned to the Administrative Agent
in accordance with the Assignment of Claims Act of
1940, as amended;
8. an estimated or actual loss has been ___________
recognized in respect of such Account, as determined
in accordance with the usual business practices of the
Relevant Precision Group Member (each such Account, a
"Defaulted Account");
9. 20% or more of the aggregate outstanding ___________
amount of all Accounts from the Account debtor in
respect of such Account and its Affiliates constitute
Defaulted Accounts;
10. any representation or warranty contained in ___________
the Credit Agreement or in any other Loan Documents
applicable either to Accounts in general or to any
such specific Account has been breached with respect
to such Account;
11. 50% or more of the outstanding amount of all ___________
Accounts from the Account debtor in respect of such
Account have become ineligible;
B1-2
<PAGE>
12. the Account debtor in respect of such ___________
Account has filed a petition for relief under the
United States Bankruptcy Code (or similar action under
any successor law or under any comparable law), made a
general assignment for the benefit of creditors, had
filed against it any petition or other application for
relief under the United States Bankruptcy Code (or
similar action under any successor law or under any
comparable law), failed, suspended business
operations, become insolvent, called a meeting of its
creditors for the purpose of obtaining any financial
concession or accommodation, or had or suffered a
receiver or a trustee to be appointed for all or a
significant portion of its assets or affairs, in each
case except to the extent such matters have been
dismissed or terminated or otherwise ceased to be
applicable;
13. any portion of such Account has remained ___________
unpaid for a period exceeding 90 days from the due
date (but only to the extent of such overdue portion)
or any Precision Group Member has reason to believe
such Account is uncollectible;
14. the sale represented by such Account is to ___________
an Account debtor organized or located outside one of
the states of the United States;
15. the Account debtor in respect of such ___________
Account is a supplier or creditor of any Precision
Group Member (but only to the extent of the lesser of
(i) the amount owing from such Account debtor to the
relevant Precision Group Member, pursuant to Accounts
that are otherwise eligible and (ii) the amount owing
to such Account debtor by the relevant Precision Group
Member);
16. such Account is not denominated in Dollars ___________
or is payable outside the United States;
17. the sale represented by such Account is on a ___________
guaranteed sale, sale-or-return, consignment, or sale
on approval basis or is subject to any right of
return, setoff or charge-back;
18. the relevant Precision Group Member, or any ___________
other party to such Account, is in default in the
performance or observance of any of the terms thereof
in any material respect;
19. the relevant Precision Group Member does not ___________
have good and marketable title to such Account as sole
owner of such Account;
B1-3
<PAGE>
20. Such Account does not arise from the sale ___________
and delivery of goods or rendition of services in the
ordinary cause of business to the Account debtor in
respect of such Account;
21. such Account is on terms other than those ___________
normal or customary in the business of the relevant
Precision Group Member;
22. such Account has associated payment terms ___________
exceeding 100 days from invoice date;
23. except in the case of Accounts owing by any ___________
Eligible Account Debtor, if such Account were to
constitute an Eligible Receivable, more than 15% of
all Eligible Receivables would be owing from the
Account debtor in respect of such Account or any of
its Affiliates in which case only that portion of
Eligible Receivables owing from such Account debtor
representing amounts in excess of 15% of all Eligible
Receivables shall constitute Ineligible Accounts;
24. any amounts payable under or in connection ___________
with such Account are evidenced by chattel paper,
promissory notes or other instruments, unless such
chattel paper, promissory notes or instruments have
been endorsed and delivered to the Administrative
Agent;
25. such Account has been paid by a check which ___________
has been returned for insufficient funds if such check
is in an amount of at least $100,000; or
26. such Account has been placed with an ___________
attorney or other third party for collection.
Less any other reserves in respect thereof: ___________
Total Eligible Receivables: ___________
Gross Inventory ___________
Less reserves for obsolete, slow-moving or ___________
excess Inventory:
Less Inventory to which the following is ___________
applicable:
1. such item of Inventory is not assignable or a ___________
first priority security interest in such item of
Inventory in favor of the Administra-
B1-4
<PAGE>
tive Agent for the benefit of the Lenders has not been
obtained and fully perfected by filing Uniform
Commercial Code financing statements against the
relevant Precision Group Member;
2. such item of Inventory is subject to any Lien ___________
whatsoever, other than Liens in favor of the
Administrative Agent for the benefit of the Lenders;
3. such item of Inventory (i) is damaged or not ___________
in good condition and not saleable consistent with
past practices (to the extent not provided for by
reserves as described above) or (ii) does not meet all
material standards imposed by any Governmental
Authority having regulatory authority over such item
of Inventory, its use or its sale;
4. such item of Inventory is not currently ___________
either readily usable or salable, at prices
approximating at least the cost thereof, in the normal
course of the business of the relevant Precision Group
Member (to the extent not provided for by reserves as
described above);
5. any event shall have occurred or any ___________
condition shall exist with respect to such item of
Inventory which would substantially impede the ability
of the relevant Precision Group Member to continue to
use or sell such item of Inventory in the normal
course of business;
6. any claim disputing the title of the relevant ___________
Precision Group Member to, or right to possession of
or dominion over, such item of Inventory shall have
been asserted;
7. any representation or warranty contained in ___________
the Credit Agreement or in any other Loan Document
applicable to either Inventory in general or to any
such specific item of Inventory has been breached with
respect to such item of Inventory;
8. the relevant Precision Group Member does not ___________
have good and marketable title as sole owner of such
item of Inventory;
9. such item of Inventory has been consigned to ___________
other Persons, or is located at, or in the possession
of, a vendor of any Precision Group Member, or is in
transit to or from, or held or stored by, third
parties, unless (i) the Person holding such Inventory
has entered into an agreement, satisfactory in form
and substance to the Administrative Agent, providing
for the waiver or subordination of any applicable Lien
on the part of such Person with respect to such
Inventory and providing the Administrative Agent with
the right to repossess such Inventory
B1-5
<PAGE>
upon the occurrence and during the continuance of an
Event of Default and (ii) in the case of consigned
inventory, the relevant Precision Group Member, in its
capacity as consignor, shall have filed appropriate
Uniform Commercial Code financing statements with
respect to such Inventory;
10. such item of Inventory is located on a ___________
leasehold as to which the lessor has not entered into
a landlord's waiver and consent, satisfactory in form
and substance to the Administrative Agent, providing a
waiver of any applicable Lien and providing the
Administrative Agent with the right to receive notice
of default, the right to repossess such item of
Inventory at any time upon the occurrence or during
the continuance of a Default or Event of Default and
such other rights as may be acceptable to the
Administrative Agent;
11. such item of Inventory is located outside ___________
one of the states of the United States;
12. such item of Inventory is evidenced by an ___________
Account;
13. such item of Inventory is subject to any ___________
licensing, patent, royalty, trademark, trade name or
copyright agreements with any third party from whom
any Precision Group Member has received notice of a
dispute in respect of any such agreement other than
such claims which such Precision Group Member
reasonably believes to be immaterial or without merit;
14. except in the case of Inventory owned by ___________
Galaxy, Nationwide and Certified, such item of
Inventory consists of packing, packaging and/or
shipping supplies or materials; or
15. such item of Inventory has been otherwise ___________
determined by the Administrative Agent (after
consultation with the Borrower), exercising its
commercially reasonable discretion, to be unacceptable
because the Administrative Agent believes that such
item of Inventory is not readily salable under the
customary terms on which it is usually sold (to the
extent not provided for by reserves as specified
above).
Less other reserves in respect thereof: ___________
Total Eligible Inventory: ___________
Borrowing Base for such date:
85% of Eligible Receivables ___________
B1-6
<PAGE>
50% of Eligible Inventory + ___________
Total ___________
Total Revolving Extensions of Credit
Total Loans outstanding ___________
Total L/C Obligations outstanding + ___________
Total ___________
Excess/(Deficit) (Borrowing Base - Total Revolving
Extensions of Credit): ___________
IN WITNESS WHEREOF, I have hereto executed this certificate on
behalf of the Borrower:
By:_________________________
Name:
Title:
B1-7
<PAGE>
[EXHIBIT B-2]
FORM OF COMPLIANCE CERTIFICATE
Pursuant to Section 6.2(b) of the Credit Agreement, dated as of
March 19, 1999, (the "Credit Agreement"), among PRECISION PARTNERS INC., a
Delaware Corporation (the "Borrower"), the Guarantors from time to time
thereunder, the several banks and other financial institutions or entities from
time to time parties to the Credit Agreement (the "Lenders"), CITICORP U.S.A.,
INC., as Administrative Agent, NATIONSBANK, N.A., as Syndication Agent. and
SUNTRUST BANK, ATLANTA, as Documentation Agent, the undersigned, [ ],
the [Title] of the Borrower(1) does hereby certify on behalf of the Precision
Group Members that
(i) to the best of the undersigned's knowledge, during the period from
[_________] to [________] (the "Reporting Period")(2):
(A) no Subsidiary has been formed or acquired (or, if any such
Subsidiary has been formed or acquired, the Precision Group
Members have complied with the requirements of the Credit
Agreement with respect thereto),
(B) None of the Loan Parties has changed its name, its principal
place of business or its chief executive office without
complying with the requirements of the Credit Agreement and
the Security Documents with respect thereto,
(C) Other than as previously disclosed by the Borrower on Annex C
of the Security Agreement or on Annex B to a prior Compliance
Certificate, there is no location within the United States
where any Loan Party keeps inventory or equipment (other than
as set forth on Annex B hereto). Other than as previously
disclosed by the Borrower on Schedules III, IV or V to the
Security Agreement or on Annex C to a prior Compliance
Certificate, no Intellectual Property has been acquired by any
Loan Party (other than as set forth on Annex C hereto).
(D) each Loan Party has observed or performed all of its covenants
and other agreements, and satisfied every condition, contained
in the Credit Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and
- ---------------------------
(1) Individual providing this Certificate must be a Responsible Officer.
(2) Reporting period should encompass period from first day of the current
(or, in the case of annual financial statements, immediately preceding)
fiscal year to the date of the financial statements being delivered.
B2-1
<PAGE>
(E) no Default or Event of Default has occurred [except
__________]; and
(ii) as of the date of the financial statements being delivered in
connection herewith, the Precision Group Members were in compliance
with the covenants set forth in Section 7.1 of the Credit Agreement
and the calculations of such covenant compliance set forth on Annex
A hereto are based upon such financial statements and are true and
correct;
(iii) check one:
______ (A) no prepayment based on Excess Cash Flow is required
because the Consolidated Leverage Ratio currently in effect
is less than 3.0 to 1.0; or
______ (B) the Excess Cash Flow for the fiscal year ending [____]
was $_________ and the calculations to support the
determination of the amount of such Excess Cash Flow for
such period are set forth on Annex A hereto, are based upon
such financial statements and are true and correct; and
[(iv) the aggregate payments made pursuant to Section 7.8 during the
fiscal year ending were $________.]
Unless otherwise defined herein, capitalized terms defined in the
Credit Agreement and used in this Certificate and the Annexes attached hereto
shall have the meanings given to them in the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
certificate as of the day and year set forth below.
PRECISION PARTNERS INC.
By:____________________
Name:
Title:
Date: [ ], [ ]
B2-2
<PAGE>
ANNEX A TO
COMPLIANCE CERTIFICATE
I. Section 2.8 - Excess Cash Flow
For any fiscal year of the Precision Group Members commencing with
the fiscal year ending December 31, 1999, unless the Required Prepayment Lenders
shall otherwise agree, the Borrower shall apply 50% of the Excess Cash Flow (if
any) toward the prepayment of the Term Loans and the reduction of the Revolving
Credit Commitments pursuant to Section 2.8(d):
"Excess Cash Flow" for the fiscal year ending[______] equals:
(a)(i) the Consolidated Net Income (or loss) of the
Precision Group Members, determined on a
consolidated basis in accordance with GAAP ___________
MINUS the income (or deficit) of any Person
accrued prior to the date it becomes a Precision
Group Member or is merged into or consolidated
with any Precision Group Member ___________
MINUS the income (or deficit) of any Person
(other than a Precision Group Member) in which
any Precision Group Member has an ownership
interest, except to the extent that any such
income is actually received by a Precision Group
Member in the form of dividends or similar
distributions and ___________
MINUS the undistributed earnings of any Precision
Group Member (other than the Borrower) to the
extent that the distribution of such earnings to
the Borrower is not at the time permitted by the
terms of any Contractual Obligation or
Requirement of Law applicable to such Precision
Group Member ___________
(ii) PLUS an amount equal to the amount of all
non-cash charges deducted in arriving at the
Consolidated Net Income ___________
(iii) PLUS decreases in Consolidated Working Capital ___________
(iv) PLUS an amount equal to the aggregate net
non-cash loss on Disposition of property by the
Precision Group Members (other than sales of
inventory in the ordinary course of business), to
the extent deducted in arriving at such
Consolidated Net Income ___________
LESS
(b) the sum, without duplication, of-
page 1 of Annexes to Compliance Certificate
<PAGE>
(i) An amount equal to the amount of all non-cash
income included in arriving at the Consolidated
Net Income ___________
(ii) PLUS the aggregate amount actually paid by the
Precision Group Members in cash during such
fiscal year on account of Capital Expenditures
(excluding the principal amount of Indebtedness
(other than Revolving Loans) incurred in
connection with such expenditures and any such
expenditures financed with the proceeds of any
Reinvestment Deferred Amount) ___________
(iii) PLUS the aggregate amount of all prepayments of
Revolving Loans during-such fiscal year to the
extent accompanying permanent optional reductions
of the Revolving Commitments and all optional
prepayments of the Term Loans during such fiscal
year ___________
(iv) PLUS the aggregate amount of all regularly
scheduled principal payments of Funded Debt
(including the Term Loans) of the Precision Group
Members made during such fiscal year (including
any such payments resulting from scheduled
permanent reductions of any revolving credit
facility) ___________
(v) PLUS increases in Consolidated Working Capital
for such fiscal year ___________
(vi) PLUS an amount equal to the aggregate net
non-cash gain on the Disposition of property by
the Precision Group Members during such fiscal
year (other than sales of inventory in the
ordinary course of business), to the extent
included in arriving at the Consolidated Net
Income ___________
page 2 of Annexes to Compliance Certificate
<PAGE>
II. Section 7.1 - Financial Covenants
A. The Consolidated Leverage Ratio as of [_________], calculated in
accordance with the Credit Agreement is [ . ] to 1.0.
B. The Consolidated Interest Coverage Ratio as of [_______], for
four consecutive quarters calculated in accordance with the
Credit Agreement is [ . ] to 1.0.
C. The Consolidated Fixed Charge Coverage Ratio as of [_______],
for four consecutive quarters calculated in accordance with the
Credit Agreement is [ . ] to 1.0.
D. Capital Expenditures made during the fiscal year
ending [ ]: ___________
III. Section 7.2 - Permitted Indebtedness
(1) Aggregate Indebtedness secured by Liens permitted
by Section 7.3(g) of the Credit Agreement (in an
aggregate principal amount not to exceed
$2,500,000 at any one time outstanding) ___________
(2) Indebtedness of the Borrower under the Senior
Subordinated Notes (not to exceed an aggregate
principal amount of $100,000,000) ___________
(3) Indebtedness of the Borrower consisting of
Permitted Senior Subordinated Add-On Indebtedness
(not to exceed an aggregate principal amount of
$60,000,000 at any one time outstanding) ___________
IV. Section 7.3 - Liens
(1) Liens not otherwise permitted by Section 7.3 of
the Credit Agreement so long as neither (i) the
aggregate outstanding principal amount of the
obligations secured thereby nor (ii) the
aggregate fair market value (determined as of the
date such Lien is incurred) of the assets subject
thereto exceeds (for the Precision Group Members
taken together) $500,000 at any one time ___________
(2) Liens securing judgments for the payment of money
in an aggregate amount not in excess of
$1,500,000 (except to the extent covered by
insurance, which coverage has been affirmed by
the insurer), unless such judgments shall remain
undischarged for a period of more than
page 3 of Annexes to Compliance Certificate
<PAGE>
30 consecutive days during which execution shall
not be effectively stayed ___________
(3) Other general Liens not to exceed $1,000,000 ___________
V. Section 7.5 - Disposition of Assets
Aggregate fair market value of Dispositions (not to
exceed $500,000) ___________
VI. Section 7.7 - Permissible Investments, Loans and Advances
(1) Aggregate loans and advances to employees of the
Precision Group Members in the ordinary course or
business (including, without limitation, for
travel, entertainment and relocation expenses)
(not to exceed $500,000 at any one time
outstanding) ___________
(2) Loans in an aggregate amount of up to $1,000,000
made to holders of Capital Stock of Precision
(other than the Sponsors) to finance the purchase
of Capital Stock of Precision, so long as
promissory notes are issued in connection
therewith and pledged as Collateral pursuant to
the appropriate Security Document ___________
(3) loans and advances to management of the Precision
Group Members to purchase Capital Stock of any
Precision Group Member not to exceed $2,000,000
at any one time outstanding, provided that such
Capital Stock is pledged to the lender of such
Indebtedness on customary terms ___________
page 4 of Annexes to Compliance Certificate
<PAGE>
ANNEX B TO
COMPLIANCE CERTIFICATE
LOAN PARTY LOCATIONS
(OTHER THAN DISCLOSED IN THE SECURITY AGREEMENT OR PRIOR COMPLIANCE
CERTIFICATES)
page 5 of Annexes to Compliance Certificate
<PAGE>
ANNEX C TO
COMPLIANCE CERTIFICATE
COPYRIGHTS AND COPYRIGHT LICENSES
(OTHER THAN DISCLOSED IN THE SECURITY AGREEMENT OR PRIOR COMPLIANCE
CERTIFICATES)
PATENTS AND PATENT LICENSES
(OTHER THAN DISCLOSED IN THE SECURITY AGREEMENT OR PRIOR COMPLIANCE
CERTIFICATES)
TRADEMARKS AND TRADEMARK LICENSES
(OTHER THAN DISCLOSED IN THE SECURITY AGREEMENT OR PRIOR COMPLIANCE
CERTIFICATES)
page 6 of Annexes to Compliance Certificate
<PAGE>
[EXHIBIT C-1]
FORM OF CLOSING CERTIFICATE
Pursuant to Section 5.1(n) of the Credit Agreement, dated as of
March 19, 1999 (the "Credit Agreement"), among PRECISION PARTNERS INC., a
Delaware Corporation (the "Borrower"), the Guarantors from time to time
thereunder, the several banks and other financial institutions or entities from
time to time parties to the Credit Agreement (the "Lenders"), CITICORP U.S.A.,
INC., as Administrative Agent, NATIONSBANK, N.A., as Syndication Agent, and
SUNTRUST BANK, ATLANTA, as Documentation Agent, the undersigned, of [ ], the
[title] of the [Loan Party], (the "Company"), hereby certifies as follows:
1. The representations and warranties of the Company set forth in
the Credit Agreement and each of the other Loan Documents to which it is a party
or which are contained in any certificate, document or financial or other
statement furnished pursuant to or in connection with the Credit Agreement or
any Loan Document are true and correct in all material respects on and as of the
date hereof with the same effect as if made on the date hereof, except for
representations and warranties expressly stated to relate to a specific earlier
date, in which case such representations and warranties are true and correct in
all material respects as of such earlier date;
2. No Default or Event of Default has occurred and is continuing as
of the date hereof or will occur after giving effect to the making of the Loans
and the issuance of the Letters of Credit requested to be made and/or issued on
the date hereof or the consummation of each of the transactions contemplated by
the Loan Documents; and
3. [ ] is, and at all times since [ ], has been, the duly
elected and qualified [Assistant] Secretary of the Company. The signature set
forth on the signature line for such officer below is such officer's true and
genuine signature;
and the undersigned [Assistant] Secretary of the Company hereby
certifies as follows:
C1-1
<PAGE>
A) There are no liquidation or dissolution proceedings pending or to
the knowledge of the [title] of the Company threatened against the Company or
any of its Subsidiaries, nor has any other event occurred affecting or
threatening the corporate existence of the Company or any of its Subsidiaries;
B) Attached hereto as Exhibit A is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Company on
_____________, 1999; such resolutions have not in any way been amended,
modified, revoked or rescinded and have been in full force and effect since
their adoption to and including the date hereof and are now in full force and
effect; such resolutions are the only corporate proceedings of the Company now
in force relating to or affecting the matters referred to therein;
C) attached hereto as Exhibit B is a true and complete copy of the
By-laws of the Company as in effect at all times since ________ ___, 19__, to
and including the date hereof; and
D) attached hereto as Exhibit C is a true and complete copy of the
Certificate of Incorporation of the Company as in effect at all times since
[ ], to and including the date hereof.
E) The following persons are now duly elected and qualified officers
of the Company, holding the offices indicated next to their respective names
below, and such officers have held such offices with the Company at all times
since [ ], to and including the date hereof, and the signatures appearing
opposite their respective names below are the true and genuine signatures of
such officers, and each of such officers is duly authorized to execute and
deliver on behalf of the Company, the Loan Documents to which it is a party and
any certificate or other document to be delivered by the Company pursuant to any
such Loan Document:
Name Office Signature
---- ------ ---------
_________________
_________________
_________________
Unless otherwise defined herein, capitalized terms which are defined
in the Credit Agreement and used herein are so used as so defined.
C1-2
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set our names.
[NAME OF COMPANY]
By:_____________________
Name:
Title:
[NAME OF COMPANY]
By:______________________
Name:
Title:
Date: March 19, 1999
C1-3
<PAGE>
[Exhibit C-2]
FORM OF SOLVENCY CERTIFICATE
March 19, 1999
CITICORP U.S.A., INC.,
as Administrative Agent, and
The Lenders Party to the Credit
Agreement Referenced Below
Ladies and Gentlemen:
Pursuant to Section 5.1(h) of the Credit Agreement, dated as of
March 19, 1999 (as amended from time to time, the "Credit Agreement"), among
PRECISION PARTNERS INC., a Delaware Corporation (the "Borrower"), the Guarantors
from time to time thereunder, the several banks and other financial institutions
or entities from time to time parties to the Credit Agreement (the "Lenders"),
CITICORP U.S.A., INC., as Administrative Agent, NATIONSBANK, N.A., as
Syndication Agent, and SUNTRUST BANK, ATLANTA, as Documentation Agent.
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement):
1. For purposes of delivering this certificate, the undersigned has:
(a) consulted with other officers of the Loan Parties
responsible for financial and accounting functions concerning
contingent liabilities; and
(b) made such other investigations and inquiries as such
officer has deemed appropriate.
2. Based upon the foregoing, the undersigned has concluded that, as
of the date hereof, before and after giving effect to the Acquisitions, the
incurrence of the Loans by the Borrower in an amount equal to the sum of the
total Term Commitment and total Revolving Commitment, the execution of the
Guarantees, the grant of the security interests in the Collateral (the "Full
Transactions"):
(a) the fair value and the present fair saleable value of the
respective assets of Holdco, the Borrower and each of its
Subsidiaries exceeds its respective stated liabilities and
identified contingent liabilities; and
C2-1
<PAGE>
(b) the fair value and present fair saleable value of the
respective assets of Holdco, the Borrower and each of its
Subsidiaries exceeds its respective probable liability on its
debts (including identified contingent liabilities) as such
debts become absolute and matured; and
(c) Holdco, the Borrower and each of its Subsidiaries will be
able to pay its respective debts as they mature; and
(d) neither Holdco, the Borrower nor any of its Subsidiaries
will have unreasonably small capital for the respective
business in which it is engaged and is proposed to be engaged
following the consummation of the Full Transactions; and
(e) neither Holdco, the Borrower nor any of its Subsidiaries
expects that final judgments against it in actions for money
damages with respect to pending or threatened litigation will
be rendered at a time when, or in an amount such that, it will
be unable to satisfy any such judgments promptly in accordance
with their terms (taking into account the maximum reasonable
amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered and
the cash available to it after taking into account all other
anticipated uses of the cash (including the payments on or in
respect of debts (including identified contingent
liabilities))).
3. To the best knowledge of the undersigned; neither Holdco, the
Borrower nor any of its Subsidiaries is entering into the arrangements
contemplated by the Credit Agreement or the Loan Documents or intends to make
any transfer or incur any obligations thereunder, with actual intent to hinder,
delay or defraud either present or future creditors.
4. To the best knowledge of the undersigned. neither Holdco, the
Borrower nor any of its Subsidiaries intends to incur, or believes or reasonably
should believe that such Person will incur, debts beyond such Person's ability
to pay as they become due.
This Certificate is being delivered by the undersigned only in his
capacity as an officer of the Borrower, and not individually as of the date
hereof.
PRECISION PARTNERS INC.
By: _________________________________
Name: Ronald Miller
Title: Chief Financial Officer
C2-2
<PAGE>
[EXHIBIT C-3]
FORM OF ENVIRONMENTAL CERTIFICATE
The undersigned does hereby certify as of this 19th day of March,
1999, to the best of his knowledge after due inquiry, as follows:
1. This Certificate is delivered pursuant to Section 5.1(1) of the
Credit Agreement, dated as of March 19, 1999 (as amended from time to time, the
"Credit Agreement"), among PRECISION PARTNERS INC., a Delaware Corporation (the
"Borrower"), the Guarantors from time to time thereunder, the several banks and
other financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), CITICORP U.S.A., INC., as Administrative Agent,
NATIONSBANK, N.A., as Syndication Agent, and SUNTRUST BANK, ATLANTA, as
Documentation Agent. Capitalized terms used and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement).
2. After giving effect to the transactions contemplated by the
Acquisitions, each Loan Party and its Subsidiaries is in compliance with
Environmental Laws to the extent contemplated by Section 6.8 of the Credit
Agreement.
3. All information furnished to the Agents by or on behalf of any
Loan Party relating to the matters addressed in Section 4.17 of the Credit
Agreement, taken as a whole, is true and accurate in all material respects and
not incomplete by omitting to state anything necessary to make such information
not misleading, taken as a whole, nor has any Loan Party withheld any material
information from the Agents.
The undersigned officer has made or has caused to be made such
examination or investigation as is necessary to enable him to express his
opinions and make the certifications contained in this Certificate.
This Certificate is being delivered by the undersigned officer only
in his capacity as an officer of the Borrower, and not individually.
C3-1
<PAGE>
IN WITNESS WHEREOF. the undersigned officer has caused this
Certificate to be duly executed and delivered as of the date hereof.
PRECISION PARTNERS INC.
By: _______________________
Name:
Title:
C3-2
<PAGE>
Exhibit D to Credit Agreement
===============================================================================
TERM LOAN AND REVOLVING CREDIT MORTGAGE,
ASSIGNMENT OF LEASES, SECURITY AGREEMENT
AND FIXTURE FILING
BY
----------------------------
Mortgagor,
TO
CITICORP U.S.A., INC.,
as Administrative Agent,
Mortgagee
Relating to Premises in:
__________ County, __________
$____________________
Dated as of: March __, 1999
===============================================================================
This instrument prepared by and,
after recording, please return to:
William B. Gannett, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
------------------------
<PAGE>
TABLE OF CONTENTS
Section Heading Page
- ------- ------- ----
INTRODUCTION ............................................................ 1
RECITALS ................................................................ 1
GRANTING CLAUSES ........................................................ 2
COVENANTS ............................................................... 4
ARTICLE I WARRANTIES, REPRESENTATIONS AND
COVENANTS OF MORTGAGOR ........................................ 5
1.1 Payment ......................................................... 5
1.2 Authority and Validity .......................................... 5
1.3 Good Title ...................................................... 5
1.4 Recording Documentation To Assure Security
Interest; Fees and Expenses ................................... 7
1.5 Payment of Taxes, Insurance Premiums,
Assessments; Compliance with Law and
Insurance Requirements ......................................... 7
1.6 Certain Tax Law Changes ......................................... 11
1.7 Required Insurance Policies ..................................... 11
1.8 Failure To Make Certain Payments ................................ 14
1.9 Inspection ...................................................... 14
1.10 Mortgagor To Maintain Improvements .............................. 15
1.11 Mortgagor's Obligations with Respect to
Leases ......................................................... 15
1.12 Transfer Restrictions ........................................... 18
1.13 Destruction; Condemnation ....................................... 19
1.14 Alterations ..................................................... 23
1.15 Hazardous Material .............................................. 24
1.16 Asbestos ........................................................ 25
1.17 Books and Records, Other Information ............................ 26
1.18 No Claims Against Mortgagee ..................................... 26
1.19 Utility Services ................................................ 26
ARTICLE II ASSIGNMENT OF LEASES; SECURITY
AGREEMENT; ASSIGNMENT AGREEMENT .............................. 27
2.1 Assignment of Leases, Rents, Issues and
Profits ........................................................ 27
2.2 Security Interest in Personal Property .......................... 29
-i-
<PAGE>
ARTICLE III EVENTS OF DEFAULT AND REMEDIES .............................. 30
3.1 Events of Default ............................................... 30
3.2 Remedies in Case of an Event of Default ......................... 30
3.3 Sale of Mortgaged Property if Event of
Default Occurs; Proceeds of Sale ............................... 32
3.4 Additional Remedies in Case of an Event of
Default
3.5 Legal Proceedings After an Event of Default ..................... 35
3.6 Remedies Not Exclusive .......................................... 36
ARTICLE IV CERTAIN DEFINITIONS .......................................... 37
ARTICLE V MISCELLANEOUS ................................................. 38
5.1 Severability of Provisions ...................................... 38
5.2 Notices ......................................................... 38
5.3 Covenants To Run with the Land .................................. 38
5.4 Headings ........................................................ 38
5.5 Limitation on Interest Payable .................................. 38
5.6 Indemnity ....................................................... 39
5.7 GOVERNING LAW; TERMS ............................................ 40
5.8 No Merger ....................................................... 40
5.9 Modification in Writing ......................................... 41
5.10 No Credit for Payment of Taxes or
Impositions ................................................... 41
5.11 Stamp and Other Taxes ........................................... 41
5.12 Estoppel Certificates ........................................... 41
5.13 Additional Security ............................................. 42
5.14 Release ......................................................... 42
5.15 Certain Expenses of Mortgagee ................................... 42
5.16 Expenses of Collection .......................................... 43
5.17 Business Days ................................................... 43
5.18 Relationship .................................................... 43
5.19 Concerning Mortgagee ............................................ 44
5.20 Future Advances ................................................. 45
5.21 Waiver of Stay .................................................. 45
5.22 Continuing Security Interest; Assignment ........................ 45
5.23 Obligations Absolute ............................................ 46
5.24 Mortgagee's Right To Sever Indebtedness ......................... 46
SIGNATURE
ACKNOWLEDGMENTS
SCHEDULE A LEGAL DESCRIPTION
SCHEDULE B PRIOR LIENS
-ii-
<PAGE>
TERM LOAN AND REVOLVING CREDIT MORTGAGE,
ASSIGNMENT OF LEASES, SECURITY AGREEMENT
AND FIXTURE FILTNG
TERM LOAN AND REVOLVING CREDIT MORTGAGE, ASSIGNMENT OF LEASES,
SECURITY AGREEMENT AND FIXTURE FILING ("Mortgage"), dated as of March ___, 1999,
made by __________________________, a ___________ corporation, having an office
at _________________________, as mortgagor, assignor and debtor (in such
capacities and together with any successors in such capacities, "Mortgagor"), in
favor of CITICORP U.S.A., INC., having an office at 399 Park Avenue, New York,
New York 10022, as mortgagee, assignee and secured party (in such capacities and
together with any successors in such capacities, "Mortgagee") as agent for the
lending institutions (the "Lenders") from time to time party to the Credit
Agreement (as hereinafter defined)
RECITALS
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented, or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Credit Agreement), among
Precision Partners, Inc., a Delaware corporation (the "Borrower"), Mortgagor,
the Subsidiary Guarantors, Holding, the Lenders, Citicorp U.S.A., Inc., as
administrative agent for the Lenders ("Administrative Agent"), NationsBank,
N.A., as syndication agent ("Syndication Agent"), SunTrust Bank, Atlanta, as
documentation agent ("Documentation Agent"; together with Administrative Agent
and Syndication Agent, collectively, the "Agents"), the Lenders have agreed (i)
to make to or for the account of Borrower certain Term Loans up to an aggregate
principal amount of $23,000,000 and certain Revolving Loans up to an aggregate
principal amount of $25,000,000 and (ii) to issue certain Letters of Credit for
the account of Borrower.
B. Mortgagor is the owner of the Mortgaged Property (as hereinafter
defined).
C. It is a condition to the obligations of the Lenders to make the
Loans under the Credit Agreement and a condition to any Lender issuing Letters
of Credit under the Credit Agreement that Mortgagor execute and deliver the
applicable Loan Documents, including this Mortgage.
<PAGE>
-2-
D. This Mortgage is given by Mortgagor in favor of Mortgagee for its
benefit and the benefit of the Lenders and the Agents (collectively, the
"Secured Parties") to secure the payment and performance in full when due,
whether at stated maturity, by acceleration or otherwise (including, without
limitation, the payment of interest and other amounts which would accrue and
become due but for the filing of a petition in bankruptcy or the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. ss.
362(a)), of (i) all Obligations of Borrower now existing or hereafter arising
under or in respect of the Credit Agreement (including, without limitation,
Borrower's obligation to pay principal, interest and all other charges, fees,
expenses, commissions, reimbursements, premiums, indemnities and other payments
related to or in respect of the Obligations contained in the Credit Agreement),
(ii) all Obligations of Mortgagor now existing or hereafter arising under or in
respect of the Credit Agreement (including, without limitation, Mortgagor's
obligation to pay principal, interest and all other charges, fees, expenses,
commissions, reimbursements, premiums, indemnities and other payments related to
or in respect of the Obligations contained in the Credit Agreement) and (iii)
without duplication of the amounts described in clauses (i) and (ii), all
Obligations of Mortgagor now existing or hereafter arising under or in respect
of this Mortgage or any other Security Document, including, without limitation,
with respect to all charges, fees, expenses, commissions, reimbursements,
premiums, indemnities and other payments related to or in respect of the
Obligations contained in this Mortgage or in any other Security Document, in
each case whether in the regular course of business or otherwise (the
obligations described in clauses (i), (ii) and (iii), collectively, the "Secured
Obligations").
GRANTING CLAUSES:
For and in consideration of the sum of Ten Dollars ($10.00) and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor hereby grants, mortgages, bargains, sells, assigns and
conveys to Mortgagee, and hereby grants to Mortgagee, a security interest in and
upon, all Mortgagor's right, title and interest in, to and under the following
property, whether now owned or held or hereafter acquired from time to time
(collectively, the "Mortgaged Property"):
A. Any and all present estates or interest of Mortgagor in the land
described in Schedule A, together with all Mortgagor's reversionary rights in
and to any and all ease-
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3-
ments, rights-of-way, sidewalks, strips and gores of land, drives, roads, curbs,
streets, ways, alleys, passages, passageways, sewer rights, waters, water
courses, water rights, and all power, air, light and other rights, estates,
titles, interests, privileges, liberties, servitudes, licenses, tenements,
hereditaments and appurtenances whatsoever, in any way belonging, relating or
appertaining thereto, or any part thereof, or which hereafter shall in any way
belong, relate or be appurtenant thereto (collectively, the "Land");
B. Any and all estates or interests of Mortgagor in the buildings,
structures and other improvements and any and all Alterations (as hereinafter
defined) now or hereafter located or erected on the Land, including, without
limitation, attachments, walks and ways (collectively, the "Improvements";
together with the Land, the "Premises");
C. Any and all permits, certificates, approvals and authorizations,
however characterized, issued or in any way furnished in connection with the
Premises, whether necessary or not for the operation and use of the Premises,
including, without limitation, building permits, certificates of occupancy,
environmental certificates, industrial permits or licenses and certificates of
operation;
D. Any and all interest of Mortgagor in all machinery, apparatus,
equipment, fittings, fixtures, improvements and articles of personal property of
every kind and nature whatsoever now or hereafter attached or affixed to the
Premises or used in connection with the use and enjoyment of the Premises or the
maintenance or preservation thereof, including, without limitation, all utility
systems, fire sprinkler and alarm systems, HVAC equipment, boilers, electronic
data processing, telecommunications or computer equipment, refrigeration,
electronic monitoring, water or lighting systems, power, sanitation, waste
removal, elevators, maintenance or other systems or equipment, and all other
articles used or useful in connection with the use or operation of any part of
the Premises (collectively, the "Equipment");
E. All Mortgagor's right, title and interest as landlord,
franchisor, licensor or grantor, in all leases and subleases of space, franchise
agreements, licenses, occupancy or concession agreements now existing or
hereafter entered into relating in any manner to the Premises or the Equipment
and any and all amendments, modifications, supplements and renewals of any
thereof (each such lease, license or agreement, together with any such
amendment, modification, supplement or
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renewal, a "Lease"), whether now in effect or hereafter coming into effect,
including, without limitation, all rents, additional rents, cash, guaranties,
letters of credit, bonds, sureties or securities deposited thereunder to secure
performance of the lessee's, franchisee's, licensee's or obligee's obligations
thereunder, revenues, earnings, profits and income, advance rental payments,
payments incident to assignment, sublease or surrender of a Lease, claims for
forfeited deposits and claims for damages, now due or hereafter to become due,
with respect to any Lease, any indemnification against, or reimbursement for,
sums paid and costs and expenses incurred by Mortgagor under any Lease or
otherwise, and any award in the event of the bankruptcy of any tenant under or
guarantor of a Lease (collectively, the "Rents");
F. All general intangibles and contract rights relating to the
Premises and the Equipment and all reserves, deferred payments, deposits,
refunds and claims of every kind or character relating thereto (collectively,
the "Contract Rights");
G. All drawings, plans, specifications, file materials, operating
and maintenance records, catalogues, tenant lists, correspondence, advertising
materials, operating manuals, warranties, guaranties, appraisals, studies and
data relating to the Premises or the Equipment or the construction of any
Alteration or the maintenance of any Permit (as hereinafter defined); and
H. All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation or other awards or payments and refunds
of real estate taxes and assessments, including interest thereon (collectively,
"Proceeds");
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, for the
purpose of securing the payment and performance of the Secured Obligations.
COVENANTS
Mortgagor warrants, represents and covenants to and for the benefit
of Mortgagee as follows:
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ARTICLE I
WARRANTIES, REPRESENTATIONS AND
COVENANTS OF MORTGAGOR
SECTION 1.1 Payment. Mortgagor shall pay as and when the same shall
become due, whether at its stated maturity, by acceleration or otherwise, each
and every amount payable by Mortgagor under the Loan Documents.
SECTION 1.2 Authority and Validity. Mortgagor represents, warrants
and covenants that (i) Mortgagor is duly authorized to execute and deliver this
Mortgage, and all corporate and governmental consents, authorizations and
approvals necessary or required thereof or have been duly and effectively taken
or obtained, (ii) this Mortgage is a legal, valid, binding and enforceable
obligation of Mortgagor and (iii) Mortgagor has full corporate power and lawful
authority to execute and deliver this Mortgage and to mortgage and grant a
security interest in the Mortgaged Property as contemplated herein.
SECTION 1.3 Good Title
1.3.1 Mortgagor represents, warrants and covenants that (i)
Mortgagor has good and marketable fee simple title to the Premises and the
landlord's interest and estate under or in respect of the Leases and good title
to the interest it purports to own in and to each of the Permits, the Equipment
and the Contract Rights, in each case subject to no deed of trust, mortgage,
pledge, security interest, encumbrance, lien, lease, license, easement,
assignment, collateral assignment or charge of any kind, including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute or any
subordination arrangement in favor of any party other than Mortgagor
(collectively, "Liens"; each, a "Lien"), except for those Liens identified on
Schedule B (collectively, the "Prior Liens"), (ii) Mortgagor will keep in effect
all rights and appurtenances to or that constitute a part of the Mortgaged
Property, (iii) Mortgagor will protect, preserve and defend its interest in the
Mortgaged Property and title thereto, (iv) Mortgagor will comply with each of
the terms, conditions and provisions of any obligation of Mortgagor which is
secured by the Mortgaged Property or the noncompliance with which may result in
the imposition of a Lien on the Mortgaged Property, (v) Mortgagor will appear
and defend
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the Lien and security interests created and evidenced hereby and the validity
and priority of this Mortgage in any action or proceeding affecting or
purporting to affect the Mortgaged Property or any of the rights of Mortgagee
hereunder, (vi) this Mortgage creates and constitutes a valid and enforceable
first Lien on the Mortgaged Property, and, to the extent any of the Mortgaged
Property shall consist of personality, a first security interest in the
Mortgaged Property, which first Lien and first security interest are and will be
subject only to (a) Prior Liens (but not to extensions, amendments, supplements
or replacements of Prior Liens unless consented to by Mortgagee) and (b) Liens
hereafter created and which, pursuant to the provisions of Section 1.12, are
superior to the Lien and security interests created and evidenced hereby, and
Mortgagor does now and will forever warrant and defend to Mortgagee and all its
successors and assigns such title and the validity and priority of the Lien and
security interests created and evidenced hereby against the claims of all
persons and parties whomsoever, (vii) there has been issued and there remain in
effect each and every certificate of occupancy or use or other Permit currently
required for the existing use and occupancy by Mortgagor and its tenants of the
Premises and (viii) the Premises comply in all respects with all local zoning,
land use, set back or other development and use requirements of Governmental
Authorities.
1.3.2 Mortgagor, immediately upon obtaining knowledge of the
pendency of any proceedings for the eviction of Mortgagor from the Mortgaged
Property or any part thereof by paramount title or otherwise questioning
Mortgagor's title to the Mortgaged Property as warranted in this Mortgage, or of
any condition that might reasonably be expected to give rise to any such
proceedings, shall notify Mortgagee thereof. Mortgagee may participate in such
proceedings, and Mortgagor will deliver or cause to be delivered to Mortgagee
all instruments requested by Mortgagee to permit such participation. In any such
proceedings Mortgagee may be represented by counsel satisfactory to Mortgagee at
the expense of Mortgagor. If, upon the resolution of such proceedings, Mortgagor
shall suffer a loss of the Mortgaged Property or any part thereof or interest
therein and title insurance proceeds shall be payable in connection therewith,
such proceeds are hereby assigned to and shall be paid to Mortgagee to be
applied as Net Cash Proceeds to the payment of the Secured Obligations in
accordance with the provisions of Section 2.8(c) of the Credit Agreement.
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SECTION 1.4 Recording Documentation To Assure Security Interest;
Fees and Expenses.
1.4.1 Mortgagor shall, forthwith after the execution and delivery of
this Mortgage and thereafter, from time to time, cause this Mortgage and any
financing statement, continuation statement or similar instrument relating to
any thereof or to any property intended to be subject to the Lien of this
Mortgage to be filed, registered and recorded in such manner and in such places
as may be required by any present or future law in order to publish notice of
and fully to protect the validity and priority thereof or the Lien hereof
purported to be created upon the Mortgaged Property and the interest and rights
of Mortgagee therein. Mortgagor shall pay or cause to be paid all taxes and fees
incident to such filing, registration and recording, and all expenses incident
to the preparation, execution and acknowledgment thereof, and of any instrument
of further assurance, and all Federal or state stamp taxes or other taxes,
duties and charges arising out of or in connection with the execution and
delivery of such instruments.
1.4.2 Mortgagor shall, at the sole cost and expense of Mortgagor,
do, execute, acknowledge and deliver all and every such further acts, deeds,
conveyances, mortgages, assignments, notices of assignment, transfers, financing
statements, continuation statements and assurances as Mortgagee shall from time
to time request, which may be necessary in the judgment of Mortgagee from time
to time to assure, perfect, convey, assign, mortgage, transfer and confirm unto
Mortgagee, the property and rights hereby conveyed or assigned or which
Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee
or for carrying out the intention or facilitating the performance of the terms
of this Mortgage or the filing, registering or recording of this Mortgage. In
the event Mortgagor shall fail after demand to execute any instrument required
to be executed by Mortgagor under this subsection 1.4.2, Mortgagee may execute
the same as the attorney-in-fact for Mortgagor, such power of attorney being
coupled with an interest and irrevocable.
SECTION 1.5 Payment of Taxes, Insurance Premiums, Assessments;
Compliance with Law and Insurance Requirements.
1.5.1 Unless and to the extent contested by Mortgagor in accordance
with the provisions of subsection 1.5.5 hereof, Mortgagor shall pay and
discharge, or cause to be paid and discharged, from time to time when the same
shall become
<PAGE>
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due, all real estate and other taxes, special assessments, levies, permits,
inspection and license fees, all premiums for insurance, all water and sewer
rents and charges and all other public charges imposed upon or assessed against
the Mortgaged Property or any part thereof or upon the Rents. Mortgagor shall,
upon Mortgagee's request, deliver to Mortgagee, receipts evidencing the payment
of all such taxes, assessments, levies, fees, rents and other public charges
imposed upon or assessed against the Mortgaged Property or any part thereof or
the Rents.
1.5.2 From and after the occurrence and during the continuance of an
Event of Default (as hereinafter defined), at the option and upon the request of
Mortgagee, Mortgagor shall deposit with Mortgagee, on the first day of each
month, an amount estimated by Mortgagee to be equal to one-twelfth of the annual
taxes, assessments and other items required to be discharged by Mortgagor under
subsection 1.5.1. Such amounts shall be held by Mortgagee without interest to
Mortgagor and applied to the payment of the obligations in respect of which such
amounts were deposited, in such priority as Mortgagee shall determine, on or
before the respective dates on which such obligations or any part thereof would
become delinquent. Nothing contained in this Section 1.5 shall (i) affect any
right or remedy of Mortgagee under any provision of this Mortgage or of any
statute or rule of law to pay any such amount as provided above from its own
funds and to add the amount so paid, together with interest at a rate per annum
(the "Default Rate") equal to the highest rate then payable under the Loan
Agreement during such time that any amount remains outstanding, to the Secured
Obligations or (ii) relieve Mortgagor of its obligations to make or provide for
the payment of the annual taxes, assessments and other charges required to be
discharged by Mortgagor under subsection 1.5.1. Mortgagor hereby grants to
Mortgagee a security interest in all sums held pursuant to this subsection 1.5.2
to secure payment and performance of the Secured Obligations. During the
continuance of any Event of Default, Mortgagee may, at its option, apply all or
any part of the sums held pursuant to this subsection 1.5.2 to payment and
performance of the Secured Obligations. Mortgagor shall redeposit with Mortgagee
an amount equal to all amounts so applied as a condition to the cure, if any, of
such Event of Default in addition to fulfillment of any other required
conditions.
1.5.3 Unless and to the extent contested by Mortgagor in accordance
with the provisions of subsection 1.5.5, Mortgagor shall timely pay, or cause to
be paid, all lawful
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claims and demands of mechanics, materialmen, laborers, government agencies
administering worker's compensation insurance, old age pensions and social
security benefits and all other claims, judgments, demands or amounts of any
nature which, if unpaid, might result in, or permit the creation of, a Lien on
the Mortgaged Property or any part thereof, or on the Rents or which might
result in forfeiture of all or any part of the Mortgaged Property.
1.5.4 Mortgagor shall maintain, or cause to be maintained, in full
force and effect all permits, certificates, authorizations, consents, approvals,
licenses, franchises or other instruments now or hereafter required by any
Governmental Authority to operate or use and occupy the Premises and the
Equipment for its intended uses (collectively, "Permits"; each, a "Permit").
Unless and to the extent contested by Mortgagor in accordance with the
provisions of subsection 1.5.5 hereof, Mortgagor shall comply with all
requirements set forth in the Permits and all requirements of any law,
ordinance, rule, regulation or similar statute or case law (collectively,
"Requirements of Law") of any Governmental Authority applicable to all or any
part of the Mortgaged Property or the condition, use or occupancy of all or any
part thereof or any recorded deed of restriction, declaration, covenant running
with the land or otherwise, now or hereafter in force. Mortgagor shall not
initiate, join in, or consent to any change in the zoning or any other permitted
use classification of the Premises without the prior written consent of
Mortgagee.
1.5.5 Mortgagor may at its own expense contest the amount or
applicability of any of the obligations described in subsections 1.5.1, 1.5.3 or
1.5.4 by appropriate legal proceedings, prosecution of which operates to prevent
the collection or enforcement thereof and the sale or forfeiture of the
Mortgaged Property or any part thereof to satisfy such obligations; provided
however, that in connection with such contest, Mortgagor shall, at the option of
Mortgagee, have made provision for the payment or performance of such contested
obligation on Mortgagor's books if and to the extent required by GAAP or
deposited with Mortgagee to hold for the benefit of Mortgagor a sum sufficient
to pay and discharge such obligation and Mortgagee's estimate of all interest
and penalties related thereto. Any such deposit (and any income earned thereon)
not otherwise used to pay such obligation, interest or penalties shall be
promptly returned to Mortgagor. Notwithstanding the foregoing provisions of this
subsection 1.5.5, (i) no contest of any such obligations may be pursued
<PAGE>
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by Mortgagor if such contest would expose Mortgagee or any Lender to any
possible criminal liability or, unless Mortgagor shall have furnished a bond or
other security thereof or satisfactory to Mortgagee or such Lender, as the case
may be, any additional civil liability for failure to comply with such
obligations and (ii) if at any time payment or performance of any obligation
contested by Mortgagor pursuant to this subsection 1.5.5 shall become necessary
to prevent the delivery of a tax or similar deed conveying the Mortgaged
Property or any portion thereof because of nonpayment or nonperformance,
Mortgagor shall pay or perform the same, in sufficient time to prevent the
delivery of such tax or similar deed or such termination or forfeiture.
1.5.6 Mortgagor shall not take any action that could be the basis
for termination, revocation or denial of any insurance coverage required to be
maintained under this Mortgage or that could be the basis for a defense to any
claim under any insurance policy maintained in respect of the Premises or the
Equipment and Mortgagor shall otherwise comply in all respects with the
requirements of any insurer that issues a policy of insurance in respect of the
Premises or the Equipment; provided, however, that Mortgagor may, at its own
expense and after notice to Mortgagee, (i) contest the applicability or
enforceability of any such requirements by appropriate legal proceedings,
prosecution of which does not constitute a basis for cancellation or revocation
of any insurance coverage required under Section 1.7 hereof or (ii) cause the
insurance policy containing any such requirement to be replaced by a new policy
complying with the provisions of Section 1.7.
1.5.7 Mortgagor shall, promptly upon receipt of any written notice
regarding any failure by Mortgagor to pay or discharge any of the obligations
described in subsection 1.5.1, 1.5.3, 1.5.4 or 1.5.6, furnish a copy of such
notice to Mortgagee.
1.5.8 In the event that the proceeds of any tax claim are paid after
Mortgagee has exercised its right to foreclose the Lien of this Mortgage, such
proceeds shall be paid to Mortgagee to satisfy any deficiency remaining after
such foreclosure. Mortgagee shall retain its interest in the proceeds of any tax
claim during any redemption period. The amount of any such proceeds in excess of
any deficiency claim of Mortgagee shall reasonably promptly be released to
Mortgagor.
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SECTION 1.6 Certain Tax Law Changes. In the event of the passage
after the date of this Mortgage of any law deducting from the value of real
property, for the purpose of taxation, amounts in respect of any Lien thereon or
changing in any way the laws for the taxation of mortgages or debts secured by
mortgages for state or local purposes or the manner of the collection of any
such taxes, and imposing a tax, either directly or indirectly, on this Mortgage
or any other Loan Document, Mortgagor shall promptly pay to Mortgagee such
amount or amounts as may be necessary from time to time to pay such tax.
SECTION 1.7 Required Insurance Policies.
1.7.1 Mortgagor shall maintain in respect of the Premises and the
Equipment the following insurance coverages:
(i) Physical hazard insurance on an "all risk" basis covering,
without limitation, hazards commonly covered by fire and extended
coverage, lightning, windstorm, civil commotion, hail, riot, strike,
water damage, sprinkler leakage, collapse and malicious mischief, in an
amount equal to the full replacement cost of the Improvements and all
Equipment, with such deductibles as Mortgagee may from time to time
require, and, if Mortgagee shall not have imposed any such requirements,
with such deductibles as would be maintained by a prudent operator of
property similar in use and configuration to the Premises and located in
the locality where the Premises are located. "Full replacement cost"
means the Cost of Construction (as hereinafter defined) to replace the
Improvements and the Equipment, exclusive of depreciation, excavation,
foundation and footings, as determined from time to time (but not less
frequently than once every twelve (12) months) by a Person selected by
Mortgagor and reasonably acceptable to Mortgagee;
(ii) Comprehensive general liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the
Premises and any adjoining streets, sidewalks and passageways, and
covering any and all claims, including, without limitation, all legal
liability to the extent insurable imposed upon Mortgagee and all court
costs and attorneys' fees, arising out of or connected with the
possession, use, leasing, operation or condition of the Premises with
policy limits and deductibles in such amounts as Mortgagee may from time
to time require, and, if Mortgagee shall not
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have imposed such requirements, in such amounts as from time to time would
be maintained by a prudent operator of property similar in use and
configuration to the Premises and located in the locality where the
Premises are located;
(iii) Worker's compensation insurance as required by the laws of the
state where the Premises are located to protect Mortgagor and Mortgagee
against claims for injuries sustained in the course of employment at the
Premises;
(iv) Explosion insurance in respect of any boilers and similar
apparatus located on the Premises or comprising any Equipment, with policy
limits and deductibles in such amounts as Mortgagee may from time to time
require, and, if Mortgagee shall not have imposed any such requirements,
in such amounts as would be maintained by a prudent operator of property
similar in use and configuration to the Premises and the Equipment and
located in the locality where the Premises and Equipment are located;
(v) Business interruption insurance and/or loss of "rental value"
insurance covering one year of loss, the term "rental value" to mean the
sum of (a) the total estimated gross rental income from tenant occupation
of the Improvements as furnished and equipped under Leases and (b) the
total amount of all other charges which are the legal obligation of the
tenants, lessees and sublessees of the Premises under Leases;
(vi) If the Premises are located in an area identified by the
Federal Emergency Management Agency as an area having special flood
hazards pursuant to the National Flood Insurance Act of 1968 or the Flood
Disaster Protection Act of 1973, each as amended, or any successor laws,
flood insurance with policy limits and deductibles in such amounts as
Mortgagee may from time to time reasonably require, and, if Mortgagee
shall not have imposed any such requirements, in such amounts as would be
maintained by a prudent operator of property similar in use and
configuration to the Premises and located in the locality where the
Premises are located; and
(vii) Such other insurance, against such risks and with policy
limits and deductibles in such amounts as Mortgagee may from time to time
require, and, if no such
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requirements shall have been imposed, in such amounts as would be
maintained by a prudent operator of property similar in use and
configuration to the Premises and located in the locality where the
Premises are located.
1.7.2 All insurance policies required by this Section 1.7 shall be
in form satisfactory to Mortgagee. All insurance policies in respect of the
coverages required by subsections 1.7.1(i), 1.7.1(iv), 1.7.1(v), 1.7.1(vi) and,
if applicable, 1.7.l(vii), shall be in amounts at least sufficient to prevent
coinsurance liability, and all losses thereunder shall be payable to Mortgagee,
as loss payee, pursuant to a standard non-contributory New York mortgagee
endorsement. All insurance policies in respect of the coverages required by
subsections 1.7.1(ii) and, if applicable, 1.7.1(vii) shall name Mortgagee as an
additional insured. Each policy of insurance required under this Section 1.7
shall provide that it may not be modified, reduced, cancelled or otherwise
terminated without at least thirty (30) days' prior written notice to Mortgagee
and shall permit Mortgagee to pay any premium thereof or within thirty (30) days
after receipt of any notice stating that such premium has not been paid when
due. All insurance policies required hereunder shall provide that all losses
thereunder shall be payable notwithstanding any act or negligence of Mortgagor
or its agents or employees which otherwise might have resulted in a forfeiture
of all or a part of such insurance payments. The policy or policies of such
insurance or certificates of insurance evidencing the required coverages, and
all renewals or extensions thereof, shall be delivered to Mortgagee. Settlement
of any claim under any of the insurance policies referred to in this Section
1.7, if such claim involves (in the reasonable judgment of Mortgagee) loss in
excess of $250,000, shall require the prior written approval of Mortgagee, and
Mortgagor shall use reasonable efforts to cause each such policy to contain a
provision to such effect.
