SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No. 0-13829
March 31, 1997
PRECISION STANDARD, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0985295
(State of Incorporation) (I.R.S. Employer Identification No.)
1225 17th Street
Suite 1800
Denver, Colorado 80202
(Address of Principal Executive Offices)
(303) 292-6565
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of
common shares, as of the close of the period covered by this
report:
Class of Securities Outstanding Securities
$.0001 Par Value 12,575,536 shares
Common Shares Outstanding at May 7, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1997 1996
(Unaudited)
Current assets:
Cash and cash equivalents $ 369,680 $ 1,183,200
Accounts receivable, net 9,565,688 9,435,612
U.S. Government request for
equitable adjustment, net 238,743 0
Inventories 24,241,390 23,183,608
Prepaid expenses and other 1,063,691 894,128
Deferred taxes 4,347,098 4,347,098
Total current assets 39,826,290 39,043,646
Property, plant and equipment,
at cost:
Leasehold improvements 10,446,706 10,508,585
Machinery and equipment 18,423,640 18,306,506
28,870,346 28,815,091
Less accumulated depreciation 16,338,373 15,730,794
Net property, plant
and equipment 12,531,973 13,084,297
Other assets:
Intangible assets, net of
accumulated amortization 3,727,079 3,731,714
Related party receivable 269,824 269,824
Deposits and other 376,233 1,627,252
Deferred taxes 1,517,349 1,517,349
5,890,485 7,146,139
Total other assets $58,248,748 $59,274,082
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
1997 1996
(Unaudited)
Current liabilities:
Current maturities of long-term
debt $ 7,046,111 $ 2,339,692
Accounts payable and accrued
expenses 28,021,445 26,577,336
Accrued warranty expenses 681,831 858,856
Estimated losses on contracts
in progress 87,766 87,766
Total current liabilities 35,837,153 29,863,650
Long-term debt, net of current
maturities 6,191,055 11,104,410
Long-term portion of self-insured
workers' compensation reserve 3,739,399 3,697,901
Unfunded accumulated benefit
obligation 1,480,237 1,480,237
Total liabilities 47,247,844 46,146,198
Stockholders' equity:
Common stock, $.0001 par value,
300,000,000 shares authorized,
12,975,973 and 12,522,646 shares
issued and outstanding at
March 31, 1997 and December 31,
1996, respectively 1,257 1,252
Common stock purchase warrant 4,200,000 4,200,000
Additional paid-in capital 400,359 399,333
Retained earnings 9,759,896 12,287,278
Translation adjustments 196,884 160,013
Minimum pension liability
adjustment (3,557,492) (3,919,992)
Total stockholder's equity 11,000,904 13,127,884
Total liabilities and
stockholders' equity $58,248,748 $59,274,082
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Three
Months Ended Months Ended
March 31, March 31,
1997 1996
(Unaudited) (Unaudited)
Net sales $35,017,730 $ 26,547,405
Cost of sales (31,801,908) (24,124,477)
Gross profit 3,215,822 2,422,928
Selling, general and
administrative expenses (5,035,790) (3,470,101)
Research and development expense (245,444) (152,530)
Income (loss) from operations (2,065,412) (1,199,703)
Other expense:
Interest expense (325,394) (870,503)
Other, net (70,576) 75,072
Income (loss) before income
taxes (2,461,382) (1,995,134)
Provision for income taxes (66,000) (46,734)
Net income (loss) $(2,527,382) $ (2,041,868)
Loss per common share and
common equivalent share (Note 4):
Net loss ($.20) $(.16)
Weighted average number of
common shares outstanding 12,749,310 12,464,177
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Three
Months Ended Months Ended
March 31, March 31,
1997 1996
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $(2,527,382) $(2,041,868)
Adjustments to reconcile
net income (loss) to net cash
provided from operating
activities:
Depreciation and amortization 622,297 711,916
Pension cost in excess of
funding 362,500 (39,799)
Provision for losses on
work in process 0 293,924
Loss on disposition
of equipment 0 4,514
Changes in assets and liabilities:
Accounts receivable (182,986) 1,202,525
Inventories (1,170,045) (1,867,195)
Prepaid expenses and
other assets (207,734) (1,471,871)
Intangible assets 0 (50,000)
U.S. Government request for
equitable adjustment, net (238,743) 7,315,522
Deposits and other 1,251,019 1,159
Accounts payable and
accrued expenses 1,713,759 (4,593,303)
Accrued warranty expense (177,025) (66,089)
Self-insured workers'
compensation reserve 41,500
Total adjustments 2,014,542 1,441,303
Net cash used in operating
activities (512,840) (600,565)
Cash flows from investing activities:
Capital expenditures (77,320) (304,454)
0
Net cash used in
investing activities $ (77,320) $ (304,454)
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Three
Months Ended Months Ended
March 31, March 31,
1997 1996
(Unaudited) (Unaudited)
Cash flows from financing activities:
Proceeds from issuance of
common stock $ 1,030 $ 1,734
Principal payments under
long-term obligations (206,939) (134,698)
Net cash used in
financing activities (205,909) (132,964)
Effect of exchange rate changes
on cash and cash equivalents (17,451) (19,906)
Net increase (decrease) in cash
and cash equivalents (813,520) (1,057,889)
Cash and cash equivalents
beginning of period 1,183,200 1,411,929
Cash and cash equivalents
end of period $ 369,680 $ 354,040
Supplemental disclosure of cash
flow information:
Cash paid during the period for:
Interest $ 387,327 $ 20,430
Income taxes 107,000 25,800
The accompanying notes are an integral part of
these consolidated financial statements.
PRECISION STANDARD, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated interim financial statements included in this
report have been prepared by the Company without audit. In
the opinion of management, all adjustments necessary for a
fair presentation are reflected in the interim financial
statements. Such adjustments are of a normal and recurring
nature. The results of operations for the period ended March
31, 1997 are not necessarily indicative of the operating
results for the full year. The interim financial statements
should be read in conjunction with the audited financial
statements and notes thereto included in the Company's 1996
Form 10-K.
2. SIGNIFICANT ACCOUNTING POLICIES
Translation of Non-U.S. Currency Amounts - Assets and
liabilities of non-U.S. subsidiaries that operate in a local
currency environment are translated to U.S. dollars at the
exchange rate for the end of the accounting period. Income
and expenses are translated at average rates of exchange.
Translation adjustments are accumulated in a separate
component of stockholders' equity.
3. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1997 1996
(Unaudited)
Work in-process $40,996,184 $43,555,521
Finished goods 3,391,612 3,524,575
Raw materials and supplies 5,660,861 5,307,562
Total $50,048,657 $52,387,658
Less progress payments
and customer deposits (25,805,388) (27,917,381)
Less allowance for
estimated losses on
contracts in progress (1,879) (1,286,669)
$24,241,390 $23,183,608
4. EARNINGS PER COMMON SHARE
The computation of loss per common share in 1996 and 1997 is
based on the weighted average number of outstanding common
shares. The inclusion of stock options and stock warrants
would be antidilutive.
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards,
("SFAS") No. 128 (the "Statement"), Earnings per Share. This
Statement establishes standards for computing and presenting
earnings per share ("EPS"). This Statement will simplify the
standards for computing earnings per share previously found in
APB Opinion No. 15, Earnings per Share, and will make them
comparable to international EPS standards. It will replace
the presentation of primary EPS with a presentation of basic
EPS and will require dual presentation of basic and diluted
EPS on the face of the income statement and requires a
reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the
diluted EPS computation.
This Statement is effective for financial statements issued
for periods ending after December 15, 1997, including interim
periods and requires restatement of all prior-period EPS data
presented. The Company will adopt the Statement at December
31, 1997. Because all contingent shares of common stock (i.e.
options and warrants) are anti-dilutive at March 31, 1997 and
1996, there would be no effect on the reported earnings per
share under SFAS No. 128 for these periods.
5. NOTES PAYABLE
March 31, December,31,
1997 1996
(Unaudited)
Short-term debt consists of
the following:
Term Credit facility $ 5,007,799 $ 607,799
Senior Subordinated Loan 1,350,000 900,000
Note due to individual, bears 307,173 377,173
interest at 10% collateralized
by a security interest in
certain equipment
Other obligations 381,139 454,720
collateralized by security
interests in certain
equipment
$ 7,046,111 $ 2,339,692
Long term debt consists of
the following:
Term Credit facility -0- 4,400,000
Senior Subordinated Loan 5,850,000 6,300,000
Other obligations, 341,055 404,410
collateralized by security
interests in certain
equipment
$ 6,191,055 $11,104,410
Total debt $13,237,166 $13,444,102
The Company and its primary lender renegotiated terms and
conditions of its debt and warrant and executed new
agreements in March 1997. During 1996, the Company made
principal payments of $2.8 million for the Senior
Subordinated loan, $4.2 million of the Term Credit
facility and $8.0 million in full payment for the
Revolving Credit facility. In accordance with these new
agreements, interest accrued through March 1996 in the
amount of $2,207,799 was capitalized into the principal
balance of the debt. The new agreements also provided
for the forgiveness of approximately $1.3 million of
accrued but unpaid interest for the period from May
through September of 1996 which is being recognized
prospectively as a yield adjustment.
The above loans are collateralized by substantially all
of the assets of the Company and have various covenants
which limit or prohibit the Company from incurring
additional indebtedness, disposing of assets, merging
with other entities, declaring dividends, or making
capital expenditures in excess of certain amounts in any
fiscal year. Additionally, the Company is required to
maintain various financial covenants. While the Company
was not in compliance with certain of its financial
covenants prior to the new agreements noted above, the
Company was in compliance with such covenants at March
31, 1997 under the new agreements.
Although the Company's cash position was significantly
strengthened by the settlements negotiated with the U.S.
Government during 1996, the Company's cash resources
continued to be strained in 1997 primarily due to
excessive program and procurement costs incurred,
increased costs associated with the work stoppage of the
Company's United Auto Worker (UAW) employees which ended
March 31, 1997, and losses incurred on various commercial
aircraft maintenance contracts performed.
The Company is currently in the process of refinancing
its debt. The Company has entered into discussions with
a number of institutional lenders that have expressed
interest in providing debt financing in the form of a
term loan and a revolving line of credit.
6. CONTINGENCIES
The Company is preparing a Request for Equitable Adjustment
(REA) related to its H-3 helicopter contract with the U.S.
Government. The primary grounds for this REA are delays in
government furnished material (GFM), increased cost of pilot
services, and late delivery of technical data. The Company's
independent management consultant has determined a preliminary
rough order of magnitude of the cost impact under the H-3
contract. Based on this assessment, the Company has recorded
a receivable of $238,000 net of reserves in the first quarter
of 1997. The Company believes that the evidence in support of
the proposed REA is objective and verifiable and reasonable in
view of the work performed and the increased costs are not the
result of any deficiencies in the Company's performance.
However, should the Company's REA ultimately be disallowed by
the U.S. Government, which event the Company deems unlikely,
the Company would realize a pre-tax reduction of revenue of
$238,000.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto
included herein.
RESULTS OF OPERATIONS
Three months ended March 31, 1997
versus three months ended March 31, 1996
Revenues for the first quarter of 1997 increased 32% from $26.5
million in 1996 to $35.0 million in 1997. Government sales
increased 28% in 1997, from $15.8 million in 1996 to $20.2 million
in 1997. Commercial sales increased 38% in 1997, from $10.7
million in 1996 to $14.8 million in 1997. The Company's mix of
business between government and commercial customers shifted from
40% commercial and 60% government in 1996 to 42% commercial and 58%
government in 1997.
The increase in government sales in the first quarter of 1997 was
due primarily to an increase in the number of KC-135 Programmed
Depot Maintenance (PDM) aircraft redeliveries and an adjustment to
the timing of contract billings under the KC-135 program. Nine
aircraft were redelivered in 1997 versus eight aircraft in 1996.
As a result of the re-negotiation of certain contract provisions
with the Government during 1996, the Company is allowed to bill for
over-and-above costs as incurred, which accelerates the receipt of
payments under the KC-135 contract.
Government sales also increased due to an increase in the number of
redeliveries under the Company's C-130 contract. The Company
redelivered two PDM aircraft and four drop-ins in 1997 versus one
PDM aircraft and no drop-in aircraft in 1996.
The Company's commercial sales increased primarily due to an
increase in the number of 727 cargo conversion redeliveries (four
in 1997 versus one in 1996) and increases in redeliveries under
aircraft maintenance contracts. Adding to this increase in sales
was an increase in volume of approximately $.7 million at the
Company's Pemco World Air Services facility in Copenhagen, Denmark.
The ratio of cost of sales ($31.8 million in 1997; $24.1 million in
1996) to net sales ($35.0 million in 1997; $26.5 million in 1996)
remained constant at 91% in the first quarter of 1996 and at 91% in
1997. However, the resultant increase in gross profit was offset
by increased costs incurred under the Company's KC-135 PDM program
due to the UAW work stoppage.
The Company incurred more than $6.6 million in incremental strike
related costs during the UAW work stoppage. While the majority of
those costs were incurred in 1996, approximately $5.5 million will
be accounted for throughout 1997 as aircraft incurring those costs
are redelivered and booked into revenue. These amounts are
primarily attributable to the high cost of contract labor,
training, housing and transportation costs for replacement workers,
as well as increased security costs during the strike period.
Revenues at the Copenhagen aircraft facility increased
approximately 24% in the first quarter of 1997 as compared to 1996.
Operating losses were slightly greater (7%) at the facility due to
the utilization of contract labor necessary to meet the demands
caused by the substantial increase in workload.
Selling, general and administrative expense (SG&A) increased from
$3.5 million in the first quarter of 1996 to $5.0 million in 1997
and increased as a percent of sales from 13% in 1996 to 14% in
1997. SG&A increased primarily due to an increase in the amount of
commercial work in process. Under Generally Accepted Accounting
Principles, SG&A incurred for commercial contracts must be accrued
and recognized in the current period, whereas SG&A related to
government contracts are inventoried until redelivery of the
aircraft or shipment of the product.
Interest expense was $0.3 million in the first quarter of 1997
versus $0.9 million in 1996. From March of 1996 to March of 1997,
the Company paid $4.2 million in principal against its Term Credit
facility. The effective average interest rate in the first quarter
of 1997 on the Term Credit facility was 10% versus 12.40% in the
first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash resources continued to be strained in 1997
primarily due to additional costs incurred in connection with the
work stoppage of the Company's UAW employees at the Birmingham
facility which ended on March 31, 1997, excessive costs on its KC-
135 program, delayed redelivery of KC-135 aircraft, and losses
incurred on various commercial aircraft maintenance contracts
performed at the Company's Dothan, Alabama and Copenhagen, Denmark
facilities.
In October of 1996, the Company paid $15.0 million of principal to
its primary lender from the proceeds of the settlement with the
U.S. Government, with $2.8 million applied to the Senior
Subordinated loan, $4.2 million to the Term Credit facility and
$8.0 million to fully repay the Revolving Credit facility. In
March of 1997, the Company and its primary lender executed a Second
Amended and Restated Credit Agreement (the "Credit Agreement"), a
Second Amended and Restated Senior Subordinated Loan Agreement (the
"Subordinated Agreement") and an Amended and Restated Warrant
Agreement (the "Warrant Agreement"). The Credit Agreement and the
Subordinated Agreement provide for the forgiveness of approximately
$1.3 million of accrued but unpaid interest in 1996. The Company
recognized approximately $0.6 million of the forgiven interest in
1996 and anticipates recognizing the remaining $0.7 million over
the years 1997 through 2001. During 1997, the Company will
recognize $.3 million allocated equally to each quarter. The
balance of $.4 million will be taken pro-rata over the period 1998
through 2001. Details of these agreements are contained in the
Company's 1996 Form 10-K.
The Company is currently in the process of refinancing its debt.
The Company has entered into discussions with a number of
institutional lenders that have expressed interest in providing
debt financing in the form of a term loan and a revolving line of
credit.
The following is a discussion of the significant items in the
Company's Consolidated Statement of Cash Flows for the quarters
ending March 31, 1997 and 1996.
The Company's pension expense as determined by its actuary for the
year 1997 is $1.45 million, as compared to $1.0 million in 1996.
In the first quarter of 1997, the Company made no contributions to
the pension plan and expensed approximately $0.36 million. In the
first quarter of 1996, the Company funded approximately $0.3
million and expensed approximately $0.25 million.
Accounts payable and accrued expenses increased in the first
quarter of 1997 due to continued cash constraints and the increase
in workload at the Company's various facilities. Accrued interest
payments at March 31, 1997 were $0.3 million, representing a $0.6
million reduction over that due at March 31, 1996. This reduction
in interest was primarily due to the debt principal paid during
1996 and a reduction in the overall average interest rate in 1997.
The Company did not record a provision for losses on work in
process for the first quarter of 1997. However, in the first
quarter 1997, the Company recognized $1.3 million of reserves for
losses attributable to work in process in 1996. In the first
quarter of 1996, the Company recorded a $1.3 million provision for
losses on certain of its commercial and government contracts which
were performed at the Dothan facility.
Net inventories increased $1.1 million in the first quarter of 1997
primarily due to a recognition of reserves for estimated losses on
contracts in progress of $1.3 million and a reduction in net work
in process caused by a reduction in progress payment balances.
(See Note 3 to Financial Statements).
Cash provided from the Company's operating activities funded $.5
million used in the Company's operations, $0.1 million for capital
improvements, and $0.2 million for payments on various capital
leases in the first quarter of 1997. Additionally, the Company
paid $0.4 million in interest and $0.1 million in taxes. In the
first quarter of 1996, the Company used $0.6 million of cash for
operating activities, $0.3 million for capital improvements, and
$0.1 million for payments on various capital leases.
During 1995, 1996 and 1997, inflation and changing prices have had
no significant impact on the Company's net sales or revenues or on
income from continuing operations.
BACKLOG
The following table presents the Company's backlog (in thousands of
dollars) at March 31, 1997 and 1996:
1997 1996
U.S. Government $135,618 $100,498
Commercial 33,992 18,342
$169,610 $118,840
As of March 31, 1997, 80% of the Company's backlog related to work
for the U.S. Government versus 85% for the period ending March 31,
1996. The Company's Government backlog increased $35 million
primarily related to a contract for sounding rocket launches
awarded to its Space Vector subsidiary.
The Company's commercial backlog at March 31, 1997 increased $15
million from the prior year primarily due to increased orders at
the Company's Dothan, Copenhagen, and Nacelles facilities.
Approximately $49.1 million of the 1997 backlog and $44.2 million
of the 1996 backlog reported above is firm but unfunded.
Additionally, the Company has an estimated $261 million of backlog
associated with the option periods for the KC-135 contract and the
HERA program which are not reflected above. The Company also
currently estimates it will receive orders for approximately $15.4
million for additional work related to existing contracts; this
amount is not included in the numbers above.
CONTINGENCIES
The Company, as a U.S. Government contractor, is routinely subject
to audits, reviews and investigations by the government related to
its negotiation and performance of government contracts and its
accounting for such contracts. Under certain circumstances, a
contractor can be suspended or debarred from eligibility for
government contract awards. The government may, in certain cases,
also terminate existing contracts, recover damages and impose other
sanctions and penalties. The Company believes, based on all
available information, that the outcome of the U.S. Government's
audits, reviews and investigations will not have a materially
adverse effect on the Company's consolidated results of operation,
financial position or cash flows.
FORWARD LOOKING STATEMENTS
Statements contained herein concerning anticipated results of
operations, the outcome of pending and future litigation, the
completion of refinancing, the outcome of audits, reviews and
investigations by the U.S. Government, the outcome of REAs filed
with the U.S. Government, and the Company's intent to take certain
actions in the future are forward looking statements, the accuracy
of which cannot be guaranteed by the Company. These forward
looking statements are subject to a variety of business risks and
other uncertainties, including but not limited to the effect of
economic conditions, the impact of competitive products and
pricing, new product development, litigation risks, the actual
performance of work under contract, customer contract awards and
actions with respect to utilization and renewal of contracts, and
the results of financing efforts.
PRECISION STANDARD,INC.
OTHER INFORMATION
PART II.
Item 1 Legal Proceedings
In May 1997, the Company's Pemco Aeroplex subsidiary received a
letter from the Department of Justice indicating that the
Government may bring a civil action against Pemco under the False
Claims Act arising out of the sale of C-130 wings to Pemco. If any
such action is brought, the Company believes that Pemco has valid
defenses and that it will prevail if litigation is instituted.
In American International Airway, Inc. v. GATX Capital Corporation,
et al., U.S.D.C., N.D. Cal., the owner of two aircraft converted
under a Supplementary Type Certificate for 747 cargo conversions
owned by GATX and others, sued GATX and various other defendants
seeking damages. As a result of an Airworthiness Directive issued
by the FAA in January 1996, aircraft which had been so converted
were restricted to carrying reduced payloads. The Company's Pemco
Aeroplex subsidiary has been named as one of seven defendants in
the case because of allegedly improper engineering work performed
in the 1980's by its predecessor, Hayes International. The
complaint, which was served on Pemco on February 5, 1997, alleges
violations of the Racketeer Influenced and Corrupt Organization Act
(RICO), conspiracy, and negligence against Pemco. Pemco has filed
a motion to dismiss the complaint. Pemco believes the allegations
made against it are without merit and intends to vigorously defend
this claim.
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits
4.1 Second Amended and Restated Credit Agreement between
Precision Standard, Inc. and Bank of America
National Trust and Savings Association entered into
as of December 31, 1996.
4.2 Second Amended and Restated Senior Subordinated Loan
Agreement between Precision Standard, Inc. and Bank
of America National Trust and Savings Association
entered into as of December 31, 1996.
4.3 Amended and Restated Warrant issued by Precision
Standard, Inc. to the Bank of America National
Trust and Savings Association entered into as of
December 31, 1996.
27 Financial Data Schedule
b) Reports on Form 8-K
Reports on Form 8-K and Form 8-K/A dated December
30, 1996 under Item 4 were filed with the Commission on
January 6, 1997 and January 13, 1997, respectively. In
addition, a Report on Form 8-K dated January 14, 1997
under Item 4 was filed with the Commission January 21,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PRECISION STANDARD, INC.
Date: 5/14/97 By: /s/ Matthew L. Gold
Matthew L. Gold
Chairman, President and
Chief Executive Officer
Date: 5/14/97 By: /s/ Timothy A. Rabon
Timothy A. Rabon
Vice President
and Treasurer
(Principal Financial
and Accounting Officer)
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<EPS-DILUTED> (.20)
</TABLE>
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
between
PRECISION STANDARD INC.
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
entered into as of December 31, 1996
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Definitional Provisions. . . . . . . . . . . . . . . . . 10
ARTICLE II
THE TERM CREDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.01 The Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . 10
2.02 Term Note. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.03 Scheduled Repayments of Term Loan. . . . . . . . . . . . . . . 11
2.04 Mandatory Prepayments of Term Loan . . . . . . . . . . . . . . 11
2.05 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . 11
2.06 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III
THE REVOLVING LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.01 Payment in Full. . . . . . . . . . . . . . . . . . . . . . . . 12
3.02 Interest Payment; Forgiveness. . . . . . . . . . . . . . . . . 12
ARTICLE IV
PAYMENTS; TAXES; CHANGES IN CIRCUMSTANCES. . . . . . . . . . . . . . . . 13
4.01 Computation of Interest. . . . . . . . . . . . . . . . . . . . 13
4.02 Payments by the Company. . . . . . . . . . . . . . . . . . . . 13
4.03 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.04 Increased Cost and Reduced Return. . . . . . . . . . . . . . . 14
4.05 Certificates of Lender . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . 15
5.01 Corporate Existence and Power. . . . . . . . . . . . . . . . . 15
5.02 Corporate Authorization; No Contravention. . . . . . . . . . . 16
5.03 Governmental Authorization . . . . . . . . . . . . . . . . . . 16
5.04 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 16
5.05 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.07 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.08 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . 17
5.09 Use of Proceeds; Margin Regulations. . . . . . . . . . . . . . 19
5.10 Title to Properties. . . . . . . . . . . . . . . . . . . . . . 19
5.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.12 Financial Condition. . . . . . . . . . . . . . . . . . . . . . 19
5.13 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 20
5.14 Collateral Agreements. . . . . . . . . . . . . . . . . . . . . 20
5.15 Investment Company . . . . . . . . . . . . . . . . . . . . . . 21
5.16 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 21
5.17 Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 21
5.18 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . 21
5.19 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.20 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . 21
5.21 Copyrights, Patents, Trademarks and Licenses,
Supplemental Type Certificates issued by the
FAA and Parts Manufacturing Authorizations, etc. . . . . . . . 22
5.22 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VI
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01 Conditions of Closing. . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII
AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . 24
7.02 Certificates; Other Information. . . . . . . . . . . . . . . . 25
7.03 Preservation of Corporate Existence. . . . . . . . . . . . . . 26
7.04 Maintenance of Property. . . . . . . . . . . . . . . . . . . . 27
7.05 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.06 Payment of Obligations . . . . . . . . . . . . . . . . . . . . 27
7.07 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 28
7.08 Inspection of Property and Books and Records . . . . . . . . . 28
7.09 Hazardous Materials. . . . . . . . . . . . . . . . . . . . . . 28
7.10 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.11 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.12 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . 30
7.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 30
7.14 Compliance with Assignment of Claims Act . . . . . . . . . . . 31
ARTICLE VIII
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.01 Limitation on Liens. . . . . . . . . . . . . . . . . . . . . . 31
8.02 Disposition of Assets. . . . . . . . . . . . . . . . . . . . . 33
8.03 Consolidations and Mergers . . . . . . . . . . . . . . . . . . 33
8.04 Acquisitions and Investments . . . . . . . . . . . . . . . . . 34
8.05 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . 34
8.06 Transactions with Affiliates . . . . . . . . . . . . . . . . . 34
8.07 Contingent Obligations . . . . . . . . . . . . . . . . . . . . 35
8.08 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . 35
8.09 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Lease Obligations. . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Restricted Payments. . . . . . . . . . . . . . . . . . . . . . 37
8.12 Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . 37
8.13 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . 37
8.14 Consolidated Tangible Net Worth. . . . . . . . . . . . . . . . 38
8.15 Fixed Charge Coverage Ratio. . . . . . . . . . . . . . . . . . 38
8.16 Change in Business . . . . . . . . . . . . . . . . . . . . . . 39
8.17 Tax Election . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE IX
EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.01 Events of Default. . . . . . . . . . . . . . . . . . . . . . . 39
9.02 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE X
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.01 Amendments and Waivers. . . . . . . . . . . . . . . . . . 43
10.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.03 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . 44
10.04 Costs and Expenses. . . . . . . . . . . . . . . . . . . . 44
10.05 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 44
10.06 Successors and Assigns. . . . . . . . . . . . . . . . . . 45
10.07 Confidentiality . . . . . . . . . . . . . . . . . . . . . 46
10.08 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.09 Counterparts; Effective Date. . . . . . . . . . . . . . . 46
10.10 Severability. . . . . . . . . . . . . . . . . . . . . . . 47
10.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . 47
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (the
"Agreement") is entered into as of December 31, 1996, between PRECISION
STANDARD INC. a Colorado corporation (the "Company") and Bank of America
National Trust and Savings Association (the "Lender").
WHEREAS, the Company and the Lender (both in its capacity as
Lender and as an agent for members of a syndicate which was never formed)
are parties to a Credit Agreement dated as of September 9, 1988, an
Amended and Restated Credit Agreement dated as of November 30, 1988, a
First Amendment dated as of June 14, 1989, a Second Amendment and Waiver
dated as of March 31, 1991, a Third Amendment and Waiver dated as of
December 5, 1991, a Fourth Amendment and Waiver dated as of April 28,
1992, a Fifth Amendment and Waiver dated as of December 31, 1993, a Sixth
Amendment and Waiver dated as of March 31, 1995, a Seventh Amendment and
Limited Forbearance Agreement dated as of September 30, 1995 and an Eighth
Amendment dated as of April 12, 1996 (as amended, the "Existing
Agreement"); and
WHEREAS, the parties hereto wish to further amend the Existing
Agreement and to restate the Existing Agreement in its entirety, upon the
terms and provisions and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ADDITIONAL ADJUSTMENT PROCEEDS" means any payment,
reimbursement or other proceeds received by the Company or any Affiliate
thereof after October 21, 1996 relating to services rendered, or materials
provided, on aircraft redelivered under the KC-135 contract prior to
September 30, 1996 exceeding $25,000,000.
"ADVANCE" means an extension of credit by Lender to the Company
pursuant to the Revolving Commitment of the Lender in the Existing
Agreement.
"AFFILIATE" means as to any Person, any other Person (other than
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with such Person. A Person shall be deemed
to control another Person if such controlling Person possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities, by contract or otherwise. Any director, executive
officer or beneficial owner of five percent (5%) or more of the equity of
a Person shall for the purposes of this Agreement, be deemed an Affiliate
of such Person. Notwithstanding the foregoing, under no circumstances
shall the Lender be deemed to be an Affiliate of the Company or any
Subsidiary of the Company.
"AGREEMENT" means this Second Amended and Restated Credit
Agreement, as amended, supplemented or modified from time to time.
"AMENDED WARRANT" means a warrant in the form of Exhibit A
hereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco are
authorized or required by law to close.
"CAPITAL EXPENDITURES" means for any period and with respect to
any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing of fixed or capital assets or
additions to equipment (including, but not limited to, replacements,
capitalized repairs and improvements during such period) which should be
capitalized under generally accepted accounting principles on a
consolidated balance sheet of such Person and its Subsidiaries, LESS net
proceeds from sales of fixed or capital assets received by such Person or
any of its Subsidiaries during such period. For the purpose of this
definition, the purchase price of equipment which is purchased
simultaneously with the trade-in of existing equipment owned by such
Person or any of its Subsidiaries or with insurance proceeds shall be
included in Capital Expenditures only to the extent of the gross amount of
such purchase price less the credit granted by the seller of such
equipment for such equipment being traded in at such time, or the amount
of such proceeds, as the case may be.
"CASH EQUIVALENTS" means
(a) securities issued or fully guaranteed or insured by the
United States Government or any agency thereof having maturities of
not more than six (6) months from the date of acquisition; and
(b) certificates of deposit, time deposits, Eurodollar time
deposits, bankers' acceptances having maturities not more than six
(6) months from the date of acquisition issued by any Lender or by
any U.S. commercial bank having combined capital and surplus of not
less than One Hundred Million dollars ($100,000,000);
(c) commercial paper of an issuer rated at least A-1 by
Standard & Poor's Corporation or P-1 by Moody's Investors Service
Inc. and in either case maturing within six (6) months after the date
of acquisition.
"CASH FLOW" means, for any period, (a) EBITDA for such period
PLUS (b) any decrease in consolidated working capital of the Company and
its Subsidiaries during such period LESS (c) the sum of (i) Capital
Expenditures actually made by the Company and its Subsidiaries; (ii) any
increase in consolidated working capital of the Company and its
Subsidiaries during such period; and (iii) taxes paid in cash during such
period by the Company and its Subsidiaries; PROVIDED, HOWEVER, that for
the purposes of this definition consolidated working capital shall be
computed without giving effect to "estimated losses on contracts in
progress" set forth in the Company's balance sheet under the heading
"current liabilities".
"CLOSING DATE" means the date the conditions described in
Article VI hereof are fully satisfied.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
"COLLATERAL" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Company or any
Guarantor and their respective Subsidiaries in or upon which a security
interest, lien or mortgage is granted to the Lender whether under this
Agreement or under any other documents, instruments or writings executed
by any such persons and delivered to the Lender.
"COLLATERAL DOCUMENTS" means, collectively, the Company Security
Agreement, the Subsidiary Security Agreement, the Hayes Guaranty, the
Subsidiary Guaranty and the Pledge Agreements.
"COMPANY SECURITY AGREEMENT" means the pledge of assets by the
Company securing the obligations of the Company hereunder.
"COMPANY STOCK PLEDGE AGREEMENT" means the pledge of shares by
the Company securing the obligations of the Company hereunder.
"CONSOLIDATED NET INTEREST EXPENSE" means, for any period, gross
consolidated interest expense for such period determined in conformity
with GAAP (adjusted to eliminate the effect, if any, on interest expense
of the redemption provisions of the Amended Warrant) and capitalized lease
expense, PLUS (a) the portion of the upfront costs for Interest Rate
Contracts (to the extent not included in gross interest expense) fairly
allocated to such Interest Rate Contracts as expenses for such period,
LESS (b) interest income for such period and cash payments received, in
such period pursuant to any Interest Rate Contracts.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation (the
"PRIMARY OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"),
including, without limitation, any obligation of such Person, whether or
not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect
security therefor, or (b) to advance or provide funds (i) for the payment
or discharge of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor or (c) 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 of (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability
in respect thereof as determined by the Company in good faith.
"CONTRACTUAL OBLIGATIONS" means as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which
such Person is a party or by which it or any of its property is bound.
"DEFAULT" means any of the events specified in Article IX,
whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"DOL" means the United States Department of Labor.
"DOLLARS" and "$" means dollars in lawful currency of the United
States of America.
"EBITDA" means, for any period, the sum of (a) the consolidated
net income of the Company and its Subsidiaries (before income taxes) for
such period, as determined in accordance with generally accepted
accounting principles; (b) the amount of Consolidated Net Interest
Expense; (c) all amounts treated as expenses for depreciation; (d) all
amounts of amortization of fees and intangibles; and (e) the amount of
non-cash charges; less (x) the amount of non-operating cash income for
such period; and (y) non-cash income credits.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time and any regulation promulgated
thereunder.
"ERISA AFFILIATE" means all trades or businesses (whether or not
incorporated) under common control with the Company and which, together
with the Company, are treated as a single employer under Section 414(b),
414(c) or 414(m) of the Code.
"ERISA EVENT" means as to the Company or any ERISA Affiliate (a)
a Reportable Event described in Section 4043 of ERISA and the regulations
issued thereunder (other than a Reportable Event not subject to the
provision for 30-day notice to the PBGC under such regulations); or (b)
the withdrawal of the Company or any ERISA Affiliate from a Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; or (c) the filing of a notice of intent to terminate
a Plan, if such Plan is underfunded, or the treatment of a Plan amendment
as a termination under Section 4041 of ERISA; or (d) the institution of
proceedings to terminate a Plan by the PBGC; or (e) the imposition of a
lien under Section 412 of the Code or Section 302 of ERISA; or (f) any
other event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or to result in the
imposition of any liability under Title IV of ERISA other than PBGC
premiums due but not delinquent under Section 4007 of ERISA.
"EVENT OF DEFAULT" means any of the events specified in Article
IX, PROVIDED, HOWEVER, that any requirement for the giving of notice, the
lapse of time, or both, or any other condition, event or act has been
satisfied.
"FAA" means the Federal Aviation Administration, or any
successor agency.
"FEDERAL RESERVE BOARD" means the Board of Governors of the
Federal Reserve System or any successor thereof.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any central bank thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"HAYES" means Pemco Aeroplex Corporation (formerly known as
Hayes International Corporation), or any successor corporation.
"HAYES GUARANTY" means the guaranty securing the obligations of
the Company executed by Hayes.
"HAZARDOUS MATERIALS" means those substances which are regulated
by or form the basis of liability under any Hazardous Materials Laws.
"HAZARDOUS MATERIALS CLAIM" has the meaning set forth in Section
7.10.
"HAZARDOUS MATERIALS LAWS" means the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et
seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801
et seq.), the Resource Conservation and Recovery, Act (42 U.S.C. Section
6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section
1251 et seq.), the Clean Air Act (42 U.S.C. Section 1251 et seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.), as
such laws have been amended or supplemented and any analogous future
federal, or present or future state or local, statutes and the regulations
promulgated thereunder.
"INDEBTEDNESS" means as applied to any Person, (a) all
obligations of such Person for borrowed money (including, without
limitation, reimbursement and all other obligations with respect to surety
bonds, letters of credit and bankers' acceptances, whether or not
matured), (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all obligations to pay for the deferred purchase
price of property or services except trade accounts payable and accrued
liabilities arising in the ordinary course of business; (d) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property); (e) all obligations under leases which have been or should
be, in accordance with GAAP, recorded as capital leases; and (f) all
indebtedness secured by any Lien or any property or asset owned or held by
that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is non-recourse to the credit of that
Person.
"INTEREST PAYMENT DATE" means the last day of each calendar
month.
"INTEREST RATE CONTRACTS" means interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest
rate insurance, and other agreements or arrangements designed to provide
protection against fluctuations in interest rates.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge of deposit arrangement, encumbrance, lien (statutory of
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, those created by, arising under or evidenced by any
conditional sale or other title retention agreement, the interest of a
lessor under a capitalized lease obligation, any financing lease having
substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which
such lien relates as debtor, under the Uniform Commercial Code or
comparable law of any jurisdiction).
"LOAN DOCUMENTS" means this Agreement, the Note, the Warrant and
the Collateral Documents.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Federal Reserve Board.
"MATURITY DATE" means January 31, 1998.
