SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 30, 1998
PACIFIC AEROSPACE & ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Washington 0-26088 91-1744587
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization)
430 Olds Station Road, Wenatchee, WA 98801
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number,
including area code: (509) 667-9600
<PAGE>
Item 2. Acquisition of Aeromet International plc
- ------------------------------------------------
On July 30, 1998 (the "Closing Date"), Pacific Aerospace and Electronics
(U.K.) Limited ("Purchaser"), a company organized under the laws of the United
Kingdom and an indirect wholly-owned subsidiary of Pacific Aerospace &
Electronics, Inc. ("PA&E"), purchased all of the issued and outstanding capital
stock (the "Stock Purchase") of Aeromet International plc ("Aeromet"), a British
limited company and wholly-owned subsidiary of Charles Baynes plc. The Stock
Purchase was made pursuant to a Share Acquisition Agreement dated July 1, 1998,
between Charles Baynes plc, a Charles Baynes affiliate Westpark Limited (the
"Seller"), Purchaser and PA&E.
In consideration for the Purchaser's acquisition of all of the issued and
outstanding capital stock of Aeromet (the "Shares"), PA&E delivered to Seller
(pound)42 million (or approximately $69 million) in cash. The purchase price for
the Shares was determined in arms-length negotiations between Charles Baynes plc
and PA&E.
The net proceeds of an offering (the "Offering") by PA&E of 11 1/4% Senior
Subordinated Notes due 2005 (the "Notes") were used to fund the Stock Purchase.
Subject to the terms and conditions of a Purchase Agreement (the "Purchase
Agreement"), dated July 23, 1998, between PA&E, PA&E's United States
subsidiaries (the "Subsidiaries") and Friedman, Billings, Ramsey & Co., Inc. and
BancBoston Securities Inc. (collectively the "Initial Purchasers"), the Initial
Purchasers agreed to purchase, and PA&E agreed to sell, Notes in the aggregate
principal amount of $75 million. The Notes were issued pursuant to an Indenture,
dated July 30, 1998 (the "Indenture") between PA&E, the Subsidiaries and IBJ
Schroder Bank & Trust Company, as trustee. The Notes (i) are senior
subordinated, unsecured, general obligations of PA&E, (ii) will mature on August
1, 2005, unless previously redeemed pursuant to the Indenture, and (iii) are
jointly and severally guaranteed on a senior subordinated basis by each of the
Subsidiaries.
In connection with the Purchase Agreement, PA&E and the Subsidiaries
entered into a registration rights agreement with the Initial Purchasers,
pursuant to which PA&E agreed to file with the Securities and Exchange
Commission either (i) an exchange offer registration statement relating to the
exchange of the Notes for fully registered notes with identical terms as the
Notes (the "Exchange Notes") or (ii) a shelf registration statement pursuant to
Rule 415 under the Securities Act of 1933, as amended, for resale of the Notes
and of the Exchange Notes that cannot be resold without delivery of a
prospectus. PA&E further agreed to use its reasonable best efforts to cause one
or both of such registration statements to be declared effective as the case may
be.
Prior to the Stock Purchase, no material relationship existed between
Charles Baynes plc or the Seller, and the Purchaser or PA&E, or any of their
respective affiliates, directors, officers, or associates.
Aeromet operates from five sites in England and is engaged in the
production of magnesium and aluminum precision sand and investment castings and
titanium and aluminum formed sheet products, for the aerospace, defense and
motorsport industries. Its primary assets
<PAGE>
consist of manufacturing equipment, inventories of raw materials, work in
progress and finished products, and accounts receivable from the sale of its
products. PA&E intends that Aeromet will continue to engage in such business and
that Aeromet's assets will continue to be used for such business purposes as
they are currently used.
Item 7. Financial Statements and Exhibits
- -----------------------------------------
(a) Financial Statements of Business Acquired
Filed with this report as pages F-1 to F-17 are the audited financial
statements of Aeromet for the two years ended December 31, 1996 and 1997.
(b) Pro Forma Financial Information
Filed with this report as pages P-1 to P-6 is the Unaudited Pro Forma
Financial Data for PA&E and Aeromet for the year ended May 31, 1998.
(c) Exhibits.
The following are filed as exhibits to this Current Report:
2.1 Share Acquisition Agreement dated July 1, 1998, by and between Charles
Baynes plc, Westpark Limited, Pacific Aerospace and Electronics (U.K.)
Limited, and Pacific Aerospace & Electronics, Inc.
4.1 Purchase Agreement dated as of July 23, 1998, between Pacific Aerospace &
Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co.,
Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel
Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast
Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc.
and Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities Inc.
4.2 Indenture dated as of July 30, 1998, between Pacific Aerospace &
Electronics, Inc., Balo Precision Parts, Inc., Cashmere Manufacturing Co.,
Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel
Industries, Inc., Northwest Technical Industries, Inc., Pacific Coast
Technologies, Inc., Seismic Safety Products, Inc., PA&E International, Inc.
and IBJ Schroder Bank & Trust Company.
4.3 Form of Global Note from PA&E
4.4 Registration Rights Agreement dated as of July 30, 1998, between Pacific
Aerospace & Electronics, Inc., Balo Precision Parts, Inc., Cashmere
Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc.,
Pacific Coast Technologies, Inc., Seismic Safety Products, Inc., PA&E
International, Inc. and Friedman, Billings, Ramsey & Co., Inc. and
BancBoston Securities Inc.
<PAGE>
23 Consent of Independent Accountants
99.1 Press Release dated August 3, 1998
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 hereunto duly authorized.
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
President and Chief Executive Officer
Dated: August 13, 1998
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1 Share Acquisition Agreement dated July 1, 1998, by and between
Charles Baynes plc, Westpark Limited, Pacific Aerospace and
Electronics (U.K.) Limited, and Pacific Aerospace & Electronics,
Inc.
4.1 Purchase Agreement dated as of July 23, 1998, between Pacific
Aerospace & Electronics, Inc., Balo Precision Parts, Inc.,
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc.,
Electronic Specialty Corporation, Morel Industries, Inc.,
Northwest Technical Industries, Inc., Pacific Coast Technologies,
Inc., Seismic Safety Products, Inc., PA&E International, Inc. and
Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities
Inc.
4.2 Indenture dated as of July 30, 1998, between Pacific Aerospace &
Electronics, Inc., Balo Precision Parts, Inc., Cashmere
Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic
Specialty Corporation, Morel Industries, Inc., Northwest Technical
Industries, Inc., Pacific Coast Technologies, Inc., Seismic Safety
Products, Inc., PA&E International, Inc. and IBJ Schroder Bank &
Trust Company.
4.3 Form of Global Note from PA&E
4.4 Registration Rights Agreement dated as of July 30, 1998, between
Pacific Aerospace & Electronics, Inc., Balo Precision Parts, Inc.,
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc.,
Electronic Specialty Corporation, Morel Industries, Inc.,
Northwest Technical Industries, Inc., Pacific Coast Technologies,
Inc., Seismic Safety Products, Inc., PA&E International, Inc. and
Friedman, Billings, Ramsey & Co., Inc. and BancBoston Securities
Inc.
23 Consent of Independent Accountants
99.1 Press Release dated August 3, 1998
<PAGE>
AEROMET INTERNATIONAL PLC
Financial Statements
For the years ended December 31, 1996 and 1997
Table of Contents
Page
Independent Auditors' Report................................................ F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Shareholder's Equity and Comprehensive Income/Loss............ F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholder
Aeromet International PLC:
We have audited the accompanying balance sheets of Aeromet International PLC, a
wholly-owned subsidiary of Charles Baynes plc, as of December 31, 1997 and 1996,
and the related statements of operations, shareholder's equity and comprehensive
income/loss, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examination, on a test basis, of evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aeromet International PLC as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG AUDIT PLC
KPMG Audit Plc
Birmingham, England
March 19, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
AEROMET INTERNATIONAL PLC
Balance Sheets
December 31, 1996 and 1997
(In thousands, except for share data)
December 31
--------------------------
Assets 1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ - 388
Accounts receivable, net of allowance for doubtful accounts of
$205 in 1996 and $148 in 1997.......................................... 12,561 12,062
Due from Affiliates.................................................... - 163
Inventories............................................................ 7,607 8,805
Deferred income taxes.................................................. 122 138
Prepaid expenses and other ............................................ 515 377
---------- ----------
Total current assets.......................................... 20,805 21,933
---------- ----------
Property, plant and equipment, net............................................. 9,977 9,485
---------- ----------
Other assets:
Costs in excess of net book value of acquired subsidiaries, net of
accumulated amortization of $17,142 in 1996 and $18,600 in 1997........ 27,056 23,893
Other.................................................................. 331 197
---------- ----------
Total other assets............................................ 27,387 24,090
---------- ----------
$ 58,169 55,508
========== ==========
Liabilities and Shareholder's Equity
Current liabilities:
Short-term borrowings.................................................. 7,908 4,661
Accounts payable....................................................... 5,979 7,935
Accrued liabilities.................................................... 1,563 1,715
Taxes payable.......................................................... 406 813
Due to Affiliates...................................................... 1,882 178
Current portion of capital lease obligations........................... 103 115
---------- ----------
Total current liabilities..................................... 17,841 15,417
Long-term liabilities:
Due to Affiliates ..................................................... 9,825 13,279
Capital lease obligations, net of current portion ..................... 1,058 944
Deferred income taxes ................................................. 736 798
---------- ----------
Total liabilities ............................................ 29,460 30,438
---------- ----------
Shareholder's equity:
Common stock, $0.155 par value. 5,000,000 shares authorized,
1,000,000 issued and outstanding at December 31, 1996 and 1997......... 155 155
Additional capital .................................................... 43,180 43,246
Accumulated other comprehensive income ................................ 2,677 1,558
Accumulated deficit ................................................... (17,303) (19,889)
---------- ----------
Total shareholder's equity.................................... 28,709 25,070
---------- ----------
Commitments and contingencies - -
$ 58,169 55,508
========== ==========
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
AEROMET INTERNATIONAL PLC
Statements of Operations
For the years ended December 31, 1996 and 1997
(In thousands)
Year ended
December 31
------------------------
1996 1997
--------- ---------
<S> <C> <C>
Net sales............................................... $ 41,939 48,697
Cost of sales........................................... 34,340 40,591
--------- ---------
Gross profit................................... 7,599 8,106
Operating expenses...................................... 7,098 6,482
--------- ----------
Income from operations......................... 501 1,624
--------- ---------
Other income (expense):
Interest expense...................................... (731) (754)
---------- ----------
Income (loss) before income taxes.............. (230) 870
---------- ---------
Income tax expense...................................... (570) (900)
---------- ----------
Net loss..................................... $ (800) (30)
========== ===========
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
AEROMET INTERNATIONAL PLC
Statements of Shareholder's Equity and Comprehensive
Income/Loss For the years ended December 31,
1996 and 1997
(In thousands, except for share data)
Compre- Accumulated
Common Stock hensive Other Total
--------------------- Additional Income Accumulated Comprehensive Shareholder's
Shares Amount Capital (Loss) Deficit Income (Loss) Equity
--------- --------- ---------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ 1,000,000 $ 155 43,137 - (16,409) - 26,883
Capital contribution from parent ... - - 43 - - - 43
Translation adjustment ............. - - - 2,677 - 2,677 2,677
Dividends paid to parent ........... - - - - (94) - (94)
Net loss............................ - - - (800) (800) - (800)
---------
Comprehensive income ............... 1,877
--------- ---------- ========= ----------- ------------- -------------
Balance at December 31, 1996 ....... 1,000,000 155 43,180 (17,303) 2,677 28,709
Capital contribution from parent ... - - 66 - - - 66
Translation adjustment ............. - - - (1,119) - (1,119) (1,119)
Dividends declared to parent ....... - - - - (2,556) - (2,556)
Net loss ........................... - - - (30) (30) - (30)
---------
Comprehensive loss ................. (1,149)
--------- ---------- ========== ----------- ------------- -------------
Balance at December 31, 1997 ....... 1,000,000 $ 155 43,246 (19,889) 1,558 25,070
========= ========= ========== =========== ============= =============
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
AEROMET INTERNATIONAL PLC
Statements of Cash Flows
For the years ended December 31, 1996 and 1997
(In thousands)
Year ended
December 31
------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net loss...................................................... $ (800) (30)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization........................ 3,411 3,790
Allowance for doubtful accounts ..................... 133 (49)
Loss on sale of property, plant and equipment........ - (7)
Deferred taxes ...................................... 201 69
Changes in operating assets and liabilities:
Accounts receivable ........................ (586) 64
Inventories ................................ 483 (1,486)
Prepaid expenses and other ................. (73) 67
Accounts payable and accrued liabilities.... (823) 2,178
Other ...................................... (3,010) 343
----------- -----------
Net cash provided by (used in) operating activities.. (1,064) 4,939
----------- -----------
Cash flow from investing activities:
Acquisition of property, plant and equipment ........... (1,484) (1,526)
Proceeds from sale of property, plant and equipment .... 8 28
----------- -----------
Net cash used in investing activities ......... (1,476) (1,498)
----------- -----------
Cash flow from financing activities:
Net borrowings (repayments) under line of credit ....... 2,683 (2,930)
Payments on capital leases ............................. (145) (124)
----------- -----------
Net cash provided by (used in) financing activities 2,538 (3,054)
----------- -----------
Net increase (decrease) in cash and cash equivalents (2) 387
Cash and cash equivalents at beginning of year................... 2 -
Effect of exchange rates on cash ................................ - 1
----------- -----------
Cash and cash equivalents at end of year......................... $ - 388
=========== ===========
Supplemental cash flow information:
Cash paid during the year for:
Interest ...................................... $ 436 744
Income taxes .................................. 308 192
Non-cash investing and financing activities:
Seller financed acquisition of property,
plant and equipment............................ 1,319 18
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE>
AEROMET INTERNATIONAL PLC
Notes to Financial Statements
(All amounts in thousands, except for share data)
1. Description of Business and Basis of Presentation
Description of Business
Aeromet International PLC ("the Company"), a wholly-owned subsidiary of
Charles Baynes plc ("the Parent"), operates five sites in the United Kingdom
engaged the manufacture of precision metal components and products. Most of the
Company's customers are located in the United Kingdom and Europe and operate in
the aerospace, defence, and motorsport industries.
Basis of Preparation
The Company maintains its accounting records in accordance with United
Kingdom tax and Companies Act regulations. Certain adjustments have been made to
these records to present the accompanying financial statements in accordance
with United States generally accepted accounting principles (US GAAP).
On August 16, 1996, the Company changed its name from Kent Aerospace PLC to
Aeromet International PLC.
In October of 1996, the assets and liabilities of TKR International Limited
("TKR") were transferred to the Company. Prior to October 1996, TKR was also a
wholly-owned subsidiary of the Parent. The merger is a combination of entities
under common control. Accordingly, all prior period financial statements
presented have been restated to include combined results of operations,
financial position and cash flows of TKR as though it had always been part of
the Company. The financial statements are unaffected by the subsidiaries of the
Company since the subsidiaries have no assets, liabilities or operations.
The statements of operations for the years ended December 31, 1996 and 1997
include the actual net sales, cost of sales, selling and administration costs as
incurred by the Company. Certain other amounts such as rent and administrative
services included in total operating expenses are allocated to the Company by
the Parent. The amount of allocated expenses was $1,479 and $1,596 in 1996 and
1997. Management believes the allocations to be reasonable under the
circumstances; however, there can be no assurances that such allocations will be
indicative of future results of operations or what the financial position and
results of operations of the Company would have been had it been a separate,
stand-alone entity during the periods covered.
The Company's functional currency is Pounds Sterling. All assets and
liabilities are translated into US dollars at year-end exchange rates. Income
and expense items are translated at average exchange rates prevailing during the
fiscal period. The resulting translation adjustments are recorded as a separate
component of shareholder's equity.
F-7
<PAGE>
2. Summary of Significant Accounting Principles
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and demand deposits with banks.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Plant and equipment under capital leases are stated at the lower
of the fair market value of the assets or the present value of minimum lease
payments at the inception of the leases.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the owned assets ranging from 4 to 20 years. Property,
plant and equipment held under capital leases are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the lease terms, ranging from 4 to 10 years.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 20 years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
Financial Instruments
The Company enters into foreign currency contracts with the Parent in order
to reduce the impact of certain foreign currency fluctuations. Firmly committed
transactions are hedged with forward exchange contracts. Gains and losses
related to hedges of firmly committed transactions are deferred and are
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs.
Revenue Recognition
Revenue is recognized when products are shipped to customers.
F-8
<PAGE>
Restrictions on Capital
The Company is subject to United Kingdom (UK) Companies Act regulations,
and as such may only distribute its accumulated net 'realised' profits as
defined by reference to UK generally accepted accounting principles (UK GAAP).
Net 'realised' profits under UK GAAP were $656 and $2,506 at December 31, 1996
and 1997, respectively.
Research and Development and Advertising
Research and development costs and advertising costs are expensed as
incurred and are included in operating expenses. Research and development costs
in 1996 and 1997 were $11 and $19, respectively. Advertising costs in 1996 and
1997 were $97 and $169, respectively.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes. Under the asset and liability method of accounting for income taxes,
deferred tax assets and liabilities are recognized based on the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock-Based Compensation
The Company follows the provisions of Statements of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. This
statement permits a company to choose either a fair-value method or the
Accounting Principles Board (APB) Opinion No.25, Accounting for Stock Issued to
Employees, intrinsic-value based method of accounting for stock-based
compensation arrangements. SFAS No. 123 requires pro forma disclosure of net
income and earnings per share computed as if the fair-value based method had
been applied in financial statements of companies that account for such
arrangements under APB Opinion No. 25. The Company records stock-based
compensation using the APB Opinion No. 25 intrinsic-value-based method.
Pensions
The Company participates in the defined contribution pension scheme of the
Parent. Contributions made to the scheme were $255 in 1996 and $323 in 1997.
Comprehensive income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. SFAS No. 130 is effective for the
periods beginning after December 15, 1997. This statement provides reporting
standards of comprehensive income and its components and requires that all
components of comprehensive income be reported in the financial statements in
the period in which they are recognized. The Company has adopted the provisions
of SFAS No. 130 in its financial statements.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-9
<PAGE>
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years must be restated. The
Company has not yet determined the impact of implementing the provisions of SFAS
No.131 on the Company's existing disclosures.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No.98-1, Accounting for the Cost of Computer
Software Developed For or Obtained For Internal Use (SOP 98-1). This Statement
establishes standards regarding capitalization of certain costs incurred in
connection with developing or obtaining software for internal use. Under current
practice, the Company generally expenses such costs as incurred. SOP 98-1 is
effective for accounting periods beginning after December 15, 1998 and is to be
applied prospectively. Early adoption of SOP 98-1 is permitted. The Company has
not yet determined the impact of adopting SOP 98-1 on its future results of
operations and financial position.
3. Concentration of Risk
The Company's individual customers comprising more than 10% of net sales
are presented below for the year ended December 31, 1997. There were no
individual customers comprising more than 10% of net sales for the year ended
December 31, 1996.
Year ended
Customer December 31, 1997
-------- -----------------
A............................... $ 5,981
B............................... 5,317
The Company's individual customers comprising more than 10% of accounts
receivable are presented below at December 31, 1997. There were no individual
customers comprising more than 10% of accounts receivable at December 31, 1996.
Year ended
Customer December 31, 1997
-------- -----------------
B............................... $ 1,589
Credit is extended to customers based on an evaluation of their financial
condition and collateral is generally not required.
The Company currently purchases titanium and other raw materials from a
limited number of suppliers. Suppliers of titanium are limited and a change of
supplier could cause a delay in manufacturing and increased costs, and a
possible loss of sales, which could have a material adverse effect on the
manufacturing and delivery of the Company's products. Purchases from the
principal suppliers of titanium are as follows:
Year ended Year ended
December 31, December 31,
Supplier 1996 1997
-------- ----------- -----------
A............................ $ 1,923 3,470
F-10
<PAGE>
4. Inventories
Inventories consist of the following:
December 31
---------------------
1996 1997
------- -------
Raw materials............................ $ 2,100 1,938
Work in progress......................... 4,554 6,076
Finished goods........................... 953 791
------- -------
$ 7,607 8,805
======= ======
5. Property, Plant and Equipment
Property, plant and equipment, including assets under capital lease
arrangements consists of the following:
December 31
---------------------
1996 1997
------- -------
Leasehold improvements......................... $ 532 512
Machinery and equipment........................ 19,052 19,766
------- -------
19,584 20,278
Less accumulated depreciation and amortization (9,607) (10,793)
------- -------
$ 9,977 9,485
------- -------
The Company recognized depreciation of property, plant and equipment of
$881 and $1,680 during the years ended December 31, 1996 and 1997, respectively.
6. Short-term Borrowings
At December 31, 1996 and 1997, there was $7,908 and $4,661 outstanding
under a committed bank overdraft facility, respectively, which is unsecured
under a Composite Accounting Agreement between the bank and the Parent. The
current credit agreement provides borrowings of up to (pound)3,000 (equivalent
to $4,936 at December 31, 1997) for general corporate purposes. Weighted-average
interest rates of 7.1% and 7.6% were charged on this overdraft facility in 1996
and 1997, respectively. The Company borrowings under this agreement are
guaranteed by its Parent. The Company also guarantees certain of its Parents
borrowings.
7. Transactions with Affiliates
Net short term balances due to affiliates were $1,882 and $15 at December
31, 1996 and 1997 respectively. The balance at December 31, 1996 related to a
short term loan from the Parent, interest was charged on this loan at weighted
average rates of 12% and 10% in 1996 and 1997 respectively. The balance at
December 31, 1997 related to sundry trading with affiliated companies. No
interest is charged on the trading balances.
F-11
<PAGE>
Long term loans from related companies are as follows:
Long-term
loans
---------
Balance at December 31, 1995........................ $ 9,561
Allocation of central costs......................... 375
Parent company recharges............................ 422
Cash transfers...................................... (1,448)
Translation adjustment.............................. 915
---------
Balance at December 31, 1996........................ 9,825
Allocation of central costs......................... 459
Parent company recharges............................ 567
Dividends declared.................................. 2,458
Cash transfers...................................... 334
Translation adjustment.............................. (364)
---------
Balance at December 31, 1997........................ $ 13,279
=========
The average balance of long term loans from related companies was $10,127
and $10,714 in 1996 and 1997 respectively.
No interest is charged on the long term loan.
Other transactions with related companies for 1996 and 1997 are analysed as
follows:
Purchases from related parties:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1997
------------------- -----------------
<S> <C> <C>
Buck and Hickman........................... $ 130 462
National Packaging......................... 28 56
</TABLE>
These Companies are both subsidiary undertakings of the Parent.
8. Leasing Arrangements
Capital Leases
The Company leases certain property, plant and equipment under capital
lease agreements that expire through 2018. Aggregate minimum payments to be
made under these agreements at December 31, 1997 are as follows for each of
the following fiscal year-ends:
1998...................................... $ 186
1999...................................... 191
2000...................................... 185
2001...................................... 172
2002...................................... 155
Thereafter................................ 501
------
1,390
Less amounts representing interest at
rates ranging from 6.57% to 7.82%......... (331)
------
F-12
<PAGE>
Present value of net minimum capital
lease payments............................ 1,059
Less current portion of capital
lease obligations......................... (115)
------
Capital lease obligations, net of
current portion........................... $ 944
======
Included in property, plant and equipment are costs of $1,319 and $1,330
and related accumulated amortization of $14 and $149 recorded under capital
leases at December 31, 1996 and 1997 respectively.
Operating Leases
The Company leases certain property, plant and equipment under operating
lease agreements that expire through 2005. Aggregate minimum rental payments to
be made under these agreements at December 31, 1997 are as follows for each of
the following fiscal year-ends:
Minimum
Rentals
---------
1998.................................. $ 2,097
1999.................................. 2,047
2000.................................. 2,032
2001.................................. 2,002
2002.................................. 1,700
Thereafter............................ 21,270
------
$ 31,148
Total rent expense for operating leases during the years ended December 31,
1996 and 1997 amounted to $1,548 and $1,614, respectively.
9. Compensation Plans
The Parent has three stock-based compensation plans, which are described
below. The Company applies the APB Opinion No.25 intrinsic-value based method of
accounting for stock-based compensation arrangements. Had compensation cost been
determined on the fair value at the grant dates for awards under those plans
consistent with the method of SFAS No. 123, the Company's net loss would have
been reduced to the pro forma amounts indicated below:
December 31
-----------
1997 1996
---- ----
As reported.......................... $ 30 800
Pro forma............................ 56 850
Fixed Price Share Option Plan
Under the Saving Related Share Option Scheme, the Parent is authorized to
issue shares of the Parent's common stock to all full-time employees with six
months' service. Under the terms of the scheme, employees can choose each year
to have up to (pound)3,000 (equivalent to $4,936 at December 31, 1997) of their
annual base earnings withheld to purchase the Parent's common stock. The
purchase price of the stock is 80% of the market price at the date of the grant.
Compensation cost is recognized for the fair value of the employee's purchase
rights, which was estimated using the Black-Scholes model with the following
assumptions for 1997 and 1996, respectively: dividend yield of 3.02% and 2.27%;
an expected life of 2.75 years for both years; expected volatility of 2.5%; and
risk-free interest rates of 6.33% and 7.78%.
F-13
<PAGE>
Performance-Based Share Option Plans
Under its Executive Share Option Scheme, the Parent may grant to selected
executives stock option awards in the Parent's common stock to a maximum total
of outstanding options for any participant of four times annual earnings.
Options are granted, normally twice each year, at the market price of the common
stock at the date of grant. Since 1991, all options have been granted in three
equal parts which, in normal circumstances, are first exercisable three, four,
and five years respectively after the date of grant. Exercise of options issued
since 1996 is dependent on certain performance criteria based on the Parent's
share growth. No options were granted during 1997. The fair value of each option
grant was estimated on the date of the grant using the Black-Scholes model with
the following assumptions for 1996: dividend yield of 2.27%; an expected life of
three years; expected volatility of 25%; and risk-free interest rate of 7.78%.
The Parent may issue up to 10% of its issued share capital for all schemes
operated by it. This is in accordance with the London Stock Exchange
regulations.
Information with respect to options granted under the stock option plans in
respect of the employees of the company is as follows:
<TABLE>
<CAPTION>
Fixed price Performance-based
---------------------------------- -------------------------------------
Weighted-average Weighted-average
--------------------- ----------------------
Fair value Number Fair value
Number Exercise of options of Exercise of options
of options price granted options price granted
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31, 1995....... 742,839 0.88 653,834 0.81
Granted............................. 344,353 1.56 0.59 72,500 2.15 0.47
Expired or cancelled................ (91,837) 0.98 (7,500) 1.96
Exercised........................... (28,087) 0.86 (203,832) 0.71
---------- -------- ---------- --------
Outstanding at December 31, 1996....... 967,268 1.11 515,002 1.04
---------- -------- ---------- --------
Granted............................. 300,271 1.50 0.54 - - -
Expired or cancelled................ (197,665) 1.21 (47,000) 1.65
Exercised........................... (240,498) 0.72 (170,000) 0.75
---------- -------- ---------- --------
Outstanding at December 31, 1997....... 829,376 $1.34 298,002 $0.93
---------- -------- ---------- --------
Exercisable at:
December 31, 1997................... - - 189,167 $0.85
</TABLE>
Summarized information about fixed price stock options outstanding in
respect of the employees of the Company at December 31, 1997 is as follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------- -------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise price Number exercise
prices ($) outstanding life ($) exercisable price ($)
---------- ----------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
0.93 100,715 1.3 years 0.93 - -
1.08 211,914 2.3 years 1.08 - -
1.50-1.56 516,747 3.8 years 1.53 - -
0.93-1.56 829,376 3.4 years 1.34 - -
</TABLE>
Summarized information about performance-based stock options outstanding in
respect of the employees of the Company at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------- -------------------------
Weighted-
average Weighted- Weighted-
Range of remaining average average
exercise Number contractual exercise price Number exercise
prices ($) outstanding life ($) exercisable price ($)
---------- ----------- ----------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
0.46 37,500 0.50 years 0.46 37,500 0.46
0.55-0.98 125,302 5.00 years 0.80 94,500 0.81
1.11-1.35 90,200 7.25 years 1.20 57,167 1.17
1.98 15,000 8.50 years 1.96 - -
2.32 30,000 8.50 years 2.32 - -
----------- ----------
0.46-2.32 298,002 5.10 years 1.09 189,167 0.85
=========== ==========
</TABLE>
Share Bonus Scheme
Under the terms of the Share Bonus Scheme, the Parent is authorised to
grant shares of the Parent's common stock to the executive directors of the
Company in lieu of any annual cash bonus. Participation in this plan is
obligatory for bonuses above a certain threshold. Under the scheme, Parent
common stock, having an initial market value of up to four times the amount
excluded from the cash bonus scheme, are notionally allocated to the executive.
Over a five year period the trustees of the scheme will, when called upon to do
so by the executive, transfer an increasing proportion of such shares to the
executive, at which time the remaining shares which have not "vested" will be
forfeited by the executive. No shares were granted under this Scheme in 1996 and
1997.
10. Income Taxes
The Company computes income tax expense based on the UK Statutory Rates.
Income tax expense for the year ended December 31, 1996 was computed at the UK
Statutory Rate of 33%. During the year ended December 31, 1997, the UK Statutory
Rate was reduced from 33% to 31%. For the year ended December 31, 1997, the
Company computed income tax expense at a rate of 33% for 3 months and 31 percent
for 9 months resulting in a blended rate of 31.5% for the year.
F-15
<PAGE>
The provision for income taxes (benefit) is as follows:
Year ended December 31
----------------------
1996 1997
------ ------
Current................................. $ 369 831
Deferred................................ 201 69
------ ------
Provision for income taxes.............. $ 570 900
====== ======
Income tax expense for the years ended December 31, 1996 and 1997 differ
from the amounts computed by applying the UK statutory tax rate to pre-tax
income (loss) as a result of the following:
Year ended December 31
----------------------
1996 1997
------ ------
Tax provision (benefit) at Statutory Rate.... $ (76) 275
Amortization of goodwill..................... 651 653
Effect of change in UK Statutory Rate........ - (36)
Non-deductible items and other............... (5) 8
------ -----
$ 570 900
====== =====
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and other...... $ 122 138
Deferred tax liabilities:
Fixed assets................................... 623 698
Intangible assets.............................. 113 100
------ ------
$ 736 798
------ ------
614 660
====== ======
</TABLE>
11. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables and accounts
payable, approximate fair value due to the short maturity of such instruments.
The carrying value and related fair value for the Company's remaining financial
instruments, foreign currency contracts, are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
---------------------------------------- -----------------------------------------
Carrying amount Estimated fair value Carrying amount Estimated fair value
--------------- -------------------- --------------- --------------------
<S> <C> <C> <C> <C>
Foreign exchange forward contracts $ - (207) - 121
</TABLE>
The fair value of short term foreign exchange contracts is based on
exchange rates at December 31, 1996 and 1997. The fair value of long term
foreign contracts is based on various quoted spot forward exchange rates.
F-16
<PAGE>
2. Contingencies
Legal
The Company is currently subject and party to various legal actions arising
in the normal course of business. Management believes the ultimate liability, if
any, arising from such claims or contingencies is not likely to have a material
adverse effect on the Company's results of operations or financial condition.
In the normal course of business, the Company disposes of potentially
hazardous material which could result in claims related to environmental
cleanup. The Company has not been notified of any related claims. The Company is
subject to various other environmental and governmental regulations, however,
the extent of any non-compliance with those regulations, if any, is not
ascertainable.
13. Subsequent Event (unaudited)
In May 1998, the Parent signed a letter of intent with Pacific Aerospace &
Electronics, Inc., a public company headquartered in the United States, to sell
the Company for approximately (pound)45.0 million. The transaction is expected
to close in July 1998. However, there is no assurance that the transaction will
be completed.
F-17
<PAGE>
INDEX TO UNAUDITED PRO FORMA DATA
Page
Unaudited Pro Forma Financial Data.......................................... P-2
Unaudited Pro Forma Balance Sheet Data...................................... P-3
Notes to Unaudited Pro Forma Balance Sheet Data............................. P-4
Unaudited Pro Forma Statement of Operations Data............................ P-5
Notes to Unaudited Pro Forma Statement of Operations Data................... P-6
P-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Financial Data for the year ended May 31,
1998, gives effect to the Company's acquisition of Aeromet as if it had occurred
on June 1, 1997. The historical statement of operations data of the Company for
the year ended May 31, 1998, already reflects the results of operations of Balo
Precision Parts, Inc. ("Balo") and Electronic Specialty Corporation ("ESC")
since the time of their respective acquisitions by the Company in Fiscal 1998.
The historical balance sheet of the Company as of May 31, 1998, already reflects
the acquisitions of Balo and ESC, and the Unaudited Pro Forma Balance Sheet data
reflects the Aeromet Acquisition as if it had occurred on May 31, 1998.
This Unaudited Pro Forma Financial Data is based on the assumptions and
adjustments described in the accompanying notes which the Company believes are
reasonable. The Unaudited Pro Forma Statement of Operations Data does not
purport to represent what the Company's results of operations actually would
have been if the event described above had occurred as of the date indicated or
what such results will be for any future periods. The financial data is based
upon assumptions and adjustments that the Company believes are reasonable. This
Unaudited Pro Forma Financial Data and the accompanying notes should be read in
conjunction with the historical financial statements of the Company and Aeromet,
including the notes thereto.
Each of the acquisitions referred to in this Unaudited Pro Forma Financial
Data has been or will be accounted for using the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed have been or will be
recorded at their fair values as of the dates of their respective acquisitions.
These amounts have been recorded based upon preliminary estimates as of the
dates of the acquisitions. The Company does not believe that any changes to
these estimates that may occur will have a material impact on the Unaudited Pro
Forma Financial Data.
P-2
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Balance Sheet Data
As of May 31, 1998
(in thousands)
Historical Pro forma,
------------------------ Pro forma as
Company(1) Aeromet(2) adjustments(3)(5) adjusted(4)
---------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 11,461 -- 9,638 (6) 21,099
Accounts receivable, net.......................... 9,375 13,885 -- 23,260
Due from Affiliates............................... -- 26 -- 26
Inventories....................................... 16,184 10,050 -- 26,234
Deferred income taxes............................. 386 137 -- 523
Prepaid expenses and other........................ 272 218 -- 490
---------- ---------- ----------------- -----------
Total current assets......................... 37,678 24,316 9,638 71,632
Property, plant and equipment, net..................... 26,335 9,073 9,000 (7) 44,408
Other assets:
Note receivable from related party................ 700 -- -- 700
Investment........................................ 4,579 -- -- 4,579
Costs in excess of net book value of acquired
subsidiaries, net.............................. 6,515 22,791 21,252 (8) 50,558
Patents, net...................................... 1,229 -- -- 1,229
Deferred income taxes............................. 222 -- -- 222
Other............................................. 1,322 12 3,405 (9) 4,739
---------- ---------- ----------------- -----------
Total other assets........................... 14,567 22,803 24,657 62,027
---------- ---------- ----------------- -----------
$ 78,580 56,192 43,295 178,067
========== ========== ================= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. 6,748 8,625 -- 15,373
Accrued liabilities............................... 2,587 2,380 -- 4,967
Taxes payable..................................... -- 1,616 -- 1,616
Current portion of long-term debt................. 1,027 -- -- 1,027
Current portion of capital lease obligations...... 206 119 -- 325
Line of credit and short-term borrowings.......... 1,511 5,108 5,108)(10) 1,511
---------- ---------- ----------------- -----------
Total current liabilities.................... 12,079 17,848 (5,108) 24,819
Long-term liabilities:
Long-term debt, net of current portion............ 9,059 -- 75,000 (11) 84,059
Capital lease obligations, net of current portion. 941 924 -- 1,865
Due to Affiliates................................. -- 10,849 (10,849)(10) --
Deferred income taxes............................. -- 763 3,060 (12) 3,823
Deferred rent and other........................... 359 -- -- 359
---------- ---------- ----------------- -----------
Total liabilities............................ 22,438 30,384 62,103 114,925
Shareholders' equity:
Convertible preferred stock....................... -- -- -- --
Common stock...................................... 15 155 (155)(15) 15
Additional paid-in capital........................ 57,830 43,286 (36,286)(14) 64,830
Cumulative unrealized loss on investment.......... (436) -- -- (436)
Cumulative translation adjustment................. -- 1,320 (1,320)(15) --
Accumulated deficit............................... (1,267) (18,953) 18,953 (15) (1,267)
---------- ---------- ----------------- -----------
Total shareholders' equity................... 56,142 25,808 (18,808) 63,142
---------- ---------- ----------------- -----------
$ 78,580 56,192 43,295 178,067
========== ========== ================= ===========
</TABLE>
P-3
<PAGE>
Notes to Unaudited Pro Forma Balance Sheet Data
(1) Represents the consolidated balance sheet of the Company as of May 31,
1998.
(2) Represents the consolidated balance sheet of Aeromet as of May 31, 1998.
(3) Includes pro forma adjustments for the Aeromet Acquisition, related
financing, and proceeds from Series B Preferred ($7.0 million) held in
escrow pending closing of the Aeromet Acquisition.
(4) Represents the Company's pro forma, as adjusted balance sheet as if the
Aeromet Acquisition, the related financing, and the Series B convertible
preferred stock ("Series B Preferred") issuance had occurred on May 31,
1998.
(5) The following table sets forth the components of the aggregate purchase
price of Aeromet and the allocation of such purchase price (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Aeromet purchase price.................................................... $67,457
Acquisition costs......................................................... 1,500
-------
Total purchase price to be allocated................................. $68,957
=======
Historical book value of total assets acquired............................ $56,192
Elimination of historical costs in excess of net book value of acquired
subsidiaries(8)...................................................... (22,791)
Elimination of historical deferred income taxes(12)....................... 763
Adjustment of property, plant and equipment to fair value(7).............. 9,000
Liabilities assumed(13)................................................... (14,427)
Estimated deferred income taxes(12)....................................... (3,823)
Costs in excess of book value of Aeromet Acquisition(8)................... 44,043
-------
Total purchase price allocated....................................... $68,957
=======
</TABLE>
(6) Proceeds from issuance of Series B Preferred ($7.0 million), the Notes net
of deferred financing costs ($71.0 million), less the cost of the
acquisition of Aeromet including acquisition costs ($69.0 million), and
plus previously incurred acquisition costs ($595,000).
(7) Adjustment of $9.0 million to record property, plant and equipment at fair
value for Aeromet.
(8) Incremental impact of recording costs in excess of net book value of
acquired subsidiaries for the Aeromet Acquisition ($44.0 million) and the
elimination of Aeromet's historical costs in excess of net book value of
acquired subsidiaries ($22.8 million).
(9) Represents estimated deferred financing costs incurred in connection with
the financing related to the acquisition of Aeromet ($4 million), less
previously incurred acquisition cost ($595,000).
(10) Elimination of debt of Aeromet not assumed by the Company, including $5.1
million short-term borrowing and $10.8 million of due to affiliates.
(11) Proceeds from the Note offering.