1.7.3 At least ten (10) days prior to the expiration of any
insurance policy required by this Section 1.7, a policy or policies renewing or
extending such expiring policy or renewal or extension certificates or other
reasonable evidence of renewal or extension and that the applicable policies are
in full force and effect shall be delivered to Mortgagee.
1.7.4 Mortgagor shall not purchase separate insurance policies
concurrent in form or contributing in the event of loss with those policies
required to be maintained under this Section 1.7, unless Mortgagee is included
thereon as a
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named insured and, if applicable, with loss payable to Mortgagee under an
endorsement containing the provisions described in subsection 1.7.2. Mortgagor
shall immediately notify Mortgagee whenever any such separate insurance policy
is obtained and shall promptly deliver to Mortgagee the policy or certificate
evidencing such insurance.
1.7.5 Mortgagor shall, immediately upon receipt of any written
notice of any failure by Mortgagor to pay any insurance premium in respect of
any insurance policy required to be maintained under this Section 1.7, furnish a
copy of such notice to Mortgagee.
1.7.6 In the event that the proceeds of any insurance claim are paid
after Mortgagee has exercised its right to foreclose the Lien of this Mortgage,
such proceeds shall be paid to Mortgagee to satisfy any deficiency remaining
after such foreclosure. Mortgagee shall retain its interest in the policies of
insurance required to be maintained pursuant to this Mortgage during any
redemption period.
SECTION 1.8 Failure To Make Certain Payments. If Mortgagor shall
fail to perform any of the covenants contained in this Mortgage, including,
without limitation, Mortgagor's covenants to (i) pay the premiums in respect of
all required insurance coverages, (ii) pay taxes and assessments, (iii) make
repairs, (iv) discharge liens and encumbrances or (v) pay or perform any
obligations of Mortgagor under the Leases, Mortgagee may, but shall not be
obligated to, make advances to perform such covenant on Mortgagor's behalf, and
all sums so advanced shall be included in the Secured Obligations and, to the
extent permitted by applicable law, shall be secured hereby. Mortgagor shall
repay on demand all sums so advanced by Mortgagee on behalf of Mortgagor, with
interest at the Default Rate from the date of payment by Mortgagee to the date
of reimbursement. Neither the provisions of this Section 1.8 nor any action
taken by Mortgagee pursuant to the provisions of this Section 1.8 shall prevent
any such failure to observe any covenant contained in this Mortgage from
constituting an Event of Default. Mortgagee shall not be bound to inquire into
the validity of any tax, lien or imposition which Mortgagor fails to pay as and
when required hereby and which Mortgagor does not contest in accordance with the
terms hereof.
SECTION 1.9 Inspection. Mortgagor shall permit Mortgagee, by its
agents, accountants and attorneys, to visit and inspect the Premises at such
reasonable times as may be requested by Mortgagee.
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SECTION 1.10 Mortgagor To Maintain Improvements. Mortgagor shall not
commit or suffer any waste on the Premises or with respect to any Equipment or
make any change in the use of the Premises or any Equipment. Mortgagor
represents and warrants that (i) the Premises are served by all utilities
required or necessary for the current use thereof, (ii) all streets necessary to
serve the Premises are completed and serviceable and have been dedicated and
accepted as such by the appropriate Governmental Authorities and (iii) Mortgagor
has access to the Premises from public roads sufficient to allow Mortgagor and
its tenants and invitees to conduct its and their businesses at the Premises in
accordance with sound commercial practices. Mortgagor shall, at all times,
maintain the Premises and Equipment in good, safe and insurable operating order,
condition and repair and shall make all repairs, structural or nonstructural,
when necessary. Mortgagor shall (a) except as permitted in Section 1.14, not
alter the occupancy or use of all or any part of the Premises without the prior
written consent of Mortgagee and (b) do all other acts which from the character
or use of the Premises and Equipment may be necessary or appropriate to maintain
and preserve their value. Mortgagor shall not remove, demolish or alter, except
as permitted in Section 1.14, the design or structural character of any
Improvement now or hereafter erected upon all or any part of the Premises, or
permit any such removal, demolition or alteration, without the prior written
consent of Mortgagee, except that items constituting Equipment may be removed if
such removal is temporary and for the purpose of making repairs or such items
are immediately replaced with similar items of Equipment having a value and
utility for their intended purposes that is not less than the value and such
utility of the Equipment so removed.
SECTION 1.11 Mortgagor's Obligations with Respect to Leases.
1.11.1 Subject to the provisions of subsection 1.11.2 herein,
Mortgagor will manage and operate the Mortgaged Property in a reasonably prudent
manner and will not without the prior written consent of Mortgagee enter into
any Lease of all or any part of the Premises.
1.11.2 Mortgagor shall not:
(i) receive or collect, or permit the receipt or collection of, any
rental or other payments under any Lease more than one month in advance of
the respective period in respect of which they are to accrue, except
<PAGE>
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that (a) in connection with the execution and delivery of any Lease or of
any amendment to any Lease, rental payments thereunder may be collected
and received in advance in an amount not in excess of one month's rent
and/or a reasonable security deposit may be required thereunder and (b)
Mortgagor may receive and collect escalation and other charges in
accordance with the terms of each Lease;
(ii) assign, transfer or hypothecate (other than to Mortgagee
hereunder) any rental or other payment under any Lease whether then due or
to accrue in the future, the interest of Mortgagor as lessor under any
Lease or the rents, issues, revenues, profits or other income of the
Mortgaged Property;
(iii) enter into any Lease after the date hereof that does not
contain terms to the effect as follows:
(a) such Lease and the rights of the tenant thereunder
(including, without limitation, any options to purchase or rights of
first offer or refusal) shall be subject and subordinate to the
rights of Mortgagee under and the Lien of this Mortgage;
(b) such Lease has been assigned as collateral security by
Mortgagor as landlord thereunder to Mortgagee under this Mortgage;
(c) in the case of any foreclosure hereunder, the rights and
remedies of the tenant in respect of any obligations of any
successor landlord thereunder shall be limited to the equity
interest of such successor landlord in the Premises and any
successor landlord shall not (1) be liable for any act, omission or
default of any prior landlord under the Lease, (2) be required to
make or complete any tenant improvements or capital improvements or
repair, restore, rebuild or replace the demised premises or any part
thereof in the event of damage, casualty or condemnation or (3) be
required to pay any amounts to tenant arising under the Lease prior
to such successor landlord taking possession;
(d) the tenant's obligation to pay rent and any additional
rent shall not be subject to any abatement, deduction, counterclaim
or setoff as against any mortgagee or purchaser upon the foreclo-
<PAGE>
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sure of any of the Premises or the giving or granting of a deed in
lieu thereof by reason of a landlord default occurring prior to such
foreclosure or delivery of such deed and such mortgagee or purchaser
will not be bound by any advance payments of rent in excess of one
month or any security deposits unless such security was actually
received by Mortgagee (or in the case of a letter of credit, was
properly transferred in negotiable form);
(e) the tenant agrees to attorn, at the option of Mortgagee or
any purchaser of the Premises, upon a foreclosure of the Premises or
the giving or granting of a deed in lieu thereof; and
(f) the tenant agrees to give notice to Mortgagee of any
default by landlord under the Lease and Mortgagee shall have a
reasonable time to cure, should Mortgagee so elect, any default of
landlord prior to tenant exercising any rights of tenant to
terminate or cancel such Lease.
(iv) enter into any amendment or modification of any Lease which
would change the unexpired term thereof or decrease the amount of the
rents or other amounts payable thereunder or impair the value or utility
of the Mortgaged Property or the security provided by this Mortgage;
(v) enter into any further lease or sublease of the property subject
to any Lease without the prior written consent of Mortgagee, unless such
Lease is not amended in any respect and the primary obligor under such
Lease is not released in any respect from its responsibilities and
liabilities under such Lease as a result of such lease or sublease;
(vi) terminate (whether by exercising any contractual right of
Mortgagor to recapture leased space or otherwise) or permit the
termination of any Lease or accept surrender of all or any portion of the
space demised under any Lease prior to the end of the term thereof or
accept assignment of any Lease to Mortgagor unless:
(a) the tenant under such Lease has not paid the equivalent of
two months' rent and Mortgagor has made reasonable efforts to
collect such rent; or
<PAGE>
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(b) Mortgagor shall deliver to Mortgagee an Officer's
Certificate to the effect that Mortgagor has entered into a new
Lease (or Leases) for the space covered by the terminated or
assigned Lease with a term (or terms) which expire(s) no earlier
than the date on which the terminated or assigned Lease was to
expire (excluding renewal options), and with a tenant (or tenants)
having a creditworthiness (as reasonably determined by Mortgagor)
sufficient to pay the rent and other charges due under the new Lease
(or Leases), and the tenant(s) shall have commenced paying rent,
including all operating expenses and other amounts payable under the
new Lease (or Leases) without any abatement or concession; or
(vii) waive, excuse, condone or in any manner discharge or release
any tenants of or from the obligations of such tenants under their
respective Leases or guarantors of tenants from obligations under any
guarantees of the Leases except in the ordinary and prudent course of
business with due regard for the security afforded Mortgagee thereby.
1.11.3 Mortgagor shall timely perform and observe all the terms,
covenants and conditions required to be performed and observed by Mortgagor
under each Lease and shall at all times do all things necessary to require
performance by the lessee, franchisee, licensee or grantee under each Lease of
all obligations, covenants and agreements by such party to be performed
thereunder. Mortgagor shall promptly notify Mortgagee of the receipt of any
notice from any lessee under any Lease claiming that Mortgagor is in default in
the performance or observance of any of the terms, covenants or conditions
thereof to be performed or observed by Mortgagor and will cause a copy of each
such notice to be promptly delivered to Mortgagee.
SECTION 1.12 Transfer Restrictions. Except as provided in Section
1.11, Mortgagor may not, without the prior written consent of Mortgagee, further
mortgage, encumber, hypothecate, sell, convey or assign all or any part of the
Mortgaged Property or suffer any of the foregoing to occur by operation of law
or otherwise. Notwithstanding the provisions of the foregoing sentence, so long
as no Event of Default shall have occurred and be continuing, Mortgagor shall
have the right to suffer, in respect of the Mortgaged Property, the Liens in
respect of amounts payable or obligations to be performed by Mortgagor pursuant
to subsections 1.5.1, 1.5.3 and
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1.5.4; provided, however, that such amounts are not yet due and payable or are
being contested in accordance with the provisions of subsection 1.5.5. Each of
the Liens and other transfers permitted by this Section 1.12 shall in all
respects be subject and subordinate in priority to the Lien and security
interests created and evidenced hereby except to the extent the law or
regulation creating or authorizing such Lien provides that such Lien must be
superior to the Lien and security interest created and evidenced hereby.
SECTION 1.13 Destruction; Condemnation.
1.13.1 Destruction; Insurance Proceeds. If there shall occur any
damage to, or loss or destruction of, the Improvements, Equipment, or any part
of any thereof (each, a "Destruction"), Mortgagor shall promptly send to
Mortgagee a notice setting forth the nature and extent of such Destruction. The
proceeds of any insurance payable in respect of such Destruction are hereby
assigned and shall be paid to Mortgagee. All such proceeds, together with any
interest earned thereon, less the amount of any expenses incurred in litigating,
arbitrating, compromising or settling any claim arising out of such Destruction
(the "Net Proceeds"), shall be applied in accordance with the provisions of
subsections 1.13.3, 1.13.4 and 1.13.5.
1.13.2 Condemnation; Assignment of Award. If there shall occur any
taking of the Mortgaged Property or any part thereof, in or by condemnation or
other eminent domain proceedings pursuant to any law, general or special, or by
reason of the temporary requisition of the use or occupancy of the Mortgaged
Property or any part thereof, by any Governmental Authority, civil or military
(each, a "Taking"), Mortgagor shall immediately notify Mortgagee upon receiving
notice of such Taking or commencement of proceedings therefor. Mortgagee may
participate in any proceedings or negotiations which might result in any Taking,
and Mortgagor shall deliver or cause to be delivered to Mortgagee all
instruments requested by it to permit such participation. Mortgagee may be
represented by counsel satisfactory to it at the expense of Mortgagor in
connection with any such participation. Mortgagor shall pay all fees, costs and
expenses incurred by Mortgagee in connection with any Taking and in seeking and
obtaining any award or payment on account thereof. Any proceeds, award or
payment in respect of any Taking are hereby assigned and shall be paid to
Mortgagee. Mortgagor shall take all steps necessary to notify the condemning
authority of such assignment. Such proceeds, award or payment, together with any
interest
<PAGE>
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earned thereon, less the amount of any expenses incurred in litigating,
arbitrating, compromising or settling any claim arising out of such Taking (the
"Net Award"), shall be applied in accordance with the provisions of subsections
1.13.3, 1.13.4 and 1.13.5.
1.13.3 Restoration. In the event Mortgagor is permitted or required
to apply a Net Award or Net Proceeds, in accordance with the provisions of
Section 2.7(c) of the Credit Agreement and such Net Award or Net Proceeds is in
an amount less than or equal to $250,000, Mortgagor shall apply such Net Award
or Net Proceeds to perform a restoration (each, a "Restoration") of the Premises
and Equipment. In the event Mortgagor elects to perform a Restoration, Mortgagor
shall give written notice (each, a "Restoration Election Notice") of such
election to Mortgagee within thirty (30) days after the date that Mortgagor
receives notice of collection by Mortgagee of the applicable Net Proceeds or Net
Award, as the case may be. In the event Mortgagee does not receive a Restoration
Election Notice within such 30-day period, Mortgagee may apply any such Net
Proceeds or Net Award held by Mortgagee to the payment of the Secured
Obligations in accordance with the provisions of Section 2.7(c) of the Credit
Agreement or, at the option of Mortgagee, may continue to hold such Net Proceeds
or Net Award as additional collateral to secure the performance by Mortgagor of
the Secured Obligations. In the event Mortgagor elects to perform any
Restoration contemplated by this subsection 1.13.3, Mortgagee shall release such
Net Award or Net Proceeds to Mortgagor as soon as practicable following receipt
of a Restoration Election Notice but in no event more than fifteen (15) days
following such receipt. Mortgagor shall, within fifteen (15) days following the
date of its receipt of any proceeds in respect of a Destruction or Taking, as
the case may be, commence and diligently continue to perform the Restoration of
that portion or portions of the Improvements and Equipment subject to such
Destruction or affected by such Taking so that, upon the completion of the
Restoration, the Premises and Equipment will be in the same condition and shall
be of at least equal value and utility for its intended purposes as the Premises
and Equipment was immediately prior to such Destruction or Taking. Mortgagor
shall so complete such Restoration with its own funds to the extent that the
amount of any Net Award or Net Proceeds is insufficient for such purpose.
1.13.4 Major Restoration. In the event Mortgagor is permitted or
required to apply a Net Award or Net Proceeds in accordance with the provisions
of Section 2.7(c) of the
<PAGE>
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Credit Agreement and such Net Award or Net Proceeds is in an amount greater than
$250,000, Mortgagee shall apply such Net Award or Net Proceeds, as the case may
be, to perform a Restoration of the Premises and Equipment. In the event a
Restoration is to be performed under this subsection 1.13.4, Mortgagee shall not
release any part of the Net Award or the Net Proceeds except in accordance with
the provisions of subsection 1.13.5, and Mortgagor shall, prior to commencing
any work to effect a Restoration of the Premises and Equipment, promptly (but in
no event later than ninety (90) days following any Destruction or Taking)
furnish to Mortgagee:
(i) complete plans and specifications (the "Plans and
Specifications") for the Restoration;
(ii) a certificate (an "Architect's Certificate") of an independent,
reputable architect or engineer acceptable to Mortgagee and licensed in
the state where the Premises is located (a) listing all permits and
approvals required by law in connection with the Restoration, (b) stating
that all permits and approvals required by law to commence work in
connection with the Restoration have been obtained, (c) stating that the
Plans and Specifications have been reviewed and approved by the signatory
thereto, (d) stating such signatory's estimate (an "Estimate") of the
costs of completing the Restoration and (e) stating that upon completion
of such Restoration in accordance with the Plans and Specifications, the
value and utility of the Premises and the Equipment will be approximately
equal to or greater than the value and utility thereof immediately prior
to the Destruction or Taking relating to such Restoration; and
(iii) if the Estimate exceeds the Net Proceeds or Net Award, as the
case may be, a surety bond for, guarantee of, or irrevocable letter of
credit (a "Letter of Credit") or other irrevocable and unconditional
commitment to provide funds (each, a "Commitment") for the payment of the
excess cost of such Restoration, payable to or in favor of Mortgagee, as
Administrative Agent, which bond, guaranty, Letter of Credit or Commitment
(A) shall be signed by a surety or sureties or guarantor(s), as the case
may be, acceptable to Mortgagee and, in the case of a Letter of Credit or
Commitment, shall be provided by a Lender or other financial institution
having capital and surplus in excess of $500 million as shown in its most
recent available statement of financial condition and (B) shall be in an
amount not less than the excess of the
<PAGE>
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amount of the Estimate over the amount of the Net Award or Net Proceeds,
as the case may be, then held by Mortgagee for application toward the
cost of such Restoration.
Mortgagee shall have the right to review and approve the Plans and
Specifications. Promptly upon any approval of the Plans and Specifications by
Mortgagee, Mortgagor shall commence and diligently continue to perform the
Restoration in accordance with such approved Plans and Specifications. Mortgagor
shall so complete such Restoration with its own funds to the extent that the
amount of any Net Award or Net Proceeds is insufficient for such purpose.
1.13.5 Restoration Advances Following Destruction or Taking of
Mortgaged Property. In the event Mortgagor shall be required or permitted to
perform a Restoration of the Premises and Equipment as provided in subsection
1.13.4, Mortgagee shall apply any Net Proceeds or the Net Award held by
Mortgagee on account of the applicable Destruction or Taking to the payment of
the cost of performing such Restoration and shall pay portions of the same, from
time to time, to Mortgagor or, at Mortgagee's option, exercised from time to
time, directly to the contractors, subcontractors, materialmen, laborers,
engineers, architects, and other persons rendering services or material for such
Restoration, subject to the following conditions:
(i) Each request for payment shall be made on at least ten (10)
days' prior notice to Mortgagee and shall be accompanied by an Architect's
Certificate stating (a) that all the Restoration work then completed has
been done in compliance with the Plans and Specifications, as approved by
Mortgagee, and in accordance with all provisions of law, (b) the sums
requested are required to reimburse Mortgagor for payments by Mortgagor
to, or are due to, the contractors, subcontractors, materialmen, laborers,
engineers, architects, or other persons rendering services or materials
for the Restoration, and that, when added to the sums, if any, previously
paid out by Mortgagee, such sums do not exceed the cost of the Restoration
to the date of such Architect's Certificate, (c) whether or not the
Estimate continues to be accurate, and if not, what the entire cost of
such Restoration is then estimated to be, and (d) that the amount of the
Net Proceeds or Net Award, as the case may be, remaining after giving
effect to such payment will be sufficient on completion of the Restoration
to pay for the same in full
<PAGE>
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(including, in detail, an estimate by trade of the remaining costs of
completion);
(ii) Each request for payment shall be accompanied by an opinion of
counsel to Mortgagor (which counsel shall be independent and acceptable to
Mortgagee), or a title insurance policy, binder or endorsement in form and
substance satisfactory to Mortgagee confirming that (a) all Liens (other
than Prior Liens) covering that part of the Restoration previously paid
for, if any, have been waived and (b) there has not been filed with
respect to all or any part of the Premises any Lien (other than Prior
Liens) which is not discharged of record and which could have priority
over the Lien of this Mortgage in respect of any part of the Secured
Obligations; and
(iii) The final request for any payment after the Restoration has
been completed shall be accompanied by an Architect's Certificate listing
all certificates, permits, licenses, waivers, other documents, or any
combination of the foregoing required by law in connection with or as a
result of such Restoration and stating that all of the same have been
obtained.
In the event that there shall be any surplus after application of
the Net Award or the Net Proceeds to Restoration of the Improvements and the
Equipment, such surplus shall be applied as Net Cash Proceeds in accordance with
Section 2.7(b) of the Credit Agreement or, at the option of Mortgagee, shall be
held by Mortgagee as additional collateral to secure the performance by
Mortgagor of the Secured Obligations.
SECTION 1.14 Alterations. Mortgagor shall not, without the prior
written consent of Mortgagee, make any addition, modification or change (each,
an "Alteration"), structural or nonstructural, to the Premises that costs more
to effect than $100,000. Whether or not Mortgagee has consented to the making of
any Alteration, Mortgagor shall (i) complete each Alteration promptly, in a good
and workmanlike manner and in compliance with all applicable local laws,
ordinances and requirements and (ii) pay when due all claims for labor performed
and materials furnished in connection with such Alteration, unless contested in
accordance with the provisions of subsection 1.5.5.
<PAGE>
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SECTION 1.15 Hazardous Material.
1.15.1 Mortgagor represents and warrants that (i) it has obtained
all permits, licenses and other authorizations which are required with respect
to the ownership and operation of its business and the Mortgaged Property under
any and all applicable Environmental Laws, (ii) it is in compliance with all
terms and conditions of the required permits, licenses and authorizations, and
is also in compliance with Environmental Laws, including, without limitation,
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws, (iii) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or violation, investigation, proceeding,
notice of demand letter pending or threatened against it or any subsidiary under
the Environmental Laws which could result in a fine, penalty or other cost or
expense and (iv) there are no past or present events, conditions, circumstances,
activities, practices, incidents, actions or plans which may reasonably be
expected to interfere with or prevent compliance with the Environmental Laws, or
which may give rise to any common law or legal liability, including, without
limitation, liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any other Environmental
Law or related common law theory or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing or notice of violation, study or
investigation, based on or related to the manufacture, processing, distribution,
use, generation, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
Hazardous Materials which could result in a fine, penalty or other cost or
expense.
1.15.2 Mortgagor shall (i) materially comply with any and all
present and future Environmental Laws, (ii) not release, store, treat, handle,
generate, discharge or dispose of any Hazardous Materials on, under or from the
Mortgaged Property in violation of or in a manner that could result in any
material liability under any present and future Environmental Law and (iii) take
all necessary steps to initiate and expeditiously complete all remedial,
corrective and other action to eliminate any such effect. In the event Mortgagor
fails to comply with the covenants in the preceding sentence, Mortgagee may, in
addition to any other remedies set forth herein, as agent for and at Mortgagor's
sole cost and expense, cause any necessary remediation, removal or response
action relating to Hazardous Materials to be taken and Mortgagor
<PAGE>
-25-
shall provide to Mortgagee and its agents and employees access to the Mortgaged
Property for such purpose. Any costs or expenses incurred by Mortgagee for such
purpose shall be immediately due and payable by Mortgagor and shall bear
interest at the Default Rate. Mortgagee shall have the right at any time that
the Secured Obligations are outstanding, at the sole cost and expense of
Mortgagor, to conduct an environmental audit of the Mortgaged Property by such
persons or firms appointed by Mortgagee, and Mortgagor shall cooperate in all
respects in the conduct of such environmental audit, including, without
limitation, by providing access to the Mortgaged Property and to all records
relating thereto. To the extent that any environmental audit identifies
conditions which violate, or could be expected to give rise to liability or
obligations under, Environmental Laws, Mortgagor agrees to expeditiously correct
any such violation or respond to conditions giving rise to such liability or
obligations in a manner which complies with the Environmental Laws and mitigates
associated health and environmental risks. Mortgagor shall indemnify and hold
Mortgagee and each Lender harmless from and against all loss, cost, damage
(including, without limitation, consequential damages) or expense (including,
without limitation, reasonable attorneys' and consultants' fees and
disbursements and the allocated costs of staff counsel) that Mortgagee or such
Lender may sustain by reason of the assertion against Mortgagee or such Lender
by any party of any claim relating to such Hazardous Materials on, under or from
the Mortgaged Property or actions taken with respect thereto as authorized
hereunder. The foregoing indemnification shall survive repayment of all Secured
Obligations and any release or assignment of this Mortgage.
SECTION 1.16 Asbestos. Mortgagor shall not install nor permit to be
installed in or removed from the Mortgaged Property, asbestos or any
asbestos-containing material (collectively, "ACM") except in compliance with all
applicable Environmental Laws, and with respect to any ACM currently present in
the Mortgaged Property, Mortgagor shall promptly either Ci) remove any ACM which
such Environmental Laws require to be removed or (ii) otherwise comply with such
Environmental Laws with respect to such ACM, all at Mortgagor's sole cost and
expense. If Mortgagor shall fail so to remove any ACM or otherwise comply with
such laws or regulations, Mortgagee may, in addition to any other remedies set
forth herein, take reasonable or necessary steps to eliminate any ACM from the
Mortgaged Property or otherwise comply with applicable law, regulations or
orders and Mortgagor shall provide to Mortgagee and its agents and employees
access to the Mortgaged Property for
<PAGE>
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such purpose. Any costs or expenses incurred by Mortgagee for such purpose shall
be immediately due and payable by Mortgagor and bear interest at the Default
Rate. Mortgagor shall indemnify and hold Mortgagee and each Lender harmless from
and against all loss, cost, damage (including, without limitation, consequential
damages) and expense (including, without limitation, reasonable attorneys' and
consultants' fees and disbursements and the allocated costs of staff counsel)
that Mortgagee or such Lender may sustain, as a result of the presence of any
ACM and any removal thereof or compliance with all applicable Environmental
Laws. The foregoing indemnification shall survive repayment of all Secured
Obligations and any release or assignment of this Mortgage.
SECTION 1.17 Books and Records. Other Information.
1.17.1 Mortgagor shall keep proper books of record and account in
which full, true and correct entries shall be made of all dealings or
transactions of or in relation to the Mortgaged Property and the business and
affairs of Mortgagor relating to the Mortgaged Property. Mortgagee and its
authorized representatives shall have the right at reasonable times and upon
reasonable notice to examine the books and records of Mortgagor relating to the
operation of the Mortgaged Property.
1.17.2 Mortgagor shall, at any and all times, within a reasonable
time after written request by Mortgagee, furnish or cause to be furnished to
Mortgagee, in such manner and in such detail as may be reasonably requested by
Mortgagee, additional information with respect to the Mortgaged Property.
SECTION 1.18 No Claims Against Mortgagee. Nothing contained in this
Mortgage shall constitute any consent or request by Mortgagee, express or
implied, for the performance of any labor or services or the furnishing of any
materials or other property in respect of the Premises or any part thereof, nor
as giving Mortgagor any right, power or authority to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against
Mortgagee in respect thereof or any claim that any Lien based on the performance
of such labor or services or the furnishing of any such materials or other
property is prior to the Lien of this Mortgage.
SECTION 1.19 Utility Services. Mortgagor shall pay, or cause to be
paid, when due all charges for all public
<PAGE>
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or private utility services, all public or private rail and highway services,
all public or private communication services, all sprinkler systems, all
protective services and any other services of whatever kind or nature at any
time rendered to or in connection with the Premises or any part thereof, shall
comply with all contracts relating to any such services and shall do all other
things required for the maintenance and continuance of all such services to the
extent required to fulfill the obligations set forth in Section 1.10.
ARTICLE II
ASSIGNMENT OF LEASES; SECURITY AGREEMENT;
ASSIGNMENT AGREEMENT
SECTION 2.1 Assignment of Leases, Rents, Issues and Profits.
2.1.1 Mortgagor absolutely, presently and irrevocably assigns,
transfers and sets over to Mortgagee, and grants to Mortgagee subject to the
terms and conditions hereof, all Mortgagor's estate, right, title, interest,
claim and demand as landlord to collect rent and other sums due under all
existing Leases and any other Leases, including, without limitation, all
extensions of the terms of the Leases (such assigned rights, "Mortgagor's
Interest"), as follows:
(i) the immediate and continuing right to receive and collect Rents
payable by all tenants or other parties pursuant to the Leases;
(ii) all claims, rights, powers, privileges and remedies of
Mortgagor, whether provided for in any Lease or arising by statute or at
law or in equity or otherwise, consequent on any failure on the part of
any tenant to perform or comply with any term of any Lease;
(iii) all rights to take all actions upon the happening of a default
under any Lease as shall be permitted by such Lease or by law, including,
without limitation, the commencement, conduct and consummation of
proceedings at law or in equity; and
(iv) the full power and authority, in the name of Mortgagor or
otherwise, to enforce, collect, receive and receipt for any and all of the
foregoing and to do any and all other acts and things whatsoever which
Mortgagor
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or any landlord is or may be entitled to do under the Leases.
2.1.2 Any Rents receivable by Mortgagee hereunder, after payment of
all proper costs and charges, shall be applied to all amounts due and owing
under and as provided in this Mortgage and the Credit Agreement. Mortgagee shall
be accountable to Mortgagor only for Rents actually received by Mortgagee
pursuant to this assignment. The collection of such Rents and the application
thereof shall not cure or waive any Event of Default or waive, modify or affect
notice of Event of Default or invalidate any act done pursuant to such notice.
2.1.3 So long as no Event of Default shall have occurred and be
continuing, Mortgagor shall have a license to collect and apply the Rents and to
enforce the obligations of tenants under the Leases. Immediately upon the
occurrence and during the continuance of any Event of Default, the license
granted in the immediately preceding sentence shall cease and terminate, with or
without any notice, action or proceeding or the intervention of a receiver
appointed by a court. Upon such Event of Default and during the continuance
thereof, Mortgagee may, to the fullest extent permitted by the Leases, (i)
exercise any of Mortgagor's rights under the Leases, (ii) enforce the Leases,
(iii) demand, collect, sue for, attach, levy, recover, receive, compromise and
adjust, and make, execute and deliver receipts and releases for all Rents or
other payments that may then be or may thereafter become due, owing or payable
with respect to the Leases and (iv) generally, do, execute and perform any other
act, deed, matter or thing whatsoever that ought to be done, executed and
performed in and about or with respect to the Leases, as fully as allowed or
authorized by Mortgagor's Interest.
2.1.4 Upon the occurrence and during the continuance of an Event of
Default, Mortgagor shall, at the direction of Mortgagee, further authorize and
direct the tenant under each Lease to pay directly to, or as directed by,
Mortgagee all Rents accruing or due under its Lease without proof to the tenant
of the occurrence and continuance of such Event of Default. Mortgagor hereby
authorizes the tenant under each Lease to rely upon and comply with any notice
or demand from Mortgagee for payment of Rents to Mortgagee and Mortgagor shall
have no claim against any tenant for Rents paid by such tenant to Mortgagee
pursuant to such notice or demand.
2.1.5 Mortgagor at its sole cost and expense shall use commercially
reasonable efforts to enforce the Leases in
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accordance with their terms. Neither this Mortgage nor any action or inaction on
the part of Mortgagee shall release any tenant under any Lease, any guarantor of
any Lease or Mortgagor from any of their respective obligations under the Leases
or constitute an assumption of any such obligation on the part of Mortgagee. No
action or failure to act on the part of Mortgagor shall adversely affect or
limit the rights of Mortgagee under this Mortgage or, through this Mortgage,
under the Leases.
2.1.6 All rights, powers and privileges of Mortgagee herein set
forth are coupled with an interest and are irrevocable, subject to the terms and
conditions hereof, and Mortgagor shall not take any action under the Leases or
otherwise which is inconsistent with this Mortgage or any of the terms hereof
and any such action inconsistent herewith or therewith shall be void. Mortgagor
shall, from time to time, upon request of Mortgagee, execute all instruments and
further assurances and all supplemental instruments and take all such action as
Mortgagee from time to time may reasonably request in order to perfect, preserve
and protect the interests intended to be assigned to Mortgagee hereby.
2.1.7 Mortgagor shall not, unilaterally or by agreement,
subordinate, amend, modify, extend, discharge, terminate, surrender, waive or
otherwise change any term of any of the Leases in any manner which would violate
this Mortgage. If the Leases shall be amended as permitted hereby, they shall
continue to be subject to the provisions hereof without the necessity of any
further act by any of the parties hereto.
2.1.8 Nothing contained herein shall operate or be construed to (i)
obligate Mortgagee to perform any of the terms, covenants or conditions
contained in the Leases or otherwise to impose any obligation upon Mortgagee
with respect to the Leases (including, without limitation, any obligation
arising out of any covenant of quiet enjoyment contained in the Leases in the
event that any tenant under a Lease shall have been joined as a party defendant
in any action by which the estate of such tenant shall be terminated) or (ii)
place upon Mortgagee any responsibility for the operation, control, care,
management or repair of the Premises.
SECTION 2.2 Security Interest in Personal Property.
2.2.1 This Mortgage shall constitute a security agreement and shall
create and evidence a security interest or common law Lien in all the Equipment
and in all the other
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items of Mortgaged Property in which a security interest may be granted or a
common law pledge created pursuant to the Uniform Commercial Code as in effect
in the state in which the Premises are located or under the common law in such
state collectively, "Personal Property").
2.2.2 Upon the occurrence of any Event of Default, in addition to
the remedies set forth in Article III, Mortgagee shall have the power to sell
the Personal Property in accordance with the Uniform Commercial Code as enacted
in the state in which the Premises are located or under other applicable law. It
shall not be necessary that any Personal Property offered be physically present
at any such sale or constructively in the possession of Mortgagee or the person
conducting the sale.
2.2.3 Upon the occurrence and during the continuance of any Event of
Default, Mortgagee may sell the Personal Property or any part thereof at public
or private sale with notice to Mortgagor as hereinafter provided. The proceeds
of any such sale, after deducting all expenses of Mortgagee in taking, storing,
repairing and selling the Personal Property (including, without limitation,
attorneys' fees and legal expenses), shall be applied in the manner set forth in
subsection 3.3.3. At any sale, public or private, of the Personal Property or
any part thereof, Mortgagee may purchase any or all of the Personal Property
offered at such sale.
2.2.4 Mortgagee shall give Mortgagor reasonable notice of any sale
of any of the Personal Property pursuant to the provisions of this Section 2.2.
Notwithstanding the provisions of Section 5.2, any such notice shall
conclusively be deemed to be reasonable and effective if such notice is mailed
at least five (5) days prior to any sale, by first class or certified mail,
postage prepaid, to Mortgagor at its address determined in accordance with the
provisions of Section 5.2.
ARTICLE III
EVENTS OF DEFAULT AND REMEDIES
SECTION 3.1 Events of Default. It shall be an Event of Default
hereunder if there shall have occurred and be continuing an Event of Default
under the Credit Agreement.
SECTION 3.2 Remedies in Case of an Event of Default. If any Event of
Default shall have occurred and be
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continuing, Mortgagee may at its option, in addition to any other action
permitted under this Mortgage or the Credit Agreement or by law, statute or in
equity, take one or more of the following actions:
3.2.1 by written notice to Mortgagor, declare the entire unpaid
amount of the Secured Obligations to be due and payable immediately;
3.2.2 personally, or by its agents or attorneys, (i) enter into and
upon and take possession of all or any part of the Premises together with the
books, records and accounts of Mortgagor relating thereto and, exclude
Mortgagor, its agents and servants wholly therefrom, (ii) use, operate, manage
and control the Premises and the Equipment and conduct the business thereof,
(iii) maintain and restore the Premises and the Equipment, (iv) make all
necessary or proper repairs, renewals and replacements and such useful
Alterations thereto and thereon as Mortgagee may deem advisable, (v) manage,
lease and operate the Premises and carry on the business thereof and exercise
all rights and powers of Mortgagor with respect thereto either in the name of
Mortgagor or otherwise or (vi) collect and receive all earnings, revenues,
rents, issues, profits and income of the Mortgaged Property and every part
thereof. Mortgagee shall be under no liability for or by reason of any such
taking of possession, entry, removal or holding, operation or management except
that any amounts so received by Mortgagee shall be applied as follows:
FIRST: to pay costs and expenses (including, without limitation,
attorneys' fees and expenses) of so entering upon, taking possession of,
holding, operating and managing the Mortgaged Property or any part
thereof, and any taxes, assessments or other charges which Mortgagee may
consider necessary or desirable to pay, and any other amounts due to
Mortgagee;
SECOND: without duplication of amounts applied pursuant to clause
FIRST above, to the indefeasible payment in full in cash of the Secured
Obligations in accordance with the terms of the Credit Agreement; and
THIRD: the balance, if any, to the Person lawfully entitled thereto
(including Mortgagor or its successors or assigns), if all conditions to
the release of this Mortgage shall have been fulfilled, but if any such
condition shall not have been fulfilled, to be held by Mortgagee and
thereafter applied to any future payments re-
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quired to be made in accordance with clauses FIRST and SECOND above.
3.2.3 with or without entry, personally or by its agents or
attorneys, (i) sell the Mortgaged Property and all estate, right, title and
interest, claim and demand therein at one or more sales in one or more parcels,
in accordance with the provisions of Section 3.3 or (ii) institute and prosecute
proceedings for the complete or partial foreclosure of the Lien and security
interests created and evidenced hereby; or
3.2.4 take such steps to protect and enforce its rights whether by
action, suit or proceeding at law or in equity for the specific performance of
any covenant, condition or agreement in the Credit Agreement and the other Loan
Documents, or in aid of the execution of any power granted in this Mortgage, or
for any foreclosure hereunder, or for the enforcement of any other appropriate
legal or equitable remedy or otherwise as Mortgagee shall elect.
SECTION 3.3 Sale of Mortgaged Property if Event of Default Occurs;
Proceeds of Sale.
3.3.1 If any Event of Default shall have occurred and be continuing,
Mortgagee may institute an action to foreclose this Mortgage or take such
other action as may be permitted and available to Mortgagee at law or in equity
for the enforcement of the Credit Agreement and realization on the Mortgaged
Property and proceeds thereon through power of sale or to final judgment and
execution thereof for the Secured Obligations, and in furtherance thereof
Mortgagee may sell the Mortgaged Property at one or more sales, as an entirety
or in parcels, at such time and place, upon such terms and after such notice
thereof as may be required or permitted by law or statute or in equity.
Mortgagee may execute and deliver to the purchaser at such sale a conveyance of
the Mortgaged Property in fee simple and an assignment or conveyance of all
Mortgagor's Interest in the Leases and the Mortgaged Property, each of which
conveyances and assignments shall contain recitals as to the Event of Default
upon which the execution of the power of sale herein granted depends, and
Mortgagor hereby constitutes and appoints Mortgagee the true and lawful attorney
in fact of Mortgagor to make any such recitals, sale, assignment and conveyance,
and all of the acts of Mortgagee as such attorney in fact are hereby ratified
and confirmed. Mortgagor agrees that such recitals shall be binding and
conclusive upon Mortgagor and that any assignment or conveyance to be made by
Mortgagee shall divest Mortgagor of all right,
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title, interest, equity and right of redemption, including any statutory
redemption, in and to the Mortgaged Property. The power and agency hereby
granted are coupled with an interest and are irrevocable by death or
dissolution, or otherwise, and are in addition to any and all other remedies
which Mortgagee may have hereunder, at law or in equity. So long as the Secured
Obligations, or any part thereof, remain unpaid, Mortgagor agrees that
possession of the Mortgaged Property by Mortgagor, or any person claiming under
Mortgagor, shall be as tenant, and, in case of a sale under power or upon
foreclosure as provided in this Mortgage, Mortgagor and any person in possession
under Mortgagor, as to whose interest such sale was not made subject, shall, at
the option of the purchaser at such sale, then become and be tenants holding
over, and shall forthwith deliver possession to such purchaser, or be summarily
dispossessed in accordance with the laws applicable to tenants holding over. In
case of any sale under this Mortgage by virtue of the exercise of the powers
herein granted, or pursuant to any order in any judicial proceeding or
otherwise, the Mortgaged Property may be sold as an entirety or in separate
parcels in such manner or order as Mortgagee in its sole discretion may elect.
One or more exercises of powers herein granted shall not extinguish or exhaust
such powers, until the entire Mortgaged Property is sold or all amounts secured
hereby are paid in full.
3.3.2 In the event of any sale made under or by virtue of this
Article III, the entire principal of, and interest in respect of the Secured
Obligations, if not previously due and payable, shall, at the option of
Mortgagee, immediately become due and payable, anything in this Mortgage to the
contrary notwithstanding.
3.3.3 The proceeds of any sale made under or by virtue of this
Article III, together with any other sums which then may be held by Mortgagee
under this Mortgage, whether under the provisions of this Article III or
otherwise, shall be applied as follows:
FIRST: to pay the costs and expenses incurred by Mortgagee in
enforcing its remedies under this Mortgage;
SECOND: to pay the costs and expenses of the sale and of any
receiver of the Mortgaged Property or any part thereof appointed pursuant
to subsection 3.5.2;
THIRD: without duplication of the amounts applied pursuant to
clauses FIRST and SECOND above, to the inde-
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feasible payment in full in cash of the Secured Obligations in accordance
with the terms of the Credit Agreement; and
FOURTH: the balance, if any, to the Person lawfully entitled thereto
(including Mortgagor or its successors or assigns).
3.3.4 Mortgagee (on behalf of any Lender or on its own behalf) or
any Lender or any of their respective Affiliates may bid for and acquire the
Mortgaged Property or any part thereof at any sale made under or by virtue of
this Article III and, in lieu of paying cash therefor, may make settlement for
the purchase price by crediting against the purchase price the unpaid amounts
(whether or not then due) owing to Mortgagee, or such Lender in respect of the
Secured Obligations, after deducting from the sales price the expense of the
sale and the reasonable costs of the action or proceedings and any other sums
that Mortgagee or such Lender is authorized to deduct under this Mortgage.
3.3.5 Mortgagee may adjourn from time to time any sale by it to be
made under or by virtue of this Mortgage by announcement at the time and place
appointed for such sale or for such adjourned sale or sales, and, Mortgagee,
without further notice or publication, may make such sale at the time and place
to which the same shall be so adjourned.
3.3.6 If the Premises is comprised of more than one parcel of land,
Mortgagee may take any of the actions authorized by this Section 3.3 in respect
of any or a number of individual parcels.
SECTION 3.4 Additional Remedies in Case of an Event of Default.
3.4.1 Mortgagee shall be entitled to recover judgment as aforesaid
either before, after or during the pendency of any proceedings for the
enforcement of the provisions of this Mortgage, and the right of Mortgagee to
recover such judgment shall not be affected by any entry or sale hereunder, or
by the exercise of any other right, power or remedy for the enforcement of the
provisions of this Mortgage, or the foreclosure of, or absolute conveyance
pursuant to, this Mortgage. In case of proceedings against Mortgagor in
insolvency or bankruptcy or any proceedings for its reorganization or involving
the liquidation of its assets, Mortgagee shall be entitled to prove the whole
amount of principal and interest and
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other payments, charges and costs due in respect of the Secured Obligations to
the full amount thereof without deducting therefrom any proceeds obtained from
the sale of the whole or any part of the Mortgaged Property; provided, however,
that in no case shall Mortgagee receive a greater amount than the aggregate of
such principal, interest and such other payments, charges and costs (with
interest at the Default Rate) from the proceeds of the sale of the Mortgaged
Property and the distribution from the estate of Mortgagor.
3.4.2 Any recovery of any judgment by Mortgagee and any levy of any
execution under any judgment upon the Mortgaged Property shall not affect in any
manner or to any extent the Lien and security interests created and evidenced
hereby upon the Mortgaged Property or any part thereof, or any conveyances,
powers, rights and remedies of Mortgagee hereunder, but such conveyances,
powers, rights and remedies shall continue unimpaired as before.
3.4.3 Any moneys collected by Mortgagee under this Section 3.4 shall
be applied in accordance with the provisions of subsection 3.3.3.
SECTION 3.5 Legal Proceedings After an Event of Default.
3.5.1 After the occurrence of any Event of Default and immediately
upon the commencement of any action, suit or legal proceedings to obtain
judgment for the Secured Obligations or any part thereof, or of any proceedings
to foreclose the Lien and security interest created and evidenced hereby or
otherwise enforce the provisions of this Mortgage or of any other proceedings in
aid of the enforcement of this Mortgage, Mortgagor shall enter its voluntary
appearance in such action, suit or proceeding.
3.5.2 Upon the occurrence and during the continuance of an Event of
Default, Mortgagee shall be entitled forthwith as a matter of right,
concurrently or independently of any other right or remedy hereunder either
before or after declaring the Secured Obligations or any part thereof to be due
and payable, to the appointment of a receiver without giving notice to any party
and without regard to the adequacy or inadequacy of any security for the Secured
Obligations or the solvency or insolvency of any person or entity then legally
or equitably liable for the Secured Obligations or any portion thereof.
Mortgagor hereby consents to the appointment of such receiver. Notwithstanding
the appointment of any receiver,
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Mortgagee shall be entitled as pledgee to the possession and control of any
cash, deposits or instruments at the time held by or payable or deliverable
under the terms of the Credit Agreement to Mortgagee.
3.5.3 Mortgagor shall not (i) at any time insist upon, or plead, or
in any manner whatsoever claim or take any benefit or advantage of any stay or
extension or moratorium law, any exemption from execution or sale of the
Mortgaged Property or any part thereof, wherever enacted, now or at any time
hereafter in force, which may affect the covenants and terms of performance of
this Mortgage, (ii) claim, take or insist on any benefit or advantage of any law
now or hereafter in force providing for the valuation or appraisal of the
Mortgaged Property, or any part thereof, prior to any sale or sales of the
Mortgaged Property which may be made pursuant to this Mortgage, or pursuant to
any decree, judgment or order of any court of competent jurisdiction or (iii)
after any such sale or sales, claim or exercise any right under any statute
heretofore or hereafter enacted to redeem the property so sold or any part
thereof. To the extent permitted by applicable law, Mortgagor hereby expressly
(i) waives all benefit or advantage of any such law or laws, including, without
limitation, any statute of limitations applicable to this Mortgage, (ii) waives
any and all rights to trial by jury in any action or proceeding related to the
enforcement of this Mortgage, (iii) waives any objection which it may now or
hereafter have to the laying of venue of any action, suit or proceeding brought
in connection with this Mortgage and further waives and agrees not to plead that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum and (iv) covenants not to hinder, delay or impede the
execution of any power granted or delegated to Mortgagee by this Mortgage but to
suffer and permit the execution of every such power as though no such law or
laws had been made or enacted. Mortgagee shall not be liable for any incorrect
or improper payment made pursuant to this Article III in the absence of gross
negligence or willful misconduct.
SECTION 3.6 Remedies Not Exclusive. No remedy conferred upon or
reserved to Mortgagee by this Mortgage is intended to be exclusive of any other
remedy or remedies, and each and every such remedy shall be cumulative and shall
be in addition to every other remedy given under this Mortgage or now or
hereafter existing at law or in equity. Any delay or omission of Mortgagee to
exercise any right or power accruing on any Event of Default shall not impair
any such right or power and shall not be construed to be a waiver of or
acquiescence
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in any such Event of Default. Every power and remedy given by this Mortgage
may be exercised from time to time concurrently or independently, when and as
often as may be deemed expedient by Mortgagee in such order and manner as
Mortgagee, in its sole discretion, may elect. If Mortgagee accepts any moneys
required to be paid by Mortgagor under this Mortgage after the same become
due, such acceptance shall not constitute a waiver of the right either to
require prompt payment, when due, of all other sums secured by this Mortgage
or to declare an Event of Default with regard to subsequent defaults. If
Mortgagee accepts any moneys required to be paid by Mortgagor under this
Mortgage in an amount less than the sum then due, such acceptance shall be
deemed an acceptance on account only and on the condition that it shall not
constitute a waiver of the obligation of Mortgagor to pay the entire sum then
due, and Mortgagor's failure to pay the entire sum then due shall be and
continue to be a default hereunder notwithstanding acceptance of such amount
on account.
ARTICLE IV
CERTAIN DEFINITIONS
The following terms shall have the following respective meanings:
"Cost of Construction" means the sum, so far as it relates to the
reconstructing, renewing, restoring or replacing of the Improvements, of (i)
obligations incurred or assumed by Mortgagor or undertaken by tenants
pursuant to the terms of the Leases for labor, materials and other expenses
and to contractors, builders and materialmen; (ii) the cost of contract bonds
and of insurance of all kinds that may reasonably be deemed by Mortgagor to
be desirable or necessary during the course of construction; (iii) the
expenses incurred or assumed by Mortgagor for test borings, surveys,
estimates, any Plans and Specifications and preliminary investigations
therefor or, and for supervising construction, as well as for the performance
of all other duties required by or reasonably necessary for proper
construction; (iv) ad valorem property taxes levied upon the Premises during
performance of any Restoration; and (v) any costs or other charges in
connection with obtaining title insurance and counsel opinions that may be
required or necessary in connection with a Restoration.
"Governmental Authority" shall mean any federal, state, local or
foreign court, agency, authority, board, bu-
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reau, commission, department, office or instrumentality of any nature whatsoever
or any governmental or quasi-governmental unit, whether now or hereafter in
existence, or any officer or official thereof, having jurisdiction over the
Mortgagor or the Mortgaged Property.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Severability of Provisions. Any provision of this
Mortgage which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 5.2 Notices. Unless otherwise provided herein or in the
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, if
to Mortgagor or Mortgagee, addressed to it at the address set forth in the
Credit Agreement, or as to either party at such other address as shall be
designated by such party in a written notice to the other party complying as to
delivery with the terms of this Section 5.2; provided, however, that notices to
Mortgagee shall not be effective until received by Mortgagee.
SECTION 5.3 Covenants To Run with the Land. All of the grants,
covenants, terms, provisions and conditions in this Mortgage shall run with the
Land and shall apply to, and bind the successors and assigns of, Mortgagor. If
there shall be more than one mortgagor, the covenants and warranties hereof
shall be joint and several.
SECTION 5.4 Headings. The Section headings used in this Mortgage are
for convenience of reference only and shall not affect the construction of this
Mortgage.
SECTION 5.5 Limitation on Interest Payable. It is the intention of
the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Mortgage is a part. All
agreements between Mortgagor and Mortgagee whether now existing or hereafter
arising and whether oral or written, are hereby ex-
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pressly limited so that in no contingency or event whatsoever shall the amount
paid or agreed to be paid by Mortgagor for the use, forbearance or detention of
the money to be loaned under the Credit Agreement or any related document, or
for the payment or performance of any covenant or obligation contained herein or
in the Credit Agreement or any related document, exceed the maximum amount
permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any such provision, at the time
performance of such provision shall be due, shall involve exceeding the limit of
validity prescribed by law, then the obligation to be fulfilled shall be reduced
to the limit of such validity. If under any circumstances Mortgagor shall have
paid an amount deemed interest by applicable law, which would exceed the highest
lawful rate, such amount that would be excessive interest under applicable usury
laws shall be applied to the reduction of the principal amount owing in respect
of the Secured Obligations and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of principal and any other amounts
due hereunder, the excess shall be refunded to Mortgagor. All sums paid or
agreed to be paid for the use, forbearance or detention of the principal under
any extension of credit by Mortgagee shall, to the extent permitted by
applicable law, and to the extent necessary to preclude exceeding the limit of
validity prescribed by law, be amortized, prorated, allocated and spread from
the date of this Mortgage until payment in full of the Secured Obligations so
that the actual rate of interest on account of such principal amounts is uniform
throughout the term hereof.
SECTION 5.6 Indemnity. Mortgagor agrees to indemnify, pay and hold
harmless Mortgagee and each of the Secured Parties and the officers, directors,
employees, agents and Affiliates of Mortgagee and each of the Secured Parties
(collectively called the "Indemnitees") from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs (including, without limitation, settlement costs), expenses or
disbursements of any kind or nature whatsoever (including, without limitation,
reasonable fees and disbursements of counsel for such Indemnitees in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not such Indemnitee shall be designated a party thereto),
which may be imposed on, incurred by or asserted against that Indemnities, in
any manner relating to or arising out of this Mortgage or any other Loan
Document (including, without limitation, any misrepresentation by Mortgagor in
this Mortgage or any other Loan Document) (the "Indemnified Li-
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abilities"); provided, however, that Mortgagor shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Liabilities if it has been
determined by a final decision (after all appeals and the expiration of time to
appeal) by a court of competent jurisdiction that such Indemnified Liability
arose from the gross negligence or willful misconduct of that Indemnitee. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, Mortgagor shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them. The obligations of Mortgagor contained in this Section 5.6 shall
survive the termination of this Mortgage and the discharge of Mortgagor's other
obligations under this Mortgage and the other Loan Documents. Any amount paid by
any Indemnitee as to which such Indemnitee has the right to reimbursement shall
constitute Secured Obligations secured by the Mortgaged Property.
SECTION 5.7 GOVERNING LAW; TERMS. THIS MORTGAGE SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE IN WHICH THE PREMISES ARE LOCATED, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE
SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
MORTGAGED PROPERTY ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN SUCH
STATE. MORTGAGOR AGREES THAT SERVICE OF PROCESS IN ANY PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PAID, TO MORTGAGOR AT ITS ADDRESS
PROVIDED FOR IN SECTION 5.2 HEREOF EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY MORTGAGOR REFUSES TO ACCEPT
SERVICE, MORTGAGOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF MORTGAGEE TO BRING
PROCEEDINGS AGAINST MORTGAGOR IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 5.8 No Merger. The rights and estate created by this
Mortgage shall not, under any circumstances, be held to have merged into any
other estate or interest now owned or hereafter acquired by Mortgagee unless
Mortgagee shall have consented to such merger in writing.
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SECTION 5.9 Modification in Writing. No amendment, modification,
supplement, termination or waiver of or to any provision of this Mortgage, nor
consent to any departure by Mortgagor therefrom, shall be effective unless the
same shall be done in accordance with the terms of the Credit Agreement and
unless in writing and signed by Mortgagee. Any amendment, modification or
supplement of or to any provision of this Mortgage, any waiver of any provision
of this Mortgage and any consent to any departure by Mortgagor from the terms of
any provision of this Mortgage shall be effective only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Mortgage or any other Loan Document, no notice to
or demand on Mortgagor in any case shall entitle Mortgagor to any other or
further notice or demand in similar or other circumstances.
SECTION 5.10 No Credit for Payment of Taxes or Impositions.
Mortgagor shall not be entitled to any credit against the principal, premium, if
any, or interest payable under the Credit Agreement, and Mortgagor shall not be
entitled to any credit against any other sums which may become payable under the
terms thereof or hereof, by reason of the payment of any tax or other
impositions on the Mortgaged Property or any part thereof.
SECTION 5.11 Stamp and Other Taxes. Subject to the provisions of
subsection 1.5.5 relating to permitted contests, Mortgagor shall pay any United
States documentary stamp taxes, with interest and fines and penalties, and any
mortgage recording taxes, with interest and fines and penalties, that may
hereafter be levied, imposed or assessed under or upon or by reason of this
Mortgage or the Secured Obligations or any instrument or transaction affecting
or relating to either thereof and in default thereof Mortgagee may advance the
same and the amount so advanced shall be payable by Mortgagor to Mortgagee
within ten (10) days after demand therefor, together with interest thereon at
the Default Rate.
SECTION 5.12 Estoppel Certificates. Mortgagor shall, from time to
time, upon thirty (30) days' prior written request of Mortgagee, execute,
acknowledge and deliver to Mortgagee a certificate signed by an authorized
officer or officers stating that this Mortgage, the Credit Agreement and the
other Loan Documents are unmodified and in full force and effect (or, if there
have been modifications, that this Mortgage, the Credit Agreement or such Loan
Document, as applicable, is in full force and effect as modified and setting
forth
<PAGE>
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such modifications) and stating the date to which principal and interest have
been paid on the Loans.
SECTION 5.13 Additional Security. Without notice to or consent of
Mortgagor and without impairment of the Lien and rights created by this
Mortgage, Mortgagee may accept (but Mortgagor shall not be obligated to furnish)
from Mortgagor or from any other Person or Persons, additional security for the
Secured Obligations. Neither the giving of this Mortgage nor the acceptance of
any such additional security shall prevent Mortgagee from resorting, first, to
such additional security, and, second, to the security created by this Mortgage
without affecting Mortgagee's Lien and rights under this Mortgage.