"MULTIEMPLOYER PLAN" means, at any time, a "multiemployer plan"
within the meaning of Section 4001(a)(3) of ERISA and to which the Company
or any ERISA Affiliate is making, or is obligated to make contributions or
has made, or been obligated to make, contributions.
"NET PROCEEDS" means proceeds in cash or Cash Equivalents as and
when received by the Person making a sale (the "Seller") from the sale to
any Person of any asset outside of the ordinary course of business
(including, without limitation, the sale of any division, plant,
warehouse, stock of subsidiary of the Company or other real estate or
interest in real estate), net of the direct costs relating to such sale,
taxes paid or payable as a result thereof and amounts required to be
applied to repay principal, interest and prepayment premiums and penalties
on Indebtedness secured by a Lien on the asset which is the subject of
such sale. Net Proceeds shall also include proceeds of insurance paid on
account of loss or damage to any property and condemnation awards (or
payments made in lieu thereof) by reason of, or in anticipation of, a
permanent taking of any property pursuant to condemnation proceedings or
by the exercise of the right of eminent domain or by conveyance in lieu of
condemnation but only if the insurance proceeds or condemnation awards (or
payments in lieu thereof) exceed Five Hundred Thousand dollars ($500,000)
in any such instance and, in any event, net of (i) all money actually
applied to repair or reconstruct the damaged property or property affected
by the condemnation or taking, (ii) all of the costs and expenses
reasonably incurred in connection with the collection of such proceeds,
award or other payments and (iii) any amounts retained by or paid to
parties having rights to such proceeds, awards or other payments superior
to the rights of the Seller.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"PERSON" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture of Governmental Authority.
"PLAN" means, with respect to the Company or any ERISA
Affiliate, at any time, an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is covered by
Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is maintained for employees of the Company or
any ERISA Affiliate.
"PLEDGE AGREEMENTS" means (i) the Company Stock Pledge Agreement
and (ii) the Subsidiary Stock Pledge Agreement.
"PLEDGED SHARES" has the meaning given to such term in the
Pledge Agreements.
"PLEDGORS" means the Company, Hayes Holdings I Inc., Hayes
Holdings II Inc., and Hayes.
"REFERENCE RATE" means the rate of interest publicly announced
from time to time by the Lender in San Francisco, California, as its
reference rate. It is a rate set by the Lender based upon various factors
including Lender'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 the Lender shall take effect at
the opening of business on the day specified in the public announcement of
such change.
"REQUIREMENT OF LAW" means 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" means the Chief Executive officer or the
President of the Company or, with respect to financial matters, the Chief
Financial Officer or the Treasurer of the Company.
"REVOLVING COMMITMENT" means the former commitment of the Lender
to make Advances pursuant to Article III of the Existing Agreement.
"SENIOR DEBT" means, at a particular date, the aggregate
outstanding principal amount of all Indebtedness of the Company and its
consolidated Subsidiaries including any extensions, renewals or
replacements thereof, other than the Subordinated Note.
"SENIOR SUBORDINATED LOAN AGREEMENT" means the Second Amended
and Restated Senior Subordinated Loan Agreement dated of even date
herewith between the Company and the Lender.
"SOLVENT" means, with respect to any Person, that the fair
saleable value of the property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date
and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and does not have unreasonably
small capital. In computing the amount of contingent or liquidated
liabilities at any time, such liabilities will be computed at the amount
which, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual
or matured liability.
"SUBORDINATED NOTE" means the promissory note of the Company
evidencing the indebtedness of the Company incurred pursuant to the Senior
Subordinated Loan Agreement.
"SUBSIDIARY" means as to any Person, (i) a corporation of which
shares of stock having ordinary voting power (other than stock 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
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 and (ii) any partnership of which such Person or any
Subsidiary is a general partner or any partnership more than 50% of the
equity interests of which are owned, directly or indirectly, by such
Person or by one or more other Subsidiaries, or by such Person and one or
more other Subsidiaries. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.
"SUBSIDIARY GUARANTY" means the guaranty securing the
obligations of the Company to the Lender executed by Hayes Holdings I
Inc., Hayes Holdings II Inc., Space Vector Corporation and Air
International Incorporated.
"SUBSIDIARY PLEDGE AGREEMENT" means the pledge of Hays Holdings
I Inc., Hayes Holding II Inc., and Hayes securing the obligations
hereunder of Hayes Holdings I Inc., Hayes Holding II Inc., and Hayes under
the Subsidiary Guaranty and the Hayes Guaranty.
"SUBSIDIARY SECURITY AGREEMENT" means the security agreement
securing the obligations of Hayes Holdings I Inc., Hayes Holdings II Inc.,
Hayes, Space Vector Corporation and Air International Incorporated under
the Subsidiary Guaranty and the Hayes Guaranty.
"TANGIBLE NET WORTH" means shareholders' equity as determined in
accordance with GAAP, less goodwill, patents, unamortized organizational
expenses, unamortized debt discount and any other intangible assets.
"TERM LOAN" means the term credit outstanding under the Existing
Agreement.
"TERM NOTE" means an Amended and Restated Promissory Note of the
Company payable to the order of Lender, in substantially the form of
Exhibit D hereto.
1.02 OTHER DEFINITIONAL PROVISIONS.
(a) Unless otherwise specified herein, all terms defined in
this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto.
(b) All accounting terms not expressly defined herein shall be
construed, except where the context otherwise requires, and all financial
computations required under this Agreement shall be made, in accordance
with GAAP.
(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. The meaning of defined terms shall be equally
applicable to the singular and plural forms of the defined terms.
(d) In the event that GAAP changes during the term of this
Agreement from GAAP as in effect on the date hereof such that the
covenants contained in Article VIII would then be calculated in a
different manner or have a different effect, (a) the Company and the Agent
agree to amend this Agreement in such respects as are necessary to conform
those covenants as criteria for evaluating the Company's financial
condition to substantially the same criteria as were effective prior to
such change in GAAP and (b) the Company shall be deemed to be in
compliance with the covenants contained in Article VII during the sixty
(60) day period following any change in GAAP coming to the attention of
the Chief Financial Officer of the Company if and to the extent that the
Company would have been in compliance therewith under GAAP as in effect
immediately prior to such change.
ARTICLE II
THE TERM CREDIT
2.01 THE TERM LOAN. On the date hereof the unpaid
principal balance of the Term Loan (including any capitalized deferred
interest) is $5,007,799. On or before the Closing Date, the Company shall
make an additional principal payment on the Term Loan of not less than the
Additional Adjustment Proceeds, if any.
2.02 TERM NOTE. The Term Loan is evidenced by the Term
Note with an initial principal amount equal to $5,007,799. The Lender
shall endorse on the schedule annexed to the Term Note the date and amount
of each payment of principal made by the Company with respect thereto.
The Lender is irrevocably authorized by the Company to so endorse such
schedule and such record shall be conclusive absent manifest error;
provided, however, that the failure of Lender to make, or an error in
making, a notation thereon with respect to any payment shall not limit or
otherwise affect the obligations of the Company hereunder or under the
Term Note.
2.03 SCHEDULED REPAYMENTS OF TERM LOAN. The Company shall
make interim principal installment payments of $100,000 on the last day of
each month, commencing on July 31, 1997. Any remaining unpaid principal
balance of the Term Loan shall be due and payable in full on the Maturity
Date.
2.04 MANDATORY PREPAYMENTS OF TERM LOAN.
(a) If prior to the Maturity Date, the Company shall at any
time or from time to time agree to sell, assign, lease or transfer or
otherwise dispose of assets in a transaction permitted under Section 8.02
or, if not so permitted, as to which the Lender shall have consented in
writing (each such transaction, a "disposition"), or shall receive
proceeds of insurance paid on account of loss or damage to any property or
condemnation awards, the Company shall promptly notify the Lender of such
proposed disposition or receipt of proceeds or award (including the amount
of the estimated Net Proceeds to be received by the Company in respect
thereof). After the Subordinated Note has been repaid in full, the
Company shall use 85% of all such remaining monies to prepay the principal
of the Term Loan. Any such prepayments shall be applied to the most
remote principal installments to become due.
Notwithstanding the foregoing, the Company may retain the
proceeds of insurance resulting from property damage or casualty losses,
provided that the Company uses the proceeds to repair and/or replace any
damaged property.
(b) If Additional Adjustment Proceeds are received by the
Company after the Closing Date, the Company shall within one (1) Business
Day of receipt prepay the Term Loan in an amount equal to one hundred
percent (100%) of such Additional Adjustment Proceeds. Any such
prepayment shall be applied to the most remote principal installment to
become due.
2.05 OPTIONAL PREPAYMENTS. The Company may prepay the Term
Loan in whole or in part in amounts of Five Hundred Thousand dollars
($500,000) or any larger multiple of One Hundred Thousand ($100,000).
Each such prepayment shall be accompanied by payment of accrued interest
on the amount prepaid. Any such prepayments shall be applied to the most
remote principal installments to become due.
2.06 INTEREST.
(a) On the Closing Date, any interest accrued on the Term Loan
after April 30, 1996 and prior to October 1, 1996 and not previously paid
shall be forgiven. Any interest accrued on the Term Loan on and after
October 1, 1996 shall be paid in full on the Closing Date.
(b) Subject to subsection (d) below, the Term Loan shall bear
interest on the outstanding principal amount thereof until it becomes due,
at a rate per annum equal to the Reference Rate plus one and three-
quarters percentage points (1-3/4%).
(c) Interest on each Loan shall be payable in arrears on the
last Business Day of each month. Interest shall also be payable on the
date of any prepayment pursuant to Sections 2.04 and 2.05 for the portion
of the Term Loan so prepaid and upon payment (including prepayment) in
full thereof and, after the occurrence and during the continuance of any
Event of Default, interest shall be payable on demand.
(d) During the period between (a) the stated due date for
payment of any amount under this Agreement or the date of acceleration of
any amount pursuant to Section 9.01 which the Company fails to pay on such
due date or date of acceleration, and (b) the date on which such amount is
paid in full, the Company shall, to the extent permitted by applicable
law, pay interest on demand on such unpaid amount at a rate per annum
equal to the sum of the Reference Rate plus three and three quarters
percentage points (3-3/4%).
ARTICLE III
THE REVOLVING LOAN
3.01 PAYMENT IN FULL. The unpaid principal balance of the
Advances made pursuant to the Revolving Commitment in the Existing
Agreement was paid in full on October 25, 1996. Any commitment by the
Lender to make additional Advances has previously terminated.
3.02 INTEREST PAYMENT; FORGIVENESS. On the Closing Date,
any interest accrued on the Advances after April 30, 1996 and prior to
October 1, 1996 and not previously paid is hereby forgiven. Any interest
accrued on the Advances on and after October 1, 1996 shall be paid in full
on the Closing Date.
ARTICLE IV
PAYMENTS; TAXES; CHANGES IN CIRCUMSTANCES
4.01 COMPUTATION OF INTEREST.
(a) All computations of interest payable hereunder shall be
made on the basis of a year of three hundred sixty-five (365) or three
hundred sixty-six (366) days, as the case may be, and actual days elapsed.
Interest shall accrue during each period during which interest is computed
from and including the first day thereof to but excluding the last day
thereof.
(b) Each determination of an interest rate by the Lender
pursuant to any provision of this Agreement shall be conclusive and
binding on the Company in the absence of manifest error.
4.02 PAYMENTS BY THE COMPANY.
(a) All payments (including prepayments) to be made by the
Company hereunder shall be made without set-off or counterclaim and shall
be made to the Lender at its office at 1850 Gateway Boulevard, Fourth
Floor, Concord, California 94520, in Dollars and in immediately available
funds no later than 12:00 noon (New York time). Any payment which is
received by the Lender later than 12:00 noon (New York time) shall be
deemed to have been received on the immediately succeeding Business Day.
(b) Whenever any payment hereunder shall be stated to be due on
a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
4.03 TAXES.
(a) Any and all payments by the Company to the Lender under
this Agreement shall be made free and clear of, and without deduction or
withholding for, any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding such taxes (including income taxes or franchise taxes)
as are imposed on or measured by the Lender's net income by the
jurisdiction under the laws of which the Lender is organized or any
political subdivision thereof or payable by the Company pursuant to any
other provision hereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes").
(b) In addition, the Company agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or the Collateral Agreements (hereinafter referred to
as "Other Taxes").
(c) The Company will indemnify and hold harmless the Lender for
the full amount of Taxes or Other Taxes (including without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section 4.03) paid by the Lender and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within
thirty (30) days from the date the Lender makes written demand therefor.
The Company shall be subrogated to the Lender's right to contest such
Taxes or Other Taxes.
(d) If the Company shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to the Lender then,
(i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
4.03) the Lender receives an amount equal to the sum it would have
received had no such deductions been made,
(ii) the Company shall make such deductions, and
(iii) the Company shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with
applicable law.
(e) Within thirty (30) days after the date of any payment by
the Company of Taxes or Other Taxes, the Company will furnish to the
Lender the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to the Lender.
(f) The agreements and obligations of the Company contained in
this Section 4.03 shall survive the payment in full of principal and
interest hereunder.
4.04 Increased Cost and Reduced Return. If the Lender
shall have determined that the introduction of any applicable law, rule or
regulation regarding capital adequacy, or any change therein or any change
in administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or the compliance by the Lender or any corporation controlling
the Lender with any request, guideline or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, affects or would affect the amount of
capital required or expected to be maintained by the Lender or any
corporation controlling such Lender and the Lender, (taking into
consideration the Lender's or such corporation's policies with respect to
capital adequacy and the Lender's desired return on capital) determines
that the amount of such capital is increased as a consequence of the
Lender's obligation under this Agreement, then the Lender's obligations
under this Agreement, upon demand of the Lender, the Company shall within
fifteen (15) days of such demand pay to the Lender, from time to time as
specified by the Lender, additional amounts sufficient to compensate the
Lender for such increase.
4.05 Certificates of Lender. The Lender shall deliver to
the Company a certificate setting forth in reasonable detail the basis for
computing any amount payable to the Lender under this Article and such
certificate shall be conclusive and binding on the Company in the absence
of manifest error.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Lender that,
as of the Closing Date:
5.01 CORPORATE EXISTENCE AND POWER. The Company and each
of its Subsidiaries:
(a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation,
(b) has the corporate power and authority and all governmental
licenses, authorizations, consents and approvals 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, licensed 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; and
(d) is in compliance with all Requirements of Law, except, in
each case referred to in clause (c) or clause (d), to the extent that
the failure to do so would not have a material adverse effect on the
business, operations, properties or condition (financial or
otherwise), of the Company and its Subsidiaries taken as a whole;
5.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The
execution, delivery and performance by the Company and each of its
Subsidiaries of this Agreement and any other Loan Document to which such
Person a party:
(a) are within such Person's corporate power and authority and
when delivered will have been duly authorized by all necessary
corporate action; and
(b) do not contravene the terms of such Person's certificate of
incorporation or By-Laws, or any amendment thereof;
5.03 GOVERNMENTAL AUTHORIZATION. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority other than the filing of financing
statements in accordance with the Uniform Commercial Code and, as to the
federal government, compliance with federal law governing the assignment
of contracts with the federal government, is necessary or required in
connection with the execution, delivery, performance or enforcement
against the Company or any of its Subsidiaries of the Agreement, any other
Loan Document or any other instrument or agreement required hereunder to
be made by the Company or any of its Subsidiaries, except those already
obtained, those required of municipal lessors and those required in
connection with the performance of the covenants set forth in Article VII;
5.04 BINDING EFFECT. This Agreement and each other Loan
Document to which the Company or any of its Subsidiaries is a party when
delivered will constitute the legal, valid and binding obligations of the
Company and any of its Subsidiaries to the extent of a party thereto
enforceable against such Person in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability;
5.05 NO LEGAL BAR. The execution, delivery and performance
of this Agreement and the Loan Documents will not violate any Requirement
of Law or any Contractual Obligation of the Company or of any of its
Subsidiaries and will not result in, or require, the creation or
imposition of any Lien on any of its or their respective properties or
revenues pursuant to any Requirement of Law. No material contract between
the Company and any Governmental Authority forbids assignment and no
material contract between any of its Subsidiaries and any Governmental
Authority forbids assignment, to the best knowledge of the Company;
5.06 LITIGATION. Except as disclosed in Schedule 5.06,
there are no actions, suits, proceedings, claims or disputes pending, or
to the best knowledge of the Company, threatened or contemplated at law,
in equity, in arbitration or before any Governmental Authority against the
Company or any of its Subsidiaries or any of their respective properties:
(a) with respect to this Agreement or any Loan Document or any
of the transactions contemplated hereby or thereby; or
(b) which, if determined adversely to the Company or its
Subsidiaries, is reasonably likely to have a material adverse effect
on the assets, business or operations of the Company or which is
reasonably likely to have a material adverse effect on the ability of
the Company to perform its obligations under this Agreement or any
Loan Document. No injunction, writ, temporary restraining order or
any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the
execution, delivery and performance of this Agreement or any Loan
Document or directing that the transactions provided for herein not
be consummated as herein provided;
5.07 NO DEFAULT. No event has occurred and is continuing
or would result from the incurring of obligations by the Company under
this Agreement or any Loan Document which constitutes a Default or an
Event of Default. Neither the Company nor any of its Subsidiaries is in
default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could be
materially adverse to the business, operations, property or financial or
other condition of the Company and its Subsidiaries taken as a whole or
which could materially adversely affect the ability of the Company to
perform its obligations under this Agreement or any Loan Document;
5.08 ERISA COMPLIANCE.
(a) Neither the Company nor any ERISA Affiliate maintains or
contributes to any Plan or Multiemployer Plan other than those listed on
Schedule 5.08. Each Plan of the Company and its ERISA Affiliates is in
compliance in all material respects with the applicable provisions of
ERISA, the Code and all other applicable Federal and state laws and the
rules and regulations promulgated thereunder. With respect to each Plan
(other than a Multiemployer Plan) all reports required under ERISA or any
other applicable law or regulation to be filed with the relevant
Governmental Authority with respect to which the failure to file has any
reasonable likelihood of resulting in liability of the Company or any
ERISA Affiliate in excess of Two Hundred Thousand dollars ($200,000) have
been duly filed, and all such reports are true and correct in all material
respects as of the date given. No Plan of the Company or its ERISA
Affiliates has been terminated other than any Plan as to which all
liabilities have been fully paid or provided for solely from such
terminated Plan's assets without the requirement of any further
contributions by the Company or any ERISA Affiliate after the original
date of the notice of intent to terminate given to either the Plan's
Participants (or the PBGC) nor has any accumulated funding deficiency (as
defined in Section 412(a) of the Code) been incurred (without regard to
any waiver granted under Section 412(a) of the Code) nor has any funding
waiver from the IRS been received or requested;
(b) Neither the Company nor any of its ERISA Affiliates has
failed to make any contribution or pay any amount due and owing as
required by Section 412 of the Code or Section 302 of ERISA or the terms
of any Plan prior to the due date under Section 412 of the Code and
Section 302 of ERISA, which amount remains due and owing. There has been
no ERISA Event or any event requiring disclosure under Section
4041(c)(3)(C), 4062(f) or 4063(a) of ERISA with respect to any Plan of the
Company or its ERISA Affiliates since the effective date of ERISA.
(c) Except as set forth in Schedule 5.08, the value of the
assets of each Plan (other than a Multiemployer Plan) of the Company or
any ERISA Affiliate equalled or exceeded 90% of the present value of the
benefit liabilities, as defined in Title IV of ERISA, of each such Plan as
of the most recent valuation date of each Plan using the Plan actuarial
assumptions at such date. There are no pending or threatened claims,
lawsuits or actions (other than routine claims for benefits and expenses
in the ordinary course) asserted or instituted against, and neither the
Company nor any of its ERISA Affiliates has any knowledge of any
litigation or claims against (i) the assets of any Plan or trust or
against any fiduciary of a Plan (other than a Multiemployer Plan) with
respect to the operation of such Plan or (ii) the assets of any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA or
against any fiduciary thereof with respect to the operation of any such
plan.
(d) Neither the Company nor any ERISA Affiliate has engaged in
any prohibited transactions, within the meaning of Section 406 of ERISA or
Section 4975 of the Code which would subject the Company or such ERISA
Affiliates to any tax or penalty, provided the "amount involved" under
Section 4975 of the Code is in excess of Two Million dollars ($2,000,000).
Neither the Company nor any of its ERISA Affiliates (i) has incurred or
reasonably expects to incur (A) any liability under Title IV of ERISA
(other than premiums due under Section 4007 of ERISA to the PBGC) or (B)
any withdrawal liability (and no event has occurred which with the giving
of notice under Section 4201 of ERISA, would result in such liability)
under Section 4201 of ERISA as a result of a complete or partial
withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from a
Multiemployer Plan or (C) any liability under Section 4062 of ERISA to the
PBGC or to a trustee appointed under Section 4042 of ERISA, or (ii) has
withdrawn from a Multiemployer Plan. Neither the Company nor any of its
ERISA Affiliates nor any organization to which the Company or any of its
ERISA Affiliates is a successor or parent corporation, within the meaning
of Section 4069(b) of ERISA, has engaged in any transaction that could be
covered by Section 4069 of ERISA; and
(e) Except as disclosed on Schedule 5.08, neither the Company
nor any ERISA Affiliate maintains or has established any welfare benefit
plan within the meaning of Section 3(1) of ERISA which provides for
continuing benefits or coverage for any participant or any beneficiary of
a participant after such participant's termination of employment, except
as may be required by the Consolidated Budget Reconciliation Act of 1985,
as amended ("COBRA") and the regulations thereunder, and at the expense of
the participant or the beneficiary of the participant. The Company and
each of its ERISA Affiliates that maintains a welfare benefit plan within
the meaning of Section 3(1) of ERISA has complied in all material respects
with the notice and continuation coverage requirements of COBRA and the
regulations thereunder;
5.09 USE OF PROCEEDS; MARGIN REGULATIONS. No portion of
the Term Loan will be used, directly or indirectly, (i) to purchase or
carry margin stock as defined in Regulation U of the Federal Reserve Board
or (ii) to repay or otherwise refinance Indebtedness of the Company or
others incurred to purchase or carry margin stock, or (iii) to extend
credit for the purpose of purchasing or carrying any margin stock. No
proceeds of the Term Loan will be used to acquire any security in any
transaction which is subject to Section 13 or 14 of the Securities
Exchange Act;
5.10 TITLE TO PROPERTIES. Each of the Company and its
Subsidiaries has good record and marketable title in fee simple to or
valid leasehold interests in all its real and personal property, except
for such defects in title as could not, individually or in the aggregate,
have a materially adverse effect on the business, operations, property,
prospects or financial condition of the Company and its Subsidiaries taken
as a whole or the ability of the Company to perform its obligations under
the Agreement or the Loan Documents;
5.11 TAXES. Except as otherwise disclosed in Schedule
5.11, the Company and its Subsidiaries have filed all Federal and other
material tax returns and reports required to be filed and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided;
5.12 FINANCIAL CONDITION. The consolidated financial
statements of financial condition of the Company and its Subsidiaries
dated December 31, 1995, and the related consolidated statements of
income, earnings, stockholders' equity and changes in financial position
for the fiscal year ended on that date, together with the Company's
unaudited financial statements dated September 30, 1996:
(a) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise noted
therein,
(b) are complete, accurate and a fair presentation of the
financial condition of the Company and its Subsidiaries as of the
date thereof and results of operations for the period covered
thereby; and
(c) show all material indebtedness liabilities, direct or
contingent, of the Company and its Subsidiaries as of the date
thereof (including, without limitation, liabilities for taxes and
material commitments);
5.13 ENVIRONMENTAL MATTERS. Except as set forth in
Schedule 5.13, as of the Closing Date:
(a) the operations of the Company and its Subsidiaries comply
in all material respects with all applicable Hazardous Materials
Laws;
(b) to the knowledge of the Company, none of the operations of
the Company nor any of its Subsidiaries is the subject of federal or
state investigation evaluating whether any remedial action, involving
expenditures, is needed to respond to a release of any Hazardous
Materials into the environment; and
(c) neither the Company nor any of its Subsidiaries has any
material contingent liability in connection with any release of any
Hazardous Materials into the environment;
5.14 COLLATERAL AGREEMENTS.
(a) The provisions of each of the Collateral Agreements when
delivered shall be effective to create in favor of the Lender a legal,
valid and enforceable security interest in all right title and interest of
the Company and the Subsidiaries in the collateral described therein; and
financing statements have been filed in the offices in the jurisdiction
listed in the schedule to the Security Agreement and each such Security
Agreement will have been filed in the U.S. Patent and Trademark Office and
the U.S. Copyright Office. Such Security Agreement when delivered shall
constitute a fully perfected first lien on, and security in, all right,
title and interest of the Company or such Subsidiary in the collateral
described therein and except for the Liens permitted under Section 8.01.
(b) The provisions of the Pledge Agreements are effective to
create, in favor of the Lender a legal, valid and enforceable Lien on or
security interest in all of the Pledged Shares (as defined in the Pledge
Agreements) when the same are delivered to the Lender. Each such Pledge
Agreement constitutes a fully perfected first security interest in all
right, title and interest of the Company, or its Subsidiaries, as the case
may be, in the Pledged Shares described therein, prior and superior to all
other Liens except for the Liens permitted under Section 8.01;
5.15 INVESTMENT COMPANY. Neither the Company nor any
Person controlling the Company is an "Investment Company" within the
meaning of the Investment Company Act of 1940, as amended;
5.16 FULL DISCLOSURE. All factual information heretofore
or contemporaneously furnished in writing by or on behalf of the Company
in writing to the Lender (including without limitation, all information
contained in the Loan Documents) for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all other
such factual information hereafter furnished in writing by or on behalf of
the Company in writing to the Lender will be, true and accurate in all
material respects on the date as of which such information is dated or
certified and not made incomplete by omitting to state any fact necessary
to make such information not misleading at such time in light of the
circumstances under which such information was provided;
5.17 ADVERSE CHANGE. Since the date of the consolidated
pro forma financial statement of Company and its Subsidiaries heretofore
delivered to the Lender, there has been no material adverse change in the
business, operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole;
5.18 NO BURDENSOME RESTRICTIONS. Neither the Company nor
any of its Subsidiaries is a party to or bound by any Contractual
Obligation or subject to any charter or corporate restriction or any
Requirement of Law which is expected to materially adversely affect the
business, operations, properties, assets, or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole or the
rights of the Lender under any Loan Document, or may materially impair the
ability of the Company or its Subsidiaries to perform or observe its
obligations under this Agreement;
5.19 SOLVENCY. On and as of the Closing Date the Company
and its Subsidiaries will be Solvent;
5.20 LABOR RELATIONS. Neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice that could have a
material adverse effect on the Company and its Subsidiaries. Except as
previously disclosed to the Lender in writing, there is (i) no significant
unfair labor practice complaint pending against the Company or any of its
Subsidiaries before the National Labor Relations Board or threatened
against any of them, and no significant grievance or significant
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its Subsidiaries or
threatened against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage pending against the Company or any of its
Subsidiaries, and (iii) to the best knowledge of the Company, no union
representation question existing with respect to the employees of the
Company or any of its Subsidiaries and, to the best knowledge of the
Company, no union organizing activities are taking place, except (with
respect to any matter specified in clause (i), (ii) or (iii) above, either
individually or in the aggregate) such as could not have a material
adverse effect on the business, operations property, assets, conditions
(financial or otherwise) or prospects of the Company or any of its
Subsidiaries taken as a whole;
5.21 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES,
SUPPLEMENTAL TYPE CERTIFICATES ISSUED BY THE FAA AND PARTS MANUFACTURING
AUTHORIZATIONS, ETC. The Company and its Subsidiaries own or are licensed
or otherwise have the right to use all of the patents, trademarks,
supplemental type certificates, parts manufacturing authorizations,
service marks, trade names, copyrights, franchises, authorizations and
other rights that are reasonably necessary for the operations of their
respective businesses, without conflict with the rights of any other
Person with respect thereto except those which would not be likely to
materially adversely affect the business, condition or operations of the
Company or any of its Subsidiaries taken as a whole. To the best
knowledge of the Company, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed by the Company or any of its Subsidiaries
infringes upon any rights owned by any other Person; except as set forth
on Schedule 5.21, no claim or litigation regarding any of the foregoing is
pending or threatened, and no patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is
pending or, to the knowledge of the Company, proposed, which, in either
case, would be likely to materially adversely affect the business,
condition or operations of the Company or any of its Subsidiaries taken as
a whole; and
5.22 SUBSIDIARIES. As of the Closing Date, the Company has
no Subsidiaries other than those listed on Schedule 5.22(a) hereto and has
no equity investments in any other corporation or entity other than those
listed on Schedule 5.22(b) hereto.
ARTICLE VI
CONDITIONS PRECEDENT
6.01 CONDITIONS OF CLOSING. The Closing Date shall not
occur, and the Existing Agreement shall instead remain in full force and
effect, until the Lender shall have received all of the following, in form
and substance satisfactory to the Lender and its counsel:
(a) CREDIT AGREEMENT AND NOTE. This Agreement and the Term
Note payable to the order of Lender, executed and delivered by a
Responsible Officer of the Company;
(b) BOARD RESOLUTIONS.
(i) Certified copies of the resolutions of the Board
of Directors of the Company approving and authorizing the execution,
delivery and performance by the Company of this Agreement and the
transactions contemplated thereby and the other Loan Documents to be
delivered hereunder, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Company;
(ii) Certified copies (as of the time of delivery) of
the resolutions of the Board of Directors of each Subsidiary of the
Company approving the Loan Documents to which each respective entity
is a party; and
(iii) All documents evidencing other necessary and
appropriate corporate action with respect thereto.
(c) INCUMBENCY CERTIFICATES. A certificate of the Secretary or
Assistant Secretary of the Company and each Subsidiary of the Company
certifying the names and true signatures of the officers authorized
to execute and deliver, as applicable, this Agreement, and all other
Loan Documents to be delivered hereunder;
(d) SENIOR SUBORDINATED AGREEMENT. The Senior Subordinated
Agreement, duly executed and delivered by the Company, together with
evidence that all conditions precedent to its effectiveness specified
therein have been satisfied;
(e) COMPANY REAFFIRMATION AGREEMENT. The Company Reaffirmation
Agreement in the form of Exhibit B hereto, duly executed by the
Company;
(f) SUBSIDIARY REAFFIRMATION AGREEMENT. The Subsidiary
Reaffirmation Agreement in the form of Exhibit C hereto, duly
executed by each Subsidiary;
(g) AMENDED WARRANT. The Amended Warrant, duly executed and
delivered by the Company, together with evidence that all shares
issuable upon exercise of the Amended Warrant have been authorized;
(h) PAYMENTS. All payments due the Lender pursuant to Article
II hereof;
(i) LEGAL OPINION. An opinion of counsel to the Company and
addressed to the Lender with respect to the enforceability of the
Amended Warrant;
(j) KC 135 CONTRACT. A copy of the current KC 135 contract and
all amendments thereto;
(k) LOCKUP AGREEMENT. A Lockup Agreement in the form of
Exhibit E hereto, duly executed by Matthew Gold; and
(l) OTHER DOCUMENTS. Such other approvals, opinions or
documents as the Lender may reasonably request.
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees that, so long as the
Term Loan or other amount payable hereunder remains unpaid, unless the
Lender waives compliance in writing:
7.01 FINANCIAL STATEMENTS. The Company shall deliver to
the Lender, in form and substance satisfactory to the Lender:
(a) as soon as available, but not later than one hundred twenty
(120) days after the end of each fiscal year of the Company, a copy
of the audited consolidated balance sheet of the Company as at the
end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such fiscal year, setting
forth in each case in comparative form the figures for the previous
year, all in reasonable detail and accompanied by the opinion of
Arthur Andersen LLP or another nationally recognized independent
public accounting firm, which report shall state that such
consolidated financial statements present fairly the financial
position for the periods indicated in conformity with GAAP applied on
a basis consistent with prior years;
(b) as soon as available, but in any event not later than
ninety (90) days after the end of each fiscal year of the Company, an
unaudited consolidating balance sheet of the Company and each of its
Subsidiaries as at the end of such fiscal year and the related
consolidating statement of income such fiscal year, all in reasonable
detail certified by an appropriate Responsible Officer as having been
used in connection with the preparation of the financial statements
referred to in paragraph (a) of this Section;
(c) as soon as available, but in any event not later than
forty-five (45) days after the end of each calendar month, unaudited
monthly and year-to-date reconciled statements of income and balance
sheets of the Company and its consolidated Subsidiaries
(consolidated, consolidating and by facility) as of the end of such
month, all in reasonable detail and certified by the appropriate
Responsible Officer of the Company as being complete and correct and
fairly presenting in accordance with GAAP the financial position and
results of operations of the Company and its Subsidiaries; and
7.02 CERTIFICATES; OTHER INFORMATION. The Company shall
furnish to the Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 7.01(a) above, 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) not later than forty-five (45) days after the end of each
fiscal quarter, a certificate of a Responsible Officer (i) stating
that, to the best of such officer's knowledge, the Company, during
such quarter, has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement to be observed, performed or satisfied by it, and that such
officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate, and (ii) showing in detail
the calculations supporting such statement in respect of Sections
8.14 and 8.15;
(c) concurrently with the delivery of the financial statements
referred to in Section 7.01(c) and (d), a monthly backlog report and
contract profit and loss statement for the Company and each of its
Subsidiaries prepared in the ordinary course of business;
(d) as soon as available but in any event not later than thirty
(30) days after the end of each fiscal year, annual projections by
quarter of the budgeted financial statements of the Company and its
Subsidiaries;
(e) as soon as available but in any event not later than one
hundred twenty (120) days after the end of each fiscal year, copies
of all management letters issued by the Company's independent public
accountants with respect to such year;
(f) promptly after the same are sent, copies of all financial
statements and reports which the Company sends to its stockholders,
and promptly after the same are filed, copies of all financial
statements and regular, periodical or special reports which the
Company may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority
regulating securities; and
(g) concurrently with the delivery of the financial statements
referred to in Section 7.01(c) above, a certificate of a Responsible
Officer of the Company certifying that the Company and its
Subsidiaries have paid each and every installment of rent due under
each and every facility lease;
(h) as soon as available, copies of all leases of real property
in Birmingham and Dothan entered into between the Company and any
lessor and copies of all projections of rent due for the current
lease year that have been provided to any lessor;
(i) not later than thirty (30) days after being delivered to
the relevant authority, copies of all audit letters from the
Company's independent auditors with respect to the fairness of the
Company's schedule of gross sales which is the basis for its rental
payment calculations;
(j) ten days' prior notice of any lease payment that the
Company is unable to make;
(k) no later than the last day of each month (and more
frequently at the request of the Lender), in a form satisfactory to
the Lender, a cash flow summary, a payables aging report and an aged
summary of held checks, in each case with respect to the prior week;
(l) no later than the last day of each month, a cash flow
forecast in the form previously provided to the Lender for the
succeeding two months which, in the event Lender so requests, will
have been reviewed by a public accounting firm reasonably
satisfactory to the Lender;
(m) as soon as available, a copy of any offering memorandum,
term sheet, prospectus or similar document used, or intended to be
used, by the Company to arrange for debt or equity financing of any
kind; and
(n) promptly, such additional financial and other information
as the Lender may from time to time reasonably request.
7.03 PRESERVATION OF CORPORATE EXISTENCE. The Company
shall and shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of the state of
incorporation except as permitted by Section 8.03;
(b) preserve and maintain in full force and effect all rights,
privileges, qualifications, licenses and franchises necessary or
desirable in the normal conduct of its business, except those the
non-preservation of which has no reasonable likelihood of having a
material adverse effect on the business, operations, properties,
assets or condition (financial or otherwise) of the Company and its
respective Subsidiaries taken as a whole and except for transactions
permitted by Section 8.03 and sales of assets permitted by Section
8.02.
(c) use its reasonable efforts, in the ordinary course and
consistent with past practice to preserve its business organization
and preserve the goodwill and business of the customers, suppliers
and others having business relations with it except those the non-
preservation of which has no reasonable likelihood of having a
material adverse effect on the business, operations, properties,
assets or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole; and
(d) preserve all of its registered patents, trademarks, trade
names and service marks except those the non-preservation of which
has no reasonable likelihood of having a material adverse effect on
the business, operations, properties, assets or condition (financial
or otherwise) of the Company and its Subsidiaries taken as a whole.
7.04 MAINTENANCE OF PROPERTY. The Company shall maintain
and preserve, and shall cause each of its Subsidiaries to maintain and
preserve, all its property which is used or useful in its business in good
working order and condition, ordinary wear and tear excepted, and make all
necessary repairs thereto and renewals and replacements thereof except
where the failure to do so would not, in the aggregate, have a material
adverse effect on the business, operations, property or financial or other
condition of the Company and its Subsidiaries taken as a whole.