(12) Establishment of deferred income taxes upon Aeromet Acquisition ($3.8
million) and write-off of Aeromet's historical deferred income taxes
($763,000).
(13) Represents Aeromet's total liabilities ($30.4 million), less liabilities
not assumed ($5.1 million of short-term debt and $10.8 million of due to
affiliates).
(14) Elimination of Aeromet's historical additional paid-in capital ($43.3
million), plus proceeds from Series B Preferred ($7.0 million).
(15) Elimination of Aeromet's historical shareholders' equity accounts,
including Common Stock ($155,000), cumulative translation adjustment ($1.3
million), and accumulated deficit ($19.0 million).
P-4
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Statement of Operations Data
For the Year Ended May 31, 1998
(in thousands)
Historical Pro forma,
------------------------ Pro forma as
Company(1) Aeromet(2) adjustments adjusted(3)
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............................. $ 54,099 53,840 -- 107,939
Cost of sales......................... 39,487 43,645 900(4) 84,032
---------- ---------- ----------- -----------
Gross profit.......................... 14,612 10,195 (900) 23,907
Operating expenses.................... 9,872 6,240 (1,477)(5) 14,635
---------- ---------- ----------- -----------
Income from operations................ 4,740 3,955 577 9,272
Net interest expense.................. (755) (679) (8,830)(6) (9,964)
Other income (expense)................ (853) -- -- (853)
---------- ---------- ----------- -----------
Income (loss) before income taxes..... 3,132 3,276 (7,953) (1,545)
Income taxes (benefit)................ (482) 1,673 126(7) 1,317
---------- ---------- ----------- -----------
Net income (loss)..................... $ 3,614 1,603 (8,079) (2,862)
========== ========== =========== ===========
</TABLE>
P-5
<PAGE>
Notes to Unaudited Pro Forma Statement of Operations Data
(1) Represents the results of operations of the Company for the year ended May
31, 1998, and the results of operations of Balo and ESC from the effective
dates of their respective acquisitions.
(2) Represents the results of operations for Aeromet for the year ended May 31,
1998.
(3) Presents the statement of operations data of the Company as if the
acquisition of Aeromet and related financing transactions had occurred on
June 1, 1997.
(4) Represents depreciation on fair value adjustment to property, plant and
equipment upon the Aeromet Acquisition. The $9.0 million fair value
adjustment is being amortized over 10 years.
(5) Represents the incremental amortization of cost in excess of net book value
of acquired subsidiaries arising from the acquisition of Aeromet of $1.1
million, net of amortization previously recorded by Aeromet of $2.1
million, which has been eliminated. Cost in excess of net book value of
acquired subsidiaries is being amortized over 40 years for Aeromet. Also
represents the elimination of $474,000 of management fees paid to Aeromet's
previous parent.
(6) Represents incremental interest expected to be incurred from indebtedness
in connection with the acquisition of Aeromet ($75.0 million). Interest
expense was calculated at the annual rate of 11.25%, representing the rate
on the indebtedness expected to be incurred in the acquisition. Interest
expense on debt not assumed in the Aeromet Acquisition ($479,000) has been
eliminated. Deferred financing costs ($4.0 million) are amortized over 7
years.
(7) Tax provision to reflect the Company's estimated taxes on certain pro forma
adjustments.
P-6
Dated July 1, 1998
(1) CHARLES BAYNES PLC
(2) WESTPARK LIMITED
(3) PACIFIC AEROSPACE & ELECTRONICS (UK) LIMITED
(4) PACIFIC AEROSPACE & ELECTRONICS, INC.
SHARE ACQUISITION AGREEMENT
relating to
AEROMET INTERNATIONAL PLC
Travers Smith Braithwaite
10 Snow Hill
London EC1A 2AL
Telephone 0171-248 9133
<PAGE>
CONTENTS
Clause of Agreement Page
1 Definitions and interpretation 1
2 Sale of Shares 6
3 Consideration and Condition 7
4 Warranties 8
5 Purchaser's and Guarantor's warranties 13
6 Announcements and confidentiality 14
7 Completion 15
8 Covenants 17
9 Costs 20
10 Restrictive Trade Practices Act 1976 20
11 Guarantee 21
12 Guarantee by Charles Baynes 22
13 Termination 23
14 Properties 23
15 General 24
16 Notices 25
17 Applicable law and jurisdiction 26
Schedules
1 Particulars of the Vendor, Charles Baynes, the Purchaser and the
Guarantor
2 Particulars of the Company and the Subsidiary Undertakings
3 Completion obligations
4 General Warranties
5 Warranties relating to Taxation
6 Licensed and Listed Intellectual Property
7 Properties
<PAGE>
Documents in the approved terms
Tax Deed
Letters of resignation
Board minutes of the Group Companies
Power of attorney
Birmingham Lease
Birmingham Car Parking Licence
Deeds of Guarantee and Variation
Option Agreement
Property Leases
Deed of Change of Trustee
Letter pursuant to Clause 7.5
Letter in relation to ongoing trading arrangements
Letter in relation to John McConnell
Letter regarding stamp duty
Annexures
1 Accounts
2 Announcements
3 Management Accounts
4 Offering Circular
5 List of Customers/Suppliers
6 List of foreign exchange agreements
<PAGE>
THIS AGREEMENT is made on 1998
BETWEEN:-
(1) CHARLES BAYNES PLC, particulars of which are set out in Part I of Schedule 1
("Charles Baynes");
(2) WESTPARK LIMITED, particulars of which are set out in Part II of Schedule I
("the Vendor");
(3) PACIFIC AEROSPACE & ELECTRONICS (UK) LIMITED particulars of which are set
out in Part III of Schedule 1 ("the Purchaser"); and
(4) PACIFIC AEROSPACE & ELECTRONICS, INC., particulars of which are set out in
Part IV of Schedule 1 ("the Guarantor").
WHEREAS:-
(A) Particulars of the Company and the Subsidiary Undertakings are set out in
Schedule 2.
(B) The Vendor has agreed to sell and the Purchaser has agreed to purchase the
Shares on the terms set out in this Agreement.
(C) Immediately prior to Completion, the Purchaser will lend to Aeromet such
amount as will enable Aeromet to repay the Intra Group Debt.
(D) The Vendor will sell and the Purchaser will buy in accordance with the
terms of this Agreement the Company free from the Intra Group Debt, any
borrowings (including finance leases) or cash other than Approved Debt.
IT IS AGREED as follows:-
1. Definitions and interpretation
1.1 The following words and expressions where used in this Agreement (including
in the Recitals and the Schedules) have the meanings given to them below:-
Accounts the audited balance sheet of each Group
Company as at the Accounts Date and the
audited profit and loss account of each
Group Company for the financial year
ended on the Accounts Date, together in
each case with the related notes,
directors' report and auditors' report, a
copy of each of which comprises Annexure
1;
<PAGE>
Accounts Date 31 December 1997;
Aeromet Aeromet International PLC;
Announcements announcements to the London Stock
Exchange and the United States public
securities markets for release to the
market and the press in the form of the
drafts comprising Annexure 2;
Approved Debt the Finance Lease Debt and the Bank
Overdraft;
Bank Overdraft the amount owing to Barclays Bank plc by
the Company at close of business on the
day prior to Completion adjusted to
reflect cheques and deposits in the
course of clearance;
Birmingham Car Parking Licence the car parking licence in respect of the
Birmingham Property in the approved terms
to be entered into by Charles Baynes and
the Company upon Completion;
Birmingham Lease the lease in respect of the Birmingham
Property in the approved terms to be
entered into between Charles Baynes and
Aeromet upon Completion;
Birmingham Property all those premises at Tame Road, Witton
Birmingham currently occupied by the
Company and to be demised by the
Birmingham Lease, as referred to in
paragraph 1 of Schedule 7;
Business Day a weekday, other than a Saturday, on
which clearing banks are ordinarily open
for business in the City of London and in
the city of Seattle, Washington State;
Companies Act the Companies Act 1985;
Company Aeromet International PLC, details of
which are set out in Part I of Schedule
2;
Completion the performance of the obligations to
complete the sale and purchase of the
Shares in accordance with this Agreement;
2
<PAGE>
Completion Date not later than the third Business Day
following the date on which the condition
specified in Clause 3.5 is satisfied;
Company Intellectual Property Intellectual Property owned by the Group
and Intellectual Property owned by third
parties which the Group uses;
Deeds of Guarantee and Variation deeds of guarantee and variation in
respect of those Properties referred to
in paragraphs 2, 4 and 5 of Schedule 7 in
the approved terms to be entered into
upon Completion and between the Guarantor
(1) and Charles Baynes (2);
Disclosure Letter the letter of the same date as this
Agreement (including its annexures) from
the Vendor to the Purchaser containing
the disclosures to the Warranties;
EEC Treaty the Treaty establishing the European
Economic Community;
Finance Lease Debt the capitalised amount (determined in
accordance with the Company's normal
accounting policies) of the Company's
indebtedness under the finance leases
(whose particulars are set out in the
Disclosure Letter) as at the close of
business on the day prior to Completion;
Group the Company and the Subsidiary
Undertakings and "Group Company" means
any of such companies;
ICTA 1988 the Income and Corporation Taxes Act
1988;
Intellectual Property patents, trade marks, registered designs,
applications for any of the foregoing,
copyright, unregistered trade marks,
database rights, design rights and rights
analogous to any of the foregoing, trade
and business names, rights in
confidential information (including
confidential formulae, processes and know
how) howsoever arising and any right or
3
<PAGE>
interest in any of the foregoing;
Intra Group Debt amounts owing on inter company account at
the close of business on the day prior to
Completion by any member of the Group to
any member of the Vendor Group other than
debt incurred for goods or services
supplied;
Licensed Intellectual Property Intellectual Property owned by third
parties which the Group or any member
thereof is permitted to use or exercise,
details of which and the agreements
relating to which are listed in Part I of
Schedule 6;
Listed Intellectual Property that Intellectual Property owned by the
Group which is listed in Part II of
Schedule 6;
London Stock Exchange London Stock Exchange Limited;
Management Accounts the unaudited profit and loss account for
Aeromet for the five months ended 31 May
1998 and the unaudited balance sheet of
the Company as at that date comprising
Annexure 3;
Offering Circular the document comprising Annexure 4 and
any updated supplement thereto;
Option Agreement an Option Agreement in the approved terms
to be entered into upon Completion
between Charles Baynes (1) and the
Purchaser (2);
Properties all that leasehold property of Aeromet
details of which appear in Schedule 7;
Property Leases the leases in the approved terms entered
into between Charles Baynes and Aeromet
on 30 June 1998 in respect of those
Properties referred to in paragraphs 2, 4
and 5 of Schedule 7;
Purchaser's Solicitors Macfarlanes, 10 Norwich Street, London
EC4A 1BD;
Shares the 1,000,000 issued ordinary shares of
10p in the capital of the Company
(comprising the
4
<PAGE>
entire issued share capital) to be
acquired by the Purchaser in accordance
with the terms of this Agreement;
Subsidiary Undertakings the subsidiary undertakings of the
Company, details of which are set out in
Part II of Schedule 2;
Tax Deed the deed in the approved terms relating
to taxation to be executed at Completion;
Territory the United Kingdom, the United States of
America and any territory in which the
Company carries on its business on the
date of this Agreement;
Unit H Lease the underlease dated 21 March 1996 made
between Wolseley Centers Limited (1) and
Kent Aerospace Castings plc (2) of Unit H
Cosgrove Close, Worcester for the term of
25 years from 25 March 1978 (less 3
days);
Unregistered Mark the unregistered mark "Aeromet";
Vendor Group the group of companies comprising
Charles Baynes and each subsidiary of
Charles Baynes, excluding the Company and
the Subsidiary Undertakings (and "Vendor
Group member" and "member of the Vendor
Group" shall be construed accordingly);
Vendors' Solicitors Travers Smith Braithwaite of 10 Snow
Hill, London EC1A 2AL;
Warranties the representations and warranties set
out in Schedules 4 and 5;
Warrantors the Vendor and Charles Baynes.
1.2 Where used in this Agreement the terms "subsidiary", "subsidiary
undertaking", "holding company", "financial year" and "director" shall have the
meanings respectively attributed to them by the Companies Act at the date of
this Agreement; the term "recognised investment exchange" shall have the meaning
attributed to it by Part V of the Financial Services Act 1986 at the date of
this Agreement; the term "connected person" shall have the meaning attributed to
it by section 839 ICTA 1988 at the date of this Agreement and the words
"connected with" shall be construed accordingly; the term "taxation" shall have
the
5
<PAGE>
meaning attributed to "Taxation" in the Tax Deed; and the expressions "for
taxation purposes" and "Taxation Authority" shall have the meanings respectively
attributed to them in the Tax Deed.
1.3 A reference to any statutory provision in this Agreement:-
1.3.1 includes any order, instrument, plan, regulation, permission and
direction made or issued under such statutory provision or deriving
validity from it;
1.3.2 shall be construed as a reference to such statutory provision as in
force at the date hereof; and
1.3.3 shall also be construed as a reference to any statutory provision of
which such statutory provision is a re-enactment or consolidation.
1.4 The headings in this Agreement are for convenience only and shall not affect
its meaning.
1.5 References to a clause, Schedule or paragraph are (unless otherwise stated)
to a clause of and Schedule to this Agreement and to a paragraph of the relevant
Schedule.
1.6 A document expressed to be "in the approved terms" means a document, the
terms, conditions and form of which have been agreed by the parties to this
Agreement and a copy of which has been identified as such and initialled by or
on behalf of each of the parties.
1.7 A document expressed to be an "Annexure" means a document a copy of which
has been identified as such and initialled by or on behalf of each of the
parties.
1.8 Words importing one gender shall (where appropriate) include any other
gender and words importing the singular shall (where appropriate) include the
plural and vice versa.
2. Sale of Shares
2.1 The Vendor shall sell or procure to be sold with full title guarantee and
the Purchaser shall purchase the Shares free from all liens, charges,
encumbrances, equities and claims whatsoever and together with all rights now or
hereafter attaching to them, in each case upon the terms of this Agreement.
2.2 The Purchaser shall not be obliged to complete the purchase of any of the
Shares unless the purchase of all of the Shares is completed simultaneously.
2.3 The Vendor irrevocably and unconditionally waives and agrees to procure the
waiver of all rights of pre-emption or other restrictions on transfer which may
exist, whether under the Articles of Association of the Company or the
Subsidiary Undertakings or otherwise, in respect of the transfer to the
Purchaser or its nominee(s) of the Shares or any of them and shall execute and
deliver or procure the execution and delivery of all such deeds of waiver in
6
<PAGE>
respect thereof as the Purchaser may require.
3. Consideration and Condition
3.1 The consideration for the sale and purchase of the Shares shall be a sum
equal to (pound)42 million less the amount of the Intra Group Debt and the
Approved Debt and shall be payable in cash on Completion ("the Shares
Consideration").
3.2 Any amount paid in respect of a breach of any of the Warranties or under the
Tax Deed shall be deemed to give rise to a corresponding reduction in the Shares
Consideration.
3.3 Immediately prior to Completion the Vendor shall deliver to the Purchaser a
statement showing the amount of the Intra Group Debt, the Bank Overdraft and the
Finance Lease Debt.
3.4 The Vendor hereby covenants to hold the Purchaser, for itself and as trustee
for each of the members of the Group, indemnified in respect of any and all sums
which any Group Company is required to pay to any person in respect of any
borrowing or indebtedness in the nature of borrowing, including bank overdrafts,
liabilities under acceptances (other than normal trade bills) or acceptance
credits, hire purchase commitments or obligations under finance leases other
than the Intra Group Debt and the Approved Debt of that or any other Group
Company (excluding, for the avoidance of doubt, debts incurred in the ordinary
course of business including debts to suppliers and other providers of services,
and customer pre-payments) which is outstanding at Completion.
3.5 Completion shall be conditional upon the closing of the offering proposed to
be made by the Guarantor pursuant to the Offering Circular and the raising by
the Guarantor of net proceeds from such offering of not less than US$70 million.
3.6 If the condition set out in Clause 3.5 shall not have been satisfied by 31
July 1998, this Agreement (except for the provisions of this Clause and of
Clauses 1, 6.2 to 6.6 (inclusive), 9, 15, 16 and 17) shall be null and void and
of no further effect.
3.7 The Purchaser shall be entitled in its absolute discretion to waive in whole
or part the condition set out in Clause 3.5.
3.8 The Guarantor shall take all steps (which in its reasonable opinion (arrived
at in good faith) it considers necessary) to secure satisfaction of the
condition in Clause 3.5 and shall promptly supply Charles Baynes with such
information and documentation as Charles Baynes may reasonably require in
connection therewith. The Guarantor shall as soon as practicable notify Charles
Baynes of satisfaction of the condition in Clause 3.5. Unless the Purchaser
shall have exercised its rights under Clause 3.7 the Guarantor shall notify
Charles Baynes if it becomes apparent to the Guarantor that closing of the
Offering will not take place prior to 31 July 1998 in which case this Agreement
shall terminate upon service of such notice and shall thereupon be null and void
and of no further effect (except that the provisions of this Clause and of
Clauses 1, 6.2 to 6.6 (inclusive), 9, 15, 16 and 17 shall
7
<PAGE>
continue to apply notwithstanding such termination).
4. Warranties
4.1 The Warrantors, upon the execution of this Agreement, represent and warrant
to the Purchaser that, subject to Clause 4.2, each of the Warranties:-
4.1.1 is at the date of this Agreement true and accurate and not misleading;
and
4.1.2 is not to be affected or limited by any previous or other disclosures,
express or implied, to, or investigation by, the Guarantors, the
Purchaser, or any of their officers, representatives or professional
advisers.
4.2 The Warranties are given subject to matters fairly disclosed in the
Disclosure Letter and shall continue in full force and effect notwithstanding
Completion.
4.3 The Vendor hereby covenants to hold the Purchaser, for itself and as trustee
for each member of the Group, indemnified in respect of any breach of warranty
20.3.2 save in respect of any indebtedness or other liabilities (actual or
contingent) referred to therein which were in existence as at the date of the
transfer by the relevant Subsidiary Undertaking of its business to the Company
or have arisen in the ordinary course of the carrying out of such business since
that date or which are in respect of Taxation (as defined in the Tax Deed).
4.4 The Warrantors acknowledge that the Purchaser has entered into this
Agreement in reliance on representations in the terms of the Warranties made by
the Warrantors with the intention of inducing the Purchaser to enter into this
Agreement and that accordingly the Purchaser has been induced by those
representations to enter into this Agreement.
4.5 Where any statement in the Warranties is qualified by the expression "to the
best of the knowledge, information and belief of the Warrantors" or "so far as
the Warrantors are aware" or any similar expression, the Warrantors shall be
deemed to have knowledge or be aware only of those matters within the knowledge
of John Perkins, Eddie Price, Duncan Crighton and John McConnell ("the relevant
individuals") and that expression shall be deemed to include a warranty by the
Warrantors that the statement has been made by the Warrantors after all (or
some) of the relevant individuals had made reasonable enquiries in respect of
the subject matter of such Warranty.
4.6 Each of the Warranties shall be separate and independent and, save as
expressly provided, shall not be limited by reference to or inference from any
other Warranty or any other provision in this Agreement.
4.7 The Warrantors undertake not to exercise any right of counterclaim or
set-off or any other claim or right of recovery against any Group Company or any
of such companies' officers and employees or John McConnell in relation to any
claim which may be made in respect of the Warranties or under the Tax Deed, save
where such claim arises as a result of the fraud or
8
<PAGE>
wilful default of any such officer or employee or John McConnell.
4.8 The Warrantors shall be under no liability:-
4.8.1 in respect of any claim for breach of the Warranties (other than
those contained in Schedule 5) unless written notice of the claim
identifying if practicable its source and reasonable details of the
circumstances giving rise to the claim as then known to the Purchaser shall
have been given by or on behalf of the Purchaser to Charles Baynes prior to
31 December 1999 and any such claim which may be made shall be deemed to be
withdrawn (if it has not been previously satisfied, settled or withdrawn)
on the expiry of 12 months commencing on the date on which notice of the
claim shall be given in accordance with this Agreement unless legal
proceedings in respect thereof have been commenced against the Vendor or
Charles Baynes and for this purpose such legal proceedings shall not be
deemed to have been commenced unless they have been both issued and served
on the Vendor or Charles Baynes; and
4.8.2 in respect of any claim for breach of the Warranties contained in
Schedule 5 or pursuant to the terms of the Tax Deed unless written notice
of the claim has been given by or on behalf of the Purchaser to the Vendor
or Charles Baynes on or before the date which is six calendar months after
the end of the latest of the accounting periods of the Group Companies to
end six years after the Completion Date.
4.9 The Warrantors shall not be liable in respect of any claim for breach of the
Warranties or pursuant to the terms of the Tax Deed, whether by virtue of a
judgment of a court of competent jurisdiction, an arbitral award or an admission
in writing signed by either of them, unless the loss thereby sustained (together
with the aggregate amount of losses sustained arising from previous claims (if
any)) shall exceed a total sum of (pound)1,000,000 in which event the whole of
the amounts in respect of such claim or claims shall be recoverable and not
merely the excess over (pound)1,000,000 (and, for the avoidance of doubt,
thereafter all amounts in respect of any further claim or claims shall be
recoverable). This clause shall not apply to a claim under clause 2.2.9 of the
Tax Deed.
4.10 The aggregate liability of the Vendor and Charles Baynes for breach of the
Warranties and for claims pursuant to the terms of the Tax Deed shall not in any
event exceed the amount of (pound)42 million.
4.11 The Warrantors shall not be liable for any breach of the Warranties to the
extent that the specific loss occasioned by the circumstances giving rise to
such breach has been recovered under the Tax Deed and shall not be liable for
any claim pursuant to the Tax Deed to the extent that the specific loss
occasioned by the circumstances giving rise to such claim has been recovered
under the Warranties.
4.12 The Purchaser shall as soon as reasonably practicable inform Charles Baynes
in writing of any fact, matter, event or circumstance ("claim against the
Group") which comes to its notice or to the notice of the Company or a
Subsidiary Undertaking and to the notice of a director of the Purchaser or of
the Company or of a Subsidiary Undertaking whereby it appears
9
<PAGE>
in the reasonable opinion of the Purchaser that the Vendor or Charles Baynes are
or may become liable in respect of a breach of any of the Warranties and shall
in relation thereto:-
4.12.1 consult with Charles Baynes in good faith as to the way in which the
claim against the Group might be avoided, resolved, mitigated, settled or
compromised and so far as reasonably practicable afford to Charles Baynes
an opportunity to propose to the Purchaser a method of resolving,
mitigating, settling or compromising the same;
4.12.2 make no admission of liability to, or any agreement, settlement or
compromise with, any third party without the prior written consent of
Charles Baynes;
4.12.3 at the written request of Charles Baynes and on being indemnified
accordingly to the reasonable satisfaction of the Purchaser in respect of
all losses, claims, demands, costs and expenses ("Losses") which may
thereby be incurred, take or procure that the Company or the Subsidiary
Undertaking concerned shall so far as reasonably practicable take such
action as Charles Baynes may reasonably require to avoid, dispute, resist,
mitigate, settle, compromise or defend the claim against the Group and
render or cause to be rendered to Charles Baynes and its advisers all such
assistance (including providing access to all information and documentation
and to employees of the Company and the Subsidiary Undertakings) as Charles
Baynes and its advisers may reasonably require in connection with the same;
4.12.4 without prejudice to the generality of clause 4.12.3, permit Charles
Baynes, upon its providing indemnities reasonably satisfactory to the
Purchaser for all Losses which may thereby be incurred, to have the conduct
of all proceedings relating to the claim against the Group including the
appointment of solicitors or other professional advisers and the making of
any settlement or compromise thereof,
provided that (and without prejudice to clause 4.20) the Purchaser shall
not be required to take any action pursuant to this Clause 4.12 which would
harm its or any Group Company's commercial relationship (potential or
actual) with that person.
4.13 No liability shall attach to the Warrantors in respect of a breach of any
of the Warranties to the extent that:-
4.13.1 any specific provision, allowance or reserve in respect of the
matters giving rise to such breach has been made in the Accounts or the
Management Accounts;
4.13.2 such claim arises as a consequence of a change in the law enacted
after the date of this Agreement;
4.13.3 any claim in respect of a breach of any of the Warranties arises as
a result of any provision or reserve made in respect thereof in the
Accounts or in the Management Accounts being insufficient by reason of any
increase in rates of taxation made after the date of this Agreement or as a
result of the retrospective imposition of taxation as a consequence of a
change in the law or the published practice of a
10
<PAGE>
Revenue authority enacted or introduced after the date of this Agreement;
4.13.4 (and in respect only of those Warranties in Schedule 5) the breach
or the events giving rise to such breach would not have arisen but for any
failure on the part of the Purchaser or any other member of the group of
companies of which the Purchaser is a member (including the Company and the
Subsidiary Undertakings or any of them) to make any claim, election,
surrender or disclaimer or give any notice or consent to do any other thing
after Completion, in each case the making, giving or doing of which was
taken into account in preparing the Accounts and is disclosed in the
Disclosure Letter as requiring such action;
4.13.5 any losses arising from a claim in respect of a breach of any of the
Warranties is recoverable under a policy of insurance of the Company and/or
any Group Company ("the Insuring Parties") in force on the date when such
breach occurred, provided that:
4.13.5.1 in limiting the liability of the Warrantors under this
clause, there shall be deducted from the amounts recoverable
any increase in premiums payable by the Insuring Parties on
any relevant insurance policy by reason of such recovery
being made;
4.13.5.2 the Insuring Parties are under no obligation to maintain any
policy of insurance after Completion; and
4.13.5.3 nothing in this Clause 4.13.5 shall require the Purchaser to
delay making any claim or bringing proceedings against the
Warrantors pending settlement of such insurance claim if
such delay would or might reasonably jeopardise the
Purchaser's rights hereunder; or
4.13.6 such liability is contingent unless and until such contingent
liability becomes an actual liability and is due and payable provided that
this Clause shall not prejudice any claim in respect of which notice given
in accordance with Clause 4.8 in respect of a liability which at that time
is contingent only.
4.14 The Warrantors shall not be liable in respect of any breach of the
Warranties or pursuant to the Tax Deed in respect of all and any matters
resulting from a change of accounting policy or practice of the Purchaser or any
other member of the group of companies of which the Purchaser is a member
(including the Company and the Subsidiary Undertakings of any of them)
introduced after Completion.
4.15 If the Purchaser or any Group Company is or may be entitled to recover from
a third party other than an employee of the Company or a Subsidiary Undertaking
any sum in respect of any matter giving rise to a claim for breach of any of the
Warranties or a claim under the Tax Deed, the Purchaser shall procure on being
indemnified accordingly to the reasonable satisfaction of the Purchaser in
respect of all costs and expenses which are thereby incurred
11
<PAGE>
that all reasonable steps are taken to enforce the recovery thereof and, if any
sum is so recovered, then the amount payable by the Vendor or Charles Baynes in
respect of such claim shall be reduced by an amount equal to the sum so
recovered provided that neither the Purchaser nor any Group Company shall be
required to take any action pursuant to this Clause 4.15 which would harm its or
any Group Company's commercial relationship (potential or actual) with that or
any other person. In the event of the Vendor or Charles Baynes having paid to
the Purchaser or any member of the group of companies of which the Purchaser is
a member (including the Company and the Subsidiary Undertakings or any of them)
an amount in respect of a claim for breach of any of the Warranties or a claim
under the Tax Deed and subsequent to the date of making such payment the
Purchaser or any other member of such group (including the Company and the
Subsidiary Undertakings or any of them) recovers from a third party a sum which
relates to that payment, then the Purchaser shall as soon as reasonably
practicable repay or procure the repayment by such group member to the Vendor or
Charles Baynes of so much of the amount paid by the third party as does not
exceed the sum paid by the Vendor or Charles Baynes to the Purchaser or other
such group member.
4.16 The Vendor and Charles Baynes shall not be liable for breach of any of the
Warranties to the extent that the subject of the claim has been made good or is
otherwise compensated for, in either such case, to the reasonable satisfaction
of the Purchaser without cost to the Purchaser or any member of the group of
companies of which the Purchaser is a member (including the Company and the
Subsidiary Undertakings or any of them).
4.17 Without prejudice to the provisions of Clause 13, the Purchaser irrevocably
and unconditionally waives any right it may have to rescind this Agreement,
and/or claim damages, for any breach of warranty or untrue representation,
undertaking or statement of fact or opinion made to it in relation to the
subject matter of this Agreement or the Company or the Subsidiary Undertakings
which is not contained in this Agreement and the liability of the Vendor and
Charles Baynes under or in respect of the Warranties is in place of and in
substitution for any liability of either of them under any other head of loss
that could arise in respect of any facts stated in the Warranties provided that
nothing in this clause shall exclude liability for any warranty, representation,
undertaking or statement of fact or opinion made fraudulently. In particular,
but not by way of limitation, the Purchaser acknowledges and agrees with the
Vendor and Charles Baynes (for themselves and for the benefit of their
respective officers, employees, agents and advisers and as trustee for such
officers, employees, agents and advisers) that this Agreement has been entered
into on the basis that (without prejudice to the Warranties or the Tax Deed or
any indemnity given under this Agreement) neither of them nor any member of the
Vendor Group nor any of their respective officers, employees, agents or advisers
has made nor is taken as making any representation or warranty as to the
accuracy or completeness or otherwise of the information contained in the
information bundles supplied to the Purchaser or its advisers and referred to in
paragraph 1(b) of the Disclosure Letter under the heading "General Disclosures"
nor accepts any duty of care to the Purchaser or the Guarantor in respect
thereof and that (save as aforesaid) none of such persons shall be liable in any
way whatsoever to the Purchaser or the Guarantor in the event that, for whatever
reason, such information proves to be inaccurate, incomplete or misleading in
any respect.
12
<PAGE>
4.18 If any claim is made by the Purchaser for breach of any of the Warranties,
then, for the purposes of determining the amount for which the Warrantors are
liable as a result of such breach, the Warrantors shall be entitled to assert
that account shall be taken of the amount of any saving of tax or other benefit
which has in fact been or is subsequently obtained by any member of the group of
companies of which the Purchaser is a member by reason of the matters
constituting such breach of Warranty.
4.19 The provisions of this Clause 4 shall not apply in respect of:-
4.19.1 any claim under paragraphs 2.2, 2.4, 3.1, 3.2 and 20.1 of Schedule
4; and
4.19.2 any claim arising out of fraud on the part of the Vendor or Charles
Baynes.
4.20 Nothing in this clause 4 shall operate so as to qualify in any way the
Purchaser's duty to mitigate loss suffered by virtue of a breach of the
Warranties.
5. Purchaser's and Guarantor's warranties
5.1 The Purchaser warrants to the Vendors and Charles Baynes in the following
terms:-
5.1.1 the Purchaser has all requisite power and authority to enter into and
perform this Agreement;
5.1.2 the execution and delivery of and performance by the Purchaser of its
obligations under this Agreement will not result in a breach of any
provision of the constitution of the Purchaser, or result in a breach of or
constitute a default under, any agreement or instrument to which the
Purchaser is a party or by which the Purchaser is bound, or result in a
breach of any order, judgment or decree of any court or governmental agency
by which the Purchaser is bound.
5.2 The Guarantor warrants to the Vendor and Charles Baynes in the following
terms:-
5.2.1 the Guarantor has all requisite power and authority to enter into and
perform this Agreement; and
5.2.2 the execution and delivery of and performance by the Guarantor of its
obligations under this Agreement will not result in a breach of any
provision of the constitution of the Guarantor, or result in a breach of or
constitute an default under, any agreement or instrument to which the
Guarantor is a party or by which the Guarantor is bound, or result in a
breach of any order, judgment or decree of any court or governmental agency
by which the Guarantor is bound
5.3 Each of such foregoing warranties shall be separate and independent and
shall not be limited by reference to any other of them or any other provision in
this Agreement.
13
<PAGE>
6. Announcements and confidentiality
6.1 The Announcements shall be released by Charles Baynes in the United Kingdom
and by the Guarantor in the United States of America upon the execution of this
Agreement by all the parties hereto and upon Charles Baynes and the Guarantor
having agreed the exact time and manner of such releases. No announcement (other
than the Announcements) relating to the subject matter of this Agreement or any
matter ancillary to this Agreement shall be made by or on behalf of Charles
Baynes or the Guarantor without the prior written approval of the other (not to
be unreasonably withheld) provided that (even in the absence of the approval of
the other party provided it has used reasonable endeavours to consult with and
obtain the prior written consent of that other party) nothing shall prevent
either party from making any announcement or disclosure required by law, the
London Stock Exchange, the United States National Association of Securities
Dealers Automated Quotation System or the United States Securities Exchange
Commission.
6.2 The Vendor and Charles Baynes shall keep confidential and not at any time
after the date of this Agreement disclose or make known in any way to anyone
(other than the Purchaser, the Vendor's Solicitors or financial advisers or
accountants) or use for its own or any other person's benefit any know how or
confidential information relating exclusively to any of the customers, suppliers
or affairs of the business of the Group or otherwise relating exclusively to the
business of the Group.
6.3 All records, papers and documents in the possession of the Vendor or Charles
Baynes relating exclusively to the business or affairs of the Group and of which
a Group Company does not have a record or copy shall be deemed to be the
property of the Group Company to which such documentation relates and all such
items shall be delivered to the Purchaser or as the Purchaser may direct at
Completion.
6.4 The Purchaser shall, and shall procure that each Group Company shall, keep
confidential and not at any time after the date of this Agreement disclose or
make known to any third party other than to the Purchaser's Solicitors or
financial advisers or accountants or use for its own or any other person's
benefit any confidential information which may have been disclosed to the
Purchaser or to any Group Company or which may otherwise have come to the
attention of the Purchaser or any Group Company which relates exclusively to the
business or affairs of the Vendor Group.
6.5 The parties agree that the Guarantor shall be entitled, notwithstanding any
provision of this Agreement, to disclose information regarding the Company and
the Subsidiary Undertakings, the terms of this Agreement and matters
contemplated herein to potential institutional investors who receive the
Offering Circular; provided that the Guarantor shall not disclose any such
information without first providing to Charles Baynes a copy of and the
opportunity to comment on such proposed disclosure nor shall the Guarantor
disclose any information which would result in a breach by the Company of any of
the undertakings as to confidentiality referred to in the Disclosure Letter.
14
<PAGE>
6.6 The obligations of confidentiality imposed by the provisions of clauses 6.2,
6.4 and 6.5 shall not apply to the extent that the confidential information in
question:-
6.6.1 is or comes into the public domain without fault on the part of the
party (or of a member of the same group as such party) to whom the same was
disclosed or to whose attention the same has come;
6.6.2 has been disclosed to the relevant party by a third party which (to
the relevant party's knowledge) was able lawfully to disclose the same; or
6.6.3 is required by law or regulation to be disclosed.
7. Completion
7.1 Completion shall take place at the offices of the Purchaser's Solicitors on
the Completion Date. On such date the Vendor, Charles Baynes, the Guarantor and
the Purchaser shall each perform their respective obligations in relation to the
sale and purchase of the Shares in accordance with and as set out in Schedule 3.
In addition Charles Baynes and the Guarantor shall agree the cost of closing out
the foreign exchange commitments described in Annexure 6 by reference to the
spot rate at 2.00 p.m. London time on the Completion Date for delivery of US
dollars on the forward dates specified therein and there shall be paid within
three Business Days of Completion by Charles Baynes to the Company or by the
Company to Charles Baynes the net settlement amount. The Guarantor shall procure
the performance by the Company of this obligation.
7.2 The Vendor and Charles Baynes undertake to and covenant with the Purchaser
that they will procure that between the date of this Agreement and Completion:-
7.2.1 no increase shall be made in the authorised, allotted or issued share
capitals of the Company or any of the Subsidiary Undertakings;
7.2.2 no option shall be offered or granted by the Company or any of the
Subsidiary Undertakings over the whole or any part of their
respective share capitals, whether issued or unissued; and
7.2.3 no dividends or other distributions shall be declared, made or paid
by the Company or any of the Subsidiary Undertakings.
7.3 The Vendor and Charles Baynes further undertake to and covenant with the
Purchaser that they will procure that between the date of this Agreement and
Completion (save with the previous written consent of the Purchaser):-
7.3.1 the business of the Company shall be carried on in the ordinary and
usual course and so as to maintain the same as a going concern and
with a view to profit;
15
<PAGE>
7.3.2 the Company shall not:-
7.3.2.1 alter or agree to alter or terminate or agree to terminate
any agreement to which it is a party or enter or agree to
enter into any unusual or abnormal contract or commitment
otherwise than in the ordinary course of business
including, but not limited to, any agreement relating to
the Sophia process (as described in Schedule 6);
7.3.2.2 enter into any transaction, contract or commitment, except
in the ordinary course of its business and not requiring
the payment in any case of an amount in excess of (pound)1
million over any 12 month period.
7.3.2.3 other than in accordance with the Company's existing
capital expenditure plan, incur any capital expenditure or
any capital commitment or dispose of or realise any capital
asset or any interest in any such asset in each case for a
consideration in excess of (pound)50,000;
7.3.2.4 create or agree to create any mortgage, charge, lien or
encumbrance over all or any of its assets (other than liens
arising in the ordinary course of business) or redeem or
agree to redeem any existing security or give or agree to
give any guarantee or indemnity in respect of the
obligations of a third party;
7.3.2.5 alter or agree to alter the terms of any existing borrowing
facilities or arrange any new or additional borrowing
facilities;
7.3.2.6 increase or agree to increase the remuneration (including,
without limitation, pension contributions, bonuses,
commissions and benefits in kind) of any director or
employee or provide or agree to provide any gratuitous
payment or benefit to any such person or any of his
dependants and no employee whose annual remuneration
exceeds (pound)30,000 shall be engaged or dismissed or have
his terms of employment altered.
7.3.3 No Subsidiary Undertaking shall commence any business or carry on any
trade.
7.4 The Vendor and Charles Baynes shall procure that, between the date of this
Agreement and Completion, reasonable advance notice shall be given to the
Purchaser of all Meetings of the Board of Directors (or of Committees of the
Directors) of the Company (together with an agenda of the business to be
transacted at such Meetings and all supporting documentation) and that duly
authorised representatives of the Purchaser (not being more
16
<PAGE>
than two in number at any one time) shall be permitted to attend and speak at
such Meetings. Without the prior written consent of the Purchaser no board
meeting of any Subsidiary Undertaking shall be convened or held.
7.5 The Vendor and Charles Baynes shall, and shall procure that the officers and
employees of and the professional advisers to the Company and each of the
Subsidiary Undertakings shall, between the date of this Agreement and
Completion, at the request of the Purchaser supply the Purchaser and/or its
professional advisers with such information concerning the Company and the
Subsidiary Undertakings and provide such access to the premises of the Company
and the Subsidiary Undertakings, in each case, as the Purchaser or its
professional advisers may reasonably require. Upon Completion Charles Baynes and
the Vendor shall each deliver to the Purchaser's Solicitors a letter stating
that to its knowledge (and for this purpose Charles Baynes and the Vendor shall
be deemed to have knowledge only of those matters within the knowledge of John
Perkins, Eddie Price, Duncan Crighton and John McConnell as if they had made
reasonable enquiries in relation thereto) no breach or non-fulfilment of Clause
7.3 has arisen or occurred.