SECTION 5.14 Release. The Mortgaged Property shall be released from
the Lien of this Mortgage in accordance with the provisions of the Credit
Agreement or at such time as all Secured Obligations have been paid in full and
the Commitments of the Lenders to make any Loan or issue any Letter of Credit
under the Credit Agreement shall have expired or been sooner terminated.
Mortgagee, on the written request and at the expense of Mortgagor, will execute
and deliver such proper instruments of release and satisfaction or assignment as
may reasonably be requested to evidence such release or assignment, and any such
instrument, when duly executed by Mortgagee and duly recorded by Mortgagor in
the places where this Mortgage is recorded, shall conclusively evidence the
release or assignment of this Mortgage.
SECTION 5.15 Certain Expenses of Mortgagee. If any action, suit or
other proceeding affecting the Mortgaged Property or any part thereof be
commenced, in which action, suit or proceeding Mortgagee is made a party or
participates or in which the right to use the Mortgaged Property or any part
thereof is threatened, or in which it becomes necessary in the judgment of
Mortgagee to defend or uphold the Lien of this Mortgage (including, without
limitation, any action, suit or proceeding to establish or uphold the compliance
of the Improvements with any Requirements of Law), then all amounts paid or
incurred by Mortgagee for the expense of any such action, suit or other
proceeding or to protect its rights therein (whether or not it is made or
becomes a party thereto) or otherwise to enforce or defend the rights and Lien
created by this Mortgage, shall be paid by Mortgagor upon demand together with
interest at the Default Rate from the date of the payment or incurring thereof
to the date of repayment, and any such amount and the interest thereon shall be
a Lien on the Mortgaged Property, prior to any right, or right to, interest
<PAGE>
-43-
in, or claim upon the Mortgaged Property attaching or accruing subsequent to or
otherwise subordinate to the Lien of this Mortgage, and the same shall be deemed
to be secured hereby. All other amounts paid, advanced or incurred by Mortgagee
in order to secure and protect the Lien of this Mortgage or other security
provided hereunder shall be a like Lien on the Mortgaged Property and be deemed
to be secured hereby.
SECTION 5.16 Expenses of Collection. Mortgagor will upon demand pay
to Mortgagee the amount of any and all expenses, including the fees and expenses
of its counsel and the fees and expenses of any experts and agents, which
Mortgagee may incur in connection with (i) the collection of the Secured
Obligations, (ii) the enforcement and administration of this Mortgage, (iii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Mortgaged Property, (iv) the exercise or
enforcement of any of the rights of Mortgagee or any Secured Party hereunder or
(v) the failure by Mortgagor to perform or observe any of the provisions hereof.
All amounts payable by Mortgagor under this Section 5.16 shall be due upon
demand and shall be part of the Secured Obligations. Mortgagor's obligations
under this Section shall survive the termination of this Mortgage and the
discharge of Mortgagor's other obligations hereunder.
SECTION 5.17 Business Days. In the event any time period or any date
provided in this Mortgage ends or falls on a day other than a Business Day, then
such time period shall be deemed to end and such date shall be deemed to fall on
the next succeeding Business Day, and performance herein may be made on such
Business Day, with the same force and effect as if made on such other day.
SECTION 5.18 Relationship. The relationship of Mortgagee to
Mortgagor hereunder is strictly and solely that of lender and borrower and
mortgagor and mortgagee and nothing contained in the Credit Agreement, this
Mortgage or any other document or instrument now existing and delivered in
connection therewith or otherwise in connection with the Secured Obligations is
intended to create, or shall in any event or under any circumstance be construed
as creating a partnership, joint venture, tenancy-in-common, joint tenancy or
other relationship of any nature whatsoever between Mortgagee and Mortgagor
other than as lender and borrower and mortgagor and mortgagee.
<PAGE>
-44-
SECTION 5.19 Concerning Mortgagee.
5.19.1 Mortgagee shall be entitled to rely upon any written notice,
statement, certificate, order or other document or any telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person, and, with respect to all matters pertaining to this
Mortgage and its duties hereunder, upon advice of counsel selected by it.
5.19.2 With respect to any of its rights and obligations as a
Lender, Mortgagee shall have and may exercise the same rights and powers
hereunder. The term "Lenders," "Lender" or any similar terms shall, unless the
context clearly otherwise indicates, include Mortgagee in its individual
capacity as a Lender. Mortgagee may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with Mortgagor
or any entity related to or affiliated with Mortgagor to the same extent as if
Mortgagee were not acting as administrative agent.
5.19.3 If any item of Mortgaged Property also constitutes collateral
granted to Mortgagee under any other deed of trust, mortgage, security
agreement, pledge or instrument of any type, in the event of any conflict
between the provisions of this Mortgage and the provisions of such other deed of
trust, mortgage, security agreement, pledge or instrument of any type in respect
of such collateral, Mortgagee, in its sole discretion, shall select which
provision or provisions shall control.
5.19.4 Mortgagee has been appointed as Administrative Agent pursuant
to the Credit Agreement. The actions of Mortgagee hereunder are subject to the
provisions of the Credit Agreement. Mortgagee shall have the right hereunder to
make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking action (including, without
limitation, the release or substitution of Mortgaged Property), in accordance
with this Mortgage and the Credit Agreement. Mortgagee may resign and a
successor Mortgagee may be appointed in the manner provided in the Credit
Agreement. Upon the acceptance of any appointment as Mortgagee by a successor
Mortgagee, that successor Mortgagee shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Mortgagee
under this Mortgage, and the retiring Mortgagee shall thereupon be discharged
from its duties and obligations under this Mortgage. After any retiring
Mortgagee's resignation, the provi-
<PAGE>
-45-
sions of this Mortgage shall inure to its benefit as to any actions taken or
omitted to be taken by it under this Mortgage while it was Mortgagee.
SECTION 5.20 Future Advances. This Mortgage may secure future
advances. The maximum aggregate amount of all advances of principal under the
Credit Agreement that may be outstanding hereunder at any time is $48,000,000.
SECTION 5.21 Waiver of Stay.
5.21.1 Mortgagor agrees that in the event that Mortgagor or any
property or assets of Mortgagor shall hereafter become the subject of a
voluntary or involuntary proceeding under the Bankruptcy Code or Mortgagor shall
otherwise be a party to any federal or state bankruptcy, insolvency, moratorium
or similar proceeding to which the provisions relating to the automatic stay
under Section 362 of the Bankruptcy Code or any similar provision in any such
law is applicable, then, in any such case, whether or not Mortgagee has
commenced foreclosure proceedings under this Mortgage, Mortgagee shall be
entitled to relief from any such automatic stay as it relates to the exercise of
any of the rights and remedies (including, without limitation, any foreclosure
proceedings) available to Mortgagee as provided in this Mortgage or in any other
Security Document.
5.21.2 Mortgagee shall have the right to petition or move any court
having jurisdiction over any proceeding described in subsection 5.21.1 for the
purposes provided therein, and Mortgagor agrees (i) not to oppose any such
petition or motion and (ii) at Mortgagor's sole cost and expense, to assist and
cooperate with Mortgagee, as may be requested by Mortgagee from time to time, in
obtaining any relief requested by Mortgagee, including, without limitation, by
filing any such petitions supplemental petitions, requests for relief,
documents, instruments or other items from time to time requested by Mortgagee
or any such court.
SECTION 5.22 Continuing Security Interest; Assignment. This Mortgage
shall create a continuing security interest in the Mortgaged Property and shall
(i) be binding upon Mortgagor, its successors and assigns and (ii) inure,
together with the rights and remedies of Mortgagee hereunder, to the benefit of
Mortgagee and the other Secured Parties and each of their respective successors,
transferees and assigns; no other Persons (including, without limitation, any
other creditor of Mortgagor) shall have any interest herein or any right or
<PAGE>
-46-
benefit with respect hereto. Without limiting the generality of the foregoing
clause (ii), any Lender may assign or otherwise transfer any indebtedness held
by it secured by this Mortgage to any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Lender, herein or otherwise, subject however, to the provisions of the Credit
Agreement.
SECTION 5.23 Obligations Absolute. All obligations of Mortgagor
hereunder shall be absolute and unconditional irrespective of:
(i) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Mortgagor or any
other Credit Party;
(ii) any lack of validity or enforceability of the Credit Agreement,
any Letter of Credit, any other Loan Document, or any other agreement or
instrument relating thereto;
(iii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Letter of Credit, any other Loan Document, or any other
agreement or instrument relating thereto;
(iv) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(v) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect of this Mortgage or any
other Loan Document except as specifically set forth in a waiver granted
pursuant to the provisions of Section 5.9 hereof; or
(vi) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, Mortgagor.
SECTION 5.24 Mortgagee's Right To Sever Indebtedness.
5.24.1 Mortgagor acknowledges that (a) the Mortgaged Property does
not constitute the sole source of security
<PAGE>
-47-
for the payment and performance of the Secured Obligations and that the Secured
Obligations are also secured by property of Mortgagor and its Affiliates in
other jurisdictions (all such property, collectively, the "Collateral"), (b) the
number of such jurisdictions and the nature of the transaction of which this
instrument is a part are such that it would have been impracticable for the
parties to allocate to each item of Collateral a specific loan amount and to
execute in respect of such item a separate credit agreement or hedge agreement
and (c) Mortgagor intends that Mortgagee have the same rights with respect to
the Mortgaged Property, in foreclosure or otherwise, that Mortgagee would have
had if each item of Collateral had been secured, mortgaged or pledged pursuant
to a separate credit agreement or hedge agreement, mortgage or security
instrument. In furtherance of such intent, Mortgagor agrees that Mortgagee may
at any time by notice (an "Allocation Notice") to Mortgagor allocate a portion
(the "Allocated Indebtedness") of the Secured Obligations to the Mortgaged
Property and sever from the remaining Secured Obligations the Allocated
Indebtedness. From and after the giving of an Allocation Notice with respect to
the Mortgaged Property, the Secured Obligations hereunder shall be limited to
the extent set forth in the Allocation Notice and (as so limited) shall, for all
purposes, be construed as a separate loan obligation of Mortgagor unrelated to
the other transactions contemplated by the Credit Agreement, any other Loan
Document or any document related to any thereof. To the extent that the proceeds
on any foreclosure of the Mortgaged Property shall exceed the Allocated
Indebtedness, such proceeds shall belong to Mortgagor and shall not be available
hereunder to satisfy any Secured Obligations of Mortgagor other than the
Allocated Indebtedness. In any action or proceeding to foreclose the Lien of
this Mortgage or in connection with any power of sale foreclosure or other
remedy exercised under this Mortgage commenced after the giving by Mortgagee of
an Allocation Notice, the Allocation Notice shall be conclusive proof of the
limits of the Secured Obligations hereby secured, and Mortgagor may introduce,
by way of defense or counterclaim, evidence thereof in any such action or
proceeding. Notwithstanding any provision of this Section 5.24, the proceeds
received by Mortgagee pursuant to this Mortgage shall be applied by Mortgagee in
accordance with the provisions of subsection 3.3.3 hereof.
5.24.2 Mortgagor hereby waives to the greatest extent permitted
under law the right to a discharge of any of the Secured Obligations under any
statute or rule of law now or hereafter in effect which provides that
foreclosure of the Lien of this Mortgage or other remedy exercised under this
<PAGE>
-48-
Mortgage constitutes the exclusive means for satisfaction of the Secured
Obligations or which makes unavailable a deficiency judgment or any subsequent
remedy because Mortgagee elected to proceed with a power of sale foreclosure or
such other remedy or because of any failure by Mortgagee to comply with laws
that prescribe conditions to the entitlement to a deficiency judgment. In the
event that, notwithstanding the foregoing waiver, any court shall for any reason
hold that Mortgagee is not entitled to a deficiency judgment, Mortgagor shall
not (a) introduce in any other jurisdiction such judgment as a defense to
enforcement against Mortgagor of any remedy in the Credit Agreement or any other
Loan Document or (b) seek to have such judgment recognized or entered in any
other jurisdiction, and any such judgment shall in all events be limited in
application only to the state or jurisdiction where rendered.
5.24.3 In the event any instrument in addition to the Allocation
Notice is necessary to effectuate the provisions of this Section 5.24,
including, without limitation, any amendment to this Mortgage, any substitute
promissory note or affidavit or certificate of any kind, Mortgagee may execute,
deliver or record such instrument as the attorney-in-fact of Mortgagor. Such
power of attorney is coupled with an interest and is irrevocable.
5.24.4 Notwithstanding anything set forth herein to the contrary,
the provisions of this Section 5.24 shall be effective only to the maximum
extent permitted by law.
<PAGE>
-S1-
IN WITNESS WHEREOF, Mortgagor has caused this Mortgage to be duly
executed and delivered under seal the day and year first above written.
________________________________________
Mortgagor
By:_____________________________________
Name:
Title:
<PAGE>
ACKNOWLEDGMENT
STATE OF ____________)
) ss.
COUNTY OF ___________)
I, the undersigned, a notary public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that ________________________________
personally known to me to be the ______________________ of _________________, a
_____________ corporation, and personally known to me to be the same person
whose name is subscribed to the foregoing instrument, appeared before me this
day in person and acknowledged that as such __________________________, he/she
signed and delivered the said instrument and caused the corporate seal of said
corporation to be affixed thereto, pursuant to authority given by the Board of
Directors of said corporation, as his/her free and voluntary act and as the free
and voluntary act and deed of said corporation, for the uses and purposes
therein set forth.
GIVEN under my hand and official seal this day of ____________,
19_____
_____________________________________
Notary Public
My commission expires:________________
<PAGE>
Schedule A
[Legal Description]
[to come from title policy]
<PAGE>
Schedule B
(Prior Liens)
[to come from title policy]
<PAGE>
[EXHIBIT E]
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of March 19,
1999 (as amended from time to time, the "Credit Agreement"), among PRECISION
PARTNERS INC., a Delaware Corporation (the "Borrower"), the Guarantors from time
to time thereunder, the several banks and other financial institutions or
entities from time to time parties to the Credit Agreement (the "Lenders"),
CITICORP U.S.A., INC., as Administrative Agent, NATIONSBANK, N.A., as
Syndication Agent, and SUNTRUST BANK, ATLANTA, as Documentation Agent.
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement.
11. The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth below (but not prior
to the registration of the information contained herein in the Register pursuant
to Section 10.6(d) of the Credit Agreement), the interests set forth below (the
"Assigned Interest") in the Assignor's rights and obligations under the Credit
Agreement, including, without limitation, the amounts and percentages set forth
below of the Loans owing to the Assignor which are outstanding on the Effective
Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound
by all the representations, warranties and agreements set forth in Section
10.6(b) and (c) of the Credit Agreement, a copy of which has been received by
each such party. From and after the Effective Date (i) the Assignee shall be a
party to and be bound by the provisions of the Credit Agreement and, to the
extent of the interests assigned by this Assignment and Acceptance, have the
rights and obligations of a Lender thereunder and under the Loan Documents and
(ii) the Assignor shall, to the extent of the interests assigned by this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
12. The Assignor hereby instructs the Administrative Agent to make
all payments from and including the Effective Date hereof in respect of the
interest assigned hereby, directly to the Assignee. The Assignor and the
Assignee agree that all interest and fees accrued up to, but not including, the
Effective Date of the assignment and delegation being made hereby are the
property of the Assignor, and not the Assignee. The Assignee agrees that, upon
receipt of any such interest or fees accrued up to the Effective Date, or any
other payments in respect of the interest assigned hereby applicable to the
period prior to the Effective Date, the Assignee will promptly remit the same to
the Assignor in the same funds received by the Assignee.
13. The Assignor and the Assignee agree that all interest and fees
accruing from and after the Effective Date of the assignment and delegation
being made hereby are the property of the Assignee, and not the Assignor. The
Assignor agrees that, upon receipt of any such interest or fees accruing from
and after the Effective Date or any other payments in respect of the interest
assigned hereby applicable to the period from and after the Effected Date, the
Assignor will promptly remit the same to the Assignee in the same funds received
by the Assignor.
E-1
<PAGE>
14. This assignment shall be made without recourse to or warranty by
the Assignor, except as set forth herein. Assignee represents and warrants that
it is a Person to which assignments are permitted pursuant to Section 10.6 of
the Credit Agreement. Assignor represents and warrants, as of the Effective
Date, that it is the legal and beneficial owner of the interest being assigned
and delegated by it hereunder and that such interest is free and clear of any
pledge, encumbrance or other adverse claim or interest created by Assignor.
15. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is organized under the
laws of a jurisdiction outside the United States, the forms specified in Section
2.15(d) of the Credit Agreement, duly completed and executed by such Assignee,
and (ii) if the Assignee is not already a Lender under the Credit Agreement, an
Administrative Questionnaire in the form of Annex I hereto.
16. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment: [ ]
Legal Name of Assignor: [ ]
Legal Name of Assignee: [ ]
Assignee's Address for Notices:
[
]
Phone: [ ]
Fax: [ ]
Attention: [ ]
Effective Date of Assignment: [ ]
Term Percentage
Term Commitment Principal Amount Assigned (to 8 decimal places)
- --------------- ------------------------- ---------------------
[$ ] [ ]
Revolving Percentage
Revolving Commitment Principal Amount Assigned (to 8 decimal places)
- -------------------- ------------------------- ---------------------
[$ ] [ ]
E-2
<PAGE>
The terms set forth above are
hereby agreed to: Accepted(3)
[ASSIGNOR], CITICORP U.S.A., INC., as Administrative Agent
as Assignor
By: _____________________ By: ______________________________
Name: Name
Title: Title:
[ASSIGNEE], PRECISION PARTNERS INC.
as Assignee
By: _____________________ By: ______________________________
Name: Name
Title: Title:
- ---------------------
(3) To be completed to the extent consents are required under Section 10.6 of
the Credit Agreement.
E-3
<PAGE>
ANNEX I
ADMINISTRATIVE QUESTIONNAIRE
BORROWER: Precision Partners Inc.
OPERATIONS LETTER OF CREDIT LEGAL
LOAN CONTACT CONTACT COUNSEL
---- ------- ------- -------
OFFICER
-------
NAME: __________ __________ __________ __________
___ ___ ___ ___
TITLE: __________ __________ __________ __________
___ ___ ___ ___
ADDRESS: __________ __________ __________ __________
___ ___ ___ ___
__________ __________ __________ __________
___ ___ ___ ___
__________ __________ __________ __________
___ ___ ___ ___
TELEPHONE: __________ __________ __________ __________
___ ___ ___ ___
FACSIMILE #: __________ __________ __________ __________
___ ___ ___ ___
E-MAIL __________ __________ __________ __________
ADDRESS: ___ ___ ___ ___
[ASSIGNEE]
By: ____________________________________
Name:
Title:
E-4
<PAGE>
ANNEX B
PAYMENT INSTRUCTIONS
BORROWER: Precision Partners Inc.
U.S. DOLLARS (FED WIRE INSTR)
-----------------------------
Pay to: _____________________________
_____________________________
(Name of Bank)
_____________________________
(Address)
_____________________________
(City, State, Zip)
__________ _____________
(ABA#) (Account #)
_____________________________
(Attention)
PAYMENT INSTRUCTIONS
U.S. DOLLARS (FED WIRE INSTRUCTIONS)
------------------------------------
Pay to: [ ]
[ ]
ABA #
Attn: Commercial Lending Services Dept.
Ref: [ ]
[ASSIGNEE]
By: ____________________________________
Name:
Title:
E-5
<PAGE>
EXHIBIT F
[Letterhead of Jones, Day, Reavis & Pogue]
March 19, 1999
Citicorp U.S.A., Inc., as Administrative Agent,
and the Lenders Referred to Below
399 Park Avenue
New York, New York 10022-4600
Re: Credit Agreement among Calbrit Design, Inc., Certified
Fabricators, Inc., Galaxy Industries Corporation, General
Automation, Inc., Mid State Machine Products, Nationwide
Precision Products Corp., Precision Partners Holding Company,
Precision Partners, Inc., the Lenders named therein, and
Citicorp U.S.A., Inc., as Administrative Agent, NationsBank,
N.A., as Syndication Agent and Sun Trust Bank, Atlanta, as
Documentation Agent
Ladies and Gentlemen:
We have acted as special New York, California, Illinois and Texas counsel
for Precision Partners, Inc., a Delaware corporation (the "Borrower"), Calbrit
Design, Inc., a California corporation ("Calbrit Design"), Certified
Fabricators, Inc., a California corporation ("Certified Fabricators"), Galaxy
Industries Corporation, a Michigan corporation ("Galaxy Industries"), General
Automation, Inc., an Illinois corporation ("General Automation"), Mid State
Machine Products, a Maine corporation ("Mid State Machine"), Nationwide
Precision Products Corp., a New York corporation ("Nationwide") and Precision
Partners Holding Company, a Delaware corporation ("Precision Holding"), in
connection with the Credit Agreement, dated as of the date hereof (the "Credit
Agreement"), among the Borrower, Calbrit Design, Certified Fabricators, Galaxy
Industries, General Automation, Mid State Machine, Nationwide, Precision
Holding, the lenders named therein (collectively, the "Lenders"), Citicorp
U.S.A., Inc., as administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), NationsBank. N.A., as Syndication Agent, and Sun Trust
Bank, Atlanta, as Documentation Agent.
Calbrit Design, Certified Fabricators, Galaxy Industries, General
Automation, Mid State Machine and Nationwide are referred to herein collectively
as the "Precision Subsidiaries" and each individually as a "Precision
Subsidiary." The Precision Subsidiaries and Precision Holding are referred to as
the "Precision Parties" and each as a "Precision Party." The Borrower and the
Precision Parties are referred to herein collectively as the "Loan Parties" and
each individually as a "Loan Party."
This opinion letter is delivered to you pursuant to Section 5.1(o) of the
Credit Agreement. Capitalized terms used herein and not otherwise defined herein
have the meanings assigned to such terms in the Credit Agreement. The Uniform
Commercial Code, as amended and in effect in the State of New York, is referred
to herein as the "NY UCC." The Uniform Commercial Code, as
<PAGE>
amended and in effect in the State of California, is referred to herein as the
"CA UCC." The Uniform Commercial Code, as amended and in effect in the State of
Illinois, is referred to herein as the "IL UCC." The Uniform Commercial Code, as
amended and in effect in the State of Texas, is referred to herein as the "TX
UCC." The NY UCC, the CA UCC, the IL UCC and TX UCC, as applicable, are referred
to herein collectively as the "UCC" and section references to the UCC used
herein are to the comparable sections of the NY UCC, CA UCC, IL UCC and TX UCC.
With your permission, all assumptions and statements of reliance herein
have been made without any independent investigation or verification on our part
except to the extent otherwise expressly stated, and we express no opinion with
respect to the subject matter or accuracy of the assumptions or items upon which
we have relied. This opinion letter is subject to, and is to be construed in
accordance with, the principles and limitations set forth in the Special Report
by the TriBar Opinion Committee, U.C.C. Security Interest Opinions, 49 Bus. Law.
362 (1993).
In connection with the opinions expressed herein, we have examined such
documents, records and matters of law as we have deemed necessary for the
purposes of this opinion. We have examined, among other documents, the
following:
(a) An executed copy of the Credit Agreement;
(b) An executed copy of the Holdco Guarantee;
(c) An executed copy of the Guarantee by each Precision Subsidiary;
(d) An executed copy of the Security Agreement;
(e) An executed copy of the Securities Pledge Agreement;
(f) An executed copy of the Collateral Assignment of Sublease,
Subordination, Non-disturbance and Attornment Agreement assigning
the sublease of the premises located at 200 Tech Park Drive,
Henrietta, New York (the "New York Collateral Assignment");
(g) An executed copy of the respective mortgages encumbering the
premises located at 6291 Burnham Avenue, Buena Park, California,
6351 Burham Avenue, Buena Park, California, 6530 Altura Blvd., Buena
Park, California and 16031 Carmenita Road, Cerritos, California,
respectively (the "California Mortgages");
(h) An executed copy of the respective mortgages encumbering the
premises located at 3300 Oakton Street, Skokie, Illinois and 8124
North Ridgeway Avenue, Skokie, Illinois, respectively (the "Illinois
Mortgages");
(i) Unfiled copies of certain UCC-1 financing statements naming the
Borrower (collectively, the "Borrower Financing Statements") or a
Precision Party (collectively, the "Precision Party Financing
Statements," and together with the Borrower Financing Statements,
the "Financing Statements"), as the case may be, as debtor and the
Administrative Agent as secured party, forms of which are
2
<PAGE>
attached hereto as Annex A, which Borrower Financing
Statements we understand will be filed in the office of the
Secretary of State of Texas (the "Borrower Filing Office") and
which Precision Party Financing Statements we understand will be
filed, as the case may be, in the offices shown on Annex C
attached hereto (collectively, the "Precision Party Filing
Offices" and collectively with the Borrower Filing Office, the
"Filing Offices"); and
(j) The respective Officer's Certificates of the Borrower and each of
the Loan Parties delivered to us in connection with this opinion
letter (as to each such company, the "Officer's Certificate," and,
collectively, the "Officer's Certificates").
The documents referred to in items (a) through (e) above are referred to
herein collectively as the "Non-Mortgage Documents." The documents referred to
in items (f) through (h) above are referred to herein collectively as the
"Mortgages." The documents referred to in items (a) through (h) above are
referred to herein collectively as the "Documents."
In all such examinations, we have assumed the legal capacity of all
natural persons executing documents, the genuineness of all signatures, the
authenticity of original and certified documents and the conformity to original
or certified copies of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to the opinions expressed
herein, we have relied upon, and assume the accuracy of, representations and
warranties contained in the Documents and certificates and oral or written
statements and other information of or from representatives of the Loan Parties
and others and assume compliance on the part of all parties to the Documents
with their covenants and agreements contained therein. In connection with the
opinions expressed in clause (a) of paragraph 1 below, we have relied solely
upon certificates of public officials. With respect to the opinions expressed in
clauses (i) and (iii)(A) of paragraph 2 below, our opinions are limited (x) to
our actual knowledge, if any, of the specially regulated business activities and
properties of each Loan Party based solely upon the Officer's Certificate for
such Loan Party and (y) to our review of only those laws and regulations that,
in our experience, are normally applicable to transactions of the type
contemplated by the Documents.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that:
1. Each of the Borrower, Calbrit Design, Certified Fabricators, General
Automation, Nationwide, and Precision Holding (the "Specified Loan Parties" and
each a "Specified Loan Party") (a) is a corporation validly existing and in good
standing under the laws of the state of its formation and (b) has the corporate
power and authority to execute, deliver and perform its obligations under the
Documents to which it is a party. All of the issued and outstanding capital
stock of each Precision Subsidiary is held of record by the Borrower.
2. The execution and delivery by each Specified Loan Party to the
Administrative Agent and the Lenders of the Documents to which such Specified
Loan Party is a party, and the performance of its obligations thereunder and the
granting of the security interests provided for in the Security Agreement, the
Securities Pledge Agreement and the Mortgages to which such Specified Loan Party
is a party have been duly authorized by all necessary corporate action by each
such Specified Loan Party. The execution and delivery to the Administrative
Agent and the
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Lenders by each Loan Party of each of the Documents to which it is a party,
and the performance of its obligations thereunder, and the granting by each
Loan Party of the security interests provided for in the Security Agreement,
the Securities Pledge Agreement and the Mortgages to which such Loan Party is
a party (i) do not require under present law any filing or registration by
any Loan Party, with, or approval, permit, authorization, license or consent
to any Loan Party of, any governmental agency or authority of the State of
New York, the State of California, the State of Delaware pursuant to the
General Corporation Law of the State of Delaware (the "DGCL"), the State of
Texas, the State of Illinois or the United States of America that has not
been made or obtained, except for such filings, registrations, approvals,
permits, authorizations, licenses and consents (A) required in the ordinary
course of business in connection with the performance by any Loan Party of
its obligations under certain covenants contained in the Documents, (B)
required to perfect the security interests and liens created under the
Security Agreement, the Securities Pledge Agreement and the Mortgages, and
(C) required pursuant to securities and other laws that may be applicable to
the disposition of any Collateral, and (ii) do not contravene any provision
of the Certificate of Incorporation or Articles of Association, as the case
may be, or the bylaws of the Specified Loan Parties, and (iii) do not violate
(A) any present law, or present regulation of any governmental agency or
authority, of the States of New York, California, Texas or Illinois or of the
United States of America in each case known by us to be applicable to any
Loan Party or its property, except as disclosed on Schedule 4.4 to the Credit
Agreement, (B) the DGCL or (C) any agreement binding upon any Loan Party or
its respective property, except as disclosed on Schedule 4.4 to the Credit
Agreement, or any court decree or order binding upon any Loan Party or its
respective property (this opinion being limited (x) to those agreements,
decrees or orders listed on Annex B hereto and (y) in that we express no
opinion with respect to any violation not ascertainable from the face of any
such agreement, decree or order, or arising under or based upon any cross
default provision insofar as it relates to a default under an agreement not
listed on Annex B, or arising under or based upon any covenant of a financial
or numerical nature or requiring computation), and (iv) will not result in or
require the creation or imposition of any security interest or lien pursuant
to the provisions of any agreement binding upon any Loan Party on its
properties other than the security interests created by the Security
Agreement, the Securities Pledge Agreement and the Mortgages to which such
Specified Loan Party is a party and any rights of set-off or other liens in
favor of the Administrative Agent or the Lenders arising under any of the
Documents or applicable law (this opinion being limited to those agreements
listed on Annex B).
3. Each of the Documents has been duly executed and delivered on behalf of
each Specified Loan Party that is a party thereto, and each of the Non-Mortgage
Documents and the New York Collateral Assignment constitutes an obligation of
each Loan Party that is a party thereto enforceable against such Loan Party
under the laws of the State of New York in accordance with its terms.
4. The borrowings by the Borrower under the Credit Agreement and the
application of the proceeds thereof as provided in the Credit Agreement will not
violate Regulation U or X of the Board of Governors of the Federal Reserve
System.
5. The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company," or of a "subsidiary company" of a
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"holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
6. Upon the making of the initial loans under the Credit Agreement, the
provisions of the Security Agreement are sufficient to create in favor of the
Administrative Agent for the benefit of the Lenders a valid security interest in
all right, title and interest of the Loan Parties in those items and types of
Pledged Collateral (as defined in the Security Agreement and the Securities
Pledge Agreement) in which a security interest may be created under Article 9 of
the NY UCC (such Pledged Collateral hereinafter called the "Article 9
Collateral").
7. Upon creation of such security interest in the Article 9 Collateral and
due filing of the Financing Statements with the Filing Offices, the
Administrative Agent will have, for the benefit of the Lenders, a perfected
security interest in that portion of the Article 9 Collateral in which a
security interest is perfected by filing a financing statement under the Uniform
Commercial Code as in effect in each of the states where a relevant Filing
Office is located.
8. Upon the making of the initial loans under the Credit Agreement, the
Security Agreement and the Securities Pledge Agreement, together with physical
delivery of the certificated securities identified on Schedule I-A to the
Security Agreement and Schedule I to the Securities Pledge Agreement (the
"Pledged Securities") to the Administrative Agent, for the benefit of the
Lenders, in the State of New York creates in favor of the Administrative Agent,
for the benefit of the Lenders, as security for the Secured Obligations (as
defined in the Security Agreement and the Securities Pledge Agreement) a
perfected security interest under the NY UCC in each Loan Party's right, title
and interest in the Pledged Securities pledged and so delivered by such Loan
Party.
9. Upon the making of the initial loans under the Credit Agreement, the
Security Agreement, together with physical delivery of the instruments
identified in Schedule II to the Security Agreement (the "Pledged Notes") to the
Administrative Agent for the benefit of the Lenders, in the State of New York,
creates in favor of the Administrative Agent, for the benefit of the Lenders, as
security for the Secured Obligations (as defined in the Security Agreement), a
perfected security interest under the NY UCC in each Loan Party's right, title
and interest in the Pledged Notes pledged and so delivered by such Loan Party.
10. The obligations of the Borrower under the Credit Agreement and the
obligations of each Precision Subsidiary under its respective Subsidiary
Guarantee constitute Senior Debt and Guarantor Senior Debt, respectively, as
defined in the Senior Subordinated Indenture.
11. A court of the State of Texas applying Texas law should enforce the
choice of law provisions contained in the Loan Documents and apply the law of
the State of New York to the Loan Documents. The opinion expressed in this
paragraph 11 is based upon Section 35.51 of the Tex. Bus. & Com. Code Ann.,
which became effective on September 1, 1993. To our knowledge, no court has yet
construed this statute, and our opinion is therefore limited by any subsequent
judicial interpretation thereof. For purposes of the opinion expressed in this
paragraph 11, we (i) express no opinion as to the determination of the law
governing any issue relating to the transfer, creation, nature or recordation of
any interest in real property, or the method for foreclosure on real property,
or any issue that a statute of the United States provides is governed by the
laws of another jurisdiction, and (ii) have assumed that (A) the Loan Documents
constitute the
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<PAGE>
valid and binding obligation of each of the parties thereto (other than the
Company and the Guarantors) enforceable against each of such parties in
accordance with its terms, and (B) payments delivered to the Administrative
Agent pursuant to the Credit Agreement will be delivered in the State of New
York, the Administrative Agent is a resident of the State of New York and
maintains its principal office in the State of New York from which it
conducted a substantial part of the negotiations relating to the Loan
Documents and the transactions contemplated thereby, and/or a substantial
part of such negotiations, including the execution of the Loan Documents by
the Administrative Agent, occurred in the State of New York.
12. While we are aware of no case that presents facts identical to those
involved in the transactions contemplated by the Loan Documents, and
consequently cannot provide an unqualified opinion with respect to this matter,
we believe that, in a properly presented case, an Illinois court or a federal
court applying Illinois law would, under the conflict of laws principles
observed by the courts of Illinois, give effect to the parties' choice of the
law of the State of New York set forth in the Loan Documents. In arriving at
this conclusion, we have relied upon Illinois state and federal case law, which
provides that parties to a multijurisdictional transaction are free to designate
the law that will govern any future dispute arising out of the contract.
Wonderlic Agency, Inc. v. Acceleration Corp., 624 F. Supp. 801, 803 (N.D. Ill.
1984); Hofeld v. Nationwide Life Ins. Co., 59 Ill. 2d 522, 529, 322 N.E.2d 454,
458 (Ill. 1975); Fister/Warren v. Basins, Inc., 217 Ill. App. 3d 958, 578 N.E.2d
37, 40 (Ill. App.), appeal denied, 142 Ill. 2d 653, 584 N.E.2d 129 (Ill. 1991).
Courts applying Illinois law have held that express choice of law provisions are
valid and should be enforced unless the choice of law provision contravenes
Illinois public policy or there is no reasonable relationship between the chosen
forum and the parties or the transaction. Mastrobuono v. Shearson Lehman Hutton,
20 F.3d 713, 719 (7th Cir. 1994), rev'd on other grounds, 115 S. Ct. 1212
(1995); Hartford v. Burne Int'l Security Services, 172 Ill. App. 3d 184, 187,
526 N.E.2d 463, 464 (Ill. App. 1988), appeal denied, 124 Ill. 2d 562, 535 N.E.2d
914 (Ill. 1989); Potomac Leasing Co. v. Chuck's Pub, Inc., 156 Ill. App. 3d 755,
509 N.E.2d 751, 753-55 (Ill. App. 1987). Based on the current applicable case
law, we do not anticipate that a court applying Illinois law would find that any
of these exceptions apply to the Loan Documents, and that, in the present
circumstances, we believe that the parties' stipulation that the law of New York
should control should be given effect except to the extent that the Loan
Documents address rights or remedies relating to property interests having their
situs in Illinois or deal with matters subject to Illinois regulation. This
opinion is based upon our understanding that the transactions provided for in
the Loan Documents were negotiated primarily in New York, the principal Loan
Documents were executed, delivered and are to be performed primarily in New
York, and the Administrative Agent has its chief place of business in the State
of New York.
13. The choice of law provisions set forth in the Loan Documents that
select the law of the State of New York as the governing law for such Loan
Documents are enforceable under the laws of the State of California, subject to
the qualifications set forth in this paragraph below.
(a) The California Supreme Court has upheld express contractual
choice of law provisions with respect to substantive (as opposed to
procedural) matters between and among sophisticated parties to a
commercial transaction where the jurisdiction whose law has been chosen to
govern has a substantial relationship to the transaction or there is
another reasonable basis for the parties' choice of law and the
application of the law of the chosen jurisdiction would not be contrary to
a fundamental policy of the State of California.
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Nedlloyd Lines B.V. v. Superior Court, 3 Cal. 4th 459, 84 P.2d 1148, 11
Cal. Rptr. 2d 330 (1992). The Nedlloyd court took a position contrary
to that of certain prior decisions of intermediate appellate courts of
the State of California and federal courts sitting in, and applying the
laws of, the State of California that distinguished between contractual
and tortious claims. The Nedlloyd court held that "a valid choice-of-law
clause, which provides that a specified body of law 'governs' the
'agreement' between the parties, encompasses all causes of action
arising from or related to that agreement, regardless of how they are
characterized, including tortious breaches of duties emanating from the
agreement or the legal relationships it creates." Nedlloyd at 470. Thus,
we express no opinion as to the substantive law that would be applied in
an action between or among parties to the Loan Documents if a court were
to characterize the issue at stake as one that does not arise from or
relate to the Loan Documents.
(b) The California Supreme Court has not set forth all of the
factors to be considered in determining the existence of a substantial
relationship to a transaction, but some of the factors considered by
intermediate appellate and federal courts sitting in, and applying the
laws of the State of California include, inter alia: (i) the place of
performance of the agreement; (ii) the place of execution of the
agreement; (iii) the location from which and to which proceeds are
disbursed; (iv) the place of the last act which effectuated the agreement;
(v) the location of the parties; (vi) the place where the terms of the
agreement were negotiated; (vii) the existence of a choice of law clause;
and (viii) the sophistication of the parties and commercial nature of the
transaction. No case expressly analyzes all of these factors in deciding
whether, on the facts before the court, a substantial relationship exists,
but it is clear that ultimately the determination is fact-intensive. It is
our understanding that, and our opinion concerning enforceability of the
choice of law provisions in the Loan Documents will be governed by the law
of the State of New York is based upon, the following assumptions: (I) the
transactions contemplated by the Loan Documents will be performed in
substantial part in the State of New York; (II) the Loan Documents will be
executed and delivered in the State of New York and effectuated in
substantial part in the State of New York; (III) the Loan Documents were
negotiated primarily in the State of New York; and (IV) the Administrative
Agent has its chief place of business in the State of New York.
(c) We further advise you that, in evaluating whether the
application of the law of the chosen state is violative of a fundamental
California policy, California courts and federal courts sitting in, and
applying the laws of, the State of California should evaluate each
individual issue separately. It is impossible to determine in the abstract
whether any individual claim will violate a fundamental policy of the
State of California, and we are not in a position to opine that any and
all matters that could be raised would not be violative of a fundamental
public policy of the State of California. Thus, we cannot and do not opine
that the choice of law provisions contained within the Loan Documents will
be upheld in every instance.
(d) In particular with respect to obtaining of or enforcement of any
deficiency judgement, we direct your attention to the limitations and
qualifications set forth above in this letter; and with respect to usury,
we note that the case law in California is divided as to whether
California has a strong or fundamental public policy against usury. See,
e.g., Ury
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v. Jeweler's Acceptance Corp., 227 Cal. App. 2d 11, 38 Cal. Rptr. 376
(1964); and Sarlot-Kantarjian v. First-Pennsylvania Mortgage Trust, 599
F.2d 915 (9th Cir. 1995). But see, e.g., Gamer v. duPont Galore Forgan,
Inc., 65 Cal. App. 3d 280, 135 Cal. Rptr. 230 (1976); and Mencor
Enterprises, Inc. v. Hets Equities Corporation, 190 Cal. App. 3d 432,
235 Cal. Rptr. 464 (1987).
To our Actual Knowledge, there is no pending litigation, governmental
proceeding or investigation that (A) seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the transactions contemplated by the
Documents or (B) questions the legality or validity of any of the Documents or
seeks to recover damages or obtain other relief in connection with the
Documents.
As used herein, "Actual Knowledge" has the meaning provided for the
"Opinion Giver's Actual Knowledge" in the Legal Opinion Accord of the ABA
Section of Business Law (1991).
The opinions set forth above are subject to the following qualifications:
(A) Our opinions above as to enforceability are subject to (i) applicable
bankruptcy, insolvency, reorganization, fraudulent transfer, voidable
preference, moratorium or similar laws, and related judicial doctrines, from
time to time in effect affecting creditors' rights and remedies generally, (ii)
general principles of equity (including, without limitation, standards of
materiality, good faith, fair dealing and reasonableness, equitable defenses and
limits on the availability of equitable remedies), whether such principles are
considered in a proceeding at law or in equity, and (iii) the qualification that
certain provisions of the Documents may be unenforceable in whole or in part
under the laws (including judicial decisions) of the State of New York or the
United States of America.
(B) We express no opinion as to the enforceability of any provision in the
Documents:
(i) permitting the Administrative Agent, any Lender or any other
person or entity to sell or otherwise dispose of, or purchase, any
collateral subject thereto, or enforce any other right or remedy
thereunder (including without limitation any self-help or taking-
possession remedy), except in compliance with the UCC and other applicable
federal, state, local and foreign laws;
(ii) establishing standards for the performance of the obligations
of good faith, diligence, reasonableness and care prescribed by the UCC or
of any of the obligations referred to in Section 9-501(3) of the UCC;
(iii) limiting the ability of any Loan Party or other person or
entity to transfer voluntarily or involuntarily (by way of sale, creation
of a security interest, attachment, levy, garnishment or other judicial
process) its right, title or interest in or to any Collateral subject
thereto or other property, including as contemplated by 9-311 and 9-318 of
the UCC;
(iv) waiving any rights to trial by jury;
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(v) relating to indemnification, contribution or exculpation in
connection with violations of any securities laws or statutory duties or
public policy, or in connection with willful, reckless or unlawful acts or
gross negligence of the indemnified or exculpated party or the party
receiving contribution;
(vi) providing that any person or entity purchasing a participation
from a Lender or other person or entity pursuant thereto may exercise
set-off or similar rights with respect to such participation or that any
Lender or other person or entity may exercise set-off rights other than
in accordance with and pursuant to applicable law;
(vii) relating to forum selection to the extent that the forum is a
federal court;
(viii) relating to forum selection to the extent that any relevant
action or proceeding does not arise out of or relate to such Document or
to the extent that the enforceability of any such provision is to be
determined by any court other than a court of the State of New York or
relates to a choice of any forum other than the State of New York;
(ix) relating to choice of governing law to the extent that the
enforceability of any such provision is to be determined by any court
other than a court of the State of New York or the State of Texas other
than the Mortgages which choose a governing law other than the law of the
State of New York;
(x) specifying that provisions thereof may be waived only in
writing, to the extent that an oral agreement or an implied agreement by
trade practice or course of conduct has been created that modifies any
provision of the Documents;
(xi) relating to exculpation of any party in connection with its own
negligence that a court would determine in the circumstances under
applicable law to be unfair or insufficiently explicit; or
(xii) giving any person or entity the power to accelerate
obligations or foreclose upon collateral without any notice to the
obligor.
(C) Our opinions as to enforceability are subject to the effect of
generally applicable rules of law that:
(i) limit the availability of a remedy under certain circumstances
when another remedy has been elected;
(ii) may, where less than all of a contract may be unenforceable,
limit the enforceability of the balance of the contract to circumstances
in which the unenforceable portion is not an essential part of the agreed
exchange;
(iii) govern and afford judicial discretion regarding the
determination of damages and entitlement to attorneys' fees and other
costs; and
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<PAGE>
(iv) may permit a party that has materially failed to render or
offer performance required by the contract to cure that failure unless (a)
permitting a cure would unreasonably hinder the aggrieved party from
making substitute arrangements for performance, or (b) it was important in
the circumstances to the aggrieved party that performance occur by the
date stated in the contract.
(D) We express no opinion as to the enforceability of (i) any purported
waiver, release, variation, disclaimer, consent or other agreement to similar
effect (all of the foregoing, collectively, a "Waiver") by any Loan Party under
any of the Documents to the extent limited by Sections 1-102(3) or 9-501(3) of
the UCC or other provisions of applicable law (including judicial decisions), or
to the extent that such a Waiver applies to a right, claim, duty, defense or
ground for discharge otherwise existing or occurring as a matter of law
(including judicial decisions), except to the extent that such a Waiver is
effective under and is not prohibited by or void or invalid under Section 9-501
of the UCC or other provisions of applicable law (including judicial decisions)
or (ii) any Waiver in the Documents insofar as it relates to causes or
circumstances that would operate as a discharge or release of, or defense
available to, any Loan Party thereunder as a matter of law (including judicial
decisions), except to the extent that such a Waiver is effective under and is
not prohibited by or void or invalid under applicable law (including judicial
decisions).
(E) We express no opinion as to the enforceability, creation or perfection
of the security interests purported or intended to be created or perfected
pursuant to any Document in any item of Collateral (other than the Pledged
Securities and Pledged Notes) subject to any restriction on or prohibition
against transfer in any security, instrument or document evidencing or relating
to such item.
(F) Our security interest opinions are subject to the effect thereon of
Sections 9-307, 9-314 and 9-315 of the UCC and do not apply to any Collateral
constituting consumer goods or inventory of a retail merchant as defined in
Section 9102(f) of the CA UCC.
(G) We express no opinion as to the application of, and our opinions above
are subject to the effect, if any, of, any applicable fraudulent conveyance,
fraudulent transfer, fraudulent obligation or preferential transfer law, any
applicable bulk sale or transfer law, and any law governing the liquidation or
dissolution of, or the distribution of assets of, any person or entity
(including, without limitation, any law relating to the payment of dividends or
other distributions on capital stock or the repurchase of capital stock).
(H) Provisions in a guarantee that provide that the guarantor's liability
thereunder shall not be affected by actions or failures to act on the part of
the recipient of the guarantee or by amendments or waivers of provisions of
documents governing the guaranteed obligations might not be enforceable under
circumstances in which such actions, failures to act, amendments or waivers so
radically change the essential nature of the terms and conditions of the
guaranteed obligations that, in effect, a new contract has arisen between such
recipient and the primary obligor on whose behalf the guarantee was issued. We
also bring to your attention that guarantors may have the rights and remedies of
a "debtor" under the UCC.
(I) We note that the obligations of the Loan Parties are intended to be
secured both by personal property and by the California Mortgages, describing
interests in real property situated in
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the State of California. We express no opinions in this letter concerning the
California Mortgages except to the extent set forth in paragraphs 2 and 3.
Please refer to the separate opinion letter of even date herewith issued by
our Los Angeles, California office for our opinions expressed concerning the
California Mortgages and the assumptions, qualifications and limitations on
those opinions. Furthermore, we advise you that the assumptions,
qualifications and limitations set forth in the opinion letter of even date
herewith issued by our Los Angeles, California office may be applicable to
limit the rights and remedies available to the Lenders under the Documents
which are the subject of this opinion letter.
(J) We have made no examination of and express no opinion as to (i) the
nature or extent of any Loan Party's rights in or title to any of the Pledged
Collateral purported to be conveyed or encumbered by any Document, (ii) the
accuracy of any description of Pledged Collateral, (iii) except to the extent
noted in paragraphs 3, 6-9 above, the enforceability, creation or perfection of
liens or security interests purported or intended to be created or perfected
pursuant to any Document; (iv) the priority of liens or security interests
purported or intended to be created or perfected pursuant to any Document; (v)
the existence of any liens, restrictions, easements or encumbrances on any
Pledged Collateral purported to be encumbered by a Document; or (vi) the
transferability of or effectiveness of any permit, license, franchise or
certificate or other rights or privileges with respect to any Pledged Collateral
(other than the Pledged Notes and Pledged Securities).
(K) For purposes of our opinions above insofar as they relate to Mid State
Machine and Galaxy Industries, we have assumed (i) that each of Mid State
Machine and Galaxy Industries is a corporation existing and in good standing in
its jurisdiction of incorporation, has all requisite power and authority, and
has obtained all requisite corporate, shareholder, third party and governmental
authorizations, consents and approvals, and made all requisite filings and
registrations, necessary to execute, deliver and perform the Documents to which
it is a party and to grant the security interests contemplated thereby (except
to the extent noted in paragraph 2 above), and that such execution, delivery,
performance and grant will not violate or conflict with any law, rule,
regulation, order, decree, judgment, instrument or agreement binding upon or
applicable to Mid State Machine or Galaxy Industries or their respective
properties (except to the extent noted in paragraph 2 above), and (ii) the
Documents to which each of Mid State Machine and Galaxy Industries are a party
have been duly authorized, executed and delivered by each of Mid State Machine
and Galaxy Industries.
(L) To the extent it may be relevant to the opinions expressed herein, we
have assumed that the parties to the Documents other than the Loan Parties have
the power to enter into and perform such documents and to consummate the
transactions contemplated thereby and that such documents have been duly
authorized, executed and delivered by, and constitute legal, valid and binding
obligations of, such parties.
We are admitted to practice in the States of New York, California, Texas
and Illinois. The opinions expressed herein are limited to the federal laws of
the United States of America and the laws of the State of New York and, to the
extent relevant to the opinions expressed in paragraphs 1, 2, 3, 11, 12 and 13
above, the DGCL and the laws of the States of California, Illinois and Texas,
each as currently in effect (except that only the laws of the State of Texas are
implicated by the opinions in paragraph 11, only the laws of the State of
Illinois are implicated by the opinions in paragraph 12 and only the laws of the
State of California are implicated by the opinions in
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paragraph 13). Our opinions in paragraphs 6, 8 and 9 are limited to Article 9
of the NY UCC and our opinions in paragraph 7 are limited to Article 9 of the
UCC. Because of the foregoing limitations, opinion paragraphs 6 through 9 do
not address (i) laws of jurisdictions other than the States of New York,
California, Illinois and Texas or laws of the States of New York, California,
Illinois and Texas except that paragraph 7 addresses Article 9 of the NY UCC,
the CA UCC, the IL UCC and the TX UCC and paragraphs 6, 8 and 9 address
Article 9 of the NY UCC, (ii) collateral of a type not subject to Article 9
of the UCC, or (iii) under Section 9-103 of the UCC what law governs
perfection of the security interests granted in the collateral covered by
this opinion letter. We express no opinion with respect to any Article 9
Collateral of a type described in Section 9-401(1)(a) or (b) of the UCC.
We express no opinion as to the compliance or noncompliance, or the effect
of the compliance or noncompliance, of the Administrative Agent, Documentation
Agent, Syndication Agent or any Lender with any state or federal laws or
regulations applicable to it by reason of its status as or affiliation with a
federally insured depository institution.
The opinions expressed herein are solely for the benefit of the addressees
hereof and their successors and assigns in connection with the transaction
referred to herein and may not be relied on by such addressees for any other
purpose or in any manner or for any purpose by any other person or entity.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
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ANNEX A
FINANCING STATEMENTS
<PAGE>
ANNEX B
AGREEMENTS, ORDERS AND DECREES
Certified Fabricators, Inc. / Calbrit Designs, Inc.
(1) Lease between Certified Fabricators, Inc. and Certified Fabricators
(the general partnership) for 6291 Burnham, Buena Park, CA, dated
1/30/98
(2) Lease between Certified Fabricators, Inc. and Certified Fabricators
(the general partnership) for 6332 Burnham, Buena Park, CA, dated
12/29/97
(3) Lease between Certified Fabricators, Inc. and Certified Fabricators
(the general partnership) for 6351 Burnham, Buena Park, CA, dated
5/16/97
(4) Lease between Certified Fabricators, Inc. and Certified Fabricators
(the general partnership) for 6530 Altura, Buena Park, CA, dated
3/19/97
(5) Lease between Carolyn Blywise Living Trust and Certified
Fabricators, Inc. for 16031 Carmenita Road, Cerritos, dated 2/22/95.
(6) Lease for office property at 6280 Manchester Blvd. #300, Buena Park
between Urban Properties, Inc. and Certified Fabricators, Inc.,
dated 3/17/97
(7) Stock Purchase Agreement, with exhibits and schedules thereto by and
among Certified Fabricators, Inc., Calbrit Design, Inc., and their
stockholders and Precision Partners, Inc. dated 2/19/99
(8) Employment Agreement with Gary Buehler, dated 3/19/99
Galaxy Industries Corporation
(1) Business Property Lease by and between G & L Associates, Inc. as
Lessor and Galaxy Precision Machining Co. as Lessee regarding the
property at 7777 Rhonda Drive, Township of Canton, County of Wayne,
State of Michigan, dated 4/10/97
(2) Merger Agreement among Galaxy Industries Corporation, Kenneth Smith
Galaxy Holding Co., Inc., Robert H. Leidel Revocable Living Trust,
Betty A. Leidel Revocable Living Trust, Michael Leidel, Cheryl
Brooks, and Galaxy Acquisition, Inc., with exhibits and schedules
thereto, dated 9/30/98
(3) Employment Agreement with Ken Smith, dated 9/30/98
<PAGE>
General Automation, Inc.
(1) Asset Purchase Agreement, by and among General Automation, Inc., Max
Starr and Precision Partners Holding Company with exhibits and
schedules thereto, dated 2/5/99
(2) Employment Agreement with Max Starr, dated 3/19/99
Mid State Machine Products
(1) General Electric gas turbine systems sourcing operation by and
between General Electric and Mid State, dated 12/1/98
(2) Lease, by and between, S. Douglas Sukeforth and Rita Sukeforth and
Precision Partners Management Corp., for premises known as 1501
Verti Drive, Winslow, Maine, dated 11/01/98
(3) Redemption and Merger Agreement among Mid State Machine Products, S.
Douglas Sukeforth, Mid State Holdings Co, Inc. and Mid State
Acquisition Inc., with exhibits and schedules thereto, dated 9/17/98
(4) Employment Agreement with S. Douglas Sukeforth, dated 9/30/98
Nationwide Precision Products Corp.
(1) Lease for real property located at 200 Tech Park Drive Rochester.
New York, dated 3/19/99.
(2) Asset Purchase Agreement between Nationwide Precision Products
Corp., Nationwide Acquisition Delaware, Inc. and John Nucitilli,
Robert Nucitilli, and Michael Nucitilli, with exhibits and schedules
thereto, dated 2/11/99
(3) Employment Agreement with Ron Ricotta, dated 3/19/99
Precision Partners, Inc.
(1) Consent to Sublease by and among Crescent Real Estate Funding Two,
LP and Hekimian Laboratories, Inc. and Precision Partners Management
Corp., dated 10/27/98
(2) Senior Subordinated Indenture
2
<PAGE>
ANNEX C
FILING OFFICES
Name of Pledgor Filing Location
1. Calbrit Design, Inc. Secretary of State of Texas
Secretary of State of California
Orange County, California
2. Certified Fabricators, Inc. Secretary of State of Texas
Secretary of State of California
Orange County, California
Los Angeles County, California
3. Galaxy Industries Corporation Secretary of State of Texas
4. General Automation, Inc. Secretary of State of Texas
Secretary of State of Illinois
Cook County, Illinois
5. Mid State Machine Products Secretary of State of Texas
6. Nationwide Precision Products Secretary of State of Texas
Corporation Secretary of State of New York
Monroe County, New York
7. Precision Partners, Inc. Secretary of State of Texas
8. Precision Partners Holding Company Secretary of State of Texas
<PAGE>
[EXHIBIT G]
FORM OF EXEMPTION CERTIFICATE
Reference is made to the Credit Agreement, dated as of March 19, 1999 as
amended, supplemented or otherwise modified from time to time, the ("Credit
Agreement") among PRECISION PARTNERS INC., a Delaware Corporation (the
"Borrower"), the Guarantors from time to time thereunder, the several banks and
other financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), CITICORP U.S.A., INC., as Administrative Agent,
NATIONSBANK, N.A., as Syndication Agent, and SUNTRUST BANK, ATLANTA, as
Documentation Agent. Capitalized terms used herein that are not defined herein
shall have the meanings ascribed to them in the Credit Agreement.