7.05 INSURANCE. The Company shall maintain, and shall
cause each Subsidiary to maintain, with financially sound and reputable
insurers, insurance with respect to its properties and business against
loss or damage of the kinds customarily insured against by Persons engaged
in the same or similar business, of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons
including, without limitation, workers' compensation insurance, public
liability and property and casualty insurance. The Company shall
maintain, and shall cause each Subsidiary to maintain, flood insurance on
any of its improved real estate, if the law so requires. All such sources
of insurance (except workers compensation) shall name the Lender as loss
payee and an additional insured for the benefit of the Lender.
7.06 PAYMENT OF OBLIGATIONS. The Company shall, and shall
cause its Subsidiaries to, pay and discharge as the same shall become due
and payable, all of their respective obligations and liabilities
including, without limitation:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company
or such Subsidiary;
(b) all lawful claims which, if unpaid, might by law become a
Lien upon its property; and
(c) all Indebtedness as and when due and payable but subject to
any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
7.07 COMPLIANCE WITH LAWS. The Company shall comply, and
shall cause each Subsidiary to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over
it or its business, except such:
(a) as may be contested in good faith or as to which a bona
fide dispute may exist, and
(b) as to which such failure to comply would not have a
material adverse effect on the business, operations, properties,
assets or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole.
7.08 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The
Company will maintain, and will cause each Subsidiary to maintain, proper
books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and the assets and business of the Company and such
Subsidiaries. The Company will permit, and will cause each Subsidiary to
permit, representatives of the Lender to visit and inspect any of their
respective properties, to examine their respective corporate, financial
and operating records and make copies thereof or abstracts therefrom, and
to discuss their respective affairs, finances and accounts with their
respective directors, officers, employees and independent public
accountants, all at such reasonable times during normal business hours and
as often as may be reasonably desired, upon reasonable advance notice to
the Company, provided, however, during the continuation of an Event of
Default the Lender may visit and inspect at the expense of the Company
such properties at any time during business hours and without advance
notice.
7.09 HAZARDOUS MATERIALS.
(a) The Company will, and will cause each Subsidiary to,
conduct its operations and keep and maintain its property in material
compliance with all Hazardous Materials Laws.
(b) The Company will conduct, and cause to be conducted, the
ongoing operations of the Company and its Subsidiaries in a manner that
will not give rise to the imposition of liability, or require
expenditures, under or in connection with any Hazardous Materials Law,
except for any liabilities or expenditures which, in the aggregate, would
not have a reasonable likelihood of having a material adverse effect on
the business, operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole.
7.10 NOTICES. The Company shall promptly give notice to
the Lender:
(a) of the occurrence of any Default or Event of Default,
accompanied by a certificate specifying the nature of such Default or
Event of Default, the period of existence thereof and the action that
the Company has taken or proposes to take with respect thereto;
(b) of any (i) default or event of default under any material
Contractual Obligation of the Company or any of its Subsidiaries; or
(ii) dispute, litigation, investigation, proceeding or suspension
which may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority;
(c) of the commencement of, or any material development in, any
litigation or proceeding affecting the Company or any Subsidiary (i)
in which the amount of damages claimed is One Million dollars
($1,000,000) (or its equivalent in another currency or currencies) or
more, (ii) in which injunctive or similar relief is sought and which,
if adversely determined, could have a material adverse effect on the
business, operations or financial or other condition of the Company
and its Subsidiaries taken as a whole or the ability of the Company
or any Subsidiary to perform its obligations under the Agreement or
the Loan Documents; or (iii) in which the relief sought is an
injunction or other stay of the performance of this Agreement or any
Loan Document or the operations of the Company or its Subsidiaries;
(d) upon, but in no event later than ten (10) days after,
becoming aware of (i) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or
threatened against the Company or any Subsidiary or any of their
properties pursuant to any applicable Hazardous Materials Laws, (ii)
all claims made or threatened by any third party against the Company
or any Subsidiary with respect to or because of its or their property
relating to damage, responsibility, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials
(the matters set forth in clauses (i) and (ii) above are hereinafter
referred to as "Hazardous Materials Claims"), and (iii) any
environmental or similar condition on any real property adjoining or
in the vicinity of the property of the Company or any Subsidiary that
could reasonably be anticipated to cause such property or any part
thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use of such property under any
Hazardous Material Laws;
(e) of any other litigation or proceeding affecting the Company
or any of its Subsidiaries which the Company would be required to
report to the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, within four days after reporting the
same to the Securities and Exchange Commission;
(f) any ERISA Event affecting the Company or any member of its
Controlled Group (but in no event more than ten (10) days after such
ERISA Event) together with (i) a certificate of the Company setting
forth the details of such ERISA Event and the action which the
Company or such member proposes to take with respect thereto; (ii) a
copy of any notice with respect to such ERISA Event that may be
required to be filed with the PBGC; or (iii) any notice delivered by
the PBGC to the Company or any member of its Controlled Group with
respect to such ERISA Event; and
(g) promptly following receipt by the Company of notice from
any holder of a Subordinated Note, a copy of such notice.
Each notice pursuant to this Section shall be accompanied by a
statement by a Responsible Officer of the Company setting forth details of
the occurrence referred to therein and stating what action the Company
proposes to take with respect thereto.
7.11 SOLVENCY. The Company and its Subsidiaries will
continue to be Solvent on a consolidated basis.
7.12 ACCOUNTING CHANGES. The Company shall not permit, and
shall not permit any of its Subsidiaries to, make any significant change
in accounting treatment and reporting practices from those used in the
preparation of their respective December 31, 1996 financial statements, or
change their fiscal year end from December 31, except as required by GAAP.
7.13 FURTHER ASSURANCES. The Company and each of its
Subsidiaries shall, upon the Lender's written request, make, execute,
acknowledge, deliver, file and record all such instruments, including,
without limitation, financing statements, and security agreements,
mortgages and deeds of trust, and take all such action, including using
its best efforts to obtain any necessary consents to a transfer or
assignment of any interest or right in any of the Collateral, as the
Lender may deem necessary or advisable for creating and perfecting a
security interest in and lien upon any of the Collateral.
7.14 COMPLIANCE WITH ASSIGNMENT OF CLAIMS ACT. If at any
time the Company's ratio of (a) Cash Flow to (b) Consolidated Net Interest
Expense plus principal payments required hereunder plus all payments in
cash, if any, made and permitted to be made pursuant to 8.11 as of the
twelve (12) month period ending on such date, is less than 1.0 to 1.0,
then the Company and each of its Subsidiaries shall, upon the Lender's
written request, promptly comply with all requirements of the Assignment
of Claims Act, 31 USC Sections 3727 and 41 USC Sections 15 to perfect the
Lender's security interest in receivables arising under each contract for
goods or services in excess of Five Hundred Thousand dollars ($500,000)
that are subject to the Assignment of Claims Act.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby covenants and agrees that, so long as the
Term Loan or other amount payable hereunder remains unpaid, unless the
Lender waives compliance in writing:
8.01 LIMITATION ON LIENS. The Company shall not, directly
or indirectly, nor shall it permit any of its Subsidiaries to, make,
create, incur, assume or suffer to exist any Lien upon or with respect to
any part of its property or assets, whether now owned or hereafter
acquired, or offer or agree to do so except for:
(a) any Lien existing on the property of the Company or its
Subsidiaries on the Closing Date and set forth in Schedule 8.01
securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or which
are being contested in good faith by appropriate proceedings upon
stay of execution of the enforcement thereof and for which adequate
reserves or other appropriate provision has been made;
(d) carriers' warehousemen's, mechanics' landlords'
materialmen's, repairmen's or other similar Liens arising in the
ordinary course of business which are not delinquent or remain
payable without penalty or which are being contested in good faith
and by appropriate proceedings;
(e) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(f) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business which do not
in the aggregate materially detract from the value of the encumbered
asset or materially impair the use thereof in the operation of the
business of the Company or any Subsidiary thereof;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in
the aggregate, are not substantial in amount, and which do not in any
case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the businesses of
the Company and its Subsidiaries;
(h) Liens on assets of Persons which become Subsidiaries after
the date of this Agreement provided, however, that such Liens existed
at the time such Persons became Subsidiaries and were not created in
anticipation thereof and the aggregate amount of all Indebtedness
secured by such Liens shall not exceed One Million dollars
($1,000,000);
(i) Liens on any asset securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such asset; provided that any such Lien attaches to such
asset concurrently with or within ninety (90) days after the
acquisition thereof and the aggregate Indebtedness secured by all
such Liens does not at the time exceed five percent (5%) of the
assets of the Company and its Subsidiaries as shown on the balance
sheet of the Company and its Subsidiaries for the most recent month
for which such information is available;
(j) Liens on any asset securing Indebtedness permitted to be
incurred pursuant to Section 8.10(c);
(k) Liens upon specific items of inventory or other goods and
proceeds, securing obligations in respect of bankers' acceptances
issued or created to facilitate the purchase, shipment or storage of
such inventory or other goods;
(l) 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;
(m) Judgment Liens not giving rise to an Event of Default;
(n) Liens securing reimbursement obligations with respect to
letters of credit opened in the ordinary course of business;
(o) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the
Company or one of its Subsidiaries relating to such property or
assets; and
(p) Liens arising out of consignment or similar arrangements
for the sale of goods entered into by the Company or any of its
Subsidiaries in the ordinary course of business in accordance with
past practices.
8.02 DISPOSITION OF ASSETS. The Company shall not, nor
shall it permit any of its Subsidiaries to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether in one or
a series of transactions) all or a substantial part of its assets,
business or property (including without limitation, accounts and notes
receivable (with or without recourse)) or enter into any agreement to do
any of the foregoing except:
(a) dispositions of inventory, or used, worn-out or surplus
property, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
traded in for credit against the purchase price of similar
replacement equipment or the proceeds of such sale are reasonably
promptly applied to the purchase price of such replacement equipment;
and
(c) dispositions not otherwise permitted hereunder which are
made for fair market value and the Net Proceeds of which are applied
as provided in Section 2.04 provided, that (i) at the time of any
disposition, no Event of Default shall have occurred and be
continuing or shall result from such disposition; (ii) the aggregate
sales price from such disposition shall be paid in cash; and (iii)
aggregate dispositions in any twelve (12) month period shall not
exceed fifteen percent (15%) of the Company's total assets.
8.03 CONSOLIDATIONS AND MERGERS. The Company shall not,
and shall not permit any of its Subsidiaries to, merge, consolidate or
combine directly or indirectly with or into any Person except (a) any
Subsidiary of the Company may merge, consolidate or combine with or into,
or transfer assets to the Company or any wholly-owned Subsidiary of the
Company and in the case of any such merger to which the Company is a
party, the Company is the surviving corporation and (b) the Company may
merge, consolidate or combine with another entity if (i) the Company is
the corporation surviving the merger or the corporation into which the
Company shall be merged or formed by any such consolidation shall assume
the Company's obligations hereunder in an agreement or instrument
satisfactory in form and substance to the Lender, and (ii) if immediately
after giving effect thereto, no Default or Event of Default would exist.
8.04 ACQUISITIONS AND INVESTMENTS.
(a) The Company shall not purchase or acquire, or permit any of
its Subsidiaries to purchase or acquire, or make any commitment therefor,
any capital stock, equity interest or other security interest of, or make
or permit any subsidiary to make any capital contribution to any Person
(including, without limitation, any Subsidiary) if any term, condition or
covenant of this Agreement would be breached thereby;
(b) The Company shall not directly or indirectly, and shall not
permit its Subsidiaries to, make any advance, loan, extension of credit
to, or assume any obligations of, any Person including, without
limitation, any Affiliates of the Company, except for investments in Cash
Equivalents and wholly-owned Subsidiaries;
provided, that, the Company may, with the consent of the Lender, make an
equity investment in or an advance not in excess of the amount of
dividends permitted under Section 8.11 to a fifty percent owned
Subsidiary.
8.05 LIMITATION ON INDEBTEDNESS. The Company shall not,
and shall not permit its Subsidiaries to, create, incur, assume, guaranty,
suffer to exist, or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) the Subordinated Note;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 8.05;
(d) Indebtedness secured by Liens permitted by Section 8.01(h),
(i) and (j);
(e) Indebtedness incurred in connection with leases permitted
pursuant to Section 8.10;
(f) Indebtedness represented by Interest Rate Contracts or
Contingent Obligations permitted by Section 8.07; and
(g) after the principal of the Term Loan and the Subordinated
Note have been reduced by an aggregate amount of $5,000,000 after the
Closing Date, additional Indebtedness not exceeding $10,000,000 which
may be designated senior to the Subordinated Note, on terms
satisfactory to the Lender.
8.06 TRANSACTIONS WITH AFFILIATES. The Company shall not
and shall not permit any of its Subsidiaries to enter into any transaction
with any Affiliate of the Company or of any such Subsidiary except as
contemplated by this Agreement or in the ordinary course of business and
pursuant to the reasonable requirements of the business of the Company or
such Subsidiary and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would obtain in a comparable arm's-
length transaction with a Person not an Affiliate of the Company or such
Subsidiary.
8.07 CONTINGENT OBLIGATIONS. The Company shall not, nor
shall it permit any Subsidiary to, create, incur, assume or suffer to
exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Contingent Obligations with respect to Indebtedness
permitted under Section 8.05;
(c) Interest Rate Contracts;
(d) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in Schedule 8.07;
(e) Contingent Obligations in favor of the Lender;
(f) Reimbursement obligations under letters of credit issued in
the ordinary course of business;
(g) Reimbursement obligations due bonding companies incurred in
the ordinary course of business;
(h) Penalty and indemnification provisions in contracts entered
into in connection with the offer or sale of securities of the
Company or otherwise in the ordinary course of business; and
(i) Penalty and indemnification provisions contained in the
Loan Documents.
8.08 COMPLIANCE WITH ERISA. The Company shall not directly
or indirectly and will not permit any ERISA Affiliate to directly or
indirectly (i) terminate any Plan subject to Title IV of ERISA so as to
result in any material (in the opinion of the Lender) liability to the
Company or any ERISA Affiliate, (ii) permit to exist any ERISA Event or
any other event or condition, which presents the risk of a material (in
the opinion of the Lender) liability of the Company or any ERISA
Affiliate, or (iii) make a complete or partial withdrawal (within the
meaning of ERISA Section 4201 from any Multiemployer Plan so as to result
in any material in the opinion of the Lender) liability to the Company or
any ERISA Affiliate, (iv) enter into any new Plan or modify any existing
Plan so as to increase its obligations thereunder except in the ordinary
course of business consistent with past practice which could result in any
material (in the opinion of the Lender) liability to the Company or any
ERISA Affiliate, or (v) permit the present value of all nonforfeitable
accrued benefits under each Plan (using actuarial assumptions reasonably
acceptable to the Company's actuaries and auditors and the Lender) to
materially exceed the fair market value of Plan assets allocable to such
benefits, all determined as of the most recent valuation date for each
such Plan.
8.09 USE OF PROCEEDS. No portion of the proceeds of the
Term Loan will be used, directly or indirectly, (i) to purchase or carry
margin stock as defined in Regulation U of the Federal Reserve Board or
(ii) to repay or otherwise refinance indebtedness of the Company or others
incurred to purchase or carry margin stock, or (iii) to extend credit for
the purpose of purchasing or carrying any margin stock.
8.10 LEASE OBLIGATIONS. The Company shall not, nor shall
it permit any Subsidiary to, create or suffer to exist any obligations for
the payment of rent for any property under lease or agreement to lease
except for:
(a) leases of the Company and its Subsidiaries in existence on
the Closing Date and any renewal, extension or refinancing thereof
and listed in Schedule 8.10;
(b) after the Closing Date, any operating leases entered into
by the Company or any of its Subsidiaries in the ordinary course of
business;
(c) after the Closing Date, subject to the provisions of
Section 8.01(j), any financing or capital lease entered into by the
Company or any of its Subsidiaries provided, that:
(i) immediately prior to giving effect to such lease,
the property or asset subject to such lease was sold by the Company
or any such Subsidiary to the lessor under such lease for at least
its fair market value;
(ii) the Net Proceeds of such sale are applied
simultaneously to reduce the Term Loan as provided in Section 2.04;
and
(iii) no Default or Event of Default would occur as a
result of such sale and subsequent lease.
(d) after the Closing Date, capital leases other than those
permitted under clauses (a), (b) and (c) of this Section 8.10 entered
into by the Company or any of its Subsidiaries to finance the
acquisition of equipment provided, that the aggregate annual rental
payments for all such capital leases shall not exceed $2,500,000.
8.11 RESTRICTED PAYMENTS. The Company shall not declare or
make any dividend payment or other distribution of assets, properties,
cash, rights, obligations or securities on account of any shares of any
class of capital stock of the Company or purchase, redeem or otherwise
acquire for value (or permit any of its Subsidiaries to do so) any shares
of capital stock of the Company or any warrants, rights or options to
acquire such shares, now or hereafter outstanding except the Company may,
subject to Section 8.14 below, (i) declare and make dividend payments or
other distributions payable solely in its common stock, and (ii) purchase,
redeem or otherwise acquire shares of its common stock or warrants or
options to acquire any such shares with the proceeds received from the
substantially concurrent issue of new shares of its common or preferred
stock; provided, however, that the Subsidiaries may make dividend payments
to the Company or any wholly-owned Subsidiary of the Company and the
Company may repurchase or redeem the Amended Warrant or issue new
Indebtedness in exchange therefor.
8.12 SUBORDINATED DEBT. The Company shall not:
(a) make any voluntary or optional payment or prepayment on any
Indebtedness subordinated hereto now or hereafter outstanding or make
any redemption, retirement, purchase or other acquisition, direct or
indirect, of any Subordinated Debt or set aside money or securities
for a sinking or similar fund for the payment of principal or a
premium or interest on any such Indebtedness or set apart money for
the defeasance of any Indebtedness, in each case except for the
Subordinated Note;
(b) amend, modify or change, or consent or agree to any
amendment, modification or change to, any of the terms relating to
any Indebtedness subordinated hereto (other than any such amendment,
modification or change which would extend the maturity or reduce the
amount of any payment of principal thereof or which would reduce the
rate or extend the date of payment of interest thereon), except as
relates to the Subordinated Note.
8.13 CAPITAL EXPENDITURES. The Company shall not make or
commit to make Capital Expenditures (less any amount already included in
Capital Expenditures for capitalized equipment leases as required by
generally accepted accounting principles but adjusted to include the total
annual capital lease rental payments through the end of any fiscal year)
exceeding the amount set forth below with respect to each fiscal year:
FISCAL YEAR ENDING CAPITAL EXPENDITURES
December 31, 1997 $4,000,000
8.14 CONSOLIDATED TANGIBLE NET WORTH. The Company shall not
permit its consolidated Tangible Net Worth at the end of any fiscal
quarter ending after March 31, 1997 to be less than the sum of (a) its
consolidated Tangible Net Worth at March 31, 1997, plus (b) 100% of the
Net Proceeds of the issuance and sale of any equity securities by the
Company or any Affiliate thereof after December 31, 1996, plus or minus
(c) 100% of any change in shareholders' equity accounts resulting from
changes in liabilities related to the mandatory redemption provision of
the Amended Warrant after December 31, 1996, but less (d):
(i) $750,000 as of June 30, 1997; and
(ii) as of any quarter end thereafter, $750,000 plus
50% of all net income (calculated quarterly, on a cumulative basis,
without allowance for net losses) earned in all quarters ending after
June 30, 1997.
8.15 FIXED CHARGE COVERAGE RATIO. The Company shall not
permit its ratio of EBITDA to the sum of the current portion of long term
debt ("CPLTD") plus Consolidated Net Interest Expense, as determined as of
the end of each fiscal quarter, to be less than the respective ratio set
forth below.
(a) For the calculation performed as of June 30, 1997, EBITDA
shall be four (4) times EBITDA for the fiscal quarter ending on such date;
Consolidated Net Interest Expense shall be four (4) times Consolidated Net
Interest Expense for the fiscal quarter ending on such date; and CPLTD
shall be the actual CPLTD shown on the Company's June 30, 1997 balance
sheet;
(b) For the calculation performed as of September 30, 1997,
EBITDA shall be two (2) times EBITDA for the two fiscal quarters ending on
such date; Consolidated Net Interest Expense shall be two (2) times
Consolidated Net Interest Expense for the two fiscal quarters ending on
such date; and CPLTD shall be the actual CPLTD shown on the Company's
September 30, 1997 balance sheet; and
(c) For the calculation performed as of December 31, 1997,
EBITDA shall be the result of multiplying the fraction four-thirds (4/3)
times EBITDA for the three fiscal quarters ending on such date;
Consolidated Net Interest Expense shall be the result of multiplying the
fraction four-thirds (4/3) times Consolidated Net Interest Expense for the
three fiscal quarters ending on such date; and CPLTD shall be the actual
CPLTD shown on the Company's December 31, 1997 balance sheet.
DATE RATIO
June 30, 1997 0.17 to 1.00
September 30, 1997 0.82 to 1.00
each quarter end
thereafter 0.95 to 1.00
8.16 CHANGE IN BUSINESS. Except as permitted by Section
8.03, the Company shall not and shall not permit any of its Subsidiaries
to make any changes in any of its business objectives, purposes or
operations, except as otherwise permitted hereunder.
8.17 TAX ELECTION. The Company shall not make any election
under Section 338 of the Code other than a protection carryover election
pursuant to the Treasury Regulations issued thereunder without the prior
consent of the Lender not to be unreasonably withheld.
ARTICLE IX
EVENTS OF DEFAULT
9.01 EVENTS OF DEFAULT. Upon the occurrence and during the
continuation of any of the following events:
(a) NON-PAYMENT. The Company shall (i) fail to pay when due
any portion of principal of the Term Loan or fail to make any
mandatory prepayment hereunder when due; (ii) fail to pay any portion
of interest, fee or any other amount payable hereunder or pursuant to
any other Loan Document within the earlier of (A) twenty (20) days
after the same shall become due in accordance with the terms hereof
or (B) in the event that a principal or interest payment shall be due
under the terms of the Subordinated Note within such twenty (20) day
period, one (1) day prior to such payment date in respect of the
Subordinated Note; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
made or deemed by the Company or any of its Subsidiaries herein, in
any Loan Document or which is contained in any certificate, document
or financial or other statement furnished at any time under this
Agreement, or in or under any Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
(c) SPECIFIC DEFAULTS. The Company shall fail to perform or
observe any term, covenant or agreement contained in Article VII or
Article VIII other than Sections 7.01 through 7.06, 7.08, 7.09, 7.10,
7.13, 8.04 and 8.06; or
(d) OTHER DEFAULTS. The Company or any Subsidiary shall fail
to perform or observe any other term or covenant contained in this
Agreement or any Loan Document, and such default shall continue
unremedied for a period of thirty (30) days after the earlier of (i)
the date upon which a Responsible Officer of the Company knew of such
failure or (ii) the date upon which written notice thereof has been
given to the Company by the Lender; or
(e) CROSS-DEFAULT. The Company or any of its Subsidiaries
shall (i) fail to make any payment in respect of any Indebtedness
(including the Subordinated Note) or Contingent Obligation, in each
case in excess of Two Hundred Fifty Thousand Dollars ($250,000) when
due (whether by scheduled maturity, required prepayment, acceleration
demand, or otherwise); or (ii) default in the observance or
performance of any other condition or covenant or any other event
shall occur or condition exist under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, if the
effect of such event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause,
with the giving of notice if required, such Indebtedness to be
declared to be due and payable prior to its stated maturity or such
Contingent Obligation to become payable; or
(f) BANKRUPTCY OR INSOLVENCY. The Company or any of its
Subsidiaries shall (i) become insolvent or generally fail to pay, or
admit in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated
maturity or otherwise, (ii) voluntarily cease to conduct its business
in the ordinary course substantially as it is conducted on the date
hereof or on the Closing Date, (iii) commence any proceeding or file
any petition seeking liquidation or reorganization or any other
relief under any bankruptcy, reorganization, arrangement, insolvency,
or other similar law, whether federal or state, relating to the
relief of debtors, (iv) acquiesce in the appointment of a receiver,
trustee, custodian or liquidator for itself or a substantial portion
of its property, assets or business or effect a plan or other
arrangement with its creditors, (v) admit the material allegations of
a petition filed against it in any bankruptcy, reorganization,
arrangement, insolvency or other proceeding, whether federal or
state, relating to the relief of debtors, or (vi) take action to
effectuate any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. Involuntary proceedings of any
involuntary petition shall be commenced or filed against the Company
or any Subsidiary under any bankruptcy, insolvency or similar law or
seeking the dissolution, liquidation or reorganization of the Company
or any Subsidiary or the appointment of a receiver, trustee,
custodian or liquidator for the Company or any Subsidiary or any
writ, judgment, warrant of attachment, execution or similar process,
shall be issued or levied against a substantial part of the Company's
or any Subsidiary's assets and any such proceedings or petition shall
not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully
bonded within sixty (60) days after commencement, filing or levy; or
(h) ERISA. The Company or any ERISA Affiliate shall fail to
pay when due an amount or amounts aggregating in excess of One
Million dollars ($1,000,000) which it shall have become liable to pay
under Title IV of ERISA; or notice of intent to terminate a Plan or
Plans having an accumulated funding deficiency (as defined in ERISA)
in excess of One Million dollars ($1,000,000) shall be filed under
Title IV of ERISA, or the PBGC shall institute proceedings under
Title IV of ERISA to terminate a Plan or Plans, having an aggregate
accumulated funding deficiency in excess of One Million dollars
($1,000,000) or a proceeding shall be instituted by a fiduciary of
any such Plan or Plans against any such Person to enforce Section 515
of ERISA to collect contributions in excess of One Million dollars
($1,000,000); or a condition shall exist by reason of which the PBGC
would be entitled under Section 4042 of ERISA to obtain a decree
adjudicating that a Plan or Plans having an aggregate accumulated
funding deficiency in excess of One Million dollars ($1,000,000) must
be terminated; or
(i) MONETARY JUDGMENTS. One or more final judgments or decrees
shall be entered against the Company or any of its Subsidiaries
involving in the aggregate a liability (not paid or fully covered by
insurance) of One Million dollars ($1,000,000) or more and the same
shall not have been vacated, satisfied, undischarged, stayed or
bonded pending appeal within sixty (60) days from the entry thereof;
or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment or order
shall be rendered against the Company or any of its Subsidiaries
which does or could be expected to (i) cause a material adverse
change in the condition (financial or otherwise), operations,
properties or prospects of the Company or any such Subsidiary, or
(ii) have a material adverse effect on the rights and remedies of the
Lender under any Loan Document, and either (A) enforcement
proceedings shall have been commenced by any Person upon such
judgment or order, or (B) there shall be any period of ten (10)
consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) COLLATERAL. Any material provision of any Collateral
Agreement shall for any reason cease to be valid and binding on or
enforceable against the Company or any Subsidiary or the Company or
any Subsidiary shall state in writing that it does not consider
itself bound by any provision in any Collateral Agreement or shall
bring an action to limit its obligations or liabilities under any
Collateral Agreement; or
(l) OWNERSHIP. Matthew Gold shall at any time cease to
maintain in the aggregate a direct or indirect beneficial equity
interest in the Company at least equal to thirty five percent (35%)
of the capital stock entitled to vote in the election of directors;
or
(m) LOSS OF LICENSES OR FRANCHISES. The FAA or any other
Governmental Authority shall revoke or fail to renew any material
license or franchise of the Company or any Subsidiary, or the Company
or any Subsidiary shall for any reason lose any material license,
franchise, or the Company or any Subsidiary shall suffer the
imposition of any restraining order, escrow, suspension or impound of
funds in connection with any proceeding (judicial or administrative)
with respect to such material license, franchise or contract; or
(n) INTEREST RATE CONTRACTS. The Company shall breach or
default under any Interest Rate Contract, if the effect of such
breach or default is to allow the counterparty to proceed against, or
otherwise realize from, the Company or any collateral to satisfy any
claim arising under such Interest Rate Contract;
then, and in any such event,
(A) any obligation of the Lender to extend any credit or
financial accommodation hereunder shall automatically terminate;
and
(B) the Lender may, at its option, declare the unpaid
principal amount of all outstanding indebtedness hereunder, all
interest accrued and unpaid thereon and all other amounts
payable hereunder to be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived by the Company; and/or
(C) subject to the Collateral Agreements, the Lender may
exercise all rights and remedies available to it under the
Collateral Agreements or any other agreement;
provided, however, that upon the occurrence of any event specified in
clause (f) or (g) above (in the case of such clause (g) upon the
expiration of the sixty (60) day period mentioned therein), the obligation
of the Lender to extend any credit or financial accommodation hereunder
shall automatically terminate and the unpaid principal amount of all
outstanding indebtedness hereunder and all interest and other amounts as
aforesaid shall automatically become due and payable without further act
of the Lender.
9.02 RIGHTS NOT EXCLUSIVE. The rights provided for in this
Article are cumulative and are not exclusive of any other rights, powers,
privileges or remedies provided by law or in equity.
ARTICLE X
MISCELLANEOUS
10.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any Loan Document and no consent with
respect to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender,
and then such waiver shall be effective only in the specific instance and
for the specific purpose for which given.
10.02 NOTICES. All notices, requests and other
communications provided for hereunder shall be in writing (including
facsimile transmission) and mailed, delivered or faxed to the Company and
the Lender as follows:
The Company: Precision Standard Inc.
1225 17th Street, Suite 1800
Denver, Colorado 80202
Attn: Matthew L. Gold
Telecopier: (303) 292-6426
with a copy to: Corporate Counsel
Precision Standard Inc.
1225 17th Street, Suite 1800
Denver, Colorado 80202
The Lender: Bank of America NT&SA
555 S. Flower Street, Suite 1100
Los Angeles, CA 90071
Attention: Credit Products #5618
Telecopier: (213) 228-2756
with a copy to: Bank of America NT&SA
333 Beaudry Avenue, 9th Floor
Los Angeles, California 90017
Attention: Unit #4346
Telecopier: (213) 345-9742
or, as to each party at such other address as shall be designated by such
party in a written notice to the other party. All such notices and
communications shall, when mailed or sent by facsimile transmission and
confirmed by telephone be effective three (3) Business Days after deposit
in the mails, or confirmed by telephone respectively, except that notices
pursuant to Article II, III or VII shall not be effective until received
by the Lender.
10.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to
exercise and no delay in exercising, on the part of the Lender, any right,
remedy, power or privilege hereunder, 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.
10.04 COSTS AND EXPENSES. The Company agrees:
(a) to pay or reimburse the Lender on demand for all its
reasonable attorneys fees and out-of-pocket costs and expenses
incurred in connection with the preparation, delivery, administration
and execution of, and any amendment, supplement or modification to,
this Agreement, any Loan Document and any other documents prepared in
connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel
to the Lender (and the allocated cost of staff counsel) with respect
thereto;
(b) to pay or reimburse the Lender on demand for all reasonable
attorneys fees, costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, any
Loan Document, and any such other documents (including all fees
incurred in connection with a bankruptcy proceeding), including,
without limitation, reasonable fees and out-of-pocket expenses of
counsel (and the allocated cost of staff counsel) to the Lender; and
(c) to pay or reimburse the Lender on demand for all reasonable
appraisal, audit, search and filing fees, incurred or sustained by
the Lender in connection with the matters referred to under
subsections (a) and (b) above.
10.05 INDEMNITY.
(a) The Company agrees to indemnify and hold harmless the
Lender and each of its officers, directors, agents and employees from and
against any and all claims, damages, liabilities, costs and expenses
(including, without limitation, reasonable fees, expenses and
disbursements of counsel) which may be incurred by or asserted against the
Lender or any such other indemnified Person in connection with or arising
out of any investigation, litigation or proceeding related to this
Agreement or its negotiation and the preparation of documentation in
connection therewith, whether or not the Lender is a party thereto;
provided, however, that the Company shall not be required to indemnify any
such indemnified Person from or against any portion of such claims,
damages, liabilities or expenses arising out of the gross negligence or
willful misconduct of such indemnified Person.
(b) The Company hereby agrees to indemnify, defend and hold
harmless the Lender and each of its officers, directors, employees and
agents, from and against any and all claims, losses, liabilities, damages
and expenses (including, without limitation, reasonable attorneys' fees),
which may be incurred by or asserted against the Lender or any such other
indemnified Person in connection with or arising out of any investigation,
litigation or proceeding, or any action taken by any Person, with respect
to any environmental claim (including, without limitation, any Hazardous
Materials Claim arising out of or relating to any (i) release of Hazardous
Materials on, upon or into any property or (ii) damage to real or personal
property or natural resources and/or harm or injury to Persons alleged to
have resulted from such release of Hazardous Materials on, upon or into
any property); provided, however, that the Company shall not be required
to indemnify, defend or hold harmless any such indemnified Person from or
against any portion of such loss, liability, damage or expense arising out
of the gross negligence or willful misconduct of such indemnified Person.
(c) The Lender agrees that in the event that any such
investigation, litigation or proceeding is asserted or threatened in
writing or instituted against it or any of its officers, directors, agents
and employees, or any remedial, removal or response action is requested of
it or any of its officers, directors, agents and employees, for which the
Lender may desire indemnity or defense hereunder, the Lender shall
promptly notify the Company in writing.
(d) The Company at the request of the Lender shall have the
obligation to defend against such investigation, litigation or proceeding
or requested remedial, removal or response action, and the Lender, in any
event, may participate in the defense thereof with legal counsel of the
Company's choice. In the event that the Lender requests the Company to
defend against such investigation, litigation or proceeding or requested
remedial, removal or response action, the Company shall promptly do so and
the Lender shall have the right to have legal counsel of its choice
participate in such defense. No action taken by legal counsel chosen by
the Lender in defending against any such investigation, litigation or
proceeding or requested remedial, removal or response action shall vitiate
or in any way impair the Company's obligation and duty hereunder to
indemnify and hold harmless the Lender.
10.06 SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the
Company may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Lender.
10.07 CONFIDENTIALITY. The Lender agrees to take normal and
reasonable precautions and exercise due care to maintain the
confidentiality of all non-public information provided to it by the
Company or any Subsidiary of the Company in connection with this Agreement
or any Collateral Document. The Lender may disclose such information (i)
at the request of any bank regulatory authority or in connection with an
examination of the Lender by any such authority; (ii) pursuant to subpoena
or other court process; (iii) when required to do so in accordance with
the provisions of any, applicable law; (iv) at the express direction of
any other agency of any State of the United States of America or of any
other jurisdiction in which the Lender conducts its business; and (v) to
the Lender's independent auditors and other professional advisors.
Notwithstanding the foregoing, the Company authorizes the Lender to
disclose to any participant or assignee (each, a "Transferee") and any
prospective Transferee such financial and other information in the
Lender's possession concerning the Company or its Subsidiaries which has
been delivered to the Lender pursuant to this Agreement or which has been
delivered to the Lender by the Company in connection with the Lender's
credit evaluation of the Company prior to entering into this Agreement;
provided that such Transferee agrees in writing to keep such information
confidential to the same extent required of the Lender hereunder.
10.08 SET-OFF. In addition to any rights and remedies of
the Lender provided by law, upon the occurrence and during the continuance
of any Event of Default, the Lender is hereby authorized at any time and
from time to time, without prior notice to the Company, any such notice
being expressly waived by the Company to the fullest extent permitted by
applicable law, to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held, and other
indebtedness at any time owing by the Lender to or for the credit or the
account of the Company, against any and all obligations of the Company now
or hereafter existing under this Agreement or any Loan Document
irrespective of whether or not the Lender shall have made demand under
this Agreement or any Loan Document and although such obligations may be
unmatured. The Lender agrees promptly to notify the Company after any
such set-off and application made by the Lender; provided; however, that
the failure to give such notice shall not affect the validity of such set-
off and application. The rights of the Lender under this Section are in
addition to the other rights and remedies (including without limitation,
other rights of set-off) which the Lender may have.
10.09 COUNTERPARTS; EFFECTIVE DATE. This Agreement may be
executed by one or more of the parties to this Agreement on any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.10 SEVERABILITY. The illegality or unenforceability of
any provision of this Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.
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
California.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
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 STANDARD INC.
By:/s/Matthew L. Gold
Title: President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Lender
By:/s/Carolyn Simmons
Title: Vice President
555 S. Flower Street, Suite 1100
Los Angeles, CA 90071
EXHIBITS
A. Amended Warrant
B. Company Reaffirmation Agreement
C. Subsidiary Reaffirmation Agreement
D. Term Note
E. Lockup Agreement
SCHEDULES
5.06 Litigation
5.08 ERISA Compliance
5.11 Tax Matters
5.13 Environmental Matters
5.18 Burdensome Restrictions
5.21 Intellectual Property Matters
5.22(a) Subsidiaries
5.22(b) Equity Investments
8.01 Existing Liens
8.05 Existing Indebtedness
8.07 Contingent Obligations
8.10 Lease Obligations
EXHIBIT A
AMENDED AND RESTATED WARRANT
[Filed as separate exhibit]
EXHIBIT B
COMPANY REAFFIRMATION AGREEMENT
(Senior Term Loan)
The undersigned Precision Standard Inc. (the "Company") hereby agrees
and confirms that:
1. The Company Stock Pledge Agreement dated as of September 9, 1988
previously executed and delivered by the Company in favor of Bank of
America NT&SA (the "Bank") as Agent remains in full force and effect
provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Agent shall be deemed
a reference to the Bank as Lender under the Revised Agreement; and
2. The Company Security Agreement dated as of September 9, 1988
previously executed and delivered by the Company in favor of the Bank as
Agent remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Agent shall be deemed
a reference to the Bank as Lender under the Revised Agreement.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
In Witness Whereof, this Company Reaffirmation Agreement
is executed and delivered as of December 31, 1996.