8. Covenants
8.1 Each of Charles Baynes and the Vendor covenants with the Purchaser that it
will not, either on its own account or in conjunction with or on behalf of any
other person or persons, whether directly or indirectly, for the period of:-
8.1.1 three years from the Completion Date, be engaged or concerned or
interested or participate in or carry on any business which is the same as
or similar to or in competition with the businesses carried on by the
Company, including, but not limited to the following businesses anywhere in
the Territory:
(a) the manufacture or design of aluminium or magnesium sand castings
and the manufacture or design of aluminium investment castings;
(b) the hot or super-plastic forming of titanium; and
(c) the stretch forming of aluminium,
in each case for use in the industries in which each Group Company's
businesses currently operate, PROVIDED THAT:
(i) the restriction contained in this clause 8.1.1 shall not prevent
any member of the Vendor Group from holding securities in any company
listed or dealt in on a recognised investment exchange on the
condition that such holding shall not exceed one per cent of the
class of securities of which the said holding forms part.
(ii) no member of the Vendor Group shall be prevented during such
period from acquiring any business or company or group of companies
which includes any
17
<PAGE>
of the businesses referred to in sub-clauses 8.1.1(a) to 8.1.1(c)
("the competing business") which is ancillary to its principal
business (or, in the case of a company which is a member of a group
of companies, that of the group taken as a whole) but that member
shall use all reasonable endeavours to dispose of the competing
business within 12 months of its acquisition; and
8.1.2 three years from the Completion Date, solicit or entice away or
endeavour to solicit or entice away from the Purchaser or any Group
Company any person who was at the Completion Date, or who during the
period of six months prior to the Completion Date had been, employed
by any Group Company whether or not such person would commit a breach
of his or her contract of employment by reason of leaving service,
save that this clause 8.1.2 shall not apply to any individual
employed by any Group Company in a purely secretarial role.
8.2 The Purchaser covenants with the Vendor that it will not, either on its own
account or in conjunction with or on behalf of any other person or persons, and
will procure that no Group Company will, whether directly or indirectly, for the
period of one year from the Completion Date, solicit or entice away or endeavour
to solicit or entice away from the Vendor or any member of the Vendor Group any
person (excluding John McConnell and Duncan Crighton) who was at the Completion
Date, or who during the period of six months prior to the Completion Date had
been, employed by the Vendors or any member of the Vendor Group whether or not
such person would commit a breach of his or her contract of employment by reason
of leaving service, save that this clause 8.2 shall not apply to any individual
employed by the Vendor or any member of the Vendor Group in a purely secretarial
role.
8.3 The Purchaser hereby covenants to hold the Vendor and Charles Baynes, for
themselves and as trustee for each of the members of the Vendor Group,
indemnified and to keep them indemnified from and against all losses, costs,
expenses and other liabilities incurred by either of them and/or any of the
members of the Vendor Group in relation to or arising out of any guarantee,
indemnity or similar contingent obligation which has been given or undertaken by
any member of the Vendor Group in relation to or arising out of any obligations
or liabilities of any Group Company and which is referred to in the Disclosure
Letter for the purpose of this clause. The Purchaser undertakes to use its
reasonable endeavours to procure the release, as soon as reasonably practicable
following Completion, of the Vendor, Charles Baynes and all other members of the
Vendor Group from any such guarantees, indemnities or similar contingent
obligations provided that in the event the Purchaser has been unable to procure
the release of Charles Baynes from the guarantee given by Charles Baynes in
respect of the Lloyds Bowmaker finance lease (as more particularly described in
the Disclosure Letter) by the second anniversary of the Completion Date then the
Purchaser shall at that time discharge in full (by way of repayment of all
outstanding amounts due pursuant to such finance lease) the Lloyds Bowmaker
finance lease and to the extent the Purchaser has failed to so discharge within
a period of ten Business Days from such date Charles Baynes shall be entitled
(in its absolute discretion) to procure the discharge and recover from the
Purchaser, by way of indemnity, the amount of such repayment and all costs,
charges and expenses incurred by Charles Baynes in relation thereto.
18
<PAGE>
8.4 The Vendor hereby covenants to hold the Purchaser, for itself and as trustee
for each Group Company, indemnified and to keep it and them indemnified from and
against all losses, costs, expenses and other liabilities incurred by any Group
Company in relation to or arising out of any guarantee, indemnity or similar
contingent obligation which has been given or undertaken by any Group Company in
relation to or arising out of any obligations or liabilities of any member of
the Vendor Group. The Vendor undertakes to use its reasonable endeavours to
procure the release as soon as reasonably practicable following Completion (if
not effected upon Completion), of each Group Company from any such guarantees,
indemnities or similar contingent obligations given or undertaken by any Group
Company in relation to or arising out of any obligations or liabilities of any
member of the Vendor Group which remain outstanding following Completion.
8.5 The Purchaser undertakes with the Vendor with effect from the day falling
one month after Completion and for a period of five years from Completion not to
use, and to procure that no Group Company nor any person connected with any such
company shall use, the names, styles and colours of any member of the Vendor
Group including, without limitation, "Charles Baynes" or any variation thereof.
8.6 The parties agree that in relation to the outstanding insurance claim (as
more particularly described in the Disclosure Letter) in respect of the damage
to the Property at Watchmead, Welwyn Garden City (as referred to in Schedule 7),
any monies received in respect of such claim ("the Amount Recovered") shall be
dealt with in the following manner:-
8.6.1 that part of the Amount Recovered which relates to the damage to
the said Property shall be for the account of the Company and shall be
paid to the Company within five Business Days of receipt of the Amount
Recovered, where the Amount Recovered is received by a party other than
the Company;
8.6.2 that part of the Amount Recovered which relates to the business
interruption caused by the damage to the said Property and attributable
to the period prior to Completion shall be for the account of Charles
Baynes and shall be paid (either by Aeromet or to the extent such
payment would be unlawful an amount equivalent thereto shall be paid by
the Purchaser) within five Business Days of receipt of that part of the
Amount Recovered, where the Amount Recovered is received by a party
other than Charles Baynes.
8.7 Each of the undertakings contained in clause 8 is a separate undertaking by
the Vendor or the Purchaser (as the case may be) and in the event that any such
undertaking shall be found to be void but would be valid if some part were
deleted or the period or area of application were reduced, then such undertaking
shall apply with such modification as may be necessary to make it valid and
effective.
8.8 The Vendor shall procure that all lump sum death in service benefits which
may become payable to any Relevant Person (as defined in paragraph 21.1 of
Schedule 4) under the TKR International Limited Retirement Benefits Scheme (the
"Scheme") shall be fully insured under a policy of insurance with an insurance
company of good repute authorised to
19
<PAGE>
issue such insurance for a period of one month following Completion or such
shorter period as the Purchaser may notify to the Vendor in writing. The
Purchaser shall pay to the Vendor (or such other person or organisation as the
Vendor advises payment should be made) the contributions due and payable in
respect of employees of the Company or any Group Company, who are entitled as at
Completion to lump sum death in service benefits, at the rate of 0.185% of the
lump sum death in service benefits payable in respect of each such employee (or
at such rate which may become payable by the companies within the Vendor Group
participating in the Scheme following any review by the insurance company with
whom benefits are insured). Where life cover continues to be provided by the
Scheme to such employees following Completion the Purchaser shall procure that
no amendment will be made to the level of salary payable or the level of cover
provided in respect of each such employee until one month after Completion
without the Vendor's prior written consent.
9. Costs
Each party shall pay its own costs and expenses incurred in the negotiation,
preparation and execution of this Agreement.
10. Restrictive Trade Practices Act 1976
Where this Agreement is or forms part of an agreement which is subject to
registration under the Restrictive Trade Practices Act 1976 ("RTPA"), no
restriction accepted or information provision made under that agreement shall be
given effect to or enforced until the day after particulars of the agreement
have been furnished to the Director General of Fair Trading under section 24 of
the RTPA. If any party shall wish to furnish such particulars, the other parties
will render such co-operation and undertake such action as may reasonably be
required of them for such purpose so that particulars may be furnished as soon
as practicable following the signature of this Agreement and each of the parties
consents to the disclosure of all information so furnished. In this clause the
words and terms "agreement" and "subject to registration" shall have the
meanings respectively given to them by the RTPA and the reference to
"restrictions accepted" or "information provisions made" under the agreement
shall be to restrictions accepted or information provisions made by virtue of
which the agreement is subject to registration.
11. Guarantee
11.1 The Guarantor hereby unconditionally and irrevocably guarantees to the
Vendor and Charles Baynes, their successors and assigns the due and complete
performance by the Purchaser of all of its obligations under this Agreement. If
the Purchaser shall default in the due performance of any of its obligations
under this Agreement, the Guarantor shall immediately procure the same to be
performed.
20
<PAGE>
11.2 The Guarantor agrees that the Vendor and Charles Baynes shall be entitled
to enforce this guarantee without making any demand on or taking proceedings
against the Purchaser and shall not be required before enforcing this guarantee
to pursue, enforce or exhaust any other right, remedy or security which it may
have. This guarantee shall continue in full force and effect until all the
liabilities and obligations of the Purchaser under this Agreement have been
fully performed and discharged.
11.3 This guarantee shall not be affected in any way by any time or indulgence
granted to the Purchaser or by any variation, compromise or release of any of
its obligations hereunder.
11.4 This guarantee shall not be affected by the liquidation or dissolution of
the Purchaser or by the appointment of a receiver over the undertaking, property
or assets of the Purchaser or by any circumstances affecting the obligation of
the Purchaser to meet its liabilities or by any alteration in the constitution
of the Purchaser or by reason of any change in the interest of the Guarantor in
the Purchaser. In the event of any such matters or any other act or event in
consequence of which the Purchasers loses its separate legal identity, the
Guarantor shall become liable for the obligations of the Purchaser under this
Agreement as if it were a primary obligor.
11.5 This guarantee shall be of a continuing nature and shall not be considered
as wholly or partially satisfied by the payment or liquidation at any time or
times hereafter of any sum or sums of money for the time being due to the Vendor
or Charles Baynes but shall extend to cover and be a security for all future
sums of money at any time owing to the Vendor or Charles Baynes under this
Agreement notwithstanding any such payment or liquidation.
11.6 This guarantee shall not be affected or impaired by reason of any fact or
event (whether or not similar to any of the facts or events referred to in
clauses 11.2 to 11.5) which in the absence of this provision would or might
constitute or afford a legal or equitable discharge or release of or defence to
a guarantee (other than the express release of its obligations).
11.7 As a separate and independent stipulation, the Guarantor agrees that any
sum or sums of money intended to be the subject of this guarantee shall be
recoverable from the Guarantor as sole or principal debtor even if they would
not be recoverable from the Purchaser, whether by reason of any legal
limitation, disability or incapacity or liquidation or the Purchaser or any
other fact or circumstance (whether known to the Vendor or Charles Baynes or
not) but which would have been recoverable from the Guarantor if the Guarantor
was the sole or principal debtor in respect of such liability in place of the
Purchaser.
11.8 In consideration of the obligations of the Guarantor under this clause 11
the Vendor and Charles Baynes undertake to the Guarantor to fulfil their
obligations to the Purchaser under this Agreement.
21
<PAGE>
12. Guarantee by Charles Baynes
12.1 Charles Baynes hereby unconditionally and irrevocably guarantees to the
Purchaser and the Guarantor, their successors and assigns the due and complete
performance by the Vendor of all of its obligations under this Agreement. If the
Vendor shall default in the due performance of any of its obligations under this
Agreement, Charles Baynes shall immediately procure the same to be performed.
12.2 Charles Baynes agrees that the Purchaser and the Guarantor shall be
entitled to enforce this guarantee without making any demand on or taking
proceedings against the Vendor and shall not be required before enforcing this
guarantee to pursue, enforce or exhaust any other right, remedy or security
which it may have. This guarantee shall continue in full force and effect until
all the liabilities and obligations of the Vendor under this Agreement have been
fully performed and discharged.
12.3 This guarantee shall not be affected in any way by any time or indulgence
granted to the Vendor or by any variation, compromise or release of any of its
obligations hereunder.
12.4 This guarantee shall not be affected by the liquidation or dissolution of
the Vendor or by the appointment of a receiver over the undertaking, property or
assets of the Vendor or by any circumstances affecting the obligation of the
Vendor to meet its liabilities or by any alteration in the constitution of the
Vendor or by reason of any change in the interest of Charles Baynes in the
Vendor. In the event of any such matters or any other act or event in
consequence of which the Vendor loses its separate legal identity, Charles
Baynes shall become liable for the obligations of the Vendor under this
Agreement as if it were a primary obligor.
12.5 This guarantee shall be of a continuing nature and shall not be considered
as wholly or partially satisfied by the payment or liquidation at any time or
times hereafter of any sum or sums of money for the time being due to the
Purchaser or the Guarantor but shall extend to cover and be a security for all
future sums of money at any time owing to the Purchaser or the Guarantor under
this Agreement notwithstanding any such payment or liquidation.
12.6 This guarantee shall not be affected or impaired by reason of any fact or
event (whether or not similar to any of the facts or events referred to in
clauses 12.2 to 12.5) which in the absence of this provision would or might
constitute or afford a legal or equitable discharge or release of or defence to
a guarantee (other than the express release of its obligations).
12.7 As a separate and independent stipulation, Charles Baynes agrees that any
sum or sums of money intended to be the subject of this guarantee shall be
recoverable from Charles Baynes as sole or principal debtor even if they would
not be recoverable from the Vendor, whether by reason of any legal limitation,
disability or incapacity or liquidation or the Vendor or any other fact or
circumstance (whether known to the Purchaser or the Guarantor or not) but which
would have been recoverable from Charles Baynes if Charles Baynes was the sole
or principal debtor in respect of such liability in place of the Vendor.
12.8 In consideration of the obligations of Charles Baynes under this clause 12
the Purchaser
22
<PAGE>
and the Guarantor undertake to Charles Baynes to fulfil their obligations to the
Vendor under this Agreement.
13. Termination
13.1 If at any time at or before Completion the Purchaser becomes aware of any
fact, matter, event or circumstances which would result in a breach of any of
the Warranties if they were deemed given again immediately before Completion by
reference to the facts and circumstances then subsisting (but so that Warranty
7.2 shall be deemed given again only with the addition of the words "otherwise
than as a result of completion of this Agreement" and Warranty 7.3 shall not be
deemed to be given again) and such breach or claim would be likely to result in
a liability under the Warranties (if they were actually repeated immediately
prior to Completion) in excess of (pound)4 million or a reduction in profit
before interest and taxation of the Company for the year ending 31 December 1998
of (pound)500,000 or more ("a Deemed Breach"), then the Purchaser shall be
entitled by notice to Charles Baynes to terminate this Agreement whereupon this
Agreement (except for the provisions of this Clause and of Clauses 1, 6.2 to 6.6
(inclusive), 15, 16 and 17) shall be null and void and of no further effect. The
Vendor undertakes to notify the Purchaser of any such fact, matter, event or
circumstances which comes to its attention having made reasonable enquiries.
13.2 Whether or not the Purchaser exercises its right to terminate this
Agreement in accordance with Clause 13.1 it shall not be entitled to make any
claim against the Vendor or Charles Baynes in respect of the fact, matter, event
or circumstance giving rise to the Deemed Breach.
14. Properties
14.1 Charles Baynes and the Company shall enter into the Option Agreement upon
Completion.
14.2 Charles Baynes, the Company and the Guarantor shall enter into the Deeds of
Guarantee and Variation upon Completion.
14.3 Charles Baynes and the Company shall enter into the Birmingham Lease and
the Birmingham Car Parking Licence upon Completion.
14.4 On Completion Charles Baynes will procure that a statutory declaration is
handed over to the Purchaser, to the effect that:-
14.4.1 the Unit H Lease was taken in the wrong company name in error and
should have been in the name of Aeromet;
14.4.2 rent under the Unit H Lease has always been paid by Aeromet rather
than any third party; and
14.4.3 Aeromet is the beneficial owner of the Unit H lease.
23
<PAGE>
14.5 As soon as practicable after Completion, Charles Baynes will use its
reasonable endeavours to complete and hand over to the Purchaser at the
Purchaser's cost a deed of rectification by which this error is remedied and the
Unit H Lease is vested in Aeromet, and in the event that Charles Baynes has been
unable to do so within three months from Completion despite using its reasonable
endeavours, Charles Baynes will use its reasonable endeavours to procure an
assignment of the Unit H Lease from Kent Aerospace Castings plc to Aeromet
including obtaining a licence to assign from the immediate and superior
landlords provided that in each such case the Purchaser shall meet the
reasonable cost of so doing.
14.6 The Vendor and Charles Baynes jointly and severally undertake to hold the
Purchaser and the Company and each of the Subsidiary Undertakings indemnified
and to keep them indemnified from and against all actions claims proceedings
losses damages payments costs expenses or liabilities incurred by each of them
in relation to or arising in relation to any leasehold property in any part of
Great Britain other than the Properties including any actions claims proceedings
losses damages payments costs expenses or liabilities arising directly or
indirectly from any obligation to pay rent or rents service charges insurance
premiums or other monies or observe or perform covenants agreements or
conditions contained in the agreement for lease or other document ancillary or
supplemental to a lease whether or not expressed to be so or any obligations to
make payments under or otherwise observe or perform any guarantee or surety
whether as primary or secondary obligor or indemnity or otherwise assume any
liabilities of any third party by accepting a lease. v
15. General
15.1 This Agreement constitutes the entire and only legally binding agreement
between the parties relating to the sale and purchase of the Shares and no
variation of this Agreement shall be effective unless made in writing signed by
or on behalf of each of the parties and expressed to be such a variation.
15.2 No failure or delay by any party or time or indulgence given by such party
in or before exercising any remedy or right under or in relation to this
Agreement shall operate as a waiver of the same nor shall any single or partial
exercise of any remedy or right preclude any further exercise of the same or the
exercise of any other remedy or right.
15.3 No waiver by any party of any requirement of this Agreement or of any
remedy or right under this Agreement shall have effect unless given by notice in
writing signed by such party. No waiver of any particular breach of the
provisions of this Agreement shall operate as a waiver of any repetition of such
breach.
15.4 Time shall be of the essence of this Agreement, both as regards the dates
and periods specifically mentioned and as to any dates and periods which may by
agreement in writing between the parties be substituted for any of them.
15.5 This Agreement may be executed in two or more counterparts and execution by
any of the parties of any one of such counterparts will constitute due execution
of this Agreement.
24
<PAGE>
15.6 The provisions of this Agreement shall remain in full force and effect
after Completion so far as they then remain to be observed and performed.
15.7 The Vendor and Charles Baynes undertake to the Purchaser that as soon as
possible they will do or procure to be done all such further acts and things and
execute or procure the execution of all further such documents as the Purchaser
may from time to time reasonably require for the purpose of vesting effectively
the beneficial and legal ownership of the Shares or as it may direct free from
all liens, charges, encumbrances and adverse claims and otherwise to give to the
Purchaser the full benefit of the provisions of this Agreement.
15.8 Any rights arising from or in connection with this Agreement may not be
assigned by any party save that the Purchaser may, upon providing written notice
thereof to Charles Baynes, assign such rights to any subsidiary or holding
company or to any subsidiary of such holding company (any such company being
hereinafter referred to as a "member of the Guarantor's Group") provided that
any such assignee remains a member of the Guarantor's Group and provided further
that before any such assignee or the Purchaser ceases to be a member of the
Guarantor's Group, the Guarantor will procure that, upon providing written
notice thereof to Charles Baynes, such assignee or the Purchaser itself (as the
case may be) assigns such rights to the Guarantor or to another member of the
Guarantor's Group (any such further assignment to be subject to the same
conditions as are set out in this clause 15.8).
16. Notices
16.1 Any notice shall be in writing and signed by or on behalf of the person
giving it. Except in the case of personal service, any notice shall be sent or
delivered to the party to be served at the address set out in Schedule 1 marked
for the attention of the person set out therein. Any alteration to such details
shall, to have effect, be notified to the other parties in accordance with this
clause.
16.2 Service of a notice must be effected by one of the following methods:-
16.2.1 personally on a director or the secretary of any party and shall be
treated as served at the time of such service;
16.2.2 by prepaid first class post (or by air courier if from one country
to another) and shall be treated as served on the second (or if by air
courier the fourth) Business Day in the place of receipt of delivery after
the date of posting. In proving service it shall be sufficient to prove
that the envelope containing the notice was correctly addressed, the
postage paid and duly posted;
16.2.3 by delivery of the notice through the letterbox of the party to be
served and shall be treated as served on the first Business Day after the
date of such delivery; or
16.2.4 by facsimile transmission and shall be treated as served at the time
and on the date on which the transmission is made, such delivery being
evidenced by printed
25
<PAGE>
confirmation of the sender's facsimile machine.
17. Applicable law and jurisdiction
17.1 This Agreement shall be governed by and construed in accordance with the
laws of England.
17.2 The parties irrevocably submit to the exclusive jurisdiction of the Courts
of England in respect of any claim, dispute or difference arising out of or in
connection with this Agreement.
17.3 The Guarantor shall at all times maintain an agent for the service of
process and any other documents in proceedings in England or any other
proceedings in connection with this Agreement. Such agent shall initially be the
Purchaser and any writ, judgment or other nature of legal process shall be
sufficiently served on the Guarantor if delivered to such agent at its
registered office for the time being. The Guarantor undertakes not to revoke the
authority of the above-named agent provided that the Guarantor shall be entitled
by giving notice in writing to Charles Baynes to appoint an alternative agent on
the same terms set out in this Clause. If, for any reason, Charles Baynes
reasonably requests the Guarantor to do so, the Guarantor shall promptly appoint
another such agent with an address in England and advise Charles Baynes thereof.
If, following such a request and having given the Guarantor a reasonable
opportunity to make such appointment, the Guarantor fails to appoint another
agent, Charles Baynes shall be entitled to appoint one on behalf of the
Guarantor and shall provide written notice thereof to such party.
AS WITNESS this Agreement has been executed by or on behalf of the parties the
day and year first before written.
26
<PAGE>
SCHEDULE 1
Part I
Particulars of Charles Baynes
Name: Charles Baynes plc
Registered office: 68 Baker Street
Weybridge
Surrey KT13 8AL
Registered no: 164822
For the attention of: Company Secretary
Part II
Particulars of the Vendor
Name: Westpark Limited
Registered office: 68 Baker Street
Weybridge
Surrey KT13 8AL
Registered no: 1516704
For the attention of: Company Secretary
Part III
Particulars of the Purchaser
Name: Pacific Aerospace & Electronics (UK) Limited
Registered office: c/o Macfarlanes, 10 Norwich Street, London EC1A 1BD
Registered no: 3590167
For the attention of: Tim Lewis
27
<PAGE>
Part IV
Particulars of the Guarantor
Name: Pacific Aerospace & Electronics, Inc.
Address: 430 Olds Station Road
Wenatchee
Washington 98801
USA
For the attention of: Donald A. Wright
28
<PAGE>
SCHEDULE 2
Part I
Particulars of the Company
Name:- Aeromet International PLC
Registered in England under no:- 1626585
Registered Office:- Eurolink Industrial Estate, Sittingbourne, Kent ME10 3RN
Authorised capital:- (pound)500,000 divided into 5,000,000 ordinary shares of
10p each
Issued and fully paid up capital:- (pound)100,000 divided into 1,000,000
ordinary shares of 10p each
Registered Shareholders:- Technical Component Industries Limited - 1,000,000
ordinary shares of 10p<F1>
Directors:- A D Crighton
J McConnell
T A Hogg
Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K Lawton
Accounting reference date:- 31 December
<F1>Such shares are the subject of a transfer to the Vendor which is presently
subject to adjudication for stamp duty.
29
<PAGE>
Part II
Particulars of the Subsidiary Undertakings
Name:- Frank Ford (Aircraft Components) Limited
Registered in England under no:- 505590
Registered Office:- 68 Baker Street, Weybridge, Surrey KT13 8AL
Authorised capital:- (pound)10,000 divided into 10,000 ordinary shares of
(pound)1 each
Issued and fully paid up capital:- (pound)1,000 divided into 1,000 ordinary
shares of (pound)1 each
Registered Shareholders:- Aeromet International PLC - 1,000 ordinary shares
of (pound)1
Directors:- Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K. Lawton
Accounting reference date:- 31 December
30
<PAGE>
Part II (continued)
Particulars of the Subsidiary Undertakings
Name:- Kent Aerospace Limited
Registered in England under no:- 651741
Registered Office:- 68 Baker Street, Weybridge, Surrey KT13 8AL
Authorised capital:- (pound)10,000 divided into 10,000 ordinary shares of
(pound)1 each
Issued and fully paid up capital:- (pound)100 divided into 100 ordinary
shares of (pound)1 each
Registered Shareholders:- Aeromet International Plc -
100 ordinary shares of (pound)1
Directors:- Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K. Lawton
Accounting reference date:- 31 December
31
<PAGE>
Part II (continued)
Particulars of the Subsidiary Undertakings
Name:- TKR Aerospace Limited
Registered in England under no:- 689646
Registered Office:- 68 Baker Street, Weybridge, Surrey KT13 8AL
Authorised capital:- (pound)100,000 divided into 100,000 ordinary shares of
(pound)1 each
Issued and fully paid up capital:- (pound)13,520 divided into 13,520 ordinary
shares of (pound)1 each
Registered Shareholders:- Aeromet International PLC - 13,520 ordinary shares
of (pound)1
Directors:- Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K. Lawton
Accounting reference date:- 31 December
32
<PAGE>
Part II (continued)
Particulars of the Subsidiary Undertakings
Name:- TKR Group Limited
Registered in England under no:- 561819
Registered Office:- 68 Baker Street, Weybridge, Surrey KT13 8AL
Authorised capital:- (pound)30,000 divided into 30,000 ordinary shares of
(pound)1 each
Issued and fully paid up capital:- (pound)30,000 divided into 30,000 ordinary
shares of (pound)1 each
Registered Shareholders:- Aeromet International PLC - 30,000 ordinary shares
of (pound)1
Directors:- Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K. Lawton
Accounting reference date:- 31 December
33
<PAGE>
Part II (continued)
Particulars of the Subsidiary Undertakings
Name:- TKR International Limited
Registered in England under no:- 341757
Registered Office:- 68 Baker Street, Weybridge, Surrey KT13 8AL
Authorised capital:- (pound)2,384,000 divided into:-
(i) 9,272,000 deferred ordinary shares of 25 pence each
(ii) 6,600,000 ordinary shares of 1 pence each
Issued and fully paid up capital:- (pound)2,384,000 divided into:-
(i) 9,272,000 deferred ordinary shares of 25 pence each
(ii) 6,600,000 ordinary shares of 1 pence
Registered Shareholders:- Aeromet International PLC -
(i) 9,272,000 deferred ordinary shares of 25 pence
(ii) 6,600,000 ordinary shares of 1 pence
Directors:- Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K. Lawton
Accounting reference date:- 31 December
34
<PAGE>
Part II (continued)
Particulars of the Subsidiary Undertakings
Name:- Truflo Gas Turbines Limited
Registered in England under no:- 1943211
Registered Office:- 68 Baker Street, Weybridge, Surrey KT13 8AL
Authorised capital:- (pound)250,000 divided into 250,000 ordinary shares of
(pound)1 each
Issued and fully paid up capital:- (pound)250,000 divided into 250,000
ordinary shares of (pound)1 each
Registered Shareholders:- Aeromet International PLC - 250,000 ordinary shares
of (pound)1
Directors:- Coach House Management Services Limited
Baker Street Corporate Services Limited
Secretary:- K. Lawton
Accounting reference date:- 31 December
35
<PAGE>
SCHEDULE 3
Completion Obligations
Part I
Obligations of the Vendor and Charles Baynes
1. The Vendor shall deliver to the Purchaser:-
1.1 transfers of all the Shares duly executed by the registered holder thereof
in favour of the Purchaser or a person or persons nominated by the Purchaser,
together with the share certificates and other authority under which such
transfer has been executed relating thereto;
1.2 an indemnity in such form as the Purchaser shall require in relation to any
missing share certificates of the Shares and the issued shares of the Subsidiary
Undertakings;
1.3 an engrossment of the Tax Deed executed by the Vendor and Charles Baynes;
1.4 the common seal, statutory books and other record books of each Group
Company written-up to the time immediately prior Completion;
1.5 the certificates in respect of all the issued shares in the Subsidiary
Undertakings and duly executed transfers in respect of any such shares not
registered in the name of the Company or a Subsidiary Undertaking in favour of
the Purchaser or a person nominated by the Purchaser;
1.6 unqualified resignation letters with effect from the Completion Date in the
approved terms from K Lawton, Coach House Management Services Limited and Baker
Street Corporate Services Limited;
1.7 a power of attorney in the approved terms in favour of the Purchaser or its
nominee(s) generally in respect of the Shares and which enables the Purchaser or
its nominee(s) to attend and vote at general meetings of the Company;
1.8 the Property Leases duly executed;
1.9 the Birmingham Lease and the Birmingham Car Parking Licence duly executed;
1.10 one part of the Option Agreement duly executed;
1.11 the letter in the approved terms regarding stamp duty;
1.12 a duly signed letter in relation to John McConnell in the approved terms;
1.13 the Deed of Change of Trustee duly executed by the Company and Charles
Baynes Pension Trustees Limited;
36
<PAGE>
1.14 deeds of release whereby the Company is released from those guarantees
referred to in paragraph 6.1 of the Disclosure Letter.
2. Charles Baynes shall repay or procure the repayment of all sums due to any
member of the Group at Completion by any member of the Vendor Group other than
trade debts incurred in the ordinary and normal course of any member of the
Group's business.
3. Charles Baynes will repay by telegraphic transfer the deposit of US $100,000
to the Guarantor.
4. The Vendor shall procure the holding of a meeting of the board of directors
of each Group Company at which board resolutions in the approved terms shall be
passed and shall supply the Purchaser with certified copies thereof.
Part II
Obligations of the Purchaser and the Guarantor
The Purchaser and the Guarantor shall, conditionally upon the implementation of
the matters set out in Part I of this Schedule:-
1. pay the Shares Consideration to the Vendor for value on the Completion Date;
2. procure the repayment by Aeromet of the Intra Group Debt for value on the
Completion Date;
3. deliver to the Vendor an engrossment of the Tax Deed executed by the
Purchaser and the Guarantor;
4. deliver to Charles Baynes:-
4.1 the counterparts of the Birmingham Lease and the Birmingham Car Parking
Licence duly executed;
4.2 one part of the Option Agreement duly executed by the Company;
4.3 the Deeds of Guarantee and Variation duly executed;
4.4 the duly signed letter referred to at paragraph 1.11 of part I of this
Schedule ;
4.5 the counterpart of the letter referred to at paragraph 1.12 of Part I of
this Schedule duly signed;
37
<PAGE>
SCHEDULE 4
General Warranties
Accuracy of information
1.1 The information contained in Part I of Schedule 1 and in Schedule 2 is true
and accurate in all respects.
Constitution of the Company
2.1 The statutory books and minute books of the Company have been properly kept
and contain an accurate and complete record of the matters which should be dealt
with in those books and no notice or allegation that any of them is incorrect or
should be rectified has been received.
2.2 The Shares are legally and beneficially owned by the Vendor are free from
all liens, charges, equities and encumbrances or interests of any nature
whatsoever, or any agreement, arrangement or obligation to create any of the
same in favour of any other person, are fully paid-up and together represent the
entire allotted and issued share capital of the Company.
2.3 The copy of the memorandum and articles of association of the Company
annexed to the Disclosure Letter is true and complete and has embodied in it or
annexed to it a copy of every such resolution or agreement as is referred to in
section 380(1) of the Companies Act and sets out in full the rights and
restrictions attaching to the share capital of the Company.
2.4 Save as provided for in this Agreement, no person has the right (whether
exercisable now or in the future and whether contingent or not) to call for the
present or future creation, allotment, redemption, repayment, issue or transfer
of or to grant to any person the right (whether exercisable now or in the future
and whether conditional or not) to call for the creation, allotment, issue,
transfer, redemption or repayment of, any share or loan capital of the Company
under any option or other agreement or under any right of conversion or
pre-emption.
2.5 The Company has made all returns which it is required to make to the
Registrar of Companies.
2.6 Due compliance has been made with all the provisions of the Companies Act,
the Articles of Association of the Company from time to time in force and other
legal requirements, in connection with the formation of the Company, the
allotment, issue, transfer, purchase and redemption of shares, debentures and
other securities in the Company, the reduction of the authorised and issued
share capital of the Company, any amendment to the memorandum or articles of
association of the Company and the passing of resolutions and the payment of
dividends by the Company.
2.7 Since the Accounts Date, no share or convertible share securities of the
Company (or any rights or interests therein) have been created, allotted or
issued or agreed to be created,
38
<PAGE>
allotted or issued.
2.8 The Company has no branches, agency, place of business or permanent
establishment outside the United Kingdom.
Capacity and interest of the Vendor and Charles Baynes
3.1 Each of the Warrantors has the requisite power and authority to enter into
and perform this Agreement and has the requisite power and authority to enter
into and perform the Tax Deed and the other documents to be executed in
connection with it ("the Other Documents"), all of which constitute (or will
when executed constitute) legal and valid binding obligations on them.
3.2 The execution and delivery of and the performance by the Warrantors of their
obligations under this Agreement and the Tax Deed and the Other Documents will
not:-
3.2.1 conflict with, result in a breach of, or constitute a default under,
any agreement or instrument to which either Warrantor is a party or by
which either Warrantor is bound; or of the Memorandum or Articles of
Association of the Company
3.2.2 conflict with, result in a breach of any order, judgment or decree of
any court or governmental agency to which either Warrantor is a party or by
which either Warrantor is bound; or
3.2.3 result in a breach of the rules or requirements of any professional
body or trade association of which either Warrantor is a member or by which
either Warrantor is bound.
3.3 No indebtedness (actual or contingent) is outstanding and no contract exists
between any Group Company and the Vendor or any member of the Vendor Group other
than trading arrangements on normal commercial terms.
3.4 Neither of the Warrantors nor any person connected with either of them has
any interest, direct or indirect, in any business which competes or is likely to
become competitive with the business or any proposed business of the Company
other than those holding securities as more particularly defined in Clause
8.1.1.
39
<PAGE>
Accounts and Management Accounts and Working Capital
4.1 The Accounts have been prepared in accordance with all applicable SSAPs,
FRSs or UITF abstracts or where there are none, in accordance with generally
accepted accounting practice in the United Kingdom, complied in all respects
with the requirements of the Companies Act as at the Accounts Date and in all
respects with relevant statements of standard accounting practice issued and in
force or adopted by the Accounting Standards Board Limited as at the Accounts
Date and show a true and fair view of the state of affairs and the financial
position of each Group Company as at and for the financial year ended on the
Accounts Date and of the profits or losses of each Group Company for the
financial year ended on the Accounts Date and, without prejudice to the
generality of the foregoing, proper provision or reserve (as appropriate) in
accordance with generally accepted accounting practice in the United Kingdom and
all relevant statements of standard accounting practice as aforesaid has been
made in the Accounts for all assets and liabilities of each Group Company.
4.2 Save as expressly disclosed, the Accounts are not affected by any
extraordinary, exceptional or non-recurring items.
4.3 The bases and accounting policies of each Group Company adopted for the
purpose of preparing the Accounts are the same as those adopted for the purpose
of preparing the audited accounts of that Group Company for the two preceding
accounting periods.
4.4 All books of account of each Group Company have at all times been properly
and accurately kept and completed, are up to date and contain due and accurate
records of all the information required by law and generally accepted accounting
principles and contain or reflect no material inaccuracies (whether by omission
or otherwise) or discrepancies of any kind.
4.5 The Management Accounts have been prepared on a consistent basis with the
monthly management accounts usually prepared by Aeromet and fairly reflect the
directors of Aeromet's understanding of the trading and financial position of
Aeromet for the five month period ending on and as at the date to which they are
prepared.
4.6 The method of valuing stock-in-trade and work-in-progress for the Accounts
was in accordance with SSAP 9 and, subject to that Standard, was consistent in
all respects with that adopted in the corresponding audited accounts for the
preceding three financial periods and has not been challenged by the Inland
Revenue for taxation purposes.
Business since the Accounts Date
5. Since the Accounts Date:-
5.1 the Company has (to the extent it is not dormant) carried on its business in
the ordinary and usual course and without entering into any transaction,
assuming any liability or making any payment not provided for in the Accounts
which is not in the ordinary course of business and without any interruption or
alteration in the nature, scope or manner of its business;
40
<PAGE>
5.2 the Company has not borrowed or raised any money or taken any financial
facility other than Approved Debt;
5.3 the Company has paid its creditors within the times agreed with such
creditors;
5.4 the Company has not entered into, or agreed to enter into, any capital
commitment nor has it disposed of or realised any capital assets other than in
accordance with budget;
5.5 no share or loan capital has been allotted or issued or agreed to be
allotted or issued by the Company;
5.6 there has been no reduction in the book value of the net assets of the
Company (determined in accordance with the Company's existing accounting
policies);
5.7 there has been no material deterioration in the financial position or
turnover of the Company;
5.8 no resolution of the shareholders of the Company has been passed nor has any
general meeting of the shareholders of the Company been convened;
5.9 no distribution of capital or income has been declared, made or paid in
respect of any share in the capital of the Company.
Guarantees, indemnities and borrowings
6.1 There is not outstanding any guarantee, indemnity, security or similar
commitment whether secured or unsecured given by the Company to secure the
obligations of any third party.
6.2 The Company has no borrowings, and has not agreed to create any borrowings,
from its bankers or any other source and, in respect of borrowings disclosed in
the Disclosure Letter, the Company has not exceeded any limitation on its
borrowing contained in its Articles of Association or in any debenture or loan
stock deed or other instrument.
6.3 No option, right to acquire, mortgage, charge, pledge, lien (other than a
lien arising by operation of law in the ordinary course of business) or other
form of security or encumbrance or equity on, over or affecting the whole or any
part of the undertaking or assets of the Company is outstanding and there is no
agreement or commitment to give or create any.
6.4 No part of the borrowings or loan capital of the Company is dependent on the
guarantee or indemnity of or security provided by any other person.
Customers and suppliers
7.1 Neither more than ten per cent. of the aggregate amount of all the purchases
of the
41
<PAGE>
Company nor more than ten per cent. of the aggregate amount of all the sales of
the Company in the financial year ended 31 December 1997 were obtained or made
from or to the same supplier or customer (including any person, firm or company
in any way connected with such supplier or customer).
7.2 No customer or supplier of or to the Company who accounts for ten per cent.
or more of the total sales by or supplies to the Company has during the last
twelve months ceased or given written notice to the Company of an intention to
cease trading with the Company.
7.3 Neither Charles Baynes nor the Company have been notified that any customer
or supplier of or to the Company which is listed in Annexure 5 will refuse to
continue to deal with the Company or will deal with it on a smaller scale or on
terms less favourable to the Company than at present as a result of the
completion of this Agreement.