_______________________________ (the "Non-U.S. Lender") is providing this
certificate pursuant to Section 2.15(d) of the Credit Agreement. The Non-U.S.
Lender hereby represents and warrants that:
17. The Non-U.S. Lender is the sole record and beneficial owner of the
[Loans] [L/C Obligations] in respect of which it is providing this certificate.
18. The Non-U.S. Lender is not a "bank" for purposes of Section
881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In
this regard, the Non-U.S. Lender further represents and warrants that:
(a) the Non-U.S. Lender is not subject to regulatory or other legal
requirements as a bank in any jurisdiction; and
(b) the Non-U.S. Lender has not been treated as a bank for purposes of any
tax, securities law or other filing or submission made to any Governmental
Authority, any application made to a rating agency or qualification for
any exemption from tax, securities law or other legal requirements;
19. The Non-U.S. Lender is not a 10-percent shareholder of the Borrower
within the meaning of Section 881(c)(3)(B) of the Code; and
20. The Non-U.S. Lender is not a controlled foreign corporation receiving
interest from a related person within the meaning of Section 881(c)(3)(C) of the
Code.
G-1
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this certificate.
[NAME OF NON-U.S. LENDER]
By:________________________
Name:
Title:
Date: __________________
G-2
<PAGE>
[EXHIBIT H-1]
FORM OF NOTICE OF BORROWING
Date: _____________,____
Citicorp U.S.A., Inc.
as Administrative Agent
399 Park Avenue
New York, NY 10022-4600
RE: Credit Agreement dated as of March 19, 1999 (the "Credit Agreement") among
PRECISION PARTNERS INC., a Delaware Corporation (the "Borrower"), the
Guarantors from time to time thereunder, the several banks and other
financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), CITICORP U.S.A., INC., as Administrative Agent,
NATIONSBANK, N.A., as Syndication Agent, and SUNTRUST BANK, ATLANTA, as
Documentation Agent
Ladies and Gentlemen:
The undersigned, the Borrower, refers to the Credit Agreement, the
capitalized terms defined herein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.3 of the Credit
Agreement, of the borrowing specified below:
21.
22. The Business Day of the proposed borrowing is ___________, ____.
23. The amount of the proposed borrowing is $__________.
24. The borrowing to be comprised of $__________ of [Base Rate][Eurodollar]
Loans.
25. If applicable: The duration of the Interest Period for the Eurodollar
Loans included in the borrowing shall be _____ months.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the proposed Borrowing Date, before and
after giving effect thereto and to the application of the proceeds therefrom:
H1-1
<PAGE>
(i) the representations and warranties of the Borrower contained in
Section 4 of the Credit Agreement are true and correct as though made on and as
of such date (except to the extent such representations and warranties relate to
an earlier date, in which case they are true and correct as of such date);
(ii) no Default or Event of Default has occurred and is continuing, or
would result from such proposed borrowing;
(iii) the proposed borrowing will not cause the aggregate principal amount
of all outstanding Revolving Loans plus the aggregate amount of the L/C
Obligations to exceed the combined Revolving Commitments of the Lenders; and
(iv) the proposed borrowing will not cause the aggregate principal amount
of all outstanding Revolving Loans plus the aggregate amount of the L/C
Obligations to exceed the Borrowing Base.
PRECISION PARTNERS INC.
By:________________________
Name:
Title:
H1-2
<PAGE>
[EXHIBIT H-2]
FORM OF NOTICE OF CONVERSION/CONTINUATION
Date: __________, ____
Citicorp U.S.A., Inc.
as Administrative Agent
399 Park Avenue
New York, NY 10022-4600
RE: Credit Agreement dated as of March 19, 1999 (the "Credit Agreement") among
PRECISION PARTNERS INC., a Delaware Corporation (the "Borrower"), the
Guarantors from time to time thereunder, the several banks and other
financial institutions or entities from time to time parties to the Credit
Agreement (the "Lenders"), CITICORP U.S.A., INC., as Administrative Agent,
NATIONSBANK, N.A., as Syndication Agent, and SUNTRUST BANK, ATLANTA, as
Documentation Agent.
Ladies and Gentlemen:
The undersigned, Precision Partners Inc. (the "Borrower"), refers to the
Credit Agreement, the capitalized terms being used herein as therein defined,
and hereby gives you notice irrevocably, pursuant to Section 2.8 of the Credit
Agreement, of the [conversion] [continuation] of the Loans specified herein,
that:
26. The Conversion/Continuation Date is
27. The aggregate amount of the Loans to be [converted] [continued] is
$__________.
28. The Loans are to be [converted into] (continued as] [Eurodollar]
[Base Rate] Loans.
H2-1
<PAGE>
29.
30. [If applicable: The duration of the Interest Period for the Loans
included in the [conversion] [continuation] shall be ___ months].
PRECISION PARTNERS INC.
By:________________________
Name:
Title:
H2-2
<PAGE>
Exhibit I to
Credit Agreement
================================================================================
PRECISION PARTNERS, INC.
as Borrower
and
THE OTHER PLEDGORS PARTY HERETO
------------------
SECURITY AGREEMENT
Dated as of March 19, 1999
------------------
CITICORP U.S.A., INC.
as Administrative Agent
================================================================================
<PAGE>
Table of Contents
Page
----
RECITALS ..................................................................... 1
AGREEMENT .................................................................... 2
Section 1. Pledge ....................................................... 2
Section 2. Secured Obligations .......................................... 7
Section 3. No Release ................................................... 7
Section 4. Perfection; Supplements; Further Assurances; Use of
Pledged Collateral ..................................... 8
Section 5. Representations, Warranties and Covenants .................... 9
Section 6. Special Provisions Concerning General Collateral .............14
Section 7. Special Provisions Concerning Securities Collateral ..........16
Section 8. Special Provisions Concerning Intellectual Property
Collateral .............................................18
Section 9. Special Provisions Concerning Financial Accounts .............21
Section 10. Transfers and Other Liens ...................................23
Section 11. Reasonable Care .............................................23
Section 12. Remedies upon Default; Obtaining the Pledged Collateral
upon Event of Default ..................................23
Section 13. Application of Proceeds .....................................27
Section 14. Expenses ....................................................27
Section 15. No Waiver, Cumulative Remedies ..............................28
Section 16. Administrative Agent ........................................28
Section 17. Administrative Agent May Perform; Administrative Agent
Appointed Attorney-in-Fact .............................28
Section 18. Indemnity ...................................................29
Section 19. Modification in Writing .....................................29
Section 20. Termination; Release ........................................30
Section 21. Notices .....................................................30
Section 22. Continuing Security Interest; Assignment ....................30
Section 23. GOVERNING LAW; TERMS ........................................30
Section 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER
OF JURY TRIAL ..........................................31
Section 25. Severability of Provisions ..................................31
Section 26. Execution in Counterparts ...................................31
Section 27. Headings ....................................................31
Section 28. Obligations Absolute ........................................31
Section 29. Administrative Agent's Right to Sever Indebtedness ..........32
Section 30. Future Advances .............................................33
SIGNATURES
SCHEDULE I-A INITIAL PLEDGED SHARES
SCHEDULE I-B INITIAL PLEDGED INTERESTS
SCHEDULE II INITIAL INTERCOMPANY NOTES
SCHEDULE III INITIAL PATENTS
SCHEDULE IV INITIAL TRADEMARKS
SCHEDULE V INITIAL COPYRIGHTS
SCHEDULE VI INITIAL LICENSES
-i-
<PAGE>
SCHEDULE VII INITIAL FINANCIAL ACCOUNTS
ANNEX A FINANCING STATEMENTS AND OTHER NECESSARY FILINGS, UCC FILINGS,
PATENT AND TRADEMARK FILINGS, AND OTHER FILINGS
ANNEX B PRIOR LIENS
ANNEX C LOCATIONS OF PLEDGORS
EXHIBIT 1 FORM OF ISSUER ACKNOWLEDGMENT
EXHIBIT 2 FORM OF FINANCIAL ACCOUNT CONSENT AGREEMENT
EXHIBIT 3 FORM OF SECURITIES PLEDGE AGREEMENT
EXHIBIT 4 FORM OF JOINDER AGREEMENT
-ii-
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT (the "Agreement"), dated as of March 19, 1999
made by PRECISION PARTNERS, INC., a Delaware corporation having an office at
5605 N. MacArthur Blvd., Suite 760, Irving, Texas 75038 (the "Borrower"), and
EACH OF THE SUBSIDIARY GUARANTORS LISTED ON THE SIGNATURE PAGES HERETO OR FROM
TIME TO TIME PARTY HERETO BY EXECUTION OF A JOINDER AGREEMENT (collectively, the
"Subsidiary Guarantors"), as pledgors, assignors and debtors (the Borrower,
together with the Subsidiary Guarantors, in such capacities and together with
any successors in such capacities, the "Pledgors", and each, a "Pledgor"), in
favor of CITICORP U.S.A., INC., having an office at 399 Park Avenue, New York,
New York 10022, in its capacity as administrative agent for the lending
institutions (the "Lenders") from time to time party to the Credit Agreement (as
hereinafter defined), as pledgee, assignee and secured party (in such capacity
and together with any successors in such capacity, the "Administrative Agent").
RECITALS:
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined herein shall have the meanings assigned to them in the Credit
Agreement), among the Borrower, the Subsidiary Guarantors, Precision Partners
Holding Company ("Holding"), the Lenders, the Administrative Agent, NationsBank,
N.A., as syndication agent ("Syndication Agent"), and Sun-Trust Bank, Atlanta,
as the documentation agent ("Documentation Agent"; together with Administrative
Agent and Syndication Agent, collectively, the "Agents"), the Lenders have
agreed (i) to make to or for the account of the Borrower certain Term Loans up
to an aggregate principal amount of $23,000,000 and certain Revolving Loans up
to an aggregate principal amount of $25,000,000 and (ii) to issue certain
Letters of Credit for the account of the Borrower.
B. Each of Holding and the Subsidiary Guarantors has executed and
delivered to the Administrative Agent a certain guarantee instrument (each, a
"Guarantee") pursuant to which, among other things, each of Holding and the
Subsidiary Guarantors has guaranteed the obligations of the Borrower under the
Credit Agreement and the other Loan Documents, and each of Holding and the
Subsidiary Guarantors desires that its Guarantee be secured hereunder.
C. Each Pledgor is or will be the legal and/or beneficial owner of
the Pledged Collateral (as hereinafter defined) to be pledged by it hereunder.
D. It is a condition to the obligations of the Lenders to make the
Loans under the Credit Agreement and a condition to any Lender issuing Letters
of Credit under the Credit Agreement that each Pledgor execute and deliver the
applicable Loan Documents, including this Agreement.
E. This Agreement is given by each Pledgor in favor of the
Administrative Agent for its benefit and the benefit of the Lenders and the
Agents (collectively, the "Secured Parties") to secure the payment and
performance of all of the Secured Obligations (as defined in Section 2).
<PAGE>
-2-
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgors and the Administrative Agent hereby agree as follows:
Section 1. Pledge. As collateral security for the payment and
performance when due of all the Secured Obligations, each Pledgor hereby
pledges, assigns, transfers and grants to the Administrative Agent for its
benefit and the benefit of the Secured Parties, a continuing first priority
security interest in and to and pledge of, subject only to Prior Liens, all of
the right, title and interest of such Pledgor in, to and under the following
property, wherever located, whether now existing or hereafter arising or
acquired from time to time (collectively, the "Pledged Collateral"):
(a) all "accounts", as such term is defined in the Uniform
Commercial Code as in effect from time to time in any applicable
jurisdiction (the "UCC"), and in any event including, without limitation,
all of such Pledgor's rights to any and all (i) accounts, accounts
receivable, margin accounts, futures positions, book debts, instruments,
documents, contracts, contract rights, choses in action, notes, drafts,
acceptances, chattel paper and other forms of obligations and receivables
now or hereafter owned or held by or payable to such Pledgor relating in
any way to or arising from the sale or lease of goods or the rendering of
services by such Pledgor or any other party, including the right to
payment of any interest or finance charge with respect thereto, together
with all merchandise represented by any of the accounts, (ii) all such
merchandise that may be reclaimed or repossessed or returned to such
Pledgor, (iii) all of such Pledgor's rights as an unpaid vendor, including
stoppage in transit, reclamation, replevin and sequestration, (iv) all
assets pledged, assigned, hypothecated or granted to, and all letters of
credit, guarantee claims, Liens, and security interests held by, Pledgor
to secure payment of any accounts and which are delivered for or on behalf
of any account debtor, (v) all accessions to all of the foregoing
described properties and interests in properties, (vi) all powers of
attorney for the execution of any evidence of indebtedness or security or
other writing in connection with the foregoing, (vii) all evidences of the
filing of financing statements and other statements and the registration
of other instruments in connection therewith and amendments thereto,
notices to other creditors or secured parties and certificates from filing
or other registration offices, (viii) all guarantees, endorsements and
indemnifications on, or of, any of the foregoing, (ix) all customer lists
and invoices and (x) all general intangibles arising out of such Pledgor's
rights in any goods, the sale of which give rise to any of the foregoing
(collectively, the "Receivables");
(b) all "inventory", as such term is defined in the UCC, of such
Pledgor wherever located and of every class, kind and description and, in
any event including, without limitation, (i) all goods, merchandise, raw
materials, work-in-process, returned goods, finished goods, samples and
consigned goods (to the extent of the consignee's interest therein),
materials and supplies of any kind or nature which are or might be used in
connection with the manufacture, printing, publication, packing, shipping,
advertising, selling or finishing of any such goods and all other
products, goods, materials and supplies, (ii) all inventory as is
temporarily out of such Pledgor's custody or possession, items in transit
and any returns and repossessions upon any Receivables and (iii) all
substitutions therefor or replacements thereof, and all additions and
accessions thereto (collectively, the "Inventory");
(c) any and all sale, service, performance and equipment or property
lease contracts, agreements and grants (whether written or oral, or third
party or intercompany), and any other document (whether written or oral,)
between such Pledgor and third parties, and all assignments, amend-
<PAGE>
-3-
ments, restatements, supplements, extensions, renewals, replacements or
modifications thereof, including, without limitation, Acquisition
Documentation (collectively, the "Contracts", and each, a "Contract");
(d) all "equipment", as such term is defined in the UCC, and, in any
event including, without limitation, all machinery, apparatus, equipment,
office machinery, electronic data-processing equipment, computers and
computer hardware and software (whether owned or licensed), furniture,
conveyors, tools, materials, storage and handling equipment, automotive
equipment, motor vehicles, tractors, trailers and other like property,
whether or not the title thereto is governed by a certificate of title or
ownership, and all other equipment of every kind and nature owned by such
Pledgor or in which such Pledgor may have any interest (to the extent of
such interest) and all modifications, renewals, improvements, alterations,
repairs, substitutions, attachments, additions, accessions and other
property now or hereafter affixed thereto or used in connection therewith,
all replacements and all parts therefor and together with all substitutes
for any of the foregoing (collectively, the "Equipment");
(e) all "general intangibles", as such term is defined in the UCC,
and, in any event including, without limitation, (i) all of such Pledgor's
rights, title and interest in, to and under all Contracts, (ii) all
manuals, blueprints, know-how, warranties and records in connection with
the Equipment; (iii) any and all other rights, claims, choses-in-action
and causes of action of such Pledgor against any other Person and the
benefits of any and all collateral or other security given by any other
Person in connection therewith; (iv) all lists, books, records, ledgers,
print-outs, files (whether in printed form or stored electronically),
tapes and other papers or materials containing information relating to any
of the Pledged Collateral including, without limitation, all customer
lists, identification of suppliers, data, plans, blueprints, specification
designs, drawings, recorded knowledge, surveys, engineering reports, test
reports, manuals, standards, processing standards, performance standards,
catalogs, research data, computer and automatic machinery software and
programs and the like pertaining to operations by such Pledgor or the
Pledged Collateral, field repair data, sales data and other information
relating to sales of products now or hereafter manufactured, distributed
or franchised by such Pledgor, accounting information pertaining to such
Pledgor's operations or any of the Pledged Collateral and all media in
which or on which any of the information or knowledge or data or records
relating to such operations or any of the Pledged Collateral may be
recorded or stored and all computer programs used for the compilation or
printout of such information, knowledge, records or data; (v) all
licenses, consents, permits, variances, certifications and approvals of
any federal, state, local, foreign or other governmental or administrative
(including self-regulatory) body, instrumentality, department or agency or
any court, tribunal, administrative hearing body, arbitration panel,
commission or other similar dispute-resolving body including, without
limitation, those governing the regulation and protection of the
environment (each, a "Governmental Authority") (or any Person acting on
behalf of a Governmental Authority) now or hereafter held by such Pledgor
pertaining to operations now or hereafter conducted by such Pledgor or any
Pledged Collateral now or hereafter held by such Pledgor, and (vi) all
rights to refund or indemnification to the extent the foregoing relate to
any Pledged Collateral and income tax refunds to the extent relating to
any Pledged Collateral, claims for tax or other refunds against any city,
county or state or federal government, or any agency or authority or other
subdivision thereof relating to any Pledged Collateral (collectively, the
"Intangibles");
(f) all insurance policies held by such Pledgor or naming such
Pledgor as insured, additional insured or loss payee (including, without
limitation, casualty insurance, liability insurance, property insurance
and business interruption insurance), all such insurance policies entered
into after the date hereof other than insurance policies (or certificates
of insurance evidencing such insurance poli-
<PAGE>
-4-
cies) relating to health and welfare insurance and life insurance policies
in which such Pledgor is not named as beneficiary (i.e., insurance
policies that are not "Key Man" insurance policies) and all rights, claims
and recoveries relating thereto (including all dividends, returned
premiums and other rights to receive money in respect of any of the
foregoing) (collectively, the "Insurance Policies");
(g) such Pledgor's right to receive the surplus funds, if any, which
are payable to such Pledgor following the termination of any employee
pension plan and the satisfaction of all liabilities of participants and
beneficiaries under such plan in accordance with applicable law
(collectively, the "Pension Plan Reversions");
(h) the issued and outstanding shares of capital stock of each
Person described in Schedule I-A annexed hereto and each other corporation
hereafter acquired or formed by such Pledgor (which are and shall remain
at all times until this Agreement terminates, certificated shares),
including the certificates representing the Pledged Shares and any
interest of such Pledgor in the entries on the books of any financial
intermediary pertaining to the Pledged Shares and all Additional Shares
(as hereinafter defined) (collectively, the "Pledged Shares"); provided,
however, that such Pledgor shall not be required to pledge shares
possessing more than 65% of the voting power of all classes of capital
stock entitled to vote of any Subsidiary which is a controlled foreign
corporation (as defined in Section 957(a) of the Internal Revenue Code of
1986, as amended from time to time (the "Tax Code")) and, in any event,
shall not be required to pledge the shares of stock of any Subsidiary
otherwise required to be pledged pursuant to this subsection 1(h) to the
extent that such pledge would constitute an investment of earnings in
United States property under Section 956 (or a successor provision) of the
Tax Code, which investment would trigger an increase in the gross income
of a United States shareholder of such Pledgor pursuant to Section 951 (or
a successor provision) of the Tax Code;
(i) all additional shares of capital stock of whatever class of any
issuer of the Pledged Shares from time to time acquired by such Pledgor in
any manner (which are and shall remain at all times until this Agreement
terminates, certificated shares), including the certificates representing
such additional shares and any interest of such Pledgor in the entries on
the books of any financial intermediary pertaining to such additional
shares (collectively, the "Additional Shares");
(j) all membership interests and/or partnership interests, as
applicable, of each Person described in Schedule I-B annexed hereto and
each other limited liability company or partnership hereafter acquired or
formed by such Pledgor, together with all rights, privileges, authority
and powers of such Pledgor in and to each such Person or under the
membership or partnership agreement of each such Person (the "Operative
Agreements"), and the certificates, instruments and agreements, if any,
representing such membership or partnership interests (collectively, the
"Initial Pledged Interests");
(k) all options, warrants, rights, agreements, additional membership
or partnership interests or other interests relating to each such Person
described in clause (j) above or any interest in any such Person,
including, without limitation, any right relating to the equity or
membership or partnership interests in any such Person or under the
Operative Agreement of any such Person, from time to time acquired by such
Pledgor in any manner and the certificates, instruments and agreements, if
any, representing such additional interests (collectively, the "Additional
Interests"; together with the Initial Pledged Interests, the "Pledged
Interests"; the Pledged Interests, together with the Pledged Shares and
the items or types of Pledged Collateral described in subsection 1(n) of
this Agreement, collectively, the "Pledged Securities");
<PAGE>
-5-
(l) all intercompany notes described in Schedule II annexed hereto
(and each other intercompany note hereafter acquired by such Pledgor) and
all certificates or instruments evidencing such intercompany notes and all
proceeds thereof, all accessions thereto and substitutions therefor
(collectively, the "Intercompany Notes");
(m) all dividends, cash, options, warrants, rights, instruments,
distributions, returns of capital or principal, income, interest, profits
and other property, interests (debt or equity) or proceeds, including as a
result of a split, revision, reclassification or other like change of the
Pledged Securities, from time to time received, receivable or otherwise
distributed to such Pledgor in respect of or in exchange for any or all of
the Pledged Securities or Intercompany Notes (collectively,
"Distributions");
(n) without affecting the obligations of such Pledgor under any
provision prohibiting such action hereunder or under the Credit Agreement,
in the event of any consolidation or merger in which any Person listed in
Schedule I-A or Schedule I-B annexed hereto is not the surviving entity,
all shares of each class of the capital stock of the successor corporation
or interests or certificates of the successor limited liability company or
partnership owned by such Pledgor (unless such successor is such Pledgor
itself) formed by or resulting from such consolidation or merger;
(o) all patents issued or assigned to and all patent applications
and registrations made by such Pledgor, including, without limitation, the
patents, patent applications, registrations and recordings listed in
Schedule III annexed hereto, together with any and all (i) rights and
privileges arising under applicable law with respect to such Pledgor's use
of any patents, (ii) inventions and improvements described and claimed
therein, (iii) reissues, divisions, continuations, renewals, extensions
and continuations-in-part thereof, (iv) income, fees, royalties, damages,
claims and payments now and hereafter due and/or payable thereunder and
with respect thereto, including, without limitation, damages and payments
for past, present or future infringements thereof, (v) rights
corresponding thereto throughout the world, and (vi) rights to sue for
past, present and future infringements thereof (collectively, the
"Patents");
(p) all trademarks (including service marks), logos, federal and
state trademark registrations and applications made by such Pledgor,
common law trademarks and trade names owned by or assigned to such Pledgor
and all registrations and applications for the foregoing, including,
without limitation, the registrations and applications listed in Schedule
IV annexed hereto, together with any and all (i) rights and privileges
arising under applicable law with respect to such Pledgor's use of any
trademarks, (ii) reissues, continuations, extensions and renewals thereof,
(iii) income, fees, royalties, damages and payments now and hereafter due
and/or payable thereunder and with respect thereto, including, without
limitation, damages, claims and payments for past, present or future
infringements thereof, (iv) rights corresponding thereto throughout the
world and (v) rights to sue for past, present and future infringements
thereof (collectively, the "Trademarks");
(q) all copyrights (whether statutory or common law) owned by or
assigned to such Pledgor, including, without limitation, the copyrights,
registrations and applications listed in Schedule V annexed hereto,
together with any and all (i) rights and privileges arising under
applicable law with respect to such Pledgor's use of any copyrights, (ii)
reissues, renewals, continuations and extensions thereof, (iii) income,
fees, royalties, damages, claims and payments now and hereafter due and/or
payable with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (iv) rights
corresponding thereto throughout the world and (v) rights to sue for past,
present and future infringements thereof (collectively, the "Copyrights");
<PAGE>
-6-
(r) all license and distribution agreements and covenants not to sue
with any other party with respect to any Patent, Trademark, or Copyright,
whether such Pledgor is a licensor or licensee, distributor or distributee
under any such license or distribution agreement including, without
limitation, the license and distribution agreements listed in Schedule VI
annexed hereto, along with any and all (i) renewals, extensions,
supplements and continuations thereof, (ii) income, fees, royalties,
damages, claims and payments now and hereafter due and/or payable
thereunder and with respect thereto, including, without limitation,
damages and payments for past, present or future infringements or
violations thereof, (iii) rights to sue for past, present and future
infringements or violations thereof and (iv) any other rights to use,
exploit or practice any or all of the Patents, Trademarks or Copyrights
(collectively, the "Licenses");
(s) the entire goodwill connected with such Pledgor's business
including, without limitation, (i) all goodwill connected with the use of
and symbolized by any of the Intellectual Property Collateral (as
hereinafter defined) in which such Pledgor has any interest, (ii) all
know-how, trade secrets, customer lists, proprietary information,
inventions, methods, procedures, formulae, descriptions, name plates,
catalogs, confidential information, consulting agreements, engineering
contracts and such other assets which relate to such goodwill and (iii)
all product lines of such Pledgor's business (collectively, the
"Goodwill");
(t) all financial accounts and all investment property (as defined
in the UCC) of such Pledgor, including, without limitation, (i) the
financial accounts maintained with the financial institutions (each such
financial institution, or any financial institution which shall satisfy
the conditions set forth in subsection 9(b) of this Agreement, a
"Financial Intermediary") identified in Schedule VII annexed hereto, (ii)
all moneys, financial assets (as defined in the UCC), checks, drafts,
securities and instruments deposited or required to be deposited in such
accounts, (iii) all investments and all certificates and instruments, if
any, from time to time representing or evidencing any other property from
time to time received, receivable or otherwise distributed in respect of
or in exchange for any or all of the foregoing items listed under
subclauses (i) and (ii), and (iv) each consent or other agreement from
time to time entered into by such Pledgor with any financial institution
at which any of the financial accounts is maintained and all rights of
such Pledgor under each such consent or agreement;
(u) all "documents", as such term is defined in the UCC, including,
without limitation, all receipts of such Pledgor covering, evidencing or
representing Inventory or Equipment (collectively, the "Documents");
(v) all "instruments", as such term is defined in the UCC,
including, without limitation, all promissory notes, drafts, bills of
exchange or acceptances (collectively, the "Instruments");
(w) any and all other property or assets of such Pledgor whether
tangible or intangible, fixed or liquid; and
(x) all "proceeds", as such term is defined in the UCC or under
other relevant law, and in any event including, without limitation, any
and all (i) proceeds of any insurance (except payments made to a Person
which is not a party to this Agreement), indemnity, warranty, guaranty or
claim payable to the Administrative Agent or to such Pledgor from time to
time with respect to any of the Pledged Collateral, (ii) payments (in any
form whatsoever) made or due and payable to such Pledgor from time to time
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Pledged Collateral by any
Governmental Authority (or any Person acting on
<PAGE>
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behalf of a Governmental Authority), (iii) instruments representing
obligations to pay amounts in respect of the Pledged Collateral, (iv)
products of the Pledged Collateral and (v) other amounts from time to time
paid or payable under or in connection with any of the Pledged Collateral
(collectively, the "Proceeds");
provided, however, that Pledged Collateral shall not include any items of
property described in Granting Clauses (c), (e), (v) and (r) to the extent that
such Pledgor is expressly prohibited from granting a Lien thereon or applicable
law provides for the involuntary forfeiture thereof in the event that a Lien is
granted thereon without the consent of the appropriate Person or Governmental
Authority; provided, further, that in the event of the termination or
elimination of any prohibition or requirement for any consent contained in any
law, rule, regulation, contract, license, franchise, authorization, agreement,
grant or other document, or upon the granting of any consent, the items of
property so excluded from the definition of Pledged Collateral by virtue of the
immediately preceding proviso shall (without any act or delivery by any Person)
constitute Pledged Collateral hereunder;
The Pledged Securities, the Intercompany Notes, the Distributions
and the Proceeds relating thereto are collectively referred to as the
"Securities Collateral". The Patents, Trademarks, Copyrights, Licenses, Goodwill
and the Proceeds relating thereto are collectively referred to as the
"Intellectual Property Collateral". The property described in clause (t) above
and the Proceeds relating thereto are collectively referred to as the "Financial
Account Collateral". The Pledged Collateral other than the Securities
Collateral, the Intellectual Property Collateral and the Financial Account
Collateral is collectively referred to as the "General Collateral".
Section 2. Secured Obligations. This Agreement secures, and the
Pledged Collateral is collateral security for, the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. ss. 362(a)), of (i) all Obligations of the Borrower now existing or
hereafter arising under or in respect of the Credit Agreement (including,
without limitation, the obligations of the Borrower to pay principal, interest
and all other charges, fees, expenses, commissions, reimbursements, premiums,
indemnities and other payments related to or in respect of the Obligations
contained in the Credit Agreement), (ii) all Obligations of Holding and the
Subsidiary Guarantors now existing or hereafter arising under or in respect of
the Credit Agreement (including, without limitation, the obligations of Holding
and each Subsidiary Guarantor to pay principal, interest and all other charges,
fees, expenses, commissions, reimbursements, premiums, indemnities and other
payments related to or in respect of the Obligations contained in the Credit
Agreement) and (iii) without duplication of the amounts described in clauses (i)
and (ii) above, all Obligations of the Pledgors now existing or hereafter
arising under or in respect of this Agreement or any other Security Document,
including, without limitation, all charges, fees, expenses, commissions,
reimbursements, premiums, indemnities and other payments related to or in
respect of the Obligations contained in this Agreement or in any other Security
Document, in each case whether in the regular course of business or otherwise
(the obligations described in clauses (i), (ii) and (iii) of this Section 2,
collectively, the "Secured Obligations").
Section 3. No Release. Nothing set forth in this Agreement shall
relieve any Pledgor from the performance of any term, covenant, condition or
agreement on such Pledgor's part to be performed or observed under or in respect
of any of the Pledged Collateral or from any liability to any Person under or in
respect of any of the Pledged Collateral or shall impose any obligation on the
Administrative Agent or any other Secured Party to perform or observe any such
term, covenant, condition or agreement on such Pledgor's part to be so performed
or observed or shall impose any liability on the Administrative Agent or any
other Secured Party for any act or omission on the part of such Pledgor relating
thereto or for any breach of any representation or warranty on the part of such
Pledgor contained in this Agreement or any other Loan Document, or under or in
respect of
<PAGE>
-8-
the Pledged Collateral or made in connection herewith or therewith, except upon
any exercise of remedies pursuant to Section 12 whereby such Pledgor no longer
has any rights, title or interest in or to such Pledged Collateral. The
obligations of each Pledgor referred to in this Section 3 shall survive the
termination of this Agreement and the discharge of such Pledgor's other
obligations under this Agreement and the other Loan Documents.
Section 4. Perfection; Supplements; Further Assurances; Use of
Pledged Collateral.
(a) Delivery of Certificated Securities Collateral. All
certificates, agreements or instruments representing or evidencing the
Securities Collateral, to the extent not previously delivered to the
Administrative Agent, shall immediately upon receipt thereof by any
Pledgor be delivered to and held by or on behalf of the Administrative
Agent pursuant hereto. All certificated Securities Collateral shall be in
suitable form for transfer by delivery or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Administrative Agent. The Administrative
Agent shall have the right, at any time upon the occurrence and during the
continuance of any Event of Default and without notice to any Pledgor, to
endorse, assign or otherwise transfer to or to register in the name of the
Administrative Agent or any of its nominees or endorse for negotiation any
or all of the Securities Collateral, without any indication that such
Securities Collateral is subject to the security interest hereunder. In
addition, the Administrative Agent shall have the right at any time after
the occurrence and during the continuance of a Default to exchange
certificates representing or evidencing Pledged Securities for
certificates of smaller or larger denominations.
(b) Perfection of Uncertificated Securities Collateral. If any
issuer of Pledged Securities is organized in a jurisdiction which does not
permit the use of certificates to evidence equity ownership, or if any of
the Pledged Securities are at any time not evidenced by certificates of
ownership, then each applicable Pledgor shall, to the extent permitted by
applicable law, record such pledge on the equity-holder register or the
books of the issuer, cause the issuer to execute and deliver to the
Administrative Agent an acknowledgment of the pledge of such Pledged
Securities substantially in the form of Exhibit 1 annexed hereto, execute
any customary pledge forms or other documents necessary or appropriate to
complete the pledge and give the Administrative Agent the right to
transfer such Pledged Securities pursuant to the terms hereof and provide
to the Administrative Agent an opinion of counsel, in form and substance
satisfactory to the Administrative Agent, confirming such pledge.
(c) Financing Statements and Other Filings. The only filings,
registrations and recordings necessary and appropriate to create,
preserve, protect and perfect the security interest granted by each
Pledgor to the Administrative Agent pursuant to this Agreement in respect
of the Pledged Collateral are listed in Annex A annexed hereto. All such
filings, registrations and recordings have been filed, registered and
recorded contemporaneously with the execution of the Loan Documents. Each
Pledgor agrees that at any time and from time to time, it will execute
and, at the sole cost and expense of the Pledgors file and refile, or
permit the Administrative Agent to file and refile, such financing
statements, continuation statements and other documents (including,
without limitation, this Agreement), in form reasonably acceptable to the
Administrative Agent, in such offices (including, without limitation, the
United States Patent and Trademark Office and the United States Copyright
Office) as the Administrative Agent may reasonably deem necessary or
appropriate, wherever required or permitted by law in order to perfect,
continue and maintain a valid, enforceable, first priority security
interest, subject only to Prior Liens, in the Pledged Collateral as
provided herein and to preserve the other rights and interests granted to
the Administrative Agent hereunder, as against third parties, with respect
to any Pledged Collateral. Each Pledgor authorizes the Administrative
Agent to file any such financing or
<PAGE>
-9-
continuation statement or other document without the signature of such
Pledgor where permitted by law.
(d) Motor Vehicles. At any time after the occurrence and during the
continuance of an Event of Default, each Pledgor shall, upon the request
of the Administrative Agent, deliver to the Administrative Agent originals
of the certificates of title or ownership for the motor vehicles (and any
other Equipment covered by certificates of title or ownership owned by it)
with the Administrative Agent listed therein as lienholder; provided,
however, that each Pledgor shall not be obligated to deliver to the
Administrative Agent originals of the certificates of title or ownership
for the motor vehicles (and any other Equipment covered by certificates of
title owned by it) if the originals have been previously delivered to the
lienholder of a Prior Lien.
(e) Supplements; Further Assurances. Each Pledgor agrees to do such
further acts and things, and to execute and deliver to the Administrative
Agent such additional assignments, agreements, supplements, powers and
instruments, as the Administrative Agent may reasonably deem necessary or
appropriate, wherever required or permitted by law, in order to perfect,
preserve and protect the security interest in the Pledged Collateral as
provided herein and the rights and interests granted to the Administrative
Agent hereunder, to carry into effect the purposes of this Agreement or
better to assure and confirm unto the Administrative Agent or permit the
Administrative Agent to exercise and enforce its respective rights, powers
and remedies hereunder with respect to any Pledged Collateral. Without
limiting the foregoing, each Pledgor shall make, execute, endorse,
acknowledge, file or refile and/or deliver to the Administrative Agent
from time to time such lists, descriptions and designations of the Pledged
Collateral, copies of warehouse receipts, receipts in the nature of
warehouse receipts, bills of lading, documents of title, vouchers,
invoices, schedules, confirmatory assignments, supplements, additional
security agreements, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other
assurances or instruments or the Administrative Agent deems reasonably
necessary or appropriate. The Administrative Agent may institute and
maintain, in its own name or in the name of any Pledgor, such suits and
proceedings as the Administrative Agent may be advised by counsel shall be
reasonably necessary or expedient to prevent any impairment of the
security interest in or perfection of the Pledged Collateral. All of the
foregoing shall be at the sole cost and expense of the Pledgors.
(f) Use and Pledge of Pledged Collateral. Unless an Event of Default
shall have occurred and be continuing, the Administrative Agent shall from
time to time execute and deliver, upon written request of any Pledgor and
at the sole cost and expense of the Pledgors, any and all instruments,
certificates or other documents, in a form reasonably requested by such
Pledgor, necessary or appropriate in the reasonable judgment of such
Pledgor to enable such Pledgor to continue to exploit, license, use, enjoy
and protect the Pledged Collateral, except as may be prohibited by the
terms of this Agreement or the Credit Agreement. The Pledgors and the
Administrative Agent acknowledge that this Agreement is intended to grant
to the Administrative Agent for the benefit of the Secured Parties a
security interest in and Lien upon the Pledged Collateral and shall not
constitute or create a present assignment of any of the Pledged
Collateral.
Section 5. Representations; Warranties and Covenants. Each Pledgor
represents, warrants and covenants as follows:
(a) Perfection Actions; Prior Liens. Upon the completion of the
deliveries, filings and other actions contemplated in subsections 4(a)
through 4(c) hereof and subsections 9(a) and 9(b)
<PAGE>
-10-
hereof, the security interest granted to the Administrative Agent for the
benefit of the Secured Parties pursuant to this Agreement in and to the
Pledged Collateral (other than Pledged Collateral covered by certificates
of title or ownership) will constitute a perfected security interest
therein, superior and prior to the rights of all other Persons therein
other than with respect to (i) the Liens identified on Annex B relating to
the items of Pledged Collateral identified on such annex, (ii) Subordinate
Liens (as hereinafter defined) of the type described in clauses (g), (h),
(j), (l), (m), (n) and (r) of the definition of Permitted Liens on
Pledged Collateral acquired after the date hereof and that attached prior
to the Lien granted hereunder or upon the acquisition of such Pledged
Collateral and (iii) Subordinate Liens (as hereinafter defined) of the
type described in clauses (a) and (b) of the definition of Permitted Liens
which created or authorized under any law or regulation of any applicable
Governmental Authority if and to the extent that the law or regulation
creating or authorizing such Lien provides that such Lien is superior to
the Lien and security interest created and evidenced hereby (the Liens
described in clauses (i), (ii) and (iii), "Prior Liens").
(b) No Liens. Such Pledgor is as of the date hereof, and, as to
Pledged Collateral acquired by it from time to time after the date hereof,
such Pledgor will be, the sole direct and beneficial owner of all Pledged
Collateral pledged by it hereunder free from any Lien or other right,
title or interest of any Person other than (i) Prior Liens, (ii) the Lien
and security interest created by this Agreement and (iii) Subordinate
Liens. Pledgor shall defend the Pledged Collateral pledged by it hereunder
against all claims and demands of all Persons at any time claiming any
interest therein adverse to the Administrative Agent or any other Secured
Party. There is no agreement, and Pledgor shall not enter into any
agreement or take any other action, that would result in the imposition of
any other Lien, restrict the transferability of any of the Pledged
Collateral or otherwise impair or conflict with such Pledgor's obligations
or the rights of the Administrative Agent hereunder.
"Subordinate Liens" shall mean (A) with respect to the General
Collateral, Permitted Liens applicable to such Pledged Collateral
(provided, however, that with respect to Liens of the type described in
clauses (a) and (b) of the definition of Permitted Liens, such applicable
Pledgor shall comply with the provisions of subsection 5(o) of this
Agreement) and (B) with respect to all other Pledged Collateral, Liens of
the type described in clauses (a) and (l) of the definition of Permitted
Liens (provided, however, that with respect to Liens of the type described
in clauses (a) and (l) of the definition of Permitted Liens, such
applicable Pledgor shall comply with the provisions of subsection 5(o) of
this Agreement).
(c) Other Financing Statements. There is no (nor will be any) valid
or effective financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) covering or purporting to
cover any interest of any kind in the Pledged Collateral other than those
relating to (i) Prior Liens, (ii) this Agreement and (iii) Subordinate
Liens, and so long as any of the Secured Obligations remain unpaid or the
Commitments of the Lenders to make any Loan or to issue any Letter of
Credit shall not have expired or been sooner terminated, no Pledgor shall
execute, authorize or permit to be filed in any public office any
financing statement (or similar statement or instrument of registration
under the law of any jurisdiction) or statements relating to any Pledged
Collateral, except, in each case, financing statements filed or to be
filed in respect of and covering the security interests granted by such
Pledgor pursuant to this Agreement and financing statements relating to
Prior Liens or Subordinate Liens.
(d) Chief Executive Office; Change of Name. The chief executive
office of such Pledgor is located at the address indicated next to its
name in Annex C annexed hereto. Such Pledgor shall not
<PAGE>
-11-
move its chief executive office, except to such new location as such
Pledgor may establish in accordance with the last sentence of this
subsection 5(d). Such Pledgor shall not establish a new location for its
chief executive office nor shall it change its name until (i) it shall
have given the Administrative Agent not less than thirty (30) days' prior
written notice of its intention so to do, clearly describing such new
location or name and providing such other information in connection
therewith as the Administrative Agent may reasonably request and (ii) with
respect to such new location or name, such Pledgor shall have taken all
action reasonably satisfactory to the Administrative Agent to maintain the
perfection and priority of the security interest of the Administrative
Agent for the benefit of the Secured Parties in the Pledged Collateral
intended to be granted hereby, including, without limitation, obtaining
waivers of landlord's or warehouseman's liens with respect to such new
location.
(e) Location of Equipment. All Equipment held on the date hereof by
such Pledgor is located at the addresses indicated next to its name in
Annex C annexed hereto. All Equipment now held or subsequently acquired
shall be kept at one or more of the locations listed in Annex C annexed
hereto, or such new location as such Pledgor may establish if (i) it shall
have given to the Administrative Agent at least thirty (30) days' prior
written notice of its intention so to do, clearly describing such new
location and providing such other information in connection therewith as
the Administrative Agent may reasonably request, and (ii) with respect to
such new location, such Pledgor shall have taken all action reasonably
satisfactory to the Administrative Agent to maintain the perfection and
priority of the security interest of the Administrative Agent for the
benefit of the Secured Parties in the Pledged Collateral intended to be
granted hereby, including, without limitation, obtaining waivers of
landlord's or warehouseman's liens with respect to such new location.
(f) Due Authorization and Issuance. All of the Pledged Shares have
been, and to the extent hereafter issued will be upon such issuance, duly
authorized, validly issued and fully paid and non-assessable. All of the
Initial Pledged Interests have been fully paid for, and there is no amount
or other obligation owing by any Pledgor to any issuer of the Initial
Pledged Interests in exchange for or in connection with the issuance of
the Initial Pledged Interests or any Pledgor's status as a partner or a
member of any issuer of the Initial Pledged Interests.
(g) No Violations, etc. The pledge of the Pledged Securities
pursuant to this Agreement does not violate Regulation T, U or X of the
Federal Reserve Board.
(h) No Options, Warrants, etc. There are no options, warrants,
calls, rights, commitments or agreements of any character to which such
Pledgor is a party or by which it is bound obligating such Pledgor to
issue, deliver or sell or cause to be issued, delivered or sold,
additional Pledged Securities or obligating such Pledgor to grant, extend
or enter into any such option, warrant, call, right, commitment or
agreement. There are no voting trusts or other agreements or
understandings to which such Pledgor is a party with respect to the
transfer, voting or exercise of any other right of the equity interests of
any issuer of the Pledged Securities.
(i) No Claims. Such Pledgor owns or has rights to use all the
Pledged Collateral pledged by it hereunder and all rights with respect to
any of the foregoing used in, necessary for or material to such Pledgor's
business as currently conducted and as contemplated to be conducted
pursuant to the Loan Documents, except for Permits the failure to obtain
which could not reasonably be expected to have a Material Adverse Effect.
The use by such Pledgor of such Pledged Collateral and all such rights
with respect to the foregoing do not infringe on the rights of any Person
in any material respect. No
<PAGE>
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material claim has been made and remains outstanding that such Pledgor's
use of any Pledged Collateral does or may violate the rights of any third
Person.
(j) Authorization, Enforceability. Such Pledgor has the corporate
power and authority and the legal right to pledge and grant a security
interest in all the Pledged Collateral pledged by it pursuant to this
Agreement, and this Agreement constitutes the legal, valid and binding
obligation of such Pledgor, enforceable against such Pledgor in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles (whether enforcement is sought by proceedings in equity or at
law).
(k) No Conflicts, Consents, etc. Neither the execution and delivery
of this Agreement by each Pledgor nor the consummation of the transactions
herein contemplated nor the fulfillment of the terms hereof (i) violates
any charter or by-laws or other organizational document of such Pledgor or
any issuer of Pledged Securities, (ii) violates the terms of any
agreement, indenture, mortgage, deed of trust, equipment lease, instrument
or other document to which such Pledgor is a party, or by which it may be
bound or to which any of its properties or assets may be subject, which
violation or conflict would have a Material Adverse Effect, or a material
adverse effect on the value of the Pledged Collateral or an adverse effect
on the security interests hereunder, (iii) conflicts with any law, order,
rule or regulation applicable to any such Pledgor of any Governmental
Authority having jurisdiction over such Pledgor or its property, or (iv)
results in or requires the creation or imposition of any Lien (other than
the Lien contemplated hereby) upon or with respect to any of the property
now owned or hereafter acquired by such Pledgor. No consent of any party
(including, without limitation, equityholders or creditors of such Pledgor
or any account debtor under a Receivable) and no consent, authorization,
approval, license or other action by, and no notice to or filing with, any
Governmental Authority or regulatory body or other Person is required for
(x) the pledge by such Pledgor of the Pledged Collateral pledged by it
pursuant to this Agreement or for the execution, delivery or performance
of this Agreement by such Pledgor, (y) the exercise by the Administrative
Agent of the rights provided for in this Agreement or (z) the exercise by
the Administrative Agent of the remedies in respect of the Pledged
Collateral pursuant to this Agreement except for the filings contemplated
hereby. In the event that the Administrative Agent desires to exercise any
remedies, voting or consensual rights or attorney-in-fact powers set forth
in this Agreement and determines it reasonably necessary to obtain any
approvals or consents of any Governmental Authority or any other Person
therefor, then, upon the reasonable request of the Administrative Agent,
such Pledgor agrees to use its best efforts to assist and aid the
Administrative Agent to obtain as soon as practicable any reasonably
necessary approvals or consents for the exercise of any such remedies,
rights and powers.
(l) Pledged Collateral. All information set forth herein, including
the schedules and annexes attached hereto, and all information contained
in any documents, schedules and lists heretofore delivered to any Secured
Party in connection with this Agreement, in each case, relating to the
Pledged Collateral, is accurate and complete in all material respects. The
Pledged Collateral described on the schedules attached hereto constitutes
all of the property of such type of Pledged Collateral owned or held by
the Pledgors.
(m) Insurance. No Pledgor shall take any action that impairs the
rights of the Administrative Agent or any Secured Party in the Pledged
Collateral. Each Pledgor shall at all times keep the Inventory and
Equipment insured, at such Pledgor's own expense, against fire, theft and
all other risks to which the Pledged Collateral may be subject and are
usually insured against in the same general area
<PAGE>
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by companies engaged in the same or a similar business, in such amounts
and with such deductibles as would be maintained by a prudent operator in
the same general area as such Pledgor of businesses similar to the
business of such Pledgor. Each policy or certificate with respect to such
insurance shall be endorsed to the Administrative Agent's reasonable
satisfaction for the benefit of the Administrative Agent (including,
without limitation, by naming the Administrative Agent as an additional
named insured as the Administrative Agent may reasonably request) and such
policy or certificate shall be delivered to the Administrative Agent. Each
such policy shall state that it cannot be cancelled without 30 days' prior
written notice to the Administrative Agent At least 30 days prior to the
expiration of any such policy of insurance, each Pledgor shall deliver to
the Administrative Agent an extension or renewal policy or an insurance
certificate evidencing renewal or extension of such policy. If any Pledgor
shall fail to insure such Pledged Collateral to the Administrative Agent's
reasonable satisfaction, the Administrative Agent shall have the right
(but shall be under no obligation) to advance funds to procure or renew or
extend such insurance, and such Pledgor agrees to reimburse the
Administrative Agent for all costs and expenses thereof, with interest on
all such funds from the date advanced until paid in full at the highest
rate then in effect under the Credit Agreement.
(n) Insurance Proceeds. Any proceeds of insurance received by any
Pledgor shall be applied by it as provided in Section 2.7(b) of the Credit
Agreement. In the event that any Pledgor is permitted to and elects to
apply such proceeds to the repair or replacement of any item of Pledged
Collateral, such Pledgor shall upon its receipt of such proceeds promptly
commence and diligently continue to perform such repair or promptly effect
such replacement. Upon the occurrence and during the continuance of any
Event of Default, the Administrative Agent shall have the option to apply
any proceeds of insurance received by any Pledgor in respect of the
Pledged Collateral toward the payment of the Secured Obligations in
accordance with Section 13 hereof or to continue to hold such proceeds as
additional collateral to secure the performance by the Pledgors of the
Secured Obligations.
(o) Payment of Taxes; Compliance with Laws; Claims. Each Pledgor
shall pay prior to the date on which any penalties would attach thereto
all property and other taxes, assessments and governmental charges or
levies imposed upon, and all claims (including claims for labor,
materials, warehousing and supplies) against, the Pledged Collateral. Each
Pledgor shall comply with all laws, rules and regulations applicable to
the Pledged Collateral the failure to comply with which would have a
Material Adverse Effect. Notwithstanding the foregoing, each Pledgor may
at its own expense contest the amount or applicability of any of the
obligations described in the preceding sentences of this subsection 5(o)
by appropriate legal or administrative; provided, however, that in
connection with such contest, such Pledgor shall (i) have made provision
for the payment of such contested amount on such Pledgor's books if and to
the extent required by generally accepted accounting principles, and (ii)
during the continuance of a Default at the option and upon the request of
the Administrative Agent, have deposited with the Administrative Agent a
sum sufficient to pay and discharge such obligation and the Administrative
Agent's estimate of all interest and penalties related thereto.
Notwithstanding the foregoing provisions of this subsection 5(o), (x) no
contest of any such obligation may be pursued by such Pledgor if such
contest would expose the Administrative Agent or any other Secured Party
to (A) any possible criminal liability or (B) unless such Pledgor shall
have furnished a bond or, other security therefor reasonably satisfactory
to the Administrative Agent, any other affected Secured Party, any
additional civil liability for failure to comply with such obligation and
(y) if at any time payment of any obligation imposed upon such Pledgor by
this subsection 5(o) shall become necessary to prevent the imposition of
remedies because of non-payment, such Pledgor shall pay the same in
sufficient time to prevent the imposition of remedies in respect of such
default or prospective default.
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Section 6. Special Provisions Concerning General Collateral.
(a) Special Representations and Warranties. As of the time when each
of its Receivables arises, each Pledgor shall be deemed to have
represented and warranted that such Receivable and all records, papers and
documents relating thereto (i) are genuine and correct and in all material
respects what they purport to be, (ii) represent the legal, valid and
binding obligation of the account debtor, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability, evidencing indebtedness
unpaid and owed by such account debtor, arising out of the performance of
labor or services or the sale or lease and delivery of the merchandise
listed therein or out of an advance or a loan, not subject to the
fulfillment of any contract or condition whatsoever or to any defenses,
set-offs or counterclaims except with respect to refunds, returns and
allowances in the ordinary course of business, or stamp or other taxes,
(iii) will, in the case of a Receivable, except for the original or
duplicate original invoice sent to a purchaser evidencing such purchaser's
account, be the only original writings evidencing and embodying such
obligation of the account debtor named therein, and (iv) are in compliance
and conform with, in all material respects, all applicable federal, state
and local laws and applicable laws of any relevant foreign jurisdiction.
(b) Maintenance of Records. Each Pledgor shall keep and maintain at
its own cost and expense complete records of each Receivable, in a manner
consistent with prudent business practice, including, without limitation,
records of all payments received, all credits granted thereon, all
merchandise returned and all other documentation relating thereto. Each
Pledgor shall, at such Pledgor's sole cost and expense, upon the
Administrative Agent's demand made at any time after the occurrence and
during the continuance of any Event of Default, deliver all tangible
evidence of Receivables, including, without limitation, all documents
evidencing Receivables and any books and records relating thereto to the
Administrative Agent or to its representatives (copies of which evidence
and books and records may be retained by such Pledgor). Upon the
occurrence and during the continuance of any Event of Default, the
Administrative Agent may transfer a full and complete copy of any
Pledgor's books, records, credit information, reports, memoranda and all
other writings relating to the Receivables to and for the use by any
Person that has acquired or is contemplating acquisition of an interest in
the Receivables or the Administrative Agent's security interest therein
without the consent of any Pledgor.
(c) Legend. Each Pledgor shall legend, at the request of the
Administrative Agent made at any time after the occurrence of any Event of
Default and in form and manner satisfactory to the Administrative Agent,
the Receivables and the other books, records and documents of such Pledgor
evidencing or pertaining to the Receivables with an appropriate reference
to the fact that the Receivables have been assigned to the Administrative
Agent for the benefit of the Secured Parties and that the Administrative
Agent has a security interest therein.
(d) Modification of Terms, etc. No Pledgor shall rescind or cancel
any indebtedness evidenced by any Receivable or modify any material term
thereof or make any adjustment with respect thereto except in the ordinary
course of business consistent with prudent business practice, or extend or
renew any such indebtedness except in the ordinary course of business
consistent with prudent business practice or compromise or settle any
material dispute, claim, suit or legal proceeding relating thereto or sell
any Receivable or interest therein without the prior written consent of
the Administrative Agent. Each Pledgor shall timely fulfill all
obligations on its part to be fulfilled under or in connection with the
Receivables.
<PAGE>
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(e) Collection. Each Pledgor shall cause to be collected from the
account debtor of each of the Receivables, as and when due (including,
without limitation, Receivables that are delinquent, such Receivables to
be collected in accordance with generally accepted commercial collection
procedures), any and all amounts owing under or on account of such
Receivable, and apply forthwith upon receipt thereof all such amounts as
are so collected to the outstanding balance of such Receivable, except
that any Pledgor may, with respect to a Receivable, allow in the ordinary
course of business (i) a refund or credit due as a result of returned or
damaged or defective merchandise and (ii) such extensions of time to pay
amounts due in respect of Receivables and such other modifications of
payment terms or settlements in respect of Receivables as shall be
commercially reasonable in the circumstances, all in accordance with such
Pledgor's ordinary course of business consistent with its collection
practices as in effect from time to time. The costs and expenses
(including, without limitation, reasonable attorneys' fees) of collection,
in any case, whether incurred by any Pledgor, the Administrative Agent or
any Secured Party, shall be paid by the Pledgors.
(f) Instruments. Each Pledgor shall deliver to the Administrative
Agent, within five days after receipt thereof by such Pledgor, any
Instrument evidencing Receivables which is in the principal amount of
$100,000 or more. Any Instrument delivered to the Administrative Agent
pursuant to this subsection 6(f) shall be appropriately endorsed (if
applicable) to the order of the Administrative Agent, as agent for the
Secured Parties, and shall be held by the Administrative Agent as further
security hereunder; provided however, that so long as no Default shall
have occurred and be continuing, the Administrative Agent shall, promptly
upon request of such Pledgor, make appropriate arrangements for making any
Instrument pledged by such Pledgor available to such Pledgor for purposes
of presentation, collection or renewal (any such arrangement to be
effected, to the extent deemed reasonably appropriate by the
Administrative Agent, against trust receipt or like document).
(g) Cash Collateral. Upon the occurrence and during the continuance
of any Event of Default, if the Administrative Agent so directs, each
Pledgor shall cause all payments on account of the Receivables to be held
by the Administrative Agent as cash collateral in accordance with the
provisions of subsections 9(e) and 9(f) hereof. Without notice to or
assent by any Pledgor, the Administrative Agent may apply any or all
amounts then or thereafter held as cash collateral in the manner provided
in subsections 9(e) and 9(f). The costs and expenses (including, without
limitation, reasonable attorneys fees) of collection, whether incurred by
the Administrative Agent or any Secured Party, shall be paid by the
Pledgors.
(h) Maintenance of Equipment. Each Pledgor shall cause the Equipment
that is useful and necessary in its business to be maintained and
preserved in good condition, repair and working order, as when new,
ordinary wear and tear excepted, to the extent consistent with current
business practice in accordance with any manufacturer's manual, and shall
forthwith, or in the case of any loss or damage which (individually or in
the aggregate) exceeds $100,000 to any of such Equipment (of which prompt
notice shall be given to the Administrative Agent) as quickly as
commercially practicable after the occurrence thereof, make or cause to be
made all repairs, replacements and other improvements in connection
therewith which are necessary or desirable in the conduct of such
Pledgor's business.