PRECISION STANDARD, INC.
By:----------------------------------
Title: President
EXHIBIT C
SUBSIDIARY REAFFIRMATION AGREEMENT
(Senior Term Loan)
Each of the undersigned (each a "Subsidiary") hereby agrees and
confirms that:
1. The Subsidiary Stock Pledge Agreement dated as of September 9,
1988 previously executed and delivered by Hayes Holding I Inc., Hayes
Holding II Inc. and Pemco Aeroplex Corporation (formerly known as Hayes
International Corporation) ("Pemco") in favor of Bank of America NT&SA
(the Bank") as Agent remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and the Bank as Lender dated as of
December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Agent shall be deemed
a reference to the Bank as Lender under the Revised Agreement;
2. The Subsidiary Security Agreement dated as of September 9, 1988
previously executed and delivered by Pemco, Space Vector Corporation and
Air International Corporation in favor of the Bank as Agent remains in
full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and the Bank as Lender dated as of
December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Agent shall be deemed
a reference to the Bank as Lender under the Revised Agreement;
3. The Subsidiary Guaranty dated as of September 9, 1988 previously
executed and delivered by Hayes Holdings I Inc., Hayes Holding II Inc.,
Space Vector Corporation and Air International Corporation in favor of the
Bank as Agent remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Agent shall be deemed
a reference to the Bank as Lender under the Revised Agreement; and
4. The Hayes Guaranty dated as of September 9, 1988 previously
executed and delivered by Pemco in favor of the Bank as Agent remains in
full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Agent shall be deemed
a reference to the Bank as Lender under the Revised Agreement.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
In Witness Whereof, this Subsidiary Reaffirmation
Agreement is executed and delivered as of December 31, 1996.
PRECISION STANDARD, INC.
By:----------------------------------
Title: President
PEMCO AEROPLEX, INC.
By:----------------------------------
Title: Chairman of the Board
HAYES HOLDINGS I INC.
By:----------------------------------
Title: President
HAYES HOLDINGS II INC.
By:----------------------------------
Title: President
SPACE VECTOR CORPORATION
By:----------------------------------
Title: Chairman of the Board
AIR INTERNATIONAL INCORPORATED
By:----------------------------------
Title: President
PEMCO CAPITAL CORPORATION
By:----------------------------------
Title: President
PEMCO NACELLE SERVICES, INC.
By:----------------------------------
Title: President
PEMCO WORLD AIR SERVICES, INC.
By:----------------------------------
Title: President
PEMCO AIR SERVICES SYSTEM, INC.
By:----------------------------------
Title: President
PRECISION STANDARD CORP.
By:----------------------------------
Title: President
EXHIBIT D
TERM NOTE
US$5,007,799 Dated: December 31, 1996
FOR VALUE RECEIVED, the undersigned, PRECISION STANDARD INC., a
Colorado corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of BANK OF AMERICA NT&SA (the "Lender") the aggregate unpaid principal
amount of the Term Loan (as defined in the Credit Agreement referred to
below), at such times, and in such amounts, as are specified in the Credit
Agreement.
The Borrower promises to pay interest on the unpaid principal
amount of the Term Loan from December 31, 1996 until such principal amount
is paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to the Lender, at 1850 Gateway Boulevard, Fourth
Floor, Concord, California 94520, in immediately available funds. All
payments made on account of principal thereof shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached
hereto which is part of this Note; provided, however, that the failure to
so record or so endorse the grid attached hereto shall not affect the
validity of such Term Loan or such payments.
This Note is the Note referred to in, and is entitled to the
benefits of, the Second Amended and Restated Credit Agreement dated as of
December 31, 1996 (the "Credit Agreement") between the Borrower and the
Lender. The Credit Agreement provides, among other things, (i) for the
payment of costs and attorneys fees incurred in the enforcement hereof,
and (ii) for acceleration of the maturity hereof upon the happening of
certain stated events and also for required prepayments hereof prior to
the maturity hereof upon the terms and conditions therein specified.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
This Note shall be governed by and construed in accordance with
the laws of the State of California.
PRECISION STANDARD, INC.
By:----------------------------------
Title: President
LOAN AND PAYMENTS OF PRINCIPAL
Amount of
Principal Paid Unpaid Principal Notation
Date or Prepaid Balance Made By
- ---- -------------- ---------------- ----------
- -
EXHIBIT E
LOCKUP AGREEMENT
Each of the undersigned is an executive officer of Precision Standard
Inc., a Colorado corporation (the "Company"). The Company has issued an
Amended and Restated Warrant as of December 31, 1996 (the "Warrant") to
Bank of America NT&SA (the "Bank"). The terms of the Warrant require the
Company to redeem the Warrant in installments, each due on an Installment
Date. The prices at which the Warrant must be redeemed are determined by
reference to the market price of the common stock of the Company during
specified time periods. The undersigned is an owner of common stock of
the Company. Any capitalized term used herein and not otherwise defined
herein shall have the meaning given such term in the Warrant.
In order to induce the Bank to accept the Warrant and in the context
of the foregoing recitals, the undersigned hereby agrees as follows:
1. The undersigned agrees that he will not sell, and will not
authorize the sale of, any Common Stock of the Company, or any warrant or
option to acquire Common Stock of the Company, or any security convertible
into the Common Stock of the Company, or permit any Affiliate (as
hereinafter defined) to do any of the foregoing, during any of the periods
beginning thirty-five (35) Trading Days prior to each Installment Date and
ending on each respective Installment Date provided, that any such
transactions not exceeding 1,000 shares of Common Stock (or the equivalent
number of warrants, options or convertible securities) in the aggregate on
each Trading Day shall be excluded from this prohibition.
2. The undersigned acknowledges that it would be difficult to
conclusively establish that any change in the market price of the common
stock of the Company was due, in whole or in part, to sales of such stock
by the undersigned or his Affiliates in violation of this Agreement. The
undersigned therefore agrees that any drop in the market price of the
Company's common stock on any day that a transaction in violation of this
Agreement occurs, and during the five Trading Days immediately following
such day, shall be conclusively presumed to be caused by the violation.
Any such differential would then be multiplied by the number of Trading
Days remaining in the period for the calculation of the Warrant's
redemption price and the number of shares to be redeemed to establish the
amount of actual damages resulting from the violation. This provision is
intended as a reasonable liquidated damages clause and not as a penalty.
The undersigned understands that, pursuant to the Warrant, the
Company is agreeing to hold the undersigned harmless from liability
pursuant to this Section 2. The undersigned shallhave liability to the
Bank pursuant to this Section 2 only in the event that a demand made by
the Bank on the Company for damages accrued pursuant to this Section 2
remains unsatisfied in whole or in part more than ninety (90) days after
the date of such demand.
3. As used herein, the term "Affiliate" shall mean:
(a) all relatives of the undersigned, by blood or marriage;
(b) any trust or estate in which any of the undersigned or any
person described in clause (a) above has (on an aggregate basis) at
least a 10% beneficial interest or which any of the undersigned or
any person described in clause (a) above serves as trustee or
executor or any similar function; and
(c) any corporation, partnership or other business entity in
which the undersigned or any person or entity described in clauses
(a) or (b) above has (on an aggregate basis) at least a 10%
beneficial interest or serves as an executive officer or director.
4. The Bank is authorized, but not required, to deliver stop
transfer instructions to the Company's transfer agent with respect to any
shares affected hereby.
5. In any litigation with respect to this Agreement the prevailing
party shall be entitled to recover its costs and reasonable attorneys
fees.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
PRECISION STANDARD, INC.
By:----------------------------------------
Title: President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:----------------------------------------
Title:----------------------------------
555 S. Flower Street, Suite 1100
Los Angeles, California 90071
SECOND AMENDED AND RESTATED
SENIOR SUBORDINATED LOAN AGREEMENT
between
PRECISION STANDARD INC.
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
entered into as of December 31, 1996
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . 1
1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . 1
1.2. Computation of Time Periods . . . . . . . . . . . . . . . . . 12
1.3. Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . 12
1.4. Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE II
TERMS OF THE LOAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1. The Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2. Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.4. Optional Prepayments. . . . . . . . . . . . . . . . . . . . . 14
2.5. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . 14
2.6. Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . 14
2.7. Payments and Computations . . . . . . . . . . . . . . . . . . 15
2.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE III
CONDITIONS OF CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1. Conditions of Closing . . . . . . . . . . . . . . . . . . . . 16
(a) Agreement and Note . . . . . . . . . . . . . . . . . . . 17
(b) Board Resolutions. . . . . . . . . . . . . . . . . . . . 17
(c) Incumbency Certificates. . . . . . . . . . . . . . . . . 17
(d) Senior Agreement . . . . . . . . . . . . . . . . . . . . 17
(e) Company Reaffirmation Agreement. . . . . . . . . . . . . 17
(f) Subsidiary Reaffirmation Agreement . . . . . . . . . . . 17
(g) Payments . . . . . . . . . . . . . . . . . . . . . . . . 17
(h) Shareholder Guaranty . . . . . . . . . . . . . . . . . . 17
(i) Other Documents. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . 18
4.1. Corporate Existence and Power . . . . . . . . . . . . . . . . 18
4.2. Corporate Authorization; No Contravention . . . . . . . . . . 18
4.3. Governmental Authorization. . . . . . . . . . . . . . . . . . 18
4.4. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . 19
4.5. No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . 19
4.6. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7. No Default. . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.9. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . 20
4.10. Title to Properties . . . . . . . . . . . . . . . . . . . . . 20
4.11. Financial Condition . . . . . . . . . . . . . . . . . . . . . 20
4.12. Environmental Matters . . . . . . . . . . . . . . . . . . . . 21
4.13. Investment Company. . . . . . . . . . . . . . . . . . . . . . 21
4.14. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . 21
4.15. Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . 21
4.16. No Burdensome Restrictions. . . . . . . . . . . . . . . . . . 21
4.17. Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.18. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . 22
4.19. Copyrights, Patents, Trademarks and Licenses, Supplemental
Certificates Issued by the Federal Aviation Administration and
Parts Manufacturing Authorizations. . . . . . . . . . . . . . 22
4.20. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 22
4.21. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.22. Absence of Certain Restrictions . . . . . . . . . . . . . . . 24
ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER. . . . . . . . . . . . . . . . . . 25
5.1. Financial Statements. . . . . . . . . . . . . . . . . . . . . 25
5.2. Certificates; Other Information . . . . . . . . . . . . . . . 26
5.3. Preservation of Corporate Existence . . . . . . . . . . . . . 27
5.4. Maintenance of Property . . . . . . . . . . . . . . . . . . . 28
5.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.6. Payment of Obligations. . . . . . . . . . . . . . . . . . . . 28
5.7. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 29
5.8. Inspection of Property and Books and Records. . . . . . . . . 29
5.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.10. Accounting Changes. . . . . . . . . . . . . . . . . . . . . . 31
5.11. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI
NEGATIVE COVENANTS OF THE BORROWER . . . . . . . . . . . . . . . . . . . 31
6.1. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 31
6.2. Disposition of Assets . . . . . . . . . . . . . . . . . . . . 33
6.3. Consolidations and Mergers. . . . . . . . . . . . . . . . . . 33
6.4. Acquisitions and Investments. . . . . . . . . . . . . . . . . 34
6.5. Limitation on Indebtedness. . . . . . . . . . . . . . . . . . 34
6.6. Transactions with Affiliates. . . . . . . . . . . . . . . . . 35
6.7. Contingent Obligations. . . . . . . . . . . . . . . . . . . . 35
6.8. Lease Obligations . . . . . . . . . . . . . . . . . . . . . . 36
6.9. Restricted Payments . . . . . . . . . . . . . . . . . . . . . 36
6.10. Tangible Net Worth. . . . . . . . . . . . . . . . . . . . . . 37
6.11. Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . 37
6.12. Change in Business. . . . . . . . . . . . . . . . . . . . . . 38
6.13. Other Indebtedness. . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VII
EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII
SUBORDINATION OF NOTE. . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1. Note Subordinate to Senior Indebtedness . . . . . . . . . . . 41
8.2. Payment Over of Proceeds Upon Dissolution, Etc. . . . . . . . 42
8.3. Default on Senior Indebtedness. . . . . . . . . . . . . . . . 43
8.4. Subrogation to Rights of Holders of Senior Indebtedness . . . 44
8.5. Rights of Holders Not to Be Impaired. . . . . . . . . . . . . 45
8.6. No Waiver of Subordination Provisions . . . . . . . . . . . . 46
8.7. Notice to Holder of Note. . . . . . . . . . . . . . . . . . . 47
8.8. Evidence of Status. . . . . . . . . . . . . . . . . . . . . . 47
8.9. Article Not to Prevent Events of Default. . . . . . . . . . . 48
8.10. Limitation on Obligation of the Holder of the Note. . . . . . 48
8.11. Distribution or Notice to Representative. . . . . . . . . . . 49
8.12. Application by Holders of Monies Paid to Them . . . . . . . . 49
ARTICLE IX
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.1. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . 49
9.2. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 49
9.3. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . 50
9.4. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . 50
9.5. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.6. Right of Set-off. . . . . . . . . . . . . . . . . . . . . . . 52
9.7. Successors and Assigns. . . . . . . . . . . . . . . . . . . . 52
9.8. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . 52
9.9. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 53
9.10. Execution in Counterparts . . . . . . . . . . . . . . . . . . 53
EXHIBITS
A. Amended and Restated Note
B. Company Reaffirmation Agreement
C. Subsidiary Reaffirmation Agreement
D. Shareholder Guaranty
This SECOND AMENDED AND RESTATED SENIOR SUBORDINATED LOAN AGREEMENT
dated as of December 31, 1996 is entered into between Precision Standard
Inc., a Colorado corporation (the "Company") and Bank of America NT&SA
(the "Lender").
W I T N E S S E T H :
WHEREAS, the Company and the Lender (both in its capacity as Lender
and as an agent for members of a syndicate which was never formed) are
parties to an Amended and Restated Senior Subordinated Loan Agreement
dated as of September 9, 1988, a First Amendment dated as of June 14,
1989, a Second Amendment and Waiver dated as of March 31, 1991, a Third
Amendment and Waiver dated as of December 5, 1991, a Fourth Amendment and
Waiver dated as of April 28, 1992, a Fifth Amendment and Waiver dated as
of December 31, 1993 and a Waiver and Sixth Amendment dated as of April
12, 1996 (as amended, the "Existing Agreement"); and
WHEREAS, the parties hereto wish to further amend the Existing
Agreement and to restate the Existing Agreement in its entirety, upon the
terms and provisions and subject to the conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing
at the time such Person becomes a Subsidiary or assumed in connection with
the acquisition of assets from such Person and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition.
"AFFILIATE" means, as to any Person, any Person (other than a
Subsidiary) which, directly or indirectly, controls, is controlled by, or
is under common control with, such Person. For purposes of this
definition, "control, means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise, and includes, without limitation, any executive officer or
director of the Company and any Person who beneficially owns, directly or
indirectly, 5% or more of the issued outstanding capital stock of such
Person. Notwithstanding the foregoing, under no circumstances shall the
Lender in its capacity as such or as lender under the Senior Agreement in
its capacity as such be deemed to be an Affiliate of the Company or any
Subsidiary of the Company.
"AGREEMENT" means this Second Amended and Restated Senior
Subordinated Loan Agreement together with all Exhibits hereto as it may be
amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"AMENDED WARRANT" means a warrant in the form of Exhibit A to
the Senior Agreement.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978 (or
any successor legislation thereto), as amended from time to time.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company or any committee of such Board authorized to exercise the full
powers of the Board of Directors with respect to the subject matter at
issue.
"BOARD RESOLUTION" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly
adopted by the Board of Directors and to be in full force and effect on
the date of such certification.
"BUSINESS DAY" means a day of the year other than a Saturday,
Sunday or other day on which commercial banks are required or authorized
to close in New York City or San Francisco.
"CAPITALIZED LEASE OBLIGATION" means any lease obligation of a
Person incurred with respect to any property (whether real, personal or
mixed) acquired or leased by such Person and used in its business that is
required to be recorded as a capitalized lease in accordance with GAAP.
"CLOSING DATE" means the date all conditions precedent listed
in Article III hereof have been satisfied.
"CODE" means the Internal Revenue Code of 1986 (or any
successor legislation thereto), as amended from time to time.
"COLLATERAL DOCUMENTS" means, collectively, (i) the Company
Security Agreement, the Subsidiary Security Agreement, the Pemco Guaranty,
the Subsidiary Guaranty, the Company Pledge Agreement and the Subsidiary
Pledge Agreement, each entered into in favor of the Lender and dated as of
April 12, 1996, and all other security agreements, mortgages, deeds of
trust, patent and trademark assignments, lease assignments, guarantees and
other agreements between the Company or its Subsidiaries and the Lender
now or hereafter delivered to the Lender pursuant to or in connection with
this Agreement, and all financing statements (or comparable documents now
or hereafter filed in accordance with the Uniform Commercial Code (or
comparable law) against the Company or any Subsidiaries or any guarantor
in favor of the Lender and (ii) any amendments, supplements,
modifications, renewals, replacements, consolidations, substitutions and
extensions of any of the foregoing.
"CONSOLIDATED NET INTEREST EXPENSE" means, for any period,
gross consolidated interest expense for such period determined in
conformity with GAAP (adjusted to eliminate the effect, if any, on
interest expense of the redemption provisions of the Amended Warrant) and
capitalized lease expense, PLUS (a) the portion of the upfront costs for
interest rate contracts (to the extent not included in gross interest
expense) fairly allocated to such interest rate contracts as expenses for
such period, LESS (b) interest income for such period and cash payments
received, in such period, pursuant to any interest rate contracts.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation (the
"primary obligations") of another Person (the "primary obligor"),
including, without limitation, any obligation of such Person, whether or
not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect
security therefor, or (b) to advance or provide funds (i) for the payment
or discharge of any such primary obligation, or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain
the net worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor, or (c) 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 (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability
in respect thereof as determined by the Company in good faith.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision
of any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which
such Person is a party or by which it or any of its property is bound.
"COVENANT DEFAULT" has the meaning set forth in Section 8.3(b)
hereof.
"DOL" means the United States Department of Labor.
"DEFAULT" means any of the events specified in Article VII,
whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"DEFERRAL NOTICE" has the meaning set forth in Section 8.3(b)
hereof.
"DEFERRAL PERIOD" has the meaning set forth in Section 8.3(b)
hereof.
"DISCLOSURE SCHEDULES" means the disclosure schedules delivered
pursuant to the Senior Agreement.
"EBITDA" means, for any period, the sum of (a) the consolidated
net income of the Company and its Subsidiaries (before income taxes) for
such period, as determined in accordance with generally accepted
accounting principles; (b) the amount of Consolidated Net Interest
Expense; (c) all amounts treated as expenses for depreciation; (d) all
amounts of amortization of fees and intangibles; and (e) the amount of
non-cash charges; less (x) the amount of non-operating cash income for
such period; and (y) non-cash income credits.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time and any regulations promulgated
thereunder.
"ERISA AFFILIATE" means, as to the Company, all trades or
businesses (whether or not incorporated) which are under common control
with the Company and which, together with the Company, are treated as a
single employer under Section 414(b), (c), (m) or (o) of the Code.
"ERISA EVENT" means, as to the Company or any ERISA Affiliates,
(i) a Reportable Event (other than a Reportable Event not subject to the
provision for 30-day notice to the PBGC under regulations issued under
Section 4043 of ERISA), (ii) the withdrawal of the Company or any ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a
notice of intent to terminate a Plan, if such Plan is underfunded, or the
treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (iv) the institution of proceedings to terminate a Plan by the
PBGC, (v) the imposition of a lien under Section 412 of the Code or
Section 302 of ERISA, or (vi) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Plan or the imposition of any material liability under Title IV of ERISA
other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.
"EVENT OF DEFAULT" has the meaning specified in Section 7.1.
"FEDERAL RESERVE BOARD" means the Board of Governors of the
Federal Reserve System or any successor thereof.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any central bank thereof
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned, or controlled, through stock or capital
ownership or otherwise, by any of the foregoing.
"HAZARDOUS MATERIALS" means those substances which are
regulated by or form the basis of liability under any Hazardous Materials
Laws.
"HAZARDOUS MATERIALS CLAIM" has the meaning set forth in
Section 5.9.
"HAZARDOUS MATERIALS LAWS" means the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section
9601 et seq.), the Hazardous Material Transportation Act (49 U.S.C.
Section 1801 et seq.), the Resource Conservation and Recovery, Act (42
U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33
U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 1251 et
seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.), as such laws have been amended or supplemented and any analogous
future federal, or present or future state or local, statutes and the
regulations promulgated thereunder.
"INDEBTEDNESS" of any Person means (i) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property
or services (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers,
acceptances, whether or not matured) except any such balance that
constitutes a trade payable or an accrued liability arising in the
ordinary course of business, (ii) all obligations evidenced by notes,
interest rate swap agreements, currency or foreign exchange swap
agreements or foreign exchange forward contracts, bonds, debentures or
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person, if and to the extent such liability
would appear on the balance sheet of such person in accordance with GAAP
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property), except any such balance that constitutes a trade payable
or an accrued liability arising in the ordinary course of business, (iv)
all Capitalized Lease Obligations, (v) all Indebtedness referred to in
clause (i), (ii), (iii) or (iv) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including, without limitation,
accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such
Indebtedness, and (vi) all Obligations.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means (i) any insolvency
or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding, relative to the
Company or to any of its Subsidiaries or to its assets, or (ii) any
liquidation, dissolution, reorganization or winding up of the Company or
any of its Subsidiaries, whether voluntary or involuntary and whether or
not involving insolvency or bankruptcy, or (iii) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of
the Company or any of its Subsidiaries.
"IRS" means the Internal Revenue Service.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, charge of deposit arrangement, encumbrance,
lien (statutory or other) or preference, priority or other security
interest or preferential arrangement of any kind or nature whatsoever
(including, without limitation, those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capitalized lease obligation, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of
the asset to which such lien relates as debtor, under the Uniform
Commercial Code or comparable law of any jurisdiction).
"LOAN" means the loan by the Lender to the Company made
pursuant to the Existing Agreement.
"LOAN DOCUMENTS" means this Agreement, the Note, the Amended
Warrant and the Collateral Documents.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Federal Reserve Board.
"MATERIAL ADVERSE CHANGE" means a material adverse change in
the financial condition, business or properties of the Company and its
Subsidiaries taken as one enterprise, the ability of the Company and its
Subsidiaries to perform their respective obligations under the Loan
Documents or the Senior Agreement, or the legality, validity or
enforceability of any Loan Document or the Senior Agreement.
"MATERIAL ADVERSE EFFECT" means, with respect to the Company
and its Subsidiaries, an effect that would result in a Material Adverse
Change.
"MATERIAL SUBSIDIARY" means, with respect to any Person, each
and any Subsidiary of such Person which (i) for the most recent fiscal
year of such Person either (a) accounted for more than 5% of the
consolidated revenues of such Person or (b) accounted for more than 5% of
the EBITDA of such Person, or (ii) as of the end of such fiscal year, was
the owner of more than 5% of the consolidated assets of such Person, all
as shown on the consolidated financial statements for such fiscal year.
"MATURITY DATE" means June 30, 2001.
"MULTIEMPLOYER PLAN" means, at any time, a "multiemployer plan"
within the meaning of Section 4001(a)(3) of ERISA and to which the Company
or any ERISA Affiliate is making, or is obligated to make contributions or
has made, or been obligated to make, contributions.
"NET PROCEEDS" means proceeds in cash or cash equivalents as
and when received by the Person making a sale (the "Seller") from the sale
to any Person of any asset outside of the ordinary course of business
(including, without limitation, the sale of any division, plant,
warehouse, stock of subsidiary of the Company or other real estate or
interest in real estate), net of the direct costs relating to such sale,
taxes paid or payable as a result thereof and amounts required to be
applied to repay principal, interest and prepayment premiums and penalties
on Indebtedness secured by a Lien on the asset which is the subject of
such sale. Net Proceeds shall also include proceeds of insurance paid on
account of loss or damage to any property and condemnation awards (or
payments made in lieu thereof) by reason of, or in anticipation of, a
permanent taking of any property pursuant to condemnation proceedings or
by the exercise of the right of eminent domain or by conveyance in lieu of
condemnation but only if the insurance proceeds or condemnation awards (or
payments in lieu thereof) exceed Five Hundred Thousand dollars ($500,000)
in any such instance and, in any event, net of (i) all money actually
applied to repair or reconstruct the damaged property or property affected
by the condemnation or taking, (ii) all of the costs and expenses
reasonably incurred in connection with the collection of such proceeds,
award or other payments and (iii) any amounts retained by or paid to
parties having rights to such proceeds, awards or other payments superior
to the rights of the Seller.
"NET WORTH" means shareholders' equity as determined in
accordance with GAAP, adjusted to eliminate the effect of the equity line
item reflecting FAS 87 adjustments.
"NOTE" means a promissory note of the Company in substantially
the form of Exhibit A hereto, evidencing the aggregate indebtedness of the
Company to the Lender resulting from the Loan made by the Lender.
"OBLIGATIONS" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Company to the Lender, any
Affiliate of the Lender, or Person entitled to indemnification pursuant to
Section 9.5, of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, arising under this
Agreement, under any other Loan Document, whether or not for the payment
of money, whether arising by reason of an extension of credit, loan,
guaranty, indemnification, foreign exchange or interest rate swap
transactions or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become
due, now existing or hereafter arising and however acquired. The term
includes, without limitation, all interest, charges, expenses, fees,
attorneys, fees and disbursements and any other sum chargeable to the
Company under this Agreement or any other Loan Document.
"PAYMENT DEFAULT" has the meaning set forth in Section 8.3(a)
hereof.
"PAYMENT IN FULL" means, for purposes of Article VIII with
respect to any Senior Indebtedness, payment in full thereof (x) in cash in
accordance with the term of the agreement or instrument pursuant to which
such Senior Indebtedness was issued or is governed or (y) otherwise to the
satisfaction, in their sole judgement exercised reasonably, of the holders
of such Senior Indebtedness (or their Representatives).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding, to any or all of its functions under ERISA.
"PERMIT" means any permit, approval, authorization, license,
variance, or permission required from a Governmental Authority under an
applicable Requirement of Law.
"PERSON" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
joint venture or other entity, or a Governmental Authority.
"PLAN" means, with respect to Company or any ERISA Affiliate,
at any time, an employee pension benefit plan as defined in Section 3(2)
of ERISA (including a Multiemployer Plan) that is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the
Code and is maintained for the employees of the Company or any ERISA
Affiliate.
"PRINCIPAL" of any Indebtedness means for purposes of Article
VIII only, the outstanding principal amount owing under the agreement or
instrument creating, evidencing or governing such Indebtedness, any amount
payable under any interest rate protection agreements or currency exchange
agreements, any amount owing under any capitalized lease obligation which
is required to be capitalized in accordance with generally accepted
accounting principles, the amount of reimbursement obligations under any
letters of credit or bankers' acceptances, the base purchase price payable
under any conditional sale or title retention agreement, and other
comparable amounts analogous to the principal amount of any obligation,
exclusive, in each case, of any amounts in respect of interest, fees,
expenses, indemnities or other similar items.
"REORGANIZATION SECURITIES" means shares of stock of the
Company, or its successor, as reorganized, or other securities of the
Company or any other Person provided for by a plan of reorganization, the
payment of which is subordinated, at least to the same extent as the
Subordinated Indebtedness, to the payment of all Senior Indebtedness which
may at the time be outstanding and the principal of which is due no
earlier than the principal of the Note, provided that the rights of the
holders of the Senior Indebtedness are not impaired thereby or such
holders as a class shall have approved such plan of reorganization.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder but excluding those events,
other than an event described in PBGC regulation 2615.19, as to which the
30-day notice requirement has been waived.
"REPRESENTATIVE" means the trustee, agent or other
representative for holders of all or any of the Senior Indebtedness, if
any, designated in the agreement, indenture, or other document governing
such Senior Indebtedness or pursuant to which it was issued, or otherwise
duly designated by the holders of such Senior Indebtedness.
"REQUIREMENT OF LAW" means, as to any Person, the certificate
of incorporation and bylaws or other organizational or governing documents
of such Person, and any law, treaty, rule or regulation, or order, decree
or other determination of an arbitrator or a court or other Governmental
Authority including, without limitation, the requirements of Hazardous
Materials Laws, 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" means, with respect to any Person, an
officer of such Person who is a signatory to any Loan Document or any
other document delivered hereunder.
"RESTRICTED PAYMENT" means (i) any dividend, either in cash or
in property (except dividends payable in Stock of the Company) in respect
of the Stock of the Company or any of its Subsidiaries, now or hereafter
outstanding, or the redemption, repurchase, retirement or other
acquisition, for value by the Company, directly or indirectly, of its
Stock or any warrants, rights or options to purchase or acquire shares of
any class of its Stock, now or hereafter outstanding, except the purchase
or acquisition of shares of any class of Stock of a Subsidiary of the
Company owned by the Company or such Subsidiary, and except payments to
the Company by any Subsidiary and payments to a wholly-owned Subsidiary of
the Company by a Subsidiary, (ii) any direct or indirect investment by the
Company or any Subsidiary of the Company, or (iii) any voluntary purchase,
redemption, defeasance (including, but not limited to, in-substance or
legal defeasance), payment, prepayment or other acquisition or retirement
for value (collectively a "prepayment"), directly or indirectly, by the
Company or a Subsidiary of the Company, prior to the scheduled maturity or
prior to any scheduled repayment of principal or sinking fund payment in
respect of Indebtedness of the Company or a Subsidiary which is
subordinated to Senior Indebtedness on substantially similar terms to the
Loan and which by its terms is scheduled to mature following the Loan or
which is subordinate (whether pursuant to its terms or the operation of
law) in right of payment to the Loan.
"SENIOR AGREEMENT" means (a) the Second Amended and Restated
Credit Agreement dated as of December 31, 1996 between the Company and the
Lender, as the same shall be in effect and as the same may from time to
time be amended, renewed, supplemented or otherwise modified, and any
other agreements pursuant to which any of the indebtedness, commitments,
obligations, costs, expenses, fees, reimbursements or other indemnities
payable or owing thereunder may be refinanced, restructured, renewed or
refunded, as any such other agreements may from time to time be amended,
supplemented, renewed or otherwise modified; and (b) after the Lender has
acknowledged in writing that the Senior Agreement has been terminated and
all outstanding indebtedness for borrowed money thereunder or with respect
thereto has been repaid in full in cash and discharged, any successor to
or replacement of (as designated by the Board of Directors of the Company,
in its sole judgment, and evidenced by a Board Resolution) the Senior
Agreement, as such successor or replacement may from time to time be
amended, renewed, supplemented or otherwise modified.
"SENIOR INDEBTEDNESS" means (i) the principal of (in an amount
not to exceed the amount permitted pursuant to Section 6.5 hereof), and
premium, if any, and interest on all loans and other extensions of credit
under the Senior Agreement, all expenses, fees, reimbursements,
indemnities and other amounts owing pursuant to the Senior Agreement and
any secured refinancings or extension of the Senior Agreement up to the
amount permitted pursuant to Section 6.5 hereof, and (ii) all other
secured Indebtedness of the Company (other than Indebtedness evidenced by
the Note and other Obligations pursuant hereto), including principal and
interest on such Indebtedness, whether outstanding on the date of this
Agreement or thereafter created, incurred or assumed, in an amount not to
exceed the amount permitted pursuant to Section 6.5 hereof; provided,
HOWEVER, that the term Senior Indebtedness shall not include (a) any
Indebtedness of the Company to an Affiliate of the Company and any
refinancing thereof, or (b) Indebtedness to any employee of the Company or
(c) any Indebtedness which by its terms or the terms of the instrument
creating or evidencing it, is expressly subordinated in right of payment
to or pari passu with the Loan. All interest accrued on any Senior
Indebtedness shall constitute Senior Indebtedness both for periods before
and for periods after the commencement of any Insolvency or Liquidation
Proceeding.
"SOLVENT" means, with respect to any Person, that the fair
saleable value of the property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date
and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and such Person does not have
unreasonably small capital with which to carry on its business. In
computing the amount of contingent or unliquidated liabilities at any
time, such liabilities will be computed at the amount which, in light of
all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
"STOCK" means all shares, options, interests, participations or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or non-voting, and including, without
limitation, common stock, preferred stock or warrants or options for any
of the foregoing.
"SUBORDINATED INDEBTEDNESS" has the meaning set forth in
Section 8.1 hereof.
"SUBSIDIARY" means as to any Person, (i) a corporation of which
shares of stock having ordinary voting power (other than stock 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
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 and (ii) any partnership of which such Person or any
Subsidiary is a general partner or any partnership more than 50% of the
equity interests of which are owned, directly or indirectly, by such
Person or by one or more other Subsidiaries, or by such Person and one or
more other Subsidiaries. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Company.
"TANGIBLE NET WORTH" means shareholders' equity as determined
in accordance with GAAP, LESS goodwill, patents, unamortized
organizational expenses, unamortized debt discount and any other
intangible assets.
1.2. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "toll and
"until" each means "to but excluding".
1.3. ACCOUNTING TERMS. All accounting terms not expressly defined
herein shall be construed, except where the context otherwise requires,
and all financial computations required under this Agreement shall be
made, in accordance with GAAP. In the event that GAAP changes during the
term of this Agreement from GAAP as in effect on the date hereof such that
the covenants contained in Article VIII would be calculated in a different
manner or have a different effect, (a) the Company and the Lender agrees
to amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating the Company's financial condition to
substantially the same criteria as were effective prior to such change in
GAAP and (b) the Company shall be deemed to be in compliance with the
covenants contained in Article VIII during the 60-day period following any
such change in GAAP coming to the attention of the Chief Financial Officer
of the Company if and to the extent that the Company would have been in
compliance therewith under GAAP as in effect immediately prior to such
change.
1.4. CERTAIN TERMS. The words "herein", "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole,
including the Exhibits hereto, as the same may from time to time be
amended or supplemented and not to any particular Article, Section,
subsection or clause in this Agreement unless otherwise specified.
References herein to an Article, Section, subsection or clause shall refer
to the appropriate Article, Section, subsection or clause in this
Agreement. The meaning of defined terms shall be equally applicable to
the singular and plural forms of the defined terms.
ARTICLE II
TERMS OF THE LOAN
2.1. THE LOAN. On the date hereof the unpaid principal balance of
the Loan is $7,200,000.
2.2. REPAYMENT. The balance of the Loan shall be repaid in sixteen
equal quarterly installments on the last day of each calendar quarter,
commencing on September 30, 1997 and ending on the Maturity Date, on which
date the entire principal amount of the indebtedness outstanding hereunder
together with any other obligations arising hereunder which have not
previously been paid shall be paid in full.
2.3. INTEREST.
(a) On the Closing Date, any interest accrued on the Loan
after April 30, 1996 and prior to October 1, 1996 and not previously paid
shall be forgiven.
(b) The Company shall pay interest on the outstanding
principal amount of the Loan from October 1, 1996 until the principal
amount thereof shall be paid in full, at a rate per annum equal at all
times to 13 1/2%; provided, however, that upon the occurrence and during
the continuance of an Event of Default, the Company shall pay interest on
the unpaid principal amount of each Loan payable on demand, at a rate per
annum equal at all times to 14-1/2%.
(c) Any interest accrued hereunder after October 1, 1996 shall
be payable on the last day of each calendar month, and on the date the
Loan is paid in full. Any interest due on or before the Closing Date must
be paid on the Closing Date.
2.4. OPTIONAL PREPAYMENTS. The Company may prepay the outstanding
principal amount of the Note, in whole or in part, together with accrued
interest to the date of such prepayment on the principal amount prepaid.
Any such prepayments shall be applied to the most remote principal
installments to become due.
2.5. MANDATORY PREPAYMENTS. If prior to the Maturity Date but at or
after the time that all Indebtedness under the Senior Agreement is paid in
full, the Company shall at any time or from time to time agree to sell,
assign, lease or transfer or otherwise dispose of assets in a transaction
permitted hereunder or, if not so permitted, as to which the Lender shall
have consented in writing (each such transaction, a "disposition"), or
shall receive proceeds of insurance paid on account of loss or damage to
any property or condemnation awards, the Company shall promptly notify the
Lender of such proposed disposition or receipt of proceeds or award
(including the amount of the estimated Net Proceeds to be received by the
Company in respect thereof). The Company shall use 75% of all such Net
Proceeds to prepay the principal of the Loan until the Loan is paid in
full. Any such prepayments shall be applied to the most remote principal
installments to become due.