7.4 The Customers and suppliers listed in Annexure 5 represent the ten largest
customers and the ten largest suppliers by reference to sums paid or received
from such persons in the financial year ended 31 December 1997.
Title to and condition of assets
8.1 Except for trading stock sold, realised or applied by the Company in the
ordinary course of its day to day business or for trading stock acquired subject
to retention or reservation of title by the supplier or manufacturer of such
trading stock and excluding immovable property, all the tangible assets included
in the Accounts or acquired by the Company after the Accounts Date:-
8.1.1 are legally and beneficially owned by the Company free from any
mortgage, charge, lien or other encumbrance (other than those arising by
operation of law);
8.1.2 are not held subject to any agreement for lease, hire, hire purchase
or sale on conditional or deferred terms; and
8.1.3 are in the possession or under the control of the Company.
8.2 In respect of any of the items referred to in the preceding paragraph 8.1
which are held under any agreement for lease, hire, hire purchase or sale on
conditional or deferred terms, there has been no default by the Company in the
performance or observance of any of the provisions of such agreements.
8.3 The plant and machinery, including fixed plant and machinery, and all
vehicles and office and other equipment used in connection with the business of
any member of the Company are in satisfactory working order have been regularly
and properly maintained and are fit for their purpose.
8.4 The Company's work-in-progress is in good condition and is capable of being
sold by the Company in the ordinary course of its business.
42
<PAGE>
Insurance
9.1 The Disclosure Letter contains details of all insurance policies currently
in force in relation to the Company and of all claims made during the twelve
months prior to the date of this Agreement in respect of such policies.
9.2 There is no claim outstanding under such insurance policies nor, so far as
the Warrantors are aware, has any event occurred which will give rise to any
such claim.
9.3 The Company has paid all premiums due and, so far as the Warrantors are
aware, has not done or omitted to do anything the doing or omission of which is
likely to make any such policy of insurance void or voidable.
Grants
10. During the two years preceding the date of this Agreement, the Company has
not applied for or received any investment grant, employment subsidy or other
similar allowance from any authority or agency.
Licences and consents
11. All necessary licences, consents, approvals, permissions, permits and
authorities (public and private) have been obtained to enable the Company to
carry on its business effectively in the places and in the manner in which such
business is now carried on and all such licences, consents, approvals,
permissions, permits and authorities are valid and subsisting and so far as the
Warrantors are aware there is no reason which would cause any of them to be
suspended, cancelled or revoked. For the avoidance of doubt, this Warranty 11
shall not apply to any licences of any kind in respect of Intellectual Property.
Litigation
12.1 The Company is not engaged in any litigation or arbitration proceedings
and, no such litigation or arbitration proceedings are pending or threatened by
or against the Company, nor has any event occurred which is likely to give rise
to any such litigation or arbitration proceedings being commenced by or against
the Company.
12.2 The Company is not being prosecuted for any criminal offence and, so far as
the Warrantors are aware, there are no such prosecutions pending or threatened
nor has any event occurred which is likely to give rise to any such prosecution.
12.3 The Company is not subject to any order or unsatisfied judgment given by
any court, governmental agency or other regulatory body or is a party to any
undertaking or assurance given to any court, governmental agency or other
regulatory body which is still in force and, so far as the Warrantors are aware,
no event has occurred which is likely to result in the Company becoming subject
to any such order or judgment or being required to be a party to
43
<PAGE>
any such undertaking or assurance.
12.4 There are no investigations being carried out into the Company and, so far
as the Warrantors are aware, no event has occurred which is likely to give rise
to any such investigations.
13. Competition law matters
13.1 The Company is not or has not been a party to any agreement (as defined in
the Restrictive Trade Practices Act 1976 ("the RTPA")) which is material to the
business of such company and a copy of which has been furnished to the Director
General of Fair Trading as provided for in the RTPA or which is or was subject
to registration pursuant to the RTPA and which has not been so furnished.
13.2 The Company is or has been a party to any agreement or concerted practice
which infringes Article 85 of the EEC Treaty or is in contravention of any
regulation or other enactment made under Article 87 of the EEC Treaty.
13.3 No action, practice or course of conduct now or previously done or carried
on by the Company and no agreement to which the Company is or was a party or any
part of any such agreement:-
13.3.1 is or has been the subject of any investigation or reference under
the Competition Act 1980; or
13.3.2 is or was unlawful by virtue of the Resale Prices Act 1976; or
13.3.3 is or was an abuse of a dominant position under the EEC Treaty; or
13.3.4 infringes any other competition, restrictive trade practice,
anti-trust or consumer law or legislation applicable in the United Kingdom
or elsewhere and not specifically mentioned in this paragraph 13.3.
13.4 The Company has not received any communication or request for information
relating to any aspect of the Company's business from the Director General of
Fair Trading, the Monopolies and Mergers Commission, the Secretary of State for
Trade and Industry, the Commission of the European Communities. So far as the
Warrantors are aware, no agreement, arrangement or conduct of the Company has
been the subject of an investigation, report or decision by any of those persons
or bodies.
Trading and contractual arrangements
14.1 The Company is not a party to:-
14.1.1 any partnership, joint venture, European Economic Interest Grouping
or consortium arrangement or agreement or any agreement for sharing
commissions,
44
<PAGE>
finders' fee, royalties or other income;
14.1.2 any agreement, transaction, obligation, commitment, understanding,
liability or arrangement which:
14.1.2.1 is liable to be terminated or varied in accordance with its terms
by another party as a result of any change in control of the Company and
whose termination would be likely to have a material adverse effect on the
business of the Company;
14.1.2.2 contains covenants limiting or excluding its right to do business
and/or to compete in any area or in any field or with any person, firm or
company;
14.1.2.3 has been entered into otherwise than on an arm's length basis in
the ordinary and usual course of the Company's business;
14.1.2.4 is incapable of complete performance by the Company or, so far as
the Warrantors are aware, by the counterparty in accordance with its terms;
14.1.2.5 is likely to result in the achievement of a gross margin
(determined in accordance with the Company's existing method of calculating
the same) of less than 10 per cent in respect of such agreement,
transaction, obligation, commitment, understanding liability or
arrangement;
14.1.2.6 is a forward contract relating to foreign currency.
14.2 The Company nor so far as the Warrantors are aware any other party to any
agreement with the Company is in default under any such agreement as is
described in para 14.1 nor (so far as the Warrantors are aware) are there any
circumstances likely to give rise to such a default.
14.3 Save for those in the ordinary course of trading, no offer or tender given
or made by the Company on or before the date of this Agreement and still
outstanding is capable of giving rise to a contract merely by a unilateral act
of another person.
14.4 There is no:-
14.4.1 agency or distributorship agreement requiring payment by the Company
of commissions of more than (pound)50,000 per annum; or
14.4.2 purchase contract or contract for the manufacturing by a
sub-contractor of goods the purchase price of which exceeds (pound)250,000
per annum;
to which any part of the business of the Company is subject.
45
<PAGE>
Title deeds
15. All documents which are required to be stamped which are in the possession
of the Company and by virtue of which a Company has a right have been properly
stamped.
Powers of attorney
16. The Company has not given a power of attorney which remains in effect and no
person has any authority (express, implied or ostensible) which is still
outstanding or effective to enter into any contract or commitment or to do
anything on behalf or the Company other than any authority to employees to enter
into routine trading contracts in the normal course of their duties and to
executive directors.
Insolvency
17.1 No receiver or administrative receiver has been appointed of the whole or
any part of the assets or undertaking of the Company nor has any encumbrance
over all or any of its assets become enforceable.
17.2 No administration order has been made in relation to the Company and no
petition for such an order has been presented.
17.3 No proposal for a voluntary arrangement under Section 1 Insolvency Act 1986
between the Company and its creditors (or any class of them) has been made to or
is in the contemplation of the Company.
17.4 No petition has been presented, no order has been made and no resolution
has been passed for the winding-up of the Company.
17.5 The Company has not stopped or threatened to stop payment to its creditors
nor is it insolvent or unable to pay its debts within the meaning of section 123
of the Insolvency Act 1986 nor is it nor has it admitted to itself to be unable
to pay its debts as they fall due.
17.6 No unsatisfied judgment is outstanding against the Company.
17.7 No guarantee, loan capital, borrowed money or interest is overdue for
payment and no other obligations or indebtedness is outstanding which is
substantially overdue for performance or payment.
17.8 No order has been made and no resolution has been passed for the winding up
of the Company or for a provisional liquidator to be appointed in respect of the
Company and no petition has been presented and no meeting has been convened for
the purpose of winding up the Company.
17.9 The Company has not been a party to any transaction at an undervalue as
defined in Section 238 Insolvency Act 1986 nor has it given or received any
preference as defined in
46
<PAGE>
Section 239 Insolvency Act 1986, in either case at a time when it was unable to
pay its debts as they fell due and within the period of two years ending on the
date of this Agreement.
17.10 No event analogous to the foregoing has occurred in or outside England.
17.11 The Company has not suspended or ceased or threatened to suspend or cease
to carry on all or a material part of its business.
17.12 No creditor of the Company has attached or taken possession of and no
distress, execution, sequestration or other process has been levied or enforced
or sued out against any asset of the Company which has not be discharged.
Officers and employees
18.1 The Warrantors have disclosed a list of all those persons employed by the
Company as at 23 March 1998 and no other person was employed in the businesses
of the Company and its Subsidiary Undertakings as at that date. Those persons
named as such in Schedule 2 are the only directors of the Company or the
relevant Subsidiary Undertaking (as the case may be) and the particulars set out
in Schedule 2 are true and accurate and no additional director has been
appointed.
18.2 The particulars shown in the schedule of employees annexed to the
Disclosure Letter list all the employees of the Company whose current salary is
(pound)30,000 or more ("relevant employees") and shows in relation to each such
employee his age, current salary and years' service with and other benefits
provided by the Company that the Company is bound to provide (whether now or in
the future) and include true and complete particulars of all profit sharing,
incentive and bonus arrangements to which the Company is party whether legally
binding on the Company or not.
18.3 The Company is under no obligation to increase, nor has it made any
provision to increase the aggregate annual remuneration or value of benefits
currently payable to the employees of the Company and no change has been made in
the terms of engagement of any relevant employee.
18.4 There is not outstanding any contract of service between the Company and
any of its directors, officers or employees which is not terminable by the
Company without damages or compensation (other than any compensation payable by
statute) on three months' notice given at any time.
18.5 No director or relevant employee has served or been served with notice on
the Company terminating his contract of employment and no such director or
relevant employee will be entitled to give such notice solely by reason of the
sale of the Shares to the Purchaser.
18.6 There is no dispute between the Company and any trade union.
47
<PAGE>
18.7 There is no outstanding written notice alleging breach by the Company of
regulations made under the Health and Safety at Work etc. Act 1974 or otherwise
regarding the health and safety at work of its employees.
18.7 The attention of all employees of any member of the Company has been drawn
to such of the terms of their employment as is required by the Employment Rights
Act 1996.
18.8 The Company is not a party to any written agreement or arrangement with or
commitment to any trades union or staff association nor, so far as the
Warrantors are aware are any of its employees members of any trades union or
staff association.
18.9 There is no outstanding claim against the Company by any person who is now
or has been an officer or employee of any member of the Company or any dispute
between the Company and a material number or class of its employees and no
payments are due by the Company under the provisions of the Employment Rights
Act 1996.
18.10 In the 12 months preceding the date of this Agreement, the Company has
not:-
18.10.1 given notice of redundancies to the relevant Secretary of State or
started consultations with a trades union under Chapter II of Part IV
of the Trade Union and Labour Relations (Consolidation) Act 1992 or
failed to comply with its obligations under Chapter II of Part IV of
that Act; or
18.10.2 been a party to a relevant transfer (as defined in the Transfer of
Undertakings (Protection of Employment) Regulations 1981) or failed to
comply with a duty to inform and consult a trade union under those
Regulations.
18.11 There is not now outstanding any contract or arrangement to which the
Company is a party for the payment to any person or body of any consultancy or
like fees exceeding (pound)30,000 per annum.
18.12 Since the Accounts Date, no ex-gratia payments have been made by the
Company to any officer or employee or former officer or employee of the Company
or to their dependants or relatives nor is the Company considering making any
such payments.
Intellectual Property rights
19.1 The Company is the sole and absolute beneficial and legal owner of the
Listed Intellectual Property which is owned free and clear from any liens,
charges, restrictions and encumbrances.
19.2 No licence, permission or other right has been granted to the Company by
any third party in respect of any Intellectual Property except (a) Intellectual
Property in computer software which is in substance non-bespoke software and for
which the Company has a standard form licence; and (b) the Licensed Intellectual
Property (details of which have been
48
<PAGE>
disclosed to the Purchaser).
19.3 The Listed Intellectual Property represents all the Intellectual Property
which has been duly registered in the name of the Company and the details of
such Listed Intellectual Property given in Schedule 6 Part II are correct.
19.4 So far as the Warrantors are aware, the Company has not done or omitted to
do any act, matter or thing in respect of any Company Intellectual Property or
any Licensed Intellectual Property which would or might impinge upon the
validity or enforceability of the same or upon the right of the Company to use
the same in relation to the business of the Company as it has been carried on up
to the date of this Agreement.
19.5 So far as the Warrantors are aware, none of the Company Intellectual
Property:-
19.5.1 is the subject of any claim or opposition which impinges upon the
validity, enforceability or ownership of the same by the Company or the use
of the same (or any part of the same) howsoever by the Company;
19.5.2 is being infringed by any person.
19.6 So far as the Warrantors are aware, none of the processes, products or
activities of the business of the Company infringes any right of any other
person relating to Intellectual Property or gives rise to a liability for any
royalty or similar payment other than by virtue of an agreement relating to
Licensed Intellectual Property (as disclosed to the Purchaser).
19.7 So far as the Warrantors are aware the Company has not granted any licences
of the Company Intellectual Property other than (a) licences which the Company
on less than three months' notice could terminate without liability; and (b) the
licences listed in Part III of Schedule 6 and disclosed to the Purchaser.
19.8 So far as the Warrantors are aware the Company has not disclosed any
confidential information material to the business of the Company, to any person
save where such person is subject to express obligations to keep the same
confidential or such obligations are implied by law.
19.9 Where a person other than an employee has been engaged, directly or
indirectly by the Company such that he may contribute to the creation of
Intellectual Property material to the business of the Company, such person or
his employer has so far as the Warrantors are aware, granted rights to the
Company which are sufficient for the purposes for which the Company engaged such
person.
19.10 So far as the Warrantors are aware no claims have been made or threatened
by employees or ex-employees of the Company under s40 of the Patents Act 1977 of
any equivalent inventor compensation provision in any jurisdiction.
19.11 The assignment dated 18 November 1994 ("the Assignment") by Triplex Lloyd
Plc of
49
<PAGE>
the licence relating to the Sophia Process dated 5 July 1989 ("the Licence")
was validly and legally effected and so far as the Warrantors are aware the
Company as a result has the full benefit of the Licence.
19.12 The licensor under the Licence, Advanced Metal Technology Limited, has
made no objections to the Assignment and so far as the Warrantors are aware has
not behaved otherwise than that the Company has the full benefit of the Licence.
19.13 So far as the Warrantors are aware there are no reasons why the Licence
will be terminated and so far as the Warrantors are aware the Company is not in
breach of the Licence.
The Subsidiary Undertakings
20.1 The particulars of the Subsidiary Undertakings set out in Part II of
Schedule 2 are accurate and the Company is the beneficial owner of the entire
issued share capital of each of the Subsidiary Undertakings and the shares of
the Subsidiary Undertakings are held legally and beneficially as shown in that
Schedule free from all liens, charges and encumbrances and with all rights now
or hereafter attaching to them and the Company has no other subsidiary
undertakings and does not hold or own any other shares in any other companies.
20.2 The terms of the Warranties set out in paragraphs 2.1 and 2.3 to 2.7 of
Schedule 4 are accurate insofar as they are repeated with the words "each
Subsidiary Undertaking" or "any Subsidiary Undertaking" (as the case may be)
being substituted for the words "the Company".
20.3 The Subsidiary Undertaking:-
20.3.1 are not engaged in any manner in carrying on any business or trade;
20.3.2 have no indebtedness, mortgages, charges, debentures or guarantees;
or other liabilities (actual or contingent);
20.3.3 have no employees and have not given any subsisting power of
attorney or other authority to any person;
20.3.4 are not parties to any litigation or arbitration and the Warrantors
are not aware of any circumstances which are likely to give rise to
any legal proceedings against any Subsidiary Undertaking; and
20.3.5 have no assets or property and are not parties to any subsisting
agreement or contract.
Pensions
21.1 In this paragraph 21 the following terms have the following meanings:
50
<PAGE>
Vendor's Scheme means the TKR International Limited
Retirement Benefits Scheme.
The term Vendor's Scheme includes, where
the context allows, the trustees of the
Vendor's Scheme.
Relevant Benefits is defined in section 612 of ICTA 1988
but with the omission of the exception
in that definition.
Relevant Person each past and present employee, officer
and director of a Group Company and
their respective spouses and dependants
and any person who, at the date of this
Agreement, is a beneficiary (present or
contingent) of the Vendors' Scheme.
ICTA Income and Corporation Taxes Act 1988.
Pensions Act the Pensions Act 1995.
21.2 Except under the Vendor's Scheme, no agreement or arrangement exists for
the provision of Relevant Benefits for any Relevant Person in connection with
which any Group Company is legally liable, or may become legally liable as a
result of any action taken by any Group Company prior to the date of this
Agreement, to make any payment.
21.3 No change in the benefits currently being provided under the Vendor's
Scheme has been announced by the Company or any Group Company. No undertaking or
assurance has been given to any Relevant Person as to the continuance or
introduction or improvement of any Relevant Benefits which the Company would be
required to implement in accordance with good industrial relations practice,
whether or not there is any legal obligation to do so.
21.4 The Disclosure Letter contains or has annexed to it copies of documents
containing the material provisions of the Vendor's Scheme including, but not
limited to:
21.4.1 the trust deed and rules and the other documents containing the
provisions currently governing the Vendor's Scheme;
21.4.2 a copy of the most recent audited accounts and trustees' report
relating to the Vendor's Scheme;
21.4.3 copies of all notices issued under the Occupational Pension Schemes
(Member-nominated Trustees and Directors) Regulations 1996 (as amended) in
relation to the Vendor's Scheme;
21.4.4 a copy of the Vendor's Scheme's internal disputes resolution
procedure;
51
<PAGE>
21.4.5 copies of the contracting-out certificates presently in force
covering employments with any Group Company and a letter from the Board of
the Inland Revenue confirming that the Vendor's Scheme is an exempt
approved scheme (as defined in section 592 of ICTA 1988);
21.4.6 a full list of active, deferred and pensioner members under the
Vendor's Scheme.
21.5 The Vendor's Scheme is an exempt approved scheme (as defined in section 592
of ICTA 1988). So far as the Warrantors are aware there is no reason why
approval of the Vendor's Scheme by the Board of Inland Revenue should be
withdrawn. There is no reason why the contracting out certificate for the
Vendor's Scheme might be cancelled, varied or surrendered.
21.6 The Company is the principal employer for the purposes of the Vendor's
Scheme.
21.7 There is contained in or annexed to the Disclosure Letter a statement of
the amounts and rate of contributions payable to the Vendor's Scheme.
Contributions to the Vendor's Scheme are not paid in arrear. All amounts due to
the Vendor's Scheme from a Group Company or a Relevant Person have been paid in
accordance with the provisions governing the Vendor's Scheme.
21.8 There are no actions, suits, complaints to the Pensions Ombudsman or claims
pending or, so far as the Warrantors are aware, threatened against a Group
Company or the trustees of the Vendor's Scheme in respect of the provision of
Relevant Benefits.
21.9 The liability for all lump sum death in service benefits which may become
payable under the Vendor's Scheme to or in respect of any Relevant Person is
fully insured with a reputable insurance company on normal terms and at normal
rates with all lives assured being treated as enjoying good health and all
premiums have been properly paid by their due dates.
21.10 The Vendor's Scheme does not have any employer-related investments (as
defined in section 40 of the Pensions Act).
21.11 Other than guaranteed minimum pensions (as defined in the Pension Schemes
Act 1993) that accrued prior to 6 April 1997 and lump sum death in service
benefits, the Vendor's Scheme only provides money purchase benefits (as defined
in the Pension Schemes Act 1993). No Relevant Person has been promised that he
will receive Relevant Benefits which are linked to final pensionable salary,
however termed or defined, (other than guaranteed minimum pensions and lump sum
death in service benefits).
21.12 So far as the Warrantors are aware the Vendor's Scheme has at all times
complied with and been administered in accordance with the provisions governing
it and all applicable laws, regulations and requirements, including the
requirements of the Inland Revenue for continued approval as an exempt approved
scheme or the Department of Social Security for continued eligibility for
contracting-out of the State Scheme, and of trust law.
52
<PAGE>
21.13 Other than in conformity with the contracting out legislation, the
provisions of the Vendor's Scheme do not discriminate between male and female
members whether directly or indirectly as regards eligibility, the rate of
contributions, or the date on or from which benefits will or may be provided.
Compliance with Laws
22. The Company has conducted its business in all material respects in
accordance with all applicable laws and regulations of the United Kingdom or any
foreign country and there is no violation of, or default with respect to, any
statute, regulation, order, decree or judgment of any Court or any governmental
agency of the United Kingdom or any foreign country which may have a material
adverse effect upon the assets or business of the Company.
Properties
23.1 The Properties comprise the only freehold or leasehold property in any part
of the world in which any Group Company has any interest or which are otherwise
occupied or used by any Group Company.
23.2 The particulars of each of the Properties set out in Schedule 7 are true
and accurate.
23.3 A Group Company is in physical possession and actual occupation of the
whole of each of the Properties on an exclusive basis.
23.4 Aeromet is solely entitled at law and in equity to the Properties.
23.5 The Company has in its physical possession free from any lien all of the
deeds and documents necessary to prove the title to the Properties and the title
deeds and documents (other than the Property Leases and the Birmingham Lease)
are all duly stamped originals.
23.6 The Warrantor has no reason to believe that the Properties do not enjoy all
rights and privileges necessary for their continued use and enjoyment for their
current use without any material restrictions or limitations.
23.7 The current use of the Properties is the permitted use under planning
legislation.
23.8 So far as the Warrantor is aware all necessary planning permissions and
consents and approvals from all statutory and other competent authorities in
relation to the use of the Properties for the current use have been obtained and
are valid and subsisting.
23.9 The Vendor has not received any notice of any outstanding breach or
non-compliance with any statutory requirements or recommendations of any
competent authority.
23.10 In relation to the Properties, the relevant Group Company entitled to the
Property
53
<PAGE>
has paid all sums due and is not aware of any claim in respect of non observance
or performance of the covenants on the part of the tenant and the conditions
contained in the leases and the obligations contained in any licence or other
document supplemental to any of the leases.
23.11 The replies of the Vendor and the Vendor's Solicitors to the enquiries of
the Purchaser and the Purchaser's Solicitors including any enquiries raised or
replies given in correspondence concerning the Properties (and any other matters
relating to real property) are true and accurate in all respects and the Vendor
and Charles Baynes are not aware of any other fact or matter which renders or
might upon its disclosure render any such replies misleading.
23.12 Each of the Properties enjoys a valid Fire Certificate (where the same is
legally required) and complies in all material respects with all statutes orders
and regulations applicable to the Properties in relation to fire prevention and
there are no outstanding requirements or recommendations of any competent
authority in relation to such matters.
23.13 So far as the Warrantors are aware there are no matters events or
circumstances which upon the grant of the Property Leases and the Birmingham
Lease would amount to a material breach and/or material non-observance or
non-performance of the covenants and conditions on the part of the tenant.
23.14 The Property Leases as completed on 30 June 1998 are in the approved
terms.
Miscellaneous
24. The Company does not hold assets in the United States having an aggregate
book value of US$ 15 million or more and the Company and all entities controlled
by it have not made aggregate sales in or into the United States of US$ 25
million or more in its most recently completed fiscal year.
54
<PAGE>
SCHEDULE 5
Warranties relating to Taxation
1. General
1.1 Each Group Company has made all returns, and notifications ("Returns") it is
required by law to make. All Returns have been properly and punctually submitted
by each Group Company to all relevant taxation authorities (whether of the
United Kingdom or elsewhere) and the Returns are complete and accurate in all
respects and are not the subject of any question or dispute nor are, so far as
the Vendor is aware, likely to become the subject of any question or dispute
with any taxation authority.
1.2 Since the Accounts Date no accounting period of any Group Company has ended.
1.3 All payments by any Group Company to any person which ought to have been
made under deduction of taxation have been so made and each Group Company has
(if required by law to do so) accounted to the relevant taxation authority for
the taxation so deducted.
1.4 Each Group Company has duly and punctually paid all taxation and any customs
duties which it has become liable to pay and it has never paid or, so far as the
Warrantors are aware, become liable to pay any penalty, fine or surcharge in
connection with taxation or any customs duties.
2. Loan relationships
2.1 No Group Company has any loan relationships where:-
2.1.1 there is a connection between the parties as defined by section 87
Finance Act 1996; or
2.1.2 there has been or will prior Completion be a release of the amounts
payable under the relationship.
2.2 The Accounts account for all of the Group Companies' loan relationships in
accordance with an authorised accruals basis of accounting complying with
section 85 Finance Act 1996 and there has been no change in such accounting
method in respect of any loan relationship since the Accounts Date.
3. Distributions
3.1 No Group Company has since the Accounts Date made or agreed to make any
distributions within the meaning of section 209 ICTA 1988 (meaning of
"distribution").
55
<PAGE>
4. Capital Allowances
4.1 The aggregate book value of each of the assets of the Group Companies, on
which an entitlement to industrial building allowances or other allowances in
respect of capital expenditure has arisen under the Capital Allowances Act 1968
or the Capital Allowances Act 1990, in or adopted for the purposes of the
Accounts does not exceed the aggregate residue of expenditure or written-down
value attributable to such assets for the purposes of those Acts. The aggregate
book value of plant and machinery allocated to a pool of plant and machinery on
which an entitlement to capital allowances has arisen under Part II Capital
Allowances Act 1990 (machinery and plant) does not exceed the written-down value
of the qualifying expenditure in respect of each such pool under that Act.
5. Capital Gains
5.1 No Group Company has since the Accounts Date been a party to any
depreciatory transaction for the purpose of section 176 Taxation of Chargeable
Gains Act 1992 (depreciatory transactions in a group) or which could be treated
as a depreciatory transaction under section 177 Taxation of Chargeable Gains Act
1992 (dividend stripping).
6. Groups of Companies
6.1 There is set out in the Disclosure Letter with express reference to this
warranty full details of all arrangements relating to relief under the
provisions of sections 402 to 413 ICTA 1988 (group relief).
6.2 All dividends and other payments referred to in section 247 ICTA 1988 (group
income) which have been paid by Group Companies have been paid under an election
made under that section and all such elections are now and will up to Completion
remain valid and in force.
6.3 None of the assets of the Group Companies have been acquired from another
company which, at the time of acquisition, was a member of the same group as
defined in section 170 Taxation of Chargeable Gains Act 1992 (groups of
companies - interpretation).
6.4 No tax-free benefit has ever been conferred either upon any Group Company or
upon any person connected with a Group Company within the meaning of section 30
Taxation of Chargeable Gains Act 1992 (tax-free benefits). No scheme or
arrangement has been effected under which such a tax-free benefit could be so
conferred.
6.5 None of the Group Companies' assets and no relevant asset has been
materially reduced in value within the meaning of section 30 Taxation of
Chargeable Gains Act 1992 (tax-free benefits). No scheme or arrangement has been
effected under which there could be such a reduction in value.
56
<PAGE>
7. Value Added Tax
7.1 Each Group Company is a registered and taxable person for the purposes of
the Value Added Tax Act 1994 and has complied with and observed in all respects
the terms of all statutory provisions, directions, conditions, notices and
agreements with HM Customs and Excise relating to value added tax. Each Group
Company has maintained and obtained accounts, records, invoices and other
documents (as the case may be) appropriate or requisite for the purposes of
value added tax which are complete, correct and up-to-date.
7.2 No Group Company:-
7.2.1 is, or in the two years prior to Completion has been, in arrears with
any payments or returns or notifications under any statutory provisions,
directions, conditions or notices relating to value added tax, or liable to
any forfeiture or penalty or interest or surcharge or to the operation of
any penalty, interest or surcharge provision;
7.2.2 is or has agreed to become, an agent, manager, factor or VAT
representative for the purposes of section 47 or 48 Value Added Tax Act
1994 (agents etc.) of any person who is not resident in the United Kingdom
7.3 No Group Company has ever received a surcharge liability notice under
section 59 Value Added Tax Act 1994 (default surcharge) or a penalty liability
notice under section 64 Value Added Tax Act 1994 (persistent misdeclarations).
8. Close Companies
8.1 No Group Company is or has ever been a close company within the meaning of
section 414 ICTA 1988 (close companies).
9. Employees
9.1 Each Group Company has complied with sections 203 to 203L Income and
Corporation Taxes Act 1988 (pay as you earn) and the regulations made thereunder
in respect of all payments within the meaning of those sections and with the
Social Security (Contributions) Regulations 1979 in respect of all earnings
which are subject to those regulations.
10. Stamp Duties
10.1 There is no instrument which is necessary to establish any Group Company's
title to any right or asset which is liable to stamp duty (or any like duty or
tax in a jurisdiction outside the United Kingdom) which has not been duly
stamped or which would attract stamp duty if brought within the relevant
jurisdiction.
57
<PAGE>
11. International
Each Group Company is and always has been resident only in the United Kingdom
for taxation purposes. No Group Company is liable to taxation in any
jurisdiction other than the United Kingdom.
12. No Group Company has since the Accounts Date been involved in any
transaction otherwise than on arm's length terms.
13. No Group Company has since:-
13.1 the Accounts Date made any distribution or deemed distributions within the
meaning of Sections 209 or 210 ICTA 1988 (distributions and deemed
distributions) except as provided for in its audited accounts;
13.2 within the period of six years preceding Completion issued any share
capital as paid up otherwise than by the receipt of new consideration (within
the meaning of Section 254 ICTA 1988); or
13.3 within the period of six years preceding Completion redeemed, repaid or
purchased, or agreed to redeem, repay or purchase, any of its own shares.
14. No securities (within the meaning of Section 254(1) ICTA 1988) issued by any
Group Company and remaining in issue at the date of this Agreement were issued
in circumstances such that the interest or any other amount payable on those
securities falls to be treated as a distribution.
15. No Group Company has within the period of six years preceding Completion
made or received any distribution which is an exempt distribution within
Sections 213 to 218(1) (inclusive) ICTA 1988 (demergers).
16. If each of the assets other than trading stock of the Company were disposed
of for a consideration equal to the book value of that asset in, or adopted for
the purpose of, the Accounts, no liability to taxation and no balancing charge
(or corresponding tax in any jurisdiction) in relation to any such asset or pool
of assets would arise in excess of (pound)20,000 (disregarding for this purpose
any relief and allowances available to the Company other than amounts falling to
be deducted from consideration receivable under Section 38 TCGA 1992).
17. Foreign exchange and financial instruments
No Group Company has:-
17.1 qualifying assets, qualifying liabilities or currency contracts to which
the provisions of Chapter II, Part II Finance Act 1993 apply or will or may
apply;
58
<PAGE>
17.2 interest rate or currency contracts or options to which the provisions of
Chapter II, Part IV Finance Act 1994 apply or will or may apply.
59
<PAGE>
SCHEDULE 6
INTELLECTUAL PROPERTY
Part I
Licensed Intellectual Property
Agreement dated as of 5 July 1989 between Advanced Metal Technology Holland B.V.
and Triplex Lloyd PLC and related assignment dated 18 November 1994 from Triplex
Lloyd PLC to Kent Aerospace Castings PLC.
Part II
Listed Intellectual Property
Patent application no. 9804599.0 relating to cast aluminium copper alloys
60
<PAGE>
SCHEDULE 7
PROPERTIES
Property Lease
1. Tame Road Witton Birmingham The Birmingham Lease
2. Units F and G Cosgrove Close 30 June 1998 Charles Baynes plc (1)
Blackpole Worcester Aeromet International Plc (2)
3. Unit H Cosgrove Close Blackpole 21st March 1996 Wolseley Centers Limited
Worcester (1) Kent Aerospace Castings Plc (2)
4. Units 6, 6a, 12a, 12b, 12c and 30 June 1998 Charles Baynes plc (1)
Sittingbourne Aeromet International Plc (2)
12d Eurolink Industrial Centre
5. Watchmead Welwyn Garden City 30 June 1998 Charles Baynes plc (1)
Aeromet International Plc (2)
6. Units D5 and D6 Smeed-Dean Centre 23rd March 1984 The London Life
Centre Eurolink Industrial Centre Association Limited and Blue Circle
Sittingbourne Sittingbourne Estates Limited (1) Kent
Automotive Castings (Sittingbourne)
Limited (2)
7. Unit D4 Smeed-Dean Centre 22nd July 1985 The London Life
Eurolink Industrial Estate Association Limited and Blue Circle
Sittingbourne Sittingbourne Estates Limited (1) Kent
Aerospace Castings Limited (2)
8. 21 Laker Road Rochester Kent 13th August 1981 Allnatt London
Properties Limited (1) Industrial
Precision Castings Plc (2)
61
<PAGE>
SIGNED BY ) /s/ JOHN PERKINS
for and on behalf of )
CHARLES BAYNES PLC )
in the presence of: )
SIGNED BY ) /s/ JOHN PERKINS
for and on behalf of )
WESTPARK LIMITED )
in the presence of:- )
SIGNED BY ) /s/ DONALD A. WRIGHT
for and on behalf of )
PACIFIC AEROSPACE & )
ELECTRONICS (UK) LIMITED )
in the presence of:- )
SIGNED BY ) /s/ DONALD A. WRIGHT
for and on behalf of )
PACIFIC AEROSPACE & )
ELECTRONICS, INC. )
in the presence of:- )
62
PACIFIC AEROSPACE & ELECTRONICS, INC.,
a Washington corporation
$75,000,000
11 1/4% Senior Subordinated Notes due 2005
PURCHASE AGREEMENT
July 23, 1998
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
BANCBOSTON SECURITIES INC.
c/o Friedman, Billings, Ramsey & Co., Inc.
Lakeshore Towers
18101 Von Karman Avenue
Irvine, California 92612
Dear Sirs:
Pacific Aerospace & Electronics, Inc. (the "Issuer"), a Washington
corporation, proposes to issue and sell to the several initial purchasers named
in Schedule A hereto (collectively, the "Initial Purchasers" or "you"), an
aggregate of $75,000,000 principal amount of its 11 1/4% Senior Subordinated
Notes due 2005 (the "Notes"). The Notes are more fully described in the Offering
Memorandum referred to below. The Notes will be issued pursuant to an Indenture,
to be dated as of the Closing Time (as defined below) (the "Indenture"), between
the Issuer, the Guarantors (as defined below) and IBJ Schroeder Bank & Trust
Company, as Trustee (the "Indenture Trustee"), in substantially the form
attached hereto as Exhibit A. The Notes and the Exchange Notes (as defined
below) will be guaranteed pursuant to the Subsidiary Guarantee (the "Guarantee")
and the Exchange Guarantee (as defined below), respectively, by each of the
Subsidiaries (as defined below) other than Foreign Subsidiaries (as defined
below) (the "Guarantors"). This Purchase Agreement (the "Agreement"), the
Indenture (as defined below) and the Registration Rights Agreement (as defined
below) are referred to herein collectively as the "Operative Documents."
Capitalized terms used herein without definition have the respective meanings
specified in the Offering Memorandum (as defined below).
The Notes will be offered and sold to the Initial Purchasers without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon exemptions from the registration requirements of the
Securities Act. In connection with the sale of the Notes, the
<PAGE>
Issuer has prepared a preliminary offering memorandum dated July 6, 1998 (the
"Preliminary Offering Memorandum") and a final offering memorandum dated July
23, 1998 (such final offering memorandum, in the form first furnished to the
Initial Purchasers for use in connection with the offering and sale of the
Notes, or if such form is not so used, in the form subsequently furnished for
such use, the "Offering Memorandum"), each setting forth certain information
concerning the Issuer and the Notes. The Issuer hereby confirms that it has
authorized the use of the Preliminary Offering Memorandum and the Offering
Memorandum in connection with the offer and resale of the Notes by the Initial
Purchasers.
The Issuer understands that the Initial Purchasers propose to make an
offering of the Notes only on the terms, subject to the conditions and in the
manner set forth in the Offering Memorandum and Section 3 hereof.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Notes shall bear the following
legend:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS NOTE NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO SUCH REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER THIS NOTE, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR
ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO THE COMPANY, (B) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF
THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE
2
<PAGE>
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT,
SUBJECT TO THE RIGHT OF THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D) OR (E) ABOVE TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO ERISA (AS DEFINED BELOW) OR (ii) THE ACQUISITION AND
HOLDING OF THIS NOTE BY IT IS NOT PROHIBITED BY EITHER SECTION 406 OF
THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA") OR OTHER ARRANGEMENT THAT IS SUBJECT TO ERISA OR SECTION
4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR IS
EXEMPT FROM ANY SUCH PROHIBITION.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION
OF ANY OF THE FOREGOING.
The Initial Purchasers and other holders of the Notes (including subsequent
permitted transferees) will be entitled to the benefits of the registration
rights agreement, to be dated as of the Closing Time (the "Registration Rights
Agreement"), among the Issuer and the Initial Purchasers, in substantially the
form attached hereto as Exhibit B. In the Registration Rights Agreement, the
Issuer agrees to file with the Securities and Exchange Commission (the
"Commission"), upon the terms and conditions set forth therein, either an
exchange offer registration statement or a shelf registration statement pursuant
to Rule 415 under the Securities Act relating to the exchange or resale, as the
case may be, of the Notes for fully registered notes with identical terms as the
Notes (the "Exchange Notes") by holders thereof (the "Exchange Offer"), and to
use its reasonable best efforts to cause such registration statement to be
declared effective.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Issuer and each Guarantor, jointly and severally, represents and
warrants to, and agrees with the Initial Purchasers, that:
(i) As of their respective dates, none of the Preliminary Offering
Memorandum or the Offering Memorandum, or any amendment or supplement thereto,
contains,
3
<PAGE>
and as of the Closing Time, the Preliminary Offering Memorandum or the Offering
Memorandum, as amended or supplemented to such time, will not contain an untrue
statement of a material fact or will omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, provided however that this representation,
warranty and agreement shall not apply to statements or omissions in the
Offering memorandum made in reliance upon and in conformity with information
furnished to the Issuer in writing by the Initial Purchasers expressly for use
on the Offering Memorandum (such information being limited to the stabilization
legend at the forepart of the Offering Memorandum and information contained
under the heading "Plan of Distribution" in the Offering Memorandum).
(ii) The Notes satisfy the eligibility requirements of Rule 144A(d)(3)
of the rules and regulations of the Commission promulgated under the Securities
Act (the "Rules and Regulations").