(i) Warehouse Receipts Non-Negotiable. If any warehouse receipt or
receipt in the nature of a warehouse receipt is issued after the date
hereof with respect to any of the Inventory, the applicable Pledgor shall
not permit such warehouse receipt or receipt in the nature thereof to be
"negotiable" (as such term is used in Section 7-104 of the UCC or under
other relevant law).
<PAGE>
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(j) Consents to Assignment of Contracts. To the extent that any
material contract or other agreement or any Pledgor would constitute a
Contract hereunder but for the exclusions contained in the provisos in the
definition of "Contracts" hereunder, such Pledgor shall use its reasonable
best efforts to cause the counterparty thereto to deliver the consent
contemplated in the provisos of such definition within 30 days after the
date hereof. For purposes of this subsection 6(j), "best efforts" shall
not require such Obligor to pay or cause to be paid any renumeration to
any such counterparty in order to obtain such consent to the extent that
it would be commercially unreasonable to do so.
(k) Fair Labor Standards Act. Any goods now or hereafter produced by
each Pledgor included in the Pledged Collateral have been and will be
produced in substantial compliance with the requirements of the Fair Labor
Standards Act of 1938, as amended.
Section 7. Special Provisions Concerning Securities Collateral.
(a) Pledge of Additional Securities. Each Pledgor shall, upon
obtaining any Pledged Securities or Intercompany Notes of any Person,
accept the same in trust for the benefit of the Administrative Agent and
promptly (and in any event within five Business Days) deliver to the
Administrative Agent a pledge amendment, duly executed by such Pledgor, in
substantially the form of Exhibit 3 annexed hereto (each, a "Pledge
Amendment"), and the certificates and other documents required under
subsections 4(a) and 4(b) in respect of the additional Pledged Securities
or Intercompany Notes that are to be pledged pursuant to this Agreement,
and confirming the attachment of the Lien hereby created on and in respect
of such additional property. Each Pledgor hereby authorizes the
Administrative Agent to attach each Pledge Amendment to this Agreement and
agrees that all Pledged Securities or Intercompany Notes listed on any
Pledge Amendment delivered to the Administrative Agent shall for all
purposes hereunder be considered Pledged Collateral.
(b) Voting Rights; Distributions; etc.
(i) So long as no Event of Default shall have occurred and be
continuing:
(A) Each Pledgor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the
Securities Collateral or any part thereof for any purpose not
inconsistent with the terms or purposes of this Agreement or
any other Loan Document; provided, however, that no Pledgor
shall in any event exercise such rights in any manner which
may have an adverse effect on the value of the Pledged
Collateral or the security intended to be provided by this
Agreement.
(B) Each Pledgor shall be entitled to receive and
retain, and to utilize free and clear of the Lien of this
Agreement, any and all Distributions, but only if and to the
extent made in accordance with the provisions of the Credit
Agreement, provided however, that any and all such
Distributions consisting of rights or interests in the form of
securities shall be forthwith delivered to the Administrative
Agent to hold as Pledged Collateral and shall, if received by
any Pledgor, be received in trust for the benefit of the
Administrative Agent, be segregated from the other property or
funds of such Pledgor and be forthwith delivered to the
Administrative Agent as Pledged Collateral in the same form as
so received (with any necessary endorsement).
<PAGE>
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(C) The Administrative Agent shall be deemed without
further action or formality to have granted to each Pledgor
all necessary consents relating to voting rights and shall, if
necessary, upon written request of any Pledgor and at the sole
cost and expense of the Pledgors, from time to time execute
and deliver (or cause to be executed and delivered) to such
Pledgor all such instruments as such Pledgor may reasonably
request in order to permit such Pledgor to exercise the voting
and other rights which it is entitled to exercise pursuant to
subsection 7(b)(i)(A) hereof and to receive the Distributions
which it is authorized to receive and retain pursuant to
subsection 7(b)(i)(B) hereof.
(ii) Upon the occurrence and during the continuance of any
Event of Default:
(A) All rights of each Pledgor to exercise the voting
and other consensual rights it would otherwise be entitled to
exercise pursuant to subsection 7(b)(i)(A) hereof without any
action or the giving of any notice shall cease, and all such
rights shall thereupon become vested in the Administrative
Agent, which shall thereupon have the sole right to exercise
such voting and other consensual rights.
(B) All rights of each Pledgor to receive Distributions
which it would otherwise be authorized to receive and retain
pursuant to subsection 7(b)(i)(B) hereof shall cease and all
such rights shall thereupon become vested in the
Administrative Agent, which shall thereupon have the sole
right to receive and hold as Pledged Collateral such
Distributions.
(iii) Each Pledgor shall, at its sole cost and expense, from
time to time execute and deliver to the Administrative Agent
appropriate instruments as the Administrative Agent may reasonably
request in order to permit the Administrative Agent to exercise the
voting and other rights which it may be entitled to exercise
pursuant to subsection 7(b)(ii)(A) hereof and to receive all
Distributions which it may be entitled to receive under subsection
7(b)(ii)(B) hereof.
(iv) All Distributions that are received by any Pledgor
contrary to the provisions of subsection 7(b)(ii)(B) hereof shall be
received in trust for the benefit of the Administrative Agent, shall
be segregated from other funds of such Pledgor and shall immediately
be paid over to the Administrative Agent as Pledged Collateral in
the same form as so received (with any necessary endorsement).
(c) No New Securities. Each Pledgor shall cause each issuer of the
Pledged Securities not to issue any stock or other securities or equity
interests in addition to or in substitution for the Pledged Securities
issued by such issuer, except to such Pledgor.
(d) Operative Agreements. Each Pledgor has delivered to the
Administrative Agent true, correct and complete copies of the Operative
Agreements. The Operative Agreements are in full force and effect, have
not as of the date hereof been amended or modified, and there is no
existing default by any party thereunder or any event that, with the
giving of notice of passage of time or both, would constitute a default by
any party thereunder. Each Pledgor shall deliver to the Administrative
Agent a copy of any notice of default given or received by it under any
Operative Agreement within ten (10) days after such Pledgor gives or
receives such notice. No Pledgor will terminate or agree to terminate any
<PAGE>
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Operative Agreement or make any amendment or modification to any Operative
Agreement that may have an adverse effect on the value of the Pledged
Interests or the security intended to be provided by this Agreement.
(e) Defaults, etc. Such Pledgor is not in default in the payment of
any portion of any mandatory capital contribution, if any, required to be
made under any agreement to which such Pledgor is a party relating to the
Pledged Securities pledged by it, and such Pledgor is not in violation of
any other material provisions of any such agreement to which such Pledgor
is a party, or otherwise in default or violation thereunder. No Pledged
Securities pledged by such Pledgor are subject to any defense, offset or
counterclaim, nor have any of the foregoing been asserted or alleged
against such Pledgor by any Person with respect thereto, and as of the
date hereof, there are no certificates, instruments, documents or other
writings (other than the Operative Agreements and certificates, if any,
delivered to the Administrative Agent) that evidence any Pledged
Securities of such Debtor.
Section 8. Special Provisions Concerning Intellectual Property
Collateral.
(a) Grant of License. For the purpose of enabling the Administrative
Agent, during the continuance of an Event of Default, to exercise rights
and remedies under Section 12 hereof at such time as the Administrative
Agent shall be lawfully entitled to exercise such rights and remedies, and
for no other purpose, each Pledgor hereby grants to the Administrative
Agent, to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to such
Pledgor) to use, assign, license or sublicense any of the Intellectual
Property Collateral now owned or hereafter acquired by such Pledgor,
wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or
stored and to all computer programs used for the compilation or printout
hereof.
(b) Registrations. Except pursuant to licenses and other user
agreements entered into by any Pledgor in the ordinary course of business,
that are listed in Schedule VI annexed hereto, on and as of the date
hereof (i) each Pledgor owns and possesses the right to use, and has done
nothing to authorize or enable any other Person to use, any Copyright,
Patent or Trademark listed in Schedules III, IV and V, and (ii) all
registrations listed in Schedules III, IV and V are valid and in full
force and effect
(c) No Violations or Proceedings. To each Pledgor's knowledge, on
and as of the date hereof, (i) except as set forth in Schedule VI annexed
hereto, there is no violation by others of any right of such Pledgor with
respect to any Copyright, Patent or Trademark listed in Schedules III, IV
and V annexed hereto, respectively, pledged by it under the name of such
Pledgor, (ii) such Pledgor is not infringing, in any material respect,
upon any Copyright, Patent or Trademark of any other Person and (iii) no
proceedings have been instituted or are pending against such Pledgor or,
to such Pledgor's knowledge, threatened, and no material claim against
such Pledgor has been received by such Pledgor, alleging any such
violation, except as may be set forth in Schedule VI.
(d) Protection of Administrative Agent's Security. On a continuing
basis, each Pledgor shall, at its sole cost and expense, (i) promptly
following its becoming aware thereof, notify the Administrative Agent of
(A) any adverse determination in any proceeding in the United States
Patent and Trademark Office or the United States Copyright Office with
respect to any Patent, Trademark or Copyright or (B) the institution of
any proceeding or any adverse determination in any federal, state or local
court or administrative body regarding such Pledgor's claim of ownership
in or right to use any of the Intellectual Property Collateral, its right
to register the Intellectual Property Collateral or its right to
<PAGE>
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keep and maintain such registration in full force and effect, (ii)
maintain and protect the Intellectual Property Collateral necessary for
the operation of such Pledgor's business as presently conducted and as
contemplated by the Credit Agreement, (iii) not permit to lapse or become
abandoned any Intellectual Property Collateral necessary for the operation
of such Pledgor's business as presently conducted and as contemplated by
the Credit Agreement, and not settle or compromise any pending or future
litigation or administrative proceeding with respect to the Intellectual
Property Collateral necessary for the operation of such Pledgor's business
as presently conducted, in each case, without the consent of the
Administrative Agent, (iv) upon such Pledgor obtaining knowledge thereof,
promptly notify the Administrative Agent in writing of any event which may
reasonably be expected to adversely affect the value or utility of the
Intellectual Property Collateral or any portion thereof necessary for the
operation of such Pledgor's business as presently conducted, the ability
of such Pledgor or the Administrative Agent to dispose of the Intellectual
Property Collateral or any portion thereof or the rights and remedies of
the Administrative Agent in relation thereto, including, without
limitation, a levy or threat of levy or any legal process against the
Intellectual Property Collateral or any portion thereof, (v) not license
the Intellectual Property Collateral other than licenses entered into by
such Pledgor in, or incidental to, the ordinary course of business, or
amend or permit the amendment of any of the licenses in a manner that
adversely affects the right to receive payments thereunder, or in any
manner that would impair the value of the Intellectual Property Collateral
or the Lien on the Intellectual Property Collateral intended to be granted
to the Administrative Agent for the benefit of the Secured Parties,
without the consent of the Administrative Agent, (vi) until the
Administrative Agent exercises its rights to make collection, diligently
keep adequate records respecting the Intellectual Property Collateral and
(vii) furnish to the Administrative Agent from time to time statements and
amended schedules further identifying and describing the Intellectual
Property Collateral and such other materials evidencing or reports
pertaining to the Intellectual Property Collateral as the Administrative
Agent may from time to time reasonably request, all in reasonable detail.
(e) After-Acquired Property. If any Pledgor shall, at any time
before the Secured Obligations have been paid in full or the Commitments
of the Lenders to make any Loan or to issue any Letter of Credit have
expired or been sooner terminated (i) obtain any rights to any additional
Intellectual Property Collateral or (ii) become entitled to the benefit of
any additional Intellectual Property Collateral or any renewal or
extension thereof, including any reissue, division, continuation, or
continuation-in-part of any Patent, or any improvement on any Patent, the
provisions of this Agreement shall automatically apply thereto and any
such item enumerated in clauses (i) or (ii) of this subsection 8(e) with
respect to such Pledgor shall automatically constitute Intellectual
Property Collateral if such would have constituted Intellectual Property
Collateral at the time of execution of this Agreement and be subject to
the Lien created by this Agreement without further action by any party
other than actions required to perfect such Lien. Each Pledgor shall
promptly provide to the Administrative Agent written notice of any of the
foregoing. Each Pledgor agrees, promptly following a request by the
Administrative Agent, to confirm the attachment of the Lien created by
this Agreement to any rights described in clauses (i) and (ii) of this
subsection 8(e) if such would have constituted Intellectual Property
Collateral at the time of execution of this Agreement by execution of an
instrument in form reasonably acceptable to the Administrative Agent.
(f) Modifications. Each Pledgor authorizes the Administrative Agent
to modify this Agreement by amending Schedules III, IV, V and VI hereto to
include any future Intellectual Property Collateral of such Pledgor,
including, without limitation, any of the items listed in subsection 8(e).
<PAGE>
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(g) Applications. Each Pledgor shall file and prosecute diligently
all applications for the Patents, the Trademarks or the Copyrights now or
hereafter pending that would be necessary to the operation of such
Pledgor's business as presently conducted and as contemplated by the
Credit Agreement to which any such applications pertain, and shall do all
acts necessary to preserve and maintain all rights in the Intellectual
Property Collateral necessary to the operation of such Pledgor's business
as presently conducted and as contemplated by the Credit Agreement. Any
and all costs and expenses incurred in connection with any such actions
shall be borne by the Pledgors. No Pledgor shall abandon any right to file
a Patent, Trademark or Copyright application, or any pending Patent,
Trademark or Copyright application or any Patent, Trademark or Copyright
necessary for the operation of such Pledgor's business as presently
conducted and as contemplated by the Credit Agreement without the consent
of the Administrative Agent
(h) Litigation.
(i) Unless there shall occur and be continuing any Event of
Default, each Pledgor shall have the right to commence and prosecute
in its own name, as the party in interest, for its own benefit and
at the sole cost and expense of the Pledgors, such applications for
protection of the Intellectual Property Collateral and suits,
proceedings or other actions for infringement, counterfeiting,
unfair competition, dilution or other damage as are in its
reasonable business judgment necessary to protect the Intellectual
Property Collateral necessary for the operation of such Pledgor's
business as presently conducted. Each Pledgor shall promptly notify
the Administrative Agent in writing as to the commencement and
prosecution of any such actions, or threat thereof relating to the
Intellectual Property Collateral, and shall provide to the
Administrative Agent such information with respect thereto as may be
reasonably requested by the Administrative Agent. Each Pledgor shall
indemnify and hold harmless each Secured Party for any and all
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, expenses or disbursements (including reasonable
attorneys' fees and expenses) of any kind whatsoever which may be
imposed on, incurred by or asserted against such Secured Party in
connection with or in any way arising out of such suits, proceedings
or other actions.
(ii) Upon the occurrence and during the continuance of any
Event of Default, the Administrative Agent shall have the right but
shall in no way be obligated to file applications for protection of
the Intellectual Property Collateral and/or bring suit in the name
of any Pledgor, the Administrative Agent or the Secured Parties to
enforce the Intellectual Property Collateral and any license
thereunder. In the event of such suit, each Pledgor shall, at the
request of the Administrative Agent, do any and all lawful acts and
execute any and all documents requested by the Administrative Agent
in aid of such enforcement and the Pledgors shall promptly, upon
demand, reimburse and indemnify the Administrative Agent, as the
case may be, for all costs and expenses (including reasonable fees
and expenses of counsel) incurred by the Administrative Agent in the
exercise of its rights under this subsection 8(h). In the event that
the Administrative Agent shall elect not to bring suit to enforce
the Intellectual Property Collateral, each Pledgor agrees, at the
request of the Administrative Agent, to use all reasonable measures,
whether by action, suit, proceeding or otherwise, to prevent the
infringement, counterfeiting or other diminution in value of any of
the Intellectual Property Collateral by others and for that purpose
agrees to diligently maintain any action, suit or proceeding against
any person so infringing necessary to prevent such infringement
unless such Pledgor has determined that such Intellectual Property
Collateral that is the subject of any pending or contemplated
infringement or enforcement action or proceeding does not contain
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or represent any value or utility (other than of an immaterial
nature), consistent with prudent business practice.
Section 9. Special Provisions Concerning Financial Accounts. At any
time after the occurrence and during the continuance of a Default until such
time as such Default has been cured, and upon the request of the Administrative
Agent, each Pledgor shall comply with the following covenants and make the
following representations and warranties:
(a) Financial Accounts. Each Pledgor shall, within 30 days of the
written request by the Administrative Agent, notify each Financial
Intermediary that any Financial Account Collateral maintained with such
Financial Intermediary by such Pledgor is under the exclusive dominion and
control of the Administrative Agent and that all moneys, financial assets,
checks, drafts, securities, instruments and other property deposited with
such Financial Intermediary are to be held by such Financial Intermediary
for the benefit of the Administrative Agent. Each Pledgor shall, within
one Business Day of actual receipt thereof, deposit any payment received
by it into a financial account that is subject to a financial account
consent agreement substantially in the form of Exhibit 2 annexed hereto
(each such agreement, a "Financial Account Consent Agreement" and each
financial account subject to a Financial Account Consent Agreement, an
"Approved Financial Account") or into the Concentration Account referred
to in subsection (b) below. In addition, all Persons that owe money to any
Pledgor in excess of $100,000 in the aggregate shall be directed to remit
their payments to an Approved Financial Account. If any Pledgor is unable
to obtain a Financial Account Consent Agreement from any Financial
Intermediary, then such Pledgor shall terminate all financial accounts
maintained with such Financial Intermediary and transfer all moneys,
financial assets, checks, drafts, securities, instruments and other
property deposited therein to another Approved Financial Account.
(b) Concentration Account. The Pledgors will establish a
concentration account or sub-account (the "Concentration Account") with
the Administrative Agent into which all Financial Account Collateral of
the Pledgors shall be deposited by 12:00 p.m. New York time on each
Business Day, subject to the provisions of subsection 9(c). Each Pledgor
hereby agrees that the Concentration Account is under the exclusive
dominion and control of the Administrative Agent and all moneys,
instruments, securities and other property received in the Concentration
Account are to be held for the benefit of the Administrative Agent on
behalf of the Secured Parties. Each Pledgor hereby transfers to the
Administrative Agent the exclusive dominion and control over the
Concentration Account. Notwithstanding the foregoing, the Administrative
Agent shall be permitted to designate a Lender that has executed and
delivered a Financial Account Consent Agreement and has agreed to be a
collateral sub-agent for the Administrative Agent to be the banking or
financial institution for the Concentration Account.
(c) Dispositions from Concentration Account. Until an Event of
Default shall have occurred and be continuing, each Pledgor is hereby
authorized by the Administrative Agent to direct on any Business Day the
disposition of any and all moneys, financial assets, checks, drafts,
securities, instruments and other property deposited in the Concentration
Account into one or more Approved Financial Accounts for use by such
Pledgor in a manner permitted by the Credit Agreement. The Administrative
Agent shall make such disposition by 2:00 p.m. New York time on each such
date.
(d) Revocation of Withdrawal Right. Upon the occurrence and during
the continuance of any Event of Default, the authorization of the Pledgors
under subsection 9(c) shall be revoked and all deposits maintained in the
Concentration Account or with any Financial Intermediary, and any
additional moneys, financial assets, checks, drafts, securities,
instruments and other property subsequently
<PAGE>
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maintained with any Financial Intermediary, shall be transferred to a
collateral account or sub-account maintained by the Administrative Agent
(or a Lender that agrees to be a collateral subagent for the
Administrative Agent) in its name as Administrative Agent for the Secured
Parties (the "Collateral Account"). All such deposits in any such
Collateral Account shall constitute "Pledged Collateral" for all purposes
of this Agreement and shall be held by the Administrative Agent as Pledged
Collateral for the Secured Obligations or applied to the payment of the
Secured Obligations in accordance with Section 13 of this Agreement. The
costs and expenses (including reasonable attorney's fees) of collection,
whether incurred by any Pledgor or the Administrative Agent (or any
sub-agent), shall be borne by the Pledgors.
(e) Deposits to Collateral Account. Each Pledgor shall deposit into
the Collateral Account from time to time (i) the cash proceeds of any of
the Pledged Collateral or any Real Property that is subject to a Mortgage
(including pursuant to any disposition thereof), (ii) the cash proceeds of
any Recovery Event or loss of title with respect to any Real Property that
is subject to a Mortgage (including proceeds of casualty events and
proceeds of insurance covering the Pledged Collateral or any Real Property
that is subject to a Mortgage), (iii) any cash in respect of any Pledged
Collateral which the Administrative Agent is entitled to pursuant to
subsection 6(g) or subsection 7(b)(ii) hereof and (iv) any additional
amounts that such Pledgor desires to pledge to the Administrative Agent
for the benefit of the Secured Parties as additional collateral security
hereunder or which such Pledgor is required to pledge as additional
collateral security hereunder pursuant to the Loan Documents.
(f) Application of Amounts in Collateral Account. The balance from
time to time in the Collateral Account shall constitute part of the
Pledged Collateral hereunder and shall not constitute payment of the
Secured Obligations until applied as hereinafter provided. So long as no
Event of Default has occurred and is continuing or will result therefrom,
the Administrative Agent shall remit the collected balance outstanding to
the credit of the Collateral Account to or upon the order of the
respective Pledgor, in periodic installments, if applicable, within two
Business Days of (i) submission of reasonable evidence that such amount is
to be applied as permitted by Section 2.7(b) of the Credit Agreement and
(ii) with respect to any cash proceeds on deposit in the Collateral
Account relating to any Real Property that is subject to a Mortgage,
satisfaction of the conditions relating thereto set forth in such
Mortgage. At any time following the occurrence and during the continuance
of an Event of Default, however, the Administrative Agent may (and, if
instructed by the Lenders as specified in the Credit Agreement, shall) in
its (or their) discretion apply or cause to be applied (subject to
collection) the balance from time to time outstanding to the credit of the
Collateral Account to the payment of the Secured Obligations in the manner
specified in Section 13 hereof subject, however, in the case of amounts
deposited in the Letter of Credit Liabilities Sub-Account, to the
provisions of subsection 9(h) hereof). The balance from time to time in
the Collateral Account shall be subject to withdrawal only as provided
herein.
(g) Investment of Balance in Collateral Account. Amounts on deposit
in the Collateral Account shall be invested from time to time in such
Permitted Investments as the respective Pledgor (or, after the occurrence
and during the continuance of an Event of Default, the Administrative
Agent) shall determine, which Permitted Investments shall be held in the
name and be under the control of the Administrative Agent (or any
sub-agent); provided, however, that at any time after the occurrence and
during the continuance of an Event of Default, the Administrative Agent
may (and, if instructed by the Lenders as specified in the Credit
Agreement, shall) in its (or their) discretion at any time and from time
to time elect to liquidate any such Permitted Investments and to apply or
cause to be applied the
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proceeds thereof to the payment of the Secured Obligations in the manner
specified in Section 13 hereof.
(h) Cover for Letter of Credit Liabilities. Amounts deposited into
the Collateral Account as cover for liabilities in respect of Letters of
Credit under the Credit Agreement pursuant to Section 3 thereof shall be
held by the Administrative Agent in a separate sub-account designated as
the "Letter of Credit Liabilities Sub-Account" (the "Letter of Credit
Liability Sub-Account") and, notwithstanding any other provision of this
Agreement to the contrary, all amounts held in the Letter of Credit
Liabilities Sub-Account shall constitute collateral security first for the
liabilities in respect of Letters of Credit outstanding from time to time
and second as collateral security for the other Secured Obligations
hereunder until such time as all Letters of Credit shall have been
terminated and all of the liabilities in respect of Letters of Credit have
been paid in full.
Section 10. Transfers and Other Liens. No Pledgor shall (a) sell,
convey, assign or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral pledged by it hereunder except as permitted by the
Credit Agreement, (b) create or permit to exist any Lien upon or with respect to
any of the Pledged Collateral pledged by it hereunder other than (i) Prior
Liens, (ii) the Liens and security interest granted to the Administrative Agent
under this Agreement and (iii) Subordinate Liens or (c) permit any issuer of the
Pledged Securities to merge, consolidate or change its legal form, unless (i)
permitted by the Credit Agreement or (ii) all of the outstanding equity
interests of the surviving or resulting entity are, upon such merger or
consolidation, pledged hereunder and no cash, securities or other property is
distributed in respect of the outstanding equity interests of any other entity
that was merged into or consolidated with such issuer.
Section 11. Reasonable Care. The Administrative Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if such Pledged Collateral is accorded
treatment substantially equivalent to that which the Administrative Agent, in
its individual capacity, accords its own property consisting of similar
instruments or interests, it being understood that neither the Administrative
Agent nor any of the Secured Parties shall have responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Securities Collateral,
whether or not the Administrative Agent or any other Secured Party has or is
deemed to have knowledge of such matters, or (ii) taking any necessary steps to
preserve rights against any Person with respect to any Pledged Collateral.
Section 12. Remedies upon Default; Obtaining the Pledged Collateral
upon Event of Default.
(a) If any Event of Default shall have occurred and be continuing,
then and in every such case, the Administrative Agent may:
(i) Personally, or by agents or attorneys, immediately take
possession of the Pledged Collateral or any part thereof, from any
Pledgor or any other Person who then has possession of any part
thereof with or without notice or process of law so long as no
breach of the peace occurs, and for that purpose may enter upon any
Pledgor's premises where any of the Pledged Collateral is located,
remove such Pledged Collateral, remain present at such premises to
receive copies of all communications and remittances relating to the
Pledged Collateral and use in connection with such removal and
possession any and all services, supplies, aids and other facilities
of any Pledgor;
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(ii) Demand, sue for, collect or receive any money or property
at any time payable or receivable in respect of the Pledged
Collateral, including, without limitation, instructing the obligor
or obligors on any agreement, instrument or other obligation
(including, without limitation, the Receivables and Contracts)
constituting part of the Pledged Collateral to make any payment
required by the terms of such instrument or agreement directly to
the Administrative Agent, and in connection with any of the
foregoing, compromising, settling, extending the time for payment
and making other modifications with respect thereto; provided,
however, that in the event that any such payments are made directly
to any Pledgor, prior to receipt by any such obligor of such
instruction, such Pledgor shall segregate all amounts received
pursuant thereto in a separate account and pay the same promptly to
the Administrative Agent;
(iii) Sell, assign, grant a license to use or otherwise
liquidate, or direct any Pledgor to sell, assign, grant a license to
use or otherwise liquidate, any or all investments made in whole or
in part with the Pledged Collateral or any part thereof, and take
possession of the proceeds of any such sale, assignment, license or
liquidation;
(iv) Take possession of the Pledged Collateral or any part
thereof, by directing any Pledgor in writing to deliver the same to
the Administrative Agent at any place or places so designated by the
Administrative Agent that is reasonably convenient to such Pledgor
and the Administrative Agent, in which event such Pledgor shall at
its own expense: (A) forthwith cause the same to be moved to the
place or places designated by the Administrative Agent that is
reasonably convenient to such Pledgor and the Administrative Agent
and there delivered to the Administrative Agent, (B) store and keep
any Pledged Collateral so delivered to the Administrative Agent at
such place or places pending further action by the Administrative
Agent, and (C) while the Pledged Collateral shall be so stored and
kept, provide such security and maintenance services as shall be
necessary to protect the same and to preserve and maintain such
Pledged Collateral in good condition, ordinary wear and tear
excepted. Each Pledgor's obligation to deliver the Pledged
Collateral is of the essence of this Agreement;
(v) Withdraw all moneys, instruments, securities and other
property in any financial account of any Pledgor for application to
the Secured Obligations as provided in Section 13 hereof;
(vi) Retain and apply the Distributions to the Secured
Obligations as provided in Section 13 hereof; and
(vii) Exercise any and all rights as beneficial and legal
owner of the Pledged Collateral, including, without limitation,
perfecting assignment of and exercising any and all voting,
consensual and other rights and powers with respect to any Pledged
Collateral.
Upon application to a court of equity having jurisdiction, the
Administrative Agent shall be entitled to a decree requiring specific
performance by any Pledgor of such obligation.
(b) Remedies; Disposition of the Pledged Collateral.
(i) Upon the occurrence and during the continuance of any
Event of Default, the Administrative Agent may from time to time
exercise in respect of the Pledged Collateral,
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in addition to the other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party on default under the UCC, and the Administrative Agent may
also in its sole discretion, without notice except as specified
below, sell, assign or grant a license to use the Pledged Collateral
or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the
Administrative Agent's offices or elsewhere, for cash, on credit or
for future delivery, and at such price or prices and upon such other
terms as the Administrative Agent may deem commercially reasonable.
The Administrative Agent or any other Secured Party or any of their
respective Affiliates may be the purchaser, licensee, assignee or
recipient of any or all of the Pledged Collateral at any such sale
and shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion
of the Pledged Collateral sold, assigned or licensed at such sale,
to use and apply any of the Secured Obligations owed to such Person
as a credit on account of the purchase price of any Pledged
Collateral payable by such Person at such sale. Each purchaser,
assignee, licensee or recipient at any such sale shall acquire the
property sold, assigned or licensed absolutely free from any claim
or right on the part of any Pledgor, and each Pledgor hereby waives,
to the fullest extent permitted by law, all rights of redemption,
stay and/or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or
hereafter enacted. The Administrative Agent shall not be obligated
to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Administrative Agent may adjourn any public
or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned. Each
Pledgor hereby waives, to the fullest extent permitted by law, any
claims against the Administrative Agent arising by reason of the
fact that the price at which any Pledged Collateral may have been
sold, assigned or licensed at such a private sale was less than the
price which might have been obtained at a public sale, even if the
Administrative Agent accepts the first offer received and does not
offer such Pledged Collateral to more than one offeree.
(ii) Each Pledgor acknowledges and agrees that, to the extent
notice of sale shall be required by law, ten days' written notice to
such Pledgor of the time and place of any public sale or of the time
after which any private sale or other intended disposition is to
take place shall be commercially reasonable notification of such
matters. No notification need be given to any Pledgor if it has
signed, after the occurrence of an Event of Default, a statement
renouncing or modifying any right to notification of sale or other
intended disposition.
(c) Waiver of Notice and Claims. Each Pledgor hereby waives, to the
fullest extent permitted by applicable law, notice or judicial hearing in
connection with the Administrative Agent's taking possession or the
Administrative Agent's disposition of any of the Pledged Collateral,
including, without limitation, any and all prior notice and hearing for
any prejudgment remedy or remedies and any such right which such Pledgor
would otherwise have under law, and each Pledgor hereby further waives, to
the fullest extent permitted by applicable law: (i) all damages occasioned
by such taking of possession, except to the extent caused by gross
negligence or willful misconduct of the Administrative Agent, any Secured
Party or any agent or employee thereof, (ii) all other requirements as to
the time, place and terms of sale or other requirements with respect to
the enforcement of the Administrative Agent's rights hereunder, and (iii)
all rights of redemption, appraisal, valuation, stay, extension or
moratorium now or hereafter in force under any applicable law. The
Administrative Agent shall not be liable for any incorrect or improper
payment made pursuant to this Section 12 in the absence of gross
negligence or willful misconduct Any sale of, or the grant of options to
purchase, or any other realiza-
<PAGE>
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tion upon, any Pledged Collateral shall operate to divest all right,
title, interest, claim and demand, either at law or in equity, of the
applicable Pledgor therein and thereto, and shall be a perpetual bar both
at law and in equity against such Pledgor and against any and all Persons
claiming or attempting to claim the Pledged Collateral so sold, optioned
or realized upon, or any part thereof, from, through or under such
Pledgor.
(d) Certain Sales of Pledged Collateral. Each Pledgor recognizes
that, by reason of certain prohibitions contained in law, rules,
regulations or orders of any foreign Governmental Authority, the
Administrative Agent may be compelled, with respect to any sale of all or
any part of the Pledged Collateral, to limit purchasers to those who meet
the requirements of such foreign Governmental Authority. Each Pledgor
acknowledges that any such sales may be at prices and on terms less
favorable to the Administrative Agent than those obtainable through a
public sale without such restrictions, and, notwithstanding such
circumstances, agrees that any such restricted sale shall be deemed to
have been made in a commercially reasonable manner and that, except as may
be required by applicable law, the Administrative Agent shall have no
obligation to engage in public sales.
(e) Each Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities
Act"), and applicable state securities laws, the Administrative Agent may
be compelled, with respect to any sale of all or any part of the
Securities Collateral, to limit purchasers to Persons who will agree,
among other things, to acquire such Securities Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. Each Pledgor acknowledges that any such private sales may be at
prices and on terms less favorable to the Administrative Agent than those
obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration
statement under the Securities Act), and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have
been made in a commercially reasonable manner and that the Administrative
Agent shall have no obligation to engage in public sales and no obligation
to delay the sale of any Securities Collateral for the period of time
necessary to permit the issuer thereof to register it for a form of public
sale requiring registration under the Securities Act or under applicable
state securities laws, even if such issuer would agree to do so.
(f) Notwithstanding the foregoing, each Pledgor shall, upon the
occurrence and during the continuance of any Event of Default, at the
request of the Administrative Agent, for the benefit of the Administrative
Agent, cause any registration, qualification under or compliance with any
federal or state securities law or laws to be effected with respect to all
or any part of the Securities Collateral as soon as practicable and at the
sole cost and expense of the Pledgors. Each Pledgor will use its best
efforts to cause such registration to be effected (and be kept effective)
and will use its best efforts to cause such qualification and compliance
to be effected (and be kept effective) as may be so requested and as would
permit or facilitate the sale and distribution of such Securities
Collateral, including, without limitation, registration under the
Securities Act (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws
and appropriate compliance with any other government requirements. Each
Pledgor shall cause the Administrative Agent to be kept advised in writing
as to the progress of each such registration, qualification or compliance
and as to the completion thereof, shall furnish to the Administrative
Agent such number of prospectuses, offering circulars or other documents
incident thereto as the Administrative Agent from time to time may
request, and shall indemnify and shall cause the issuer of the Securities
Collateral to indemnify the Administrative Agent and all others
participating in the distribution of such Securities Collateral against
all claims, losses, damages and liabilities caused by any untrue statement
(or alleged untrue statement) of a
<PAGE>
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material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to
state therein (or in any related registration statement, notification or
the like) a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(g) If the Administrative Agent determines to exercise its right to
sell any or all of the Securities Collateral, upon written request, the
applicable Pledgor shall from time to time furnish to the Administrative
Agent all such information as the Administrative Agent may request in
order to determine the number of securities included in the Securities
Collateral which may be sold by the Administrative Agent as exempt
transactions under the Securities Act and the rules of the Securities and
Exchange Commission thereunder, as the same are from time to time in
effect.
Section 13. Application of Proceeds. The proceeds received by the
Administrative Agent in respect of any sale of, collection from or other
realization upon all or any part of the Pledged Collateral pursuant to the
exercise by the Administrative Agent of its remedies as a secured creditor as
provided in Section 12 hereof shall be applied, together with any other sums
then held by the Administrative Agent pursuant to this Agreement, promptly by
the Administrative Agent as follows:
First, to the payment of all costs and expenses, fees, commissions
and taxes of such sale, collection or other realization, including,
without limitation, reasonable compensation to the Administrative Agent
and its agents and counsel, and all expenses, liabilities and advances
made or incurred by the Administrative Agent in connection therewith,
together with interest on each such amount at the highest rate then in
effect under the Credit Agreement from and after the date such amount is
due, owing or unpaid until paid in full;
Second, to the payment of all other costs and expenses of such sale,
collection or other realization, including, without limitation, reasonable
compensation to the Lenders and their agents and counsel and all costs,
liabilities and advances made or incurred by the Lenders in connection
therewith, together with interest on each such amount at the highest rate
then in effect under the Credit Agreement from and after the date such
amount is due, owing or unpaid until paid in full;
Third, without duplication of amounts applied pursuant to clauses
First and Second above, to the indefeasible payment in full in cash, pro
rata, of interest, principal and other amounts constituting Secured
Obligations in accordance with the terms of the Credit Agreement; and
Fourth, the balance, if any, to the Person lawfully entitled thereto
(including the Pledgors or their respective successors or assigns).
In the event that any such proceeds are insufficient to pay in full
the items described in clauses First through Third of this Section 13, the
Pledgors shall remain liable for any deficiency.
Section 14. Expenses. Each Pledgor will upon demand pay to the
Administrative Agent the amount of any and all expenses, including the
reasonable fees and expenses of its counsel and the fees and expenses of any
experts and agents which the Administrative Agent may incur in connection with
(a) the collection of the Secured Obligations, (b) the enforcement and
administration of this Agreement, (c) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (d) the exercise or enforcement of any of the rights of the
Administrative Agent or any Secured Party hereunder or (e) the failure by any
Pledgor to perform or observe any of the provisions hereof. All amounts payable
by any Pledgor under
<PAGE>
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this Section 14 shall be due upon demand and shall be part of the Secured
Obligations. Each Pledgor's obligations under this Section 14 shall survive the
termination of this Agreement and the discharge of such Pledgor's other
obligations hereunder.
Section 15. No Waiver; Cumulative Remedies.
(a) No failure on the part of the Administrative Agent to exercise,
no course of dealing with respect to, and no delay on the part of the
Administrative Agent in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
remedy; nor shall the Administrative Agent be required to look first to,
enforce or exhaust any other security, collateral or guaranties. The
remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event that the Administrative Agent shall have instituted
any proceeding to enforce any right, power or remedy under this Agreement
by foreclosure, sale, entry or otherwise, and such proceeding shall have
been discontinued or abandoned for any reason or shall have been
determined adversely to the Administrative Agent, then and in every such
case, the Pledgors, the Administrative Agent and each other Secured Party
shall be restored to their respective former positions and rights
hereunder with respect to the Pledged Collateral, and all rights, remedies
and powers of the Administrative Agent and the other Secured Parties shall
continue as if no such proceeding had been instituted.
Section 16. Administrative Agent. The Administrative Agent has been
appointed as Administrative Agent pursuant to the Credit Agreement. The actions
of the Administrative Agent hereunder are subject to the provisions of the
Credit Agreement. The Administrative Agent shall have the right hereunder to
make demands, to give notices, to exercise or refrain from exercising any
rights, and to take or refrain from taking action (including, without
limitation, the release or substitution of Pledged Collateral), in accordance
with this Agreement and the Credit Agreement. The Administrative Agent may
employ agents and attorneys-in-fact in connection herewith and shall not be
liable for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it in good faith. The Administrative Agent may resign and a
successor Administrative Agent may be appointed in the manner provided in the
Credit Agreement. Upon the acceptance of any appointment as the Administrative
Agent by a successor Administrative Agent, that successor Administrative Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent under this Agreement,
and the retiring Administrative Agent shall thereupon be discharged from its
duties and obligations under this Agreement. After any retiring Administrative
Agent's resignation, the provisions of this Agreement shall inure to its benefit
as to any actions taken or omitted to be taken by it under this Agreement while
it was the Administrative Agent.
Section 17. Administrative Agent May Perform; Administrative Agent
Appointed Attorney-in-Fact. If any Pledgor shall fail to do any act or thing
that it has covenanted to do hereunder or if any warranty on the part of any
Pledgor contained herein shall be breached, the Administrative Agent may (but
shall not be obligated to) do the same or cause it to be done or remedy any such
breach, and may expend funds for such purpose. Any and all amounts so expended
by the Administrative Agent shall be paid by the Pledgors promptly upon demand
therefor, with interest at the highest rate then in effect under the Credit
Agreement during the period from and including the date on which such funds were
so expended to the date of repayment. Each Pledgor's obligations under this
Section 17 shall survive the termination of this Agreement and the discharge of
such Pledgor's other obligations under this Agreement, the Credit Agreement and
the other Loan Documents.
<PAGE>
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Each Pledgor hereby appoints the Administrative Agent its attorney-in-fact, with
full authority in the place and stead of such Pledgor and in the name of such
Pledgor, or otherwise, from time to time after the occurrence and during the
continuance of a Default in the Administrative Agent's discretion to take any
action and to execute any instrument consistent with the terms of this Agreement
and the other Loan Documents which the Administrative Agent may deem necessary
or advisable to accomplish the purposes of this Agreement. The foregoing grant
of authority is a power of attorney coupled with an interest and such
appointment shall be irrevocable for the term of this Agreement. Each Pledgor
hereby ratifies all that such attorney shall lawfully do or cause to be done by
virtue hereof.
Section 18. Indemnity.
(a) Indemnity. Each Pledgor agrees to indemnify, pay and hold
harmless the Administrative Agent and each of the other Secured Parties
and the officers, directors, employees, agents and Affiliates of the
Administrative Agent and each of the other Secured Parties (collectively,
the "Indemnitees") from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs (including, without limitation, settlement costs), expenses
or disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by, or asserted against that Indemnitee, in any manner relating
to or arising out of this Agreement or any other Loan Document (including,
without limitation, any misrepresentation by any Pledgor in this Agreement
or any other Loan Document) (the "indemnified liabilities"); provided,
however, that no Pledgor shall have any obligation to an Indemnitee
hereunder with respect to indemnified liabilities if it has been
determined by a final decision (after all appeals and the expiration of
time to appeal) of a court of competent jurisdiction that such indemnified
liability arose from the gross negligence or willful misconduct of that
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, each Pledgor shall contribute
the maximum portion which it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all indemnified
liabilities incurred by the Indemnitees or any of them.
(b) Survival. The obligations of the Pledgors contained in this
Section 18 shall survive the termination of this Agreement and the
discharge of the Pledgors' other obligations under this Agreement and
under the other Loan Documents.
(c) Reimbursement. Any amounts paid by any Indemnitee as to which
such Indemnitee has the right to reimbursement shall constitute Secured
Obligations secured by the Pledged Collateral.
Section 19. Modification in Writing. No amendment, modification,
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by any Pledgor therefrom, shall be effective unless the
same shall be made in accordance with the terms of the Credit Agreement and
unless in writing and signed by the Administrative Agent. Any amendment,
modification or supplement of or to any provision of this Agreement, any waiver
of any provision of this Agreement and any consent to any departure by any
Pledgor from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement or any
other Loan Document, no notice to or demand on any Pledgor in any case shall
entitle any Pledgor to any other or further notice or demand in similar or other
circumstances.
<PAGE>
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Section 20. Termination; Release. When all the Secured Obligations
have been paid in full and the Commitments of the Lenders to make any Loan or to
issue any Letter of Credit under the Credit Agreement shall have expired or been
sooner terminated, this Agreement shall terminate. Upon termination of this
Agreement or any release of Pledged Collateral in accordance with the provisions
of the Credit Agreement, the Administrative Agent shall, upon the request and at
the sole cost and expense of the Pledgors, forthwith assign, transfer and
deliver to Pledgor, against receipt and without recourse to or warranty by the
Administrative Agent, such of the Pledged Collateral to be released (in the case
of a release) as may be in possession of the Administrative Agent and as shall
not have been sold or otherwise applied pursuant to the terms hereof, and, with
respect to any other Pledged Collateral, proper documents and instruments
(including UCC-3 termination statements or releases) acknowledging the
termination of this Agreement or the release of such Pledged Collateral, as the
case may be.
Section 21. Notices. Unless otherwise provided herein or in the
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, as
to any Pledgor, addressed to it at the address of the Borrower set forth in the
Credit Agreement and as to the Administrative Agent, addressed to it at the
address set forth in the Credit Agreement, or in each case at such other address
as shall be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section 21.
Section 22. Continuing Security Interest; Assignment. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
(i) be binding upon the Pledgors, their respective successors and assigns and
(ii) inure, together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of the Administrative Agent and the other Secured
Parties and each of their respective successors, transferees and assigns. No
other Persons (including, without limitation, any other creditor of any Pledgor)
shall have any interest herein or any right or benefit with respect hereto.
Without limiting the generality of the foregoing clause (ii), any Lender may
assign or otherwise transfer any indebtedness held by it secured by this
Agreement to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to such Lender, herein
or otherwise, subject however, to the provisions of the Credit Agreement. Each
Affiliate of the Borrower which from time to time after the initial date of this
Agreement is required under the Credit Agreement to pledge any assets to the
Administrative Agent for the benefit of the Secured Parties may become a party
hereto upon execution and delivery to the Administrative Agent of a joinder
agreement substantially in the form attached hereto as Exhibit 4 and upon such
execution and delivery shall be deemed to be a "Guarantor" and a "Pledgor" for
all purposes hereunder.
Section 23. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, EXCLUDING (TO THE GREATEST EXTENT PERMITTED BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK, AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR PLEDGED COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
Section 24. CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER
OF JURY TRIAL. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PLEDGOR WITH RESPECT
TO THIS AGREEMENT MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK
SITTING IN NEW YORK COUNTY, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS OF ANY THEREOF, AND BY
<PAGE>
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EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PLEDGOR ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH PLEDGOR AGREES
THAT SERVICE OF PROCESS IN ANY PROCEEDING MAY BE EFFECTED BY MAILING A COPY
THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH IN THE CREDIT
AGREEMENT OR AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE
BEEN NOTIFIED PURSUANT THERETO. IF ANY AGENT APPOINTED BY ANY PLEDGOR REFUSES TO
ACCEPT SERVICE, SUCH PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE
ADMINISTRATIVE AGENT TO BRING PROCEEDINGS AGAINST ANY PLEDGOR IN THE COURTS OF
ANY OTHER JURISDICTION. THE PLEDGORS AND THE ADMINISTRATIVE AGENT HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 25. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 26. Execution in Counterparts. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
Section 27. Headings. The Section headings used in this Agreement
are for convenience of reference only and shall not affect the construction of
this Agreement.
Section 28. Obligations Absolute. All obligations of each Pledgor
hereunder shall be absolute and unconditional irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of any Pledgor;
(b) any lack of validity or enforceability of the Credit Agreement,
any Letter of Credit or any other Loan Document, or any other agreement or
instrument relating thereto;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Letter of Credit or any other Loan Document, or any other
agreement or instrument relating thereto;
(d) any pledge, exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
<PAGE>
-32-
(e) any exercise, non-exercise or waiver of any right, remedy, power
or privilege under or in respect of this Agreement or any other Loan
Document except as specifically set forth in a waiver granted pursuant to
the provisions of Section 19 hereof; or
(f) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, any Pledgor.
Section 29. Administrative Agent's Right to Sever Indebtedness.
(a) Each Pledgor acknowledges that (i) the Pledged Collateral does
not constitute the sole source of security for the payment and performance
of the Secured Obligations and that the Secured Obligations may also be
secured by other types of property of the Pledgors in other jurisdictions
(all such property, collectively, the "Collateral"), (ii) the number of
such jurisdictions and the nature of the transaction of which this
instrument is a part are such that it would have been impracticable for
the parties to allocate to each item of Collateral a specific loan amount
and to execute in respect of such item a separate credit agreement and
(iii) each Pledgor intends that the Administrative Agent have the same
rights with respect to the Pledged Collateral, in any judicial proceeding
relating to the exercise of any right or remedy hereunder or otherwise,
that the Administrative Agent would have had if each item of Collateral
had been pledged or encumbered pursuant to a separate credit agreement and
security instrument. In furtherance of such intent, each Pledgor agrees to
the greatest extent permitted by law that the Administrative Agent may at
any time by notice (an "Allocation Notice") to such Pledgor allocate a
portion of the Secured Obligations (the "Allocated Indebtedness") to all
or a specified portion of the Pledged Collateral and sever from the
remaining Secured Obligations the Allocated Indebtedness. From and after
the giving of an Allocation Notice with respect to any of the Pledged
Collateral, the Secured Obligations hereunder shall be limited to the
extent set forth in the Allocation Notice and (as so limited) shall, for
all purposes, be construed as a separate credit obligation of such Pledgor
unrelated to the other transactions contemplated by the Credit Agreement,
any other Loan Document or any document related to any thereof. To the
extent that the proceeds of any judicial proceeding relating to the
exercise of any right or remedy hereunder of the Pledged Collateral shall
exceed the Allocated Indebtedness, such proceeds shall belong to such
Pledgor and shall not be available hereunder to satisfy any Secured
Obligations of such Pledgor other than the Allocated Indebtedness. In any
action or proceeding to exercise any right or remedy under this Agreement
which is commenced after the giving by the Administrative Agent of an
Allocation Notice, the Allocation Notice shall be conclusive proof of the
limits of the Secured Obligations hereby secured, and such Pledgor may
introduce, by way of defense or counterclaim, evidence thereof in any such
action or proceeding. Notwithstanding any provision of this Section 29 the
proceeds received by the Administrative Agent pursuant to this Agreement
shall be applied by the Administrative Agent in accordance with the
provisions of Section 13 hereof.
(b) Each Pledgor hereby waives to the greatest extent permitted
under law the right to a discharge of any of the Secured Obligations under
any statute or rule of law now or hereafter in effect which provides that
the exercise of any particular right or remedy as provided for herein (by
judicial proceedings or otherwise) constitutes the exclusive means for
satisfaction of the Secured Obligations or which makes unavailable any
further judgment or any other right or remedy provided for herein because
the Administrative Agent elected to proceed with the exercise of such
initial right or remedy or because of any failure by the Administrative
Agent to comply with laws that prescribe conditions to the entitlement to
such subsequent judgment or the availability of such subsequent right or
remedy. In the event that, notwithstanding the foregoing waiver, any court
shall for any reason hold that such subsequent judgment or action is not
available to the Administrative Agent, no Pledgor shall (i) introduce in
<PAGE>
-33-
any other jurisdiction any judgment so holding as a defense to enforcement
against such Pledgor of any remedy in the Credit Agreement or any other
Loan Document or (ii) seek to have such judgment recognized or entered in
any other jurisdiction, and any such judgment shall in all events be
limited in application only to the state or jurisdiction where rendered
and only with respect to the collateral referred to in such judgment.
(c) In the event any instrument in addition to the Allocation Notice
is necessary to effectuate the provisions of this Section 29, including,
without limitation, any amendment to this Agreement, any substitute
promissory note or affidavit or certificate of any kind, the
Administrative Agent may execute and deliver such instrument as the
attorney-in-fact of any Pledgor. Such power of attorney is coupled with an
interest and is irrevocable.
(d) Notwithstanding anything set forth herein to the contrary, the
provisions of this Section 29 shall be effective only to the maximum
extent permitted by law.
Section 30. Future Advances. This Agreement shall secure the payment
of any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
-S1-
IN WITNESS WHEREOF, the Pledgors and the Administrative Agent have
caused this Agreement to be duly executed and delivered by their duly authorized
officers as of the date first above written.
PRECISION PARTNERS, INC.,
as Pledgor
By: ___________________________________
Name:
Title:
MID STATE MACHINE PRODUCTS,
as Pledgor
By: ___________________________________
Name:
Title:
GALAXY INDUSTRIES CORPORATION,
as Pledgor
By: ___________________________________
Name:
Title:
CERTIFIED FABRICATORS, INC.,
as Pledgor
By: ___________________________________
Name:
Title:
CALBRIT DESIGN, INC.,
as Pledgor
By: ___________________________________
Name:
Title:
<PAGE>
-S2-
GENERAL AUTOMATION, INC.,
as Pledger
By: ___________________________________
Name:
Title:
NATIONWIDE PRECISION PRODUCTS
CORP., as Pledgor
By: ___________________________________
Name:
Title:
CITICORP U.S.A., INC..
as Administrative Agent
By: ___________________________________
Name:
Title:
<PAGE>
SCHEDULE I-A
Initial Pledged Shares
Pledgor: _________________
PERCENTAGE OF
ALL ISSUED
CAPITAL OR
NUMBER OTHER EQUITY
CLASS CERTIFICATE OF INTERESTS OF
ISSUER OF STOCK NO(S). SHARES ISSUER
- ------ -------- ------ ------ -------------
Note: A separate sheet should be used for each Pledgor pledging shares.
<PAGE>
SCHEDULE I-B
Initial Pledged Interests
Pledgor: _________________
PERCENTAGE OF
ALL ISSUED
CAPITAL OR
TYPE NUMBER OTHER EQUITY
OF CERTIFICATE OF INTERESTS OF
ISSUER INTEREST NO(S). SHARES ISSUER
- ------ -------- ------ ------ -------------
Note: A separate sheet should be used for each Pledgor pledging interests.
<PAGE>
SCHEDULE II
Initial Intercompany Notes
Pledgor: _________________
PRINCIPAL DATE OF INTEREST MATURITY
ISSUER AMOUNT ISSUANCE RATE DATE
- ------ --------- -------- -------- --------
Note: A separate sheet should be used for each Pledgor pledging notes.
<PAGE>
SCHEDULE III
Initial Patents
Pledgor: _________________
Registrations:
REGISTRATION REGISTRATION
NUMBER DATE COUNTRY DESCRIPTION
- ------------ ------------ ------- -----------
Applications:
APPLICATION APPLICATION
NUMBER DATE COUNTRY DESCRIPTION
- ----------- ------------ ------- -----------
Note: A separate sheet should be used for each Pledgor pledging Patents.
<PAGE>
SCHEDULE IV
Initial Trademarks
Pledgor: _________________
Registrations:
REGISTRATION REGISTRATION
NUMBER DATE COUNTRY DESCRIPTION
- ------------ ------------ ------- -----------
Applications:
APPLICATION APPLICATION
NUMBER DATE COUNTRY DESCRIPTION
- ----------- ------------ ------- -----------
Note: A separate sheet should be used for each Pledgor pledging Trademarks.
<PAGE>
SCHEDULE V
Initial Copyrights
Pledgor: _________________
DATE COUNTRY DESCRIPTION
- ---- ------- -----------
Note: A separate sheet should be used for each Pledgor pledging Copyrights.
<PAGE>
SCHEDULE VI
Initial Licenses
Pledgor: _________________
Note: A separate sheet should be used for each Pledgor pledging Licenses.
<PAGE>
SCHEDULE VII
Initial Financial Accounts
Pledgor: _________________
NAME OF ADDRESS ACCOUNT
FINANCIAL AND ABA NAME AND
INSTITUTION NUMBER NUMBER
- ----------- ------- --------
<PAGE>
ANNEX A
Financial Statements and Other Necessary Filings
UCC Filing
Patent and Trademark Filings
Other Filings
<PAGE>
ANNEX B
Prior Liens
Secured Party Jurisdiction Location Date Number Comment
- ------------- ------------ -------- ---- ------ -------
<PAGE>
ANNEX C
Locations of Pledgors
Chief Executive Tax ID
Pledgor Office Number Other Locations
- ------- --------------- ------ ---------------
Note: A separate sheet should be used for each Pledgor pledging Financial
Accounts.
<PAGE>
EXHIBIT 1
Form of Issuer Acknowledgment
The undersigned hereby (i) acknowledges receipt of a copy of that
certain security agreement (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "Agreement"; capitalized terms used
herein but not defined herein have the meanings given such terms in the
Agreement), dated as of March ___, 1999, among Precision Partners, Inc., the
Subsidiary Guarantors and Citicorp U.S.A., Inc., as Administrative Agent (in
such capacity and together with any successors in such capacity, the
"Administrative Agent"), (ii) agrees promptly to note on its books the security
interests granted and confirmed under the Agreement, (iii) agrees that it will
comply with instructions of the Administrative Agent with respect to the
applicable Securities Collateral without further consent by the applicable
Pledgor, (iv) agrees to notify the Administrative Agent upon obtaining knowledge
of any interest in favor of any Person in the applicable Securities Collateral
that is adverse to the interest of the Administrative Agent therein and (v)
waives any right or requirement at any time hereafter to receive a copy of the
Agreement in connection with the registration of any Securities Collateral
thereunder in the name of the Administrative Agent or its nominee or the
exercise of voting rights by the Administrative Agent or its nominee.
[NAME OF ISSUER]
By: __________________________________
Name:
Title:
Note: This form should be signed by each issuer of uncertificated Securities
Collateral.