2.6. CAPITAL ADEQUACY. If the Lender shall have determined that the
introduction of any applicable law, rule or regulation regarding capital
adequacy of banks or bank holding companies, or any change therein or any
change in administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or the compliance by any the Lender or any
corporation controlling the Lender with any request, guideline or
directive regarding capital adequacy (whether or not having the force of
law) of any such authority, central bank or comparable agency, affects or
would affect the amount of capital required or expected to be maintained
by the Lender or any corporation controlling the Lender and the Lender
(taking into consideration the Lender's or such corporation's policies
with respect to capital adequacy and the Lender's desired return on
capital) determines that the amount of such capital is increased as a
consequence of the Lender's obligation under this Agreement, then, upon
demand of the Lender, the Company shall immediately pay to the Lender,
from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
2.7. PAYMENTS AND COMPUTATIONS.
(a) The Company shall make each payment hereunder and under
the Note not later than 12:00 P.M. (New York City time) on the day when
due in U.S. dollars to the Lender at its office at 1850 Gateway Boulevard,
Fourth Floor, Concord, California 94520 in immediately available funds.
If any payment of principal is made by the Company after such time, such
payment shall be deemed to have been made on the next Business Day.
(b) The Company hereby authorizes the Lender, if and to the
extent payment owed to the Lender is not made when due hereunder or under
the Note, to charge from time to time against any or all of the Company's
deposit accounts with the Lender any amount so due.
(c) All computations of interest shall be made by the Lender
on the basis of a year of 360 days, for the actual number of days elapsed
(including the first day but excluding the last day) occurring in the
period for which such interest is payable.
(d) Whenever any payment hereunder or under the Note shall be
stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall
in such case be included in the computation of payment of interest or fee,
as the case may be.
2.8. TAXES.
(a) Any and all payments by the Company to the Lender under
this Agreement shall be made free and clear of, and without deduction or
withholding for, any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding such taxes (including income taxes or franchise taxes)
as are imposed on or measured by the Lender's net income by the
jurisdiction under the laws of which the Lender is organized or any
political subdivision thereof or payable by the Company pursuant to any
other provision hereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes").
(b) In addition, the Company agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect
to, this Agreement or the Collateral Agreements (hereinafter referred to
as "Other Taxes").
(c) The Company will indemnify and hold harmless the Lender
for the full amount of Taxes or Other Taxes (including without limitation,
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 2.8) paid by the Lender and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within
thirty (30) days from the date the Lender makes written demand therefor.
The Company shall be subrogated to the Lender's right to contest such
Taxes or Other Taxes.
(d) If the Company shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to the Lender then,
(i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section
2.8) the Lender receives an amount equal to the sum it would have
received had no such deductions been made,
(ii) the Company shall make such deductions, and
(iii) the Company shall pay the full amount deducted
to the relevant taxation authority or other authority in accordance
with applicable law.
(e) Within thirty (30) days after the date of any payment by
the Company of Taxes or Other Taxes, the Company will furnish to the
Lender the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to the Lender.
(f) The agreements and obligations of the Company contained in
this Section 2.8 shall survive the payment in full of principal and
interest hereunder.
ARTICLE III
CONDITIONS OF CLOSING
3.1. CONDITIONS OF CLOSING. The Closing Date shall not occur, and
the Existing Agreement shall instead remain in full force and effect,
until the Lender shall have received all of the following, in form and
substance satisfactory to the Lender and its counsel:
(a) AGREEMENT AND NOTE. This Agreement and the Note payable
to the order of Lender, executed and delivered by a Responsible
Officer of the Company;
(b) BOARD RESOLUTIONS.
(i) Certified copies of the resolutions of the Board of
Directors of the Company approving and authorizing the execution,
delivery and performance by the Company of this Agreement and the
transactions contemplated thereby and the other Loan Documents to be
delivered hereunder, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Company;
(ii) Certified copies (as of the time of delivery) of the
resolutions of the Board of Directors of each Subsidiary of the
Company approving the Loan Documents to which each respective entity
is a party; and
(iii) All documents evidencing other necessary and
appropriate corporate action with respect thereto.
(c) INCUMBENCY CERTIFICATES. A certificate of the Secretary
or Assistant Secretary of the Company and each Subsidiary of the
Company certifying the names and true signatures of the officers
authorized to execute and deliver, as applicable, this Agreement, and
all other Loan Documents to be delivered hereunder;
(d) SENIOR AGREEMENT. The Senior Agreement, duly executed and
delivered by the Company, together with evidence that all conditions
precedent to its effectiveness specified therein have been satisfied;
(e) COMPANY REAFFIRMATION AGREEMENT. The Company
Reaffirmation Agreement in the form of Exhibit B hereto, duly
executed by the Company;
(f) SUBSIDIARY REAFFIRMATION AGREEMENT. The Subsidiary
Reaffirmation Agreement in the form of Exhibit C hereto, duly
executed by each Subsidiary;
(g) PAYMENTS. All payments due the Lender pursuant to Article
II hereof;
(h) SHAREHOLDER GUARANTY. The Shareholder Guaranty in the
form of Exhibit D hereto; and
(i) OTHER DOCUMENTS. Such other approvals, opinions or
documents as the Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lender that as of the
Closing Date:
4.1. CORPORATE EXISTENCE AND POWER. The Company and each of its
Subsidiaries:
(a) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation;
(b) has the corporate power and authority and all governmental
licenses, authorizations, consents and approvals 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, licensed 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; and
(d) is in compliance with all Requirements of Law, except, in
each case referred to in clause (c) or clause (d), to the extent that
the failure to do so would not have a Material Adverse Effect on the
Company and its Subsidiaries.
4.2. CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by each of the Company and its Subsidiaries of
this Agreement and any other Loan Document to which such Person is a
party:
(a) are within such Person's corporate power and authority and
when delivered will have been duly authorized by all necessary
corporate action; and
(b) do not contravene the terms of such Person's certificate
of incorporation or by-Laws, or any amendment thereof.
4.3. GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery, performance or enforcement against the Company or any
of its Subsidiaries of this Agreement, any other Loan Document or any
other instrument or agreement required hereunder to be made by the Company
or any of its Subsidiaries, except those already obtained or which will be
obtained prior to the Closing Date and those required in connection with
the performance of the covenants set forth in Articles V and VI.
4.4. BINDING EFFECT. This Agreement is, and each other Loan
Document to which the Company is a party when delivered will constitute,
the legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors, rights generally or
by equitable principles relating to enforceability.
4.5. NO LEGAL BAR. The execution, delivery and performance of this
Agreement and the Loan Documents and the use of the proceeds thereof will
not violate any Requirement of Law or any Contractual Obligation of the
Company or its Subsidiaries and will not result in, or require, the
creation or imposition of any Lien on any of its or their respective
properties or revenues pursuant to any Requirement of Law.
4.6. LITIGATION. Except as disclosed in the Disclosure Schedules,
there are no actions, suits, proceedings, claims or disputes pending, or
to the best knowledge of the Company, threatened or contemplated at law,
in equity, in arbitration or before any Governmental Authority against the
Company or any of its Subsidiaries or any of their respective properties:
(a) with respect to this Agreement, any Loan Document or any
of the transactions contemplated hereby or thereby; or
(b) which, is reasonably likely to result in a Material
Adverse Change with respect to the Company or its Subsidiaries. No
injunction, writ, temporary restraining order or any order of any
nature has been issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery and
performance of this Agreement or any Loan Document or directing that
the transactions provided for herein not be consummated as herein
provided.
4.7. NO DEFAULT. No event has occurred and is continuing or would
result from the incurring of obligations by the Company under this
Agreement or any Loan Document which constitutes a Default or an Event of
Default. Neither the Company nor any of its Subsidiaries is in default
under or with respect to any Contractual Obligation in any respect which,
individually or together with all such defaults, could have a Material
Adverse Effect on the Company and its Subsidiaries.
4.8. TAXES. Except as may otherwise be disclosed in the Disclosure
Schedules, the Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed and have paid
all Federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties,
income or assets otherwise due and payable except those which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been provided;
4.9. USE OF PROCEEDS; MARGIN REGULATIONS. No portion of the Loan
will be used, directly or indirectly, (i) to purchase or carry margin
stock as defined in Regulation U of the Federal Reserve Board, (ii) to
repay or otherwise refinance Indebtedness of the Company or others
incurred to purchase or carry margin stock, or (iii) to extend credit for
the purpose of purchasing or carrying any margin stock. No proceeds of
any Loan will be used to acquire any security in any transaction which is
subject to Section 13 or 14 of the Securities Exchange Act.
4.10. TITLE TO PROPERTIES. Each of the Company and its Subsidiaries
has good record and marketable title in fee simple to, or valid leasehold
interests in, all its property, except for such defects in title as could
not, individually or in the aggregate, have a Material Adverse Effect on
the Company and its Subsidiaries.
4.11. FINANCIAL CONDITION. The consolidated statements of financial
condition of the Company and its Subsidiaries dated December 31, 1995, and
the related consolidated statements of income, earnings, stockholders'
equity and changes in financial position for the fiscal year ended on that
date, together with the Company's unaudited financial statements dated
September 30, 1996:
(a) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise noted
therein;
(b) are complete, accurate and a fair presentation of the
financial condition of the Company and its Subsidiaries as of the
date thereof and results of operations for the period covered
thereby; and
(c) show all material indebtedness and other liabilities,
direct or contingent, of the Company and its Subsidiaries as of the
date thereof (including, without limitation, liabilities for taxes
and material commitments).
4.12. ENVIRONMENTAL MATTERS. Except as set forth in the Disclosure
Schedules, as of the Closing Date:
(a) the operations of the Company and its Subsidiaries comply
in all material respects with all applicable Hazardous Materials
Laws;
(b) to the knowledge of the Company, none of the operations of
the Company nor any of its Subsidiaries is the subject of federal or
state investigation evaluating whether any remedial action, involving
expenditures, is needed to respond to a release of any Hazardous
Materials into the environment; and
(c) neither the Company nor any of its Subsidiaries has any
material contingent liability in connection with any release of any
Hazardous Materials into the environment;
4.13. INVESTMENT COMPANY. Neither the Company nor any Person
controlling the Company is an "Investment Company" within the meaning of
the Investment Company Act of 1940, as amended.
4.14. FULL DISCLOSURE. All factual information heretofore or
contemporaneously furnished in writing by or on behalf of the Company to
the Lender (including without limitation, all information contained in the
Loan Documents) for purposes of or in connection with this Agreement or
any transaction contemplated hereby is, and all other such factual
information hereafter furnished in writing by or on behalf of the Company
to the Lender will be, true and accurate in all material respects on the
date as of which such information is dated or certified, and not made
incomplete by omitting to state any fact necessary to make such
information not misleading at such time in light of the circumstances
under which such information was provided.
4.15. ADVERSE CHANGE. Since the date of the consolidated pro forma
financial statement of the Company and its Subsidiaries heretofore
delivered to the Lender, there has been no Material Adverse Change with
respect to the Company and its Subsidiaries taken as a whole.
4.16. NO BURDENSOME RESTRICTIONS. Except as may be disclosed in the
Disclosure Schedules, neither the Company nor any of its Subsidiaries is a
party to or bound by any Contractual Obligation or subject to any charter
or corporate restriction or any Requirement of Law which is expected to
have a Material Adverse Effect with respect to the Company and its
Subsidiaries.
4.17. SOLVENCY. On and as of the Closing Date, the Company and its
Subsidiaries will be Solvent.
4.18. LABOR RELATIONS. Neither the Company nor any of its
Subsidiaries is engaged in unfair labor practice that could have a
Material Adverse Effect on the Company and its Subsidiaries. Except as
previously disclosed to the Lender in writing, there is (i) no significant
unfair labor practice complaint pending against the Company and its
Subsidiaries or, to the best knowledge of the Company, threatened against
any of them, before the National Labor Relations Board, and no significant
grievance or significant arbitration proceeding arising out of or under
any collective bargaining agreement is so pending against the Company and
its Subsidiaries or, to the best knowledge of the Company, threatened
against any of them, (ii) no significant strike, labor dispute, slowdown
or stoppage pending against the Company and its Subsidiaries or, to the
best knowledge of the Company, threatened against the Company or any of
its Subsidiaries, and (iii) to the best knowledge of the Company, no union
representation question existing with respect to the employees of the
Company or any of its Subsidiaries and, to the best knowledge of the
Company, no union organizing activities are taking place, except (with
respect to any matter specified in clause (i), (ii) or (iii) above, either
individually or in the aggregate) such as is not reasonably likely to have
a Material Adverse Effect on the Company and its Subsidiaries.
4.19. COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, SUPPLEMENTAL
CERTIFICATES ISSUED BY THE FEDERAL AVIATION ADMINISTRATION AND PARTS
MANUFACTURING AUTHORIZATIONS. The Company and its Subsidiaries own or are
licensed or otherwise have the right to use all of the patents,
trademarks, service marks, trade names, copyrights, franchises,
authorizations supplemental type certificates, parts manufacturing
authorizations and other rights that are reasonably necessary for the
operations of their respective businesses, without conflict with the
rights of any other Person with respect thereto except those the loss of
which would not have a Material Adverse Effect on the Company and its
Subsidiaries. To the best knowledge of the Company, no slogan or other
advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed by the Company
or any of its Subsidiaries infringes upon any rights owned by any other
Person; except as set forth in the Disclosure Schedules, no claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law,
rule, regulation, standard or code is pending or, to the knowledge of the
Company, proposed, which, in either case, would be likely to have a
Material Adverse Effect on the Company and its Subsidiaries.
4.20. SUBSIDIARIES. As of the Closing Date, the Company has no
Subsidiaries other than those listed in the Disclosure Schedules and has
no equity investments in any other corporation or entity other than those
listed in the Disclosure Schedules.
4.21. ERISA.
(a) Neither the Company nor any ERISA Affiliate maintains or
contributes to any Plan or Multiemployer Plan other than those listed on
the Disclosure Schedules. Each Plan of the Company and its ERISA
Affiliates is in compliance in all material respects with the applicable
provisions of ERISA, the Code and all other applicable Federal and state
laws and the rules and regulations promulgated thereunder. With respect
to each Plan (other than a Multiemployer Plan) all reports required under
ERISA or any other applicable law or regulation to be filed with the
relevant Governmental Authority with respect to which the failure to file
has any reasonable likelihood of resulting in liability of the Company or
any ERISA Affiliate in excess of Two Hundred Thousand dollars ($200,000)
have been duly filed, and all such reports are true and correct in all
material respects as of the date given. No Plan of the Company or its
ERISA Affiliates has been terminated other than any Plan as to which all
liabilities have been fully paid or provided for solely from such
terminated Plan's assets without the requirement of any further
contributions by the Company or any ERISA Affiliate after the original
date of the notice of intent to terminate given to either the Plan's
Participants (or the PBGC) nor has any accumulated funding deficiency (as
defined in Section 412(a) of the Code) been incurred (without regard to
any waiver granted under Section 412(a) of the Code) nor has any funding
waiver from the IRS been received or requested;
(b) Neither the Company nor any of its ERISA Affiliates has
failed to make any contribution or pay any amount due and owing as
required by Section 412 of the Code or Section 302 of ERISA or the terms
of any Plan prior to the due date under Section 412 of the Code and
Section 302 of ERISA, which remains due and owing. There has been no
ERISA Event or any event requiring disclosure under Section 4041(c)(3)(C),
4062(f) or 4063(a) of ERISA with respect to any Plan of the Company or its
ERISA Affiliates since the effective date of ERISA.
(c) Except as set forth in the Disclosure Schedules, the value
of the assets of each Plan (other than a Multiemployer Plan) of the
Company or any ERISA Affiliate equalled or exceeded 90% of the present
value of the benefit liabilities, as defined in Title IV of ERISA, of each
such Plan as of the most recent valuation date of each Plan using the Plan
actuarial assumptions at such date. There are no pending or threatened
claims, lawsuits or actions (other than routine claims for benefits and
expenses in the ordinary course) asserted or instituted against, and
neither the Company nor any of its ERISA Affiliates has any knowledge of
any litigation or claims against (i) the assets of any Plan or trust or
against any fiduciary of a Plan (other than a Multiemployer Plan) with
respect to the operation of such Plan or (ii) the assets of any employee
welfare benefit plan within the meaning of Section 3(1) of ERISA or
against any fiduciary thereof with respect to the operation of any such
plan.
(d) Neither the Company nor any ERISA Affiliate has engaged in
any prohibited transactions, within the meaning of Section 406 of ERISA or
Section 4975 of the Code which would subject the Company or such ERISA
Affiliates to any tax or penalty, provided the "amount involved" under
Section 4975 of the Code is in excess of Two Million dollars ($2,000,000).
Neither the Company nor any of its ERISA Affiliates (i) has incurred or
reasonably expects to incur (A) any liability under Title IV of ERISA
(other than premiums due under Section 4007 of ERISA to the PBGC) or (B)
any withdrawal liability (and no event has occurred which with the giving
of notice under Section 4201 of ERISA, would result in such liability)
under Section 4201 of ERISA as a result of a complete or partial
withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from a
Multiemployer Plan or (C) any liability under Section 4062 of ERISA to the
PBGC or to a trustee appointed under Section 4042 of ERISA, or (ii) has
withdrawn from a Multiemployer Plan. Neither the Company nor any of its
ERISA Affiliates nor any organization to which the Company or any of its
ERISA Affiliates is a successor or parent corporation, within the meaning
of Section 4069(b) of ERISA, has engaged in any transaction that could be
covered by Section 4069 of ERISA; and
(e) Except as set forth in the Disclosure Schedules, neither
the Company nor any ERISA Affiliate maintains or has established any
welfare benefit plan within the meaning of Section 3(1) of ERISA which
provides for continuing benefits or coverage for any participant or any
beneficiary of a participant after such participant's termination of
employment, except as may be required by the Consolidated Budget
Reconciliation Act of 1985, as amended ("COBRA") and the regulations
thereunder, and at the expense of the participant or the beneficiary of
the participant. The Company and each of its ERISA Affiliates that
maintains a welfare benefit plan within the meaning of Section 3(1) of
ERISA has complied in all material respects with the notice and
continuation coverage requirements of COBRA and the regulations
thereunder;
4.22. ABSENCE OF CERTAIN RESTRICTIONS. Except as may be required by
the NASDAQ NMS listing agreement, no Subsidiary of the Company is subject
to, directly or indirectly, or has agreed to be subject to, or permitted
any of its Subsidiaries to be subject to or to agree to be subject to, any
restriction or limitation on its ability to declare or make any dividend
payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its
capital stock or on its ability to purchase, redeem, defease or otherwise
acquire for value or make any payment in respect of any shares of any
class of its capital stock or any warrants, rights or options to acquire
any such shares, now or hereafter outstanding, except as set forth herein
and in the Senior Agreement.
ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER
As long as any Obligations shall remain unpaid, unless the Lender
shall otherwise consent in writing:
5.1. FINANCIAL STATEMENTS. The Company shall deliver to the Lender
in form and substance satisfactory to the Lender:
(a) as soon as available, but not later than one hundred
twenty (120) days after the end of each fiscal year of the Company, a
copy of the audited consolidated balance sheet of the Company as at
the end of such year and the related consolidated statements of
income, stockholders' equity and cash flow for such fiscal year,
setting forth in each case in comparative form the figures for the
previous year, all in reasonable detail and accompanied by the
opinion of Arthur Andersen LLP or another nationally recognized
independent public accounting firm, which report shall state that
such consolidated financial statements present fairly the financial
position for the periods indicated in conformity with GAAP applied on
a basis consistent with prior years;
(b) as soon as available, but in any event not later than
ninety (90) days after the end of each fiscal year of the Company, an
unaudited consolidating balance sheet of the Company and each of its
Subsidiaries as at the end of such fiscal year and the related
consolidating statement of income such fiscal year, all in reasonable
detail certified by an appropriate Responsible Officer as having been
used in connection with the preparation of the financial statements
referred to in paragraph (a) of this Section;
(c) as soon as available, but in any event not later than
forty-five (45) days after the end of each calendar month, unaudited
monthly and year-to-date reconciled statements of income and balance
sheets of the Company and its consolidated Subsidiaries
(consolidated, consolidating and by facility) as of the end of such
month, all in reasonable detail and certified by the appropriate
Responsible Officer of the Company as being complete and correct and
fairly presenting in accordance with GAAP the financial position and
results of operations of the Company and its Subsidiaries.
5.2. CERTIFICATES; OTHER INFORMATION. The Company shall furnish to
the Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 5.1(a) above, 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) not later than forty-five (45) days after the end of each
fiscal quarter, a certificate of a Responsible Officer (i) stating
that, to the best of such officer's knowledge, the Company, during
such quarter, has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement to be observed, performed or satisfied by it, and that such
officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate, and (ii) showing in detail
the calculations supporting such statement in respect of Sections
6.10 and 6.11;
(c) concurrently with the delivery of the financial statements
referred to in Section 5.1(c) and (d), a monthly backlog report and
contract profit and loss statement for the Company and each of its
Subsidiaries prepared in the ordinary course of business;
(d) as soon as available but in any event not later than
thirty (30) days after the end of each fiscal year, annual
projections by quarter of the budgeted financial statements of the
Company and its Subsidiaries;
(e) as soon as available but in any event not later than one
hundred twenty (120) days after the end of each fiscal year, copies
of all management letters issued by the Company's independent public
accountants with respect to such year;
(f) promptly after the same are sent, copies of all financial
statements and reports which the Company sends to its stockholders,
and promptly after the same are filed, copies of all financial
statements and regular, periodical or special reports which the
Company may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority
regulating securities; and
(g) concurrently with the delivery of the financial statements
referred to in Section 5.1(c) above, a certificate of a Responsible
Officer of the Company certifying that the Company and its
Subsidiaries have paid each and every installment of rent due under
each and every facility lease;
(h) as soon as available, copies of all leases of real
property in Birmingham and Dothan entered into between the Company
and any lessor and copies of all projections of rent due for the
current lease year that have been provided to any lessor;
(i) not later than thirty (30) days after being delivered to
the relevant authority, copies of all audit letters from the
Company's independent auditors with respect to the fairness of the
Company's schedule of gross sales which is the basis for its rental
payment calculations;
(j) ten days' prior notice of any lease payment that the
Company is unable to make;
(k) no later than Thursday of each week (and more frequently
at the request of the Lender), in a form satisfactory to Lender, a
cash flow summary, a payables aging report and an aged summary of
held checks, in each case with respect to the prior week;
(l) no later than Thursday of each week, a cash flow forecast,
in the form previously delivered to the Lender, for the succeeding
two months which, in the event Lender so requests, will have been
reviewed by a public accounting firm reasonably satisfactory to
Lender;
(m) as soon as available, a copy of any offering memorandum,
term sheet, prospectus or similar document used, or intended to be
used, by the Company to arrange for debt or equity financing of any
kind; and
(n) promptly, such additional financial and other information
as the Lender may from time to time reasonably request.
5.3. PRESERVATION OF CORPORATE EXISTENCE. The Company shall, and
shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of the state of
incorporation except as permitted by Section 6.3;
(b) preserve and maintain in full force and effect all rights,
privileges, qualifications, licenses and franchises necessary or
desirable in the normal conduct of its business, the non-preservation
of which would have a Material Adverse Effect on the Company and its
Subsidiaries, and except for transactions permitted by Section 6.3
and sales of assets permitted by Section 6.2;
(c) use its reasonable efforts, in the ordinary course and
consistent with past practice, to preserve its business organization
and preserve the goodwill and business of the customers, suppliers
and others having business relations with it, the non-preservation of
which would have a Material Adverse Effect on the Company and its
Subsidiaries; and
(d) preserve all of its registered trademarks, trade names and
service marks, the non-preservation of which would have a Material
Adverse Affect on the Company and its Subsidiaries.
5.4. MAINTENANCE OF PROPERTY. The Company shall maintain, and shall
cause each of its Subsidiaries to maintain, and preserve all its property
which is used or useful in its business in good working order and
condition, ordinary wear and tear excepted, and make all necessary repairs
thereto and renewals and replacements thereof except where the failure to
do so would not, in the aggregate, have a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole.
5.5. INSURANCE. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable insurers,
insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the
same or similar business, of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons,
including without limitation, workers' compensation insurance, public
liability and property and casualty insurance. The Company shall
maintain, and shall cause each Subsidiary to maintain, flood insurance on
any of its improved real estate, if the law so requires.
5.6. PAYMENT OF OBLIGATIONS. The Company shall, and shall cause its
Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective material obligations and liabilities,
including without limitation:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate
reserves in accordance with GAAP are being maintained by the Company
or such Subsidiary; and
(b) all lawful claims which, if unpaid, would by law become a
Lien upon its property, except as permitted by Section 6.1.
5.7. COMPLIANCE WITH LAWS. The Company shall comply, and shall
cause each Subsidiary to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over
it or its business, except such:
(a) as may be contested in good faith or as to which a bona
fide dispute may exist; and
(b) as to which such failure to comply would not have a
Material Adverse Effect on the Company and its Subsidiaries.
5.8. INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company will
maintain, and will cause each Subsidiary to maintain, proper books of
records and account, in which full, true and correct entries in conformity
with GAAP consistently applied shall be made of all financial transactions
and the assets and business of the Company and such Subsidiaries. The
Company will permit, and will cause each Subsidiary to permit,
representatives of the Lender to visit and inspect any of their respective
properties, to examine their respective corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss
their respective affairs, finances and accounts with their respective
directors, officers, employees and independent public accountants, all at
such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Company;
provided, however, during the continuation of an Event of Default the
Lender may visit and inspect at the expense of the Company such properties
at any time during business hours and without advance notice.
5.9. NOTICES. The Company shall promptly give notice to the Lender:
(a) of the occurrence of any Default or Event of Default
accompanied by a certificate specifying the nature of such Default or
Event of Default, the period of existence thereof and the action that
the Company has taken or proposes to take with respect thereto;
(b) of any other litigation or proceeding affecting the
Company or any of its Subsidiaries which the Company would be
required to report to the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, within four days after
reporting the same to the Securities and Exchange Commission;
(c) any ERISA Event affecting the Company or any member of its
Controlled Group (but in no event more than ten (10) days after such
ERISA Event) together with (i) a certificate of the Company setting
forth the details of such ERISA Event and the action which the
Company or such member proposes to take with respect thereto; (ii) a
copy of any notice with respect to such ERISA Event that may be
required to be filed with the PBGC; or (iii) any notice delivered by
the PBGC to the Company or any member or its Controlled Group with
respect to such ERISA Event; and
(d) upon, but in no event later than ten (10) days after,
becoming aware of (i) any and all enforcement, cleanup, removal or
other governmental or regulatory actions instituted, completed or
threatened against the Company or any Subsidiary or any of their
properties pursuant to any applicable Hazardous Materials Laws, (ii)
all claims made or threatened by any third party against the Company
or any Subsidiary with respect to or because of its or their property
relating to damage, responsibility, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials
(the matters set forth in clauses (i) and (ii) above are hereinafter
referred to as "Hazardous Materials Claims"), and (iii) any
environmental or similar condition on any real property adjoining or
in the vicinity of the property of the Company or any Subsidiary that
could reasonably be anticipated to cause such property or any part
thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use of such property under any
Hazardous Material Laws;
(e) promptly following receipt by the Company of notice from
the lender under the Senior Agreement, a copy of such notice.
Each notice pursuant to this Section shall be accompanied by a
statement by a Responsible Officer of the Company setting forth details of
the occurrence referred to therein and stating what action the Company
proposes to take with respect thereto.
5.10. ACCOUNTING CHANGES. The Company shall not, and shall not
permit any of its Subsidiaries to, make any significant change in
accounting treatment and reporting practices from those used in the
preparation of their respective December 31, 1996 financial statements, or
change the fiscal year of the Company or any of its Subsidiaries from
December 31, except as required by GAAP.
5.11. HAZARDOUS MATERIALS.
(a) The Company will, and will cause each Subsidiary to,
conduct its operations and keep and maintain its property in material
compliance with all Hazardous Materials Laws.
(b) The Company will conduct, and cause to be conducted, the
ongoing operations of the Company and its Subsidiaries in a manner that
will not give rise to the imposition of liability, or require
expenditures, under or in connection with any Hazardous Materials Law,
except for any liabilities or expenditures which, in the aggregate, would
not have a reasonable likelihood of having a material adverse effect on
the business, operations, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole.
ARTICLE VI
NEGATIVE COVENANTS OF THE BORROWER
As long as any Obligations shall remain unpaid, without the written
consent of the Lender:
6.1. LIMITATION ON LIENS. The Company shall not directly or
indirectly, nor shall it permit any of its Subsidiaries to, make, create,
incur, assume or suffer to exist any Lien upon or with respect to any part
of its property or assets, whether now owned or hereafter acquired, or
offer to agree to do so except for:
(a) any Lien existing on the property of the Company or any of
its Subsidiaries on the Closing Date and set forth in the Disclosure
Schedules securing Indebtedness outstanding on such date;
(b) any Lien created under the Loan Documents or the Senior
Agreement;
(c) Liens for taxes, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or which
are being contested in good faith by appropriate proceedings upon
stay of execution of the enforcement thereof and for which adequate
reserves in accordance with GAAP or other appropriate provisions have
been made;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the
ordinary course of business which are not delinquent or remain
payable without penalty or which are being contested in good faith
and by appropriate proceedings;
(e) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(f) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which do not
in any case materially interfere with the ordinary conduct of the
businesses of the Company or of its Subsidiaries;
(h) Liens on assets of Persons which become Subsidiaries after
the date of this Agreement; provided, however, that such Liens
existed at the time the respective Persons became Subsidiaries and
were not created in anticipation thereof;
(i) Liens on any asset securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of
acquiring such asset; provided, however, that any such Lien attaches
to such asset concurrently with within ninety (90) days after the
acquisition or refinancing thereof;
(j) Liens on any asset securing Indebtedness permitted to be
incurred pursuant to Section 6.5;
(k) Liens upon specific items of inventory or other goods and
proceeds securing obligations in respect of bankers' acceptances
issued or created to facilitate the purchase, shipment or storage of
such inventory or other goods;
(l) 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;
(m) Judgment Liens not giving rise to an Event of Default;
(n) Liens securing reimbursement obligations with respect to
letters of credit opened in the ordinary course of business;
(o) Liens encumbering property or assets under construction or
arising from progress or partial payments by a customer of the
Company or one of its Subsidiaries relating to sales of goods or
services in the ordinary course; and
(p) Liens arising out of consignment or similar arrangements
for the sale of goods entered into by the Company or any of its
Subsidiaries in the ordinary course of business.
6.2. DISPOSITION OF ASSETS. The Company shall not, nor shall it
permit any of its Subsidiaries to, directly or indirectly, sell, assign,
lease, convey, transfer or otherwise dispose of (whether in one or a
series of transactions) all or a substantial part of its assets, business
or property (including without limitation, accounts and notes receivable
(with or without recourse)) or enter into any agreement to do any of the
foregoing except:
(a) dispositions of inventory, or used, worn-out or surplus
property, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
traded in for credit against the purchase price of similar
replacement equipment or the proceeds of such sale are reasonably
promptly applied to the purchase price of such replacement equipment;
and
(c) dispositions not otherwise permitted hereunder which are
made for fair market value, if, at the time of such disposition, no
Event of Default has occurred or would result therefrom and any
required loan prepayment is made.
6.3. CONSOLIDATIONS AND MERGERS. The Company shall not, and shall
not permit any of its Subsidiaries to, merge, consolidate or combine
directly or indirectly with or into any Person except (a) any Subsidiary
of the Company may merge, consolidate or combine with or into, or transfer
assets to the Company or any wholly-owned Subsidiary of the Company, and
in the case of any such merger to which the Company is a party, the
Company is the surviving corporation and (b) the Company may merge
consolidate or combine with another entity if (i) the Company is the
corporation surviving the merger or the corporation into which the Company
shall be merged or formed by any such consolidation shall assume the
Company's obligations hereunder in an agreement or instrument satisfactory
in form and substance to the Lender and (ii) if immediately after giving
effect thereto, no Default or Event of Default would exist.
6.4. ACQUISITIONS AND INVESTMENTS.
(a) The Company shall not purchase or acquire, or permit any
of its Subsidiaries to purchase or acquire, or make any commitment
therefor, any capital stock, equity interest, obligations or other
security interest of, any Person (including, without limitation, any
Subsidiary), if any term, condition or covenant of this Agreement would be
breached thereby.
(b) The Company shall not directly or indirectly, and shall
not permit its Subsidiaries to, make any advance, loan, extension of
credit or advance or capital contribution to or any other investment in,
any Person including, without limitation, any Affiliates of the Company,
except for investments in Cash Equivalents, investment in wholly-owned
Subsidiaries or any other investment if, after giving effect thereto, any
term, condition or covenant of this Agreement would be breached thereby.
6.5. LIMITATION ON INDEBTEDNESS. The Company shall not, and shall
not permit its Subsidiaries to, create, incur, assume, guaranty, suffer to
exist, or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:
(a) Indebtedness outstanding pursuant to this Agreement;
(b) after the Indebtedness outstanding pursuant to this
Agreement and the Indebtedness outstanding pursuant to the Senior
Agreement have been reduced by an aggregate amount of $5,000,000
after the Closing Date, additional Indebtedness not exceeding
$10,000,000 which may be designated senior to the Note, on terms
satisfactory to the Lender;
(c) Indebtedness existing on the Closing Date and set forth in
the Disclosure Schedules;
(d) Indebtedness secured by Liens permitted by Section 6.1(h),
(i), (j), (k), (n) and (o); and
(e) Indebtedness incurred in connection with leases permitted
pursuant to Section 6.8;
(f) Indebtedness represented by interest rate contracts or
Contingent Obligations permitted by Section 6.7;
(g) Indebtedness evidenced by letters of credit in an amount
not to exceed $500,000 at any one time outstanding;
(h) Indebtedness issued to the holders of the Amended Warrant
issued to the Lender in full or partial redemption or purchase
thereof; and
(i) after the principal of all Indebtedness under the Senior
Agreement and this Agreement have been reduced by an aggregate amount
of $5,000,000 after the Closing Date, additional Indebtedness not
exceeding $10,000,000 which may be designated senior to the
Subordinated Note, on terms satisfactory to the Lender.
6.6. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall
not permit any of its Subsidiaries to, after the date hereof, enter into
any transaction with any Affiliate of the Company or of any such
Subsidiary except as contemplated by this Agreement or in the ordinary
course of business and pursuant to the reasonable requirements of the
business of the Company or such Subsidiary and upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than would
obtain in a comparable arm's-length transaction with a Person not an
Affiliate of the Company or such Subsidiary.
6.7. CONTINGENT OBLIGATIONS. The Company shall not, nor shall it
permit any Subsidiaries to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Contingent Obligations with respect to Liens or
Indebtedness permitted under Sections 6.1(e), (f) and (1) and 6.5;
(c) interest rate contracts;
(d) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in the Disclosure
Schedules;
(e) Contingent Obligations with respect to Indebtedness under
the Senior Agreement;
(f) reimbursement obligations under letters of credit issued
in the ordinary course of business;
(g) reimbursement obligations due bonding companies incurred
in the ordinary course of business;
(h) penalty and indemnification provisions in contracts
entered into in connection with the offer or sale of securities of
the Company or otherwise in the ordinary course of business; and
(i) penalty and indemnification provisions contained in the
Loan Documents.
6.8. LEASE OBLIGATIONS. The Company shall not, nor shall it permit
any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease except
for:
(a) leases of the Company and its Subsidiaries in existence on
the Closing Date and listed on the Disclosure Schedules and any
renewal, extension or refinancing thereof;
(b) any operating leases entered into by the Company or any of
its Subsidiaries in the ordinary course of business;
(c) any sale leaseback entered into by the Company or any of
its Subsidiaries; provided, that:
(i) immediately prior to giving effect to such lease, the
property or asset subject to such lease was sold by the Company or
any such Subsidiary to the lessor under such lease for at least its
fair market value;
(ii) the Net Proceeds are applied in accordance with
Section 2.5 hereof; and
(iii) no Default or Event of Default would occur as a
result of such sale and subsequent lease; or
(d) any other financing or Capital Lease entered into by the
Company or any of its Subsidiaries if no Default or Event of Default
would occur as a result of such lease.
6.9. RESTRICTED PAYMENTS. The Company shall not, and shall not
permit any Subsidiary to, make any Restricted Payment except (i) the
Company and any Subsidiary may declare and make dividend payments or other
distributions payable solely in its common stock, (ii) the Company may
purchase, redeem or otherwise acquire shares of its Common Stock or
warrants or options to acquire any such shares with the proceeds received
from the substantially concurrent issue of new shares of its Common Stock
or preferred stock, (iii) the Company may declare or pay cash dividends to
its stockholders and purchase, redeem or otherwise acquire shares of its
capital stock or warrants, rights or options to acquire any such shares
for cash solely out of 50% of net income of the Company and its
Subsidiaries arising after the Indebtedness under the Senior Agreement has
been repaid and computed on a cumulative basis; provided, that,
immediately after giving effect to such proposed action, no Event of
Default or event which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default would exist, (iv) any
Subsidiary of the Company may pay dividends to the Company or any
wholly-owned Subsidiary of the Company, and (v) the Company may redeem or
repurchase the Amended Warrant, or issue new Indebtedness in exchange
therefor, in each case pursuant to the terms thereof.