(iii) None of the Issuer or any of its affiliates (as such term is
defined in Rule 501(b) of Regulation D of the Rules and Regulations ("Regulation
D")), or any person acting on behalf of the foregoing (other than the Initial
Purchasers) has, directly or indirectly, made or will, directly or indirectly,
make offers or sales of any security, or solicited offers to buy any security,
under circumstances that would require the registration of the Notes or the
Guarantee under the Securities Act.
(iv) None of the Issuer or any of its affiliates (as such term is
defined in Rule 501(b) of Regulation D) or any person (other than the Initial
Purchasers) acting on behalf of the foregoing has engaged or will engage, in
connection with the offering of the Notes or any security of the same class or
series as the Notes, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) of Regulation D. The Issuer has not entered
and will not enter into any contractual arrangement with respect to the
distribution of the Notes except for this Agreement and pursuant to the
Registration Rights Agreement.
(v) Assuming the accuracy of the representations and warranties and
compliance with the agreement of the Initial Purchasers in Section 3 hereof, it
is not necessary in connection with the offer, sale and delivery of the Notes to
the Initial Purchasers, or in connection with the initial resale of the Notes by
the Initial Purchasers in accordance with this Agreement, to register the Notes
or the Guarantees under the Securities Act or to qualify the Indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). At the
Closing Time, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act and the rules and regulations of the
Commission applicable to an indenture which is qualified thereunder.
(vi) The Issuer is a corporation duly incorporated, and validly
existing and in good standing under the laws of the State of Washington, with
full power and authority to own, lease and operate its properties, to conduct
its business as described in the Offering
4
<PAGE>
Memorandum and to execute, deliver and perform its obligations under each of the
Operative Documents, and the Securities Acquisition Agreement dated July 1, 1998
between the Company, Pacific Aerospace & Electronics (UK) Limited, a company
organized under the laws of the United Kingdom ("PAE UK"), Westpark Limited and
Charles Baynes plc (the "Stock Purchase Agreement") and all related agreements
and documents (including, without limitation, the disclosure letter to the Stock
Purchase Agreement) (collectively, the "Acquisition Documents").
(vii) The Issuer does not own or control, directly or indirectly, any
corporation, association or other entity other than: Balo Precision Parts, Inc.,
a Washington corporation, Cashmere Manufacturing Co., Inc., a Washington
corporation, Ceramic Devices, Inc., a Washington corporation, Electronic
Specialty Corporation, a Washington corporation, Morel Industries, Inc., a
Washington corporation, Northwest Technical Industries, Inc., a Washington
corporation, Pacific Coast Technologies, Inc., a Washington corporation, and
Seismic Safety Products, Inc., a Washington corporation, and PAE UK and, as of
the closing, PA&E International, Inc., a Washington corporation and an
additional company formed under the laws of the United Kingdom ("New UK
Holdings") to hold the stock of PAE UK (collectively, the "Subsidiaries" and
individually a "Subsidiary"). Each of the Subsidiaries have been duly
incorporated and are validly existing and in good standing (to the extent such
principle is applicable in such entities' jurisdiction of organization) under
the laws of their respective jurisdictions of organization, with full power and
authority (corporate and other) to own and lease their properties and conduct
their respective businesses as described in the Offering Memorandum and to
execute, deliver and perform its obligations under the Operative Documents and,
if applicable, the Acquisition Documents and the Guarantee and the Exchange
Guarantee. The Issuer owns, directly or indirectly, all of the outstanding
capital stock of the Subsidiaries free and clear of all claims, liens, charges
and encumbrances.
(viii) Aeromet International plc ("Aeromet UK") has been duly
incorporated and is validly existing and in good standing under the laws of its
jurisdiction of organization, with full power and authority (corporate and
other) to own and lease its properties and conduct its businesses as described
in the Preliminary Offering Memorandum and the Offering Memorandum, and to
execute, deliver and perform its obligations under the Acquisition Documents.
After giving effect to the Aeromet Acquisition (as defined in the Offering
Memorandum), all the outstanding shares of capital stock of Aeromet UK will be
owned by the Issuer's indirect wholly-owned subsidiary, PAE UK, free and clear
of any security interest, claim, lien, pledge, encumbrance or adverse interest
of any nature. Except as set forth in the Offering Memorandum, at the Closing
Time there will not be any outstanding right (including, without limitation,
preemptive rights, warrants or options to acquire, or instrument convertible
into or exchangeable for) to acquire any shares of capital stock or other equity
interest in Aeromet UK or any of its direct or indirect subsidiaries, or any
contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any capital stock of Aeromet UK or its subsidiaries,
or such convertible or exchangeable securities or any such rights, warrants or
options. After giving effect to the Aeromet Acquisition, Aeromet UK will not own
or control, directly or indirectly, any corporation, association or other
entity, other than Frank Ford
5
<PAGE>
(Aerospace Components) Ltd., Kent Aerospace Limited, TKR Aerospace Limited, TKR
Group Limited, TKR International Limited and Truflo Gas Turbines Limited. At the
Closing Time and after giving effect to the Aeromet Acquisition, the Issuer will
have no direct or indirect non-US subsidiaries other than New UK Holdings, PAE
UK and Aeromet UK and its subsidiaries (collectively, the "Foreign
Subsidiaries").
(ix) The Issuer has the authorized and outstanding capital stock as
set forth under the heading "Description of Capital Stock" in the Offering
Memorandum. The issued and outstanding shares of the Issuer's capital stock have
been duly authorized and validly issued, are fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, were not
issued in violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform in all material respects to
the description thereof contained in the Offering Memorandum. All issued and
outstanding shares of capital stock of the Subsidiaries and Aeromet UK have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as disclosed in the Offering Memorandum, neither the Issuer, the Subsidiaries
nor Aeromet UK have outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of their respective capital stock or any such options, rights,
convertible securities or obligations. The description of the Issuer's stock
option and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Offering Memorandum
accurately and fairly present the information shown with respect to such plans,
arrangements, options and rights as of the dates set forth therein.
(x) Immediately after the consummation of the Aeromet Acquisition, the
fair value and present fair saleable value of the assets of the Issuer (after
giving effect to the Aeromet Acquisition) will exceed the sum of its stated
liabilities and identified contingent liabilities. The Issuer will not be, after
giving effect to the execution, delivery and performance of the Operative
Documents and the Acquisition Documents, and the consummation of the
transactions contemplated thereby, (A) left with unreasonably small capital with
which to carry on its business as it is proposed to be conducted in the Offering
Memorandum, (B) unable to pay its debts (contingent or otherwise) as they mature
or (C) otherwise insolvent.
(xi) The Issuer has delivered to the Initial Purchasers a true and
correct copy of each of the Acquisition Documents that have been executed and
delivered prior to the date of this Agreement, and will deliver each other
Acquisition Document in the form substantially as it will be executed and
delivered on or prior to the Closing Time, together with all related agreements
and all schedules and exhibits thereto. There have been or will be no
amendments, alterations, modifications or waivers of any of the provisions of
any of the Acquisition Documents since their date of execution or from the form
in which it has been delivered to the Initial Purchasers. There exists as of the
date hereof (after giving effect to the transactions contemplated by each of the
Acquisition Documents) no event or condition which would constitute a breach or
grounds for termination (in each case as set forth in the Acquisition
6
<PAGE>
Documents) under any of the Acquisition Documents which would result in a
material adverse effect on the financial condition, properties, assets,
business, results of operations or prospects (a "Material Adverse Effect") of
the Issuer, the Subsidiaries and Aeromet UK taken as a whole, or materially
adversely effect the ability of the parties to the Acquisition Documents to
consummate the Aeromet Acquisition and the other transactions contemplated by
the Acquisition Documents.
(xii) The Issuer, Aeromet UK and each of the Subsidiaries are duly
qualified in or licensed to transact business by, and are in good standing in,
each jurisdiction in which they own or lease real property, maintain an office
or conduct their respective businesses and in which the failure, individually or
in the aggregate with all other failures, to be so licensed or qualified or to
be in good standing would reasonably be expected to have a Material Adverse
Effect on the Issuer, the Subsidiaries and Aeromet UK taken as a whole, and the
Issuer has no knowledge that any proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification of the Issuer, the
Subsidiaries or Aeromet UK.
(xiii) This Agreement has been duly authorized, executed and delivered
by the Issuer and each Guarantor and (assuming the due authorization, execution
and delivery thereof by the Initial Purchasers) is a legal, valid and binding
agreement of the Issuer and each Guarantor, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or similar laws
affecting creditors' rights generally and general principles of equity (the
"Enforceability Exceptions") and except to the extent that the indemnification
provisions of Section 7 hereof may be limited by federal or state securities
laws and public policy considerations in respect thereof.
(xiv) The Registration Rights Agreement has been duly authorized by
the Issuer and each Guarantor and, at the Closing Time, will have been executed
and delivered by the Issuer and each Guarantor and upon such execution by the
Issuer and each Guarantor (assuming the due authorization, execution and
delivery thereof by the other parties thereto), the Registration Rights
Agreement will constitute a legal, valid and binding obligation of the Issuer
and each Guarantor enforceable against the Issuer and each Guarantor in
accordance with the terms thereof, except as enforcement thereof may be limited
by the Enforceability Exceptions, and except as any rights to indemnity may be
limited by federal and state securities laws and public policy considerations,
and will conform to all statements relating thereto in the Offering Memorandum.
(xv) The Notes, in substantially the form attached to the Indenture,
have been and the Notes in final form as of the Closing Time will be duly
authorized by the Issuer and, when issued and delivered pursuant to this
Agreement and in accordance with the Indenture, against payment of the
consideration set forth herein, will be validly issued and, subject to the terms
of the Indenture, will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Issuer, enforceable in accordance with
their terms (except as
7
<PAGE>
enforceability may be limited by Enforceability Exceptions). At the Closing
Time, the Notes will conform to all statements relating thereto in the Offering
Memorandum; and the issuance of the Notes is not subject to preemptive or other
similar rights.
(xvi) The Exchange Notes, as of the Closing Time, will have been duly
authorized by the Issuer. When the Exchange Notes are issued, executed and
authenticated in accordance with the terms of the Registration Rights Agreement
and the Indenture, the Exchange Notes will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Issuer, enforceable
in accordance with their terms (except as enforceability may be limited by the
Enforceability Exceptions).
(xvii) The Indenture has been duly authorized by the Issuer and each
Guarantor and when executed and delivered by the Issuer and the Guarantors, and
assuming due authorization, execution and delivery thereof by the Indenture
Trustee, will constitute legal, valid and binding obligations of the Issuer and
the Guarantors, enforceable against the Issuer and the Guarantors in accordance
with its terms, except as enforcement thereof may be limited by the
Enforceability Exceptions, and will conform to all statements relating thereto
in the Offering Memorandum.
(xviii) The Guarantee has been duly authorized by each Guarantor and,
at the Closing Time, will have been duly executed and delivered by each
Guarantor. When the Notes have been issued in accordance with the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with the terms
of this Agreement, the Guarantee will be entitled to the benefits of the
Indenture and will be the valid and binding obligation of each Guarantor (except
as enforceability may be limited by the Enforceability Exceptions). As of the
Closing Time, the Guarantee will conform to all statements relating thereto in
the Offering Memorandum.
(xix) The guarantee to be executed in connection with the Exchange
Notes by each Guarantor (the "Exchange Guarantee") will be authorized at or
prior to the Closing Time by each Guarantor and, upon issuance of the Exchange
Notes, will have been duly executed and delivered by each Guarantor. When the
Exchange Notes have been issued in accordance with the Indenture, pursuant to
the Exchange Offer, the Exchange Guarantee will be entitled to the benefits of
the Indenture and will be the valid and binding obligation of each Guarantor
(except as enforceability may be limited by the Enforceability Exceptions).
(xx) Each of KPMG Peat Marwick LLP ("KPMG"), KPMG Audit plc,
PricewaterhouseCoopers ("PW") and Moss Adams LLP who audited certain of the
financial statements included in the Offering Memorandum (or, in the case of the
financial statements of Electronic Specialty Corporation included in the
Offering Memorandum, will be audited by PW prior to the Closing Time), are and
were independent public accountants as required by the Securities Act and the
Rules and Regulations during the periods covered by the financial statements
which are included in the Offering Memorandum.
8
<PAGE>
(xxi) The consolidated financial statements of the Issuer, Aeromet UK
and the Subsidiaries, included in the Offering Memorandum (A) present fairly the
consolidated financial position of the Issuer, Aeromet UK, and the Subsidiaries
as of the dates indicated and the consolidated results of operations and changes
in stockholders' equity of the Issuer, Aeromet UK and the Subsidiaries for the
periods specified; and (B) have been prepared in all material respects in
conformity with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The supporting
schedules, if any, to the financial statements included in the Offering
Memorandum present fairly in accordance with GAAP the information required to be
stated therein. The selected consolidated financial data and the pro forma
financial information of the Issuer included in the Offering Memorandum present
fairly the information shown therein and have been prepared on a basis
consistent with that of the audited consolidated financial statements of the
Issuer and Aeromet UK included in the Offering Memorandum.
(xxii) Neither the Issuer, the Subsidiaries nor Aeromet UK (or its
subsidiaries) (A) is in breach of, or in default in (nor has any event occurred
which with notice, lapse of time, or both, would constitute a breach of, or
default in) the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of trust, bank
loan or credit agreement, note, lease or other agreement or instrument to which
it is a party or by which it may be bound or to which any of its properties may
be subject (collectively, the "Agreements and Instruments"), except for any such
breaches or defaults which, individually or in the aggregate with all other
breaches or defaults, would not have a Material Adverse Effect on the Issuer,
Aeromet UK and the Subsidiaries taken as a whole, or have an adverse effect on
the legality, validity or enforceability of any of the Operative Documents or
the Acquisition Documents or (B) is in breach of, or in default under (nor has
any event occurred which with notice, lapse of time, or both would constitute a
breach of, or default under) their respective charter or by-laws. The (i)
execution, delivery and performance of the Operative Documents, the Guarantee
and the Exchange Guarantee by the Issuer or the Guarantors, as applicable, (ii)
issuance, sale and delivery of the Notes by the Issuer, (iii) consummation by
the Issuer or the Guarantors of the transactions contemplated hereby and
thereby, (iv) compliance by the Issuer or the Guarantors with the terms of the
foregoing, and (v) application of the proceeds from the sale of the Notes as
contemplated by the Offering Memorandum, (A) have been duly authorized by all
necessary corporate action on the part of the Issuer and the Guarantors, as the
case may be, (B) do not and will not conflict with or result in any breach of or
constitute a default under (nor constitute any event which with notice, lapse of
time, or both would constitute a breach of, or default under) any provision of
the charter or by-laws of the Issuer, the Subsidiaries or Aeromet UK or any
provision of the Acquisition Documents, (C) do not and will not result in any
breach of or constitute a default under (nor constitute any event which with
notice, lapse of time, or both would constitute a breach of, or default under)
any of the terms or provisions of, or give rise to any right to accelerate the
maturity or require the prepayment of any indebtedness under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Issuer, the Subsidiaries or Aeromet UK under any such agreement or
instrument (except, with respect to this clause (C), for such conflicts,
9
<PAGE>
breaches, defaults, accelerations, prepayments or liens, charges or
encumbrances, which, individually or in the aggregate with all other conflicts,
breaches, defaults, accelerations, prepayments or liens, charges or
encumbrances, would not have a Material Adverse Effect on the Issuer, the
Subsidiaries and Aeromet UK taken as a whole) and (D) do not and will not
conflict with, or result in any breach of or constitute a default under (nor
constitute any event which with notice, lapse of time, or both would constitute
a breach of, or default under), any federal, state or local law, regulation or
rule or any decree, judgment or order applicable to the Issuer, the Subsidiaries
or Aeromet UK, except with respect to this clause (D), for such conflicts,
breaches or defaults, which, individually or in the aggregate with all other
conflicts, breaches or defaults, would not have a Material Adverse Effect on the
Issuer, the Subsidiaries and Aeromet UK, taken as a whole.
(xxiii) No approval, authorization, consent or order of or filing with
any national, state or local governmental or regulatory commission, board, body,
authority or agency is required in connection with the offering, issuance or
sale of the Notes by the Issuer, the Guarantee and the Exchange Guarantee by the
Guarantors or is required for the valid authorization, execution, delivery and
performance by the Issuer or the Guarantors of the Operative Documents, the
Guarantee and the Exchange Guarantee or the consummation by the Issuer and the
Guarantors of the transactions contemplated therein, except for such
authorizations as may be required by the securities or "blue sky" laws of the
various states in connection with the offer and sale of the Notes or by the
federal and state securities laws in connection with the registration
obligations under the Registration Rights Agreement.
(xxiv) Except as disclosed in the Offering Memorandum, there are (A)
no legal or governmental actions, suits or proceedings pending or, to the
knowledge of the Issuer, threatened to which the Issuer, the Subsidiaries or
Aeromet UK is or may be a party or of which property owned or leased by the
Issuer, the Subsidiaries or Aeromet UK is or may be the subject, or related to
any regulatory matters, which actions, suits or proceedings might, individually
or in the aggregate, prevent or materially adversely affect the transactions
contemplated by this Agreement or reasonably could be expected to result in a
Material Adverse Effect on the Issuer, the Subsidiaries and Aeromet UK taken as
a whole, and (B) no labor disturbance by the employees of the Issuer, the
Subsidiaries or Aeromet UK exists or, to the Issuer's knowledge, is imminent
which reasonably could be expected to have a Material Adverse Effect on such
condition, properties, business, results of operations or prospects of the
Issuer, the Subsidiaries and Aeromet UK taken as a whole, (C) no enforcement
proceeding, whether formal or informal, has been commenced or instituted against
the Issuer, the Subsidiaries or Aeromet UK by any governmental agency or
authority; nor, to the Issuer's knowledge, have any such proceedings been
threatened or recommended, and (D) neither the Issuer, the Subsidiaries nor
Aeromet UK, or any of their respective officers, employees or directors, is a
party or subject to the provisions of any regulatory action, injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental body materially adversely affecting the business of the
Issuer, the Subsidiaries or Aeromet UK.
10
<PAGE>
(xxv) There are no costs or liabilities associated with any material
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws") (including, without
limitation, any capital or operating expenditures required for clean-up, closure
of properties or compliance in the Environmental Laws or any authorization, any
related constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Issuer, the Subsidiaries and Aeromet UK
taken as a whole.
(xxvi) The Issuer, the Subsidiaries and Aeromet UK have good and
marketable title to all of their properties and assets, free and clear of all
liens, charges, encumbrances or restrictions, except as described in the
Offering Memorandum or such as do not materially adversely affect the value of
such properties and assets and do not interfere with the use made of such
properties and assets owned by the Issuer, the Subsidiaries and Aeromet UK, as
the case may be; all of the leases and subleases material to the business of the
Issuer, the Subsidiaries or Aeromet UK or under which the Issuer, the
Subsidiaries or Aeromet UK hold properties described in the Offering Memorandum
are in full force and effect; and neither the Issuer, the Subsidiaries nor
Aeromet UK have notice of any material claim of any sort which has been asserted
by anyone adverse to the rights of the Issuer, the Subsidiaries or Aeromet UK as
owner or as lessee or sublessee under any of the leases or subleases mentioned
above, or materially adversely affecting or questioning the rights of the
Issuer, the Subsidiaries or Aeromet UK to the continued possession of the leased
or subleased premises under any such lease or sublease. Except as disclosed in
the Offering Memorandum and other than such leases and properties as are
immaterial in the aggregate, the Issuer, the Subsidiaries and Aeromet UK own or
lease all such properties as are necessary to their operations as now conducted.
(xxvii) Since the respective dates as of which information is given in
the Offering Memorandum, and except as described in or specifically contemplated
by the Offering Memorandum (i) the Issuer, the Subsidiaries and Aeromet UK have
not incurred any material liabilities or obligations, indirect, direct or
contingent, other than in the ordinary course of business consistent with past
practice; (ii) the Issuer, the Subsidiaries and Aeromet UK have not entered into
any agreement or other transaction which is material to the Issuer, the
Subsidiaries, and Aeromet UK taken as a whole, other than in the ordinary course
of business consistent with past practice; (iii) there has not been any material
increase in (A) the long-term debt of the Issuer and the Subsidiaries, taken as
a whole, or Aeromet UK, taken individually, (B) the aggregate dollar or
principal amount of the assets of the Issuer and the Subsidiaries, taken as a
whole, or Aeromet UK, taken individually, which are classified as substandard,
doubtful or loss, or which are 90 days or more past due; (iv) the Issuer has not
paid or declared any dividends or other distributions with respect to its
capital stock, and the Issuer, the Subsidiaries and Aeromet UK are not in
default in the payment of principal or interest on any outstanding debt
obligations; (v) there has not been any change in the capital stock of the
Issuer, other than the issuance of shares of common stock upon exercise of
employee stock options pursuant to the Issuer's stock option plans described in
the Offering Memorandum; and (vi) there has not been any material adverse
11
<PAGE>
change in the financial condition, results of operations, business or prospects
of the Issuer and the Subsidiaries, taken as a whole, or Aeromet UK, taken
individually.
(xxviii) Except as disclosed in or specifically contemplated by the
Offering Memorandum, (A) the Issuer, the Subsidiaries and Aeromet UK have
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals and governmental authorizations to conduct their businesses as now
conducted; the expiration of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations, in the ordinary
course, would not have a Material Adverse Effect on the Issuer, the Subsidiaries
and Aeromet UK taken as a whole; and (B) the Issuer, the Subsidiaries and
Aeromet UK have no knowledge of any material infringement by it of trademark,
trade name rights, patent rights, copyrights, licenses, trade secret or other
similar rights of others, and, (C) to the Issuer's knowledge, there is no claim
being made against the Issuer, any of the Subsidiaries or Aeromet UK regarding
trademark, trade name, patent, copyright, license, trade secret or other
infringement which could have a Material Adverse Effect on the Issuer, the
Subsidiaries and Aeromet UK taken as a whole.
(xxix) The Issuer has not been advised, and has no reason to believe,
that either it, any of the Subsidiaries or Aeromet UK are not conducting
business in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without limitation,
all applicable foreign local, state and federal Environmental Laws and
regulations, except where failure to be so in compliance would not have a
Material Adverse Effect on the Issuer, the Subsidiaries or Aeromet UK taken as a
whole.
(xxx) The Issuer, the Subsidiaries and Aeromet UK have timely filed or
caused to be timely filed all material federal, state and foreign income and
franchise tax returns and have paid all taxes shown as due thereon; and the
Issuer has no knowledge of any tax deficiency of it, the Subsidiaries or Aeromet
UK which has been or might be asserted or threatened against the Issuer, the
Subsidiaries or Aeromet UK which would have a Material Adverse Effect on the
Issuer, the Subsidiaries and Aeromet UK taken as a whole.
(xxxi) The Issuer and the Subsidiaries maintain insurance of the types
and in the amounts generally deemed adequate for their respective businesses,
including, but not limited to, general liability insurance, fidelity bond
insurance and insurance covering real and personal property owned or leased by
the Issuer or the Subsidiaries against theft, forgery, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(xxxii) All material transactions between the Issuer, the Subsidiaries
and Aeromet UK and the officers, directors and stockholders of the Issuer, the
Subsidiaries and Aeromet UK that are required to be disclosed under the Exchange
Act and the Rules and Regulations have been accurately disclosed in the Offering
Memorandum; and except as disclosed in the Offering Memorandum the terms of each
such transaction are fair to the Issuer and no less favorable to the Issuer than
the terms that could have been obtained from unrelated parties.
12
<PAGE>
(xxxiii) None of the Issuer, the Subsidiaries nor Aeromet UK are, or
after giving effect to the consummation of the transactions contemplated herein,
will be, and neither the Issuer, the Subsidiaries nor Aeromet UK is directly or
indirectly controlled by, or acting on behalf of any person which is, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended (the "1940 Act").
(xxxiv) None of the Issuer, the Subsidiaries nor Aeromet UK have taken
and will not take, directly or indirectly, any action designed to, or that the
Issuer, the Subsidiaries or Aeromet UK reasonably believes would cause or result
in, stabilization or manipulation of the price of the Notes or the Exchange
Notes.
(xxxv) Neither the Issuer nor its affiliates has distributed any
offering material in connection with the offering and sale of the Notes other
than the Preliminary Offering Memorandum and the Offering Memorandum.
(xxxvi) At or prior to the Closing Time, the Notes to be purchased by
Qualified Institutional Buyers (as defined below) shall have been designated
PORTAL-eligible securities in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc. ("NASD"), and the Issuer shall
have obtained all CUSIP numbers advisable or required to be obtained for the
offer, sale and transfer of the Notes and the Exchange Notes as contemplated in
the Offering Memorandum.
(xxxvii) Other than pursuant to this Agreement and as disclosed in the
Offering Memorandum under the caption "Plan of Distribution," there are no
contracts, agreements or understandings between the Issuer and any person that
give rise to a valid claim against the Issuer or the Initial Purchasers for a
brokerage commission, finder's fee or other like payment in connection with the
offer, sale or issuance of the Notes.
(xxxviii) Except as set forth in the Registration Rights Agreement,
contained in certain Common Stock Purchase Warrants of the Company existing on
the date hereof held by Liviakis Financial Communications, Inc and by Robert B.
Prag or as described in the Offering Memorandum, there are no contracts,
agreements or understandings between the Issuer or Guarantor and any person
granting such person the right to require the Issuer or Guarantor to file a
registration statement under the Securities Act with respect to any securities
of the Issuer or Guarantor owned or to be owned by such person or to require the
Issuer or Guarantor to include such securities in the securities to be covered
by either the exchange or the shelf registration referred to in the Registration
Rights Agreement.
(xxxix) Each of the Issuer, the Subsidiaries and Aeromet UK has all
necessary licenses, authorizations, consents and approvals and has made all
necessary filings required under any federal, state, local or foreign law,
regulation or rule, and has obtained all necessary authorizations, consents and
approvals from other persons, in order to conduct its business, except where
failure to obtain any such licenses, authorizations, consents or approvals,
13
<PAGE>
or to make any such filings, would not, individually or in the aggregate with
all other such failures, reasonably be expected to have a Material Adverse
Effect on the Issuer, the Subsidiaries and Aeromet UK taken as a whole. Neither
the Issuer, the Subsidiaries nor Aeromet UK are in violation of, or in default
under, any such license, authorization, consent or approval or any federal,
state, local or foreign law, regulation or rule or any decree, order or judgment
applicable to the Issuer, the Subsidiaries or Aeromet UK the effect of which,
individually or in the aggregate with all other violations and defaults, would
reasonably be expected to have a Material Adverse Effect on the Issuer, the
Subsidiaries and Aeromet UK taken as a whole.
(xl) Neither the Issuer nor the Guarantors have relied upon the
Initial Purchasers or legal counsel for the Initial Purchasers for any legal,
tax or accounting advice in connection with the offering, sale or issuance of
the Notes, except as to qualification of the Notes under any applicable state
securities "blue-sky" laws.
(xli) Duncan Crighton, as of the date hereof, is employed as the Chief
Executive Officer of Aeromet UK and Mr. Crighton will continue to be an employee
of the Issuer and/or Aeromet UK after the consummation of the Aeromet
Acquisition. The Issuer has no reason to believe that Mr. Crighton will
terminate his employment with Aeromet UK or the Issuer after consummation of the
Aeromet Acquisition. Based on discussions to date with the Issuer, the Issuer
expects Mr. Crighton to enter into an employment agreement with the Issuer
and/or Aeromet UK on or prior to the Closing Time or shortly thereafter.
(b) Any certificate signed by any officer of the Issuer or a Guarantor and
delivered to you or your counsel shall be deemed a representation and warranty
by the Issuer and the Guarantors to you as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO THE INITIAL PURCHASERS; CLOSING.
(a) On the basis of the representations and warranties herein contained,
and subject to the terms and conditions herein set forth, the Issuer agrees to
sell to the Initial Purchasers, and the Initial Purchasers agree to purchase
from the Issuer, the Notes at the purchase price of $72,187,500 (the "Purchase
Price"), representing a discount of 3.75% of the gross proceeds from the sale of
the Notes.
(b) Payment of the purchase price for the Notes shall be made 7:00 a.m.,
California time, on July 30, 1998, or such later date and time not more than two
full business days thereafter as you and the Issuer shall mutually determine
(such date and time of payment and delivery being herein called the "Closing
Time"). Payment shall be made to the Issuer or its designee, by wire transfer of
immediately available funds to a bank account designated by the Issuer, against
delivery to the account of the Initial Purchasers of the Notes.
(c) One or more of the Notes in definitive global form, registered in the
name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), having
an aggregate principal
14
<PAGE>
amount corresponding to the aggregate principal amount of the Notes
(collectively, the "Global Note"), shall be delivered by the Company to the
Trustee (as defined in the Indenture) at the direction of the Initial Purchasers
in each case with any transfer taxes thereon duly paid by the Issuer against
payment by the Initial Purchasers of the Purchase Price thereof by wire
transfer. The Global Note shall be made available to the Initial Purchasers for
inspection not later than 6:30 a.m., California time, on two business days
immediately preceding the Closing Time.
SECTION 3. RESALE OF THE SECURITIES.
Each of the Initial Purchasers represents severally and not jointly and
warrants to, and agrees with, the Issuer that:
(a) it is a "qualified institutional buyer" as defined in Rule 144A of the
Rules and Regulations (a "Qualified Institutional Buyer"), with such knowledge
and experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Notes;
(b) it has not offered or sold, and will not offer or sell, any Notes
except to persons whom it reasonably believes to be Qualified Institutional
Buyers or institutional "accredited investors" within the meaning of Rule
501(a)(1), (2), (3), or (7) of Regulation D ("Institutional Accredited
Investors") and, in the case of Institutional Accredited Investors, who or which
prior to their purchase of the Notes will deliver to the Initial Purchaser a
letter demonstrating such investor status and;
(c) it has not made and will not make offers or sales of the Notes by means
of any form of general solicitation or general advertising (within the meaning
of Regulation D) or in any manner involving a public offering (within the
meaning of Section 4(2) under the Securities Act) prior to the effectiveness of
a registration statement with respect to the Notes.
(d) it is not acquiring the Notes with a view to any distribution thereof
or with any present intention of offering or selling any of the Notes in a
transaction that would violate the Securities Act or the securities laws of any
State of the United States or any other applicable jurisdiction.
SECTION 4. CERTAIN COVENANTS OF THE ISSUER AND THE COMPANY.
The Issuer covenants with the Initial Purchasers as follows:
(a) The Issuer will promptly deliver to the Initial Purchasers and counsel
for the Initial Purchasers, without charge, as many copies of the Offering
Memorandum, any amendments or supplements thereto, and the Operative Documents
and the Acquisition Documents as the Initial Purchasers and their counsel may
reasonably request.
15
<PAGE>
(b) The Issuer will give the Initial Purchasers timely notice of its
intention to prepare any amendment or supplement to the Preliminary Offering
Memorandum or the Offering Memorandum, will furnish the Initial Purchasers and
counsel to the Initial Purchasers with copies of any such amendment or
supplement and will obtain the consent of the Initial Purchasers to any such
amendment or supplement (which consent shall not be unreasonably withheld or
delayed).
(c) If at any time prior to completion of the distribution of the Notes by
the Initial Purchasers any event shall occur or condition exist as a result of
which it is necessary, in the reasonable opinion of the Initial Purchasers,
counsel for the Initial Purchasers or counsel for the Issuer, to amend or
supplement the Offering Memorandum in order that the Offering Memorandum, as
then amended or supplemented, will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time it is delivered
to a purchaser, not misleading or if, in the reasonable opinion of the Initial
Purchasers, counsel to the Initial Purchasers or counsel to the Issuer, such
amendment or supplement is necessary to comply with applicable law, the Issuer
will, subject to paragraph (b) of this Section 4, promptly prepare such
amendment or supplement as may be necessary to correct such untrue statement or
omission or to effect such compliance (in form and substance reasonably agreed
upon by counsel to the Initial Purchasers), so that as so amended or
supplemented, the statements in the Offering Memorandum will not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to a purchaser, not misleading or so that
such Offering Memorandum as so amended or supplemented will comply with
applicable law, as the case may be, and furnish to the Initial Purchasers such
number of copies of such amendment or supplement as the Initial Purchasers may
reasonably request. The Issuer agrees to notify the Initial Purchasers in
writing to suspend use of the Offering Memorandum as promptly as practicable
after the occurrence of an event specified in this paragraph (c), and the
Initial Purchasers hereby agree upon receipt of such notice from the Issuer to
suspend use of the Offering Memorandum until the Issuer has amended or
supplemented the Offering Memorandum to correct such misstatement or omission or
to effect such compliance.
(d) Notwithstanding any provision of paragraph (b) or (e) of this Section 4
to the contrary, the Issuer's obligations under paragraphs (b) and (c) of this
Section 4 and the Initial Purchasers' obligations under paragraph (c) of this
Section 4 shall terminate on the earlier to occur of (i) the effective date of
an exchange or shelf registration statement filed pursuant to the Registration
Rights Agreement and (ii) the date upon which the Initial Purchasers and their
affiliates cease to hold Notes acquired as part of their initial distribution.
(e) Neither the Issuer nor any of its affiliates (as defined in Rule 501(b)
of Regulation D), nor any person acting on behalf of the foregoing, will engage
in any form of general solicitation or general advertising (within the meaning
of Regulation D) in connection with any offer or sale of the Notes prior to the
effectiveness of a registration statement with respect to the Notes.
16
<PAGE>
(f) Except as required in the Registration Rights Agreement, neither the
Issuer, the Subsidiaries, nor any of their respective affiliates (as defined in
Rule 501(b) of Regulation D), will, directly or indirectly, make offers or sales
of any security, or solicit offers to buy any security, under circumstances that
would require the registration of the Notes under the Securities Act.
(g) So long as any of the Notes are "restricted securities" within the
meaning of Rule 144(a)(3) of the Rules and Regulations, the Issuer will, during
any period in which it is not subject to and in compliance with Section 13 or
15(d) of the Exchange Act, provide to each holder of such restricted securities
and to each prospective purchaser (as designated by such holder) of such
restricted securities, upon the request of such holder or prospective purchaser,
any information required to be provided by Rule 144A(d)(4) of the Rules and
Regulations. This covenant is intended to be for the benefit of the holders, and
the prospective purchasers designated by such holders, from time to time of such
restricted securities.
(h) The Issuer will arrange for the registration and qualification of the
Notes for offering and sale under the applicable securities or "blue sky" laws
of such states and other U.S. jurisdictions as the Initial Purchasers may
reasonably designate in connection with the resale of Notes as contemplated by
this Agreement and the Offering Memorandum and will continue such qualifications
in effect for as long as may be necessary to complete the distribution of the
Notes; provided that the Issuer shall not be required to (i) qualify as a
foreign corporation, (ii) consent to the service of process under the laws of
any such state (except service of process with respect to the offering and sale
of the Notes), (iii) subject itself to taxation in any such jurisdiction or (iv)
make any change to its charter or by-laws in connection with such qualification.
The Issuer shall promptly advise the Initial Purchasers of the receipt by the
Issuer of any notification with respect to the suspension of the qualification
or exemption from qualification of the Notes for offering or sale in any
jurisdiction or the institution of any proceeding for such purpose.
(i) The Issuer will use the proceeds received from the sale of the Notes in
the manner specified in the Offering Memorandum under the caption "Use of
Proceeds."
(j) The Issuer shall not, directly or indirectly, for a period commencing
on the date hereof and ending on the 180th day after the date hereof, except
with the prior written consent of the Initial Purchasers, offer to sell, pledge,
sell, grant any option, warrant or other right to purchase, or otherwise
transfer or dispose of (or agree to do any of the foregoing) (a) any security of
the Issuer that is substantially similar to the Notes or (b) any other security
which is convertible into, or exercisable or exchangeable for, the Notes or any
of the securities described in (a) above. The foregoing sentence shall not apply
to the issuance of the Notes being sold hereunder and the sale thereof pursuant
hereto or actions taken pursuant to the Registration Rights Agreement or the
Exchange Offer.
(k) The Issuer agrees that no future offer and sale of securities of the
Issuer of any class will be made if, as a result of the doctrine of
"integration" referred to in Rule 502 of
17
<PAGE>
Regulation D, such offer and sale could reasonably have been expected, at the
time of such sale, based upon public laws, Commission releases and Commission
no-action letters, to render invalid the exemption from the registration
requirements of the Securities Act relied upon in connection with the
transactions contemplated by this Agreement.
(l) The Issuer shall cause the Exchange Offer to be made by the Issuer in
the appropriate form to permit the Exchange Notes and the Exchange Guarantee by
the Guarantors registered pursuant to the Securities Act to be offered in
exchange for the Notes and the Guarantees, and to comply with all applicable
federal and state securities laws applicable to the Exchange Offer.
(m) In connection with the original distribution of the Notes, the Issuer
agrees that, prior to any offer or resale of the Notes by the Initial
Purchasers, the Initial Purchasers and counsel for the Initial Purchasers shall
have the right to make, and promptly receive from the Issuer, adequate
information with respect to reasonable inquiries into the business and financial
condition of the Issuer, the Subsidiaries and Aeromet UK.
SECTION 5. PAYMENT OF EXPENSES.
The Issuer will pay all costs and expenses incident to the performance of
the obligations under this Agreement of the Issuer, including (a) the
preparation and printing of the Preliminary Offering Memorandum and the Offering
Memorandum (including financial statements and exhibits) and any amendments or
supplements thereto, and the costs and expenses of delivery of each Preliminary
Offering Memorandum, Offering Memorandum and any other documents associated with
the offering and sale of the Notes to the Initial Purchasers, (b) the
preparation, issuance, printing and distribution of the Notes, (c) the delivery
of the Notes to the Initial Purchasers, including any securities transfer taxes
payable upon the sale of the Notes to the Initial Purchasers, (d) the fees and
disbursements of the Issuer's counsel and accountants, (e) the reasonable
out-of-pocket expenses, including reasonable legal expenses, of the Initial
Purchasers relating to the offering and sale of the Notes, (f) the qualification
of the Notes under the applicable state securities or "blue sky" laws in
accordance with Section 4(i) hereof, including all filing fees and reasonable
fees and disbursements of counsel for the Initial Purchasers in connection
therewith, (g) any filing fees in connection with any filing for review of the
offering with the NASD, (h) any fees charged by rating agencies for rating the
Notes, (i) the fees and expenses of the Indenture Trustee, including reasonable
fees and disbursements of counsel for such trustee, (j) all listing fees and
reasonable expenses in connection with the application for designation of any of
the Notes as PORTAL-eligible securities, (k) the cost of qualifying the Notes
with The Depository Trust Company, (l) the Company's road show costs and
expenses, (m) the costs and expenses, including legal fees of counsel to the
Company and the Initial Purchaser's, relating to the Exchange Offer, including
distribution and exchange of the Exchange Notes and (n) all other costs and
expenses incident to the performance of the obligation of the Issuer or the
Subsidiaries hereunder for which provision is not otherwise made in this
section.