<PAGE>
EXHIBIT 2
Form of Financial Account Consent Agreement
[Name of Pledgor]
[Address of Pledgor]
[Date]
[Name and
address of
Financial Institution]
Ladies and Gentlemen:
We refer to account numbers ___________ and _____________ (the
"Financial Accounts") maintained with [Name of Financial Institution] (the
"Financial Institution") by [Name of Pledgor] (the "Company") and into which
certain moneys, instruments, securities and other property are or may be
deposited from time to time. The Company has granted to Citicorp U.S.A., Inc. as
administrative agent (in such capacity and together with any successors in such
capacity, the "Administrative Agent") for the benefit of the Secured Parties
under, and as defined in, that certain security agreement (as amended, amended
and restated, supplemented or otherwise modified from time to time, the
"Agreement"), dated as of March ____, 1999, among Precision Partners, Inc. (the
"Borrower"), the subsidiary guarantors from time to time party thereto and the
Administrative Agent, a security interest in all moneys, instruments, securities
and other property deposited therein and all certificates or other instruments,
if any, representing or evidencing the Financial Accounts. It is a condition to
the continued maintenance of the Financial Accounts with the Financial
Institution that the Financial Institution agrees to this letter agreement.
The parties hereto agree as follows:
1. The Financial Institution hereby confirms that the Company has
established with it the Financial Accounts. The Financial Institution hereby
agrees that from and after the date hereof the Financial Accounts shall be under
the exclusive dominion and control of the Administrative Agent and all moneys,
instruments, securities and other property of the Company received in connection
therewith, whether or not deposited in the Financial Accounts, shall be held
solely for the benefit of the Administrative Agent. Except as otherwise provided
herein, the Financial Accounts shall be subject to written instructions only
from the Administrative Agent.
2. The Financial Institution hereby agrees to do the following:
(a) follow its usual operating procedures for the handling of any
remittance received in the Financial Accounts that contains restrictive
endorsements, irregularities, such as a variance between the written and
numerical amounts, undated or postdated items, missing signature and
incorrect payee;
<PAGE>
-2-
(b) endorse and process all eligible checks and other remittance
items not covered by subparagraph (a) above and deposit such checks and
other remittance items in the Financial Accounts; and
(c) maintain a record of all checks and other remittance items
received in the Financial Accounts and, in addition to providing the
Company with photostats, vouchers and enclosures of checks and other
remittance items received on a daily basis, as well as a monthly
statement, furnish to the Administrative Agent, free of any service charge
payable by the Administrative Agent, its regular Lender statement with
respect to the Financial Accounts, with the words "________________, as
the Administrative Agent, Re: [Name of Borrower]" included thereon so that
there is no confusion as to ownership of the Financial Accounts and so
that the Administrative Agent is able to properly identify the Financial
Accounts.
3. [The Financial Institution hereby agrees that no later than 12:00
p.m. on each business day on which transactions may be made with respect to the
Financial Accounts, without further notice or instruction of any kind, to
transfer (by wire transfer) the total of all immediately available funds or
credits in each Financial Account to the concentration account, account no.
_________________, ABA # ___________, reference: [Name of Borrower] (the
"Concentration Account") maintained by the Company with the Administrative Agent
at its office located at ______________________.]
[The Administrative Agent hereby instructs the Financial Institution
to follow the instructions of the Company with respect to the disposition of any
and all moneys, instruments, securities and other property deposited in the
Financial Accounts as directed by the Company unless and until the Financial
Institution has received written instructions to the contrary from the
Administrative Agent, in which case the Financial Institution agrees to follow
such instructions from the Administrative Agent.]
The Financial Institution hereby agrees that the Administrative
Agent will be entitled to all rights and remedies to which a person in control
of "financial assets" (within the meaning of Section 8-102(a)(9) of the Uniform
Commercial Code as in effect in the State of New York (the "UCC")) is entitled
pursuant to Part 5 of Article 8 of the UCC and Article 9 of the UCC, and [,
subject to the provisions of the immediately preceding paragraph,] the Financial
Institution agrees to follow the instructions of the Administrative Agent with
respect to the disposition of any and all moneys, instruments, securities, and
other property deposited in the Financial Accounts.
Without limiting the foregoing, if at any time the Financial
Institution shall receive an "entitlement order" (within the meaning of Section
8-102(a)(8) of the UCC) issued by the Administrative Agent and relating to the
Financial Accounts, the Financial Institution shall comply with such entitlement
order without further consent of the Borrower, the Company or any other person
or entity. The Financial Institution hereby agrees that it shall be a
"securities intermediary" within the meaning of Section 8-102(a)(14) of the UCC
and that the Financial Accounts shall be maintained as "securities accounts" (as
such term is defined in Section 8-501(a) of the UCC) to the extent that any
"investment property" (as defined in Section 9-115 of the UCC) is maintained in
or in respect of the Financial Accounts and that each item of investment
property credited to a Financial Account shall be treated as a financial asset.
The Financial Institution further agrees that all securities or other investment
property underlying any financial assets credited to any Financial Account shall
be registered in the name of the Financial Institution, endorsed to it or in
blank or credited to another securities account maintained in its name.
<PAGE>
-3-
4. Except for the claims and interest of the Administrative Agent
and the Company in the Financial Accounts, the Financial Institution hereby
acknowledges that it does not know of any claim to, or interest in, the
Financial Accounts or in any financial asset credited thereto. If any person or
entity asserts any lien, encumbrance or adverse claim (including any writ,
garnishment, judgment, warrant of attachment, execution or similar process)
against the Financial Accounts or in any financial asset carried therein, the
Financial Institution will promptly notify the Administrative Agent, the
Borrower and the Company thereof.
5. The Financial Institution hereby waives and agrees not to assert,
claim or endeavor to exercise, and by executing this letter agreement bars and
estops itself from asserting, claiming or exercising, and the Financial
Institution acknowledges that it has not heretofore received a notice from any
other party asserting, claiming or exercising, any right of setoff, banker's
lien or other purported form of claim with respect to the Financial Accounts and
funds from time to time therein. The Financial Institution shall have no rights
in the Financial Accounts or the funds therein. To the extent that it may ever
have any such rights, the Financial Institution hereby expressly subordinates
all such rights to all rights of the Administrative Agent.
6. The Financial Institution shall not be liable for any action
taken or omitted by it with respect to the Financial Accounts on the
instructions of the Administrative Agent, except to the extent of any gross
negligence or willful misconduct on the part of the Financial Institution, and
the Financial Institution shall not have any duty or responsibility to ascertain
whether any such instructions are consistent with the Agreement or the other
Loan Documents relating thereto. The Financial Institution may rely on any
certificate, statement, request, agreement or other instrument it believes in
good faith to be genuine and to have been signed or presented by or on behalf of
the Administrative Agent. In maintaining the Financial Accounts hereunder, the
Financial Institution may consult with counsel and shall be fully protected with
respect to any action taken or omitted by it in good faith on advice of counsel
and shall have no liability hereunder except for its bad faith, willful
misconduct or gross negligence with respect to its obligations hereunder.
7. The Company agrees to indemnify the Financial Institution against
and save the Financial Institution harmless from any and all claims,
liabilities, reasonable costs and expenses, including reasonable out-of-pocket
fees and expenses of counsel, for anything done or omitted by the Financial
Institution in good faith in connection with this letter agreement, including
reasonable costs and expenses of defending itself against any claim or
liability; provided, however, that the Financial Institution shall not have the
right to be indemnified hereunder for its bad faith, gross negligence or willful
misconduct.
8. The Financial Institution may terminate this letter agreement
only upon thirty days' prior written notice to that effect to the Company and
the Administrative Agent and by canceling the Financial Accounts maintained with
it and transferring all funds, if any, in such Financial Accounts to another
Financial Account pursuant to the instructions of the Administrative Agent.
After any such termination, the Financial Institution shall nonetheless remain
obligated promptly to transfer to the Concentration Account anything from time
to time received in respect of the Financial Accounts.
9. This letter agreement shall be binding upon the parties hereto
and their respective successors and assigns. This letter agreement may be
executed in counterparts, each of which will be deemed an original and all of
which taken together shall constitute one and the same instrument.
<PAGE>
-S1-
THE "SECURITIES INTERMEDIARY'S JURISDICTION" WITHIN THE MEANING OF
SECTION 8-110(E) OF THE UCC IS AND SHALL CONTINUE TO BE THE STATE OF NEW YORK.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY THE LAWS OF the STATE OF NEW YORK,
EXCLUDING (TO THE GREATEST EXTENT PERMITTED BY LAW) ANY RULE OF LAW THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
NEW YORK.
Very truly yours,
[NAME OF PLEDGOR]
By: ____________________________________
Name:
Title:
CITICORP U.S.A., INC.,
as Administrative Agent
By: ____________________________________
Name:
Title:
Acknowledged and agreed to
as of the date first above written.
[FINANCIAL INSTITUTION]
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT 3
Form of Securities Pledge Amendment
PLEDGE AMENDMENT
This Pledge Amendment, dated ______________, is delivered pursuant
to Section 7 of the Agreement referred to below. The undersigned hereby agrees
that this Pledge Amendment may be attached to the Security Agreement, dated as
of March ___, 1999, among the undersigned, certain other Pledgors and Citicorp
U.S.A., Inc., as the Administrative Agent (the "Agreement"; capitalized terms
used herein and not defined shall have the meanings assigned to them in the
Agreement). The undersigned hereby pledges, assigns, transfers and grants to the
Administrative Agent for its benefit and the benefit of the Secured Parties, a
first priority security interest in and to all of the undersigned's rights,
title and interest in and to the Pledged Securities and/or Intercompany Notes
listed on this Pledge Amendment and agrees that such Pledged Securities and/or
Intercompany Notes shall be deemed to be and shall become part of the Pledged
Collateral and shall secure all Secured Obligations.
_______________________________________
as Pledgor
By: __________________________________
Name:
Title:
Pledged Securities
PERCENTAGE OF ALL
NUMBER ISSUED CAPITAL OR
CLASS PAR CERTIFICATE OF OTHER EQUITY
ISSUER OF STOCK VALUE NO(S). SHARES INTERESTS OF ISSUER
- ------ -------- ----- ----------- ------ -------------------
Intercompany Notes
ISSUER PRINCIPAL DATE OF INTEREST MATURITY]
- ------ AMOUNT ISSUANCE RATE DATE]
--------- --------
<PAGE>
EXHIBIT 4
Form of Joinder Agreement
[Name of New Pledgor]
[Address of New Pledgor]
[Date]
Citicorp U.S.A., Inc.,
as Administrative Agent
___________________________
___________________________
Attention: ________________
Ladies and Gentlemen:
Reference is made to the Security Agreement (the "Agreement"), dated
as of March ___, 1999, made by Precision Partners, Inc., (the "Borrower"), each
of the Subsidiary Guarantors listed on the signature pages thereto or from time
to time party thereto by execution of a joinder agreement and Citicorp U.S.A.,
Inc., as administrative agent for the Secured Parties. Capitalized terms used
herein but not otherwise defined herein have the meanings given such terms in
the Agreement.
This letter supplements the Agreement and is delivered by the
undersigned, ______________ (the "New Pledgor"), pursuant to Section 22 of the
Agreement. The New Pledgor hereby agrees to be bound as a Guarantor and as a
Pledgor by all of the terms, covenants and conditions set forth in the Agreement
to the same extent that it would have been bound if it had been a signatory to
the Agreement on the execution date of the Agreement. The New Pledgor hereby
makes each of the representations and warranties and agrees to each of the
covenants applicable to the Pledgors contained in the Agreement.
The New Pledgor hereby pledges, assigns, transfers and grants to the
Administrative Agent, for its benefit and the Secured Parties, a first priority
security interest in and to all of its right, title and interest in and to the
Pledged Collateral.
Attached hereto are supplements to each of the schedules and annexes
to the Agreement with respect to the New Pledgor. Such supplements shall be
deemed to be part of the Agreement.
This agreement and any amendments, waivers, consents or supplements
hereto may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original, but all such counterparts together shall
constitute one and the same agreement.
<PAGE>
-2-
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCLUDING (TO THE
GREATEST EXTENT PERMITTED BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>
-S1-
IN WITNESS WHEREOF, the New Pledgor has caused this Agreement to be
executed and delivered by its duly authorized officer as of the date first above
written.
[NEW PLEDGOR]
By:________________________________
Name:
Title:
AGREED TO AND ACCEPTED:
Citicorp U.S.A., Inc.,
as Administrative Agent
By: _____________________
Name:
Title:
(Schedules and Annexes to be attached]
<PAGE>
Exhibit J
to the Credit
Agreement
[FORM OF OPINION OF LOCAL COUNSEL]
January __, 1999
Citicorp U.S.A., Inc.,
as Administrative Agent
and
The Lenders which are signatories to the
Credit Agreement referenced herein
Ladies and Gentlemen:
We have acted as special counsel in the state of [ ]
(the "State") to Precision Partners, Inc., a [ ] corporation
("Borrower") and each of the entities set forth in Schedule A annexed hereto
(the "State Entities"; together with Borrower, the "Obligors"), in connection
with (i) the consummation of the transactions contemplated by that certain
credit agreement dated as of January __, 1999 (the "Credit Agreement"; unless
otherwise defined herein, capitalized terms used herein have the meanings
assigned to them in the Credit Agreement), among Borrower, the Subsidiary
Guarantors, Holding, the lending institutions which are signatories to the
Credit Agreement (collectively, the "Lenders"), Syndication Agent, Documentation
Agent, and Citicorp U.S.A., Inc., as administrative agent for the Lenders (in
such capacities, the "Administrative Agent"; together with Syndication Agent and
Documentation Agent, the "Agents") and (ii) the execution and delivery today and
the consummation of the transactions contemplated by each of the Security
Documents, including, without limitation, the UCC-1 financing statements
(collectively, the "Financing Statements") relating to the Collateral, naming
the Obligors as debtors thereunder and Citicorp U.S.A., Inc., as Administrative
Agent and secured party thereunder.
There has been furnished to us for review the final forms of (i) the
Credit Agreement, (ii) the Security Documents and (iii) the Financing Statements
(collectively, the "Documents"). We have reviewed such instruments, documents
and agreements as we have deemed necessary or appropriate to enable us to render
the opinions hereinafter set forth.
In rendering the opinions hereinafter set forth, we have assumed
that (i) there has occurred due execution and delivery of the Documents and all
documentation in connection
<PAGE>
-2-
therewith and (ii) each of the Obligors owns the Collateral pledged by it
pursuant to the Security Documents.
In addition, the opinions contained in Paragraphs 2 and 3 below are
qualified to the extent that enforceability of any of the Security Documents may
be limited by (i) bankruptcy, insolvency, moratorium, reorganization or other
laws relating to creditors' rights generally, and (ii) general principles of
equity, whether considered in an action at law or in equity.
Subject to the foregoing assumptions and qualifications, we are of
the opinion that:
1. Neither the Agents nor the Lenders are required (a) to be
qualified to transact business, file any designation for service of process, or
file any reports or pay any taxes in the State, (b) to comply with any statutory
or regulatory requirement applicable only to financial institutions chartered or
qualified to do business in the State, in each case, solely by reason of the
execution and delivery of any of the Documents or by reason of the participation
in any of the transactions under or contemplated by the Documents, including,
without limitation, the making and receipt of payments pursuant thereto and the
exercise of any remedy thereunder. If it were determined that any such
qualification and filing were required, the validity of the Documents would not
be affected thereby, but if the Agents or the Lenders were not qualified, the
Agents or the Lenders, in the event they institute remedies without the
Administrative Agent, as the case may be, would be precluded from enforcing
their respective rights in the courts of the State until such time as they are
qualified to transact business in the State. The lack of qualification, however,
would not result in any waiver of rights or remedies pending such qualification.
2. The Mortgages create and constitute (i) a valid first mortgage
lien on the real property described therein (the "Real Property"), (ii) a valid
security interest in such of the Mortgaged Property (the "UCC Property") as is
subject to the provisions of Article 9 of the Uniform Commercial Code as in
effect in the State (the "UCC") and (iii) a valid common law lien on or pledge
of such of the Mortgaged Property as is not UCC Property or Real Property (such
property, together with the UCC Property, the "Personal Property"). The
Mortgages are enforceable against the mortgagors named therein in accordance
with their terms. The Mortgages have been duly recorded by the Recorder of
[ ] County.
<PAGE>
-3-
3. Assuming that the Security Agreement is governed by the law of
the State for the purpose of rendering the opinions set forth in this paragraph,
the Security Agreement creates and constitutes a valid security interest in,
lien on or pledge of the Pledged Collateral (as defined therein) and is
enforceable against the pledgor named therein in accordance with its terms.
4. The Financing Statements relating to (i) the Mortgages have been
properly filed with the Office of the Secretary of State and with the Recorder
of [ ] County and (ii) the Security Agreement has been properly
filed with the Office of the Secretary of State and with the Recorder of
[ ] County. The security interest, lien or pledge created by each
Security Document is duly perfected. The Financing Statements adequately
identify the Pledged Collateral described therein to provide sufficient notice
to third parties of the security interest referenced therein.
5. The recording of the Mortgages and the filing of the Financing
Statements with the recorders and in the offices described above are the only
actions, recordings or filings necessary to publish notice and protect the
validity of and to establish of record the rights of the parties under the
Documents, except (i) that continuation statements under the UCC are required to
be filed within [ ] months prior to the expiration of
[ ] years from the date of filing of the Financing Statements,
and (ii) that a security interest in or pledge of [specify collateral] cannot be
perfected by filing Financing Statements or recording a Mortgage, but must be
perfected by taking physical possession thereof.
6. The priority of the mortgage lien on the Real Property created by
the Mortgages with respect to any extension of credit (each, a "Further
Advance') secured thereby made or deemed to have been made after the date of
recording of the Mortgages, will be the same as the priority of the Mortgages
applicable on such date of recording and such priority will not be affected by
the rights in and to the Real Property of any third party whose interest in the
Real Property attached thereto after the date of such recording but prior to the
date of such Further Advance.
7. Subject to appropriate continuation of perfection under the UCC
as set forth in paragraph 5 above, the priority of the security interest in,
lien on or pledge of the Personal Property and the Pledged Collateral created by
the Security Agreement with respect to any Further Advance secured
<PAGE>
-4-
thereby made or deemed to have been made after the date of execution and
delivery of the Security Agreement will be the same as the priority of the
Security Agreement applicable on the date of execution and delivery thereof and
such priority will not be affected by the rights in and to the Personal Property
or Pledged Collateral of any third party whose interest in the Personal Property
or Pledged Collateral attached thereto after the date of such execution and
delivery but prior to the date of such Further Advance.
8. The execution, delivery, recordation and performance by the
Agents, the Lenders and the Obligors of the Documents to which each is a party
(i) will not violate any existing law, governmental rule or regulation of the
State and (ii) do not require any license, permit, authorization, consent or
other approval of, any exemption by, or any registration, recording of filing
with, any court, administrative agency or other governmental authority of the
State, except for the filing of the Financing Statements as set forth in
paragraph 4.
9. Neither the Agents nor the Lenders shall be liable for any loss,
cost, expense or liability (including, without limitation, clean-up, corrective
action or response costs, penalties, fines or other impositions of governmental
agencies and judgments of private or public litigants) in respect of any matter
arising out of or relating to or under any Environmental Laws of the State by
reason of the execution and delivery of or participation in any of the
transactions under or contemplated by any of the Documents, including, without
limitation, the making and receipt of payments pursuant thereto and the exercise
of any remedy under any of the Documents. The laws of the State do not provide
for a statutory or regulatory lien in favor of any governmental entity for
liability under the Environmental Laws of the State. Under the laws of the
State, there are no statutory or regulatory requirements which will be imposed
on the Agents or the Lenders relating to the granting of a mortgage or security
interest in the Real Property that (i) require any notification or certification
to the State or any applicable political subdivision thereof of such mortgage or
security interest, or (ii) in the event of a discharge of any Hazardous
Materials (as defined in the Mortgages), impose responsibility or liability on
the part of the Agents or any of the Lenders for the undertaking of remedial
measures to alleviate environmental contamination resulting from such discharge.
<PAGE>
-5-
10. The Administrative Agent is permitted under the laws of the
State without naming all of the Lenders in any applicable legal proceeding to
exercise remedies under the Documents for the realization of any of the
Collateral in its own name, as administrative agent.
11. No taxes or other charges, including, without limitation,
intangible or documentary stamp taxes, mortgage or recording taxes, transfer
taxes or similar charges, are payable to the State or to any jurisdiction
therein on account of the execution and delivery of the Documents or the
creation of the indebtedness evidenced or secured by any of the Documents or the
recording or filing of any of the Security Documents, except for nominal filing
or recording fees, which filing or recording fees have been paid.
12. The zoning classification of the Real Property is
[ ]. The Real Property, including the current uses and
configurations thereof, complies in all respects with all applicable state and
local planning, zoning and land development laws, regulations and ordinances.
13. All Permits (as defined in the Mortgages) in respect of the use
and occupancy of the Real Property are in full force and effect and are
sufficient to permit the current use and occupancy of the Real Property by the
Obligors.
14. No official violation notices or similar instruments have been
issued in respect of the Real Property.
15. The Secured Obligations (as defined in each Security Document)
do not violate any of the usury laws, regulations or ordinances of the State, or
of any other applicable political subdivision or locality within the State.
16. The transfer of all or any portion of the Collateral in
connection with the exercise of any remedy under the Mortgages, including,
without limitation, by way of judicial foreclosure, will not restrict, affect or
impair the liability of the Obligors with respect to the indebtedness secured
thereby or the beneficiary's rights or remedies to the foreclosure or
enforcement of any other security interest or liens securing such indebtedness.
The laws of the State do not require a lienholder to elect to pursue its
remedies either against mortgaged real property or personal property where such
lienholder holds security interests and liens on both real and personal property
of debtor.
<PAGE>
-6-
17. A state or federal court in the State applying the State's
choice of law principles will give effect to the provisions in the Documents
(other than the Mortgages) which select the laws of the State of New York as the
governing law thereof and will apply such laws, rather than the laws of the
State, to the enforceability, construction and application thereof.
We are admitted to practice in the State. We express no opinion as
to matters under or involving the laws of any jurisdiction other than the laws
of the United States and the State and its political subdivisions.
The foregoing opinions may be relied on by any successor or assignee
of your interest under the Documents, but may not be relied upon or distributed
to any other person without our consent.
Very truly yours,
<PAGE>
-7-
Schedule A
List of State Entities
[List out all State Entities with assets or offices in the State]
<PAGE>
Exhibit K to
Credit Agreement
================================================================================
PRECISION PARTNERS HOLDING COMPANY
as Pledgor
--------------------
SECURITIES PLEDGE AGREEMENT
Dated as of March 19, 1999
--------------------
CITICORP U.S.A., INC.
as Administrative Agent
================================================================================
<PAGE>
Table of Contents
Page
----
RECITALS .................................................................... 1
AGREEMENT ................................................................... 1
Section 1. Pledge ........................................................ 2
Section 2. Secured Obligations ........................................... 3
Section 3. No Release .................................................... 3
Section 4. Perfection; Supplements; Further Assurances; Use of
Pledged Collateral ............................................ 4
Section 5. Representations, Warranties and Covenants ..................... 5
Section 6. Special Provisions Concerning Securities Collateral ........... 7
Section 7. Transfers and Other Liens ..................................... 9
Section 8. Reasonable Care ............................................... 10
Section 9. Event of Default and Remedies ................................. 10
Section 10. Application of Proceeds ...................................... 12
Section 11. Expenses ..................................................... 13
Section 12. No Waiver; Cumulative Remedies ............................... 13
Section 13. Administrative Agent ......................................... 14
Section 14. Administrative Agent May Perform; Administrative Agent
Appointed Attorney-in-Fact .............................. 14
Section 15. Indemnity .................................................... 14
Section 16. Modification in Writing ...................................... 15
Section 17. Termination; Release ......................................... 15
Section 18. Notices ...................................................... 15
Section 19. Continuing Security Interest; Assignment ..................... 16
Section 20. GOVERNING LAW; TERMS ......................................... 16
Section 21. CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER
OF JURY TRIAL ............................................ 16
Section 22. Severability of Provisions ................................... 17
Section 23. Execution in Counterparts .................................... 17
Section 24. Headings ..................................................... 17
Section 25. Obligations Absolute ......................................... 17
Section 26. Future Advances .............................................. 17
SIGNATURES
SCHEDULE I-A INITIAL PLEDGED SHAPES
SCHEDULE I-B INITIAL PLEDGED INTERESTS
ANNEX A FINANCING STATEMENTS AND OTHER NECESSARY FILINGS, UCC FILINGS, AND
OTHER FILINGS
ANNEX B LOCATIONS OF PLEDGOR
EXHIBIT 1 FORM OF ISSUER ACKNOWLEDGMENT
EXHIBIT 2 FORM OF SECURITIES PLEDGE AGREEMENT
EXHIBIT 3 FORM OF JOINDER AGREEMENT
-i-
<PAGE>
SECURITIES PLEDGE AGREEMENT
SECURITIES PLEDGE AGREEMENT (the "Agreement'), dated as of March 19,
1999 made by PRECISION PARTNERS HOLDING COMPANY, a Delaware corporation (in such
capacity and together with any successors in such capacity, "Pledgor") in favor
of CITICORP U.S.A., INC., having an office at 399 Park Avenue, New York, New
York 10022, in its capacity as administrative agent for the lending institutions
(the "Lenders") from time to time party to the Credit Agreement (as hereinafter
defined), as pledgee, assignee and secured party (in such capacity and together
with any successors in such capacity, the "Administrative Agent").
RECITALS:
A. Pursuant to a certain credit agreement, dated as of the date
hereof (as amended, amended and restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; capitalized terms used herein and not
defined herein shall have the meanings assigned to them in the Credit
Agreement), among Precision Partners, Inc. (the "Borrower"), the Subsidiary
Guarantors, Pledgor, the Lenders, the Administrative Agent, NationsBank, N.A.,
as syndication agent ("Syndication Agent"), and SunTrust Bank, Atlanta, as the
documentation agent ("Documentation Agent"; together with Administrative Agent
and Syndication Agent, collectively, the "Agents"), the Lenders have agreed (i)
to make to or for the account of the Borrower certain Term Loans up to an
aggregate principal amount of $23,000,000 and certain Revolving Loans up to an
aggregate principal amount of $25,000,000 and (ii) to issue certain Letters of
Credit for the account of the Borrower.
B. Pledgor has executed and delivered to the Administrative Agent a
certain guarantee instrument (each, a "Guarantee") pursuant to which, among
other things, Pledgor has guaranteed the obligations of the Borrower under the
Credit Agreement and the other Loan Documents, and Pledgor desires that its
Guarantee be secured hereunder.
C. Pledgor is or will be the legal and/or beneficial owner of the
Pledged Collateral (as hereinafter defined) to be pledged by it hereunder.
D. It is a condition to the obligations of the Lenders to make the
Loans under the Credit Agreement and a condition to any Lender issuing Letters
of Credit under the Credit Agreement that Pledgor execute and deliver the
applicable Loan Documents, including this Agreement.
E. This Agreement is given by Pledgor in favor of the Administrative
Agent for its benefit and the benefit of the Lenders and the Agents
(collectively, the "Secured Parties") to secure the payment and performance of
all of the Secured Obligations (as defined in Section 2).
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor and the Administrative Agent hereby agree as follows:
<PAGE>
-2-
Section 1. Pledge. As collateral security for the payment and
performance when due of all the Secured Obligations, Pledgor hereby pledges,
assigns, transfers and grants to the Administrative Agent for its benefit and
the benefit of the Secured Parties, a continuing first priority security
interest in and to and pledge of all of the right, title and interest of Pledgor
in, to and under the following property, wherever located, whether now existing
or hereafter arising or acquired from time to time (collectively, the "Pledged
Collateral"):
(a) the issued and outstanding shares of capital stock of each
Person described in Schedule I-A annexed hereto and each other corporation
hereafter acquired or formed by Pledgor (which are and shall remain at all
times until this Agreement terminates, certificated shares), including the
certificates representing the Pledged Shares and any interest of Pledgor
in the entries on the books of any financial intermediary pertaining to
the Pledged Shares and all Additional Shares (as hereinafter defined)
(collectively, the "Pledged Shares"); provided, however, that Pledgor
shall not be required to pledge shares possessing more than 65% of the
voting power of all classes of capital stock entitled to vote of any
Subsidiary which is a controlled foreign corporation (as defined in
Section 957(a) of the Internal Revenue Code of 1986, as amended from time
to time (the "Tax Code")) and, in any event, shall not be required to
pledge the shares of stock of any Subsidiary otherwise required to be
pledged pursuant to this subsection 1(a) to the extent that such pledge
would constitute an investment of earnings in United States property under
Section 956 (or a successor provision) of the Tax Code, which investment
would trigger an increase in the gross income of a United States
shareholder of Pledgor pursuant to Section 951, (or a successor provision)
of the Tax Code;
(b) all additional shares of capital stock of whatever class of any
issuer of the Pledged Shares from time to time acquired by Pledgor in any
manner (which are and shall remain at all times until this Agreement
terminates, certificated shares), including the certificates representing
such additional shares and any interest of Pledgor in the entries on the
books of any financial intermediary pertaining to such additional shares
(collectively, the "Additional Shares");
(c) all membership interests and/or partnership interests, as
applicable, of each Person described in Schedule I-B annexed hereto and
each other limited liability company or partnership hereafter acquired or
formed by Pledgor, together with all rights, privileges, authority and
powers of Pledgor in and to each such Person or under the membership or
partnership agreement of each such Person (the "Operative Agreements"),
and the certificates, instruments and agreements, if any, representing
such membership or partnership interests (collectively, the "Initial
Pledged Interests");
(d) all options, warrants, rights, agreements, additional membership
or partnership interests or other interests relating to each such Person
described in clause (c) above or any interest m any such Person,
including, without limitation, any right relating to the equity or
membership or partnership interests in any such Person or under the
Operative Agreement of any such Person, from time to time acquired by
Pledgor in any manner and the certificates, instruments and agreements, if
any, representing such additional interests (collectively, the "Additional
Interests"; together with the Initial Pledged Interests, the "Pledged
Interests"; the Pledged Interests, together with the Pledged Shares and
the items or types of Pledged Collateral described in subsection 1(f) of
this Agreement, collectively, the "Pledged Securities");
(e) all dividends, cash, options, warrants, rights, instruments,
distributions, returns of capital or principal, income, interest, profits
and other property, interests (debt or equity) or proceeds, including as a
result of a split, revision, reclassification or other like change of the
Pledged Securities,
<PAGE>
-3-
from time to time received, receivable or otherwise distributed to Pledgor
in respect of or in exchange for any or all of the Pledged Securities
(collectively, "Distributions");
(f) without affecting the obligations of Pledgor under any provision
prohibiting such action hereunder or under the Credit Agreement, in the
event of any consolidation or merger in which any Person listed in
Schedule I-A or Schedule I-B annexed hereto is not the surviving entity,
all shares of each class of the capital stock of the successor corporation
or interests or certificates of the successor limited liability company or
partnership owned by Pledgor (unless such successor is Pledgor itself)
formed by or resulting from such consolidation or merger; and
(g) all "proceeds", as such term is defined in the UCC or under
other relevant law, and in any event including, without limitation, any
and all (i) proceeds of any insurance (except payments made to a Person
which is not a party to this Agreement), indemnity, warranty, guaranty or
claim payable to the Administrative Agent or to Pledgor from time to time
with respect to any of the Pledged Collateral, (ii) payments (in any form
whatsoever) made or due and payable to Pledgor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Pledged Collateral by any
Governmental Authority (or any Person acting on behalf of a Governmental
Authority), (iii) instruments representing obligations to pay amounts in
respect of the Pledged Collateral, (iv) products of the Pledged
Collateral and (v) other amounts from time to time paid or payable under
or in connection with any of the Pledged Collateral (collectively, the
"Proceeds").
The Pledged Securities, the Distributions and the Proceeds relating
thereto are collectively referred to as the "Securities Collateral".
Section 2. Secured Obligations. This Agreement secures, and the
Pledged Collateral is collateral security for, the payment and performance in
full when due, whether at stated maturity, by acceleration or otherwise
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the filing of a petition in bankruptcy or
the operation of the automatic stay under Section 362(a) of the Bankruptcy Code,
11 U.S.C. ss. 362(a)), of (i) all Obligations of the Borrower now existing or
hereafter arising under or in respect of the Credit Agreement (including,
without limitation, the obligations of the Borrower to pay principal, interest
and all other charges, fees, expenses, commissions, reimbursements, premiums,
indemnities and other payments related to or in respect of the Obligations
contained in the Credit Agreement), (ii) all Obligations of Pledgor and the
Subsidiary Guarantors now existing or hereafter arising under or in respect of
the Credit Agreement (including, without limitation, the obligations of Pledgor
and each Subsidiary Guarantor to pay principal, interest and all other charges,
fees, expenses, commissions, reimbursements, premiums, indemnities and other
payments related to or in respect of the Obligations contained in the Credit
Agreement) and (iii) without duplication of the amounts described in clauses (i)
and (ii) above, all Obligations of Pledgor now existing or hereafter arising
under or in respect of this Agreement or any other Security Document, including,
without limitation, all charges, fees, expenses, commissions, reimbursements,
premiums, indemnities and other payments related to or in respect of the
Obligations contained in this Agreement or in any other Security Document, in
each case whether in the regular course of business or otherwise (the
obligations described in clauses (i), (ii) and (iii) of this Section 2,
collectively, the "Secured Obligations").
Section 3. No Release. Nothing set forth in this Agreement shall
relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Pledged Collateral or from any liability to any Person under or in
respect of any of the Pledged Collateral or shall impose any obligation on the
Administrative Agent or any other Secured Party to perform or observe any such
term, covenant, condition or agreement on Pledgor's part to be so performed or
<PAGE>
-4-
observed or shall impose any liability on the Administrative Agent or any other
Secured Party for any act or omission on the part of Pledgor relating thereto or
for any breach of any representation or warranty on the part of Pledgor
contained in this Agreement or any other Loan Document, or under or in respect
of the Pledged Collateral or made in connection herewith or therewith, except
upon any exercise of remedies pursuant to Section 9 whereby Pledgor no longer
has any rights, title or interest in or to such Pledged Collateral. The
obligations of Pledgor referred to in this Section 3 shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
under this Agreement and the other Loan Documents.
Section 4. Perfection; Supplements; Further Assurances; Use of
Pledged Collateral.
(a) Delivery of Certificated Securities Collateral. All
certificates, agreements or instruments representing or evidencing the
Securities Collateral, to the extent not previously delivered to the
Administrative Agent, shall immediately upon receipt thereof by Pledgor be
delivered to and held by or on behalf of the Administrative Agent pursuant
hereto. All certificated Securities Collateral shall be in suitable form
for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Administrative Agent. The Administrative Agent shall
have the right, at any time upon the occurrence and during the continuance
of any Event of Default and without notice to Pledgor, to endorse, assign
or otherwise transfer to or to register in the name of the Administrative
Agent or any of its nominees or endorse for negotiation any or all of the
Securities Collateral, without any indication that such Securities
Collateral is subject to the security interest hereunder. In addition, the
Administrative Agent shall have the right at any time after the occurrence
and during the continuance of a Default to exchange certificates
representing or evidencing Pledged Securities for certificates of smaller
or larger denominations.
(b) Perfection of Uncertificated Securities Collateral. If any
issuer of Pledged Securities is organized in a jurisdiction which does not
permit the use of certificates to evidence equity ownership, or if any of
the Pledged Securities are at any time not evidenced by certificates of
ownership, then Pledgor shall, to the extent permitted by applicable law,
record such pledge on the equityholder register or the books of the
issuer, cause the issuer to execute and deliver to the Administrative
Agent an acknowledgment of the pledge of such Pledged Securities
substantially in the form of Exhibit 1 annexed hereto, execute any
customary pledge forms or other documents necessary or appropriate to
complete the pledge and give the Administrative Agent the right to
transfer such Pledged Securities pursuant to the terms hereof and provide
to the Administrative Agent an opinion of counsel, in form and substance
satisfactory to the Administrative Agent, confirming such pledge.
(c) Financing Statements and Other Filings. The only filings,
registrations and recordings necessary and appropriate to create,
preserve, protect and perfect the security interest granted by Pledgor to
the Administrative Agent pursuant to this Agreement in respect of the
Pledged Collateral are listed in Annex A annexed hereto. All such filings,
registrations and recordings have been filed, registered and recorded
contemporaneously with the execution of the Loan Documents. Pledgor agrees
that at any time and from time to time, it will execute and, at the sole
cost and expense of the Pledgor file and refile, or permit the
Administrative Agent to file and refile, such financing statements,
continuation statements and other documents (including, without
limitation, this Agreement), in form reasonably acceptable to the
Administrative Agent, in such offices as the Administrative Agent may
reasonably deem necessary or appropriate, wherever required or permitted
by law in order to perfect, continue and maintain a valid, enforceable,
first priority security interest in the Pledged Collateral as provided
herein and to preserve the other rights and interests granted to the
Administrative Agent hereunder, as against third parties, with respect to
any Pledged Collateral. Pledgor authorizes the Administrative Agent to
<PAGE>
-5-
file any such financing or continuation statement or other document
without the signature of Pledgor where permitted by law.
(d) Supplements; Further Assurances. Pledgor agrees to do such
further acts and things, and to execute and deliver to the Administrative
Agent such additional assignments, agreements, supplements, powers and
instruments, as the Administrative Agent may reasonably deem necessary or
appropriate, wherever required or permitted by law, in order to perfect,
preserve and protect the security interest in the Pledged Collateral as
provided herein and the rights and interests granted to the Administrative
Agent hereunder, to carry into effect the purposes of this Agreement or
better to assure and confirm unto the Administrative Agent or permit the
Administrative Agent to exercise and enforce its respective rights, powers
and remedies hereunder with respect to any Pledged Collateral. Without
limiting the foregoing, Pledgor shall make, execute, endorse, acknowledge,
file or refile and/or deliver to the Administrative Agent from time to
time such lists, descriptions and designations of the Pledged Collateral,
schedules, confirmatory assignments, supplements, additional security
agreements, conveyances, financing statements, transfer endorsements,
powers of attorney, certificates, reports and other assurances or
instruments the Administrative Agent deems reasonably necessary or
appropriate. The Administrative Agent may institute and maintain, in its
own name or in the name of Pledgor, such suits and proceedings as the
Administrative Agent may be advised by counsel shall be reasonably
necessary or expedient to prevent any impairment of the security interest
in or perfection of the Pledged Collateral. All of the foregoing shall be
at the sole cost and expense of Pledgor.
(e) Use and Pledge of Pledged Collateral. Unless an Event of Default
shall have occurred and be continuing, the Administrative Agent shall from
time to time execute and deliver, upon written request of Pledgor and at
the sole cost and expense of Pledgor, any and all instruments,
certificates or other documents, in a form reasonably requested by
Pledgor, necessary or appropriate in the reasonable judgment of Pledgor to
enable Pledgor to continue to exploit, license, use, enjoy and protect the
Pledged Collateral, except as may be prohibited by the terms of this
Agreement or the Credit Agreement. Pledgor and the Administrative Agent
acknowledge that this Agreement is intended to grant to the Administrative
Agent for the benefit of the Secured Parties a security interest in and
Lien upon the Pledged Collateral and shall not constitute or create a
present assignment of any of the Pledged Collateral.
Section 5. Representations, Warranties and Covenants. Pledgor
represents, warrants and covenants as follows:
(a) Perfection Actions; Prior Liens. Upon the completion of the
deliveries, filings and other actions contemplated in subsections 4(a)
through 4(c) hereof, the security interest granted to the Administrative
Agent for the benefit of the Secured Parties pursuant to this Agreement in
and to the Pledged Collateral will constitute a perfected security
interest therein, superior and prior to the rights of all other Persons.
(b) No Liens. Pledgor is as of the date hereof, and, as to Pledged
Collateral acquired by it from time to time after the date hereof, Pledgor
will be, the sole direct and beneficial owner of all Pledged Collateral
pledged by it hereunder free from any Lien or other right, title or
interest of any Person other than the Lien and security interest created
by this Agreement. Pledgor shall defend the Pledged Collateral pledged by
it hereunder against all claims and demands of all Persons at any time
claiming any interest therein adverse to the Administrative Agent or any
other Secured Party. There is no agreement, and Pledgor shall not enter
into any agreement or take any other action, that would result
<PAGE>
-6-
in the imposition of any other Lien, restrict the transferability of any
of the Pledged Collateral or otherwise impair or conflict with Pledgor's
obligations or the rights of the Administrative Agent hereunder.
(c) Other Financing Statements. There is no (nor will be any) valid
or effective financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) covering or purporting to
cover any interest of any kind in the Pledged Collateral other than those
relating to this Agreement, and so long as any of the Secured Obligations
remain unpaid or the Commitments of the Lenders to make any Loan or to
issue any Letter of Credit shall not have expired or been sooner
terminated, Pledgor shall not execute, authorize or permit to be filed in
any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or
statements relating to any Pledged Collateral, except, in each case,
financing statements filed or to be filed in respect of and covering the
security interests granted by Pledgor pursuant to this Agreement.
(d) Chief Executive Office; Change of Name. The chief executive
office of Pledgor is located at the address indicated next to its name in
Annex B annexed hereto. Pledgor shall not move its chief executive office,
except to such new location as Pledgor may establish in accordance with
the last sentence of this subsection 5(d). Pledgor shall not establish a
new location for its chief executive office nor shall it change its name
until (i) it shall have given the Administrative Agent not less than
thirty (30) days' prior written notice of its intention to do so, clearly
describing such new location or name and providing such other information
in connection therewith as the Administrative Agent may reasonably request
and (ii) with respect to such new location or name, Pledgor shall have
taken all action reasonably satisfactory to the Administrative Agent to
maintain the perfection and priority of the security interest of the
Administrative Agent for the benefit of the Secured Parties in the Pledged
Collateral intended to be granted hereby.
(e) Due Authorization and Issuance. All of the Pledged Shares have
been, and to the extent hereafter issued will be upon such issuance, duly
authorized, validly issued and fully paid and non-assessable. All of the
Initial Pledged Interests have been fully paid for, and there is no amount
or other obligation owing by Pledgor to any issuer of the Initial Pledged
Interests in exchange for or in connection with the issuance of the
Initial Pledged Interests or Pledgor's status as a partner or a member of
any issuer of the Initial Pledged Interests.
(f) No Violations, etc. The pledge of the Pledged Securities
pursuant to this Agreement does not violate Regulation T, U or X of the
Federal Reserve Board.
(g) No Options, Warrants, etc. There are no options, warrants,
calls, rights, commitments or agreements of any character to which Pledgor
is a party or by which it is bound obligating Pledgor to issue, deliver or
sell or cause to be issued, delivered or sold, additional Pledged
Securities or obligating Pledgor to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. There are no voting
trusts or other agreements or understandings to which Pledgor is a party
with respect to the transfer, voting or exercise of any other right of the
equity interests of any issuer of the Pledged Securities.
(h) No Claims. Pledgor owns or has rights to use all the Pledged
Collateral pledged by it hereunder.
(i) Authorization, Enforceability. Pledgor has the corporate power
and authority and the legal right to pledge and grant a security interest
in all the Pledged Collateral pledged by it pursuant to
<PAGE>
-7-
this Agreement, and this Agreement constitutes the legal, valid and
binding obligation of Pledgor, enforceable against Pledgor in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles (whether enforcement is sought by proceedings in equity or at
law).
(j) No Conflicts, Consents, etc. Neither the execution and delivery
of this Agreement by Pledgor nor the consummation of the transactions
herein contemplated nor the fulfillment of the terms hereof (i) violates
any charter or by-laws or other organizational document of Pledgor or any
issuer of Pledged Securities, (ii) violates the terms of any agreement,
indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which Pledgor is a party, or by which it may be bound or to
which any of its properties or assets may be subject, which violation or
conflict would have a Material Adverse Effect, or a material adverse
effect on the value of the Pledged Collateral or an adverse effect on the
security interests hereunder, (iii) conflicts with any law, order, rule or
regulation applicable to any Pledgor of any Governmental Authority having
jurisdiction over Pledgor or its property, or (iv) results in or requires
the creation or imposition of any Lien (other than the Lien contemplated
hereby) upon or with respect to any of the property now owned or hereafter
acquired by Pledgor. No consent of any party (including, without
limitation, equityholders or creditors of Pledgor or any account debtor
under a Receivable) and no consent, authorization, approval, license or
other action by, and no notice to or filing with, any Governmental
Authority or regulatory body or other Person is required for (x) the
pledge by Pledgor of the Pledged Collateral pledged by it pursuant to this
Agreement or for the execution, delivery or performance of this Agreement
by Pledgor, (y) the exercise by the Administrative Agent of the rights
provided for in this Agreement or (z) the exercise by the Administrative
Agent of the remedies in respect of the Pledged Collateral pursuant to
this Agreement except for the filings contemplated hereby. In the event
that the Administrative Agent desires to exercise any remedies, voting or
consensual rights or attorney-in-fact powers set forth in this Agreement
and determines it reasonably necessary to obtain any approvals or consents
of any Governmental Authority or any other Person therefor, then, upon the
reasonable request of the Administrative Agent, Pledgor agrees to use its
best efforts to assist and aid the Administrative Agent to obtain as soon
as practicable any reasonably necessary approvals or consents for the
exercise of any such remedies, rights and powers.
(k) Pledged Collateral. All information set forth herein, including
the schedules and annexes attached hereto, and all information contained
in any documents, schedules and lists heretofore delivered to any Secured
Party in connection with this Agreement, in each case, relating to the
Pledged Collateral, is accurate and complete in all material respects. The
Pledged Collateral described on the schedules attached hereto constitutes
all of the property of such type of Pledged Collateral owned or held by
Pledgor.
(l) No Impairment. Pledgor shall not take any action that impairs
the rights of the Administrative Agent or any Secured Party in the Pledged
Collateral.
Section 6. Special Provisions Concerning Securities Collateral.
(a) Pledge of Additional Securities. Pledgor shall, upon obtaining
any Pledged Securities of any Person, accept the same in trust for the
benefit of the Administrative Agent and promptly (and in any event within
five Business Days) deliver to the Administrative Agent a pledge
amendment, duly executed by Pledgor, in substantially the form of Exhibit
2 annexed hereto (each, a "Pledge Amendment"), and the certificates and
other documents required under subsections 4(a) and 4(b) in respect of
<PAGE>
-8-
the additional Pledged Securities that are to be pledged pursuant to this
Agreement, and confirming the attachment of the Lien hereby created on and
in respect of such additional property. Pledgor hereby authorizes the
Administrative Agent to attach each Pledge Amendment to this Agreement and
agrees that all Pledged Securities listed on any Pledge Amendment
delivered to the Administrative Agent shall for all purposes hereunder be
considered Pledged Collateral.
(b) Voting Rights; Distributions; etc.
(i) So long as no Event of Default shall have occurred and be
continuing:
(A) Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the
Securities Collateral or any part thereof for any purpose not
inconsistent with the terms or purposes of this Agreement or
any other Loan Document; provided, however, that Pledgor shall
not in any event exercise such rights in any manner which may
have an adverse effect on the value of the Pledged Collateral
or the security intended to be provided by this Agreement.
(B) Pledgor shall be entitled to receive and retain, and
to utilize free and clear of the Lien of this Agreement, any
and all Distributions, but only if and to the extent made in
accordance with the provisions of the Credit Agreement;
provided, however, that any and all such Distributions
consisting of rights or interests in the form of securities
shall be forthwith delivered to the Administrative Agent to
hold as Pledged Collateral and shall, if received by Pledgor,
be received in trust for the benefit of the Administrative
Agent, be segregated from the other property or funds of
Pledgor and be forthwith delivered to the Administrative Agent
as Pledged Collateral in the same form as so received (with
any necessary endorsement).
(C) The Administrative Agent shall be deemed without
further action or formality to have granted to Pledgor all
necessary consents relating to voting rights and shall, if
necessary, upon written request of Pledgor and at the sole
cost and expense of the Pledgor, from time to time execute and
deliver (or cause to be executed and delivered) to Pledgor all
such instruments as Pledgor may reasonably request in order to
permit Pledgor to exercise the voting and other rights which
it is entitled to exercise pursuant to subsection 6(b)(i)(A)
hereof and to receive the Distributions which it is authorized
to receive and retain pursuant to subsection 6(b)(i)(B)
hereof.
(ii) Upon the occurrence and during the continuance of any
Event of Default
(A) All rights of Pledgor to exercise the voting and
other consensual rights it would otherwise be entitled to
exercise pursuant to subsection 6(b)(i)(A) hereof without any
action or the giving of any notice shall cease, and all such
rights shall thereupon become vested in the Administrative
Agent, which shall thereupon have the sole right to exercise
such voting and other consensual rights.
(B) All rights of Pledgor to receive Distributions which
it would otherwise be authorized to receive and retain
pursuant to subsection 6(b)(i)(B) hereof shall cease and all
such rights shall thereupon become vested in the
Administrative Agent,
<PAGE>
-9-
which shall thereupon have the sole right to receive and hold
as Pledged Collateral such Distributions.
(iii) Pledgor shall, at its sole cost and expense, from time
to time execute and deliver to the Administrative Agent appropriate
instruments as the Administrative Agent may reasonably request in
order to permit the Administrative Agent to exercise the voting and
other rights which it may be entitled to exercise pursuant to
subsection 6(b)(ii)(A) hereof and to receive all Distributions which
it may be entitled to receive under subsection 6(b)(ii)(B) hereof.
(iv) All Distributions that are received by Pledgor contrary
to the provisions of subsection 6(b)(ii)(B) hereof shall be received
in trust for the benefit of the Administrative Agent, shall be
segregated from other funds of Pledgor and shall immediately be paid
over to the Administrative Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement).
(c) No New Securities. Pledgor shall cause each issuer of the
Pledged Securities not to issue any stock or other securities or equity
interests in addition to or in substitution for the Pledged Securities
issued by such issuer, except to Pledgor.
(d) Operative Agreements. Pledgor has delivered to the
Administrative Agent true, correct and complete copies of the Operative
Agreements. The Operative Agreements are in full force and effect, have
not as of the date hereof been amended or modified, and there is no
existing default by any party thereunder or any event that, with the
giving of notice of passage of time or both, would constitute a default by
any party thereunder. Pledgor shall deliver to the Administrative Agent a
copy of any notice of default given or received by it under any Operative
Agreement within ten (10) days after Pledgor gives or receives such
notice. Pledgor will not terminate or agree to terminate any Operative
Agreement or make any amendment or modification to any Operative Agreement
that may have an adverse effect on the value of the Pledged Interests or
the security intended to be provided by this Agreement.
(e) Defaults, etc. Pledgor is not in default in the payment of any
portion of any mandatory capital contribution, if any, required to be made
under any agreement to which Pledgor is a party relating to the Pledged
Securities pledged by it, and Pledgor is not in violation of any other
material provisions of any such agreement to which Pledgor is a party, or
otherwise in default or violation thereunder. No Pledged Securities
pledged by Pledgor are subject to any defense, offset or counterclaim, nor
have any of the foregoing been asserted or alleged against Pledgor by any
Person with respect thereto, and as of the date hereof, there are no
certificates, instruments, documents or other writings (other than the
Operative Agreements and certificates, if any, delivered to the
Administrative Agent) that evidence any Pledged Securities of Pledgor.
Section 7. Transfers and Other Liens. Pledgor shall not (a) sell,
convey, assign or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral pledged by it hereunder except as permitted by the
Credit Agreement, (b) create or permit to exist any Lien upon or with respect to
any of the Pledged Collateral pledged by it hereunder other than the Liens and
security interest granted to the Administrative Agent under this Agreement or
(c) permit any issuer of the Pledged Securities to merge, consolidate or change
its legal form, unless (i) permitted by the Credit Agreement or (ii) all of the
outstanding equity interests of the surviving or resulting entity are, upon such
merger or consolidation, pledged hereunder and no cash, secu-
<PAGE>
-10-
rities or other property is distributed in respect of the outstanding equity
interests of any other entity that was merged into or consolidated with such
issuer.
Section 8. Reasonable Care. The Administrative Agent shall be deemed
to have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if such Pledged Collateral is accorded treatment
substantially equivalent to that which the Administrative Agent, in its
individual capacity, accords its own property consisting of similar instruments
or interests, it being understood that neither the Administrative Agent nor any
of the Secured Parties shall have responsibility for (i) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relating to any Securities Collateral, whether or not the
Administrative Agent or any other Secured Party has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any Person with respect to any Pledged Collateral.
Section 9. Event of Default and Remedies.
(a) Remedies Upon Event of Default. If any Event of Default shall
have occurred and be continuing, then and in every such case, the
Administrative Agent may:
(i) Retain and apply the Distributions to the Secured
Obligations as provided in Section 16 hereof; and
(ii) Exercise any and all rights as beneficial and legal owner
of the Pledged Collateral, including, without limitation, perfecting
assignment of and exercising any and all voting, consensual and
other rights and powers with respect to any Pledged Collateral.
(iii) In addition to the other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies
of a secured party on default under the UCC, and the Administrative
Agent may also in its sole discretion, without notice except as
specified below, sell or assign the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of the Administrative Agent's
offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as the
Administrative Agent may deem commercially reasonable. The
Administrative Agent or any other Secured Party or any of their
respective Affiliates may be the purchaser, licensee, assignee or
recipient of any or all of the Pledged Collateral at any such sale
and shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion
of the Pledged Collateral sold or assigned at such sale, to use and
apply any of the Secured Obligations owed to such Person as a credit
on account of the purchase price of any Pledged Collateral payable
by such Person at such sale. Each purchaser, assignee or recipient
at any such sale shall acquire the property sold or assigned
absolutely free from any claim or right on the part of Pledgor, and
Pledgor hereby waives, to the fullest extent permitted by law, all
rights of redemption, stay and/or appraisal which it now has or may
at any time in the future have under any rule of law or statute now
existing or hereafter enacted. The Administrative Agent shall not be
obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Administrative Agent may
adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so
adjourned. Pledgor hereby waives, to the fullest extent permitted by
law, any claims against the Administrative Agent arising by reason
of the fact that the price at which any Pledged
<PAGE>
-11-
Collateral may have been sold or assigned at such a private sale was
less than the price which might have been obtained at a public sale,
even if the Administrative Agent accepts the first offer received
and does not offer such Pledged Collateral to more than one offeree.
Pledgor acknowledges and agrees that, to the extent notice of sale
shall be required by law, ten days' written notice to Pledgor of the
time and place of any public sale or of the time after which any
private sale or other intended disposition is to take place shall be
commercially reasonable notification of such matters. No
notification need be given to Pledgor if it has signed, after the
occurrence of an Event of Default, a statement renouncing or
modifying any right to notification of sale or other intended
disposition.
(b) Specific Performance. Upon application to a court of equity
having jurisdiction, the Administrative Agent shall be entitled to a
decree requiring specific performance by Pledgor of such obligation.
(c) Waiver of Notice and Claims. Pledgor hereby waives, to the
fullest extent permitted by applicable law, notice or judicial hearing in
connection with the Administrative Agent's taking possession or the
Administrative Agent's disposition of any of the Pledged Collateral,
including, without limitation, any and all prior notice and hearing for
any prejudgment remedy or remedies and any such right which Pledgor would
otherwise have under law, and Pledgor hereby further waives, to the
fullest extent permitted by applicable law: (i) all damages occasioned by
such taking of possession, except to the extent caused by gross negligence
or willful misconduct of the Administrative Agent, any Secured Party or
any agent or employee thereof, (ii) all other requirements as to the time,
place and terms of sale or other requirements with respect to the
enforcement of the Administrative Agent's rights hereunder, and (iii) all
rights of redemption, appraisal, valuation, stay, extension or moratorium
now or hereafter in force under any applicable law. The Administrative
Agent shall not be liable for any incorrect or improper payment made
pursuant to this Section 19 in the absence of gross negligence or willful
misconduct. Any sale of, or the grant of options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all
right, title, interest, claim and demand, either at law or in equity, of
Pledgor therein and thereto, and shall be a perpetual bar both at law and
in equity against Pledgor and against any and all Persons claiming or
attempting to claim the Pledged Collateral so sold, optioned or realized
upon, or any part thereof, from, through or under Pledgor.