6.10. TANGIBLE NET WORTH. The Company shall not permit its
consolidated Tangible Net Worth at the end of any fiscal quarter ending
after March 31, 1997 to be less than the sum of (a) its consolidated
Tangible Net Worth at March 31, 1997, plus (b) 100% of the Net Proceeds of
the issuance and sale of any equity securities by the Company or any
Affiliate thereof after December 31, 1996, plus or minus (c) 100% of any
change in shareholders' equity accounts resulting from changes in
liabilities related to the mandatory redemption provision of the Amended
Warrant after December 31, 1996, but less (d):
(i) $750,000 as of June 30, 1997; and
(ii) as of any quarter end thereafter, $750,000 plus 50%
of all net income (calculated quarterly, on a cumulative basis,
without allowance for net losses) earned in all quarters ending after
June 30, 1997.
6.11. FIXED CHARGE COVERAGE RATIO. The Company shall not permit its
ratio of EBITDA to the sum of the current portion of long term debt
("CPLTD") plus Consolidated Net Interest Expense, as determined as of the
end of each fiscal quarter, to be less than the respective ratio set forth
below.
(a) For the calculation performed as of June 30, 1997, EBITDA
shall be four (4) times EBITDA for the fiscal quarter ending on such date;
Consolidated Net Interest Expense shall be four (4) times Consolidated Net
Interest Expense for the fiscal quarter ending on such date; and CPLTD
shall be the actual CPLTD shown on the Company's June 30, 1997 balance
sheet;
(b) For the calculation performed as of September 30, 1997,
EBITDA shall be two (2) times EBITDA for the two fiscal quarters ending on
such date; Consolidated Net Interest Expense shall be two (2) times
Consolidated Net Interest Expense for the two fiscal quarters ending on
such date; and CPLTD shall be the actual CPLTD shown on the Company's
September 30, 1997 balance sheet; and
(c) For the calculation performed as of December 31, 1997,
EBITDA shall be the result of multiplying the fraction four-thirds (4/3)
times EBITDA for the three fiscal quarters ending on such date;
Consolidated Net Interest Expense shall be the result of multiplying the
fraction four-thirds (4/3) times Consolidated Net Interest Expense for the
three fiscal quarters ending on such date; and CPLTD shall be the actual
CPLTD shown on the Company's December 31, 1997 balance sheet; and
(d) For the calculations performed thereafter, EBITDA shall be
EBITDA for the four fiscal quarters ending on such date; Consolidated Net
Interest Expense shall be Consolidated Net Interest Expense for the four
fiscal quarters ending on such date; and CPLTD shall be the actual CPLTD
shown on the Company's balance sheet as of such date.
DATE RATIO
June 30, 1997 0.17 to 1.00
September 30, 1997 0.82 to 1.00
December 31, 1997 0.95 to 1.00
each quarter end thereafter 1.85 to 1.00
6.12. CHANGE IN BUSINESS. Except as permitted by Section 6.3, the
Company shall not, and shall not permit any of its Subsidiaries to, make
any material changes in any of its business objectives, purposes, or
operations, except as otherwise permitted hereunder.
6.13. OTHER INDEBTEDNESS. The Company shall not create or suffer to
exist, or permit any of its Subsidiaries to create or suffer to exist, any
Indebtedness which is (i) subordinate in right of payment to the Senior
Indebtedness and (ii) senior in right of payment to the Loan.
ARTICLE VII
EVENTS OF DEFAULT
7.1. EVENTS OF DEFAULT. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Company shall fail to make any payment of principal on
the Note when the same becomes due and payable; or
(b) The Company shall fail to make any payment of interest on
the Note or any other Obligations due hereunder or under any other
Loan Documents for 20 days after the same becomes due and payable; or
(c) Any representation or warranty made by the Company herein
or in any other Loan Document or by the Company (or any of its
officers) in connection with this Agreement or any other Loan
Document shall prove to have been incorrect in any material respect
when made; or
(d) The Company shall fail to perform or observe (i) any term,
covenant or agreement contained in Sections 6.2, 6.3, 6.5, 6.9, 6.10
or 6.11, or (ii) any other term, covenant or agreement contained in
this Agreement or any other Loan Document on its part to be performed
or observed, and such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to the Company by
the Lender; or
(e) The Company or any of its Subsidiaries shall fail to pay,
after the expiration of any applicable grace period, any principal of
or premium or interest on any Indebtedness, the aggregate outstanding
principal amount of which is at least $2,000,000 (but in each case
excluding Indebtedness evidenced by the Note, of the Company or such
Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), or any other event shall occur or
condition shall exist under any agreement or instrument relating to
any such Indebtedness if the maturity of such Indebtedness is
accelerated as a result of such event or condition; or any such
Indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof; or
(f) The Company or any of its Material Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against the Company or any of its Material
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it
or for any substantial part of its property and in the case of any
such proceeding instituted against the Company or any of its Material
Subsidiaries such proceeding shall be stayed or dismissed within 60
days from the date of institution thereof; or the Company or any of
its Material Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this subsection (f);
or
(g) Any judgment or order for the payment of money, to the
extent not covered by insurance and not paid in excess of $2,000,000
shall be rendered and be enforceable against the Company or any of
its Subsidiaries and either (A) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order and a stay
of such enforcement proceedings, by reason of a pending appeal or
otherwise, shall not be in effect or (B) there shall be any period of
30 consecutive days during which such judgment or order shall be
unsatisfied or unbonded or a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(h) Matthew L. Gold shall voluntarily cease to maintain the
power to vote or direct the voting of securities of the Company
having, in the aggregate, at least twenty-five percent (25%) of the
aggregate voting power with respect to the election of the Company's
Directors; or
(i) The Company or any ERISA Affiliate shall fail to pay when
due an amount or amounts aggregating in excess of One Million dollars
($1,000,000) which it shall have become liable to pay under Title IV
of ERISA; or notice of intent to terminate a Plan or Plans having an
accumulated funding deficiency (as defined in ERISA) in excess of One
Million dollars ($1,000,000) shall be filed under Title IV of ERISA,
or the PBGC shall institute proceedings under Title IV of ERISA to
terminate a Plan or Plans, having an aggregate accumulated funding
deficiency in excess of One Million dollars ($1,000,000) or a
proceeding shall be instituted by a fiduciary of any such Plan or
Plans against any such Person to enforce Section 515 of ERISA to
collect contributions in excess of One Million dollars ($1,000,000);
or a condition shall exist by reason of which the PBGC would be
entitled under Section 4042 of ERISA to obtain a decree adjudicating
that a Plan or Plans having an aggregate accumulated funding
deficiency in excess of One Million dollars ($1,000,000) must be
terminated; or
(j) any material provision of any Collateral Document shall
for any reason cease to be valid and binding on or enforceable
against the Company or any Subsidiary or the Company or any
Subsidiary shall state in writing that it does not consider itself
bound by any provision in any Collateral Document or shall bring an
action to limit its obligations or liabilities under any Collateral
Document;
then, subject to Article VIII hereof, and in any such event, (i) the
Lender may, by notice to the Company, declare any obligation of the Lender
to extend credit or any other financial accommodation to the Company to be
terminated, whereupon the same shall forthwith terminate, and (ii) the
Lender, by notice to the Company (an "Acceleration Notice"), may declare
the Note, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Note, all such
interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by the Company; provided,
however, that in the event of an actual or deemed entry of an order for
relief with respect to the Company or any of its subsidiaries under the
Federal Bankruptcy Code, (A) the obligation of the Lender to extend credit
or any other financial accommodation to the Company shall automatically be
terminated and (B) the Note, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly
waived by the Company. Notwithstanding the above, so long as the Senior
Agreement is in effect, the declaration referred to in the preceding
sentence shall become effective on the earlier of (i) the fifth Business
Day after delivery of the Acceleration Notice to the lender under the
Senior Agreement and (ii) acceleration by the lender under the Senior
Agreement of the Company's obligations under the Senior Agreement.
ARTICLE VIII
SUBORDINATION OF NOTE
8.1. NOTE SUBORDINATE TO SENIOR INDEBTEDNESS. The provisions of
this Article apply notwithstanding anything to the contrary contained in
the Note or this Agreement. The Company covenants and agrees, and the
Lender, including each assignee thereof, by such holder's acceptance
thereof, likewise covenants and agrees, that, to the extent and in the
manner hereinafter set forth in this Article, the indebtedness represented
by the Note and the payment of the principal of (and premium, if any), and
the interest on all of the Note and all other Obligations hereunder
(collectively, the "Subordinated Indebtedness") are hereby expressly made
subordinate and subject in right of payment to the prior payment in full
of all Senior Indebtedness. This Article VIII constitutes a continuing
offer to all Persons who become holders of, or continue to hold, Senior
Indebtedness, each of whom is an obligee hereunder and is entitled to
enforce such holder's rights hereunder, subject to the provisions hereof,
without any act or notice of acceptance hereof or reliance hereon.
8.2. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
(a) In the event of any Insolvency or Liquidation Proceeding,
(1) all Senior Indebtedness under or with respect to the Senior Agreement
and (2) all amounts then payable in respect of any other Senior
Indebtedness shall first be paid in full before the holder of the Note is
entitled to receive any direct or indirect payment or distribution of any
cash, property or securities (excluding Reorganization Securities) on
account of principal of (or premium, if any) or interest on the Note or of
any other Subordinated Indebtedness.
(b) The holders of Senior Indebtedness, or their
Representatives, shall be entitled to receive (pro rata on the basis of
the respective amounts of such Senior Indebtedness held by them) directly,
for application to the payment thereof (to the extent necessary to pay all
such Senior Indebtedness in full after giving effect to any substantially
concurrent payment or distribution to the holders of such Senior
Indebtedness), any payment or distribution of any kind or character,
whether in cash, property or securities (excluding Reorganization
Securities but including any payment or distribution, except
Reorganization Securities, which may be payable or deliverable by reason
of the payment of any other Indebtedness of the Company being subordinated
to the payment of the Note) which may be payable or deliverable in respect
of the Note in any such insolvency or Liquidation Proceeding.
(c) In the event that, notwithstanding the foregoing
provisions of this Section 8.2, any holder of any Subordinated
Indebtedness shall have received any payment from or distribution of
assets of the Company or the estate created by the commencement of any
such insolvency or Liquidation Proceeding, of any kind or character in
respect of the Note, whether in cash, property or securities (excluding
Reorganization Securities but including any payment or distribution,
except Reorganization Securities, which may be payable or deliverable by
reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Note) before all Senior Indebtedness is
paid in full, then and in such event such payment or distribution shall be
received and held in trust for and shall be paid over, to the holders (or
their Representatives) of the Senior Indebtedness (pro rata on the basis
of the respective amounts of such Senior Indebtedness held by them)
remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full after giving effect to any substantially concurrent
payment or distribution to the holders (or their Representatives) of such
Senior Indebtedness, for application to the payment in full of such Senior
Indebtedness.
8.3. DEFAULT ON SENIOR INDEBTEDNESS.
(a) If there exists a default in the payment when due (whether
at maturity or upon acceleration or mandatory prepayment, or on any
principal installment payment date or interest payment date, or otherwise)
of any Senior Indebtedness (a "Payment Default") and such Payment Default
shall not have been cured, or such default, or the benefits of this
sentence, shall not have been waived in writing by or on behalf of the
holders (or their Representatives) of such Senior Indebtedness, then no
direct or indirect payment by or on behalf of the Company on account of
principal of (or premium, if any) or interest on the Note, or of any other
amounts, which the holder of the Note would then be entitled to receive,
but for the provisions of this Section 8.3(a), shall be made until all
amounts of Senior Indebtedness then due and payable have been paid in
full.
(b) The Company may not, directly or indirectly, make any
payment on account of the principal of (or premium, if any) or interest on
the Note, or any other Subordinated Indebtedness, during the period (a
"Deferral Period") from the date the Company receives from the lender
under the Senior Agreement or any holder (or Representative) of Senior
Indebtedness an effective notice (a "Deferral Notice") of the existence of
any event of default under the Senior Agreement (other than a Payment
Default) that permits the acceleration of the maturity thereof (a
"Covenant Default"), until the earlier of (i) the date such Covenant
Default is cured (if capable of being cured), waived in writing or
otherwise ceases to exist in accordance with the terms of the Senior
Agreement or document evidencing such Senior Indebtedness, (ii) the date
application of this Section 8.3(b) has been waived in writing by the
lender under the Senior Agreement or such holder (or Representative) in
accordance with the terms of the Senior Agreement or document evidencing
such Senior Indebtedness, respectively, and (iii) the 179th day after
receipt by the Company of such Deferral Notice; provided, however, that
(x) only one Deferral Notice relating to the same Covenant Default may be
given, (y) no subsequent Deferral Notice may be given with respect to any
Covenant Default existing at the time an effective Deferral Notice is
given and (z) if any such Deferral Notice has been given, no subsequent
Deferral Notice with respect to any number of different Covenant Defaults
shall be effective until the later of (X) the date such subsequent
Deferral Notice is received by the Company or (Y) the 365th day after
receipt of the then most recent prior effective Deferral Notice.
(c) Upon termination of any Deferral Period the Company shall
resume payments on account of principal of (and premium, if any) and
interest on the Note, and of all other Subordinated Indebtedness, subject
to the obligation of the Company and the holder of Note to pay over to the
holders of Senior Indebtedness amounts otherwise payable on account of the
principal of (premium if any) and interest on the Note, and of all other
Subordinated Indebtedness, pursuant to the provisions of, and in the
circumstances specified in, this Article VIII.
(d) In the event that, notwithstanding the foregoing
provisions of this Section 8.3, any payment shall be made by or on behalf
of the Company or any of its Subsidiaries from any of their assets and
received by any holder of the Note at a time when such payment was pro-
hibited by the provisions of this Section 8.3, then such payment shall be
held in trust for the benefit of and shall be immediately paid over to the
holders of Senior Indebtedness (pro rata, on the basis of the respective
amount of such Senior Indebtedness held by them) remaining unpaid or their
respective Representatives, for application to the payment of all Senior
Indebtedness in full in accordance with its terms (after giving effect to
any prior or substantially concurrent payment to the holders (or their
Representatives) of such Senior Indebtedness).
(e) The provisions of this Section 8.3 shall not modify or
limit in any way the application of Section 8.2. The provisions of
Sections 8.3(b) and (c) shall not modify or limit in any way the
application of Section 8.3(a).
8.4. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS. After
all amounts payable under or in respect of Senior Indebtedness are paid in
full, the holder of the Note shall be subrogated to the extent of the
payments or distributions made to the holders of, or otherwise applied to
payment of, such Senior Indebtedness pursuant to the provisions of this
Article VIII (equally and ratably with the holders of all indebtedness of
Company which by its express terms is subordinate and subject in right of
payment to Senior Indebtedness to substantially the same extent as the
Note are so subordinate and subject in right of payment and which is
entitled to like rights and subrogation), and to the rights of the holders
of such Senior Indebtedness (or their respective Representatives) to
receive payments and distributions of cash, property and securities
applicable to the Senior Indebtedness until the principal of (and premium,
if any) and interest on the Note, and all other Subordinated Indebtedness,
shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness (or their
respective Representatives) of any cash, property or securities to which
the holder of the Note would be entitled except for the provisions of this
Article VIII, and no payments over pursuant to the provisions of this
Article VIII to the holders of Senior Indebtedness by the holder of Note,
shall, as among Company and its creditors (other than between the holders
of Senior Indebtedness (or their Representatives) and the holder of the
Note), be deemed to be a payment or distribution by Company to or on
account of the Senior Indebtedness, it being understood that the
provisions of this Article VIII are solely for the purpose of defining the
relative rights of the holders of Senior Indebtedness on the one hand and
the holder of the Note on the other hand.
If any payment or distribution to which the holder of the Note
would otherwise have been entitled but for the provisions of this Article
VIII shall have been applied, pursuant to the provisions of this Article
VIII, to the payment of all amounts payable under the Senior Indebtedness,
then and in such case, the holder of the Note shall be entitled to receive
(equally and ratably with the holders of all indebtedness of Company which
by its express terms is subordinate and subject in right of payment to
Senior Indebtedness to substantially the same extent as the Note are
subordinate and subject in right of payment and which is entitled to like
rights) from the holders of such Senior Indebtedness any substantially
contemporaneous payments or distributions received by such holders of
Senior Indebtedness in excess of the amount sufficient to pay in full all
obligations payable under or in respect of such Senior Indebtedness.
8.5. RIGHTS OF HOLDERS NOT TO BE IMPAIRED. Nothing contained in
this Article VIII or elsewhere in this Agreement or in the Note is
intended to or shall:
(a) impair, as among Company and its Subsidiaries, their
creditors (other than holders of Senior Indebtedness and the holder
of the Note), the obligation of Company, which is absolute and
unconditional to pay to the holder of the Note the principal of (and
premium, if any) and interest on the Note as and when the same shall
become due and payable in accordance with their terms; or
(b) affect the relative rights against the Company of the
holder of the Note and creditors of Company (other than the holders
of Senior Indebtedness); or
(c) prevent the holder of the Note from exercising all
remedies otherwise permitted by applicable law upon default under
this Agreement, subject to the rights, if any, under this Article
VIII of the holders of Senior Indebtedness (or their Representatives)
to receive payments or distributions otherwise payable or deliverable
to, or received by, the holder of the Note upon the exercise of any
such remedy.
8.6. NO WAIVER OF SUBORDINATION PROVISIONS. No right of any present
or future lender under the Senior Agreement, holder of any Senior
Indebtedness, or Representative thereof, to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company or any of their
respective Subsidiaries or by any act or failure to act by any such lender
under the Senior Agreement, holder or Representative thereof, or by any
noncompliance by Company with the terms, provisions and covenants of this
Agreement or the Note regardless of any knowledge thereof which any such
lender under the Senior Agreement, holder or Representative thereof may
have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the lender under the Senior Agreement or the holders of Senior
Indebtedness (or their Representatives, if applicable), may, at any time
and from time to time, without the consent of or notice to the holder of
the Note, without incurring responsibility to any holder of the Note and
without impairing or releasing the subordination and other benefits
provided in this Article VIII or the obligations hereunder of the holder
of the Note to the holders of Senior Indebtedness, do any one or more of
the following, all without notice to the holder of the Note and even if
any right of reimbursement or subrogation or other right or remedy of the
holder of the Note is affected, impaired or extinguished thereby:
(1) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend or alter,
the terms of any Senior Indebtedness, any security therefor or
guaranty thereof or any liability of the Company or any Subsidiary
thereof, or any other guarantor to such holder, or any liability
incurred directly or indirectly in respect thereof, or otherwise
amend, renew, exchange, modify or supplement in any manner Senior
Indebtedness or any instrument evidencing or guaranteeing or securing
the same or any agreement under which Senior Indebtedness is
outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and any order any property
pledged, mortgaged or otherwise securing Senior Indebtedness or any
liability of the Company or any of its Subsidiaries, or any other
guarantor to such holder, or any liability incurred directly or
indirectly in respect thereof;
(3) settle or compromise any Senior Indebtedness or any other
liability of the Company or any of its Subsidiaries, or any other
guarantor of the Senior Indebtedness to such holder or any security
therefor or any liability incurred directly or indirectly in respect
thereof and apply any sums by whomsoever paid and however realized to
any liability (including, without limitation, Senior Indebtedness) in
any manner or order; and
(4) fail to take or to record or otherwise perfect, for any
reason or for no reason, any lien or security interest securing
Senior Indebtedness by whomsoever granted, exercise or delay in or
refrain from exercising any right or remedy against the Company or
any of its Subsidiaries, or any security or any other guarantor or
any other Person, elect any remedy and otherwise deal freely with the
Company or any of its Subsidiaries, and any security and any other
guarantor of the Senior Indebtedness or any liability of the Company
or any of its Subsidiaries, or any other guarantor to such holder or
any liability incurred directly or indirectly in respect thereof.
8.7. NOTICE TO HOLDER OF NOTE. The Company shall give prompt
written notice to the holder of the Note of any fact known to the Company
which would prohibit the making of any payment to or in respect of the
Note, but failure to give such notice shall not affect the subordination
of the Subordinated Indebtedness to the Senior Indebtedness provided in
this Article VIII. Notwithstanding the provisions of this Article VIII or
any other provision of this Agreement or the Note, the holder of Note
shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or in respect of the Note,
unless and until such holder shall have received written notice thereof
from the Company, the lender under the Senior Agreement or a holder of
Senior Indebtedness or, when applicable, the Representative therefor,
together, in the case of any holder of Senior Indebtedness or any
Representative therefor other than the lender under the Senior Agreement,
with reasonable proof satisfactory to such holder of such holding of
Senior Indebtedness or of the authority of such Representative; and, prior
to the receipt of any such written notice, subject to the provisions of
this Article VIII, the holders of the Note shall be entitled in all
respects to assume that no such facts exist. Nothing in this Section 8.7
is intended to or shall relieve any holder of the Note from the
obligations imposed under Sections 8.2 and 8.3 with respect to moneys or
other distributions received in violation of the provisions thereof.
8.8. EVIDENCE OF STATUS. Upon any payment or distribution of assets
of the Company referred to in Section 8.2, the holder of the Note shall be
entitled to rely upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment
or distribution delivered to the holder of the Note for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to
this Article VIII.
In the absence of any such receiver, trustee in bankruptcy,
liquidating trustee or other Person, the holders of the Note shall be
entitled to rely upon a written notice by a Person representing himself to
be a holder of Senior Indebtedness (or a Representative on behalf of such
holder) as evidence that such Person is a holder of Senior Indebtedness
(or is such a Representative) to establish that any notice pursuant to
Section 8.7 has been duly given or for any other relevant purpose. In the
event that the holder of the Note determines in good faith that further
evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness (or such a Representative), as to the extent to
which such Person is entitled to participate in such payment or distri-
bution, and as to other facts pertinent to the rights of such Person under
this Article VIII, such holder may request such Person to furnish evidence
to the reasonable satisfaction of such holder as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article VIII, and
if such evidence is not furnished such holder may defer (without liability
to any holder of Senior Indebtedness or any Representative of such holder)
any payment to such Person pending judicial determination as to the right
of such Person to receive such payment or until such time as such holder
of the Note shall be otherwise satisfied as to the right of such Person to
receive such payment.
8.9. ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The failure to make
a payment on account of principal of (or premium, if any) or interest on
the Note by reason of any provision of this Article VIII shall not be
construed as preventing the occurrence of a default or an Event of Default
under this Agreement. Nothing in this Article VIII shall affect the
rights of the holder of the Note to accelerate the maturity of the Note in
accordance with its terms.
8.10. LIMITATION ON OBLIGATION OF THE HOLDER OF THE NOTE. With
respect to the holders of Senior Indebtedness, the holder of the Note
undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article VIII, and no
implied covenants or obligations with respect to the Agent under the
Senior Agreement or any holders of Senior Indebtedness (or their
Representatives) shall be read into this Agreement against any holder of
the Note. No holder of the Note shall be deemed to owe any fiduciary duty
to the lender under the Senior Agreement or any holders of Senior
Indebtedness (or their Representatives).
8.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a
distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative.
8.12. APPLICATION BY HOLDERS OF MONIES PAID TO THEM. Nothing
contained in this Article VIII or elsewhere in this Agreement shall (i)
affect the obligations of the Company to make, or prevent the Company from
making at any time, except as specified in Section 8.2 or 8.3 to the
extent provided therein, payment at any time of principal of (or premium,
if any) or interest on the Note, or (ii) prevent the application by the
holder of the Note of any monies paid to them on account of the principal
of (or premium, if any) or interest on the Note if, at the time of such
application, such payment would not have been prohibited by the foregoing
provisions of this Article VIII.
ARTICLE IX
MISCELLANEOUS
9.1. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement or the other Loan Documents, nor consent to any departure
by the Company therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Lender and the Company, and then
such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
9.2. NOTICES, ETC. All notices, requests and other communications
provided for hereunder shall be in writing (including facsimile
transmission) and mailed, delivered or faxed to the Company and the Lender
as follows:
The Company: Precision Standard Inc.
1225 17th Street, Suite 1800
Denver, Colorado 80202
Attn: Matthew L. Gold
Telecopier: (303) 292-6611
with a copy to: Corporate Counsel
Precision Standard Inc.
1225 17th Street, Suite 1800
Denver, Colorado 80202
The Lender: Bank of America NT&SA
555 S. Flower Street, Suite 1100
Los Angeles, CA 90071
Attention: Credit Products #5618
Telecopier: (213) 228-2756
with a copy to: Bank of America NT&SA
333 Beaudry Avenue, 9th Floor
Los Angeles, California 90017
Attention: Unit #4346
Telecopier: (213) 345-9742
or, as to each party at such other address as shall be designated by such
party in a written notice to the other party. All such notices and
communications shall, when mailed or sent by facsimile transmission and
confirmed by telephone be effective three (3) Business Days after deposit
in the mails, or confirmed by telephone respectively, except that notices
pursuant to Article II, III or VII shall not be effective until received
by the Lender.
9.3. NO WAIVER; REMEDIES. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under any
Note shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
9.4. COSTS AND EXPENSES. The Company agrees (a) to pay or reimburse
the Lender on demand for all its attorneys fees and out-of-pocket costs
and expenses incurred in connection with the preparation, delivery,
administration and execution of, and any amendment, supplement or
modification to, this Agreement, any Loan Document and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including, without
limitation, the allocated cost of staff counsel; (b) to pay or reimburse
the Lender on demand for all attorneys fees, costs and expenses incurred
in connection with the enforcement or preservation of any rights under
this Agreement and any Loan Document, including, without limitation, the
allocated cost of staff counsel; and (c) to pay or reimburse the Lender on
demand for all appraisal, audit, search and filing fees, incurred or
sustained by the Lender in connection with the matters referred to in (a)
and (b) above.
9.5. INDEMNITY.
(a) The Company agrees to indemnify and hold harmless the
Lender and each of its officers, directors, agents and employees from and
against any and all claims, damages, liabilities, costs and expenses
(including, without limitation, reasonable fees, expenses and
disbursements of counsel) which may be incurred by or asserted against the
Lender or any such other indemnified Person in connection with or arising
from or connected with the past, present or future operations of the
Company or any Subsidiary or their predecessors in interest, or the past,
present or future environmental condition of property of the Company or
any Subsidiary), in any manner relating to or arising out of this
Agreement, the Loan Documents or the Senior Agreement, or any act, event
or transaction related or attendant thereto, the making of any assignments
of or participations in the Loan and the management of such Loan, or the
use or intended use of the proceeds of the Loan hereunder or in connection
with any investigation of any potential matter covered hereby; provided,
however, that the Company shall not be required to indemnify any such
indemnified Person from or against any portion of such claims, damages,
liabilities or expenses arising out of the gross negligence or willful
misconduct of such indemnified Person.
(b) The Company hereby agrees to indemnify, defend and hold
harmless the Lender and each of its officers, directors, employees and
agents, from and against any and all claims, losses, liabilities, damages
and expenses (including, without limitation, reasonable attorneys' fees),
which may be incurred by or asserted against the Lender or any such other
indemnified Person in connection with or arising out of any investigation,
litigation or proceeding, or any action taken by any Person, with respect
to any environmental claim (including, without limitation, any Hazardous
Materials Claim arising out of or relating to any (i) release of Hazardous
Materials on, upon or into any property or (ii) damage to real or personal
property or natural resources and/or harm or injury to Persons alleged to
have resulted from such release of Hazardous Materials on, upon or into
any property); provided, however, that the Company shall not be required
to indemnify, defend or hold harmless any such indemnified Person from or
against any portion of such loss, liability, damage or expense arising out
of the gross negligence or willful misconduct of such indemnified Person.
(c) The Lender agrees that in the event that any such
investigation, litigation or proceeding is asserted or threatened in
writing or instituted against it or any of its officers, directors, agents
and employees, or any remedial, removal or response action is requested of
it or any of its officers, directors, agents and employees, for which the
Lender may desire indemnity or defense hereunder, the Lender shall
promptly notify the Company in writing.
(d) The Company at the request of the Lender shall have the
obligation to defend against such investigation, litigation or proceeding
or requested remedial, removal or response action, and the Lender, in any
event, may participate in the defense thereof with legal counsel of the
Company's choice. In the event that the Lender requests the Company to
defend against such investigation, litigation or proceeding or requested
remedial, removal or response action, the Company shall promptly do so and
the Lender shall have the right to have legal counsel of its choice
participate in such defense. No action taken by legal counsel chosen by
the Lender in defending against any such investigation, litigation or
proceeding or requested remedial, removal or response action shall vitiate
or in any way impair the Company's obligation and duty hereunder to
indemnify and hold harmless the Lender.
9.6. RIGHT OF SET-OFF. Upon (i) the occurrence and during the
continuance o any Event of Default or (ii) the declaration of the Note to
be due and payable pursuant to the provisions of Section 7.1, the Lender
is hereby authorized at any time and from time to time, to the fullest
extent permitted by law but subject to the provisions of Article VIII
hereof, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender to or for the credit or the
account of the Company against any and all of the obligations of the
Company now or hereafter existing under this Agreement and the Note,
irrespective of whether or not the Lender shall have made any demand under
this Agreement or the Note and although such obligations may be unmatured.
The Lender agrees promptly to notify the Company after any such set-off
and application made by the Lender; provided, however, that the failure to
give such notice shall not affect the validity of such set-off and
application. The rights of the Lender under this Section are in addition
to the other rights and remedies (including, without limitation, other
rights of set-off) which the Lender may have.
9.7. SUCCESSORS AND ASSIGNS. The provisions of Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Company may not assign
or transfer any of its rights or obligations under this Agreement without
the prior written consent of the Lender.
9.8. BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the Company and the Lender and thereafter
shall be binding upon and inure to the benefit of the Company and the
Lender and their respective successors and assigns, except that the
Company shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lender.
9.9. GOVERNING LAW. This Agreement and the Note shall be governed
by, and construed in accordance with, the laws of the State of California.
9.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of
the date first above written.
PRECISION STANDARD INC.
By: /s/ Matthew L. Gold
Title: President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Carolyn Simmons
Title: Vice President
555 S. Flower Street, Suite 1100
Los Angeles, California 90071
PSI Subordinated Exhibits
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
U.S. $7,200,000 Dated: December 31, 1996
FOR VALUE RECEIVED, the undersigned, PRECISION STANDARD INC., a
Colorado corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of BANK OF AMERICA NT&SA (the "Lender") the aggregate unpaid principal
amount of the Loan (as defined in the Loan Agreement referred to below),
at such times, and in such amounts, as are specified in the Loan
Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of the Loan from October 1, 1996 until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified
in the Loan Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Lender, at its office at 1850 Gateway Boulevard,
Fourth Floor, Concord, California 94520, in immediately available funds.
All payments made on account of principal thereof shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached
hereto which is part of this Note; provided, however, that the failure to
so record or so endorse the grid attached hereto shall not affect the
validity of such Loan or such payments.
This Note is the Note referred to in, and is entitled to the benefits
of, the Second Amended and Restated Senior Subordinated Loan Agreement
dated as of December 31, 1996 (the "Loan Agreement") between the Borrower
and the Lender. The Loan Agreement provides, among other things, (i) for
the payment of costs and attorneys incurred in the enforcement hereof, and
(ii) for the acceleration of the maturity hereof upon the happening of
certain stated events and also for required prepayments hereof prior to
the maturity hereof upon the terms and conditions therein specified.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
This Note shall be governed by and construed in accordance with the
laws of the State of California.
PRECISION STANDARD, INC.
By:---------------------------
Title: President
LOAN AND PAYMENTS OF PRINCIPAL
Amount of
Principal Paid Unpaid Principal Notation
DATE OR PREPAID BALANCE MADE BY
EXHIBIT B
COMPANY REAFFIRMATION AGREEMENT
(Subordinated Loan)
The undersigned Precision Standard Inc. (the "Company") hereby agrees
and confirms that:
1. The Company Stock Pledge Agreement dated as of April 12, 1996
previously executed and delivered by the Company in favor of Bank of
America NT&SA (the "Bank") remains in full force and effect provided,
that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and the Bank as Lender dated as of
December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Lender shall be deemed
a reference to the Bank as Lender under the Revised Agreement; and
2. The Company Security Agreement dated as of April 12, 1996
previously executed and delivered by the Company in favor of the Bank
remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Revised Agreement; and
(b) any reference therein to the Bank of America as Lender
shall be deemed a reference to the Bank as Lender under the Revised
Agreement.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
In Witness Whereof, this Company Reaffirmation Agreement is executed
and delivered as of December 31, 1996.
PRECISION STANDARD, INC.
By:---------------------------
Title: President
EXHIBIT C
SUBSIDIARY REAFFIRMATION AGREEMENT
(Subordinated Loan)
Each of the undersigned (each a "Subsidiary") hereby agrees and
confirms that:
1. The Subsidiary Stock Pledge Agreement dated as of April 12, 1996
previously executed and delivered by Hayes Holding I Inc., Hayes Holding
II Inc. and Pemco Aeroplex Inc. in favor of Bank of America NT&SA (the
"Bank") as Lender remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Lender shall be deemed
a reference to the Bank as Lender under the Revised Agreement;
2. The Subsidiary Security Agreement dated as of April 12, 1996
previously executed and delivered by Pemco Aeroplex, Inc., Space Vector
Corporation and Air International Incorporated in favor of the Bank as
Lender remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Lender as shall be
deemed a reference to the Bank as Lender under the Revised Agreement;
3. The Subsidiary Guaranty dated as of April 12, 1996 previously
executed and delivered by Hayes Holding I Inc., Hayes Holding II Inc.,
Space Vector Corporation and Air International Incorporated in favor of
the Bank as Lender remains in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Lender shall be deemed
a reference to the Bank as Lender under the Revised Agreement; and
4. The Guaranty dated as of April 12, 1996 previously executed and
delivered by Pemco Aeroplex, Inc. in favor of the Bank as Lender remains
in full force and effect provided, that:
(a) any reference therein to the Credit Agreement shall be
deemed a reference to the Second Amended and Restated Credit
Agreement between the Company and Bank of America NT&SA as Lender
dated as of December 31, 1996 (the "Revised Agreement"); and
(b) any reference therein to the Bank as Lender shall be deemed
a reference to the Bank as Lender under the Revised Agreement.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
In Witness Whereof, this Subsidiary Reaffirmation Agreement is
executed and delivered as of December 31, 1996.
PRECISION STANDARD, INC.
By:---------------------------
Title: President
PEMCO AEROPLEX, INC.
By:---------------------------
Title: Chairman of the Board
HAYES HOLDINGS I INC.
By:---------------------------
Title: President
HAYES HOLDINGS II INC.
By:---------------------------
Title: President
SPACE VECTOR CORPORATION
By:---------------------------
Title: Chairman of the Board
AIR INTERNATIONAL INCORPORATED
By:----------------------------
Title: President
PEMCO CAPITAL CORPORATION
By:---------------------------
Title: President
PEMCO NACELLE SERVICES, INC.
By:---------------------------
Title: President
PEMCO WORLD AIR SERVICES, INC.
By:---------------------------
Title: President
PEMCO AIR SERVICES SYSTEM, INC.
By:---------------------------
Title: President
PRECISION STANDARD CORP.
By:---------------------------
Title: President
EXHIBIT D
GUARANTY AGREEMENT
(Subordinated Loan)
(1) For valuable consideration, the undersigned ("Guarantor")
unconditionally guarantees and promises to pay to BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION ("Bank"), or order, on demand, in lawful
money of the United States, any and all indebtedness of Precision Standard
Inc. ("Borrower") to Bank from time to time outstanding under the Second
Amended and Restated Senior Subordinated Loan Agreement between the
Borrower and the Bank dated as of December 31, 1996 (the "Agreement").
The term "indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of
Borrower, heretofore, now, or hereafter made, incurred or created,
pursuant to the Agreement, whether recovery upon such indebtedness may be
or hereafter become barred by any statute of limitations, or whether such
indebtedness may be or hereafter become otherwise unenforceable.
(2) The liability of Guarantor under this Guaranty shall not exceed
at any one time the total of (a) Seven Million Two Hundred Thousand
Dollars ($7,200,000) for the principal amount of the indebtedness, and (b)
all interest, fees, and other costs and expenses relating to or arising
out of such indebtedness. Bank may permit the indebtedness of Borrower to
exceed Guarantor's liability, and may apply any amounts received from any
source, other than from Guarantor, to the unguaranteed portion of
Borrower's indebtedness to the Bank. Any payment by Guarantor shall not
reduce Guarantor's maximum obligation hereunder, unless written notice to
that effect be actually received by Bank at or prior to the time of such
payment.
(3) The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted
against Guarantor whether action is brought against Borrower or whether
Borrower be joined in any such action or actions; and Guarantor waives the
benefit of any statute of limitations affecting Guarantor's liability
hereunder.