18
<PAGE>
If the sale of the Notes provided for herein is not consummated because
this Agreement is terminated pursuant to Section 8 hereof or because any
condition to the obligations of the Initial Purchasers set forth in Section 6
hereof is not satisfied, other than by reason of a default by the Initial
Purchasers in payment for the Notes at the Closing Time, the Issuer shall
reimburse the Initial Purchasers promptly upon demand for the reasonable
out-of-pocket expenses incurred by the Initial Purchasers in connection with
their services to the date of termination of this Agreement, including
reasonable fees and disbursements of the Initial Purchasers' legal counsel
(including counsel for blue-sky matters) and the Initial Purchasers' road show
and due diligence costs and expenses.
SECTION 6. CONDITIONS OF INITIAL PURCHASERS' OBLIGATION.
The obligation of the Initial Purchasers to purchase and pay for the Notes
pursuant to this Agreement is subject to the following conditions:
(a) The Issuer shall furnish to the Initial Purchasers at the Closing Time
an opinion of Stoel Rives LLP, counsel for the Issuer, addressed to the Initial
Purchasers and dated the day of the Closing Time and in form reasonably
satisfactory to Milbank, Tweed, Hadley & McCloy, counsel for the Initial
Purchasers, in substantially the form set forth on Exhibit C hereto.
(b) At the Closing Time, you shall have received the favorable opinion of
MacFarlanes, U.K. counsel for the Company, dated as of the Closing Time,
addressed to the Initial Purchasers, substantially in the form attached hereto
as Exhibit D.
(c) At the Closing Time, you shall have received the favorable opinion of
Milbank, Tweed, Hadley & McCloy, counsel for the Initial Purchasers, dated as of
the Closing Time, addressed to the Initial Purchasers, as to such matters as you
may request.
(d) At the Closing Time, (i) the Offering Memorandum, as it may then be
amended or supplemented, shall not contain 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, in the light of the circumstances under which
they were made, not misleading, (ii) except as may be disclosed in the Offering
Memorandum, there shall not have been, since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the financial condition, properties, assets, business, results of operations or
prospects of the Issuer and its Subsidiaries taken as a whole, (iii) the Issuer
shall have complied in all material respects with all agreements and satisfied
in all material respects all conditions on its part to be performed or satisfied
at or prior to the Closing Time and (iv) the representations and warranties of
the Issuer set forth in Section 1(a) hereof shall be accurate in all material
respects as though expressly made at and as of the Closing Time. At the Closing
Time, you shall have received a certificate of (x) the Chief Executive Officer
of the Issuer and (y) the Chief Financial Officer of the Issuer, dated as of the
Closing Time, to such effect.
19
<PAGE>
(e) At the time that this Agreement is executed by the Issuer and also at
the Closing Time, you shall have received a letter addressed to you from KPMG
and KPMG Audit Plc, in form and substance reasonably satisfactory to you, the
first one to be dated the date of this Agreement, the second one to be dated the
Closing Time, in form and substance reasonably satisfactory to you, to the
effect that they are independent public accountants with respect to the Issuer
and Aeromet UK, respectively, within the meaning of the Securities Act and the
applicable rules and regulations thereunder, and containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained or included in the Offering Memorandum.
(f) As of the Closing Time, there shall have been no material amendments,
alterations, modifications or waivers of any provisions of the Acquisition
Documents as provided to the Initial Purchasers, except such amendments,
alterations, modifications or waivers which, in the judgment of the Issuer, (i)
were necessitated by a materially adverse change in the business, operations or
financial condition of the Issuer or Aeromet UK, or their respective
subsidiaries, and (ii) do not modify the maturities of or security arrangements
for Existing Indebtedness (as defined in the Offering Memorandum) or
indebtedness existing at the time of acquisition or being incurred to consummate
the transactions contemplated by the Acquisition Documents. You shall have
received a certificate dated as of the Closing Time and signed by the Chief
Executive Officer and the Chief Financial Officer to such effect.
(g) At the Closing Time, counsel for the Initial Purchasers shall have been
furnished with all such documents and certificates as they may reasonably
request for the purpose of enabling them to pass upon the issuance and sale of
the Notes in an opinion to the Initial Purchasers as contemplated in this
Agreement and in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Issuer, the performance of any
of the covenants of the Issuer, or the fulfillment of any of the conditions
herein contained.
(h) At the Closing Time, the Issuer shall have executed and delivered the
Registration Rights Agreement, the Indenture and the Guarantee (in substantially
the form attached to the Indenture), and the Registration Rights Agreement, the
Indenture and the Guarantee shall be in full force and effect.
(i) On or after the date hereof and prior to the Closing Time, (i) there
shall not have occurred any downgrading, suspension or withdrawal of, nor shall
any notice have been given of any potential or intended downgrading, suspension
or withdrawal of, or of any review (or of any potential or intended review) for
a possible change that does not indicate the direction of the possible change
in, any rating of the Issuer or the Notes (including, without limitation, the
placing of any of the foregoing ratings on credit watch with negative or
developing implications or under review with an uncertain direction) by any
"nationally recognized statistical rating organization" as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act, (ii) there shall not
have occurred any change, nor shall any notice have been given of any potential
or intended
20
<PAGE>
change, in the outlook for any rating of the Issuer or the Notes by any such
rating organization and (iii) no such rating organization shall have given
notice that it has assigned (or is considering assigning) a lower rating to the
Notes than that on which the Notes were marketed.
(j) Since the respective dates as of which information is given in the
Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there shall not have occurred any material adverse change
or any development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Issuer and Aeromet UK, and their respective subsidiaries,
taken as a whole, (ii) there shall not have been any material adverse change or
any development involving a prospective material adverse change in the capital
stock or in the long-term debt of the Issuer, Aeromet UK or any of their
respective subsidiaries and (iii) neither the Issuer, Aeromet UK nor any of
their respective subsidiaries shall have incurred any liability or obligation,
direct or contingent, the effect of which, in your judgment, is material and
adverse and, in your judgment, makes it impracticable to market the Notes on the
terms and in the manner contemplated in the Offering Memorandum.
(k) At the Closing Time, there shall not be any pending or threatened legal
or governmental proceedings against the Issuer with respect to any of the
transactions contemplated in this Agreement.
(l) The Notes to be purchased by Qualified Institutional Buyers shall have
been approved by the NASD as being eligible for trading in the PORTAL market.
(m) The Initial Purchasers shall have received a comfort letter or audit
report satisfactory in form to the Initial Purchasers and their counsel dated on
or prior to the Closing Time from PW regarding the unaudited consolidated
financial statements of Electronic Specialty Corporation contained in the
Offering Memorandum.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, this Agreement may be
terminated by you on written notice to the Issuer at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party, except as provided in Section 5 hereof. Notwithstanding any
such termination, the provisions of Section 7 hereof shall remain in effect. The
Initial Purchasers may in its sole discretion waive compliance with any
conditions to its obligations hereunder.
21
<PAGE>
SECTION 7. INDEMNIFICATION
(a) The Issuer and each of the Guarantors, jointly and severally, agree to
indemnify and hold harmless the Initial Purchasers and their affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees and controlling persons (the Initial
Purchasers and each such person being an "Initial Purchasers Indemnified Party")
from and against any and all losses, claims, damages and liabilities (or
actions, including shareholder actions, in respect thereof), joint or several,
to which such Initial Purchasers Indemnified Party may become subject under any
applicable federal or state law, or otherwise, which are related to or arise
from the performance by the Initial Purchasers of the services contemplated by,
or the engagement of the Initial Purchasers pursuant to, this Agreement and will
promptly reimburse any Initial Purchasers Indemnified Party for all reasonable
expenses (including reasonable counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or defense arising
therefrom, whether or not such Initial Purchasers Indemnified Party is a party
to this Agreement and whether or not such claim, action or proceeding is
initiated or brought by the Issuer. The Issuer will not be liable to any Initial
Purchasers Indemnified Party under the foregoing indemnification and
reimbursement provisions, (i) for any settlement by an Initial Purchasers
Indemnified Party effected without the Issuer's prior written consent; or (ii)
to the extent that any loss, claim, damage or liability is expressly found in a
final judgment by a court of competent jurisdiction to have resulted primarily
from and Initial Purchasers' willful misconduct, bad faith or gross negligence.
The Issuer also agrees that no Initial Purchasers Indemnified Party shall have
any liability (whether direct or indirect, in contract or tort or otherwise) to
the Issuer or its security holders or creditors related to or arising out of the
engagement of the Initial Purchasers pursuant to, or the performance by the
Initial Purchasers of the services contemplated by, the Agreement, except to the
extent that any loss, claim, damage or liability is found in a final judgment by
a court of competent jurisdiction to have resulted primarily from the Initial
Purchasers' willful misconduct, bad faith or gross negligence.
Promptly after receipt by an Initial Purchasers Indemnified Party of notice
of any intention or threat to commence an action, suit or proceeding or notice
of the commencement of any action, suit or proceeding, such Initial Purchasers
Indemnified Party will, if a claim in respect thereof is to be made against the
Issuer pursuant hereto, promptly notify the Issuer in writing of the same. In
case any such action is brought against any Initial Purchasers Indemnified Party
and such Initial Purchasers Indemnified Party notifies the Issuer of the
commencement thereof, the Issuer may elect to assume the defense thereof, with
counsel reasonably satisfactory to such Initial Purchasers Indemnified Party,
and an Initial Purchasers Indemnified Party may retain counsel to participate in
the defense of any such action; provided, however, that in no event shall the
Issuer be required to pay fees and expenses for more than one firm of attorneys
(other than local counsel, if any) representing Initial Purchasers Indemnified
Parties. Any failure or delay by an Initial Purchasers Indemnified Party to give
the notice referred to in this paragraph shall not affect such Initial
Purchasers Indemnified Party's right to be indemnified hereunder, except to the
extent that such failure or delay causes actual harm to the Issuer, or
prejudices its ability to
22
<PAGE>
defend such action, suit or proceeding on behalf of such Initial Purchasers
Indemnified Party. Anything in this paragraph to the contrary notwithstanding,
the Issuer shall not be liable for any settlement of any such claim or action
effected without the prior written consent of the Issuer.
(b) The Initial Purchasers agree to indemnify and hold harmless the Issuer,
its directors officers, employees and any person who controls the Issuer within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act (collectively, an "Issuer Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such Issuer
Indemnified Party may become subject under any applicable federal or state law,
or otherwise, which arises out of or is based upon any untrue statement or
alleged untrue statement of a material fact contained in, and in conformity
with, information furnished in writing by on behalf of the Initial Purchasers to
the Issuer expressly for use with reference to the Initial Purchasers in any
Preliminary Offering Memorandum or the Offering Memorandum (such information
being limited to the stabilization legend at the forepart of the Offering
Memorandum and information contained under the heading "Plan of Distribution" in
the Offering Memorandum) or arises out of or is based upon any omission or
alleged omission to state a material fact in connection with such information
necessary to make such information not misleading.
Promptly after receipt by an Issuer Indemnified Party of notice of any
intention or threat to commence an action, suit or proceeding or notice of the
commencement of any action, suit or proceeding, the Issuer Indemnified Party
will, if a claim in respect thereof is to be made against the Initial Purchasers
pursuant hereto, promptly notify the Initial Purchasers in writing of the same.
In case any such action is brought against an Issuer Indemnified Party and the
Issuer Indemnified Party notifies the Initial Purchasers of the commencement
thereof, the Initial Purchasers may elect to assume the defense thereof, with
counsel reasonably satisfactory to the Issuer Indemnified Party, and the Issuer
Indemnified Party may retain counsel to participate in the defense of any such
action; provided, however, that in no event shall the Initial Purchasers be
required to pay fees and expenses for more than one firm of attorneys (other
than local counsel, if any) representing Issuer Indemnified Parties. Any failure
or delay by an Issuer Indemnified Party to give the notice referred to in this
paragraph shall not affect such Issuer Indemnified Party's right to be
indemnified hereunder, except to the extent that such failure or delay causes
actual harm to the Initial Purchasers, or prejudices its ability to defend such
action, suit or proceeding on behalf of such Issuer Indemnified Party. Anything
in this paragraph to the contrary notwithstanding, the Initial Purchasers shall
not be liable for any settlement of any such claim or action effected without
the prior written consent of the Initial Purchasers.
(c) If the indemnification provided for in this Section 7 is unavailable to
an indemnified party or for any reason held unenforceable, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, agrees to
contribute to the losses, claims, damages and liabilities for which such
indemnification is held unavailable or unenforceable (i) in such proportion as
is appropriate to reflect the relative benefits to the indemnified party, on the
one hand, and the indemnifying party, on the other hand, of the offering of the
Notes as contemplated (whether or not the offering is consummated) or, (ii) if
(but only if) the allocation
23
<PAGE>
provided for in clause (i) is for any reason unenforceable, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) but also the relative fault of the indemnified party, on the one
hand, and the indemnifying party, on the other hand, as well as any other
relevant equitable considerations. The parties agree that for the purposes of
this paragraph the relative benefits to the Issuer and the Initial Purchasers of
the offering of the Notes as contemplated shall be deemed to be in the same
proportion that the total value received or contemplated to be received by the
Issuer as a result of or in connection with the offering of the Notes, bears to
the fees or discounts paid or to be paid to the Initial Purchasers under this
Agreement. Notwithstanding the foregoing, the Issuer expressly agrees that the
Initial Purchasers shall not be required to contribute any amount in excess of
the amount by which fees or discounts paid and owed the Initial Purchasers
hereunder (excluding reimbursable expenses), exceeds the amount of any damages
which the Initial Purchasers have otherwise been required to pay.
(d) The Issuer agrees that without the Initial Purchasers' prior written
consent, which shall not be unreasonably withheld, the Issuer will not settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding in respect of which indemnification could be sought
against the Issuer under this Section 7 (whether or not the Initial Purchasers
or any other Initial Purchasers Indemnified Party is an actual or potential
party to such claim, action or proceeding), unless such settlement, compromise
or consent includes an unconditional release of each Initial Purchasers
Indemnified Party from all liability arising out of such claim, action or
proceeding.
The Initial Purchasers agree that without the Issuer's prior written
consent, which shall not be unreasonably withheld, the Initial Purchasers will
not settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding in respect of which indemnification could
be sought against the Initial Purchasers under this Section 7 (whether or not
the Issuer or any other Issuer Indemnified Party is an actual or potential party
to such claim, action or proceeding), unless such settlement, compromise or
consent includes an unconditional release of each Issuer Indemnified Party from
all liability arising out of such claim, action or proceeding.
(e) In the event that a party entitled to indemnification under this
Section 7 is requested or required to appear as a witness in any action brought
by or on behalf of or against the indemnifying party in which such indemnified
party is not named as a defendant, the indemnifying party agrees to reimburse
promptly the indemnified party on a monthly basis for all reasonable third party
expenses incurred by the indemnified party in connection with such indemnified
party's appearing and preparing to appear as a witness, including, without
limitation, the reasonable fees and disbursements of the indemnified party's
legal counsel.
(f) If multiple claims are brought, with respect to at least one of which
indemnification is permitted under applicable law and provided for under this
Section 7, the indemnifying party agrees that any judgment or award shall be
conclusively deemed to be based on claims as to which indemnification is
permitted and provided for, except to the extent the
24
<PAGE>
judgment or award expressly states that the judgment or award, or any portion
thereof, is based solely on a claim as to which indemnification is not
available.
(g) The indemnity and contribution agreements contained in this Section 7,
and the covenants, warranties and representations of the Issuer contained in
this Agreement, shall remain in full force and effect regardless of (i) any
investigation made by or on behalf of the Initial Purchasers, or any person who
controls an Initial Purchasers within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, or by or on behalf of the
Issuer, its directors and officers or any person who controls the Issuer within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, (ii) the issuance and delivery of the Notes, and (iii) any termination of
this Agreement.
(h) The parties agree that the provisions of this Section 7 shall supersede
the provisions of Appendix A to that certain Engagement Letter between the
parties dated as of June 9, 1998 with respect to the offering and sale of the
Notes by the Initial Purchasers, and that such provisions of Appendix A shall be
of no further force or effect with respect to the offering and sale of the Notes
by the Initial Purchasers.
SECTION 8. TERMINATION OF AGREEMENT.
The obligations of the Initial Purchasers hereunder shall be subject to
termination in the absolute discretion of the Initial Purchasers if, at any time
prior to the time of purchase, (i) trading in securities on the Nasdaq Stock
Market, Inc., or other exchange on which securities of the Issuer are then
listed shall have been suspended or minimum prices shall have been established
on the Nasdaq Stock Market, Inc., or other exchange on which securities of the
Issuer are then listed, (ii) the United States shall have declared war in
accordance with its constitutional processes, or (iii) there shall have occurred
any material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on the
financial markets of the United States as, in the reasonable judgment of the
Initial Purchasers, to make it impracticable or inadvisable to market the Notes.
If the Initial Purchasers elect to terminate this Agreement as provided in
this Section 8, the Issuer shall be notified promptly in writing delivered by
facsimile or telegram.
If the sale to the Initial Purchasers of the Notes, as contemplated by this
Agreement, is not carried out for any reason permitted under this Agreement, the
Issuer shall not be under any obligation or liability to the Initial Purchasers
hereunder, except to the extent provided in Sections 5 and 7 hereof, and the
Initial Purchasers shall not be under any obligation or liability to the Issuer
hereunder, except to the extent provided in Section 7 hereof.
This Agreement may also terminate pursuant to the provisions of Section 6
with the effect stated in such Section.
25
<PAGE>
SECTION 9. NOTICES.
All notices and other communications under the Agreement shall be in
writing and shall be deemed to have been duly given, upon receipt, if delivered,
mailed or transmitted by any standard form of telecommunication. Notices to the
Initial Purchasers shall be directed to Friedman, Billings, Ramsey & Co, Inc.,
18101 Von Karman Avenue, Irvine, California 92612, (telecopier no.: (714)
477-3101), Attention: Christopher Jennings, with a copy to Milbank, Tweed,
Hadley & McCloy, 601 South Figueroa Street, Suite 30th Floor, Los Angeles,
California 90017, (telecopier no.: (310) 629-5063), Attention: Kenneth J.
Baronsky, Esq.; and notices to the Issuer shall be directed to Pacific Aerospace
& Electronics, Inc., 430 Olds Station Road, Wenatchee, Washington 98801,
(telecopier no.: (509) 667-9696), Attention: General Counsel, with a copy to
Stoel Rives LLP, 600 University Street, Suite 3600, Seattle, Washington 98101
(telecopier no.: (206) 386-7500), attention: L. John Stevenson, Esq.
SECTION 10. PARTIES.
This Agreement is made solely for the benefit of the Initial Purchasers,
the Issuer and, to the extent expressed, any person who controls the Issuer or
the Initial Purchasers within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, and the directors of the Issuer, their officers,
employees and trustees, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, of the Notes from the Initial
Purchasers.
SECTION 11. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York
without giving effect to the provisions thereof relating to conflicts of law.
SECTION 12. COUNTERPARTS.
This Agreement may be executed in one or more counterparts and when a
counterpart has been executed by each party, all such counterparts taken
together shall constitute one and the same agreement.
26
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
will become a binding agreement among the Issuer and the Initial Purchasers in
accordance with its terms.
Very truly yours,
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
President and Chief Executive Officer
BALO PRECISION PARTS, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
CASHMERE MANUFACTURING CO., INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
CERAMIC DEVICES, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
ELECTRONIC SPECIALTY CORPORATION
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
<PAGE>
MOREL INDUSTRIES, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
NORTHWEST TECHNICAL INDUSTRIES, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
Executive Vice President
PA&E INTERNATIONAL, INC.
By: /s/ DONALD A. WRIGHT
-----------------------------------------
Donald A. Wright
President
<PAGE>
Confirmed and accepted as of
the date first above written:
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/ JAMES R. KLEEBLATT
-----------------------------------------
Name: James R. Kleeblatt
Title: Managing Director
<PAGE>
Confirmed and accepted as of
the date first above written:
BANCBOSTON SECURITIES INC.
By: /s/ GREGORY C. FOY
-----------------------------------------
Gregory C. Foy
Managing Director
Pacific Aerospace & Electronics, Inc.
as Issuer
Balo Precision Parts, Inc.
Cashmere Manufacturing Co., Inc.
Ceramic Devices, Inc.
Electronic Specialty Corporation
Morel Industries, Inc.
Northwest Technical Industries, Inc.
Pacific Coast Technologies, Inc.
PA&E International, Inc.
Seismic Safety Products, Inc.
as Guarantors
$75,000,000
11 1/4% Senior Subordinated Notes
due 2005
---------------------
INDENTURE
Dated as of July 30, 1998
---------------------
IBJ Schroder Bank & Trust Company
Trustee
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE................................................................. 1
1.01 Definitions.................................................... 1
1.02 Other Definitions.............................................. 15
1.03 Incorporation by Reference of Trust Indenture Act.............. 16
1.04 Rules of Construction.......................................... 16
ARTICLE 2
THE NOTES.................................................................... 17
2.01 Form and Dating................................................ 17
2.02 Execution and Authentication................................... 17
2.03 Registrar and Paying Agent; Depositary......................... 18
2.04 Paying Agent to Hold Money in Trust............................ 18
2.05 Holder Lists................................................... 18
2.06 Transfer and Exchange.......................................... 19
2.07 Replacement Notes.............................................. 24
2.08 Outstanding Notes.............................................. 24
2.09 Treasury Notes................................................. 24
2.10 Temporary Notes................................................ 25
2.11 Cancellation................................................... 25
2.12 Defaulted Interest............................................. 25
ARTICLE 3
REDEMPTION AND PREPAYMENT.................................................... 26
3.01 Notices to Trustee............................................. 26
3.02 Selection of Notes to Be Redeemed.............................. 26
3.03 Notice of Redemption........................................... 26
3.04 Effect of Notice of Redemption................................. 27
3.05 Deposit of Redemption Price.................................... 27
3.06 Notes Redeemed in Part......................................... 28
3.07 Optional Redemption............................................ 28
3.08 No Mandatory Redemption........................................ 29
3.09 No Sinking Fund................................................ 29
ARTICLE 4
COVENANTS.................................................................... 29
4.01 Payment of Notes............................................... 29
4.02 Maintenance of Office or Agency................................ 29
4.03 Reports........................................................ 30
4.04 Compliance Certificate......................................... 30
4.05 Taxes.......................................................... 31
4.06 Stay, Extension and Usury Laws................................. 31
4.07 Repurchase of Notes at the Option of the Holder
upon a Change of Control....................................... 31
4.08 Limitation on Sale of Assets and Subsidiary Stock.............. 32
i
<PAGE>
4.09 Limitation on Restricted Payments.............................. 35
4.10 Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock................................. 36
4.11 Limitation on Liens Securing Indebtedness...................... 37
4.12 Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries......................................... 38
4.13 Limitation on Layering Indebtedness............................ 38
4.14 Limitations on Transactions with Affiliates.................... 38
4.15 Future Subsidiary Guarantors................................... 39
4.16 Release of Guarantors.......................................... 39
4.17 Limitation on Lines of business................................ 40
4.18 Corporate Existence............................................ 40
4.19 Limitation on Status as an investment company.................. 40
ARTICLE 5
SUCCESSORS................................................................... 40
5.01 Merger, Sale or Consolidation.................................. 40
5.02 Successor Corporation Substituted.............................. 41
ARTICLE 6
DEFAULTS AND REMEDIES........................................................ 41
6.01 Events of Default.............................................. 41
6.02 Acceleration................................................... 42
6.03 Other Remedies................................................. 43
6.04 Waiver of Past Defaults........................................ 43
6.05 Control by Majority............................................ 43
6.06 Limitation on Suits............................................ 44
6.07 Rights of Holders of Notes to Receive Payment.................. 44
6.08 Collection Suit by Trustee..................................... 44
6.09 Trustee May File Proof of Claim................................ 45
6.10 Priorities..................................................... 45
6.11 Undertaking for Costs.......................................... 46
6.12 Restoration of Rights and Remedies............................. 46
ARTICLE 7
TRUSTEE...................................................................... 46
7.01 Duties of Trustee.............................................. 46
7.02 Rights of Trustee.............................................. 47
7.03 Individual Rights of Trustee................................... 48
7.04 Trustee's Disclaimer........................................... 48
7.05 Notice of Defaults............................................. 48
7.06 Reports by Trustee to Holders of the Notes..................... 49
7.07 Compensation and Indemnity..................................... 49
7.08 Replacement of Trustee......................................... 50
7.09 Successor Trustee by Merger, etc............................... 51
7.10 Eligibility; Disqualification.................................. 51
7.11 Preferential Collection of Claims Against Company.............. 51
ii
<PAGE>
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE..................................... 52
8.01 Option to Effect Legal Defeasance or Covenant Defeasance....... 52
8.02 Legal Defeasance and Discharge................................. 52
8.03 Covenant Defeasance............................................ 52
8.04 Conditions to Legal or Covenant Defeasance..................... 53
8.05 Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions....................... 54
8.06 Repayment to Company........................................... 55
8.07 Reinstatement.................................................. 55
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER............................................. 55
9.01 Without Consent of Holders of Notes............................ 55
9.02 With Consent of Holders of Notes............................... 56
9.03 Compliance with Trust Indenture Act............................ 57
9.04 Revocation and Effect of Consents.............................. 58
9.05 Notation on or Exchange of Notes............................... 58
9.06 Trustee to Sign Amendments, etc................................ 58
ARTICLE 10
SUBORDINATION................................................................ 58
10.01 Agreement to Subordinate....................................... 58
10.02 Liquidation; Dissolution; Bankruptcy........................... 59
10.03 Default on Senior Indebtedness................................. 59
10.04 Acceleration of Notes.......................................... 60
10.05 When Distribution Must Be Paid Over............................ 60
10.06 Notice by Company.............................................. 61
10.07 Subrogation.................................................... 61
10.08 Relative Rights................................................ 61
10.09 Subordination May Not Be Impaired by Company................... 62
10.10 Distribution or Notice to Representative....................... 62
10.11 Rights of Trustee and Paying Agent............................. 62
10.12 Authorization to Effect Subordination.......................... 62
10.13 Amendments..................................................... 63
ARTICLE 11
SUBSIDIARY GUARANTEES........................................................ 63
11.01 Subsidiary Guarantees.......................................... 63
11.02 Execution and Delivery of Subsidiary Guarantees................ 64
11.03 Guarantors May Consolidate, etc., on Certain Terms............. 65
11.04 Releases Following Sale of Assets.............................. 65
11.05 Limitation of Guarantor's Liability............................ 66
11.06 Application of Certain Terms and Provisions to the Guarantor... 66
11.07 Subordination of Subsidiary Guarantees......................... 67
iii
<PAGE>
ARTICLE 12
MISCELLANEOUS................................................................ 67
12.01 Trust Indenture Act Controls................................... 67
12.02 Notices........................................................ 67
12.03 Communication by Holders of Notes with Other Holders of Notes.. 68
12.04 Certificate and Opinion as to Conditions Precedent............. 68
12.05 Statements Required in Certificate or Opinion.................. 69
12.06 Rules by Trustee and Agents.................................... 69
12.07 No Personal Liability of Directors, Officers,
Employees and Shareholders..................................... 69
12.08 Governing Law.................................................. 69
12.09 No Adverse Interpretation of Other Agreements.................. 70
12.10 Successors..................................................... 70
12.11 Severability................................................... 70
12.12 Counterpart Originals.......................................... 70
12.13 Table of Contents, Headings, etc............................... 70
EXHIBITS
Exhibit A FORM OF NOTE A-1
Exhibit B FORM OF GUARANTEE B-1
Exhibit C CERTIFICATE OF TRANSFEROR C-1
Exhibit D EXISTING INDEBTEDNESS D-1
iv
<PAGE>
INDENTURE dated as of July 30, 1998, among Pacific Aerospace &
Electronics, Inc., a Washington corporation (the "Company"), and Balo Precision
Parts, Inc., Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic
Specialty Corporation, Morel Industries, Inc., Northwest Technical Industries,
Inc., Pacific Coast Technologies, Inc., PA&E International, Inc. and Seismic
Safety Products, Inc., each as guarantors and any other Subsidiaries (as defined
herein) of the Company that executes a Subsidiary Guarantee (as defined herein)
guaranteeing the Notes in accordance with the provisions hereof (collectively,
the "Guarantors"), and IBJ Schroder Bank & Trust Company, a New York banking
corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of each other and for the
equal and ratable benefit of the Holders of the 11 1/4% Series A Senior
Subordinated Notes due 2005 (the "Series A Notes") and the 11 1/4% Series B
Senior Subordinated Notes due 2005 (the "Series B Notes" and, together with the
Series A Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital
Stock of any Person existing at the time such person becomes a Subsidiary of the
Company, including by designation, or is merged or consolidated into or with the
Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any Person or
all or substantially all the assets of any Person by any other Person, whether
by purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided that, with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" has the meaning assigned to such term in Section 4.08 of
this Indenture.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive schedule principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
1
<PAGE>
"Bank Indebtedness" means Senior Indebtedness of the Company or any of
its Subsidiaries from financial institutions pursuant to a revolving credit or
term loan facility, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith. Without
limiting the generality of the foregoing, the term "Bank Indebtedness" shall
also include Senior Indebtedness pursuant to any amendment, amendment and
restatement, renewal, extension, restructuring, supplement or modification to
such facility and all refundings, refinancings and replacements of any such
facility, including any agreement (i) extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby, (ii) adding or deleting borrowers
or guarantors thereunder, so long as borrowers and issuers include one or more
of the Company and its Subsidiaries and their respective successors and assigns,
(iii) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder, provided that such Indebtedness is incurred in
accordance with Section 4.10, "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" or (iv) otherwise altering the
terms and conditions thereof in a manner not prohibited by the terms of the
Indenture.
"Bankruptcy Law" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"Beneficial Owner" or "beneficial owner" for purposes of the
definitions of Change of Control and Affiliate has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Board of Directors" means, with respect to any Person, the board of
directors of such person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means (i) U.S. Government Obligations or (ii) time
deposits and certificates of deposit and commercial paper issued by the parent
corporation of any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million or (iii) commercial paper issued
by others rated at least A-2 or the equivalent thereof by Standard & Poor's
2
<PAGE>
Corporation or at least P-2 or the equivalent thereof by Moody's Investors
Service, Inc., and in the case of each of (i), (ii), and (iii) maturing within
one year after the date of acquisition.
"Certificated Note" has the meaning assigned to such term in Section
2.06(d)(i) hereof.
"Change of Control" means (i) any merger or consolidation of the
Company with or into any Person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of the
Company, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) (other than any of the
Excluded Persons) (a) is or becomes the "beneficial owner," directly or
indirectly, of more than 35% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee(s) or surviving entity or entities, and (b) any
such person or group becomes, directly or indirectly, the beneficial owner of a
greater percentage of such total voting power than beneficially owned by the
Excluded Persons, (ii) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) (other than any of the Excluded Persons) (a) is or becomes the
"beneficial owner," directly or indirectly, of more than 35% of the total voting
power in the aggregate of all classes of Capital Stock of the Company then
outstanding normally entitled to vote in elections of directors, and (b) any
such person or group becomes, directly or indirectly, the beneficial owner of a
greater percentage of such total voting power than beneficially owned by the
Excluded Persons, or (iii) during any period of 12 consecutive months after the
Issue Date, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company, as applicable, was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company, as applicable, then in
office.
"Consolidation" means, with respect to the Company, the consolidation
of the accounts of the Subsidiaries with those of the Company, all in accordance
with GAAP; provided that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis, of
(a) the aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period,
3
<PAGE>
(ii) transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference
Period, (iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of the Reference Period, and (iv) the
Consolidated Fixed Charges of such Person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) Consolidated
income tax expense, (ii) Consolidated depreciation and amortization expense, and
(iii) Consolidated Fixed Charges, less the amount of all cash payments made by
such person or any of its Subsidiaries during such period to the extent such
payments relate to non-cash charges that were added back in determining
Consolidated EBITDA for such period or any prior period, provided that
consolidated income tax expense and depreciation and amortization of a
Subsidiary that is a less than wholly owned Subsidiary shall only be added to
the extent of the equity interest of the Company in such Subsidiary.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letter of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable (or guaranteed) by such person or
any of its Consolidated Subsidiaries in respect to preferred stock (other than
by Subsidiaries of such person, to such person or such Person's wholly owned
Subsidiaries), except if such preferred stock is a payment-in-kind ("PIK")
security, issuance of such additional PIK securities would not count as
dividends for purposes of this definition. For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined in good faith by the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP and (y) interest expense attributable to any Indebtedness represented by
the guaranty by such person or a Subsidiary of such person of an obligation of
another person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis
4
<PAGE>
in accordance with GAAP) for such period, adjusted to exclude (only to the
extent included in computing such net income (or loss) and without duplication):
(a) all gains (but not losses) which are either extraordinary (as determined in
accordance with GAAP) or are either unusual or nonrecurring (including any gain
from the sale or other disposition of assets outside the ordinary course of
business or from the issuance or sale of any capital stock), (b) the net income,
if positive, of any person, other than a Consolidated Subsidiary, in which such
person or any of its Consolidated Subsidiaries has an interest, except to the
extent of the amount of any dividends or distributions actually paid in cash to
such person or a Consolidated Subsidiary of such person during such period, but
in any case not in excess of such person's pro rata share of such person's net
income for such period, (c) the net income or loss of any person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (d) the net income, if positive, of any of such person's
Consolidated Subsidiaries to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or bylaws or any other agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of
such person (whether now existing or hereafter created or acquired) the
financial statements of which are consolidated for financial statement reporting
purposes with the financial statements of such person in accordance with GAAP.
"Corporate Trust Administration Office of the Trustee" shall be at the
address of the Trustee specified in Section 12.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, until a successor shall have been
appointed and become such Depositary pursuant to the applicable provision of
this Indenture, and, thereafter, "Depositary" shall mean or include such
successor.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any Person, Equity Interests of such Person that, by its terms
or by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such Person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such Person (including with respect to any Subsidiary of the
Company), any Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and shall in any event include any Capital Stock issued by, or
partnership or membership interests in, such Person.
5
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Series B Notes for
Series A Notes.
"Excluded Person" means any officer or director of the Company, the
other Persons listed in the section "Principal Shareholders" in the Offering
Memorandum, any Persons related to such Persons by kinship or marriage, and any
trust, corporation, partnership or other entity which is beneficially owned 80%
or more by any such Persons.
"Exempted Affiliate Transaction" means (a) customary employee
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of the Company, (b) dividends
permitted under the terms of the covenant discussed above under "Limitation on
Restricted Payments" above and payable, in form and amount, on a pro rata basis
to all holders of common stock of the Company and (c) transactions solely
between the Company and any of its wholly owned Consolidated Subsidiaries or
solely among wholly owned Consolidated Subsidiaries of the Company.
"Existing Indebtedness" means Indebtedness of the Company and/or its
Subsidiaries outstanding on the Issue Date and described in Exhibit D to this
Indenture other than Bank Indebtedness, each until such amounts thereunder are
repaid.
"Foreign Subsidiary" means any Wholly-owned Subsidiary organized and
incorporated in a jurisdiction outside of the United States and is not a
Guarantor.
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession in the United States as in effect on the Issue
Date.
"Global Note" means a Note that contains the paragraph referred to in
footnote 1 to the form of the Note attached hereto as Exhibit A.
"Guarantee" means any obligation, contingent or otherwise, of any
person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person (i)
to purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of agreements to
keep well, to purchase assets, goods, letters of credit, reimbursement
agreements, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has corresponding meaning. The Subsidiary
Guarantees shall constitute Guarantees under this Indenture.
6
<PAGE>
"Guarantor" means each Subsidiary of the Company that executes a
Subsidiary Guarantee guaranteeing the Notes in accordance with the provisions of
the Indenture.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such other person, to
the extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 60 days past their original due
date) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such person (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v)
relating to any Capitalized Lease Obligation, or (vi) evidenced by a letter of
credit or a reimbursement obligation of such person with respect to any letter
of credit; (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clause (a), (b) or (c) that such Person has
guaranteed or that is otherwise its legal liability or which are secured by any
assets or property of such person and all obligations to purchase, redeem or
acquire any Equity Interests; (e) any and all deferrals, renewals, extensions,
refinancing and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a), (b), (c) or (d), or this clause (e), whether or not
between or among the same parties; and (f) all Disqualified Capital Stock of
such Person (measured at the greater of its voluntary or involuntary maximum
fixed repurchase price plus accrued and unpaid dividends). For purposes hereof,
the "maximum fixed repurchase price" of any Disqualified Capital Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such Disqualified Capital
Stock were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value to be determined in good faith by the Board of Directors of the
Company.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Interest Swap and Hedging Obligation" means any obligation of any
Person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such Person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for
7
<PAGE>
cash, property, services, securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities,
including any options or warrants, of such other person or any agreement to make
any such acquisition; (b) the making by such Person of any deposit with, or
advance, loan or other extension of credit to, such other person (including the
purchase of property from another person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
person) or any commitment to make any such advance, loan or extension (but
excluding accounts receivable, endorsements for collection or deposits arising
in the ordinary course of business); (c) other than guarantees of Indebtedness
of the Company or any Guarantor to the extent permitted by Section 4.10,
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," the entering into by such person of any guarantee of, or other credit
support or continent obligation with respect to, Indebtedness or other liability
of such other person; (d) the making of any capital contribution by such Person
to such other person; and (e) the designation by the Board of Directors of the
Company of any person to be an Unrestricted Subsidiary.
"Issue Date" means the date of first issuance of the Notes under this
Indenture.
"Junior Securities" of the Company or any Guarantor means securities
of the Company or such Guarantor that are junior in right of payment to the
Notes or the applicable Guarantee.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale of Qualified Capital
Stock and by the Company and its Subsidiaries in respect of an Asset Sale plus,
in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of the Company that were issued for cash on or
after the Issue Date, the amount of cash originally received by the Company upon
the issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary)
expenses (including, without limitation, the fees and expenses of legal counsel
and investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable taxes (the computation of which
shall take into account any available net operating losses and other tax
attributes of Company and their
8
<PAGE>
Subsidiaries) required to be paid by the Company or any of its respective
Subsidiaries in the taxable year of such sale in connection with such Asset
Sale.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither
the Company nor any Subsidiary (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) or (b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company, or the
stock or assets of any Subsidiary of the Company, including the stock of any
Unrestricted Subsidiary.
"Note Custodian" means the Trustee, as custodian with respect to the
Global Notes, or any successor entity thereto.
"Obligation" means any principal, premium, if any, or interest
payment, or monetary penalty, or damages, due by the Company or any Guarantor
under the terms of the Notes or the Indenture, including any liquidated damages
due pursuant to the terms of the Registration Rights Agreement.
"Offering" means the Offering of the Notes by the Company.