(d) Certain Sales of Pledged Collateral. Pledgor recognizes that, by
reason of certain prohibitions contained in law, rules, regulations or
orders of any foreign Governmental Authority, the Administrative Agent may
be compelled, with respect to any sale of all or any part of the Pledged
Collateral, to limit purchasers to those who meet the requirements of such
foreign Governmental Authority. Pledgor acknowledges that any such sales
may be at prices and on terms less favorable to the Administrative Agent
than those obtainable through a public sale without such restrictions,
and, notwithstanding such circumstances, agrees that any such restricted
sale shall be deemed to have been made in a commercially reasonable manner
and that, except as may be required by applicable law, the Administrative
Agent shall have no obligation to engage in public sales.
(e) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities
Act"), and applicable state securities laws, the Administrative Agent may
be compelled, with respect to any sale of all or any part of the
Securities Collateral, to limit purchasers to Persons who will agree,
among other things, to acquire such Securities Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. Pledgor acknowledges that any such private sales may be at prices
and on terms less favorable to the Administrative
<PAGE>
-12-
Agent than those obtainable through a public sale without such
restrictions (including, without limitation, a public offering made
pursuant to a registration statement under the Securities Act), and,
notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner and
that the Administrative Agent shall have no obligation to engage in public
sales and no obligation to delay the sale of any Securities Collateral for
the period of time necessary to permit the issuer thereof to register it
for a form of public sale requiring registration under the Securities Act
or under applicable state securities laws, even if such issuer would agree
to do so.
(f) Notwithstanding the foregoing, Pledgor shall, upon the
occurrence and during the continuance of any Event of Default, at the
request of the Administrative Agent, for the benefit of the Administrative
Agent, cause any registration, qualification under or compliance with any
federal or state securities law or laws to be effected with respect to all
or any part of the Securities Collateral as soon as practicable and at the
sole cost and expense of Pledgor. Pledgor will use its best efforts to
cause such registration to be effected (and be kept effective) and will
use its best efforts to cause such qualification and compliance to be
effected (and be kept effective) as may be so requested and as would
permit or facilitate the sale and distribution of such Securities
Collateral, including, without limitation, registration under the
Securities Act (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws
and appropriate compliance with any other government requirements. Pledgor
shall cause the Administrative Agent to be kept advised in writing as to
the progress of each such registration, qualification or compliance and as
to the completion thereof, shall furnish to the Administrative Agent such
number of prospectuses, offering circulars or other documents incident
thereto as the Administrative Agent from time to time may request, and
shall indemnify and shall cause the issuer of the Securities Collateral to
indemnify the Administrative Agent and all others participating in the
distribution of such Securities Collateral against all claims, losses,
damages and liabilities caused by any untrue statement (or alleged untrue
statement) of a material fact contained therein (or in any related
registration statement, notification or the like) or by any omission (or
alleged omission) to state therein (or in any related registration
statement, notification or the like) a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(g) If the Administrative Agent determines to exercise its right to
sell any or all of the Securities Collateral, upon written request,
Pledgor shall from time to time furnish to the Administrative Agent all
such information as the Administrative Agent may request in order to
determine the number of securities included in the Securities Collateral
which may be sold by the Administrative Agent as exempt transactions under
the Securities Act and the rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
Section 10. Application of Proceeds. The proceeds received by the
Administrative Agent in respect of any sale of, collection from or other
realization upon all or any part of the Pledged Collateral pursuant to the
exercise by the Administrative Agent of its remedies as a secured creditor as
provided in Section 9 hereof shall be applied, together with any other sums then
held by the Administrative Agent pursuant to this Agreement, promptly by the
Administrative Agent as follows:
First, to the payment of all costs and expenses, fees, commissions
and taxes of such sale, collection or other realization, including,
without limitation, reasonable compensation to the Administrative Agent
and its agents and counsel, and all expenses, liabilities and advances
made or incurred by the Administrative Agent in connection therewith,
together with interest on each such amount at the highest rate then in
effect under the Credit Agreement from and after the date such amount is
due, owing or unpaid until paid in full;
<PAGE>
-13-
Second, to the payment of all other costs and expenses of such sale,
collection or other realization, including, without limitation, reasonable
compensation to the Lenders and their agents and counsel and all costs,
liabilities and advances made or incurred by the Lenders in connection
therewith, together with interest on each such amount at the highest rate
then in effect under the Credit Agreement from and after the date such
amount is due, owing or unpaid until paid in full;
Third, without duplication of amounts applied pursuant to clauses
First and Second above, to the indefeasible payment in full in cash, pro
rata, of interest, principal and other amounts constituting Secured
Obligations in accordance with the terms of the Credit Agreement; and
Fourth, the balance, if any, to the Person lawfully entitled thereto
(including Pledgor or its respective successors or assigns).
In the event that any such proceeds are insufficient to pay in full
the items described in clauses First through Third of this Section 13, Pledgor
shall remain liable for any deficiency.
Section 11. Expenses. Pledgor will upon demand pay to the
Administrative Agent the amount of any and all expenses, including the
reasonable fees and expenses of its counsel and the fees and expenses of any
experts and agents which the Administrative Agent may incur in connection with
(a) the collection of the Secured Obligations, (b) the enforcement and
administration of this Agreement, (c) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Pledged
Collateral, (d) the exercise or enforcement of any of the rights of the
Administrative Agent or any Secured Party hereunder or (e) the failure by
Pledgor to perform or observe any of the provisions hereof. All amounts payable
by Pledgor under this Section 11 shall be due upon demand and shall be part of
the Secured Obligations. Pledgor's obligations under this Section 11 shall
survive the termination of this Agreement and the discharge of Pledgor's other
obligations hereunder.
Section 12. No Waiver; Cumulative Remedies.
(a) No failure on the part of the Administrative Agent to exercise,
no course of dealing with respect to, and no delay on the part of the
Administrative Agent in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
remedy; nor shall the Administrative Agent be required to look first to,
enforce or exhaust any other security, collateral or guaranties. The
remedies herein provided are cumulative and are not exclusive of any
remedies provided by law.
(b) In the event that the Administrative Agent shall have instituted
any proceeding to enforce any right, power or remedy under this Agreement
by foreclosure, sale, entry or otherwise, and such proceeding shall have
been discontinued or abandoned for any reason or shall have been
determined adversely to the Administrative Agent, then and in every such
case, Pledgor, the Administrative Agent and each other Secured Party shall
be restored to their respective former positions and rights hereunder with
respect to the Pledged Collateral, and all rights, remedies and powers of
the Administrative Agent and the other Secured Parties shall continue as
if no such proceeding had been instituted.
Section 13. Administrative Agent. The Administrative Agent has been
appointed as Administrative Agent pursuant to the Credit Agreement. The actions
of the Administrative Agent hereunder are subject to the provisions of the
Credit Agreement. The Administrative Agent shall have the right hereunder to
make
<PAGE>
-14-
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking action (including, without limitation, the
release or substitution of Pledged Collateral), in accordance with this
Agreement and the Credit Agreement. The Administrative Agent may employ agents
and attorneys-in-fact in connection herewith and shall not be liable for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith. The Administrative Agent may resign and a successor
Administrative Agent may be appointed in the manner provided in the Credit
Agreement. Upon the acceptance of any appointment as the Administrative Agent by
a successor Administrative Agent, that successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent under this Agreement, and the
retiring Administrative Agent shall thereupon be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent's
resignation, the provisions of this Agreement shall inure to its benefit as to
any actions taken or omitted to be taken by it under this Agreement while it was
the Administrative Agent.
Section 14. Administrative Agent May Perform; Administrative Agent
Appointed Attorney-in-Fact. If Pledgor shall fail to do any act or thing that it
has covenanted to do hereunder or if any warranty on the part of Pledgor
contained herein shall be breached, the Administrative Agent may (but shall not
be obligated to) do the same or cause it to be done or remedy any such breach,
and may expend funds for such purpose. Any and all amounts so expended by the
Administrative Agent shall be paid by Pledgor promptly upon demand therefor,
with interest at the highest rate then in effect under the Credit Agreement
during the period from and including the date on which such funds were so
expended to the date of repayment. Pledgor's obligations under this Section 14
shall survive the termination of this Agreement and the discharge of Pledgor's
other obligations under this Agreement, the Credit Agreement and the other Loan
Documents. Pledgor hereby appoints the Administrative Agent its
attorney-in-fact, with full authority in the place and stead of Pledgor and in
the name of Pledgor, or otherwise, from time to time after the occurrence and
during the continuance of a Default in the Administrative Agent's discretion to
take any action and to execute any instrument consistent with the terms of this
Agreement and the other Loan Documents which the Administrative Agent may deem
necessary or advisable to accomplish the purposes of this Agreement. The
foregoing grant of authority is a power of attorney coupled with an interest and
such appointment shall be irrevocable for the term of this Agreement. Pledgor
hereby ratifies all that such attorney shall lawfully do or cause to be done by
virtue hereof.
Section 15. Indemnity.
(a) Indemnity. Pledgor agrees to indemnify, pay and hold harmless
the Administrative Agent and each of the other Secured Parties and the
officers, directors, employees, agents and Affiliates of the
Administrative Agent and each of the other Secured Parties (collectively,
the "Indemnitees") from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs (including, without limitation, settlement costs), expenses
or disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such
Indemnitee shall be designated a party thereto) which may be imposed on,
incurred by, or asserted against that Indemnitee, in any manner relating
to or arising out of this Agreement or any other Loan Document (including,
without limitation, any misrepresentation by Pledgor in this Agreement or
any other Loan Document) (the "indemnified liabilities"); provided,
however, that Pledgor shall not have any obligation to an Indemnitee
hereunder with respect to indemnified liabilities if it has been
determined by a final decision (after all appeals and the expiration of
time to appeal) of a court of competent jurisdiction that such indemnified
liability arose from the gross negligence or willful misconduct of that
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because
it is
<PAGE>
-15-
violative of any law or public policy, Pledgor shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable
law to the payment and satisfaction of all indemnified liabilities
incurred by the Indemnitees or any of them.
(b) Survival. The obligations of Pledgor contained in this Section
15 shall survive the termination of this Agreement and the discharge of
Pledgor's other obligations under this Agreement and under the other Loan
Documents.
(c) Reimbursement. Any amounts paid by any Indemnitee as to which
such Indemnitee has the right to reimbursement shall constitute Secured
Obligations secured by the Pledged Collateral.
Section 16. Modification in Writing. No amendment, modification,
supplement, termination or waiver of or to any provision of this Agreement, nor
consent to any departure by Pledgor therefrom, shall be effective unless the
same shall be made in accordance with the terms of the Credit Agreement and
unless in writing and signed by the Administrative Agent. Any amendment,
modification or supplement of or to any provision of this Agreement, any waiver
of any provision of this Agreement and any consent to any departure by Pledgor
from the terms of any provision of this Agreement shall be effective only in the
specific instance and for the specific purpose for which made or given. Except
where notice is specifically required by this Agreement or any other Loan
Document, no notice to or demand on Pledgor in any case shall entitle Pledgor to
any other or further notice or demand in similar or other circumstances.
Section 17. Termination; Release. When all the Secured Obligations
have been paid in full and the Commitments of the Lenders to make any Loan or to
issue any Letter of Credit under the Credit Agreement shall have expired or been
sooner terminated, this Agreement shall terminate. Upon termination of this
Agreement or any release of Pledged Collateral in accordance with the provisions
of the Credit Agreement, the Administrative Agent shall, upon the request and at
the sole cost and expense of Pledgor, forthwith assign, transfer and deliver to
Pledgor, against receipt and without recourse to or warranty by the
Administrative Agent, such of the Pledged Collateral to be released (in the case
of a release) as may be in possession of the Administrative Agent and as shall
not have been sold or otherwise applied pursuant to the terms hereof, and, with
respect to any other Pledged Collateral, proper documents and instruments
(including UCC-3 termination statements or releases) acknowledging the
termination of this Agreement or the release of such Pledged Collateral, as the
case may be.
Section 18. Notices. Unless otherwise provided herein or in the
Credit Agreement, any notice or other communication herein required or permitted
to be given shall be given in the manner set forth in the Credit Agreement, as
to Pledgor, addressed to it at the address of the Borrower set forth in the
Credit Agreement and as to the Administrative Agent, addressed to it at the
address set forth in the Credit Agreement, or in each case at such other address
as shall be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section 18.
Section 19. Continuing Security Interest; Assignment. This Agreement
shall create a continuing security interest in the Pledged Collateral and shall
(i) be binding upon Pledgor, its successors and assigns and (ii) inure, together
with the rights and remedies of the Administrative Agent hereunder, to the
benefit of the Administrative Agent and the other Secured Parties and each of
their respective successors, transferees and assigns. No other Persons
(including, without limitation, any other creditor of Pledgor) shall have any
interest herein or any right or benefit with respect hereto. Without limiting
the generality of the foregoing clause (ii), any Lender may assign or otherwise
transfer any indebtedness held by it secured by this Agreement to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to
<PAGE>
-16-
such Lender, herein or otherwise, subject however, to the provisions of the
Credit Agreement. Each Affiliate of the Borrower which from time to time after
the initial date of this Agreement is required under the Credit Agreement to
pledge any assets to the Administrative Agent for the benefit of the Secured
Parties may become a party hereto upon execution and delivery to the
Administrative Agent of a joinder agreement substantially in the form attached
hereto as Exhibit 3, and upon such execution and delivery shall be deemed to be
a "Guarantor" and a "Pledgor" for all purposes hereunder.
Section 20. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, EXCLUDING (TO THE GREATEST EXTENT PERMITTED BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK, AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR PLEDGED COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
Section 21. CONSENT TO JURISDICTION AND SERVICE OF PROCESS; WAIVER
OF JURY TRIAL. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO
THIS AGREEMENT MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK
SITTING IN NEW YORK COUNTY, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS OF ANY THEREOF, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, PLEDGOR ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. PLEDGOR AGREES THAT
SERVICE OF PROCESS IN ANY PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF
BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL),
POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH IN THE CREDIT AGREEMENT OR
AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO. IF ANY AGENT APPOINTED BY PLEDGOR REFUSES TO ACCEPT SERVICE,
PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT
NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT TO
BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION.
PLEDGOR AND THE ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVE ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 22. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 23. Execution in Counterparts. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
<PAGE>
-17-
Section 24. Headings. The Section headings used in this Agreement
are for convenience of reference only and shall not affect the construction of
this Agreement.
Section 25. Obligations Absolute. All obligations of Pledgor
hereunder shall be absolute and unconditional irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Pledgor;
(b) any lack of validity or enforceability of the Credit Agreement,
any Letter of Credit or any other Loan Document, or any other agreement or
instrument relating thereto;
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, any Letter of Credit or any other Loan Document, or any other
agreement or instrument relating thereto;
(d) any pledge, exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(e) any exercise, non-exercise or waiver of any right, remedy, power
or privilege under or in respect of this Agreement or any other Loan
Document except as specifically set forth in a waiver granted pursuant to
the provisions of Section 16 hereof; or
(f) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
Section 26. Future Advances. This Agreement shall secure the payment
of any amounts advanced from time to time pursuant to the Credit Agreement.
<PAGE>
-S1-
IN WITNESS WHEREOF, Pledgor and the Administrative Agent have caused
this Agreement to be duly executed and delivered by their duly authorized
officers as of the date first above written.
PRECISION PARTNERS HOLDING COMPANY,
as Pledgor
By: _________________________________
Name:
Title:
CITICORP U.S.A., INC.,
as Administrative Agent
By: _________________________________
Name:
Title:
<PAGE>
SCHEDULE I-A
Initial Pledged Shares
Pledgor: ______________________
PERCENTAGE OF
ALL ISSUED
CAPITAL OR
NUMBER OTHER EQUITY
CLASS CERTIFICATE OF INTERESTS OF
ISSUER OF STOCK NO(S). SHARES ISSUER
- ------ -------- ------ ------ -------------
Note: A separate sheet should be used for each Pledgor pledging shares.
<PAGE>
SCHEDULE I-B
Initial Pledged Interests
Pledgor: _____________________
PERCENTAGE OF
ALL ISSUED
CAPITAL OR
TYPE NUMBER OTHER EQUITY
OF CERTIFICATE OF INTERESTS OF
ISSUER INTEREST NO(S). SHARES ISSUER
- ------ -------- ----------- ------ -------------
<PAGE>
ANNEX A
Financing Statements and Other Necessary Filings
UCC Filing
Other Filings
<PAGE>
ANNEX B
Locations of Pledgor
Chief Executive Tax ID
Pledgor Office Number Other Locations
- ------- --------------- ------ ---------------
Note: A separate sheet should be used for each Pledgor pledging Financial
Accounts.
<PAGE>
-S1-
EXHIBIT 1
Form of Issuer Acknowledgement
The undersigned hereby (i) acknowledges receipt of a copy of that
certain securities pledge agreement (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "Agreement";
capitalized terms used herein but not defined herein have the meanings given
such terms in the Agreement), dated as of March ___, 1999, among Precision
Partners Holding Company and Citicorp U.S.A., Inc., as Administrative Agent (in
such capacity and together with any successors in such capacity, the
"Administrative Agent"), (ii) agrees promptly to note on its books the security
interests granted and confirmed under the Agreement, (iii) agrees that it will
comply with instructions of the Administrative Agent with respect to the
applicable Securities Collateral without further consent by Pledgor, (iv) agrees
to notify the Administrative Agent upon obtaining knowledge of any interest in
favor of any Person in the applicable Securities Collateral that is adverse to
the interest of the Administrative Agent therein and (v) waives any right or
requirement at any time hereafter to receive a copy of the Agreement in
connection with the registration of any Securities Collateral thereunder in the
name of the Administrative Agent or its nominee or the exercise of voting rights
by the Administrative Agent or its nominee.
[NAME OF ISSUER]
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT 2
Form of Securities Pledge Amendment
PLEDGE AMENDMENT
This Pledge Amendment, dated ______________, is delivered pursuant
to Section 6 of the Agreement referred to below. The undersigned hereby agrees
that this Pledge Amendment may be attached to the Securities Pledge Agreement,
dated as of March ___, 1999, among the undersigned and Citicorp U.S.A., Inc., as
the Administrative Agent (the "Agreement"; capitalized terms used herein and not
defined shall have the meanings assigned to them in the Agreement). The
undersigned hereby pledges, assigns, transfers and grants to the Administrative
Agent for its benefit and the benefit of the Secured Parties, a first priority
security interest in and to all of the undersigned's rights, title and interest
in and to the Pledged Securities listed on this Pledge Amendment and agrees that
such Pledged Securities shall be deemed to be and shall become part of the
Pledged Collateral and shall secure all Secured Obligations.
PRECISION PARTNERS HOLDING COMPANY,
as Pledgor
By: ___________________________________
Name:
Title:
Pledged Securities
------------------
PERCENTAGE OF ALL
NUMBER ISSUED CAPITAL OR
CLASS PAR CERTIFICATE OF OTHER EQUITY
ISSUER OF STOCK VALUE NO(S). SHARES INTERESTS OF ISSUER
------ -------- ----- ----------- ------ -------------------
<PAGE>
EXHIBIT 3
Form of Joinder Agreement
[Name of New Pledgor]
[Address of New Pledgor]
[Date]
Citicorp U.S.A., Inc.,
as Administrative Agent
___________________________
___________________________
Attention: ________________
Ladies and Gentlemen:
Reference is made to the Securities Pledge Agreement (the
"Agreement"), dated as of March ___, 1999, made by Precision Partners Holding
Company ("Pledgor") and Citicorp U.S.A., Inc., as administrative agent for the
Secured Parties. Capitalized terms used herein but not otherwise defined herein
have the meanings given such terms in the Agreement.
This letter supplements the Agreement and is delivered by the
undersigned, ______________ (the "New Pledgor"), pursuant to Section 19 of the
Agreement. The New Pledgor hereby agrees to be bound as a Guarantor and as a
Pledgor by all of the terms, covenants and conditions set forth in the Agreement
to the same extent that it would have been bound if it had been a signatory to
the Agreement on the execution date of the Agreement. The New Pledgor hereby
makes each of the representations and warranties and agrees to each of the
covenants applicable to Pledgor contained in the Agreement.
The New Pledgor hereby pledges, assigns, transfers and grants to the
Administrative Agent, for its benefit and the Secured Parties, a first priority
security interest in and to all of its right, title and interest in and to the
Pledged Collateral.
Attached hereto are supplements to each of the schedules and annexes
to the Agreement with respect to the New Pledgor. Such supplements shall be
deemed to be part of the Agreement
This agreement and any amendments, waivers, consents or supplements
hereto may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original, but all such counterparts together shall
constitute one and the same agreement.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. EXCLUDING (TO
<PAGE>
-2-
THE GREATEST EXTENT PERMITTED BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
<PAGE>
-S1-
IN WITNESS WHEREOF, the New Pledgor has caused this Agreement to be
executed and delivered by its duly authorized officer as of the date first above
written.
[NEW PLEDGOR]
By: ____________________________
Name:
Title:
AGREED TO AND ACCEPTED:
Citicorp U.S.A., Inc.,
as Administrative Agent
By: _____________________
Name:
Title:
[Schedules and Annexes to be attached]
<PAGE>
Exhibit 10.3
GENERAL ELECTRIC COMPANY
GAS TURBINE SYSTEMS SOURCING OPERATION
REFERENCE: AGREEMENT NUMBER: GE - Mid-State - 0002
BETWEEN: General Electric Company (Purchaser)
Gas Turbine Sourcing Operation
300 Garlington Road
P.O. Box 648
Greenville, SC 29602-0648
And: Mid-State Machine Products, Inc. (Seller)
1501 Verti Drive
Winslow, Maine 04901
Whereas the parties wish to enter into a contractual relationship to establish
terms, delivery periods, and pricing for the purchase and sale of certain
machined products listed in Attachments "A" thru "D" and in consideration of
mutual promises, Purchaser and Seller agree as follows:
CONTRACT VISION
A commitment to fully satisfy the ultimate customer by entering into a
long term, mutually beneficial business relationship for a competitive
advantage through continuous improvement processes.
MUTUAL UNDERSTANDING:
* build a creative partnership with multi-functional partnering teams
to manage design integration, resource planning and quality
* manage the relationship not transactions
* commit totally to continuous improvement
* manage total cost for mutual profitability
* recognize co-destiny in business decisions through long term,
productivity-based Agreement
* share forecasts, plan long-range
* reduce cycles through stocking programs, smooth loading and
production control.
-1-
<PAGE>
1. TERM:
The initial term of this agreement starts Nov. 1, 1998 and continues
through those dates listed on Attachments "A" thru "D" with an option
to extend for subsequent years.
2. TERMINATION:
Purchaser or Seller may terminate this agreement at any time upon 180
days prior written notice to the other party. If the agreement is
terminated by the purchaser other than for Seller's default, the
purchaser is responsible to purchase from the Seller:
* Reserve quantities of materials that have been stocked
specifically for the Purchaser, provided, however, that in no
case shall Purchaser's obligation in this regard exceed 1
year's worth of requirements (prior to any reschedule) or items
normally stocked by Seller upon termination taking effect.
Purchaser will buy back in accordance with his production
schedule and will utilize this inventory prior to other
established inventories.
* Should potential cost reduction programs require equipment or
tooling which is agreed to by both parties and solely
beneficial to the Purchaser's process, the Purchaser will
reimburse the Seller for all moneys expended but not amortized
at the time of termination. Should this occur, Seller agrees to
transfer or convey titles to Purchaser any and all such tooling
and equipment as requested.
3. SCOPE:
Seller shall supply the Purchaser machined products to support the
Industrial & Power Systems Business in accordance with the items listed
in Attachments "A" thru "D", updated periodically to incorporate the
latest revisions.
4. GOAL:
The Goal is defined as the ability of the Seller to support the
Purchaser with quality parts, having on-time deliveries at competitive
pricing. Both parties working together have the responsibility to
achieve the Goal.
5. PRICING:
A) Base pricing is fixed and shall not increase for the term of this
Agreement
-2-
<PAGE>
except for when the Purchaser makes changes in design, materials,
or requirements (new prices shall be set on development, drawing
amendments or additional parts subsequently amending Attachments
"A" thru "D").
6. PRODUCTIVITY:
Seller will continue to implement continuous productivity gains through
6 Sigma project activities.
The productivity projects are jointly agreed on by both parties and
involve the following types of activities:
* Seller manufacturing process improvements, i.e.
(cellularization, dedicated equipment, new equipment,
upgraded tooling, etc.)
* Seller involvement in design to assure manufacturability.
* Joint effort at product standardization.
* Seller will maximize productivity on fixed processes.
* Seller will increase worker productivity.
* Inventory control to level load shop activities and to
maximize repeatability of similar units.
* Purchaser will evaluate suggestions on a timely basis and
rapidly implement those that are acceptable.
* Purchaser to review their product in depth with the Seller
to evaluate the feasibility of the following:
A) Reducing testing requirements
B) Relaxing tolerances when possible
C) Developing similar shapes and features
D) Material substitutions
E) Redesigning to optimize manufacturability.
* Scrap reduction for both mature and development parts.
* Review of processes and equipment to ensure quality.
* Added volume of similar components.
All projects requiring Purchaser's approval will be documented and
responded to utilizing the supplier CRS input form.
An immediate reduction in the Seller's price will occur upon
implementation of a productivity project funded by the Purchaser
pursuant to Articles 4 and 5. For a productivity project funded by the
Seller, the Seller's price will be reduced only after the Seller's is
reimbursed for the tooling, fixturing, and/or equipment
-3-
<PAGE>
purchased for the project by the savings generated from the project
pursuant to Articles 4 and 5. In both cases, tooling, fixturing, and/or
equipment as identified in the productivity project will become the
property of Purchaser upon completion.
7. GENERAL COST SAVINGS:
Purchaser agrees to identify those savings and reductions gained
through 6 Sigma project activities which are directly related to
conducting business with the Seller and to share any savings that can
be calculated and audited as directly attributable in terms of credit
towards our cost reduction goals. Such examples are as listed:
* Reduced transportation costs as compared to existing
supplier use.
* Reduced applied overhead.
* Reduction of total effort extended by Purchaser to maintain
program integrity.
* Methods Changes
8. ORDERING:
Purchase orders shall be issued by the individual Purchaser locations
and subject to the Standard GE Conditions of Purchase. If a conflict
exists between the terms of this contract and the Conditions of
Purchase, the terms of this contract will take precedence FOR
COMMERCIAL ORDERS ONLY. On Government orders the Conditions of Purchase
shall take precedence. The purchase order shall contain the following
specific data:
A.) Purchase order number and date
B.) Location
C.) The FOB point and mode of shipment
D.) Name and address of the person representing the Seller
and Purchaser
Purchase orders may include supplemental agreement clauses applicable
to orders relating to the United States Government agreement and
sub-contract. It is the intent of this agreement, that each Purchaser,
when available, will order and invoice via Electronic Data Interchange
(EDI), on a daily basis or as required. Each EDI order will reference
the 1ocation's purchase order number, date ordered, and the name of the
person entering the order. This method is solely a vehicle for
transporting data between the parties.
Purchaser commits to place a full 100% of its annual requirements of
material and/or equipment covered under this Agreement with the
exception of customer directed procurements and any notes appearing on
attachments. Purchaser reserves the right on any purchase order issued
hereunder for the work covered by this Agreement, to award up to 100%
of its requirements to other suppliers in the event that one or more of
the following occurs:
-4-
<PAGE>
A.) Seller ceases to remain a qualified supplier pursuant to
Purchaser's qualification requirements.
B.) Seller is unable to meet Purchaser's delivery, quality,
or Goal requirements (Articles 8, 16, and 4,
respectively)
C.) Seller is in default of any of its obligations under this
Agreement or under purchase order issued pursuant to this
Agreement.
In the event, however, that Purchaser does not achieve this purchase
commitment, Seller may continue the relationship, on terms stated, or
terminate this Agreement as if Seller had given notice of termination
pursuant to Article 2. The preceding sentence states the sole recourse
of the Seller for any inability or failure by the Purchaser to meet the
stated purchase commitment.
9. CYCLE TIME:
Seller is committed to the Goal of continuous improvement on all
current cycle for commodities covered under this agreement.
10. AGREEMENT ADMINISTRATION:
Contractual agreement review meetings will be held on an as-needed
basis, but no fewer than one (1) per calendar year, to mutually
evaluate the performance of each of the parties. The GEPS Supplier
Scorecard will be the basis for the review with the areas to be
addressed will include, but not be limited, to the following:
- Information communication quality and accuracy
- Purchase volume/payment history
- Delivery/order lead time performance
- Emergency order handling
- Productivity teams status (i.e. Design Integration, Quality
and Resource Planning)
- Cost reductions implemented/documented
-5-
<PAGE>
At each review, the performance of each participant will be quantified
where applicable. Goals to be achieved before the next review will be
mutually established.
11. FORECASTING:
Purchaser will provide as much forecasting information as possible to
assist Seller in establishing and maintaining adequate stocking levels
and/or to apply effective production control techniques (i.e. level
load shop, perform line of balance, etc.)
12. TERMS OF PAYMENT:
Payment by Purchaser shall be Net 45 days following the later date of
Seller's invoices or receipt of product and services by Purchaser.
Seller will re-bill any unearned discounts beyond 17 calendar days. GE
Capital will negotiate payment discounts separately.
13. INVOICING:
Invoices will be submitted by Seller to the Purchaser location
indicated on the purchase order. Invoices will reference Purchaser's
purchase order number and will contain such other information as
Purchaser may reasonably request. As referenced in Article 8 "ORDERING"
in the future the Seller will invoice the Purchaser via Electronic Data
Interchange (EDI). Each EDI invoice must reference the 1ocation's
purchase order number, item number, schedule number, and other required
data as determined by Purchaser's Accounts Payable Organization.
14. SHIPPING TERMS:
All shipments will be FOB Shipping Point, title to said goods to pass
to Purchaser upon delivery to Purchaser's dock. Transportation charges
to be billed directly to Purchaser by carrier and will be borne by
Purchaser. Seller must use Purchaser's designated corporate- agreement
careers which are indicated on the purchase order. Risk of loss remains
with Seller until delivered to Purchaser.
15. SPECIFICATIONS:
Product supplied under this agreement to be either commercial grade or
specialty grade as defined by Purchaser's specifications or
manufacturer stock number. No substitutions will be allowed without
Purchaser's written approval.
-6-
<PAGE>
16. QUALITY:
Seller agrees to meet purchaser's quality requirements and to work
towards the established Purchaser's goal of a 6 Sigma Quality Level.
Purchaser requirements include:
* Process control of critical processes.
* Responding to corrective action requests.
* Established quality measurements.
* Established quality improvement measurements.
* A continuous improvement program to increase quality.
* A documented quality system.
* A documented quality program.
* Maintain ISO 9000 Certification.
The Seller also agrees to meet all quality requirements defined in
Purchaser's supplier product quality plans as set forth in the purchase
order. Failure of Seller to meet Purchaser's quality and qualification
requirements will result in disqualification.
17. SECRECY AGREEMENT:
The technical data and information which has been or may hereafter be
furnished to Seller by Purchaser in connection with the Seller's supply
of turbine related items, or purchasing services therefore, is the
property of Purchaser, and has been furnished solely to enable Seller
to render service to Purchaser, and has been furnished solely to enable
Seller to render service to Purchaser and with the understanding (1)
that Seller will not use or reproduce such technical data and
information for any other purpose, (2) that Seller will take all
reasonable care to ensure that such technical data and information is
not disclosed to other parties, except to enable such parties to render
service to Purchaser for products covered under this Agreement provided
that in all such cases Seller shall require acceptance of this
provision by the other party, (3) that Seller will not furnish,
disclose, ship, export or re-export, directly or indirectly, any
Purchaser furnished technical data or information (including computer
software) and direct products thereof without first receiving the prior
written consent of Purchaser and (4) that upon request Seller will
promptly return all such technical data and information at any time
during or after completion of such supply or purchasing services. The
foregoing restrictions on disclosure and use of Purchaser's technical
information and data shall not apply to any technical information and
data which:
-7-
<PAGE>
a.) is already in Seller's possession at the time of first
receipt from Purchaser; or
b.) is independently developed by Seller's employees who had
not had access to the technical information and data; or
c.) is or becomes part of the public domain without breach of
this agreement by Seller; or
d.) is rightfully obtained by Seller from third persons
without restriction or breach by this agreement by Seller.
Execution of this agreement by both Purchaser and Seller
indicates acceptance of the above provision.
18. INDEMNIFICATION:
The Seller agrees to hold harmless and indemnify the Purchaser (its
Customer) and other third parties from any rightful claims for personal
and property damage and any associated costs, including but not limited
to legal expenses, when such claims arise out of the performance of
this agreement and are determined to be the result of the willful
misconduct, or negligent acts or omissions of the Seller or Seller's
agents, employees, or subcontractors. Furthermore, Seller agrees to
maintain and provide insurance covering these liabilities in the amount
and form as required under the Insurance Clause of this agreement.
19. INSURANCE:
The Seller shall comply with the Social Security and Unemployment
Insurance Laws, as now or hereafter enforced, and holds the Purchaser
harmless against any demands for contribution of taxes with respect to
the work payable under any such laws. Without limiting any of the other
obligations or liabilities of the Seller, the Seller shall, before
commencing work on the Purchaser's or its Customer's premises provide
and maintain, until the work is completed and accepted by the
Purchaser, minimum insurance coverage as follows:
<TABLE>
<CAPTION>
TYPE OF COVERAGE LIMITS
---------------- ------
<S> <C>
Workmen's Compensation, including Statutory
coverage under Longshoremen's and Harbor
Worker's act, where applicable
Employer's Liability $1,000,000 Each Occurrence
Comprehensive General Liability $2,000,000
Bodily Injury... Combined Single Limit Property
Damage (including coverage for damaged Each Occurrence
caused by blasting, collapse or structural
injury and/or damage to property in the
Seller's care, custody, or control)
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
TYPE OF COVERAGE LIMITS
---------------- ------
<S> <C>
Contractor's Protective Liability, operations of $1,000,000 covering
subcontractors, where applicable Combined Single Limit
Bodily Injury... Each Occurrence
Property Damage...
Contractor's Liability in accordance $1,000,000
with agreement(s) between Purchaser and Seller Combined Single Limit
Bodily Injury... Each Occurrence
Property Damage...
Comprehensive Automobile Liability covering $1,000,000
all owned, hired and non-owned automotive Combined Single Limit
equipment used by or with the permission of Each Occurrence
the Seller (including the loading and unloading
thereof) with the Purchaser included as an
additional insured
Bodily Injury...
Property Damage...
</TABLE>
All such insurance policies shall be delivered to the Purchaser, if and when
directed by the Purchaser, and in any event, the Seller shall arrange with
the insurance carriers to furnish the Purchaser with a completed Certificate
of Insurance Form, indicating that the required coverage are in force and
will not be canceled or changed until ten (10) days after written notice is
given to the Purchaser.
-9-
<PAGE>
20. PROPRIETARY RIGHTS AND PATENT INDEMNIFICATIONS:
(a) If Seller provides Purchaser with one of Seller's "off-the-shelf"
items which has been designed and developed by Seller, Purchaser
acknowledges that Seller has all proprietary rights to such items, and
Seller provides Purchaser with a license to use such items by selling
said items to Purchaser. Such items are subject to the patent
indemnification provisions of Article 18 of the "Conditions of
Purchase".
b) If Purchaser and Seller work together to design and develop a
product or a process, all proprietary rights in such product or process
will belong to Purchaser. Seller agrees to assign all rights in such
products or processes to Purchaser. Purchaser reserves the right to
assign or license all or part of such proprietary rights to Seller on a
case-by-case basis, depending on several factors such as the amount of
any development funds provided by Seller, the amount of time spent by
Seller's engineers in developing a product or process at Seller's
expense, and the amount of risk incurred by Seller with respect to the
final commercial acceptability of the product or process. Any such
assignment or license will be subject to GE Corporate Policy No. 30-10.
The patent indemnification provisions of Article 18 of the "Conditions
of Purchase" will not apply when Purchaser owns all proprietary rights;
however, when Purchaser assigns or licenses all or part of the
proprietary rights to Seller, the patent indemnification provisions of
Article 18 of the "Conditions of Purchase" will be reviewed for
applicability on a case-by-case basis.
(c) If Purchaser provides Seller with specifications for a product or
process, and Purchaser has designed and developed the specifications at
its own cost through its own employees, consultants, subcontractors,
etc., then all proprietary rights to the product or process belong to
Purchaser. In this case, the patent indemnification provisions of
Article 18 of the "Conditions of Purchase" will not apply to Seller.
21. FORCE MAJEURE:
Neither party shall be liable to the other for default or delay in the
performance of any of its obligations hereunder due to act of God,
accident, fire, flood, storm, riot, war, sabotage, explosion, strike,
government law, labor disturbance, national defense requirement,
ordinance, rule or regulation, inability to obtain electricity or other
type of energy, raw material, labor, equipment, or transportation, or
any other cause beyond its reasonable control and without its fault or
negligence, or as
-10-
<PAGE>
otherwise provided herein. Seller shall notify Purchaser in writing of
any impending delay due to the occurrence of any of the preceding
events. In the event of a partial interruption or failure of Seller's
sources of product or distribution capability, Purchaser shall have the
right to determine the distribution of its allocation among it's
locations serviced from Seller's producing points.
22. COMPLETE AGREEMENT:
This Agreement, including all matters expressly incorporated herein by
reference, and the partnering agreement dated May 8th 1992, constitutes
the entire and any agreement between the parties respecting the subject
matter hereof, and there are merged herein all prior and pre-existing
representations and agreements made by and between Purchaser and
Seller.
23. NOTICES:
Notices, reports, and other communications made with respect to this
agreement shall be given in writing, addressed to the parties at the
following addresses or such other addresses as may be designated in
writing by either party to the other. All notices required to be given
hereunder shall be effective when delivered by hand or when deposited
in the United States Mail, with proper postage for First Class Mail -
Prepaid.
<TABLE>
<CAPTION>
To Purchasers:
<S> <C>
Manny Gaspar Others on distribution:
Jay Valachovic Walter Rhodes
Strategic Sourcing
General Electric Company
GE Power Systems
P.O. Box 648
Greenville, SC 29602
To Seller: Others on distribution:
Richard M. Bolduc Douglas Sukeforth
Outside Sales Contracts Manager Jim Ashton
Ralph Robbins
Manager of Sales
Mid-State Machine Products, Inc.
1501 Verti Drive
Winslow, ME 04901
(207) 873-6136
</TABLE>
24. AMENDMENTS AND WAIVERS:
No terms or provisions of this agreement may be changed, waived,
discharged or terminated orally but only by an instrument in writing
signed by the party against
-11-
<PAGE>
whom the enforcement of such change, waiver, discharge or termination
is sought.
25. GOVERNING LAW:
The validity, interpretation and performance of this agreement shall be
determined in accordance with the Laws of the State of New York.
IN WITNESS WHEREOF THE PARTIES HAVE CAUSED THIS
AGREEMENT TO BE EXECUTED:
PURCHASER SELLER
General Electric Company Mid-State Machine Products, Inc.
Power Systems Sourcing Operation 1501 Verti Drive
P.O. Box 648, 300 Garlington Road Winslow, ME 04901
Greenville, SC 29602
Signed /s/ Manny Gaspar Signed /s/ Richard M. Bolduc
---------------------------- --------------------------
By: Manny Gaspar By: Richard M. Bolduc
Title: Strategic Sourcing Title: Outside Sales Contracts
Manager
Date 12/01/98 Date 12/01/98
------------------------------ ----------------------------
Signed: /s/ Jay B. Valachovic Signed: /s/ Ralph Robbins
--------------------------- -------------------------
By: Jay Valachovic By: Ralph Robbins
Title: Strategic Sourcing Title: Manager of Sales
Date: 12/01/98 Date: 12/01/98
--------------------------- --------------------------
rbgeagre
November 9, 1998
-12-
<PAGE>
STANDARD SCRAP AGREEMENT
Seller agrees to the following in performing value added work to General
Electric owned and consigned materials:
- - Parts will be machined by Seller to the drawings and specifications as
identified in the purchase order. Should subsequent revisions be
identified, the Seller will be notified prior to incorporation, and the
purchase order will be amended to show the proper revision.
- - It is understood that repair procedures that have been approved by
Purchaser will remain acceptable for the duration of this agreement.
- - Seller has no liability for latent defects uncovered during its operations
and dispositioned as scrap by Purchaser to the extent, the cause of scrap
is outside the scope of the purchase order.
- - If the scrap rates exceed the allowable percentages as set forth below, the
Seller will forfeit their contributed added value (at the pricing defined
in the purchase order) as well as the full value of the part consigned by
Purchaser. The total amount forfeited will be credited against Sellers
current and/or future invoices.
- - Seller will notify Purchaser of scrapped parts per an agreed upon procedure
initiated at the beginning of this Agreement. The format and frequency of
the written report will be established between Purchaser and Seller.
Allowable Setup Rates
<TABLE>
<CAPTION>
COMMODITY SCRAP RATE
--------- ----------
<S> <C>
Nozzles 2.5%
Sand Castings 3.0%
Forgings (IN706, M152) 2.5%
Forgings (steel) 2.5%
Shroud Rings 2.5%
</TABLE>
Purchaser Seller
--------- ------
General Electric Company
Power Systems Sourcing Operation Mid-State Machine Products, Inc.
Rm 159 Gas Turbine Plant 1501 Verti Drive
Greenville, SC 29607 Winslow, MD 04901
Signed: /s/ J. B. Valachovic Signed: /s/ Ralph Robbins
------------------------- -------------------------
By: J. B. Valachovic By: Ralph Robbins
---------------------------- ----------------------------
Title: Sourcing Leader Title: Manager of Sales
------------------------- -------------------------
Date: 12/1/98 Date: 12/1/98
-------------------------- --------------------------
<PAGE>
[LOGO]
ATTACHMENT A
706/718 INCONEL MACHINING AND UT TESTING CONTRACT
Initial term of this contract starts November 1, 1998 and continues through
December 31, 2003. This contract includes 100% of the ultrasonic testing and
machining of all requirements for Inconel rotor components.
revised 11/6/98
<TABLE>
<CAPTION>
1999/2000 INCONEL PRICES
(INCLUDES (INCLUDES
UT & FPL) UT & FPL)
1996 1998 1996 1998 1996 1999/2000
PART DESCRIPTION PART NO. PRICES GRINDING FPI UT PRICES MACHINING
- ---------------- -------- --------- -------- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
6FA 1ST STG T/W 109E9194P001 $28,630 $3,810 $25,590 $ 21,780
6FA 2ND STG T/W 109E9196P001 $28,210 $3,910 $25,233 $ 21,323
6FA 3RD STG T/W 109E9196P001 $28,121 $3,910 $25,155 $ 21,245
6FA 1-2 SPACER 109E9195P001 $34,325 $500.0 $2,550 $30,494 $ 27,444
6FA 2-3 SPACER 109E9197P001 $32,380 $500.0 $2,850 $28,824 $ 25,474
6FA AFT SHAFT 109E9199G001 $43,153 $ 5,152.80 $34,200 $ 29,047
7FA 1ST STG T/W 109E5589P001 $36,072 $3,660 $32,102 $ 25,847
7FA 2ND STG T/W 109E5591P001 $36,200 $3,960 $32,251 $ 25,562
7FA 3RD STG T/W 109E5593P001 $34,678 $4,060 $30,927 $ 24,358
7FA 1-2 SPACER 109E5590P001 $40,502 $500.0 $2,800 $35,945 $ 31,527
7FA 2-3 SPACER 109E5606P001 $39,676 $500.0 $3,100 $35,257 $ 28,874
7FA AFT SHAFT 109E5594P001 $50,148 $ 6,147.75 $39,600 $ 32,783
9EC 1ST STG T/W 109E8741P001 $45,676 $4,060 $40,578 $ 36,518
9EC 2ND STG T/W 109E8743P001 $45,976 $4,360 $40,878 $ 36,518
9EC 3RD STG T/W 109E8745P001 $43,978 $4,460 $39,137 $ 34,677
9EC 1-2 SPACER 109E8742P001 $50,481 $500.0 $3,200 $44,760 $ 41,050
9EC 2-3 SPACER 109E8744P001 $49,671 $500.0 $3,600 $44,089 $ 39,989
9EC CONICAL AFT 109E8746P001 $46,804 $41,071 $ 41,071
9FA 1ST STG T/W 109E5254P001 $60,295 $4,060 $44,631 $ 40,571
9FA 2ND STG T/W 109E5256P001 $48,992 $4,360 $43,525 $ 39,165
9FA 3RD STG T/W 109E5258P001 $47,804 $4,460 $42,494 $ 38,034
9FA 1-2 SPACER 109E5255P001 $59,641 $600.0 $3,200 $52,800 $ 49,427
9FA 2-3 SPACER 109E5257P001 $48,700 $600.0 $3,600 $43,149 $ 35,646
9FA AFT SHAFT 109E5259P001 $64,613 $10,613.03 $48,600 $ 37,987
</TABLE>
<TABLE>
(INCLUDES
UT & FPL)
1999/2000 1999/2000 1999/2000 1999/2000 1999/2000
PART DESCRIPTION UT FPI AWS-SLEEVE GRINDING PRICES
- ---------------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
6FA 1ST STG T/W $3,239 $ 25,019
6FA 2ND STG T/W $3,324 $ 24,647
6FA 3RD STG T/W $3,324 $ 24,569
6FA 1-2 SPACER $2,168 $450 $ 30,062
6FA 2-3 SPACER $2,423 $450 $ 28,347
6FA AFT SHAFT $ - $1,250 $4,800 $ 35,097
7FA 1ST STG T/W $3,111 $ 28,958
7FA 2ND STG T/W $3,366 $ 28,928
7FA 3RD STG T/W $3,451 $ 27,809
7FA 1-2 SPACER $2,380 $450 $ 34,357
7FA 2-3 SPACER $2,635 $450 $ 31,959
7FA AFT SHAFT $ - $2,355 $5,500 $ 40,638
9EC 1ST STG T/W $3,451 $ 39,969
9EC 2ND STG T/W $3,706 $ 40,224
9EC 3RD STG T/W $3,791 $ 38,468
9EC 1-2 SPACER $2,720 $450 $ 44,220
9EC 2-3 SPACER $3,060 $450 $ 43,499
9EC CONICAL AFT $ - $ 41,071
9FA 1ST STG T/W $3,451 $ 44,117
9FA 2ND STG T/W $3,706 $ 41,756
9FA 3RD STG T/W $3,791 $ 41,825
9FA 1-2 SPACER $2,720 $540 $ 52,687
9FA 2-3 SPACER $3,080 $540 $ 39,246
9FA AFT SHAFT $ - $3,650 $9,021 $ 50,658
Inconel Page 1
</TABLE>
<PAGE>
[LOGO]
ATTACHMENT A
706/718 INCONEL MACHINING AND UT TESTING CONTRACT
Initial term of this contract starts November 1, 1998 and continues through
December 31, 2003. This contract includes 100% of the ultrasonic testing and
machining of all requirements for Inconel rotor components.
revised 11/6/98
<TABLE>
<CAPTION>
1999/2000 INCONEL PRICES
(INCLUDES (INCLUDES
UT & FPL) UT & FPL)
1596 1998 1996 1998 1596 1999/2000
PART DESCRIPTION PART NO. PRICES GRINDING FPI UT PRICES MACHINING
- ---------------- -------- --------- -------- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
9H 1ST STAGE T/W 108E4820P901 $4,060 $ 86,574 $ 82,514
9H 2ND STAGE T/W 112E5898P901 $4,360 $ 88,679 $ 84,319
9H 3RD STG T/W 108E4822P901 $4,460 $ 90,007 $ 85,547
9H 4TH STG T/W 108E4823P901 $4,460 $ 85,353 $ 80,893
9H 1-2 SPACER 110E1486P901 $3,200 $154,350 $150,550
9H 2-3 SPACER 110E1487P901 $3,600 $164,587 $160,387
9H 3-4 SPACER 110E1488P901 $3,600 $ 80,737 $ 76,537
9H AFT SHAFT 110E1489P901 $94,272 $ 94,272
</TABLE>
<TABLE>
(INCLUDES
UT & FPL)
1999/2000 1999/2000 1999/2000 1999/2000 1596
PART DESCRIPTION UT FPI AYS-SLEEVE GRINDING PRICES
- ---------------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
9H 1ST STAGE T/W $3,451 $ 85,965
9H 2ND STAGE T/W $3,706 $ 88,025
9H 3RD STG T/W $3,791 $ 89,338
9H 4TH STG T/W $3,791 $ 84,684
9H 1-2 SPACER $2,720 $540 $153,810
9H 2-3 SPACER $3,060 $540 $163,987
9H 3-4 SPACER $3,060 $540 $ 80,187
9H AFT SHAFT $ - $ 94,272
</TABLE>
PURCHASER SELLER
General Electric Company Mid-State Machine Products, Inc.
Power Systems Sourcing Operation 1501 Verti Drive
Greenville, SC 29602 Winslow, Me. 04901
Signed /s/ Jay Valachovic Signed /s/ Ralph Robbins
------------------------- -------------------------
By: Jay Valachovic By: Ralph Robbins
Title: Strategic Sourcing Title: Manager of Sales
Inconel Page 2
<PAGE>
ATTACHMENT B
RETAINING RING FABRICATION AND MACHINING/ NOZZLE MACHINING CONTRACT
INITIAL TERM OF THIS AGREEMENT STARTS NOVEMBER 1, 1998 AND CONTINUES THROUGH
DECEMBER 31, 2001.
1999/2000 RETAINING RING/ NOZZLE PRICES
<TABLE>
<CAPTION>
revised 11/23/98
----------------
1998 1999/2000
QTY PART DESCRIPTION PART NO. PRICES PRICES COMMENTS
--- ---------------- -------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
62 100 7FA+ retaining ring 109E9916G1/116E1942G1 $56,039.00 $49,122.00 material change and qty disc.
9 8 6FA retaining ring 109E9126G1 $36,751.70 $38,751.70 no opportunities at present
76 73 7E retaining ring 932E3157G3 $15,803.34 $15,295.34 redesign lifting lugs
11 9 9E retaining rings 932E0176G4 $20,159.66 $19,651.66 redesign lifting lugs
Note: The above pricing includes all materials and machining to make complete
1998 1999/2000
PART DESCRIPTION PART NO. PRICES PRICES COMMENTS
---------------- -------- ------ ---------- --------
62 95 7FA+ 3rd stage nozzle 103E3291G1 $23,580.00 $15,327.00 volume driven discount
8 8 9E 3rd stage nozzle 103E5506 $16,594.00 $14,936.00 volume driven discount
15 15 9FA+ 3rd stage nozzle 116E1334 $22,200.00 no history
11 11 9FA+ 3rd stage nozzle 101E2243 $32,000.00 $28,800.00 volume driven discount
Note: Nozzle pricing includes all machining except EDM of Seal Slots and cord length.
62 95 7FA+ 3rd stage nozzle 103E3291G1 N/A $18,847.00 volume driven discount
8 8 9E 3rd stage nozzle 103E5506 N/A $18,280.00 volume driven discount
15 15 9FA+ 2nd stage nozzle 116E1334 N/A $27,912.00 volume driven discount
11 11 9FA+ 3rd stage nozzle 101E2243 N/A $32,760.00 volume driven discount
Notes: Nozzle pricing includes all machining except EDM of seal slots (no materials)
Prices are based on stated volumes or 85% of GE's requirements for each part number
Mid State Machine will commit to 5 days cycle time with a minimum of 2 sets in wip per p/n.
</TABLE>
Purchaser Seller
General Electric Company Mid State Machine Products, Inc.
Power Systems Sourcing Operation 1501 Verti Drive
Greenville, SC 29602 Winslow, MA 04901
Signed /s/ Manny Gaspar Signed /s/ Ralph Robbins
---------------- -----------------
By: Manny Gaspar By: Ralph Robbins
Title: Strategic Sourcing Title: Manager of Sales
Page 3
retrings
<PAGE>
[LOGO]
DIAPHRAGM MACHINING CONTRACT ATTACHMENT C
Initial term of this agreement starts November 1, 1998 and continues through
April 1, 2000.
1999/2000 DIAPHRAGM MACHINING PRICES
revised 1123/98
<TABLE>
<CAPTION>
CASTING &
MILL ONLY
TOTAL TOTAL
QTY DESCRIPTION PART NUMBER CASTING MATERIAL PRICE
--- ----------- ----------- ---------- ---------- ----------
<C> <S> <S> <S> <S> <S>
64 102 7F 2ND STG 329A3269G16 $10,732.20 $10,732.20 $17,692.93
64 97 7F 3RD STG 329A3274G25 $12,963.00 $12,963.00 $19,164.27
8 6 7E 2ND STG 362A1329G1 $ 6,347.60 $ 6,347.60 $11,465.00
58 55 7E 2ND STG 342A1138G10 $ 6,347.60 $ 6,347.60 $11,465.00
</TABLE>
Notes: Workscope includes milling only.
Mid-State will distribute the purchase of castings among Western
Foundry and Quaker City Castings on a 50/50 dollar volume basis
through the end of June 1999. Any casting purchase agreement or
direction thereafter, with these (2) suppliers or any new supplier,
shall be addressed with GE beforehand.
PURCHASER SELLER
General Electric Company Mid-State Machine Products, Inc.
Power Systems Sourcing Operation 1501 Verti Drive
Greenville, SC 29602 Winslow, Me 04901
Signed Manny Gaspar Signed Ralph Robbins
------------------------- -------------------------
By: Manny Gaspar By: Ralph Robbins
Title: Strategic Sourcing Title: Manager of Sales
Page 4
diaphrams
<PAGE>
[LOGO]
SHROUD MACHINING CONTRACT ATTACHMENT D
Initial term of this agreement starts November 1, 1998 and continues through
December 31, 2001.
1999/2000 SHROUD PRICES
revised 1/23/98
<TABLE>
<CAPTION>
1998 1999/2000
QTY PART DESCRIPTION PART NO. prices prices COMMENTS
--- ---------------- -------- ------ ---------- --------
<C> <S> <S> <S> <S> <S>
Potential for savings through
4 6 9FA+1st stage shroud 332B6987G1 $ 77,437.00 $ 77,437.00 material substitute
4 6 9FA+2nd stage shroud 332B6968G1 $208,451.00 $297,011.00 Material savings
Redesign, material change HR120 bar
11 9 9E uprate inner shroud 213C1430/236C1121G001 $ 53,156.56 $ 43,000.00 stock
</TABLE>
PURCHASER SELLER
General Electric Company Mid-State Machine Products, Inc.
Power Systems Sourcing Operation 1501 Verti Drive
Greenville, SC 29602 Winslow, Me 04901
Signed Manny Gaspar Signed Ralph Robbins
------------------------- -------------------------
By: Manny Gaspar By: Ralph Robbins
Title: Strategic Sourcing Title: Manager of Sales
Page 5
shrouds
<PAGE>
Exhibit 10.4
PURCHASE AGREEMENT
This Agreement is made as of the 26th day of October, 1999, by and between
wCaterpillar Inc., a Delaware corporation ("Buyer"), and Galaxy Industries
Corporation, a privately held Michigan Corporation, ("Seller"), 41150 Joy Road,
Plymouth, Michigan 48170, for purchase and sale of 3406C and 3406E cylinder
block assemblies. Buyer and Seller hereby agree as follows:
1. PRODUCTS COVERED BY AGREEMENT
- ---------------------------------
This Agreement concerns the purchase and sale of 3406C and 3406E cylinder block
assemblies for the Caterpillar model 3406C and 3406E engines (such cylinder
block assemblies are hereinafter called "Product" and are more particularly
identified by the Caterpillar Part numbers specified in Exhibit A), manufactured
to Buyer's specifications.