(4) Guarantor authorizes Bank, without notice or demand and without
affecting Guarantor's liability hereunder, from time to time, either
before or after revocation hereof, to (a) renew, compromise, extend,
accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including
increase or decrease of the rate of interest thereon; (b) receive and hold
security for the payment of this Guaranty or the indebtedness guaranteed,
and exchange, enforce, waive, release, fail to perfect, sell, or otherwise
dispose of any such security; (c) apply such security and direct the order
or manner of sale thereof as Bank in its discretion may determine; and (d)
release or substitute any one or more other endorsers or guarantors.
(5) Guarantor waives any right to require Bank to (a) proceed
against Borrower; (b) proceed against or exhaust any security held from
Borrower; or (c) pursue any other remedy in Bank's power whatsoever.
Guarantor waives any defense arising by reason of any disability or other
defense of Borrower, or the cessation from any cause whatsoever of the
liability of Borrower, or any claim that Guarantor's obligations exceed or
are more burdensome than those of Borrower. Guarantor shall have no right
of subrogation, reimbursement, indemnification or contribution
(contractual, statutory or otherwise), including without limitation, any
claim or right of subrogation under the Bankruptcy Code (Title 11 of the
U.S. Code) or any successor statute, arising from the existence or
performance of this Guaranty and Guarantor waives any right to enforce any
remedy which Bank now has or may hereafter have against Borrower, and
waives any benefit of and any right to participate in any security now or
hereafter held by Bank, until all indebtedness of Borrower to Bank
(whether or not guaranteed hereby) has been paid in full in cash.
Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and
notices of acceptance of this Guaranty and of the existence, creation, or
incurring of new or additional indebtedness. Without limiting the
generality of the foregoing, Guarantor hereby expressly waives any and all
benefits of California Civil Code Sections 2809, 2810, 2819, 2825, 2839
and 2845 through 2850.
(6) Guarantor acknowledges and agrees that Guarantor shall have the
sole responsibility for obtaining from Borrower such information
concerning Borrower's financial conditions or business operations as
Guarantor may require, and that Bank has no duty at any time to disclose
to Guarantor any information relating to the business operations or
financial conditions of Borrower.
(7) Any obligations of Borrower to Guarantor, now or hereafter
existing, including but not limited to any obligations to Guarantor as
subrogees of Bank or resulting from Guarantor's performance under this
Guaranty, are hereby subordinated to the guaranteed indebtedness. Such
obligations of Borrower to Guarantor if Bank so requests shall be enforced
and performance received by Guarantor as trustee for Bank and the proceeds
thereof shall be paid over to Bank on account of the indebtedness of
Borrower to Bank, but without reducing or affecting in any manner the
liability of Guarantor under the other provisions of this Guaranty.
(8) If this Guaranty is returned or canceled, and subsequently any
payment or transfer of any interest in property by Borrower to Bank is
rescinded or must be returned by Bank to Borrower, this Guaranty shall be
reinstated with respect to any such payment or transfer, regardless of any
such prior return or cancellation.
(9) Bank may, without notice to Guarantor and without affecting
Guarantor's obligations hereunder, assign the indebtedness and this
Guaranty, in whole or in part. Guarantor agrees that Bank may disclose to
any prospective purchaser and any purchaser of all or part of the
indebtedness any and all information in Bank's possession concerning
Guarantor, this Guaranty and any security for this Guaranty.
(10) Guarantor agrees to pay to Bank, on demand, all out-of-pocket
expenses and attorneys' fees (including allocated costs for in-house legal
services) incurred by Bank prior to the commencement of any legal action
in connection with the enforcement of this Guaranty and any federal
bankruptcy proceeding. In the event of a legal action, the prevailing
party shall be entitled to reasonable attorneys' fees (including allocated
costs for in-house legal services), costs and necessary disbursements
incurred in connection with such action or proceeding, as determined by
the court.
(11) This Guaranty shall be governed by and construed according to
the laws of the State of California, to the jurisdiction of which the
parties hereto submit.
(12) This Guaranty supersedes and integrates all prior negotiations
with respect to the subject matter hereof.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
Executed as of the 31st day of December, 1996.
-----------------------------------
Matthew L. Gold
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this
- ----- day of March, 1997, by Matthew L. Gold.
Witness my hand and official seal.
My commission expires: -----------------------------------.
-----------------------------------
Notary Public
( S E A L )
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED
UNDER THE SECURITIES OR "BLUE SKY" LAWS OF ANY JURISDICTION AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER, OR, TO THE EXTENT APPLICABLE, SUCH BLUE SKY LAWS, OR THE
PROVISIONS OF THIS WARRANT.
No. of Shares of Common Stock: 4,215,753 Warrant No. 1
AMENDED AND RESTATED WARRANT
To Purchase Common Stock of
PRECISION STANDARD INC.
THIS IS TO CERTIFY THAT BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, or any Affiliate (as hereinafter defined) thereof, or
registered assigns, is entitled, at any time prior to the Expiration Date
(as hereinafter defined), to purchase from PRECISION STANDARD INC., a
Colorado corporation (the "Company"), 4,215,753 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in
whole or in part, including fractional parts, at an aggregate purchase
price of $0.237205492 per share, all on the terms and conditions and
pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Company after the Distribution Date, other
than Warrant Stock and a Permitted Issuance.
"Affiliate" shall mean, with respect to any Person, (a)
each Person that, directly or indirectly, owns or controls, whether
beneficially, or as a trustee, guardian, or other fiduciary, any stock
having ordinary voting power in the election of directors of such Person,
(b) each Person that controls, is controlled by, or is under common
control with, such Person or any Affiliate of such Person, or (c) each of
such Person's officers, directors, joint venturers, and partners. For the
purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of
voting securities, by contract, or otherwise.
"Bank" shall mean Bank of America National Trust and
Savings Association, a national banking association.
"Bank Credit Agreement" shall mean the Second Amended and
Restated Credit Agreement dated as of December 31, 1996 between the
Company and the Bank.
"Business Day" shall mean any day that is not a Saturday, a
Sunday, or a day on which banks are required or permitted to be closed in
New York City or San Francisco.
"Closing Date" shall have the meaning assigned to it in the
Credit Agreement.
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency then administering the Securities
Act and other federal securities laws.
"Common Stock" shall mean (except where the context
otherwise indicates) the Common Stock, $0.0001 par value, of the Company
as constituted on the Closing Date, and any capital stock into which such
Common Stock may thereafter be changed, and shall also include (a) capital
stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Common Stock upon any reclassification
thereof which is also not preferred as to dividends or assets over any
other class of stock of the Company and which is not subject to redemption
and (b) shares of common stock of any successor or acquiring corporation
(as defined in Section 4.8 hereof) received by or distributed to the
holders of Common Stock in the circumstances contemplated by Section 4.8
hereof.
"Convertible Securities" shall mean evidences of
indebtedness, shares of stock, or other securities which are convertible
into or exchangeable, with or without payment of additional consideration
in cash or property, for Additional Shares of Common Stock, either
immediately or upon the occurrence of a specified date or a specified
event.
"Current Market Price" shall mean, in respect of any share
of Common Stock on any date herein specified, (a) the last sale price on
such day on the principal stock exchange on which Common Stock is then
listed or admitted to trading, (b) if no sale takes place on such day on
any such exchange, the average of the last reported closing bid and asked
prices on such day as officially quoted on any such exchange, (c) if
Common Stock is not then listed or admitted to trading on any stock
exchange, the last sale price on such day reported by NASDAQ, (d) if no
such price is reported by NASDAQ, the average of the high and low prices
reported for such day by the National Quotation Bureau, (e) if neither
such corporation at the time is engaged in the business of reporting such
prices, as furnished by any similar firm then engaged in such business, or
(f) if there is no such firm, the fair value of a share of Common Stock as
determined in good faith by the Board of Directors after consultation with
an investment banking firm of recognized national standing.
"Distribution Date" shall mean September 30, 1988.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1 hereof.
"Exercise Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of
Common Stock may be purchased pursuant to this Warrant on such date.
"Expiration Date" shall mean September 9, 2000 or such
later date as may be specified pursuant to Section 14.2(b) hereof.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares
thereof is to be determined, all shares of Common Stock Outstanding at
such date and all shares of Common Stock issuable in respect of this
Warrant and other options or warrants to purchase, or securities
convertible into, shares of Common Stock outstanding on such date which
would be deemed outstanding in accordance with GAAP for purposes of
determining net income per share.
"GAAP" shall mean generally accepted accounting principles
in the United States of America as from time to time in effect.
"Holder" shall mean any Person in whose name a Warrant or
Warrant Stock is registered on the books of the Company maintained for
such purpose.
"Installment Date" shall have the meaning given such term
in Section 14.1 hereof.
"Majority Holders" shall mean the holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of
Common Stock then purchasable upon exercise of all Warrants, whether or
not then exercisable.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Other Property" shall have the meaning assigned to it in
section 4.8 hereof.
"Outstanding" shall mean, when used in reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned or
held by or for the account of the Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Permitted Issuances" shall mean the issuances of options
to purchase shares of Common Stock pursuant to employee or management
stock option plans in an aggregate amount during the period between
December 31, 1996 and the Expiration Date not to exceed 2% of the Fully
Diluted Outstanding Common Stock; provided, however, that no such issuance
shall be a Permitted Issuance to the extent that, at any time, unexercised
options issued pursuant to employee or management stock option plans
represent more than 1% of the Fully Diluted Outstanding Common Stock.
"Person" shall mean any individual, sole proprietor-ship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, entity,
or government (whether federal, state, county, city, municipal, or
otherwise, including, without limitation, any instrumentality, division,
agency, body, or department thereof).
"Registration Statement" shall have the meaning assigned to
it in Section 9.3(a) hereof.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which, upon their issuance on the exercise of this Warrant
would be, evidenced by a certificate bearing the restrictive legend set
forth in Section 9.1(a) hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Subordinated Loan Agreement" shall mean the Second Amended
and Restated Senior Subordinated Loan Agreement, dated as of December 31,
1996 between the Company and the Bank.
"Trading Day" shall mean a day on which a sale of Common
Stock has been reported by a stock exchange or an NASD quotation system.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute
a sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning assigned to it in
Section 9.2 hereof.
"Warrant" shall mean this Warrant and any Warrant issued
upon transfer, division, or combination of, or in substitution for, this
Warrant.
"Warrant Price" shall mean an amount equal to (a) the
number of shares of Common Stock being purchased upon exercise of this
Warrant pursuant to Section 2.1 hereof multiplied by (b) the Exercise
Price as of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof until
such time as it is released from restrictions pursuant to the first
sentence of Section 9.8 hereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. From and after the
Distribution Date and until 5:00 P.M., New York City time, on the
Expiration Date, the Holder hereof may exercise this Warrant, on any
Business Day, for all or any part of the number of shares of Common Stock
purchasable pursuant hereto.
(a) In order to exercise this Warrant, in whole or in
part, the Holder hereof shall deliver to the Company at its executive
office at 1225 17th Street, Denver, Colorado, or at the office or agency
designated by the Company pursuant to Section 12 hereof, (i) a written
notice of such Holder's election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, (ii)
except as provided in subsection (b) below, payment of the Warrant Price,
and (iii) this Warrant. Such notice shall be substantially in the form of
the subscription form appearing as Exhibit A annexed hereto, duly executed
by such Holder or its agent or attorney. Upon receipt thereof, the
Company shall, as promptly as practicable, and in any event within five
Business Days thereafter, execute or cause to be executed and deliver or
cause to be delivered to such Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable
upon such exercise, together with cash in lieu of any fraction of a share,
as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denominations as such
Holder shall request in the notice and shall be registered in the name of
such Holder or, subject to Section 9.2 hereof, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been
exercised and such certificate or certificates shall be deemed to have
been issued, and any Person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all purposes,
as of the date the notice, together with payment for such shares (except
as provided in subsection (b) below) and this Warrant, is received by the
Company as described above, and all taxes required to be paid by such
Holder, if any, pursuant to Section 2.2 hereof prior to the issuance of
such shares have been paid. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to such Holder a new
Warrant evidencing the right of such Holder to purchase the unpurchased
shares of Common Stock called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant or, at the request of
such Holder, appropriate notation may be made on this Warrant and the same
returned to such Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in the name
of any Person who acquired this Warrant (or any part hereof) or any
Warrant Stock otherwise than in accordance with this Warrant.
(b) The Holder may also exercise this Warrant in whole or
in part in a "cashless" or "net-issue" exercise of this Warrant. In such
event, the Holder will deliver this Warrant to the Company with a notice
stating the number of shares of Warrant Stock to be delivered to the
Holder and the number of shares with respect to which the Warrant is being
surrendered in payment of the aggregate Exercise Price for the Warrant
Stock to be delivered to the Holder. For purposes of this provision, all
Warrant Stock as to which the Warrant is surrendered will be valued at the
average daily Current Market Price of a share of Common Stock for the
thirty consecutive Trading Days preceding the exercise date. The notice
accompanying the Warrant shall also set forth the number of shares of
Warrant Stock for which the Warrant will remain exercisable.
2.2. PAYMENT OF TAXES. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof
shall be validly issued, fully paid, and nonassessable and without any
preemptive rights. The Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed with
respect to, the issue or delivery thereof, unless such tax or charge is
imposed by law upon the Holder hereof, in which case such taxes or charges
shall be paid by such Holder. The Company shall not be required, however,
to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of such
Holder, and in such case the Company shall not be required to issue or
deliver any stock certificate until such tax or other charge has been paid
or it has been established to the satisfaction of the Company that no such
tax or other charge is due.
2.3. FRACTIONAL SHARES. The Company shall not be
required to issue a fractional share of Common Stock upon exercise of any
Warrant. As to any fraction of a share which the Holder of one or more
Warrants, the rights pursuant to which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction
in an amount equal to the same fraction of the Current Market Price on the
date of exercise.
2.4. CONTINUED VALIDITY. A holder of shares of
Warrant Stock issued upon the exercise of this Warrant, in whole or in
part (other than a holder who acquires such shares after the same have
been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder), shall continue to
be entitled with respect to such shares to all rights to which it would
have been-entitled as Holder under Sections 9, 10, and 17 hereof.
Following the exercise of this Warrant, a holder of Warrant Stock shall
continue to be subject to the obligations set forth in Sections 2.4, 9.1,
9.2, 9.3, 9.6, 17.2, and 17.5 hereof. The Company will, at the time of
each exercise of this Warrant, in whole or in part, upon the request of
the Holder of the shares of Warrant Stock issued upon such exercise
hereof, acknowledge in writing, in form reasonably satisfactory to such
Holder, its continuing obligation to afford to such Holder all such
rights; provided, however, that if such Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the
Company to afford to such Holder all such rights.
3. TRANSFER, DIVISION, AND COMBINATION
3.1. TRANSFER. Subject to compliance with Sections 9
and 14 hereof, transfer of this Warrant and all rights pursuant hereto, in
whole or in part, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 hereof or the
office or agency designated by the Company pursuant to Section 12 hereof,
together with a written assignment of this Warrant substantially in the
form of Exhibit B annexed hereto duly executed by the Holder hereof or its
agent or attorney and, if such transfer is not to be made pursuant to
section 14 hereof, upon delivery to the Company of funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall, subject to
compliance by the transferor with the requirements of Section 9.2 hereof,
execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly
be cancelled. A Warrant, if properly assigned in compliance with this
Section 3.1 and Section 9.2 hereof, may be exercised by a new Holder for
the purchase of shares of Warrant Stock without having a new Warrant
issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9
hereof, this Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office or agency of the Company,
together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder hereof or its
agent or attorney. Subject to compliance with Sections 3.1 and 9 hereof,
as to any transfer which may be involved in such division or combination,
the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue, and
deliver, at its own expense (other than transfer taxes), any new Warrant
or Warrants required to be issued pursuant to this Section 3.
3.4. MAINTENANCE OF BOOKS. The Company agrees to
maintain, at its aforesaid office or agency, books for the registration
and the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant
is exercisable, or the price at which such shares may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time
as set forth in this Section 4. The Company shall give each Holder
notice, at the address set forth for such Holder on the books of
registration maintained by the Company, of any event described in this
Section 4 which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS, AND COMBINATIONS.
If, at any time, the Company shall:
(a) take a record of the holders of Common Stock for the
purpose of entitling them to receive, without payment therefor,
a dividend payable in, or other distribution of, any Additional
Shares of Common Stock,
(b) subdivide its Outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(c) combine its Outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately following the occurrence of any such event shall
be adjusted to equal the number of shares of Common Stock which a record
holder of the same number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the occurrence of such event would own
or be entitled to receive following the occurrence of such event, and (ii)
the Exercise Price shall be adjusted to equal (A) the Exercise Price
multiplied by the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the adjustment divided by (B) the
number of shares for which this Warrant is exercisable immediately
following such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS. If, at any time,
the Company shall take a record of the holders of Common Stock for the
purpose of entitling them to receive, without payment therefor, any
dividend or other distribution (other than of Additional Shares of Common
Stock or other securities for which adjustments are made pursuant to
Section 4.1, 4.3, 4.4, or 4.5 hereof) of:
(a) cash or other property of any nature whatsoever (other
than a distribution of cash or other property or a dividend
payable out of earnings or surplus legally available for the
payment of dividends under the laws of the jurisdiction of
incorporation of the Company),
(b) any evidences of its indebtedness, any shares of its
stock, or any other of its securities or property of any nature
whatsoever (other than cash or other property subject to clause
(a) of this Section 4.2, Convertible Securities, or Additional
Shares of Common Stock), or
(c) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its
stock, or any other of its securities or property of any nature
whatsoever (other than cash or other property subject to clause
(a) of this Section 4.2, Convertible Securities, or Additional
Shares of Common Stock),
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares
of Common Stock for which this Warrant is exercisable immediately prior to
such adjustment by a fraction (A) the numerator of which shall be the
average daily Current Market Price for the thirty consecutive Trading Days
preceding the date of taking such record, and (B) the denominator of which
shall be such average Current Market Price minus the amount allocable to
one share of Common Stock of any such cash so distributable and of the
fair value (as determined in good faith by the Board of Directors of the
Company) of any and all such evidences of indebtedness, shares of stock,
other securities or property, or warrants or other subscription or
purchase rights so distributable and (ii) the Exercise Price shall be
adjusted to equal (x) the Exercise Price multiplied by the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such adjustment divided by (y) the number of shares for which
this Warrant is exercisable immediately following such adjustment.
A reclassification of Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par
value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Company to the holders of Common
Stock of such shares of such other class of stock within the meaning of
this Section 4.2 and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1 hereof.
4.3. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If, at any time, the Company shall issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for
consideration in an amount per share of less than the average Current
Market Price for the thirty Trading Days preceding the date of issuance,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product obtained by multiplying
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such issuance or sale by a fraction (A) the numerator
of which shall be the number of shares of Fully Diluted Outstanding Common
Stock immediately following such issuance or sale and (B) the denominator
of which shall be the number of shares of Fully Diluted Outstanding Common
Stock immediately prior to such issuance or sale plus the number of shares
of Common Stock which the aggregate offering price (or, in an underwritten
public offering, the aggregate offering price to the public) of the total
number of such Additional Shares of Common Stock would purchase at the
Current Market Price for the thirty Trading Days preceding the date of
issuance and (ii) the Exercise Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be adjusted by
multiplying such Exercise Price by a fraction (x) the numerator of which
shall be the number of shares for which this Warrant is exercisable prior
to such issuance or sale and (y) the denominator of which shall be the
number of shares for which this Warrant is exercisable immediately
following such issuance or sale.
(b) The provisions of Section 4.3(a) hereof shall not
apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided pursuant to Section 4.1 or 4.2 hereof. No
adjustment of the number of shares of Common Stock for which this Warrant
shall be exercisable shall be made pursuant to Section 4.3(a) hereof upon
the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, or other subscription
or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such adjustment
shall previously have been made upon the issuance of such warrants,
options, or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any warrants, options, or other rights
therefor) pursuant to Section 4.4 or 4.5 hereof.
4.4. ISSUANCE OF WARRANTS, OPTIONS, OR OTHER RIGHTS.
If, at any time, the Company shall take a record of the holders of Common
Stock for the purpose of entitling them to receive a distribution of, or
shall in any manner (whether directly or by assumption in a merger in
which the Company is the surviving corporation) issue, grant, or sell to
any Person any warrants, options, or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible
Securities, whether or not the rights to exchange or convert pursuant
thereto are immediately exercisable, other than in connection with a
Permitted Issuance, or shall change the terms of any outstanding warrants,
options, or rights to entitle the holders thereof to subscribe for or
purchase a greater number of Additional Shares of Common Stock, other than
in connection with a Permitted Issuance, and, at the time of such
issuance, grant, or sale, the sum of the purchase price for such warrants,
options, or other rights plus the price per share for which Common Stock
is issuable upon the exercise of such warrants, options, or rights or upon
conversion or exchange of such Convertible Securities shall be less than
the average Current Market Price for the thirty Trading Days preceding the
issuance, grant or sale then in effect, then (a) the number of shares of
Common Stock for which this Warrant is exercisable shall be adjusted to
equal the product obtained by multiplying the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such
issuance or sale by a fraction (A) the numerator of which shall be the
number of shares of Fully Diluted Outstanding common Stock immediately
following such distribution, issuance, grant or sale on the basis that the
maximum number of Additional Shares of Common Stock issuable pursuant to
all such warrants, options, or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed
to have been issued and outstanding at the time of the issuance or sale of
such warrants, options, or other rights and (B) the denominator of which
shall be (i) the number of shares of Fully Diluted Outstanding Common
Stock immediately prior to such distribution, issuance, grant or sale plus
(ii) the number of shares of Common Stock which the sum of the aggregate
exercise price of such warrants, options, other rights, or Convertible
Securities and the aggregate consideration received for such warrants,
options, or other rights by the Company would purchase at such average
Current Market Price, and (b) the Exercise Price shall be adjusted to
equal (x) the Exercise Price multiplied by the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (y) the number of shares for which this Warrant is
exercisable immediately following such adjustment. Except as specified in
Section 4.6 hereof, no further adjustment of the number of shares for
which this Warrant is exercisable shall be made upon the actual issuance
of such Common Stock upon exercise of such warrants, options or other
rights or upon conversion or exchange of such Convertible Securities.
4.5. ISSUANCE OF CONVERTIBLE SECURITIES. If, at any
time, the Company shall take a record of the holders of Common Stock for
the purpose of entitling them to receive a distribution of, or shall in
any manner (whether directly or by assumption in a merger in which the
Company is the surviving corporation) issue or sell to any Person any
Convertible Securities, whether or not the rights to exchange or convert
pursuant thereto are immediately exercisable, other than in connection
with a Permitted Issuance, or shall adjust the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock so as to entitle the holders of such Convertible Securities to
acquire a greater number of Additional Shares of Common Stock, and, at the
time of such issuance or sale, the price per share for which Common Stock
is issuable upon such conversion or exchange shall be less than the
average Current Market Price for the thirty Trading Days preceding the
issuance, sale or adjustment, then (a) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such issuance, sale
or adjustment by a fraction (A) the numerator of which shall be the number
of shares of Fully Diluted Outstanding Common Stock immediately following
such distribution, issuance, grant, sale or adjustment on the basis that
the maximum number of Additional Shares of Common Stock necessary to
effect the conversion or exchange of all such Convertible Securities shall
be deemed to have been issued and outstanding at the time of the issuance
of such Convertible Securities and (B) the denominator of which shall be
(i) the number of shares of Fully Diluted Outstanding Common Stock
immediately prior to such distribution, issuance, grant or sale plus (ii)
the number of shares of Common Stock which the aggregate exercise price of
such Convertible Securities would purchase at such average Current Market
Price and (b) the Exercise Price shall be adjusted to equal (x) the
Exercise Price multiplied by the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to the adjustment
divided by (y) the number of shares for which this Warrant is exercisable
immediately following such adjustment. Except as specified in Section 4.6
hereof, no further adjustment of the number of shares for which this
Warrant is exercisable shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities.
4.6. SUPERSEDING ADJUSTMENT. If, at any time after
any adjustment of the number of shares of Common Stock for which this
Warrant is exercisable shall have been made pursuant to Section 4.4 or 4.5
hereof as the result of any issuance of warrants, options, rights, or
Convertible Securities, such warrants, options, or rights, or the right of
conversion or exchange in such other Convertible Securities, shall expire,
and all or a portion of such warrants, options, or rights, or the right of
conversion or exchange with respect to all or a portion of such other
Convertible Securities, as the case may be, shall not have been exercised,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of
the effect of such warrants, options, rights, or other Convertible
Securities on the basis of treating the number of Additional Shares of
Common Stock or other property, if any, theretofore actually issued or
issuable pursuant to the previous exercise of any such warrants, options,
or rights or any such right of conversion or exchange, as having been
issued on the date of any such exercise and for the consideration actually
received and receivable upon exercise of such right plus the
consideration, if any, received by the Company for such warrants, rights,
options, or Convertible Securities, whereupon a new adjustment of the
Exercise Price and/or number of shares of Common Stock for which this
Warrant is exercisable shall be made, which new adjustment shall supersede
the previous adjustment so rescinded and annulled.
4.7. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS
PURSUANT TO THIS SECTION. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock for
which this Warrant is exercisable provided for in this Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required
by this Section 4 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except that
any adjustment of the number of shares of Common Stock for which
this Warrant is exercisable that would otherwise be required may
be postponed (except in the case of a subdivision or combination
of shares of Common Stock, as provided for in Section 4.1
hereof) up to, but not beyond, the date of exercise if such
adjustment, either by itself or with other adjustments not
previously made, adds or subtracts less than 1% of the shares of
Common Stock for which this Warrant is exercisable immediately
prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and
made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result
in a minimum adjustment on the date of exercise. For the
purpose of any adjustment, any specified event shall be deemed
to have occurred at the close of business on the date of its
occurrence.
(b) FRACTIONAL INTERESTS. In computing adjustments
required by this Section 4, fractional interests in Common Stock
shall be taken into account to the nearest 1/10th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall
take a record of the holders of Common Stock for the purpose of
entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before
the distribution to stockholders thereof, legally abandon its
plan to pay or deliver such dividend, distribution,
subscription, or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be
rescinded and annulled.
(d) ADJUSTMENTS PRIOR TO OCCURRENCE OF EVENT. If, after
any adjustment occurs pursuant to this Section 4 by reason of
the taking of any record of the holders of Common Stock, but
prior to the occurrence of the event for which such record is
taken, the Holder hereof exercises this Warrant, any Additional
Shares of Common Stock issuable upon exercise by reason of such
adjustment shall be deemed the last shares of Common Stock for
which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other
property shall be issued or delivered to such Holder upon and to
the extent that the event actually takes place, upon payment of
the then Exercise Price. Notwithstanding any other provision to
the contrary herein, if the event for which such record was
taken fails to occur or is rescinded, then such shares shall be
cancelled by the Company.
(e) GOOD FAITH DETERMINATION. Whenever the Board of
Directors of the Company shall be required to make a
determination in good faith of the fair value of any item
pursuant to this Section 4, such determination shall be
conclusive if the Board of Directors relied upon an opinion of
an investment banking firm of recognized national standing in
making such determination or, if the Board of Directors did not
so rely, such determination may be challenged in good faith by
the Holder hereof and any dispute shall be resolved by an
investment banking firm of recognized national standing selected
by the Company and acceptable to such Holder.
4.8. REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION, OR DISPOSITION OF ASSETS. In case the Company shall
reorganize its capital, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation), or sell,
transfer, or otherwise dispose of all or substantially all of its
property, assets, or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation, or
disposition of assets, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock, evidences of
indebtedness, or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition
to or in lieu of common stock of the successor or acquiring corporation
("Other Property"), are to be received by or distributed to the holders of
Common Stock, then each Holder shall have the right thereafter to receive,
upon exercise of such Warrant following such event, the number of shares
of common stock of the successor or acquiring corporation and Other
Property receivable upon or as a result of such reorganization, merger,
consolidation, or disposition of assets by a holder of the number of
shares of Common Stock for which this Warrant is exercisable immediately
prior to such event. In case of any such reorganization, merger,
consolidation, or disposition of assets, the successor or acquiring
corporation shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and all the obligations and
liabilities pursuant hereto, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors
of the Company) in order to provide for adjustments of shares of the
Common Stock for which this Warrant is exercisable which shall be as
nearly equivalent as practicable to the adjustments provided for in this
Section 4. For purposes of this Section 4.8, "common stock of the
successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject
to redemption and shall also include any evidences of indebtedness, shares
of stock, or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified
date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing
provisions of this Section 4.8 shall apply to successive reorganizations,
mergers, consolidations or dispositions of assets.
4.9. CERTAIN LIMITATIONS. Notwithstanding anything
herein to the contrary, the Company shall not modify the Common Stock,
make any distribution or enter into any transaction if the effect thereof
would be to cause the Exercise Price to be less than the par value per
share of Common Stock.
4.10. PERMITTED ISSUANCES. Notwithstanding anything
herein to the contrary, there shall be no adjustment in the Exercise Price
or the number of shares of Warrant Stock as a result of any Permitted
Issuance.
5. NOTICES TO WARRANT HOLDERS
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of
shares of Common Stock for which this Warrant is exercisable, or whenever
the price at which a share of Common Stock may be purchased upon exercise
of the Warrants, shall be adjusted pursuant to Section 4 hereof, the
Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of
Directors of the Company determined the fair value of any evidences of
indebtedness, shares of stock, other securities or property, warrants, or
other subscription or purchase rights referred to in Section 4.2 or 4.4
hereof), specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to
Section 4.8 hereof) describing the number and kind of any other shares of
stock or Other Property for which this Warrant is exercisable, and any
change in the purchase price thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to each Holder at its address set forth
in the registration books maintained by the Company in accordance with
Section 17.2 hereof. The Company shall keep at its office or agency
designated pursuant to Section 12 hereof copies of all such certificates
and cause the same to be available for inspection at such office or agency
during normal business hours by any Holder or prospective purchaser of a
Warrant designated by a Holder thereof.
5.2. NOTICE OF CERTAIN CORPORATE ACTION. Each Holder
of Warrants shall be entitled to the same rights to receive notice of
corporate action as any holder of Common Stock.
6. NO IMPAIRMENT
The Company shall not, by any action, including, without
limitation, through amendment of its certificate of incorporation or any
reorganization, transfer of assets, consolidation, merger, dissolution,
issuance or sale of securities, or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Warrant (and shall not amend its certificate of incorporation to authorize
any of the foregoing), but will at all times in good faith assist in the
carrying out of all such terms and the taking of all such actions as may
be necessary or appropriate to protect the rights of Holder against
impairment. Without limiting the generality of the foregoing, the Company
will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable
therefor upon such exercise immediately prior to such increase in par
value, (b) take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant,
and (c) use its best efforts to obtain all such authorizations,
exemptions, or consents from any public regulatory body as may be
necessary to enable the Company to perform its obligations pursuant to
this Warrant.
Upon the request of the Holder hereof, the Company will, at
any time during the period this Warrant is outstanding, acknowledge in
writing, in form satisfactory to such Holder, the continuing validity of
this Warrant and the obligations of the Company pursuant hereto.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK AND OTHER
SECURITIES AND PROPERTY; REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY
From and after the Closing Date, the Company shall at all
times reserve and keep available for issuance and/or distribution upon the
exercise of Warrants such number of the authorized but unissued shares of
Common Stock and such amount of other securities and property as will be
sufficient to permit the exercise in full of all outstanding Warrants.
All shares of Common Stock and such other securities and property which
shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to
preemptive rights.
Before taking any action which would result in an
adjustment in the number of shares of Common Stock for which this Warrant
is exercisable or in the Exercise Price, the Company shall obtain all
authorizations or exemptions therefor, or consents thereto, as may be
necessary from any public regulatory body.
If any shares of Common Stock to be issued upon exercise of
Warrants require registration or qualification with any governmental
authority under any federal or state law (otherwise than as provided in
Section 9 hereof) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to
cause such shares to be duly registered; provided, however, that the
Company shall have no obligation to so register or qualify if the
requirement for such registration or qualification is solely attributable
to any Holder's breach of Sections 3.1, 9.1, or 9.2 hereof or to the sale
by any Holder of Warrants in violation of law.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of Common Stock with respect to which any provision
of Section 4 hereof refers to the taking of a record of such holders, the
Company will in each case take such a record and will take such record as
of the close of business on a Business Day. Except as contemplated by
Section 3.1 or 9.2 hereof, the Company will not at any time, except upon
dissolution, liquidation, or winding up of the Company, close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. TRANSFERS AND REGISTRATION RIGHTS
The Warrants and the Warrant Stock shall not be
transferred, hypothecated, or assigned prior to satisfaction of the
conditions specified in this Section 9, which conditions are intended to
ensure compliance with the provisions of the Securities Act with respect
to the Transfer of any Warrant or Warrant Stock. The Holder hereof, by
acceptance of this Warrant, agrees to be bound by the provisions of this
Section 9.
The Holders shall have the right to request registration of
such Warrant Stock pursuant to Sections 9.3 and 9.4 hereof.
9.1. RESTRICTIVE LEGEND. (a) Except as otherwise
provided in Section 9.8 hereof, each certificate for Warrant Stock
initially issued upon the exercise of this Warrant, and each certificate
for Warrant Stock,issued to any subsequent transferee of any such
certificate, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and are subject to the conditions specified in a
certain Amended and Restated Warrant dated as of December
31, 1996 issued by PRECISION STANDARD INC. No transfer of
the shares represented by this certificate shall be valid
or effective until such conditions have been fulfilled. A
copy of the form of such Warrant is on file with the
Secretary of PRECISION STANDARD INC. The holder of this
certificate, by acceptance of this certificate, agrees to
be bound by the provisions of such Warrant."
(b) Except as otherwise provided in Section 9.8 hereof,
each Warrant shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933,
as amended, and may not be transferred in violation of such
Act, the rules and regulations thereunder, or the
provisions of this Warrant."
9.2. NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR
REGISTRATION. In addition to complying with section 3.1 hereof as to
Transfers of Warrants, prior to any Transfer or attempted Transfer of any
Warrant or any share of Restricted Common Stock, the holder of such
Warrant or Restricted Common Stock shall give ten days' prior written
notice (a "Transfer Notice") to the Company of such Holder's intention to
effect such Transfer, describing the manner and circumstances of the
proposed Transfer, and obtain from counsel to such Holder, who shall be
reasonably satisfactory to the Company, an opinion in form and substance
reasonably acceptable to the Company to the effect that the proposed
Transfer of such Warrant or such Restricted Common Stock may be effected
without registration under the Securities Act. After receipt of the
Transfer Notice and opinion, the Company shall, within five days thereof,
so notify such Holder and such Holder shall thereupon be entitled to
Transfer such Warrant or such Restricted Common Stock in accordance with
the terms of the Transfer Notice. Each certificate, if any, evidencing
such shares of Restricted Common Stock issued upon such Transfer shall
bear the restrictive legend set forth in Section 9.1(a) hereof, and each
Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 9.1(b) hereof, unless, in the opinion of such counsel and
counsel to the Company, such legend is not required in order to ensure
compliance with the Securities Act. The holder of the Warrant or the
Restricted Common Stock, as the case may be, giving the Transfer Notice
shall not be entitled to transfer such Warrant or Restricted Common Stock
until receipt of notice from the Company pursuant to this Section 9.2.
9.3. REQUIRED REGISTRATION. (a) Subject to the
limitations contained in the last paragraph of Section 9.6 hereof, after
receipt of a written request from Holders of Warrants and/or Warrant Stock
representing the lesser of (A) an aggregate of 30% of the total of (i) all
shares of Warrant Stock then subject to purchase upon exercise of all
Warrants and (ii) all shares of Warrant Stock then outstanding and (B) a
number of shares of Warrant Stock which the Company reasonably believes
will, if sold in a public offering, yield proceeds of at least $500,000,
requesting that the Company effect the registration of Warrant Stock and
Warrant Stock issuable upon the exercise of any of such Holders' Warrants
under the Securities Act and specifying the intended method of disposition
thereof, the Company shall promptly notify all Holders in writing of the
receipt of such request and each such Holder, in lieu of exercising its
rights pursuant to Section 9.4 hereof, may elect (by written notice sent
to the Company within 15 days from the date of such Holder's receipt of
the aforementioned Company's notice) to have its shares of Warrant Stock
included in such registration pursuant to this Section 9.3. Thereupon, the
Company shall, as expeditiously as possible, use its best efforts to
effect the registration under the Securities Act of the Warrant Stock
which the company has been so requested to register by such Holders for
sale, by filing a registration statement with the Commission (a
"Registration Statement"), all to the extent required to permit the
disposition (in accordance with the intended method thereof, as aforesaid)
of the Warrant Stock so registered; provided, however, that the Company
shall not be required to effect more than three registrations of the
Warrant Stock pursuant to this Section 9.3, except that the Company shall
be required to effect one additional registration if the Holders
requesting such registration agree to assume all of the costs of such
registration.