"Offering Memorandum" means the Offering Memorandum dated July 23,
1998 relating to the Offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the General
Counsel, the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Permitted Indebtedness" means that: (a) the Company and the
Guarantors may incur Indebtedness evidenced by the Notes and represented by the
Indenture up to the amounts specified therein as of the date thereof; (b) the
Company and the Subsidiaries, as applicable, may incur Refinancing Indebtedness
with respect to any Indebtedness or Disqualified Capital Stock, as applicable,
described in clause (a) of this definition or incurred under the Debt Incurrence
Ratio test of Section 4.10, "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," or which is outstanding on the Issue Date
(after giving effect to the transactions contemplated in the Offering
Memorandum), provided that in each case such Refinancing Indebtedness is secured
only by the assets that secured the Indebtedness so refinanced; (c) the Company
and its Subsidiaries may incur Indebtedness solely in respect of bankers
acceptances, and performance bonds (to the
9
<PAGE>
extent that such incurrence does not result in the incurrence of any obligation
to repay any obligation relating to borrowed money of others), all in the
ordinary course of business in accordance with customary industry practices, in
amounts and for the purposes customary in the Company's industry; provided, that
the aggregate principal amount outstanding of such Indebtedness (including any
Refinancing Indebtedness and any other Indebtedness issued to refinance, refund,
defease or replace such Indebtedness) shall at no time exceed $250,000; (d) the
Company may incur Indebtedness to any Guarantor, and any Guarantor may incur
Indebtedness to any other Guarantor or to the Company; provided, that, in the
case of Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the Notes
and the date of any event that causes such Guarantor no longer to be a Guarantor
shall be an Incurrence Date; and (e) any Guarantor may guaranty any Indebtedness
of the Company or another Guarantor that was permitted to be incurred pursuant
to the Indenture, substantially concurrently with such incurrence or at the time
such person becomes a Guarantor.
"Permitted Investment" means (a) Investments in any of the Notes; (b)
Investments in Cash Equivalents; (c) intercompany notes to the extent permitted
under clause (d) of the definition of "Permitted Indebtedness"; and (d) any
Investment by the Company or any Subsidiary in a Person if as a result of such
Investment such Person immediately becomes a Wholly-owned Guarantor or such
Person is immediately merged with or into the Company or a Wholly-owned
Guarantor.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, material men, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business, provided that (i) the underlying obligations are not overdue for a
period of more than 30 days, or (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (h) Liens securing the Notes; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
or is merged with or into the Company or a Subsidiary or Liens securing
Indebtedness incurred in connection with an Acquisition, provided that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (j) leases or subleases granted to other persons in the
ordinary course of business not materially interfering with the conduct of the
business of the Company or any of its Subsidiaries or materially detracting from
the value of the relative assets of the Company or any Subsidiary; (k) Liens
arising from precautionary Uniform Commercial Code financing statement filings
regarding operating leases
10
<PAGE>
entered into by the Company or any of its Subsidiaries in the ordinary course of
business; (l) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
Holders of the Notes than the terms of the Liens securing such refinanced
Indebtedness, and provided that the Indebtedness secured is not increased and
the lien is not extended to any additional assets or property that would not
have been security for the Indebtedness refinanced; and (m) Liens securing Bank
Indebtedness incurred in accordance with the terms of Section 4.10, "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock."
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.
"Qualified Capital Stock" means any Capital Stock of the Company that
is not Disqualified Capital Stock.
"Qualified Equity Offering" means (i) an underwritten offering of
common stock of the Company for cash pursuant to an effective registration
statement under the Securities Act (other than a registration statement on Form
S-8) or (ii) a private sale of common stock of the Company (other than to an
Affiliate of the Company) for cash that results in net proceeds to the Company
of at least $10.0 million, after deducting any underwriting discounts and
commissions.
"Qualified Exchange" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or of Indebtedness
of the Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of Qualified
Capital Stock or any exchange of Qualified Capital Stock for any Capital Stock
or for Indebtedness of the Company issued on or after the Issue Date.
"Reference Period" with regard to any person means the four full
fiscal quarters (or such lesser period during which such person has been in
existence) ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing plus the amount of any premium paid in connection with such
Refinancing in accordance with the terms of the documents governing the
Indebtedness refinanced without giving effect to any modification thereof made
in connection with or in contemplation of such refinancing) the lesser of (i)
the principal amount or, in the case of Disqualified Capital Stock, liquidation
preference, of the Indebtedness or Disqualified Capital Stock so Refinanced and
(ii) if such Indebtedness being Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such Refinancing; provided, that (A) such Refinancing Indebtedness
of any Subsidiary of the Company shall only be used to Refinance
11
<PAGE>
outstanding Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
such Refinancing Indebtedness shall (x) not have an Average Life shorter than
the Indebtedness or Disqualified Capital Stock to be so refinanced at the time
of such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Notes than was the Indebtedness
or Disqualified Capital Stock to be refinanced, (C) such Refinancing
Indebtedness shall have a final stated maturity or redemption date, as
applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured)
in a manner no more adverse to the holders of the Notes than the terms of the
Liens (if any) securing such refinanced Indebtedness, including, without
limitation that the amount of Indebtedness secured shall not be increased.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Indenture, by and among the Company and
the other parties named on the signature pages thereof, as such agreement may be
amended, modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses.
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Indebtedness.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than other Permitted Investments.
"Restricted Payment" means, with respect to the Company or any
Subsidiary, (a) the declaration or payment of any dividend or other distribution
in respect of Equity Interests of the Company or such Subsidiary, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of the Company or such Subsidiary, (c)
other than with the proceeds from the substantially concurrent sale of, or in
exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by the Company or such Subsidiary prior to the scheduled maturity,
any scheduled repayment of principal, or scheduled sinking fund payment, as the
case may be, of such Indebtedness, and (d) any Restricted Investment by the
Company or such Subsidiary; provided, however, that the term "Restricted
Payment" does not include (i) any dividend, distribution or other payment on or
with respect to Equity Interests of the Company or such Subsidiary to the extent
payable solely in shares of Qualified Capital Stock of the Company or such
Subsidiary; or (ii) any
12
<PAGE>
dividend, distribution or other payment to the Company, or to any of its
Guarantors, by the Company or such Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" of the Company or any Guarantor means
Indebtedness (including any monetary obligation in respect of Bank Indebtedness,
and interest, whether or not allowable, accruing on Indebtedness after the
filing of a petition initiating any proceeding under any bankruptcy, insolvency
or similar law) of the Company or such Guarantor arising under Bank Indebtedness
or that, by the terms of the instrument creating or evidencing such
Indebtedness, is expressly designated Senior Indebtedness and made senior in
right of payment to the Notes or the applicable Guarantee; provided, that in no
event shall Senior Indebtedness include (a) Indebtedness to any Subsidiary of
the Company or any officer, director or employee of the Company or any
Subsidiary of the Company, (b) Indebtedness incurred in violation of the terms
of the Indenture, (c) Indebtedness to trade creditors, (d) Disqualified Capital
Stock, (e) Capitalized Lease Obligations, and (f) any liability for taxes owed
or owing by the Company or such Guarantor.
"Significant Subsidiary" shall have the meaning provided under
Regulation S-X of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any Note, means August 1,
2005.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment by its terms or the terms of
any document or instrument relating thereto to the Notes or such Guarantee, as
applicable, in any respect or has a stated maturity after the Stated Maturity.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly, or
indirectly, at the date of determination thereof has at least majority ownership
interest, or (iii) a partnership in which such person or a Subsidiary of such
person is, at the time, a general partner. Notwithstanding the foregoing, an
Unrestricted Subsidiary shall not be a Subsidiary of the Company or of any
Subsidiary of the Company. Unless the context requires otherwise, Subsidiary
means each direct and indirect Subsidiary of the Company.
"Subsidiary Guarantees" means the Subsidiary Guarantees of the
Guarantors in the form set forth as Exhibit B hereto.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
13
<PAGE>
"Transfer Restricted Notes" means Notes that bear or are required to
bear the legend set forth in Section 2.06(g)(i) hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution; but only to the extent that such subsidiary: (a) has no Indebtedness
other than Non-Recourse Indebtedness; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Subsidiary of the
Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company; (c) is a Person with respect to which neither the Company nor any of
its Subsidiaries has any direct or indirect obligation to subscribe for
additional Capital Stock (or any warrants, options or other rights to acquire
Capital Stock) or maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (d)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Subsidiaries and (ii) any
Subsidiary of an Unrestricted Subsidiary. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted under the Indenture. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the Indenture, the Company shall be in default of such covenant). The
Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Subsidiary; provided, that such designation shall be deemed
to be an incurrence of Indebtedness by a Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
Indenture, and (ii) no Default or Event of Default would be in existence
following such designation.
"U.S. Government Obligations" means securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof).
"Wholly-owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Equity Interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or by one or more
Wholly-owned Subsidiaries of such Person. Unrestricted Subsidiaries shall not be
included in the definition of Wholly-owned Subsidiary for any purposes of this
Indenture (except, as the context may otherwise require, for purposes of the
definition of "Unrestricted Subsidiary").
14
<PAGE>
SECTION 1.02 OTHER DEFINITIONS
Defined in
Term Section
---- ----------
"Acceleration Notice" 6.02
"Affiliate Transaction" 4.14
"Asset Sale" 4.08
"Asset Sale Offer" 4.08
"Asset Sale Offer Amount" 4.08
"Asset Sale Offer Period" 4.08
"Asset Sale Offer Price" 4.08
"Benefitted Party" 11.01
"Change of Control Offer" 4.07
"Change of Control Purchase Price" 4.07
"Change of Control Purchase Date" 4.07
"Covenant Defeasance" 8.03
"Debt Incurrence Ratio" 4.10
"DTC" 2.03
"Event of Default" 6.01
"Excess Proceeds" 4.08
"Incur" 4.10
"Incurrence Date" 4.10
"Legal Defeasance" 8.02
"Paying Agent" 2.03
"Payment Blockage Period" 10.03
"Payment Default" 10.03
"Payment Notice" 10.03
"Registrar" 2.03
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, the Guarantors and any
successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
15
<PAGE>
SECTION 1.04 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01 FORM AND DATING
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Company shall furnish any such legend not contained in Exhibit A to the Trustee
in writing. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. In the event of a conflict,
the terms of the Indenture shall control.
Global Notes shall be substantially in the form of Exhibit A attached
hereto (including the text referred to in footnote 1 thereto). Notes issued in
certificated form shall be substantially in the form of Exhibit A attached
hereto (but without including the text referred to in footnote 1 thereto). Each
Global Note shall represent such of the outstanding Notes as shall be specified
therein and each shall provide that it shall represent the aggregate amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
amount of outstanding Notes represented thereby may from time to time be reduced
or increased, as appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Note to reflect the amount of any increase or decrease
in the amount of outstanding Notes represented thereby shall be made by the
Trustee or the Note Custodian, at the direction of the Trustee, in accordance
with instructions given by the Holder thereof as required by Section 2.06
hereof.
16
<PAGE>
SECTION 2.02 EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Notes for original issue up to the aggregate principal
amount stated in paragraph 4 of the Notes. The aggregate principal amount of
Notes outstanding at any time may not exceed such amount except as provided in
Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT; DEPOSITARY
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as depositary with respect to the Global Notes (the "Depositary").
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all
17
<PAGE>
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any default in the payment of
principal of, premium, if any, or accrued interest or Liquidated Damages, if
any, on the Notes pursuant to Sections 6.01(i) and 6.01(ii) hereof, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by it
to the Trustee and to account for all funds disbursed. Upon payment over to the
Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have
no further liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Company, the Company shall so
notify the Trustee, and thereafter the Trustee shall serve as Paying Agent for
the Notes.
SECTION 2.05 HOLDER LISTS
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06 TRANSFER AND EXCHANGE
(a) Transfer and Exchange of Certificated Notes. When Certificated
Notes are presented by a Holder to the Registrar with a request: (x) to register
the transfer of the Certificated Notes; or (y) to exchange such Certificated
Notes for an equal principal amount of Certificated Notes of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met; provided, however,
that the Certificated Notes presented or surrendered for register of transfer or
exchange: (i) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing; and (ii) in the case of a
Certificated Note that is a Transfer Restricted Note, such request shall be
accompanied by the following additional information and documents, as
applicable: (A) if such Transfer Restricted Note is being delivered to the
Registrar by a Holder for registration in the name of such Holder, without
transfer, a certification to that effect from such Holder (in substantially the
form of Exhibit C hereto) and, at the option of the Company, an Opinion of
Counsel from such Holder or the transferee reasonably acceptable to the Company
and to the Registrar to the effect that such transfer is in compliance with the
Securities Act; or (B) if such Transfer Restricted Note is being transferred to
a "qualified institutional buyer" (as defined in Rule 144A under the Securities
Act) in accordance with Rule 144A under the Securities Act or pursuant to an
exemption from registration in accordance with Rule 144 or Rule 904 under the
Securities Act or pursuant to an effective registration statement under the
Securities Act, a certification to that effect from such Holder (in
substantially the form of Exhibit C hereto) and, at the option of the Company,
an Opinion of Counsel from such Holder or the transferee reasonably acceptable
to the Company and to the Registrar to the effect that such transfer is in
compliance with the Securities Act; or (C) if such Transfer Restricted Note is
being transferred in reliance on another exemption from the registration
requirements of the Securities Act, a certification to that effect from such
Holder (in substantially the form of Exhibit C hereto) and an Opinion of Counsel
from such
18
<PAGE>
Holder or the transferee reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance with the Securities
Act.
(b) Transfer of a Certificated Note for a Beneficial Interest in a
Global Note. A Certificated Note may not be exchanged for a beneficial interest
in a Global Note except upon satisfaction of the requirements set forth below
and only if the Company, at the time of such transfer, has appointed a
Depositary that is registered as a clearing agency under the Exchange Act. Upon
receipt by the Trustee of a Certificated Note, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Trustee,
together with: (i) if such Certificated Note is a Transfer Restricted Note, a
certification from the Holder thereof (in substantially the form of Exhibit C
hereto) to the effect that such Certificated Note is being transferred by such
Holder to a "qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act; and (ii)
whether or not such Certificated Note is a Transfer Restricted Note, written
instructions from the Holder thereof directing the Trustee to make, or to direct
the Note Custodian to make, an endorsement on the Global Note to reflect an
increase in the aggregate principal amount of the Notes represented by the
Global Note, in which case the Trustee shall cancel such Certificated Note in
accordance with Section 2.11 hereof and cause, or direct the Note Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Note Custodian, the aggregate principal amount of
Notes represented by the Global Note to be increased accordingly. If no Global
Notes are then outstanding, the Company shall issue and, upon receipt of an
authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate a new Global Note in the appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a
Certificated Note.
(i) Any Person having a beneficial interest in a Global Note may
upon request exchange such beneficial interest for a Certificated Note. Upon
receipt by the Trustee of written instructions or such other form of
instructions as is customary for the Depositary, from the Depositary or its
nominee on behalf of any Person having a beneficial interest in a Global Note,
and, in the case of a Transfer Restricted Note, the following additional
information and documents (all of which may be submitted by facsimile): (A) if
such beneficial interest is being transferred to the Person designated by the
Depositary as being the beneficial owner, a certification to that effect from
such Person (in substantially the form of Exhibit C hereto); or (B) if such
beneficial interest is being transferred to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act) in accordance with Rule 144A
under the Securities Act, a certification to that effect from the transferor (in
substantially the form of Exhibit C hereto); or (C) if such beneficial interest
is being transferred pursuant to an exemption from registration in accordance
with Rule 144 or Rule 904 under the Securities Act or pursuant to an effective
registration statement under the Securities Act, a certification to that effect
from the transferor (in substantially the form of Exhibit C hereto) and, at the
option of the Company, an Opinion of Counsel from such beneficial owner or the
transferee reasonably acceptable to the Company and the Registrar to the effect
that such transfer is in compliance with the Securities Act; or (D) if such
beneficial interest is being transferred in reliance
19
<PAGE>
on another exemption from the registration requirements of the Securities Act, a
certification to that effect from the transferor (in substantially the form of
Exhibit C hereto) and an Opinion of Counsel from the transferee or transferor
reasonably acceptable to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act; in which case the
Trustee or the Note Custodian, at the direction of the Trustee, shall, in
accordance with the standing instructions and procedures existing between the
Depositary and the Note Custodian, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following such reduction, the
Company shall execute and, upon receipt of an authentication order in accordance
with Section 2.02 hereof, the Trustee shall authenticate and deliver to the
transferee a Certificated Note in the appropriate principal amount.
(ii) Certificated Notes issued in exchange for a beneficial
interest in a Global Note pursuant to this Section 2.06(d) shall be registered
in such names and in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Certificated Notes to the
Persons in whose names such Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary or
a nominee of such successor Depositary.
(f) Authentication of Certificated Notes in Absence of Depositary. If
at any time: (i) the Depositary for the Notes notifies the Company that the
Depositary is unwilling or unable to continue as Depositary for the Global Notes
and a successor Depositary for the Global Notes is not appointed by the Company
within 90 days after delivery of such notice; or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Certificated Notes under this Indenture; or (iii) there shall have occurred and
be continuing a Default or an Event of Default with respect to the Notes, then
the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver Certificated Notes in accordance with Section 2.06(d)(ii) above in an
aggregate principal amount equal to the principal amount of the Global Notes in
exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and
(iii), each Note certificate evidencing Global Notes and Certificated Notes (and
all Notes issued in exchange therefor or substitution thereof) shall bear
legends in substantially the following form:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER
APPLICABLE SECURITIES LAW. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
20
<PAGE>
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER THIS NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE
DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS
OF RULE 903 OR 904 OF THE SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, SUBJECT
TO THE RIGHT OF THE COMPANY PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSE (D) OR (E) ABOVE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO ERISA OR (ii) THE ACQUISITION AND HOLDING OF THIS NOTE BY IT IS NOT
PROHIBITED BY EITHER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED ("ERISA") OR OTHER ARRANGEMENT THAT IS SUBJECT TO ERISA OR
SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR IS EXEMPT
FROM ANY SUCH PROHIBITION.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF ANY OF THE FOREGOING.
(ii) Upon any sale or transfer of a Transfer Restricted Note
(including any Transfer Restricted Note represented by a Global Note) pursuant
to Rule 144 under the Securities Act or pursuant to an effective registration
statement under the Securities Act: (A) in the case of any Transfer Restricted
Note that is a Certificated Note, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Note for a Certificated Note that does not
bear the first legend set forth in (i) above and rescind any restriction on the
transfer of such Transfer Restricted Note; and (B) in the case of any Transfer
Restricted Note represented by a Global Note, such Transfer Restricted Note
shall not be required to bear the first legend set forth in (i) above, but shall
continue
21
<PAGE>
to be subject to the provisions of Section 2.06(c) hereof; provided, however,
that with respect to any request for an exchange of a Transfer Restricted Note
that is represented by a Global Note for a Certificated Note that does not bear
the first legend set forth in (i) above, which request is made in reliance upon
Rule 144, the Holder thereof shall certify in writing to the Registrar that such
request is being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit C hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall authenticate
Series B Notes in exchange for Series A Notes accepted for exchange in the
Exchange Offer, which Series B Notes shall not bear the first legend set forth
in (i) above, and the Registrar shall rescind any restriction on the transfer of
such Notes, in each case unless the Holder of such Series A Notes is either (A)
a broker-dealer, (B) a Person participating in the distribution of the Series A
Notes or (C) a Person who is an affiliate (as defined in Rule 144A) of the
Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Certificated
Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for Certificated Notes, redeemed, repurchased or cancelled,
the principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note, by the Trustee
or the Notes Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Certificated Notes and
Global Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith.
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
(iv) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or Global Notes shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Certificated Notes or Global
Notes surrendered upon such registration of transfer or exchange.
(v) The Company and the Registrar shall not be required: (A) to
issue, to register the transfer of or to exchange Notes during a period
beginning at the opening of business 15 days before the day of any selection of
Notes for redemption under Section 3.02 hereof and ending at
22
<PAGE>
the close of business on the day of selection; or (B) to register the transfer
of or to exchange any Note so selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part; or (C) to
register the transfer of or to exchange a Note between a record date and the
next succeeding interest payment date.
(vi) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of and interest on such Notes,
and neither the Trustee, any Agent nor the Company shall be affected by notice
to the contrary.
(vii) The Trustee shall authenticate Certificated Notes and
Global Notes in accordance with the provisions of Section 2.02 hereof.
SECTION 2.07 REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee, or the Company or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by two Officers of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge the Holder
for its expenses in replacing a Note.
Every replacement Note is an additional Obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08 OUTSTANDING NOTES
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary of the
Company or an Affiliate) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that
23
<PAGE>
date, then on and after that date such Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
SECTION 2.09 TREASURY NOTES
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, amendment, supplement, waiver or consent,
Notes owned by the Company, or by any Affiliate, shall be considered as though
not outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Notes that have been identified to the Trustee in
writing as owned by the Company or an Affiliate of the Company shall be so
disregarded. The Company shall notify the Trustee in writing, when it or any
Affiliate repurchases or otherwise acquires Notes of the aggregate principal
amount of such Notes so repurchased or otherwise acquired.
SECTION 2.10 TEMPORARY NOTES
Until Certificated Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon a written order
of the Company signed by two Officers of the Company. Temporary Notes shall be
substantially in the form of Certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Certificated Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11 CANCELLATION
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall deliver to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
cancelled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all cancelled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the
24
<PAGE>
Company) shall mail or cause to be mailed to Holders a notice that states the
special record date, the related payment date and the amount of such interest to
be paid.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01 NOTICES TO TRUSTEE
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days (unless a shorter period is consented to in writing by the
Trustee) but not more than 60 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national security exchange, if
any, on which the Notes are listed or, if the Notes are not so listed, on a pro
rata basis, by lot or in accordance with any other method the Trustee considers
fair and appropriate. In the event of partial redemption by lot, the particular
Notes to be redeemed shall be selected, unless otherwise provided herein, not
less than 30 nor more than 60 days prior to the redemption date by the Trustee
from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or integral multiples
of $1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not an integral
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Notes called for redemption
also apply to portions of Notes called for redemption.
SECTION 3.03 NOTICE OF REDEMPTION
Subject to the provisions of Section 3.07 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address as shown upon the registry
books of the Registrar.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
25
<PAGE>
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed, the portion of the principal
amount equal to the unredeemed portion thereof, and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05 DEPOSIT OF REDEMPTION PRICE
At least one Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent immediately available
funds sufficient to pay the redemption price of and accrued interest and
Liquidated Damages, if any, on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Company any money
deposited with the Trustee or the Paying Agent by the Company in excess of the
amounts necessary to pay the redemption price of, and accrued interest and
Liquidated Damages, if any, on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption unless the Company
defaults in such payments due on the redemption date. If a Note is redeemed on
or after an interest record date but on or prior to the related interest payment
date, then any accrued and unpaid interest shall be paid to the Person in whose
name such Note was registered
26
<PAGE>
at the close of business on such record date. If any Note called for redemption
shall not be so paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest shall be paid on the
unpaid principal from the redemption date until such principal is paid and, to
the extent lawful, on any interest not paid on such unpaid principal, in each
case at the rate provided in the Notes and in Section 4.01 hereof.
SECTION 3.06 NOTES REDEEMED IN PART
Upon surrender of a Note that is redeemed in part, the Company shall
issue and the Trustee shall, upon a written order of the Company signed by two
Officers, authenticate for the Holder at the expense of the Company a new Note
equal in principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07 OPTIONAL REDEMPTION
(a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the right to redeem any Notes pursuant to this Section
3.07 prior to August 1, 2003. Thereafter, the Notes will be redeemable for cash
at the option of the Company, in whole or in part, at any time on or after
August 1, 2003 upon not less than 30 days nor more than 60 days notice to each
holder of Notes, at the following redemption prices (expressed as percentages of
the principal amount) if redeemed during the 12-month period commencing August 1
of the years indicated below, in each case (subject to the right of holders of
record on a Record Date to receive the corresponding interest due (and
corresponding Liquidated Damages, if any) on an Interest Payment Date
corresponding to such Record Date that is on or prior to such Redemption Date)
together with accrued and unpaid interest and Liquidated Damages, if any,
thereon to the Redemption Date:
Year Percentage
---- ----------
2003..................................... 105.625%
2004 .................................... 102.813%
2005..................................... 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07,
until August 1, 2001, upon a Qualified Equity Offering of common stock for cash,
up to 20% of the aggregate principal amount of the Notes originally outstanding
may be redeemed at the option of the Company within 90 days after the closing of
such Qualified Equity Offering, on not less than 30 days, but not more than 60
days, notice to each holder of the Notes to be redeemed, with cash from the Net
Cash Proceeds to the Company of such Qualified Equity Offering, at a redemption
price equal to 111.25% of the principal amount thereof, (subject to the right of
holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date) together with accrued
and unpaid interest and Liquidated Damages, if any, to the date of redemption;
provided, however, that immediately following such redemption, not less than 80%
of the original aggregate principal amount of the Notes remain outstanding.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
27
<PAGE>
SECTION 3.08 NO MANDATORY REDEMPTION
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
SECTION 3.09 NO SINKING FUND
The Notes shall not have the benefit of a sinking fund.
ARTICLE 4
COVENANTS
SECTION 4.01 PAYMENT OF NOTES
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Trustee or Paying Agent, if other than the Company or a
Subsidiary thereof, holds as of 12:00 p.m. (noon) New York time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement. The
Company shall notify the Trustee of the amount of Liquidated Damages, if any, at
least one Business Day prior to any payment date. In the absence of such notice,
the Trustee is conclusively entitled to assume that no Liquidated Damages are
payable under the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, at the rate equal to 1% per annum in excess of the then applicable interest
rate on the Notes to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages, if any, (without regard to any
applicable grace period) at the same rate to the extent lawful.
SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Administration Office of the Trustee.
28
<PAGE>
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Administration
Office of the Trustee as one such office or agency of the Company in accordance
with Section 2.03 hereof.
SECTION 4.03 REPORTS
(a) Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
deliver to the Trustee and, to each holder of the Notes and to prospective
purchasers of Notes identified to the Company by the Initial Purchasers, within
15 days after it is or would have been (if it were subject to such reporting
obligations) required to file such with the SEC, (i) all annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the SEC on Forms 10-K and 10-Q, if the
Company were subject to the requirements of Section 13 or 15(d) of the Exchange
Act, including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the SEC and (ii) all current reports that would be required to
be filed with the SEC on Form 8-K if the Company were required to file such
reports; and, in each case, together with a management's discussion and analysis
of financial condition and results of operations which would be so required and,
unless the SEC will not accept such reports, file with the SEC the annual,
quarterly and other reports which it is or would have been required to file with
the SEC.
(b) For so long as any Transfer Restricted Notes remain outstanding,
the Company and the Subsidiary Guarantors shall furnish to all Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
SECTION 4.04 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms, provisions and conditions of this Indenture (or, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
29
<PAGE>
prohibited or if such event has occurred, a description of the event and what
action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) hereof shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05 TAXES
The Company and Guarantors shall pay, and shall cause each of their
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06 STAY, EXTENSION AND USURY LAWS
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07 REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE
OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes shall
have the right, at such Holder's option, pursuant to an offer (subject only to
conditions required by applicable law, if any) by the Company (the "Change of
Control Offer"), to require the Company to repurchase all or any part of such
Holder's Notes (provided, that the principal amount of such Notes must be $1,000
or an integral multiple thereof) on a date (the "Change of Control Purchase
Date") that is no later than 35 Business Days after the occurrence of such
Change of Control at a cash price equal to 101% of the principal amount thereof
(the "Change of Control Purchase Price"), together with accrued and unpaid
interest and Liquidated Damages, if any, to the Change of Control Purchase Date.
The Change of Control Offer shall be made within 10 Business Days following a
Change of Control
30
<PAGE>
and shall remain open for 20 Business Days following its commencement (the
"Change of Control Offer Period"). Upon expiration of the Change of Control
Offer Period, the Company promptly shall purchase all Notes properly tendered in
response to the Change of Control Offer. The Company shall comply with the
applicable requirements of Regulation 14E under the Exchange Act and the rules
and regulations thereunder and all other federal and state securities laws. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of this Section 4.07, compliance by the Company or any of
the Guarantors with such laws and regulations shall not in and of itself cause a
breach of its obligations under this Section 4.07.
On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient
to pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The Paying
Agent promptly will pay the Holders of Notes so accepted an amount equal to the
Change of Control Purchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any), and the Trustee promptly will authenticate and
deliver to such Holders, a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be delivered
promptly by the Company to the Holder thereof. The Company publicly will
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
If the Change of Control Purchase Date hereunder is on or after an
interest payment Record Date and on or before the associated Interest Payment
Date, any accrued and unpaid interest (and Liquidated Damages, if any) due on
such Interest Payment Date will be paid to the person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender the
Notes pursuant to the Change of Control Offer.
SECTION 4.08 LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, in one or a series of related transactions, convey, sell,
transfer, assign or otherwise dispose of, directly or indirectly, any of their
property, business or assets, including by merger or consolidation (in the case
of a Subsidiary of the Company), and including any sale or other transfer or
issuance of any Equity Interests of any Subsidiary of the Company, whether by
the Company or a Subsidiary of either or through the issuance, sale or transfer
of Equity Interests by a Subsidiary of the Company, and including any sale and
leaseback transaction (any of the foregoing, an "Asset Sale"), unless (1)(a) the
Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied (i)
within 270 days after the date of such Asset Sale to the optional redemption of
the Notes in accordance with the terms of this Indenture and other Indebtedness
of the Company ranking on a parity with the Notes and with similar provisions
requiring the Company to redeem such Indebtedness with the proceeds for asset
sales, pro rata in proportion to the respective principal amounts (or accreted
values in the case of Indebtedness issued with an original issue discount) of
the Notes and such other Indebtedness then outstanding or (ii) within 300 days
after the date of such Asset Sale to the repurchase of the Notes and such other
Indebtedness on a parity with the Notes and with similar provisions requiring
the Company to make an offer to purchase such Indebtedness with the proceeds for
asset sales pursuant to
31
<PAGE>
a cash offer (subject only to conditions required by applicable law, if any)
(pro rata in proportion to the respective principal amounts (or accreted values
in the case of Indebtedness issued with an original issue discount) of the Notes
and such other Indebtedness then outstanding) (the "Asset Sale Offer") at a
purchase price of 100% of principal amount (or accreted value in the case of
Indebtedness issued with an original issue discount) (the "Asset Sale Offer
Price") together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of payment, made within 270 days of such Asset Sale or (b)
within 270 days following such Asset Sale, the Asset Sale Offer Amount is (i)
invested (or committed, pursuant to a binding commitment subject only to
reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in tangible assets and property other
than notes, bonds, obligations and securities) which in the good faith
reasonable judgment of the Board of Directors of the Company will immediately
constitute or be a part of a Related Business of the Company or such Subsidiary
(if it continues to be a Subsidiary) immediately following such transaction or
(ii) used to retire and permanently reduce the amount of such Senior
Indebtedness (including that in the case of a revolver or similar arrangement
that makes credit available, such commitment is so permanently reduced by such
amount), (2) at least 90% of the consideration for such Asset Sale or series of
related Asset Sales consists of cash or Cash Equivalents, (3) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect, on a pro forma basis, to such Asset Sale, and (4) the
Board of Directors of the Company determines in good faith that the Company or
such Subsidiary, as applicable, will receive fair market value for such Asset
Sale. Notwithstanding anything to the contrary herein, the Company will not, and
will not permit Aeromet, to consummate an Asset Sale of all or substantially all
of the property, business or assets of Aeromet, except with the consent of the
Holders of not less than a majority in an aggregate principal amount of the
Notes at the time outstanding.
An acquisition of Notes pursuant to an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in (l)(a)(i) or (l)(b) of this Section 4.08 (the "Excess
Proceeds") exceed $5.0 million and each Asset Sale Offer shall remain open for
20 Business Days following its commencement (the "Asset Sale Offer Period").
Upon expiration of the Asset Sale Offer Period, the Company shall apply the
Asset Sale Offer Amount plus an amount equal to accrued and unpaid interest and
Liquidated Damages, if any, to the purchase of all Indebtedness properly
tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest and Liquidated Damages, if any). To the extent that the
aggregate amount of Notes and such other pari passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the
Company may use any remaining Net Cash Proceeds for general corporate purposes
as otherwise permitted by this Indenture and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero. For purposes of (2) of this
Section 4.08, total consideration received means the total consideration
received for such Asset Sales minus the amount of, (a) any liabilities (as shown
on the Company's or such Subsidiary's most recent balance sheet or in the notes
thereto, but excluding contingent liabilities and trade payables) of the Company
or any Subsidiary (other than liabilities that are by their terms subordinate to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets and from which the Company or such Subsidiary are unconditionally
released from liability and assumed by a transferee and (b) property that within
30 days of such Asset Sale is converted into cash or Cash Equivalents, provided
that such cash and Cash Equivalents shall be treated as Net Cash Proceeds
attributable to the original Asset Sale for which such property was received.
32
<PAGE>
Notwithstanding, and without complying with, the provisions of this
Section 4.08:
(i) the Company and its Subsidiaries may, in the ordinary course
of business, (1) convey, sell, transfer, assign or otherwise dispose of
inventory and other assets acquired and held for resale in the ordinary
course of business and (2) liquidate Cash Equivalents;
(ii) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
the Section 5.01 hereof;
(iii) the Company and its Subsidiaries may sell or dispose of
damaged, worn out, scrap or other obsolete property in the ordinary course
of business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary, as applicable;
(iv) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or any of its
wholly-owned Guarantors;
(v) the Company and its Subsidiaries, in the ordinary course of
business, may convey, sell, transfer, assign, or otherwise dispose of
assets (or related assets in related transactions) with a fair market value
of less than $250,000; and
(vi) the Company and its Subsidiaries may surrender or waive
contract rights or settle, release or surrender contract, tort or other
claims of any kind or grant Liens not prohibited by this Indenture.
In addition to the foregoing and notwithstanding anything herein to
the contrary, the Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly make any Asset Sale of any of the Equity Interests of
any Subsidiary of the Company (other than to a Wholly-owned Subsidiary) except
pursuant to an Asset Sale of all the Equity Interests of such Subsidiary.
Any Asset Sale Offer shall be made in compliance with all applicable
laws, rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this paragraph,
compliance by the Company or any of its subsidiaries with such laws and
regulations shall not in and of itself cause a breach of its obligations under
this Section 4.08.
If the payment date in connection with an Asset Sale Offer hereunder
is on or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages,
if any, due on such Interest Payment Date) will be paid to the Person in whose
name a Note is registered at the close of business on such Record Date, and such
interest (or Liquidated Damages, if applicable) will not be payable to holders
of the Notes who tender Notes pursuant to such Asset Sale Offer.
33
<PAGE>
SECTION 4.09 LIMITATION ON RESTRICTED PAYMENTS
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly make any Restricted Payment if,
after giving effect to such Restricted Payment on a pro forma basis:
(a) a Default or an Event of Default shall have occurred and be
continuing;
(b) the Company is not permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio set forth in Section
4.10 hereof; and
(c) the aggregate amount of all Restricted Payments made by the
Company and its Subsidiaries, including after giving effect to such
proposed Restricted Payment, from and after the Issue Date, would exceed,
without duplication, the sum of (a) 50% of the aggregate Consolidated Net
Income of the Company for the period (taken as one accounting period),
commencing on the first day of the first full fiscal quarter commencing
after the Issue Date, to and including the last day of the fiscal quarter
ended immediately prior to the date of each such calculation (or, in the
event Consolidated Net Income for such period is a deficit, then minus 100%
of such deficit), plus (b) the aggregate Net Cash Proceeds received by the
Company from the sale of its Qualified Capital Stock (other than (i) to a
Subsidiary of the Company, (ii) to the extent applied in connection with a
Qualified Exchange and (iii) to the extent credited in (x) in the following
paragraph), after the Issue Date, plus (c) other than amounts credited
pursuant to clause (x) of the next following paragraph, the net amount of
any Restricted Investments (not to exceed the original amount of such
Investment) made after the Issue Date that is returned to the Company or
the Subsidiary that made such prior Investment, without restriction in cash
on or prior to the date of any such calculation.
The foregoing clauses (b) and (c) of the immediately preceding
paragraphs, however, will not prohibit (x) Restricted Investments in a Related
Business, provided, that, after giving pro forma effect to such Investment, the
aggregate amount of all such Investments made on or after the Issue Date that
are outstanding (after giving effect to any such Investments that are returned
to the Company or the Subsidiary that made such prior Investment, without
restriction, in cash on or prior to the date of any such calculation) at any
time does not exceed $4.0 million, (y) a Qualified Exchange or (z) the payment
of any dividend on Qualified Capital Stock within 60 days after the date of its
declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions. The full amount of any
Restricted Payment made pursuant to the foregoing clauses (x) and (z) (but not
pursuant to clause (y)) of the immediately preceding sentence, however, will be
deducted in the calculation of the aggregate amount of Restricted Payments
available to be made referred to in clause (c) of the immediately preceding
paragraph.
The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default and such
designation otherwise complies with the requirements set forth under the
definition of "Unrestricted Subsidiary." For purposes of making such
determination, all outstanding Investments by the Company and its Subsidiaries
(except to the extent repaid in cash) in the Subsidiary so designated will be
deemed Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
34
<PAGE>
Investments in an amount equal to the greatest of (x) the net book value of such
Investment at the time of designation, (y) the fair market value of such
Investments at the time of designation and (z) the original fair market value of
such Investments at the time they were made. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
For purposes of this Section 4.09, the amount of any Restricted
Payment, if other than in cash, shall be the fair market value thereof, as
determined in the good faith reasonable judgment of the Board of Directors of
the Company. Additionally, on the date of each Restricted Payment, the Company
shall deliver an Officers' Certificate to the Trustee describing in reasonable
detail the nature of such Restricted Payment, stating the amount of such
Restricted Payment, stating in reasonable detail the provisions of this
Indenture pursuant to which such Restricted Payment was made and certifying that
such Restricted Payment was made in compliance with the terms of this Indenture.
SECTION 4.10 LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND
DISQUALIFIED CAPITAL STOCK.
Except as set forth in this Section 4.10, the Company and the
Guarantors shall not, and shall not permit any of their Subsidiaries to,
directly or indirectly, issue, assume, guarantee, incur, create, become directly
or indirectly liable with respect to (including as a result of an Acquisition),
or otherwise become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness
or any Disqualified Capital Stock (including Acquired Indebtedness), other than
Permitted Indebtedness. Notwithstanding the foregoing, if (i) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a pro forma basis to, such incurrence of
Indebtedness or Disqualified Capital Stock and (ii) on the date of such
incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the
Company for the Reference Period immediately preceding the Incurrence Date,
after giving effect on a pro forma basis to such incurrence of such Indebtedness
or Disqualified Capital Stock and, to the extent set forth in the definition of
Consolidated Coverage Ratio, the use of proceeds thereof, would be (a) with
respect to the incurrence of such Indebtedness or Disqualified Capital Stock, on
or prior to August 1, 1999 at least 2.0 to 1.0, (b) with respect to the
incurrence of such Indebtedness or Disqualified Capital Stock after August 1,
1999, at least 2.25 to 1.0, and (c) with respect to the incurrence of such
Indebtedness by Aeromet at any time, at least 2.5 to 1.0 (as applicable, each
the "Debt Incurrence Ratio"), then the Company may incur such Indebtedness or
Disqualified Capital Stock and the Subsidiaries may incur such Indebtedness
(other than Disqualified Capital Stock).