2. PURCHASE AND SALE OF PRODUCT
- --------------------------------
Seller will maintain adequate capacity to manufacture not less than 13,750
units of Product annually based on a five day per week work schedule
calculated at an eighty (80) percent efficiency factor. Buyer commits to
purchase a minimum of 7,500 units of Product annually. Notwithstanding the
foregoing purchase requirements obligation, nothing in this Agreement shall
preclude Buyer from sourcing Product from suppliers other than Seller in
order to enable Buyer to meet governmentally determined local country
sourcing or minimum content requirements, whether mandated or established by
other means such as quotas, duties or fiscal incentives or penalties.
3. PRODUCT PRICES
- ------------------
Prices are effective February 23, 2000 and are as shown in Exhibit A and
subsequently adjusted as provided in Section 9. Exhibit A may be modified from
time to time by the signed written agreement of both parties.
4. TOOLING
- -----------
From time to time, Buyer will issue to Seller durable tooling, fixture and/or
gauging purchase orders authorizing Seller to purchase, and to charge back to
Buyer, certain durable tooling, fixtures and/or gauging. Such durable tooling,
fixtures and/or gauging will not exceed $1,700,000 in cost and is identified in
Exhibit B hereto. Buyer shall retain ownership of all such items listed in
Exhibit B, and Seller agrees to properly maintain such items at its own expense.
5. TERM
- --------
Buyer shall commence its purchases under this Agreement February 23, 2000.
Unless terminated pursuant to other provisions herein, this Agreement shall
continue until terminated by either party at any time upon not less than twelve
(12) months prior written notice to the other party specifying the effective
date of termination; provided, however, that in no event shall the effective
date of termination be prior to February 23, 2006.
1
<PAGE>
6. TERMINATION
- --------------
Buyer may terminate this Agreement at any time, either totally or partially, in
the event of the following defaults by the Seller which are not cured within
thirty (30) days of written notice to the Seller.
(a) QUALITY - Products do not consistently meet Buyer's technical,
quality, reliability, and other specifications as they exist today and are
communicated to Seller from time to time. Buyer will not be liable for any
expenses, material, tooling, labor, or burden due to substandard quality.
(b) DELIVERY - Seller does not meet all Buyer schedules with timely
shipments and daily shipments, if required. Buyer should not have to expedite
normal deliveries. It is the obligations of the Seller to maintain an up to
schedule condition after a reasonably time period. That time period will be
agreed upon by Seller and Buyer for each part number listed in Exhibit A. Upon
cases of nondelivery, in addition to any other rights hereunder or provided by
law, Buyer has the right to purchase the needed Product on the open market in a
commercially reasonable manner, and Buyer and Seller agree to negotiate "cost to
cover" charges as well as mitigate Buyer damages.
(c) COMPETITIVENESS - Seller fails to be responsive to the market place
or fails to remain competitive with other manufacturers of comparable parts in
terms of price, quality, quantity, availability, engineering, services,
technology, reliability, and timely delivery. For purposes of this contract,
prices shown in Exhibit A are deemed to be competitive.
(d) SELLER INSOLVENCY - Seller shall become insolvent or otherwise
generally be unable to pay debts as they come due, or make a general assignment
for the benefit of creditors.
(e) SELLER BANKRUPTCY - A petition under any bankruptcy act or similar
statute is filed by a creditor or Seller and is not vacated with ten (10) days
through court order.
(f) DEFAULT GENERALLY - Default by Seller in any obligation owed by
Seller to Buyer.
Buyer's decision on termination shall be final. Seller has (30) days from
postmarked date of written notice to rectify defaults. Buyer will be reasonably
in making the final decision.
7. USE OF OTHER SUPPLY SOURCES
- -------------------------------
Nothing in this Agreement shall prevent Buyer from seeking other sources for
Product if Seller's production capacity is insufficient to meet Buyer's needs.
Seller will be provided the opportunity to quote additional volumes.
8. SHIPPING INSTRUCTIONS, TERMS AND CONDITIONS
- -----------------------------------------------
Buyer requires 100% on time shipments of the delivery plan to meet production
and service requirements.
Orders will be placed using Buyer's standard purchase order and shipping
instruction forms. Any special freight charges will be Seller's responsibility
if necessary to meet not more than one hundred fifteen percent (115%) of Buyer's
then current requirements, provided Seller is given not less than twenty (20)
days notice of such requirements. The terms and conditions of Buyer's purchase
order will govern these purchases to the extent that they are not inconsistent
with this Agreement.
2
<PAGE>
9. PRICE CONTAINMENT
- ---------------------
Both Seller and Buyer are committed to controlling and reducing costs, and both
recognize that effective cost control is of the essence to this Agreement. While
this Agreement is in effect, Seller will maintain a cost control and reduction
program with respect to Product, and will review costs on a regular basis for
progress toward the objective of maintaining or reducing Seller's prices to
Buyer. A constant interaction between Buyer's and Seller's engineering personnel
is essential. All documented cost savings on Seller's machining of the cylinder
block, whether through the efforts of Seller or Buyer, will be shared on a 50/50
basis.
10. ASSIGNMENT; APPLICABLE LAW
- -------------------------------
This Agreement is not assignable by Seller without the written consent of Buyer
and will be governed by and construed in accordance with the laws of the State
of Illinois, without regard to the conflict of laws provisions thereof.
11. CHANGE IN OWNERSHIP AND CONTROL
- ------------------------------------
During this Agreement, if there is a change in the ownership and control of
either party, the other party shall have the option of terminating this
Agreement immediately by giving written notice thereof. For the purposes of this
Section 11, a change in the ownership and control of either Buyer or Seller or a
parent company of either party, if appropriate, shall be deemed to have occurred
if and when any one or more persons acting individually or jointly hereafter
becomes a beneficial owner, directly or indirectly, of securities representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of Seller or Buyer or the parent company of either party.
12. QUALITY
- ------------
The Quality System Standard QS-9000 Section 1 shall be the fundamental quality
system standard applied to the processes required to produce Caterpillar
products. In addition, there are Buyer specific quality system and process
control elements that shall be included as stated in the Supplier Guideline for
preparing Quality Plans and the Engine Division Supplier Certification
Guidelines (the "Buyer Standards"). The seller shall develop quality systems and
process control programs that are documented in adequate detail that fulfill
both the QS-9000 standard and Buyer standards. There may be additional data
required based on the type of product being produced and supplied to
Caterpillar. The supplier shall provide copies of the Quality Manual, quality
systems and process control support documentation upon request by Buyer
representatives. Buyer may request the supplier provide periodic statistical
data on critical process and product characteristics.
Changes to the manufacturing processes and/or product shall be communicated to
Buyer prior to implementing the change by completing the Production Part
Approval Process (PPAP) and utilizing the Process Change Management process.
This will include changes required by Buyer's design changes or changes by the
seller to improve the process throughput, cost, quality and/or capability. The
Global 8D Problem Solving process shall be the preferred method for documenting
problems and corrective actions.
Seller shall validate and report metallurgical, dimensional, and soundness data
to ensure Buyer's specification are fulfilled. Seller shall retain all records
for a minimum of 2 years from the date of the last shipment. Copies of these
records shall be provided to Buyer upon request.
The seller shall obtain registration to QS-9000 by an accredited registrar by
December 31, 2000.
3
<PAGE>
13. INDEMNIFICATION
- --------------------
Seller agrees to indemnify, defend, and hold buyer harmless against and from all
claims, demands, liabilities, loss, damage, cost, and expense, of whatsoever
nature, arising from or in any way connected with the injury or death of any
person or loss or damage to property as a consequence of, or attributable to,
any defect of design, material, or workmanship of Product or failure of Product
to conform with Seller's and Buyer's specifications, drawings, and data.
14. FORCE MAJEURE
- ------------------
Neither Buyer nor Seller shall be liable for any delay in or failure of
performance of their respective obligations hereunder if such performance is
rendered impossible by reason of fire, explosion, earthquake, accident,
breakdown, strike, drought, embargo, war, riot, act of God or of public enemy,
an act of governmental authority, agency or entity, shortage of raw materials,
or any other contingency, delay, failure or cause, beyond the reasonable control
of the party whose performance is affected, irrespective of whether such
contingency is specified herein or is presently occurring or anticipated by
either party. Upon the occurrence of any event covered by this provision, Seller
and Buyer shall make every effort to continue to maintain as much as possible
the supplier-customer relationship established under this Agreement. However, in
the event Buyer and Seller is unable to meet its obligations hereunder because
of the conditions described above and such inability continues for a period of
two (2) months, the other party shall have the right to terminate this Agreement
upon thirty (30) days prior written notice.
15. WARRANTY PARTICIPATION
- ---------------------------
Seller warrants that each Product shall be in full conformity with Seller's and
Buyer's specifications, drawings, and data. Seller agrees to credit Caterpillar
for any Product covered under the standard warranty provided by Caterpillar to
its customers and sold by Seller, which is deemed defective through a joint
review process performed by Buyer and Seller, in the amount of Dealer Net Price,
limited to three (3) times the purchase order price, plus any reasonable and
customary charges for labor performed during normal working hours caused by
failure of the Product or its replacement.
For any ancillary damage caused by Product failure, where Product was the causal
part, as identified through a joint review process, Seller shall credit Buyer
for the cost of any and all parts damaged because of the Product failure in the
amount of dealer net price, not to exceed a total amount for ancillary damage of
$100,000 per calendar year.
These costs shall be identified by Caterpillar through its Field Incident
Reports and Service Information System. Caterpillar agrees to make available
appropriate engineering personnel for review of defective Product as requested
by Seller, at Caterpillar's facility.
4
<PAGE>
16. MISCELLANEOUS
- ------------------
This Agreement and the terms and conditions referenced in any purchase order
issued by Buyer in connection with this Agreement (to the extent not
inconsistent with this Agreement) constitute the entire agreement and
understanding between the parties with respect to the subject matters herein and
therein, and supersede and replace any prior agreements and understandings,
whether oral or written, between them with respect to such matters. The
provisions of this Agreement may be waived, altered, amended or repealed in
whole or in part only upon the written consent of all parties to this Agreement.
The waiver by either party of any breach of this Agreement shall not be deemed
or construed as a waiver of any other breach, whether prior, subsequent or
contemporaneous of this Agreement. Invalidation of any of the provisions
contained herein, or the application of such invalidation thereof to any person,
by legislation, judgment or court order shall in no way affect any of the other
provisions hereof or the application thereof to any other person, and the same
shall remain in full force and effect unless enforcement as so modified would be
unreasonable or grossly inequitable under all the circumstances or would
frustrate the purposes hereof. Section headings contained herein are for ease of
reference only and shall not be given substantive effect. This Agreement may be
signed in one or more counterparts each to be effective as an original.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized representatives as of the date first set forth above.
CATERPILLAR INC. GALAXY INDUSTRIES CORPORATION
("BUYER") ("SELLER")
By: /s/ W. M. McCowan By: /s/ BUD GOLDSMITH
------------------------- --------------------------------
Title: GESM Title: PRESIDENT/CEO
---------------------- --------------------------------
Date: November 9, 1999 Date: OCTOBER 26, 1999
---------------------- --------------------------------
By: /s/ C.P. Elwyn
----------------------
Title: Manufacturing Manager
----------------------
Date: December 15, 1999
----------------------
By:
----------------------
Title:
----------------------
Date:
----------------------
5
<PAGE>
\
EXHIBIT A
PRODUCTS:
Caterpillar part numbers:
3406C 152-7646
3406E 137-8467
ANNUALIZED VOLUME PRICING:
FOB Galaxy's Canton, Michigan plant.
3406C
<TABLE>
<CAPTION>
Value Added Material & Mark-Up Containers Packaging Total
<S> <C> <C> <C> <C> <C>
7,500/yr $739.18 $823.14 $2.25 $5.43 $1570.00
10,000/yr $676.59 $823.14 $2.25 $5.43 $1507.41
12,500/yr $622.13 $823.14 $2.25 $5.43 $1452.95
</TABLE>
3406E
<TABLE>
<CAPTION>
Value Added Material & Mark-Up Containers Packaging Total
<S> <C> <C> <C> <C> <C>
7,500/yr $662.95 $815.06 $2.25 $5.43 $1485.69
10,000/yr $611.84 $815.06 $2.25 $5.43 $1434.58
12,500/yr $555.90 $815.06 $2.25 $5.43 $1378.64
</TABLE>
Any combination requirements of 3406C, 3406E or replacement part numbers as
defined in note one below may be added together in order to achieve
annualized volume prices.
NOTES:
1. Products include the current part numbers and any new or replacement part
numbers issued by the Buyer and agreed upon by Buyer and Seller.
2. Prices are based on specifications and engineering change levels as of the
commencement date of this agreement.
3. Prices are firm except for changes resulting from volume pricing as noted
above, material & mark-up price changes. Price Containment provisions of
Section 9, and changes in Buyer's specifications.
4. Price adjustments will be made as of the first of each month based upon
annualizing the coming month's forecasted volume as provided by Buyer.
Partial weeks or months will be prorated as nearly as possible to the
exact monthly amount.
6
<PAGE>
EXHIBIT B
Durable tooling, fixtures and/or gauging owned by the Buyer:
At the completion of this project Seller will provide complete documentation for
the durable tooling, fixtures and/or gauging purchased on the Buyer's behalf.
Documentation will include a complete description of the durable tooling,
fixtures and/or gauging purchased and the price paid by Seller. Seller further
commits to label all durable tooling, fixtures and/or gauging so that it is
easily identifiable as the property of Buyer and to provide a complete list of
all durable tooling, fixture and/or gauging to Buyer. Exhibit B will then be
revised to reflect the additional detail.
7
<PAGE>
Exhibt 10.5
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement"), dated as of the 7th day of February 2000,
is made by and between DANA CORPORATION, SPICER HEAVY AXLE & BRAKE DIVISION,
6938 Elm Valley Drive, Kalamazoo, Michigan, 49009 (hereinafter called "DANA"),
and NATIONWIDE PRECISION PRODUCTS CORPORATION, 200 Tech Park Drive, Rochester,
New York 14623 (hereinafter called "NPP").
WHEREAS, DANA is engaged in the design, manufacture and sale of axles, brakes
and other powertrain components for medium and heavy duty trucks; and
WHEREAS, NPP is in the business of performing machining services; and
WHEREAS, DANA desires to use NPP to perform machining services on purchased
components which are incorporated into DANA's axle products;
NOW, THEREFORE, in consideration of the obligations and premises set forth
herein, NPP and DANA agree as follows:
1.0 SERVICES AND TERMS OF PURCHASE
1.1 During the term of this Agreement DANA agrees to
purchase from NPP and NPP agrees to supply to DANA,
machined parts (collectively referred to hereinafter
as "Parts") to be incorporated into DANA's axle
products.
1.2 The Parts that Nationwide will supply include all
part numbers listed on the attached Exhibit A.
Exhibit A may be revised from time to time to add or
delete Parts as agreed to by both parties.
1.3 The purchased components (such as raw castings,
forgings, bearings, hardware, etc.) which are to be
machined shall be purchased by NPP from suppliers and
at costs designated by DANA.
1.4 DANA shall issue a blanket purchase order or orders
to NPP for the Parts based on the agreed prices. DANA
shall order Parts from NPP by issuing releases
against such purchase orders, designating the mix and
volume of Parts, delivery date and agreed delivery
location.
1.5 Except as otherwise provided in this Agreement,
Dana's standard purchase order items and conditions
("Standard Terms") in effect on the date a release is
issued shall apply to all purchases made by DANA. The
current Standard Terms are set out in the attached
Exhibit B. DANA may change these Standard Terms from
time to time without prior notice to NPP.
1
<PAGE>
2.0 PRICE
2.1 NPP's invoice price for each Part supplied to DANA
will be the sum (a) the price paid by NPP for the
purchased component, (b) a handling fee equal to 2%
of NPP's price for the purchased component(s), (c)
the price of the machining services performed on the
component.
2.2 The prices for all machining services performed
through December 31, 2001, will be those set out in
Exhibit A. The prices for machining services will be
reduced by 2% in the year 2000 from 2001 pricing. The
2002 prices will remain in effect for the remainder
of the term of this Agreement.
2.3 The machining services prices are based on NPP's
receiving aggregate annual revenue of $7,800,000 for
performing the services, including the 2% handling
fee, in 2001 and $7,650,000 including the 2%
handling fee, thereafter during the term of this
Agreement. These prices will be in effect as long as
NPP received +/- 10% of this value added billing
annually. If the value added billings are outside the
+/- 10%, DANA and NPP agree to reevaluate the pricing
structure. Parts over-and-above those listed in
Exhibit A may be added to meet revenue targets.
2.4 Charges for inbound freight to NPP from designated
DANA suppliers and any non-returnable containers will
be billed to DANA at cost.
2.5 NPP will procure all special gages, special cutting
tools and general gages required to perform the
machining services, at the best available prices, and
DANA will pay NPP $1,500,000 for the tooling, on or
after January 1, 2001, upon receipt of NPP's itemized
invoice for the tooling and subject to full
Production Part Approval Process ("PPAP") approval of
the machined Parts produced therefrom. The tooling
will be "Special Tooling" under Section 11 of the
Standard Terms. The tooling will belong solely to
DANA upon payment therefor and NPP will cooperate
with DANA in the filing of any UCC Form 1 or similar
documents evidencing its title. NPP will also procure
all necessary machine fixtures, at its own expense,
and these fixtures will belong solely to NPP.
3.0 DELIVERY
3.1 Delivery and pricing of the Parts will be F.O.B NPP's
Plant in Rochester, NY.
3.2 DANA will provide reusable outbound shipping
containers for the Parts.
3.3 DANA and NPP will mutually develop a packaging
specification satisfactory to both parties.
2
<PAGE>
3.4 DANA will select the freight carriers for inbound
shipments to NPP and outbound shipments from NPP to
DANA, negotiate the corresponding freight rates, and
reimburse NPP for all freight charges that NPP will
invoice separately.
4.0 INVOICE AND PAYMENT TERMS
4.1 NPP will invoice DANA when the Parts are shipped.
4.2 The terms of payment for undisputed invoices are net
thirty (30) days from the receipt of the invoice,
with a 1/2% discount off the invoice price for
payments made within ten (10) days.
5.0 TERM AND CANCELLATION
5.1 This Agreement will be in effect from the date first
written above through December 31, 2006, unless
cancelled sooner as provided herein or in the
Standard Terms. If the parties wish to extend this
Agreement beyond the initial term for one-year
renewal terms, they will commence renewal
negotiations by July 1, 2005.
5.2 Section 18 of the Standard Terms (or any equivalent
provision in a subsequent version of the Standard
Terms providing for the termination by DANA for
convenience) will not apply to this Agreement and
DANA will not exercise any of its cancellation rights
as long as NPP meets all performance criteria
outlined in this Agreement.
5.3 The notice and cure period provided in Section 19 of
the Standard Terms (or any equivalent provision in a
subsequent version of the Standard Terms) will be
ninety (90) days.
5.4 In the event either NPP or DANA (1) ceases to
function, (2) liquidates, dissolves, sells
substantially all of its assets, (3) undergoes
significant management realignment or change, (4)
merges or consolidates and is not the surviving
corporation, the other party shall have the right to
cancel this Agreement immediately by giving written
notice.
6.0 OBLIGATIONS OF NPP
In performance of its obligations under this Agreement, NPP
agrees that it will:
6.1 PPAP all Parts prior to November 30, 2000. The PPAP
process will commence no later than July 1, 2000. NPP
is not responsible for the PPAP approval of purchased
components.
3
<PAGE>
6.2 Maintain adequate facilities and personnel to meet
its obligations hereunder, including, but not limited
to, development of an inventory control system to
assure proper storage of purchased components and
finished Parts and prompt handling of inquiries,
orders and shipments.
6.3 Perform the machining services according to DANA's
Supplier Quality Manual (11/89 Rev. 2) and Spicer
Heavy Axle & Brake Division's QSR- 109 (October
1999).
6.4 Provide evidence of conformance to DANA's quality
assurance procedures as reasonably requested and
permit DANA or its designee upon reasonable advance
notice to audit NPP's quality assurance procedures
and review pertinent inspection records.
6.5 Not make modifications to the purchased components
except in accordance with DANA's Parts specifications
and/or written instructions.
6.6 Notify DANA promptly of all problems relating to the
machining services or NPP's other obligations to be
performed under this Agreement if such problems will
impact delivery or quality of the Parts to be shipped
to DANA.
6.7 Maintain such records relating to machining services
provided under this Agreement as DANA may reasonably
require.
6.8 Deliver the Parts in accordance with DANA's releases,
subject to the following provisions:
a. NPP is committed to 100% on time delivery,
but in no event will be less than 98% on
time, based on DANA's providing NPP with a
rolling 4 (four) week firm schedule and a 5
(five) month planning forecast.
b. If DANA permanently cancels its orders for
any Parts, it will reimburse NPP for the
costs of components for those Parts which
NPP purchased within the forecast period and
which are not returnable.
c. DANA will assure that quantities of outbound
packaging are sufficient to meet delivery
schedules.
d. Lack of performance by the freight carrier
or the purchased components supplier without
fault of NPP will not be considered non
performance by NPP.
6.9 Maintain high quality standards that include but are
not limited to the following:
a. Maintain quality systems compliant with
QS-9000.
b. Achieve a 200 parts per million ("PPM")
maximum target.
4
<PAGE>
6.10 Maintain an inventory bank of 5 (five) days for high
volume Parts and 10 (ten) days for low volume Parts.
These banks may vary +50%. The high - versus low
volume designations will be mutually agreed upon
prior to January 1, 2001.
6.11 Provide an inventory of the tooling that is owned by
DANA under Section 2.5.
6.12 Cooperatively work with DANA on an exit program to
transition this business to another supplier or
DANA's internal operations on the expiration,
termination or cancellation of this Agreement.
7.0 DANA'S OBLIGATIONS
In the performing of its obligations under this Agreement,
DANA agrees that it will:
7.1 Provide NPP with the most current print revisions
(including all specifications) available for the
Parts at the commencement of this Agreement and from
time to time thereafter as changes are made. In
addition, if there are any revisions to the Part
prints or specifications, DANA agrees to purchase all
obsolete components and finished Parts in inventory
at NPP, not to exceed a reasonable quantity and mix
consistent with DANA's firm schedules and NPP's
customary lead times for purchased components, prior
to changeover.
7.2 Own the tooling used by third parties to manufacture
the components that are purchased by NPP hereunder
for machining and be responsible for any and all
design changes, repairs and replacements for such
tooling.
7.3 Provide facility space at no cost to NPP for the
inventory bank described in Section 6.10, should DANA
and NPP mutually agree to have the bank located
outside NPP's facilities.
7.4 Provide all returnable drainage and packaging
necessary for outbound shipments of Parts from NPP to
DANA.
7.5 Assist NPP in resolving any quality issues with the
purchased component suppliers should NPP be unable to
resolve them directly and promptly.
7.6 Consider NPP as a preferred source for machining
services and afford NPP the opportunity to quote any
new or replacement business.
5
<PAGE>
8.0 CONFIDENTIALITY
8.1 The confidentiality provisions of the Standard Terms
attached hereto as Exhibit B will apply mutually to
both parties during the term of this Agreement and
will not be superseded by any subsequent version of
the Standard Terms without both parties' written
consent.
8.2 All materials, including without limitation
documents, drawings, models, apparatus, sketches,
designs and lists, furnished to NPP by DANA shall
remain the property of DANA and shall be returned to
DANA, erased and/or destroyed promptly at DANA's
request, as well as all copies made thereof.
9.0 MISCELLANEOUS
9.1 NOTICES. All notices, requests, consents and other
communications hereunder shall be deemed to have been
duly given hereunder if in writing and, upon receipt
when delivered by hand or sent by courier, facsimile
transmission or telex, or three (3) calendar days
after being mailed by first class mail, postage
prepaid, in each case addressed as follows:
To DANA: To NPP:
Dana Corporation Nationwide Precision Products
Spicer Heavy Axle & Brake Div. 200 Tech Park Drive
6938 Elm Valley Drive Rochester, New York 14623
Kalamazoo, Michigan 49009
Attn: Purchasing Manager Attn: Vice President - Sales
or such address as the addressee party may have
previously designated in writing by notice to the
other party, and such notice or communication shall
be deemed to have been given as of the date so
delivered or mailed.
9.2 SUCCESSORS AND ASSIGNS; OTHER PARTIES. This Agreement
and the parties' respective rights and obligations
hereunder are not assignable by NPP or DANA without
the prior written consent of the other party.
9.3. ENTIRE AGREEMENT. This Agreement, together with the
Exhibits attached hereto, constitutes the entire
agreement between the parties about the subject
matter hereof and supersedes all prior agreements,
representations, warranties, statements, promises,
information, arrangements and understandings, whether
oral or written, expressed or implied with respect to
this subject. No modification or waiver of this
Agreement shall be binding upon any party unless in
writing and signed by or on behalf of the party
against which the modification or waiver is asserted.
6
<PAGE>
9.4 SEVERABILITY. Any term or provision of this Agreement
which is held to be invalid or unenforceable shall be
ineffective to the extent of such invalidity or
unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of'
this Agreement.
9.5 WAIVER. Neither the failure nor any delay on the part
of NPP or DANA to exercise any right, power or
privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude any other
or further exercise thereof, or the exercise of any
other right, power or privilege available to NPP or
DANA at law or in equity.
9.6 GOVERNING LAW. This Agreement shall in all respects
be interpreted, construed and governed by and in
accordance with the laws of the State of Ohio,
without recourse to the conflicts of laws provisions
thereof, and any action relating to this Agreement
shall be brought exclusively in a state or federal
court in the State of Ohio.
IN WITNESS WHEREOF, NPP and DANA have caused this Agreement to be duly executed
as of the date first above written.
NATIONWIDE PRECISION DANA CORPORATION,
PRODUCTS CORPORATION SPICER HEAVY AXLE & BRAKE DIVISION
By: /S/ RONALD S. RICOTTA By: /S/ NORM BOISVERT
-------------------------------- ---------------------------------
Ronald S. Ricotta Norm Boisvert
President & CEO VP & General Manager
Date: 02/08/00 Date: 02/09/00
-------------------------------- ---------------------------------
7
<PAGE>
EXHIBIT A
NATIONWIDE PRECISION PRODUCTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
2001 PART MACHINING
FORECAST NUMBER DESCRIPTION PRICE NOTES
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10524 ADJUSTER 1.23
31,734 21637 ADJUSTER 1.23
171 27842 ADJUSTER 1.23
6,612 31562 ADJUSTER 0.98
15,401 39448 ADJUSTER 1.23
10,232 82451 ADJUSTER 1.23
13,572 110243 ADJUSTER 0.98
217 111022 ADJUSTER 1.23
7,461 113884 ADJUSTER 1.23
8,037 113885 ADJUSTER 1.23
118776 ADJUSTER 1.23
304 119683 ADJUSTER 1.23
7,142 128616 ADJUSTER 0.79
128965 ADJUSTER 1.23
239,050 129128 ADJUSTER 0.79
231,473 129130 ADJUSTER 0.79
3,114 210108 ADJUSTER 1.23
4,216 210179 ADJUSTER 1.23
5,738 210286 ADJUSTER 1.23
3,087 210389 ADJUSTER 1.23
37744 BEARING CAP 3.69
12,350 39914 BEARING CAP 2.95
5,700 67809 BEARING CAP 1.97
5,016 67810 BEARING CAP 1.97
475 68841 BEARING CAP 2.95
26,125 08642 BEARING CAP 1.97
11,662 78928 BEARING CAP 1.97
5,073 113818 BEARING CAP 2.46
4,081 113819 BEARING CAP 2.46
1,500 126807 BEARING CAP 8.09
40,608 127471 BEARING CAP 1.62
51,151 127473 BEARING CAP 1.62
7,125 128603 BEARING CAP 2.21
210030 BEARING CAP 1.97
901 210311 BEARING CAP 2.21
210382 BEARING CAP 1.97
19 210459 BEARING CAP 1.97
1,520 210460 BEARING CAP 2.21
4,256 210502 BEARING CAP 2.21
4,013 210503 BEARING CAP 1.97
211027 BEARING CAP 1.97
190 79898 BRG ADJ & CUP 9.83
204 106694 BRG ADJ & CUP 9.83
380 119685 BRG ADJ & CUP 9.83
380 75108 CAGE & CUP ASSY 7.87
</TABLE>
Page 1
<PAGE>
EXHIBIT A
NATIONWIDE PRECISION PRODUCTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
2001 PART MACHINING
FORECAST NUMBER DESCRIPTION PRICE NOTES
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
75967 CAGE & CUP ASSY 9.83
198 76689 CAGE & CUP ASSY 8.85
479 76897 CAGE & CUP ASSY 8.85
13,780 78914 CAGE & CUP ASSY 9.83
684 79246 CAGE & CUP ASSY 11.80
86812 CAGE & CUP ASSY 10.82
190 98381 CAGE & CUP ASSY 11.80
103534 CAGE & CUP ASSY 10.82
76 104471 CAGE & CUP ASSY 10.82
107322 CAGE & CUP ASSY 8.85
152 107324 CAGE & CUP ASSY 9.83
1,847 107496 CAGE & CUP ASSY 8.85
1.642 110731 CAGE & CUP ASSY 7.87
1,915 110733 CAGE & CUP ASSY 6.88
12,312 111692 CAGE & CUP ASSY 8.85
3,694 119820 CAGE & CUP ASSY 9.83
119827 CAGE & CUP ASSY 8.85
119840 CAGE & CUP ASSY 10.82
6,479 126290 CAGE & CUP ASSY 11.80
126694 CAGE & CUP ASSY 11.80
410 126825 CAGE & CUP ASSY 10.82
127039 CAGE & CUP ASSY 11.80
117,012 127600 CAGE & CUP ASSY 5.90 Service with AL PDU
85,287 127601 CAGE & CUP ASSY 5.90 Now 129575
1,907 127602 CAGE & CUP ASSY 4.96
5,035 127843 CAGE & CUP ASSY 8.85
1,667 128372 CAGE & CUP ASSY 7.87
2,052 128373 CAGE & CUP ASSY 7.87
11,799 128976 CAGE & CUP ASSY 9.83
205 129172 CAGE & CUP ASSY 11.80
129174 CAGE & CUP ASSY 8.85
570 129364 CAGE & CUP ASSY 8.85
95,152 129575 CAGE & CUP ASSY 5.58
1,597 129767 CAGE & CUP ASSY 6.99
1,554 129768 CAGE & CUP ASSY 6.99
171 210011 CAGE & CUP ASSY 7.87
616 210189 CAGE & CUP ASSY 8.85
1,231 210340 CAGE & CUP ASSY 8.85
210511 CAGE & CUP ASSY 10.82
3,591 210592 CAGE & CUP ASSY 9.83
210720 CAGE & CUP ASSY 11.80
8,550 127214 CARRIER & CAP ASSY 31.47
3,000 127221 CARRIER & CAP ASSY 31.47
3,116 45481 CARRIER COVER 16.72
536 102606 CARRIER COVER 16.72
13,437 103526 CARRIER COVER 16.72
</TABLE>
Page 2
<PAGE>
EXHIBIT A
NATIONWIDE PRECISION PRODUCTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
2001 PART MACHINING
FORECAST NUMBER DESCRIPTION PRICE NOTES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.279 127605 CARRIER COVER 11.36 Now 129572
179 129459 CARRIER COVER 15.98
129489 CARRIER COVER 12.41
1.368 129490 CARRIER COVER 12.41
129572 CARRIER COVER 12.95 100% OF VOLUME
73.967 129572 CARRIER COVER 15.00 70% OF VOLUME
570 86776 CASE FH 23.40
3.768 86786 CASE FH 23.40
6.270 88501 CASE FH 23.40
456 88677 CASE FH 23.45
10.260 103865 CASE FH 23.40
9 104519 CASE FH 23.40
1.140 113851 CASE FH 23.40
1.140 113862 CASE FH 23.40
3.420 113863 CASE FH 23.40
95 118736 CASE FH 23.40
62 118775 CASE FH 23.40
51 120091 CASE FH 23.40
304 120092 CASE FH 23.40
752 126035 CASE FH 23.40
1.619 126036 CASE FH 23.40
364 126037 CASE FH 23.40
126191 CASE FH 23.40
215 128192 CASE FH 23.40
8.550 126234 CASE FH 23.40
285 127823 CASE FH 23.40
79 210390 CASE FH 23.40
276 210391 CASE FH 23.40
228 210392 CASE FH 23.40
448 210504 CASE FH 23.40
2.480 210505 CASE FH 23.40
1.469 210506 CASE FH 23.40
210677 CASE FH 23.40
210678 CASE FH 23.40
26.657 86777 CASE PH 15.74
95 104518 CASE PH 15.74
6.270 113864 CASE PH 15.74
118735 CASE PH 15.74
118774 CASE PH 15.74
72 119870 CASE PH 15.74
357 119871 CASE PH 15.74
137 126014 CASE PH 14.75
2.145 126996 CASE PH 15.74
85.500 127498 CASE PH 7.98 MINIMUM OF 50%
6.521 210017 CASE PH 14.75
3,848 210507 CASE PH 15.74
</TABLE>
Page 3
<PAGE>
EXHIBIT A
NATIONWIDE PRECISION PRODUCTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
2001 PART MACHINING
FORECAST NUMBER DESCRIPTION PRICE NOTES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
210676 CASE PH 14.75
1,003 110807 COVER & CUP ASSY 7.87
3,010 110825 COVER & CUP ASSY 6.88
1,708 129766 COVER & CUP ASSY 6.67
126303 DIFF CASE 4 LEG 24.35
108140 DIFF CASE PH 2 SPD 14.80
2,453 103190 GEAR SUPPORT CS 14.27
174 111029 GEAR SUPPORT CS 37.71
77751 HSG COVER 18.29
171 78923 HSG COVER 16.39
80269 HSG COVER 16.39
80277 HSG COVER 16.62
82693 HSG COVER 16.39
342 84546 HSG COVER 16.39
570 98276 HSG COVER 16.39
126997 HSG COVER 16.39
127487 HSG COVER 12.29
684 127781 HSG COVER 16.37
127873 HSG COVER 16.39
128285 HSG COVER 16.39
114 128266 HSG COVER 16.39
11,548 128287 HSG COVER 16.39
246 88029 IAD 5.20
179 102621 IAD 5.20
1,140 104513 IAD 5.15
24,919 126151 IAD 5.10
16,422 127784 IAD 5.10
221 32326 SHIFT FORK 6.30
3,990 32613 SHIFT FORK 5.57
319 32679 SHIFT FORK 6.22
43242 SHIFT FORK 6.50
12,546 84508 SHIFT FORK 6.22
</TABLE>
Page 4
<PAGE>
EXHIBIT B
PURCHASE ORDER FOR MATERIALS AND COMPONENTS
TERMS AND CONDITIONS
1. CONTRACT, ACCEPTANCE. This Order and the documents incorporated or referred
to herein constitute the entire contract between the parties for the Goods
ordered and supersede any prior written or oral agreements between the parties
therefor. Seller's written acknowledgment of this Order or Seller's delivery of
any Goods hereunder will constitute Seller's acceptance of these terms and
conditions. Any reference herein to Seller's quotation is for informational
purposes only and does not constitute Buyer's acceptance of any terms and
conditions contrary or supplemental to those set out herein.
2. SELLER'S STATUS, ASSIGNMENT. Seller is an independent contractor and not an
employee or agent of Buyer. Seller may not assign or subcontract this Order or
any of its rights or obligations hereunder without Buyer's prior written
consent.
3. CHANGES TO ORDER. Buyer may change this Order in any respect at any time on
written notice to Seller. If any change made by Buyer materially affects
Seller's costs of producing the Goods, the purchase price of the affected Goods
will be equitably adjusted and this Order amended accordingly.
4. PACKING AND SHIPMENT. Seller will pack and ship the Goods in accordance with
Buyer's instructions, without charge for packaging or handling unless otherwise
specified. All Goods will be packed to comply with applicable common carrier
requirements and so as to secure the best available freight rates. All U.S.
shipments will be accompanied by a fully completed bill of lading in the form
prescribed by the National Motor Freight Classification and by a packing list
showing the number and description of items contained therein. Buyer's name and
Order number will be plainly marked on all Terms and Conditions packages, bills
of lading, packing slips, and other shipping documents and on Seller's invoices.
Buyer's count or weight will be final and conclusive for all shipments.
5. DELIVERIES. Seller will deliver all Goods in accordance with Buyer's
instructions. Buyer may reject any or all Goods shipped in excess of quantities
ordered or in advance of schedule and may either return the same to Seller at
Seller's expense or retain the same and invoice Seller for Buyer's incidental
costs of handling and/or storage. Buyer will not process invoices for Goods
shipped in advance of the schedule until the scheduled delivery date. Buyer may
change scheduled deliveries at any time and will reimburse Seller for Seller's
reasonable, documented incremental costs due to such changes.
6. INSPECTIONS, DEFECTS AND NONCONFORMITIES. Buyer may inspect and/or test the
Goods at reasonable times and places and in reasonable quantities, at its own
expense; provided that Seller will, at no charge, make its premises available
for such purposes and will provide all necessary assistance to make such
inspections and/or tests safe and convenient. No inspections and/or tests by
Buyer hereunder will relieve Seller of its obligation to make full and adequate
inspections and/or tests of the Goods. If any Goods are found to be defective or
not in conformity with Buyer's specifications or requirements, Buyer may reject
them, in whole or in part, or require Seller to repair or
1
<PAGE>
replace them at Seller's sole expense. If Buyer returns any rejected Goods,
Seller will reimburse Buyer for the purchase price and all freight, handling,
insurance and other incidental costs incurred by Buyer. If Seller fails to
promptly repair or replace any defective or nonconforming Goods as requested by
Buyer, Buyer may repair or replace the same and invoice Seller for Buyers costs
of repair or replacement and any incidental costs.
7. QUALITY. In performing this Order, Seller will comply with the quality
compliance and quality assurance standards and procedures set out in the Quality
System Manual and the OS-9000 standards published by the International
Organization for Standardization.
8. CONFIDENTIAL INFORMATION. Except as required by law, as reasonably necessary
to perform this Order, or with Buyer's prior written consent. Seller will keep
confidential, at all times, all information, drawings, specifications and data
furnished by Buyer and/or derived or developed by Seller in connection with the
performance of this Order. Seller will not divulge such confidential information
or use it (directly or indirectly) for its own benefit or for the benefit or any
other party or make copies of such confidential information or permit copies to
be made. The foregoing confidentiality obligations do not apply to information
known by Seller at the time it is disclosed by Buyer, to information lawfully
obtained by Seller from a third party entitled to disclose it, and to
information which is or later becomes public knowledge other than through
disclosure by Seller.
9. INTELLECTUAL PROPERTY RIGHTS, PATENT WARRANTY. If Buyer furnishes the design
for the Goods or reimburses Seller for the cost of designing the Goods, Buyer
will own all intellectual property rights relating to that design. Conversely,
if Seller furnishes the design for the Goods or bears the sole cost of designing
the Goods, Seller will own all intellectual property rights relating to the
design. In either case, the owner of the intellectual property rights warrants
to the other party that the design of the Goods will not infringe upon or
contribute to the infringement of any U.S. or foreign patent or patent right.
10. PRODUCT WARRANTY. Seller warrants to Buyer, its customers and end users,
that Seller has good title to the Goods, free and clear of all liens; that the
Goods are free from defects in material and workmanship; that the Goods are
merchantable; conform fully with all specifications, drawings and/or samples
furnished by Buyer (or furnished by Seller and accepted by Buyer); that the
Goods are fit and sufficient for their intended uses; and that the Goods conform
to all applicable Federal Motor Vehicle Safety Standards issued under the
National Traffic and Motor Vehicle Safety Act of 1966, as amended.
11. SPECIAL TOOLING. "Special Tooling" means all special dies, jigs, fixtures,
drawings, molds, patterns, templates and gages acquired or manufactured by
Seller under this Order for use in manufacturing or assembling Goods which are
proprietary to Buyer, excluding any standard or perishable tooling or gages.
Special tooling separately itemized in this Order will be Buyer's property upon
Buyer's full payment of the purchase price for same; provided, however, that
Buyer will have no payment obligation until it has accepted such tooling or the
first run of Goods manufactured or assembled therewith. Seller will furnish
Buyer with an itemized list of such tooling and will maintain adequate cost
records for the same, which records will be available for review or audit
2
<PAGE>
by Buyer. If Seller fails to maintain such cost records, Buyer will be obligated
to pay Seller solely the fair market value of the special tooling, regardless of
the purchase price stated herein. Seller will be responsible for all loss or
damage to such tooling and for all taxes, assessments, and similar charges
levied with respect to or upon such tooling while in Seller's possession. Seller
will mark and number such tooling with Buyer's name and the number of the part
made therewith to permit accurate identification of same at all times and will
segregate the same from other tooling in its possession to the extent feasible.
Seller will repair, maintain and keep such tooling in good working condition and
replace the same at its own expense as necessary. Seller will use such tooling
exclusively for the production of Goods for Buyer and for no other use. Upon
completion, cancellation, or termination of this Order, Seller will hold such
tooling and any operation sheets or process data necessary to show the use
thereof, at no charge, pending Buyer's instructions with respect to removal or
disposition at Buyer's expense.
12. LEGAL COMPLIANCE. Seller warrants that it will comply with all applicable
federal, state and local laws, regulations, ordinances, and executive, judicial
or administrative orders in the performance of this order. Seller will furnish
Buyer with certificates of compliance in such form as Buyer may request, from
time to time, and will promptly furnish to the proper person or entity any
reports which are properly required of Seller by law, regulation, ordinance, or
order.
13. HAZARDOUS MATERIALS. Seller will property classify, describe, package, mark,
label and provide Material Safety Data Sheets (MSDS) for all Goods to be shipped
hereunder. Seller will prepare all such Goods for transportation in accordance
with any applicable state or federal laws or regulations. Seller will indemnify
and hold harmless Buyer from any claims penalties or damages incurred by Buyer
as a result of any Goods received from Seller not in accordance therewith.
14. COUNTRY OF ORIGIN INFORMATION. Upon request, Seller agrees to provide Buyer
with documentation that establishes the country of origin of the Goods,
including where applicable, affidavits of manufacture, NAFTA certificates of
origin or other documentation that Buyer may reasonably require.
15. INDEMNIFICATION. Seller will defend and indemnity Buyer and its customers
and end users from and against all claims, suits, damages, losses and expenses
arising from (a) any personal injury, death or property loss or damage caused by
Seller's negligent or willful acts or omissions in performing this Order, (b)
Seller's breach of any warranty contained herein, or (c) Seller's breach of or
default under this Order.
16. INSURANCE. While performing this Order, Seller will maintain insurance
coverage at its own cost in amounts and with insurers satisfactory to Buyer for
workers' compensation (unless self-insured), public liability (including
contractual liability and products liability) and automobile liability. At
buyer's request, Seller will furnish certificates of insurance evidencing such
coverage (which certificates will name Buyer as an additional insured and
provide that the coverage will not be cancelable or subject to limit reductions
without 15 day's written notice to Buyer) and/or evidence of self-
3
<PAGE>
insurance for workers' compensation. Seller's compliance with these insurance
requirements will not relieve Seller of its defense and indemnification
obligations under Paragraph 15.
17. ALLOCATION. In the event of a partial failure of Seller's ability to supply
the entire quantity of Goods purchased hereunder, Seller will first meet all of
Buyer's requirements hereunder prior to any allocation among customers under
12-615 of the Uniform Commercial Code.
18. TERMINATION FOR CONVENIENCE. Buyer may terminate this Order for convenience
at any time on written notice to Seller. Upon termination, Buyer will be liable
to Seller solely for (a) unpaid invoices for Goods shipped, and (b) Seller's
reasonable, documented costs for raw materials, work-in-process and finished
Goods (subject to the volumes specified in this Order or any firm releases
hereunder) that cannot be canceled without penalty or sold in the general trade;
provided that Seller has delivered the same to Buyer.
19. CANCELLATION FOR CAUSE. To the extent permitted by law, Buyer may cancel
this Order without liability to Seller at any time on written notice to Seller
in the event of Seller's insolvency, Seller's filing of a voluntary petition in
bankruptcy, the appointment of a receiver or trustee for Seller, Seller's
execution of an assignment for the benefit of creditors, or other comparable
event. In addition, Buyer may cancel this Order without liability to Seller at
any time on 30 days' written notice to Seller if Seller breaches any provision
of this Order (or Buyer anticipates such breach); provided, that the
cancellation will be void if Seller cures the breach (or provides adequate
assurances of performance) within the 30-day notice period.
20. BINDING EFFECT. The obligations of the parties hereunder will be binding on
their respective directors, officers, employees, agents, subcontractors, and
duly authorized successors and assigns (if any).
21. CUMULATIVE REMEDIES, WAIVER. Buyer's remedies herein are cumulative and in
addition to any other or further remedies available at law or equity. Buyer's
waiver of any right herein will not constitute a subsequent waiver of the same
right or any other right provided herein.
22. GOVERNING LAW. This Order will be interpreted and enforced under the laws of
the state of Ohio (including, without limitation, the provisions of the Uniform
Commercial Code as adopted by the State of Ohio), without recourse to the
conflicts of laws provisions thereof. In no event will the provisions of the
U.N. Convention on the Sale of Goods apply to this order.
23. DISPUTE RESOLUTION. Any dispute arising connection with the interpretation,
performance or non-performance, or enforceability of this Order will be resolved
by prompt good faith negotiation between the parties. If the parties are unable
to resolve any such dispute, either party may request that it be resolved
through binding arbitration conducted under the Commercial Rules of the American
Arbitration Association in Toledo, Ohio, U.S.A. or elsewhere as the parties may
mutually agree; provided, that neither party may institute an arbitration
proceeding hereunder unless it has given written notice 30 days prior thereto to
the other party, stating its intent to do so and specifying the basis therefor
in reasonable detail. Any award, order or judgment made or issued pursuant to
arbitration hereunder will be deemed final and may be entered and enforced in
any court of competent jurisdiction. The parties hereby agree to submit to the
jurisdiction of such
4
<PAGE>
court for purposes of enforcement of such award, order or judgment. In any
arbitration proceeding hereunder, the arbitrator(s) are authorized (but not
obligated) to award reasonable attorneys' fees and other arbitration-related
costs to the prevailing party. Any arbitration proceeding hereunder will be
conducted on a confidential basis. Except by mutual written agreement, no
arbitration arising out of or related to this Order will include by
consolidation, joinder, or any other means, any person or entity not a party
hereto.
24. YEAR 2000 COMPLIANCE. Seller warrants that all software and hardware
furnished under this Agreement (including all enhancements, upgrades,
customizations, modifications and maintenance) will be Year 2000 compliant.
Seller agrees to defend and indemnify Dana from and against all claims, losses,
damages, and costs arising from Seller's Breach of this warranty, regardless of
any limitations of remedies contained elsewhere in this agreement or in any
other agreement between the parties.
EXEMPTION CERTIFICATION
(PURCHASE FOR FURTHER MANUFACTURE UNDER THE INTERNAL REVENUE CODE)
Dana Corporation hereby certifies that it is a manufacturer or producer of
entries taxable under the Internal Revenue Code and holds certificate of
Registry #34-43-8104-0 issued by the District Director of Internal Revenue at
Cleveland, Ohio, and that the article or articles specified in the accompanying
order will be used by him as materials in the manufacture of production of, or
as a component part of, an article or articles enumerated in the code, to be
manufactured or produced by him.
It is understood that for all the purposes of such taxes, the Buyer will be
considered the manufacturer or producer of the articles purchased hereunder, and
(except as specifically provided by law) must pay tax on resale or use,
otherwise than as specified above, of the articles purchased hereunder. It is
further understood that the fraudulent use of this Certificate no secure
exemption will subject the Buyer and all guilty parties to revocation of the
privilege of purchasing tax free and to a fine of not more than $10,000 or to
Imprisonment for not more than five years or both together with costs of
prosecution.
February 1, 2000
5
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports noted below included in Amendment No. 1 to the Registration
Statement (Form S-4) and related Prospectus of Precision Partners, Inc. for the
registration of $100,000,000 of Senior Subordinated Notes due 2009:
<TABLE>
<CAPTION>
Company Period Date of Report
------- ------ --------------
<S> <C> <C>
Precision Partners, Inc. Year Ended December 31, March 27, 2000
1999 and the Period from
September 9, 1998
(Inception) to December 31,
1998
Mid State Machine Nine month period ended January 19, 1999
Products September 30, 1998
General Automation, Inc. Period from January 1, 1999 March 10, 2000
to March 19, 1999 and
Years Ended December 31,
1998 and 1997
Certified Fabricators, Inc. Period from November 1, March 10, 2000
and Calbrit Design, Inc. 1998 to March 19, 1999 and
the Years Ended October
31, 1998 and 1997
Nationwide Precision Period from June 1, 1998 to February 25, 2000
Products Corp. March 19, 1999
Gillette Machine & Tool Period from March 1, 1999 March 10, 2000
Co., Inc. to August 31, 1999
</TABLE>
/s/ Ernst & Young LLP
May 2, 2000
Dallas, Texas
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 2, 1998, with respect to the audited
consolidated statements of operations, stockholders' equity and cash flows of
Mid State Machine Products, Inc. for the year ended December 31, 1997,
included in the Amendment No. 1 to the Registration Statement (No. 333-33438)
filed on Form S-4 and the related Prospectus of Precision Partners, Inc. for
the registration of $100,000,000 of 12% Senior Subordinated Notes.
/s/ Baker Newman & Noyes
Limited Liability Company
Portland, Maine
May 5, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
May 5, 2000
Board of Directors
Precision Partners, Inc.
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 29, 1998 relating to the audited financial
statements of Nationwide Precision Products Corporation in the Registration
Statement (Form S-4) and related Prospectus of Precision Partners, Inc.
/s/ Insero, Kasperski, Ciaccia & Co., P.C.
Rochester, New York
May 5, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement (Registration Statement File No. 333-33438).
/s/ BONADIO & CO., LLP
Rochester, New York
May 3, 2000
<PAGE>
EXHIBIT 24.1
POWERS OF ATTORNEY
By signing below, I hereby constitute and appoint Ronald M. Miller,
Dr. James E. Ashton and Christopher M. Kelly, Esq. my true and lawful attorney
and agent to do any and all acts and things and to execute any and all
instruments in my name and behalf in my capacities as director and/or officer of
Precision Partners, Inc., a Delaware corporation, Mid State Machine Products, a
Maine corporation, Galaxy Industries Corporation, a Michigan corporation,
Certified Fabricators, Inc., a California corporation, Nationwide Precision
Products Corp., a New York corporation, General Automation, an Illinois
corporation, and Gillette Machine and Tool Co., Inc., a New York corporation
(collectively, the "Companies" and each a "Company"), which said attorney and
agent may deem necessary or advisable or which may be required to enable the
applicable Company to comply with the Securities Act of 1933, as amended (the
"Securities Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with a Registration
Statement on Form S-4 (or any other appropriate form) for the purpose of
registering pursuant to the Securities Act $100,000,000 of Precision
Partners, Inc.'s 12% Senior Subordinated Notes due 2009, including specifically,
and the other Companies' guarantees thereof, but without limiting the generality
of the foregoing, the power and authority to sign for me, in my name and behalf
in my capacities as director and/or officer of the applicable Company
(individually or on behalf of such Company), such Registration Statement and any
such abbreviated registration statement, and any and all amendments and
supplements thereto, and to file the same, with all exhibits thereto and other
instruments or documents in connection therewith, with the Securities and
Exchange Commission, and hereby ratify and confirm all that said attorneys and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have executed this Power of Attorney as of March 28,
2000.
<TABLE>
<S> <C>
/s/ DR. JAMES E. ASHTON /s/ RICHARD DETWEILER
- ------------------------------------------- -------------------------------------------
Dr. James E. Ashton Richard Detweiler
/s/ MELVIN D. JOHNSON /s/ DAVID W. M. HARVEY
- ------------------------------------------- -------------------------------------------
Melvin D. Johnson David W. M. Harvey
/s/ WILLIAM J. GUMINA /s/ RICHARD FAGAN
- ------------------------------------------- -------------------------------------------
William J. Gumina Richard Fagan
/s/ JOHN F. MEGRUE /s/ BYRDELL C. GOLDSMITH
- ------------------------------------------- -------------------------------------------
John F. Megrue Byrdell C. Goldsmith
/s/ S. DOUGLAS SUKEFORTH /s/ RONALD S. RICOTTA
- ------------------------------------------- -------------------------------------------
S. Douglas Sukeforth Ronald S. Ricotta
/s/ EDWARD R. GAJEWSKI /s/ DARREN J. GILLETTE
- ------------------------------------------- -------------------------------------------
Edward R. Gajewski Darren J. Gillette
</TABLE>
<PAGE>
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
---------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------------------
PRECISION PARTNERS, INC.
(Exact name of obligor as specified in its charter)
Delaware 22-3639336
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Table of Additional Registrants
-------------------------------
Mid State Machine Products Maine 01-0280525
Galaxy Industries Corporation Michigan 38-1881019
Certified Fabricators, Inc. California 95-3316654
General Automation, Inc. Illinois 75-2808932
Nationwide Precision Products Corp. New York 22-3639335
Gillette Machine & Tool Co., Inc. New York 16-0786135
5605 N. MacArthur Boulevard
Suite 760
Irving, Texas 75038
(Address of principal executive offices) (Zip code)
---------------------------
12% Senior Subordinated Notes due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State 2 Rector Street, New York, N.Y.
of New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
-2-
<PAGE>
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 10th day of April, 2000.
THE BANK OF NEW YORK
By: /s/ Mary Beth A. Lewicki
------------------------------------
Name: Mary Beth A. Lewicki
Title: Vice Presdient
-4-
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
--------------
<S> <C>
ASSETS In Thousands Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin....................... $ 3,247,576
Interest-bearing balances................................................ 6,207,543
Securities:
Held-to-maturity securities.............................................. 827,248
Available-for-sale securities............................................ 5,092,464
Federal funds sold and Securities purchased under agreements to resell...... 5,306,926
Loans and lease financing receivables:
Loans and leases, net of unearned
income......................................................37,734,000
LESS: Allowance for loan and
lease losses...................................................575,224
LESS: Allocated transfer risk
reserve.........................................................13,278
Loans and leases, net of unearned income, allowance, and reserve......... 37,145,498
Trading Assets.............................................................. 8,573,870
Premises and fixed assets (including capitalized leases).................... 723,214
Other real estate owned..................................................... 10,962
Investments in unconsolidated subsidiaries and associated companies......... 215,006
Customers' liability to this bank on acceptances outstanding................ 682,590
Intangible assets........................................................... 1,219,736
Other assets................................................................ 2,542,157
Total assets................................................................ $71,794,790
LIABILITIES
Deposits:
In domestic offices...................................................... $27,551,017
Noninterest-bearing............................................11,354,172
Interest-bearing...............................................16,196,845
In foreign offices, Edge and Agreement subsidiaries, and IBFs............ 27,950,004
Noninterest-bearing...............................................639,410
Interest-bearing...............................................27,310,594
Federal funds purchased and Securities sold under agreements to repurchase.. 1,349,708
Demand notes issued to the U.S.Treasury..................................... 300,000
Trading liabilities......................................................... 2,339,554
Other borrowed money:
With remaining maturity of one year or less.............................. 638,106
With remaining maturity of more than one year through three years........ 449
With remaining maturity of more than three years......................... 31,080
Bank's liability on acceptances executed and outstanding.................... 684,185
Subordinated notes and debentures........................................... 1,552,000
Other liabilities........................................................... 3,704,252
Total liabilities........................................................... 66,100,355
EQUITY CAPITAL
Common stock................................................................ 1,135,284
Surplus..................................................................... 866,947
Undivided profits and capital reserves...................................... 3,765,900
Net unrealized holding gains (losses) on available-for-sale securities...... (44,599)
Cumulative foreign currency translation adjustments......................... (29,097)
Total equity capital........................................................ 5,694,435
Total liabilities and equity capital........................................ $71,794,790
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I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
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<PAGE>
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true and correct.
Thomas A. Renyi
Alan R. Griffith Directors
Gerald L. Hassell
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