(b) The Company shall be entitled to include in any
registration statement referred to in this Section 9.3, for sale in
accordance with the method of disposition specified by the requesting
Holders, shares of Common Stock to be sold by the Company for its own
account, except as and to the extent that in the opinion of the managing
underwriter selected by such Holder (if such method of disposition shall
be by an underwritten public offering) such inclusion would materially and
adversely affect the distribution of the Warrant Stock to be sold.
9.4. PIGGYBACK REGISTRATION. If the Company, at any
time following the Distribution Date, proposes to register any of its
Common Stock or any other class of equity securities (as defined in
Section 3(a)(ii) of the Exchange Act), or any of its securities
convertible into or exchangeable for its Common Stock or such equity
securities, under the Securities Act with a view towards the public
offering of such securities solely for cash (other than a registration on
Form S-4, S-8 or S-18, or any successor or other forms promulgated for
similar purposes), whether or not for sale for its own account, in a
manner which would permit registration of Warrant Stock for sale to the
public under the Securities Act, it shall each such time give written
notice to all Holders of its intention to do so and of such Holders'
rights under this Section 9.4 at least 30 days prior to the initial filing
with the Commission of the Registration Statement with respect thereto.
Upon the written request of any such Holder made within 20 days following
the receipt of any such notice (which request shall specify the Warrant
Stock intended to be disposed of by such Holder and included in such
Registration Statement), the Company shall use its best efforts to include
in such registration under the Securities Act all Warrant Stock which the
Company has been so requested to register by the Holders, to the extent
requisite to permit the disposition of the Warrant Stock so to be
registered; provided, however, that (a) if, at any time after giving
written notice of its intention to register any securities and prior to
the effective date of such Registration Statement, the Company shall
determine for any reason not to proceed with the proposed registration and
sale of the securities to be sold, the Company may, at its election, give
written notice of such determination to each Holder and, thereupon, shall
be relieved of its obligation to register any Warrant Stock in connection
with such proposed registration (but not from its obligation to pay the
registration expenses in connection therewith), and (ii) if such
registration involves an underwritten offering, all Holders requested to
be included in the registration must sell their Warrant Stock to the
underwriters selected by the Company or the sellers prompting such
registration on the same terms and conditions as apply to the Company or
such other sellers, with, if the offering is a combined primary and
secondary offering, only such differences (including any with respect to
liability insurance) as may by customary in combined primary and secondary
offerings. If a registration requested pursuant to this Section 9.4
involves an underwritten public offering, any Holder requested to be
included in such registration agrees to execute and deliver such powers of
attorney and custody or escrow agreements as may be customary or
appropriate for a secondary offering; provided, however, that any such
Holder may elect in writing prior to the initial distribution of a
preliminary prospectus (or a final prospectus if no preliminary prospectus
is distributed) in connection with such registration not to register or
sell such securities in connection with such registration.
9.5. REGISTRATION PROCEDURES. If the Company is
required by the provisions of this Section 9 to use its best efforts to
effect the registration of any of its securities under the Securities Act,
the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement and such amendments and supplements to such
Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration
Statement effective for a period of at least 45 days and, upon
the written request of Holders of a majority of the Warrant
Stock covered thereby, up to 180 days as necessary to complete
the distribution of the Warrant Stock as described therein;
provided, however, that before filing a Registration Statement
or prospectus, or any amendments or supplements thereto, the
Company, upon the prompt written request of the Holders of a
majority of the shares of Warrant Stock to be covered by such
Registration Statement or prospectus, will furnish to counsel
(selected by the Holders of a majority of the Warrant Stock
covered by such Registration Statement to represent all Holders
covered by such Registration Statement) copies of all documents
proposed to be filed, which documents will be subject to the
review of such counsel;
(b) furnish to each Holder of Warrant Stock covered by
such Registration Statement such number of copies of the
Registration Statement and of each amendment and supplement
thereto (in each case including all exhibits), such number of
copies of the prospectus included in such Registration Statement
(including each preliminary prospectus and summary prospectus),
in conformity with the requirements of the Securities Act, and
such other documents as such Holder may reasonably request in
order to facilitate the disposition of the Warrant Stock by such
Holder in accordance with the plan of distribution set forth for
such Holder therein;
(c) use its best efforts to register or qualify such
Warrant Stock covered by such Registration Statement under such
other securities or blue sky laws of such jurisdictions in the
United States as each Holder thereof shall reasonably request,
and do any and all other acts and things which may be reasonably
necessary or advisable to enable in such jurisdictions the sale
of the Warrant Stock owned by such Holder, except that the
Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this clause (c),
it would not be obligated to be so qualified, to subject itself
to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(d) notify each Holder of any Warrant Stock covered by
such Registration Statement, at any time when a prospectus
relating thereto is required to be delivered under the
Securities Act within the appropriate period mentioned in
Section 9.5(a), of the Company's becoming aware that the
prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light
of the circumstances then existing, and, at the request of any
such Holder, prepare and furnish to such Holder a reasonable
number of copies of any amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the
purchasers of such Warrant Stock, such prospectus shall not
include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances then existing;
(e) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
generally available to its security holders earnings statements
satisfying the provisions of Section 11(a) of the Securities
Act, no later than 45 days after the end of any 12-month period
(or 90 days, if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Warrant Stock is sold to
underwriters in a firm or best efforts underwritten offering, or
(ii) if not sold to underwriters in such an offering, beginning
with the first month of the Company's first fiscal quarter
commencing following the effective date of the Date of the
Registration Statement, which statements shall cover such 12-
month periods;
(f) obtain a "cold comfort" letter or letters from the
Company's independent public accountants addressed to the
underwriters, if any, and to the selling Holders which are in
the form and substance customarily given by independent public
accountants to underwriters in a public offering;
(g) make available for inspection (upon receipt of
appropriate assurances of confidentiality) by any seller of such
Warrant Stock covered by such Registration Statement, and to any
attorney, accountant, or other agent retained by such Holder in
connection with the registration, the financial and other
records and properties of the Company reasonably requested by
them in connection with the preparation of the Registration
Statement and which are pertinent to the disclosure requirements
for the registration and distribution of the Warrant Stock
thereunder;
(h) cause appropriate officers and employees of the
Company to be made available (upon receipt of appropriate
assurances of confidentiality) to any Holder of Warrant Stock
covered by such Registration Statement, and to any attorney,
accountant, or other agent retained by such Holder in connection
with the registration, at such reasonable times and locations as
may be requested by any such Holder in connection with the
preparation of the Registration Statement and as pertinent to
the disclosure requirements for the registration and
distribution of the Warrant Stock thereunder;
(i) furnish, at the request of any Holder requesting
registration of Warrant Stock pursuant to Section 9.3 hereof, on
the date that such Warrant Stock are delivered to the
underwriters for sale pursuant to such registration or, if such
Warrant Stock is not being sold through underwriters, on the
date that the Registration Statement with respect to such
Warrant Stock becomes effective, an opinion dated such date of
the independent counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if
any and, if such Warrant Stock is not being sold through
underwriters, then to the Holders making such request,
substantially to the effect that such Registration Statement has
become effective under the Securities Act and that (A) to the
best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Securities Act, (B) the Registration Statement, the
related prospectus, and each amendment or supplement thereto,
comply as to form in all material respects with the requirements
of the Securities Act (except that such counsel need express no
opinion as to financial statements or other financial data
contained therein), and (C) the descriptions in the Registration
Statement or the prospectus, or any amendment or supplement
thereto, of all legal matters and contracts and other legal
documents or instruments are accurate and fairly present the
information required to be shown. Such counsel shall also
state, on the basis of its examination and participation in
conferences in connection with the preparation of the
Registration Statement, that it has no reason to believe that
either the Registration Statement, on the effective date
thereof, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make a statement therein not misleading or that
the prospectus, or any amendment or supplement thereto (other
than financial material as to which such counsel need make no
statement), on the date thereof, contains any untrue statement
of a material fact or omits to state a material fact required to
be stated therein or necessary to make any statement therein, in
light of the circumstances under which it was made, not
misleading, except that such counsel need express no opinion as
to financial statements or notes thereto or the other financial
or statistical data contained in such Registration Statement,
prospectus, amendment, or supplement. Such counsel may state,
however, that it has not verified the accuracy, completeness, or
fairness of the statements therein and that it does not assume
any responsibility for the accuracy, completeness, or fairness
of such statements. Such opinion of counsel shall additionally
cover such other legal matters with respect to the registration
in respect of which such opinion is being given as is customary
in secondary offerings and as such Holders may reasonably
request; and
(j) enter into customary agreements (including any
underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or
facilitate the disposition of such securities.
9.6. EXPENSES; LIMITATIONS ON REGISTRATION. All
expenses incurred in complying with this Section 9, including, without
limitation, all registration and filing fees (including all expenses
incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and expenses of
one counsel for the selling security holders (selected by those holding a
majority of Warrant Stock being registered), expenses of any special
audits (except provided in clause (d) below) incident to or required by
any such registration, and expenses of complying with the securities or
blue sky laws of any jurisdictions pursuant to Section 9.5(d) hereof,
shall be paid by the Company, except that:
(a) all such expenses in connection with any amendment or
supplement to the Registration Statement or prospectus filed
more than 120 days following the effective date of such
Registration Statement because any Holder of Warrant Stock has
not effected the disposition of the securities requested to be
registered shall be paid by such Holder;
(b) the Company shall not be liable for any fees,
discounts, or commissions to any underwriter or any fees or
disbursements of counsel for any underwriter in respect of the
securities sold by such Holder;
(c) notwithstanding the foregoing, if any jurisdiction in
which securities are to be qualified shall require that expenses
incurred in connection with the qualifications of securities in
that jurisdiction be borne by selling shareholders, then the
expenses of qualification of Warrant Stock in such jurisdiction
shall be payable by the selling Holders pro rata; and
(d) the Holders requesting registration pursuant to
Section 9.3 hereof shall bear the additional fees and costs of
the Company's auditors resulting from the Company's inability to
use year-end financial statements in the Registration Statement
filed at their request if such request is made at a time not
within 45 days following the end of the Company's fiscal year.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 9 in respect of the
securities which are to be registered at the request of any Holder that
such Holder shall furnish to the Company such information regarding the
securities held by such Holder and the intended method of disposition
thereof as the Company shall reasonably request and as shall be required
in connection with the action taken by the Company.
9.7. INDEMNIFICATION. (a) In the event of any
registration of any of the Warrant Stock under the Securities Act pursuant
to this Section 9, the Company shall indemnify and hold harmless the
Holder of such Warrant Stock, such Holder's directors and officers, and
each other Person (including each underwriter) who participated in the
offering of such Warrant Stock and each other Person, if any, who controls
such Holder or such participating Person within the meaning of the
Securities Act, against any and all losses, claims, damages, or
liabilities, joint or several, to which such Holder, director, officer,
participating Person, or controlling Person may become subject under the
Securities Act or any other statute or at common law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any
Registration Statement pursuant to which such securities were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto or (ii) any
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
shall reimburse such holder, director, officer, participating Person, or
controlling Person for any legal or any other expenses reasonably incurred
by such holder, director, officer, participating Person, or controlling
Person in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim,
damage, or liability arises out of or is based upon any alleged untrue
statement or alleged omission made in such Registration Statement,
preliminary prospectus, prospectus, amendment, or supplement in reliance
upon and in conformity with written information furnished to the Company
by such Holder or such other indemnified Person specifically for use
therein or (in the case of any registration pursuant to Section 9.3
hereof) so furnished for such purposes by any underwriter. Such indemnity
shall remain in full force and effect regardless of any investigation made
by or on behalf of such holder, director, officer, participating Person,
or controlling Person and shall survive the transfer of such securities by
such Holder.
(b) Each Holder, by acceptance hereof, agrees to indemnify
and hold harmless the Company, its directors, and officers and each other
Person, if any, who controls the Company within the meaning of the
Securities Act, against any and all losses, claims, damages, or
liabilities, joint or several, to which the Company or any such director,
officer, or Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based
upon information in writing provided to the Company by such Holder
contained, on the effective date thereof, in any Registration Statement
pursuant to which securities were registered under the Securities Act at
the request of such Holder, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto; provided,
however, that any such Holder shall not be required to indemnify the
Company in an amount exceeding the net proceeds, after fees, commissions,
and other selling expenses, actually received by such Holder from the
offering of Warrant Stock.
(c) If the indemnification provided for in this section
9.7 is unavailable to hold harmless an indemnified party under subsection
(a) or (b) of this Section 9.7 in respect of any losses, claims, damages,
or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, or
liabilities (or actions in respect thereof) in proportion to its fault as
compared to the total fault of all persons who caused or contributed to
the loss. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to in this Section 9.7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 9.7, each Person, if any, who controls the
Holder hereof within the meaning of the Securities Act shall have the same
rights to contribution as such Holder, and each Person, if any, who
controls the company within the meaning of the Securities Act, each
officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to this Section 9.7(c). The contribution
agreements set forth above shall be in addition to any liabilities which
any indemnifying party may have pursuant to this Warrant, at common law,
or otherwise.
(d) Any party entitled to indemnity or contribution will,
promptly upon receipt of notice of commencement of any action, suit, or
proceeding against such party in respect of which a claim for
indemnification or contribution may be made against another party pursuant
to this Section 9.7, notify such party from whom indemnification or
contribution may be sought, but the omission so to notify such party shall
not relieve the party from whom contribution may be sought from any other
obligation it may have pursuant to this Section 9.7, or otherwise, except
to the extent that such party was actually prejudiced by such omission.
In case any such action is brought against an indemnified party, unless in
such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties exists in respect of
such claim, the indemnifying party will be entitled to participate in and
to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable
costs of investigation.
9.8. TERMINATION OF RESTRICTIONS. Notwithstanding the
foregoing provisions of this Section 9, the restrictions imposed by this
Section upon the transferability of Warrants, Warrant Stock, and
Restricted Common Stock (or Common Stock issuable upon the exercise of
Warrants) and the legend requirements of Section 9.1 hereof shall
terminate as to any particular Warrant, share of Warrant Stock, or
Restricted Common Stock (or Common Stock issuable upon the exercise of
Warrants) (a) when and so long as such security shall have been
effectively registered under the Securities Act and disposed of pursuant
thereto, (b) when the Company shall have received an opinion of counsel
reasonably satisfactory to it that such legend is not required in order to
ensure compliance with the Securities Act or (c) when otherwise validly
transferred pursuant to Rule 144 or any similar exemption from
registration under the Securities Act such that such security may
thereafter be transferred by a Person who is not an Affiliate of the
Company without registration under the Securities Act. Whenever the
restrictions imposed by this Section 9 shall terminate, as hereinabove
provided, the Company's obligations to register Warrants or Warrant Stock
pursuant to Section 9.3 or 9.4 hereof shall terminate and each Holder
shall be entitled to receive from the Company, at the expense of the
Company, a new Warrant bearing the following legend in place of the
restrictive legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON -------
-----, 19---, AND ARE OF NO FURTHER FORCE AND EFFECT."
Each Warrant issued upon registration of transfer, division, or
combination of, or in substitution for, any Warrant or Warrants entitled
to bear such legend shall have a similar legend endorsed thereon.
Whenever the restrictions imposed by this Section 9.8 shall terminate as
to any share of Restricted Common Stock, the Holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive
legend set forth in Section 9.1(a) hereof.
9.9. LISTING ON SECURITIES EXCHANGE. If the Company
shall list any shares of Common Stock on any securities exchange, it will,
at its expense, list thereon, maintain, and, when necessary, increase such
listing of, all shares of Common Stock issued or, to the extent
permissible under the securities exchange rules, issuable upon the
exercise of this Warrant so long as any shares of Common Stock shall be so
listed.
9.10. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS.
Notwithstanding any other provisions of this Section 9:
(a) the Company shall not be obligated to register the
Warrant Stock of any Holder if, in the opinion of counsel to the
Company reasonably satisfactory to the Holder and its counsel
(or, if the Holder has engaged an investment banking firm, to
such investment banking firm and its counsel), the public sale
of such Warrant Stock in the manner proposed by such Holder (or
by such investment banking firm) may be promptly effected
without registering such Warrant Stock under the Securities Act;
(b) the Company shall not be obligated to register the
Warrant Stock of any Holder pursuant to Section 9.3 hereof if
the Company has had a registration statement, pursuant to which
such Holder had a right to have its Warrant Stock included
pursuant to Section 9.3 or 9.4 hereof, declared effective within
six months prior to the date of the request pursuant to Section
9.3 hereof; provided, however, that if any Holder elected to
have shares of its Warrant Stock included pursuant to such
registration statement but some or all of such shares were
excluded pursuant to Section 9.10 hereof, then this subsection
(b) shall be inapplicable;
(c) the Company shall not at any time grant any Person the
right to request that the Company effect the registration of its
Common Stock under the Securities Act on terms and conditions
more favorable than those rights granted pursuant hereto to
Holders;
(d) the Company shall not be required to file a
registration statement requested pursuant to Section 9.3 hereof
on any date which shall be after the last day of a fiscal year
of the Company and prior to the earlier of (i) the date on which
the Company's audited financial statements for such fiscal year
are first available, and (ii) the date 120 days following the
last day of such fiscal year;
(e) if the Company shall furnish to Holders requesting a
registration under Section 9.3 hereof a certificate signed by
the President of the Company and stating that in the good faith
judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company or its shareholders for a
Registration Statement to be filed in the near future, then the
Company's obligations to register Warrant Stock pursuant to
Section 9.3 hereof shall be deferred for a period of not more
than 90 days; provided, however, that the Company may not
furnish such a certificate to Holders more than once during any
consecutive 12-month period;
(f) if a registration pursuant to Section 9.4 hereof
involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, marketing
factors require a limitation of the number of securities to be
underwritten, then the Company will include in such registration
(i) first, 100% of the securities the sellers prompting such
registration propose to sell, and (ii) second, to the extent of
the remaining securities proposed to be sold by the Company and
the number of shares of Warrant Stock requested to be included
in such registration which, in the opinion of such managing
underwriter, can be sold without adversely affecting the
marketing of such underwriting, the securities proposed to be
sold by the Company and the number of shares of Warrant Stock
which the Holders have requested to be included in such
registration shall be allocated pro rata among the Company and
all requesting Holders on the basis of the relative number of
shares requested to be included in such registration by the
Company and all such Holders; and for purposes of this Section
9.10(f) only, the term Holders shall include (in addition to a
"Holder" as defined in Section 1 hereof) all other persons, if
any, who have been granted and have elected to exercise
registration rights under any other agreement with the Company
and the term Warrant Stock shall include (in addition to the
term "Warrant Stock" as defined in Section 1 hereof) Common
Stock which Holders (other than any seller prompting such
registration) elect to include in such registration pursuant to
such other agreements with the Company;
(g) if any registration shall be made in connection with a
sale to the general public of Common Stock, whether by the
Company or pursuant to the exercise of registration rights
granted by the Company, each Holder, agrees that, upon request
of the Company or the managing underwriter thereof, the Holder
shall not, without the prior written consent of the Company or
such underwriter, effect any public sale or public distribution,
including any sale pursuant to Rule 144 under the Securities
Act, of any Common Stock, or of any security convertible into or
exchangeable or exercisable for Common Stock (in each case other
than as part of such underwritten public offering) within seven
days prior to or 90 days (or such lesser period as the Company
and the managing underwriter may permit) following the effective
date of such registration; the foregoing is conditioned,
however, on the Company's agreeing not to so sell, and to cause
its executive officers not to so sell, any Common Stock during
any such 90-day period, and its further agreement that it shall
not enter into any agreement with any prospective holder of
Common Stock providing registration rights to such holder unless
such agreement includes a term equivalent to the first sentence
of this paragraph (g);
(h) the obligation of the Company to honor a request to
register Warrant Stock under Section 9 of this Agreement shall
terminate on the Expiration Date provided, that any registration
duly requested prior to the Expiration Date must be completed;
and
(i) the Company shall not be obligated to pay the expenses
of any registration proceeding begun pursuant to Section 9.3
hereof if the registration request is subsequently withdrawn,
unless the Holders agree to forfeit their right to make one
demand registration pursuant to such Section 9.3.
9.11. SELECTION OF MANAGING UNDERWRITERS. The managing
underwriter for any offering of Common Stock to be registered pursuant to
Section 9.3 hereof shall be a nationally recognized investment banking
firm selected by the Company with the consent of the Holders of a majority
of the shares being so registered (other than any shares being registered
pursuant to Section 9.4 hereof), which consent shall not be unreasonably
withheld.
10. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of a Warrant
or Restricted Common Stock in supplying such information as may be
reasonably necessary for such Holder to complete and file any information
reporting forms now or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale
of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction, or mutilation of this Warrant and indemnity reasonably
satisfactory to it and, in case of mutilation, upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant of like tenor to such Holder; provided, however, that in the
case of mutilation, no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the
Company shall maintain an office or agency (which may be the principal
executive offices of the Company) where the Warrants may be presented for
exercise, registration of transfer, division, or combination as provided
in this Warrant.
13. FILINGS
The Company will file on or before the required date all
regular or periodic reports (pursuant to the Exchange Act) with the
Commission and will deliver to each Holder, promptly upon the later of (i)
their becoming available or (ii) the date of their effectiveness, one copy
of each report, notice, or proxy statement sent by the Company to its
stockholders generally, and of each regular or periodic report (pursuant
to the Exchange Act) and any Registration Statement, prospectus, or
written communication (other than transmittal letters and without
exhibits) (pursuant to the Securities Act), filed by the Company with (a)
the Commission, or (b) any securities exchange on which shares of Common
Stock are listed.
14. REDEMPTION BY THE COMPANY
14.1. MANDATORY REDEMPTION. (a) This Warrant (or any
portion thereof from time to time remaining unexercised) shall be redeemed
in installments commencing on August 31, 1997 and continuing on October
31, 1997 and the last day of each successive January, April, July and
October until October 31, 1998, on which date this Warrant shall be fully
redeemed (each such mandatory redemption date hereinafter referred to as
an "Installment Date"). On the first Installment Date, three-eighths of
the total shares issuable upon full exercise of this Warrant as of the
date of issuance (as adjusted from time to time pursuant to Section 4
hereof) shall be cancelled and redeemed. As of each subsequent
Installment Date, one-eighth of the total shares issuable upon full
exercise of this Warrant as of the date of issuance (as adjusted from time
to time pursuant to Section 4 hereof) shall be cancelled and redeemed.
Any reduction in the shares evidenced hereby due to a partial exercise of
this Warrant prior to the date this Warrant has been fully redeemed shall
be applied to the most remote redemption installments to become due.
Nothing in this Section 14 shall limit the right of any Holder hereof to
exercise this Warrant in whole or in part at any time.
(b) The redemption price per share on any Installment Date
shall be determined as follows:
(i) the price per share for 35% of any shares
required to be redeemed and cancelled pursuant to this Section
14.1 on any Installment Date shall be the result of subtracting
(A) the Exercise Price, from (B) the average Current Market
Price of the Company's Common Stock for the thirty (30) Trading
Days following the date which is fifteen (15) Trading Days prior
to the date the Company filed its third quarter 1996 Form 10-Q
with the Commission.
(ii) the price per share for the remaining 65% of any
shares required to be redeemed and cancelled pursuant to this
Section 14.1 on any Installment Date shall be the result of
subtracting (A) the Exercise Price, from (B) the average Current
Market Price of the Company's Common Stock for the twenty-five
(25) Trading Days immediately preceding the date which is five
(5) Trading Days prior to the respective Installment Date. Such
price may not be less than zero.
(c) The aggregate redemption payment payable on any
Installment Date may be paid either in cash or in Common Stock of the
Company or a combination thereof provided, that Common Stock may be
delivered in redemption of this Warrant on any Installment Date only if
the resale of such Common Stock by the Holder is the subject of an
already-effective Registration Statement and is immediately publicly
tradable without cutback or limitation of any kind. The aggregate cash
redemption price determined pursuant to either subsection (b)(i) or
(b)(ii) of this Section may be converted into shares of Common Stock by
dividing the respective aggregate redemption price by the average Current
Market Price of the Common Stock for the twenty-five (25) Trading Days
immediately preceding the date which is five (5) Trading Days prior to the
respective Installment Date.
(d) If the Company elects to redeem all or any portion of
this Warrant with Common Stock, the Holder shall have all the rights and
benefits of Section 9 hereof as if such registration had been a demand
registration at the request of the Holder pursuant to Section 9.3 hereof
provided, that no such registration shall be counted against the maximum
number of registrations which may be required pursuant to such Section
9.3. The Company agrees that any such registration shall be commenced and
kept effective for a period following the respective Installment Date of
not less than the sum of (i) eighteen months, plus (ii) the number of
whole months between December 31, 1996 and the date the first registration
of Common Stock issued in redemption of this Warrant became effective, at
no cost to the Holder, notwithstanding the provisions of Sections 9.6(a)
and (d) hereof and without regard to the limitations described in Section
9.10 hereof.
(e) Except as provided above, the Warrant shall not be
subject to redemption without the prior written agreement of the
respective Holders thereof.
14.2. REDEMPTION DEFAULT. (a) If the Company fails to
complete a redemption required on August 31, 1997 or October 31, 1997 on
such date, if such failure has not been cured within five (5) Business
Days after written notice of such failure has been delivered to counsel to
the Company, then notwithstanding any of the foregoing to the contrary:
(i) the redemption price with respect to 100% of such
installment in default and all future installments shall change
to the higher of (i) the redemption price specified pursuant to
Section 14.1(b)(ii), or (ii) the result of subtracting (A) the
Exercise Price, from (B) the average Current Market Price of the
Company's Common Stock for the twenty-five (25) Trading Days
preceding the date which is five (5) Trading Days prior to the
date on which such redemption price is actually paid; and
(ii) interest shall accrue on the unpaid installments
in the form of cash and shares of Common Stock; the amount of
such interest shall be equal to the sum of (A) $75,000 in cash
(or the number of shares of Common Stock which is the result of
dividing $75,000 by the average Current Market Price of the
Common Stock for the twenty-five (25) Trading Days immediately
preceding the date which is five (5) Trading Days prior to
August 31, 1997), payable immediately (to compensate the holder
for previous delays in commencing the redemption), plus (B) four
ten-thousandths (.0004) of a share of Common Stock per
unredeemed Warrant share per day from the respective Installment
Date until the redemption payment is made. Such interest shall
be paid quarterly ten (10) days after the last day of each
calendar quarter. Such interest may be paid in the form of
Common Stock only if such stock is then registered and freely
tradable; otherwise, the cash equivalent shall be paid,
calculated as the Current Market Value of the stock as of the
last day of the calendar quarter.
(b) If, as of January 31, 1998, the Company is in default
with respect to the installment due on such date (and/or remains in
default with respect to any previous installment), and such failure has
not been cured within five (5) Business Days after written notice of such
failure has been delivered to counsel to the Company, then notwithstanding
any of the foregoing to the contrary:
(i) the redemption price with respect to such
installment in default shall be payable only in cash;
(ii) interest shall accrue on all installments in
default in the form of shares of Common Stock and be payable as
provided in subsection (a)(ii) above;
(iii) the Expiration Date shall be automatically
extended to September 9, 2001; and
(iv) the Company shall thereafter retain the
obligation, but not the unilateral right, to redeem the Warrant
pursuant to this Section 14. At January 31, 1998 or any date
thereafter, the holder hereof may notify the Company that no
further redemption of this Warrant pursuant to this Section 14
shall be permitted, whereupon the obligations of the Company
under this Section 14 shall be limited to (A) payment of any
interest on defaulted installments accrued to such date, and (B)
maintaining the effectiveness of the registration of any stock
previously delivered in redemption of portions of this Warrant
as required in Section 14.1.
(c) If the Company fails to complete a redemption required
on April 30, 1998 or July 31, 1998 on such date, and such failure has not
been cured within five (5) Business Days after written notice of such
failure has been delivered to counsel to the Company, then notwithstanding
any of the foregoing to the contrary:
(i) the redemption price with respect to such
installment in default shall be payable only in cash; and
(ii) interest shall accrue on all installments in
default in the form of shares of Common Stock and be payable as
provided in subsection (a)(ii) above.
(d) If, as of October 31, 1998, the Company is in default
with respect to the installment due on such date (and/or remains in
default with respect to any previous installment), and such default has
not been cured within five (5) Business Days after written notice of such
default has been delivered to counsel to the Company, then notwithstanding
any of the foregoing to the contrary:
(i) the redemption price with respect to such
installment in default shall be immediately payable only in
cash;
(ii) interest shall thereafter accrue on all
installments in default in cash at the rate of 13-1/2% per annum
and be payable on demand;
(iii) the Company shall thereafter retain the
obligation, but not the unilateral right, to redeem the Warrant
pursuant to this Section 14. At October 31, 1998 or any date
thereafter, the holder hereof may notify the Company that no
further redemption of this Warrant pursuant to this Section 14
shall be permitted, whereupon the obligations of the Company
under this Section 14 shall be limited to (A) payment of any
interest on defaulted installments accrued to such date, and (B)
maintaining the effectiveness of the registration of any stock
previously delivered in redemption of portions of this Warrant
as required in Section 14.1; and
(iv) all Warrant Stock outstanding shall, at the
option of and upon demand by the Holder, immediately be redeemed
at a price per share equal to the average Current Market Price
of the Company's Common Stock for the twenty-five (25) Trading
Days preceding the date which is five (5) Trading Days
immediately preceding the date of demand.
(e) The Company is aware that Matthew Gold is executing a
Lockup Agreement dated as of December 31, 1996 in favor of the Bank (the
"Lockup Agreement") whereby Mr. Gold and certain of his affiliates agree
generally to limit sales of Common Stock during specified periods prior to
the Installment Dates. The Company further understands that the delivery
of the Lockup Agreement is an important part of the consideration
delivered to the Bank in connection with this Warrant, and that the Bank
would not accept this Warrant in its present form but for the delivery of
such Lockup Agreement. Mr. Gold has requested that the Company hold him
harmless from liability under the Lockup Agreement.
The Company therefore agrees that should any damages become
payable as a result of a breach or violation of the Lockup Agreement, the
Company will pay the amount of such damages to the respective Holder upon
demand.
14.3. REGISTRATION DEFAULT. If the Company fails to
maintain a continuous, effective registration statement facilitating the
sale of Common Stock issued to redeem any or all of this Warrant pursuant
to Section 14.1 (except for any blackout periods, limited to no more than
thirty (30) calendar days each, which are, in the respective circumstances
and in the reasonable opinion of counsel to the Bank and the Company,
legally mandated but are not the result of a failure to file periodic
post-effective amendments), interest shall accrue on the daily Current
Market Value of any such Common Stock at the rate of 13-1/2% per annum.
Such interest shall be payable in cash on demand.
14.4. REDEMPTION PROCEDURES. Not later than twenty
Business Days prior to each Installment Date, the Company shall notify
each Holder in writing, to the extent permitted hereby, whether the
respective redemption installment is to be paid in cash or Common Stock.
On each respective Installment Date, each Holder shall assign to the
Company such Holder's Warrant or portion thereof being redeemed, without
any representation or warranty, by the surrender of such Holder's Warrant
at the principal office of the Company referred to in Section 2.1 hereof
against payment therefor of the respective redemption price. Any cash
redemption price shall be paid, at the option of each Holder, by (a) wire
transfer to an account in a bank located in the United States designated
by such Holder for such purpose, or (b) a check payable to the order of
such Holder. Any Common Stock certificates delivered in redemption of
this Warrant shall be accompanied by a copy of the respective registration
statement and any amendments thereto, together with an appropriate written
representation that it remains effective. If less than all of any
Holder's Warrant is being redeemed, the Company shall, pursuant to Section
3 hereof, cancel such Warrant and issue in the name of, and deliver to,
such Holder a new Warrant for the portion not being redeemed.
14.5. SURVIVAL OF OBLIGATIONS. The provisions of
Sections 9, 15 and 16 hereof, the registration requirements of this
Section 14 and the provisions of Section 14.2(e) shall survive the final
redemption of this Warrant, regardless of whether or not all original
Warrants have been redelivered to the Company.
15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action
by the Holder to purchase shares of Common Stock, and no enumeration
herein of the rights or privileges of the Holder hereof, shall give rise
to any liability of such Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
16. MISCELLANEOUS
16.1. NONWAIVER AND EXPENSES. No course of dealing or
any delay or failure to exercise any right pursuant hereto on the part of
the Holder hereof shall operate as a waiver of such right or otherwise
prejudice such Holder's rights, powers, or remedies. If the Company fails
to make, when due, any payment provided for pursuant hereto, or fails to
comply with any other provision of this Warrant, the Company shall pay to
such Holder such amounts as shall be sufficient to cover any costs and
expenses, including, without limitation, reasonable attorneys' fees,
including those incurred in bankruptcy and appellate proceedings, incurred
by such Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers, or remedies pursuant
hereto.
16.2. NOTICE. Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request, consent,
approval, declaration, or other communication shall or may be given to or
served upon any of the parties by another, or whenever any of the parties
desires to give or serve upon another any communication with respect to
this Warrant, each such notice, demand, request, consent, approval,
declaration, or other communication shall be in writing and either shall
be delivered in person with receipt acknowledged or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(a) If to the Holder hereof, at the address specified by
such Holder to the Company or at the address set forth in the
books of registration maintained by the Company; and
(b) If to the Company, at
Precision Standard Inc.
1225 17th Street
Suite 1800
Denver Colorado 80202
Attn: President
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required pursuant hereto may be waived
in writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration, or other communication
pursuant hereto shall be deemed to have been duly given or served on the
date on which personally delivered, with receipt acknowledged, or two
Business Days after the same shall have been deposited in the United
States mail. Failure or delay in delivering copies (other than by
personal delivery) of any notice, demand, request, consent, approval,
declaration, or other communication to each person designated herein to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration, or other
communication.
16.3. INDEMNIFICATION. The Company agrees to indemnify
and hold harmless the Holder hereof from and against any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses, and disbursements of any kind
which may be imposed upon, incurred by, or asserted against such Holder in
any manner relating to or arising out of (i) such Holder's exercise of
this Warrant and/or ownership of any shares of Warrant Stock issued in
consequence thereof or (ii) any litigation to which such Holder is made a
party in its capacity as a stockholder of the Company; provided, however,
that the Company will not be liable pursuant hereto to the extent that any
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses, or disbursements are
found in a final non-appealable judgment by a court to have resulted from
such Holder's gross negligence, bad faith, or willful misconduct in its
capacity as a stockholder or warrantholder of the Company.
16.4. REMEDIES. Each Holder, in addition to being
entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights pursuant
to Section 9 of this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of Section 9 of this Warrant and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
16.5. SUCCESSORS AND ASSIGNS. Subject to the pro-
visions of Sections 3.1 and 9 hereof, this Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of the Holder
hereof. The provisions of this Warrant are intended to be for the benefit
of all Holders from time to time of this Warrant and shall be enforceable
by any such Holder.
16.6. AMENDMENT. This Warrant and all other Warrants
may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Majority Holders, provided that no
Warrant may be modified or amended to reduce the number of shares of
Common Stock for which such Warrant is exercisable or to increase the
price at which such shares may be purchased upon exercise of such Warrant
(before giving effect to any adjustment provided for therein) or to reduce
the length of the Exercise Period without the prior written consent of the
Holder thereof.
16.7. SEVERABILITY. Wherever possible, each provision
of this Warrant shall be interpreted in such manner as to be effective and
valid under law, but if any provision of this Warrant shall be prohibited
by or invalid under law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Warrant.
16.8. HEADINGS. The headings used in this Warrant are
for convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
16.9. GOVERNING LAW.
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflict of laws.
** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK **
IN WITNESS WHEREOF, the Company has caused this Warrant to
be duly executed and attested by its Secretary or an Assistant Secretary.
Dated: March 19, 1997.
PRECISION STANDARD, INC.
By:/s/Matthew L. Gold
ATTEST:
By:/s/Kathleen S. Page
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant
irrevocably exercises this Warrant for the purchase of Shares of Common
Stock of Precision Standard Inc. all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for
the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and
delivered to --------------- whose address is -----------------------
- ---- and, if such shares of Common Stock shall not include all of the
shares of Common Stock issuable as provided in this Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common
Stock issuable pursuant hereto be delivered to the undersigned.
[Payment of the Exercise Price is enclosed.] [Please
cancel an additional -------------------- shares of the Warrant in payment
of the Exercise Price. This Warrant shall thereafter be exercisable for
an additional --------------- shares.]
----------------------------------
(Name of Registered Owner)
----------------------------------
(Signature of Registered Owner)
----------------------------------
(Street Address)
----------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within warrant in every
particular, without alteration or enlargement or any change
whatsoever.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns, and transfers unto the Assignee named below
all of the rights of the undersigned pursuant to this Warrant, with
respect to the number of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint ----------------------
attorney-in-fact to register such transfer on the books of Precision
Standard Inc. maintained for the purpose, with full power of substitution
in the premises.
Dated:---------------- Print Name:----------------------------
Signature:-----------------------------
Witness:-------------------------------
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