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Company or any Subsidiary of Bank
Indebtedness up to an aggregate principal amount outstanding thereunder
(including any Refinancing Indebtedness and other Indebtedness incurred to
refinance, replace, defease or refund such Indebtedness) not to exceed in
the aggregate $15.0 million, minus the amount of any such Bank Indebtedness
(i) retired with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with respect
to such Bank Indebtedness pursuant to Section 4.08 hereof or (ii) assumed
by a transferee in an Asset Sale;
35
<PAGE>
provided that the aggregate principal amount of Bank Indebtedness of
Foreign Subsidiaries outstanding under this provision shall not exceed
$7.5 million;
(b) the Existing Indebtedness; or
(c) the incurrence by the Company or any of its Subsidiaries of
Interest Swap and Hedging Obligations that are incurred with respect to any
Bank Indebtedness that is permitted by this Indenture to be incurred.
Indebtedness or Disqualified Stock of any person which is outstanding
at the time such Person becomes a Subsidiary of the Company (including upon
designation of any subsidiary or other person as a Subsidiary) or is merged with
or into or consolidated with the Company or a Subsidiary of the Company shall be
deemed to have been Incurred at the time such Person becomes such a Subsidiary
of the Company or is merged with or into or consolidated with the Company or a
Subsidiary of the Company, as applicable.
Upon each incurrence of Indebtedness, the Company may designate under
which provision of this Indenture such Indebtedness is being incurred and such
Indebtedness should be deemed to have been so incurred under such provision and
no other provision of this Indenture except as specifically provided otherwise.
SECTION 4.11 LIMITATION ON LIENS SECURING INDEBTEDNESS
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien of any kind, other than Permitted Liens, upon any of their
respective assets now owned or acquired on or after the date of this Indenture
or upon any income or profits therefrom securing any Indebtedness of the Company
or any Subsidiary other than Senior Indebtedness, unless the Company and such
Subsidiary provides, and causes its Subsidiaries to provide, concurrently
therewith, that the Notes are equally and ratably so secured; provided that, if
such Indebtedness is Subordinated Indebtedness, the Lien securing such
Subordinated Indebtedness shall be subordinate and junior to the Lien securing
the Notes with the same relative priority as such Subordinated Indebtedness
shall have with respect to the Notes; and provided, further, that this Section
4.11 shall not be applicable to any Liens securing any such Indebtedness which
became Indebtedness of the Company pursuant to a transaction subject to the
provisions described in Section 5.01 hereof or which constitutes Acquired
Indebtedness and which in either case were in existence at the time of such
transaction (unless such Indebtedness was incurred or such Lien created in
connection with or in contemplation of, such transaction), so long as such Liens
do not extend to or cover any property or assets of the Company or any
Subsidiary of the Company other than property or assets acquired in such
transaction.
SECTION 4.12 LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES
The Company and the Guarantors shall not, and shall not permit any of
their Subsidiaries to, directly or indirectly, create, assume or suffer to exist
any consensual restriction on the ability of any Subsidiary of the Company to
pay dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to transfer assets or property to or
36
<PAGE>
on behalf of, or make or pay loans or advances to or on behalf of, the Company
or any Subsidiary of the Company, except (a) restrictions imposed by the Notes
or this Indenture or by other Indebtedness of the Company (which may also be
guaranteed by the Guarantors) ranking senior or pari passu with the Notes or the
Subsidiary Guarantees, as applicable, provided such restrictions are no more
restrictive than those imposed by this Indenture and the Notes, (b) restrictions
imposed by applicable law, (c) existing restrictions under Indebtedness
outstanding on the Issue Date, (d) restrictions under any Acquired Indebtedness
not incurred in violation of this Indenture or any agreement relating to any
property, asset, or business acquired by the Company or any of its Subsidiaries,
which restrictions in each case existed at the time of acquisition, were not put
in place in connection with or in anticipation of such acquisition and are not
applicable to any person, other than the person acquired, or to any property,
asset or business, other than the property, assets and business so acquired, (e)
any such restriction or requirement imposed by Bank Indebtedness incurred
pursuant to Section 4.10(a) hereof, provided such restriction or requirement is
no more restrictive than that imposed by the Bank Indebtedness existing on the
Issue Date, (f) restrictions with respect solely to a Subsidiary of the Company
imposed pursuant to a binding agreement which has been entered into for the sale
or disposition of all or substantially all of the Equity Interests or assets of
such Subsidiary, provided such restrictions apply solely to the Equity Interests
or assets of such Subsidiary which are being sold, and (g) in connection with
and pursuant to permitted Refinancings, replacements of restrictions imposed
pursuant to clauses (a), (c) or (d) of this Section 4.12 that are not more
restrictive than those being replaced and do not apply to any other person or
assets than those that would have been covered by the restrictions in the
Indebtedness so refinanced. Notwithstanding the foregoing, neither (a) customary
provisions restricting subletting or assignment of any lease entered into in the
ordinary course of business, consistent with industry practice, nor (b) Liens
permitted under the terms of this Indenture on assets securing Senior
Indebtedness incurred in accordance with the terms of Section 4.10 hereof shall
in and of themselves be considered a restriction on the ability of the
applicable Subsidiary to transfer such agreement or assets, as the case may be.
SECTION 4.13 LIMITATION ON LAYERING INDEBTEDNESS
The Company and the Guarantors shall not and shall not permit any of
their Subsidiaries to, directly or indirectly, incur or suffer to exist any
Indebtedness that is subordinate in right of payment to any other Indebtedness
of the Company or of a Subsidiary unless, by its terms, such Indebtedness is
subordinate in right of payment to, or ranks pari passu with, the Notes or the
Subsidiary Guarantees, as applicable.
SECTION 4.14 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Company shall not, and shall not permit any of its Subsidiaries on
or after the Issue Date to enter into or suffer to exist any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions, (other than
Exempted Affiliate Transactions), (i) unless the Company determines that the
terms of such Affiliate Transaction are fair and reasonable to the Company, and
no less favorable to the Company than could have been obtained in an arm's
length transaction with a non-Affiliate, and (ii) if involving consideration to
either party in excess of $1.0 million, unless such Affiliate Transaction(s) is
evidenced by an Officers' Certificate addressed and delivered to the Trustee
certifying that such Affiliate Transaction (or Transactions) has been approved
by a majority of the members of the Board of Directors that are disinterested in
such transaction and (iii) if involving consideration to either party
37
<PAGE>
in excess of $5.0 million, unless in addition the Company, prior to the
consummation thereof, obtains a written favorable opinion as to the fairness of
such transaction to the Company from a financial point of view from an
independent investment banking firm of national reputation or, if pertaining to
a matter for which such investment banking firms do not customarily render such
opinions, an appraisal or valuation firm of national reputation.
SECTION 4.15 FUTURE SUBSIDIARY GUARANTORS
All present and future Subsidiaries (other than Foreign Subsidiaries)
of the Company jointly and severally will guarantee irrevocably and
unconditionally all principal, premium, if any, and interest (and Liquidated
Damages, if any) on the Notes on a senior subordinated basis; provided that any
Foreign Subsidiary that guarantees any Indebtedness of the Company of any
Subsidiary (other than a Foreign Subsidiary), shall become a Guarantor. For
purposes of this Section 4.15, the term "Subsidiary" does not include
Unrestricted Subsidiaries.
SECTION 4.16 RELEASE OF GUARANTORS
No Guarantor shall consolidate or merge with or into (whether or not
such Guarantor is the surviving Person) another Person unless (i) subject to the
provisions of this Section 4.16 and certain other provisions of this Indenture,
the Person formed by or surviving any such consolidation or merger (if other
than such Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee, pursuant
to which such person shall unconditionally guarantee, on a senior subordinated
basis, all of such Guarantor's obligations under such Guarantor's guarantee, on
the terms set forth in this Indenture; and (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset
sale or otherwise) of a Guarantor of all of its assets to an entity which is not
a Guarantor or the designation of a Guarantor to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with this Indenture
(including, without limitation, the provisions of Section 4.08 hereof), such
Guarantor will be deemed released from its obligations under its Guarantee of
the Notes; provided, however, that any such termination shall occur only in the
event that all obligations of such Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
Indebtedness of the Company or any other Subsidiary of the Company shall also
terminate upon such release, sale or transfer.
SECTION 4.17 LIMITATION ON LINES OF BUSINESS
Neither the Company nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which, in the reasonable good faith judgment of the
Board of Directors of the Company, is a Related Business.
SECTION 4.18 CORPORATE EXISTENCE
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate,
38
<PAGE>
partnership or other existence of each of its Subsidiaries, in accordance with
the respective organ izational documents (as the same may be amended from time
to time) of the Company or any such Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any of its Subsidiaries if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole, and that the loss thereof is
not adverse in any material respect to the Holders of the Notes.
SECTION 4.19 LIMITATION ON STATUS AS AN INVESTMENT COMPANY
The Company and its Subsidiaries are not required to, and are
prohibited from being required to, register as an "investment company" (as that
term is defined in the Investment Company Act of 1940, as amended), or otherwise
become subject to regulation under the Investment Company Act.
ARTICLE 5
SUCCESSORS
SECTION 5.01 MERGER, SALE OR CONSOLIDATION
The Company will not consolidate with or merge with or into another
person or, directly or indirectly, sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether in a
single transaction or a series of related transactions, to another Person or
group of affiliated Persons unless (i) either (a) the Company is the continuing
entity or (b) the resulting, surviving or transferee entity is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes, by supplemental indenture in form reasonably
satisfactory to the Trustee, all of the obligations of the Company in connection
with the Notes and this Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect on a pro forma basis to
such transaction; and (iii) such transaction is solely the merger of the Company
and one of its previously existing Wholly-owned Subsidiaries which is also a
Guarantor and which transaction is not in connection with any other transaction,
immediately after giving effect to such transaction on a pro forma basis, the
consolidated resulting, surviving or transferee entity would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio set forth in Section 4.10 hereof; and the Company or such entity shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, lease, conveyance
or transfer and, if a supplemental indenture is required in connection with such
a transaction, such supplemental indenture comply with this provision of this
Indenture and all conditions precedent in this Indenture relating to such a
transaction have been satisfied.
SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01
hereof, the successor corporation formed by such consolidation or into or with
which the Company is merged or to which such transfer is made
39
<PAGE>
shall succeed to and (except in the case of a lease) be substituted for, and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor corporation had been named herein as the Company,
and (except in the case of a lease) the Company shall be released from the
obligations under the Notes and this Indenture except with respect to any
obligations that arise from, or are related to, such transaction.
For purposes of this Article 5, the transfer (by lease, assignment,
sale or otherwise) of all or substantially all of the properties and assets of
one or more Subsidiaries, the Company's interest in which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01 EVENTS OF DEFAULT
An "Event of Default" is defined as:
(i) the failure by the Company to pay any installment of interest
(or Liquidated Damages, if any) on the Notes as and when the same becomes
due and payable and the continuance of any such failure for 30 days,
(ii) the failure by the Company to pay all or any part of the
principal, or premium, if any, on the Notes when and as the same becomes
due and payable at maturity, redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase
Price or the Asset Sale Offer Price, or otherwise,
(iii) the failure by the Company or any Subsidiary of the Company
to observe or perform any other covenant or agreement contained in the
Notes or this Indenture and, subject to certain exceptions, the continuance
of such failure for a period of 30 days after written notice is given to
the Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the Notes outstanding,
stating that such notice is a "notice of default" under Section 6.01(iii)
of this Indenture,
(iv) the following events of bankruptcy, insolvency or
reorganization under applicable Bankruptcy Laws in respect of the Company
or any of its Significant Subsidiaries:
(a) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law (i) commences
a voluntary case, (ii) consents to the entry of an order for relief
against it in an involuntary case, (iii) consents to the appointment
of a custodian of it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due; or
(b) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (i) is for relief against the
Company or any Significant
40
<PAGE>
Subsidiary in an involuntary case, (ii) appoints a custodian of the
Company or any Significant Subsidiary or for all or substantially
all of the property of the Company or a Significant Subsidiary, or
(iii) orders the liquidation of the Company or any Significant
Subsidiary, and, in each case of the preceding (i), (ii) or
(iii), the order or decree remains unstayed and in effect for 60
consecutive days.
(v) a default in any issue of Indebtedness of the Company or any
of its Subsidiaries with an aggregate principal amount in excess of $5.0
million (a) resulting from the failure to pay principal at maturity or (b)
as a result of which the maturity of such Indebtedness has been accelerated
prior to its stated maturity, and
(vi) final unsatisfied judgments not covered by insurance
aggregating in excess of $5.0 million, at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged
within 60 days.
SECTION 6.02 ACCELERATION
If an Event of Default occurs and is continuing (other than an Event
of Default specified in Section 6.01(iv) relating to the Company or any of its
Significant Subsidiaries), then in every such case, unless the principal of all
of the Notes shall have already become due and payable, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given by
Holders) (an "Acceleration Notice"), may declare all principal, determined as
set forth below, and accrued interest (and Liquidated Damages, if any) thereon
to be due and payable immediately; provided, however, that if any Bank
Indebtedness is outstanding, upon a declaration of such acceleration, such
principal and interest shall be due and payable upon the earlier of (x) the
third Business Day after the sending to the Company and the holders of such Bank
Indebtedness or their representative of such written notice, unless such Event
of Default is cured or waived prior to such date and (y) the date of
acceleration of any Bank Indebtedness. If an Event of Default specified in
Section 6.01(iv) occurs, all principal and accrued interest (and Liquidated
Damages, if any) thereon will be immediately due and payable on all outstanding
Notes without any declaration or other act on the part of the Trustee or the
Holders of the Notes. The Holders of a majority in aggregate principal amount of
Notes generally are authorized to rescind such acceleration if all existing
Events of Default, other than the non-payment of the principal of, premium, if
any, and interest on the Notes which have become due solely by such acceleration
and except on default with respect to any provision requiring a supermajority
approval to amend, which default may only be waived by such a supermajority,
have been cured or waived.
SECTION 6.03 OTHER REMEDIES
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal, premium, if any, or Liquidated Damages, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture. Except as provided in Section 6.06 below, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders of the Notes,
unless such Holders have offered to the Trustee reasonable security or, at the
option of the Trustee, in lieu of such security, an indemnity. Subject to
41
<PAGE>
all provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04 WAIVER OF PAST DEFAULTS
Prior to the declaration of acceleration of the maturity of the Notes,
the Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders of the Notes any default,
except a default with respect to any provision requiring a supermajority
approval to amend, which default may only be waived by such a supermajority, and
except a default in the payment of principal of or interest on any Note not yet
cured or a default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding Note
affected.
SECTION 6.05 CONTROL BY MAJORITY
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee, in its sole discretion,
determines may be unduly prejudicial to the rights of other Holders of Notes,
that may involve the Trustee in personal liability or if the Trustee determines
that it does not have reasonable security or, at the option of the Trustee, in
lieu of such security, an indemnification against any loss or expense; provided,
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction. This Section 6.05 shall be in lieu of TIA
ss. 315(d)(3) and said TIA section is hereby expressly excluded from this
Indenture, as permitted by the TIA.
SECTION 6.06 LIMITATION ON SUITS
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer and, if requested, provide to the
Trustee security or, at the option of the Trustee, in lieu of such
security, an indemnity satisfactory to the Trustee against any loss,
liability or expense;
42
<PAGE>
(d) the Trustee does not comply with the request within 45 days after
receipt of the request and the offer and, if requested, the provision of
the security or, at the option of the Trustee, in lieu of such security, an
indemnity; and
(e) during such 45-day period the Holders of a majority in aggregate
principal amount of the then outstanding Notes do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of another Holder or
to obtain a preference or priority over another Holder.
SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal, premium, if any, and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08 COLLECTION SUIT BY TRUSTEE
If an Event of Default occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal of, premium, if any,
and Liquidated Damages, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and any other amounts due to the
Trustee pursuant to Section 7.07.
SECTION 6.09 TRUSTEE MAY FILE PROOF OF CLAIM
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding shall be denied for any reason, payment of the same shall be
secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding, whether in liquidation or under any plan
of reorganization or arrangement
43
<PAGE>
or otherwise. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders for amounts due and unpaid on the Notes for
principal, premium, if any, and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium, if any, and Liquidated
Damages, if any, and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
SECTION 6.12 RESTORATION OF RIGHTS AND REMEDIES
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
44
<PAGE>
ARTICLE 7
TRUSTEE
SECTION 7.01 DUTIES OF TRUSTEE
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default of which the
Trustee is charged with knowledge pursuant to Section 7.02(g):
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
in the case of an Officers' Certificate or Opinion of Counsel, the Trustee
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture. This subparagraph
(b)(ii) shall be in lieu of TIA ss. 315(d)(3) and said TIA section is
hereby expressly excluded from this Indenture, as permitted by the TIA.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of the Company or any Holder, unless the Company or
45
<PAGE>
such Holder, as the case may be, shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE
(a) The Trustee may conclusively rely upon any document believed by it
to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both, which shall conform to
Section 10.05 hereof. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers' Certificate or Opinion
of Counsel. The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or omitted by
it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by two Officers of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Section 4.01 herein, the Trustee shall have
no duty to inquire as to the performance of the Company's covenants in Article 4
hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.01(i) or 6.01(ii) and Section 4.01 or (ii) any Default or Event of
Default of which the Trustee shall have received written notification in
accordance with Section 12.02 hereof from the Company or any Holder.
SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate with the same rights it would
46
<PAGE>
have if it were not Trustee. However, in the event that the Trustee acquires any
conflicting interest, it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue as Trustee or resign. Any Agent may do the
same with like rights and duties. The Trustee is also subject to Sections 7.10
and 7.11 hereof.
SECTION 7.04 TRUSTEE'S DISCLAIMER
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication or for compliance by the
Company with the Registration Rights Agreement.
SECTION 7.05 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and if the
Trustee is charged with knowledge thereof pursuant to Section 7.02(g) hereof,
the Trustee shall mail to Holders of Notes a notice of the Default or Event of
Default within 90 days after it occurs. Except in the case of a Default or Event
of Default in payment of principal of, premium, if any, Liquidated Damages, if
any, or interest on any Note, the Trustee may withhold the notice if and so long
as a committee of at least two of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes. The second sentence of this Section 7.05 shall be in lieu of the proviso
to TIA ss. 315(b) and said TIA section is hereby expressly excluded from this
Indenture, as permitted by the TIA.
SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES
Within 60 days after each August 1, beginning with the August 1
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange or national securities market.
SECTION 7.07 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time compensation
for its acceptance of this Indenture and services hereunder in accordance with a
written agreement between the Trustee and the Company. The Trustee's
compensation shall not be limited by any law on
47
<PAGE>
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents, accountants, experts and counsel.
The Company shall indemnify the Trustee for, and hold the Trustee
harmless against, any and all losses, liabilities or expenses (including,
without limitation reasonable attorneys' fees and expenses) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.07) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
Person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim with counsel
designated by the Company, who may be outside counsel to the Company but shall
in all events be reasonable satisfactory to the Trustee, and the Trustee shall
cooperate in the defense. In addition, the Trustee may retain separate counsel
and, if the Trustee shall have been advised by such counsel that there may be
one or more legal defenses available to the Trustee which are different from or
in addition to those available to the Company and which the counsel designated
by the Company would be precluded from asserting or that the Trustee has one or
more interests that conflict with those of the Company, the Company shall pay
the reasonable fees and expenses of such separate counsel. The indemnification
herein extends to any settlement, provided that the Company will not be liable
for any settlement made without its consent, provided, further, that such
consent will not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the resignation or removal of the Trustee and/or the satisfaction and discharge
of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(iv) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2) to
the extent applicable.
SECTION 7.08 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
48
<PAGE>
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing, and may appoint a successor
Trustee with the Company's consent. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof, unless the
Trustee's duty to resign is stayed as provided in TIA ss. 310(b);
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in aggregate principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, unless the Trustee's
duty to resign is stayed as provided in TIA ss. 310(b), any Holder, who has been
a bona fide Holder for at least six (6) months, may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC.
Subject to Section 7.10, if the Trustee consolidates, merges or
converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the successor
49
<PAGE>
corporation without any further act shall be the successor Trustee. The
provisions of TIA ss. 310 shall apply to the Company as obligor on the Notes.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50,000,000
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The
provisions of TIA ss. 311 shall apply to the Company as obligor on the Notes.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article 8.
SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented, and this Indenture
shall cease to be of further effect as to all outstanding Notes and Guarantees,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest (and Liquidated Damages, if any) on
such Notes when such payments are due from the trust funds; (ii) the Company's
obligations with respect to such Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes, and the
maintenance of an office or agency for payment and money for security payments
held in trust; (iii) the rights, powers, trust, duties, and immunities of the
Trustee, and the Company's obligations in connection therewith; and (iv) the
Legal Defeasance provisions of this Indenture. The
50
<PAGE>
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
SECTION 8.03 COVENANT DEFEASANCE
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and Guarantors shall, subject to
the satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.03, 4.04, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 and 4.17 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
breach thereof) in connection with such covenants, but shall continue to be
deemed "outstanding" for all other purposes hereunder (it being understood that
such Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03, subject to the
satisfaction of the conditions set forth in Section 8.04, Sections 6.01(iii),
6.01(v) and 6.01(vi) hereof shall not constitute Events of Default.
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(i) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
(and Liquidated Damages, if any) on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment
of principal of, premium, if any, or interest (and Liquidated Damages, if
any) on such Notes, and the Holders must have a valid, perfected, exclusive
security interest in such trust;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by the Internal Revenue Service,
a ruling or (B) since the date of the Indenture, there has been a change in
the applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the Holders
will not recognize income,
51
<PAGE>
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to such Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit and the Company shall have delivered
to the Trustee an Officer's Certificate, subject to such qualifications and
exceptions as the Trustee deems appropriate, to the effect that, assuming
no intervening bankruptcy of the Company between the date of deposit and
the 91st day following the deposit and that no Holder is an insider of the
Company, after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors rights generally;
(v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under the Indenture or
any other material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the holders of such Notes over any other creditors of
the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that the
conditions precedent provided for in, in the case of the Officers'
Certificate, (i) through (vi) and, in the case of the opinion of counsel,
clauses (i), (with respect to the validity and perfection of the security
interest) (ii), (iii) and (v) of this Section 8.04 have been complied with.
If the funds deposited with the Trustee to effect Covenant Defeasance
are insufficient to pay the principal of, premium, if any, Liquidated Damages,
if any, and interest on the Notes when due, then the obligations of the Company
and the Guarantors under this Indenture and the Collateral Agreement will be
revived and no such defeasance will be deemed to have occurred.
SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS
Subject to Section 8.06 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee satisfactory to the Company and the Trustee,
collectively for purposes of this Section 8.05, the "Trustee") pursuant
52
<PAGE>
to Section 8.04 hereof in respect of the outstanding Notes shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, Liquidated Damages, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or U.S. Government Obligations held by it as provided
in Section 8.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06 REPAYMENT TO COMPANY
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
Liquidated Damages, or interest on any Note and remaining unclaimed for two
years after such principal, and premium, if any, Liquidated Damages or interest
has become due and payable shall be paid to the Company on its request or (if
then held by the Company) shall be discharged from such trust; and the Holder of
such Note shall thereafter, as a secured creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.07 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, Liquidated Damages, if any, or
interest on any Note following the reinstatement of its obligations, the Company
shall be subrogated
53
<PAGE>
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES
Notwithstanding Section 9.02 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
Certificated Notes;
(c) to provide for the assumption of the Company's obligations to the
Holders in the case of a merger, sale or consolidation pursuant to Article
5 hereof;
(d) to provide for additional Guarantors as set forth in Section 4.15
and successor Guarantors as set forth in Section 11.03;
(e) to make any change that would provide any additional rights or
benefits to the Holders (including the addition of any Guarantors) or that
does not adversely affect the legal rights hereunder of any Holder;
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(g) to evidence, and provide for acceptance of, the appointment of a
successor Trustee hereunder.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
indenture, and upon receipt by the Trustee of the documents described in Section
9.06 hereof, stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture, the Trustee shall join
with the Company in the execution of any amended or supplemental indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supple mental
indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture and the Notes may be amended or
supplemented with the written consent of the Holders of at least a majority in
aggregate principal amount of the Notes then
54
<PAGE>
outstanding (including consents obtained in connection with a tender offer or
exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, Liquidated Damages,
if any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture or the Notes may be waived with the written consent of the Holders of
at least a majority in aggregate principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for the Notes); provided that no such amendment, supplement or waiver may,
without the consent of Holders of at least 66-2/3% in aggregate principal amount
of Notes at the time outstanding, modify the provisions (including the defined
terms used therein) of Section 4.07 hereof in a manner adverse to the Holders.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental indenture
unless such amended or supplemental indenture affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its sole discretion, but shall not be obligated to, enter into
such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof. The
calculation of Holders of Notes so consenting shall be made pursuant to Section
2.09 hereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
indenture or waiver.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in
aggregate principal amount of the Notes then outstanding may waive compliance in
a particular instance by the Company or a Guarantor with any provision of this
Indenture or the Notes. However, without the written consent of each Holder
affected, an amendment or waiver may not (with respect to any Notes held by a
non-consenting Holder):
(i) change the Stated Maturity on any Note, or reduce the
principal amount thereof or the rate (or extend the time for payment) of
interest thereon or any premium, if any, payable upon the redemption at the
option of the Company thereof, or change the place of payment where, or the
coin or currency in which, any Note or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Stated Maturity thereof (or, in the case
of redemption at the option of the Company, on or after the Redemption
Date), or reduce the Change of Control Purchase Price or the Asset Sale
Offer Price or alter the provisions (including the defined terms used
55
<PAGE>
therein) regarding the right of the Company to redeem the Notes in a manner
adverse to the holders of the Notes, or
(ii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture, or
(iii) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each outstanding Note affected thereby.
SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental indenture that complies with the TIA as
then in effect.
SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by such Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder of a Note or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture and that such supplemental indenture
and this Indenture, as so amended or supplemented, constitute the valid and
binding obligations of the Company and the Guarantors, enforceable against each
of them in accordance with
56
<PAGE>
their respective terms (subject to customary and necessary exceptions) and all
conditions precedent have been complied with.
ARTICLE 10
SUBORDINATION
SECTION 10.01 AGREEMENT TO SUBORDINATE
The Company agrees, and each Holder by accepting a Note agrees, that
the Indebtedness evidenced by the Note is subordinated in right of payment, to
the extent and in the manner provided in this Article 10, to the prior payment
in full in cash or Cash Equivalents of all Obligations in respect of Senior
Indebtedness (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Indebtedness. This Article 10 shall constitute a
continuing offer to all Persons who become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness.
SECTION 10.02 LIQUIDATION; DISSOLUTION; BANKRUPTCY
Upon any distribution of assets of the Company or any Guarantor upon
any dissolution, winding up, total or partial liquidation or reorganization of
the Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities:
(i) the holders of all Senior Indebtedness of the Company or such
Guarantor, as applicable, will first be entitled to receive payment in full
in cash or Cash Equivalents (or have such payment duly provided for) or
otherwise to the extent such holders accept satisfaction of amounts due by
settlement in other than cash or Cash Equivalents before the holders of the
Notes are entitled to receive any payment on account of any Obligation in
respect of the Notes, including the principal of, premium, if any, and
interest on the Notes (other than Junior Securities) and
(ii) any payment or distribution of assets of the Company or such
Guarantor of any kind or character from any source, whether in cash,
property or securities (other than Junior Securities) to which the holders
of the Notes or the Trustee on behalf of such holders would be entitled (by
set-off or otherwise), except for the subordination provisions contained in
this Indenture, will be paid by the liquidating trustee or agent or other
person making such a payment or distribution directly to the holders of
such Senior Indebtedness or their representative to the extent necessary to
make payment in full (or have such payment duly provided for) on all such
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness.
SECTION 10.03 DEFAULT ON SENIOR INDEBTEDNESS
No payment (by set-off or otherwise) may be made by or on behalf of
the Company or a Guarantor, as applicable, on account of any Obligation in
respect of the Notes, including the
57
<PAGE>
principal of, premium, if any, or interest on the Notes (including any
repurchases of Notes), or on account of the redemption provisions of the Notes
for cash or property (other than Junior Securities), (i) upon the maturity of
any Senior Indebtedness of the Company or such Guarantor by lapse of time,
acceleration (unless waived) or otherwise, unless and until all principal of,
premium, if any, and the interest on such Senior Indebtedness are first paid in
full in cash or Cash Equivalents (or such payment is duly provided for) or
otherwise to the extent holders accept satisfaction of amounts due by settlement
in other than cash or Cash Equivalents, or (ii) in the event of default in the
payment of any principal of, premium, if any, or interest on Senior Indebtedness
of the Company or such Guarantor when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default other than a Payment
Default that permits the holders of Senior Indebtedness to declare such Senior
Indebtedness to be due and payable and (ii) written notice of such event of
default given to the Company and the Trustee by the holders of an aggregate of
at least $5.0 million principal amount outstanding of any Senior Indebtedness or
their representative (a "Payment Notice"), then, unless and until such event of
default has been cured or waived or otherwise has ceased to exist, no payment
(by set-off or otherwise) may be made by or on behalf of the Company or any
Guarantor which is an obligor under such Senior Indebtedness on account of any
Obligation in respect of the Notes, including the principal of, premium, if any,
or interest on the Notes, (including any repurchases of any of the Notes), or on
account of the redemption provisions of the Notes, in any such case, other than
payments made with Junior Securities. Notwithstanding the foregoing, unless the
Senior Indebtedness in respect of which such event of default exists has been
declared due and payable in its entirety within 179 days after the Payment
Notice is delivered as set forth above (the "Payment Blockage Period") (and such
declaration has not been rescinded or waived), at the end of the Payment
Blockage Period, the Company and the Guarantors shall be required to pay all
sums not paid to the holders of the Notes during the Payment Blockage Period due
to the foregoing prohibitions and to resume all other payments as and when due
on the Notes. Any number of Payment Notices may be given; provided, however,
that (i) not more than one Payment Notice shall be given within a period of any
360 consecutive days, and (ii) no default that existed upon the date of such
Payment Notice or the commencement of such Payment Blockage Period (whether or
not such event of default is on the same issue of Senior Indebtedness) shall be
made the basis for the commencement of any other Payment Blockage Period (it
being acknowledged that any subsequent action, or any subsequent breach of any
financial covenant for a period commencing after the expiration of such Payment
Blockage Period that, in either case, would give rise to a new event of default,
even though it is an event that would also have been a separate breach pursuant
to any provision under which a prior event of default previously existed, shall
constitute a new event of default for this purpose).
SECTION 10.04 ACCELERATION OF NOTES
If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
58
<PAGE>
SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER
In the event that the Trustee or any Holder receives any payment or
distribution of assets of the Company or any Guarantor (other than Junior
Securities) at a time when the Trustee or such Holder, as applicable, has actual
knowledge that such payment is prohibited by Section 10.03 hereof, such payment
or distribution shall be held in trust for the benefit of the holders of such
Senior Indebtedness, and shall be paid or delivered by the Trustee or the
Holders of the Notes, as the case may be, to the holders of such Senior
Indebtedness remaining unpaid or unprovided for or to their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate principal amounts remaining unpaid on
account of such Senior Indebtedness held or represented by each, for application
to the payment of all such Senior Indebtedness remaining unpaid, to the extent
necessary to pay or to provide for the payment of all such Senior Indebtedness
in full in cash or Cash Equivalents or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or Cash Equivalents
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and shall not be liable
to any such holders if the Trustee shall pay over or distribute to or on behalf
of Holders or the Company or any other Person money or assets to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article 10,
except if such payment is made as a result of the willful misconduct or gross
negligence of the Trustee.
SECTION 10.06 NOTICE BY COMPANY
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article 10.
SECTION 10.07 SUBROGATION
After all Senior Indebtedness is paid in full and until the Notes are
paid in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness. A distribution made under this Article 10 to
holders of Senior Indebtedness that otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the Company on the Notes.
59
<PAGE>
SECTION 10.08 RELATIVE RIGHTS
This Article 10 defines the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company, the Guarantors and Holders,
the obligation of the Company and the Guarantors, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and
interest and Liquidated Damages, if any, on the Notes in accordance with
their terms;
(2) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the occurrence of any Default or Event of Default
under this Indenture or limit the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders.
If the Company fails because of this Article 10 to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.09 SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY
No right of any holder of Senior Indebtedness to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or a Guarantor, as applicable, or any Holder to comply with this
Indenture.
SECTION 10.10 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. The Company shall provide to the Trustee, in writing, notice of
the name and address of any Representative. In the absence of such a notice, the
Trustee may conclusively assume that no Representative exists.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of such Representative or of the liquidating trustee or agent or
other Person making any distribution to the Trustee or to the Holders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior 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
10.
60
<PAGE>
SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at the
Corporate Trust Administration Office of the Trustee at least five Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Notes to violate this Article 10.
Only the Company or a Representative of Senior Indebtedness previously
identified by the Company to the Trustee pursuant to Section 10.10 may give the
notice. Nothing in this Article 10 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION
Each Holder of a Note by the Holder's acceptance thereof authorizes
and directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes. If the Trustee does not file a proper proof of claim
or proof of debt in the form required in any proceeding referred to in Section
6.09 hereof at least 30 days before the expiration of the time to file such
claim, the Representative is hereby authorized to file an appropriate claim for
and on behalf of the Holders of the Notes.
SECTION 10.13 AMENDMENTS
The provisions of this Article 10 shall not be amended or modified in
a manner materially adverse to the holders of Senior Indebtedness without the
written consent of the holders of all Senior Indebtedness.
ARTICLE 11
SUBSIDIARY GUARANTEES
SECTION 11.01 SUBSIDIARY GUARANTEES
Subject to the provisions of this Article 11, each Guarantor, jointly
and severally, hereby unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, that: (a) the principal of, and premium, if any, Liquidated
Damages, if any, and interest on the Notes will be duly and punctually paid in
full when due, whether at maturity, by acceleration or otherwise, and interest
on overdue principal of, and premium, if any, Liquidated Damages, if any and (to
the extent permitted by law) interest on any interest, if any, on the Notes and
all other obligations of the Company to the Holders or the Trustee hereunder or
under the Notes (including fees, expenses or other) will be promptly paid in
full or performed, all in accordance with the terms hereof; and (b) in case of
any extension of time of
61
<PAGE>
payment or renewal of any Notes or any of such other obligations, the same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed or failing
performance of any other obligation of the Company to the Holders, for whatever
reason, each Guarantor will be obligated to pay, or to perform or to cause the
performance of, the same immediately. An Event of Default under this Indenture
or the Notes shall constitute an event of default under this Subsidiary
Guarantee, and shall entitle the Holders of Notes to accelerate the obligations
of each Guarantor hereunder in the same manner and to the same extent as the
obligations of the Company. Each Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any thereof, the entry of any judgment against the Company, any action to
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby
waives and relinquishes: (a) any right to require the Trustee, the Holders or
the Company (each, a "Benefitted Party") to proceed against the Company, the
Subsidiaries or any other Person or to proceed against or exhaust any security
held by a Benefitted Party at any time or to pursue any other remedy in any
secured party's power before proceeding against the Guarantors; (b) any defense
that may arise by reason of the incapacity, lack of authority, death or
disability of any other Person or Persons or the failure of a Benefitted Party
to file or enforce a claim against the estate (in administration, bankruptcy or
any other proceeding) of any other Person or Persons; (c) demand, protest and
notice of any kind (except as expressly required by this Indenture), including
but not limited to notice of the existence, creation or incurring of any new or
additional Indebtedness or obligation or of any action or non-action on the part
of the Guarantors, the Company, the Subsidiaries, any Benefitted Party, any
creditor of the Guarantors, the Company or the Subsidiaries or on the part of
any other Person whomsoever in connection with any obligations the performance
of which are hereby guaranteed; (d) any defense based upon an election of
remedies by a Benefitted Party, including but not limited to an election to
proceed against the Guarantors for reimbursement; (e) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal; (f) any defense arising because of a Benefitted Party's election, in
any proceeding instituted under Bankruptcy Law, of the application of Section
1111(b)(2) of the United States Federal Bankruptcy Code; and (g) any defense
based on any borrowing or grant of a security interest under Section 364 of the
Bankruptcy Code. The Guarantors hereby covenant that the Subsidiary Guarantee
will not be discharged except by payment in full of all principal, premium, if
any, Liquidated Damages, if any, and interest on the Notes and all other costs
provided for under this Indenture, or as provided in Section 8.01.
If any Holder or the Trustee is required by any court or otherwise to
return to either the Company or the Guarantors, or any trustee or similar
official acting in relation to either the Company or the Guarantors, any amount
paid by the Company or the Guarantors to the Trustee or such Holder, the
Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated
in full force and effect. Each of the Guarantors agrees that it will not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Guarantor agrees that, as between it, on the one hand,
and the Holders of Notes and the Trustee, on the other hand, (x) the maturity of
the obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes hereof, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
62
<PAGE>
obligations guaranteed hereby, and (y) in the event of any acceleration of such
obligations as provided in Article 6 hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by such Guarantor for
the purpose of the Subsidiary Guarantee.
SECTION 11.02 EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES
To evidence the Subsidiary Guarantees set forth in Section 11.01
hereof, each of the Guarantors agrees that a notation of the Subsidiary
Guarantees substantially in the form included in Exhibit B shall be endorsed on
each Note authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of the Guarantors by the Chairman of the Board, any
Vice Chairman, the President or one of the Vice Presidents of the Guarantors and
attested to by an Officer other than the Officer executing this Indenture.
Each of the Guarantors agree that the Subsidiary Guarantees set forth
in this Article 11 will remain in full force and effect and apply to all the
Notes notwithstanding any failure to endorse on each Note a notation of the
Subsidiary Guarantees.
If an Officer whose facsimile signature is on a Note no longer holds
that office at the time the Trustee authenticates the Note on which the
Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees
set forth in this Indenture on behalf of the Guarantors.
SECTION 11.03 GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS
(a) Nothing contained in this Indenture or in the Notes shall prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guarantor, or shall prevent the transfer of all or substantially all of the
assets of a Guarantor to the Company or another Guarantor. Upon any such
consolidation, merger, transfer or sale, the Subsidiary Guarantee of such
Guarantor shall no longer have any force or effect.
(b) Except as set forth in paragraph (c) of this Section 11.03, no
Guarantor may consolidate or merge with or into (whether or not such Guarantor
is the surviving Person) another Person unless (i) subject to the provisions of
the following paragraph and certain other provisions of this Indenture, the
Person formed by or surviving any such consolidation or merger (if other than
such Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such person shall unconditionally guarantee, on a senior subordinated
basis, all of such Guarantor's obligations under such Guarantor's Guarantee, on
the terms set forth under the Indenture; and (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred or be continuing. In case of any
such consolidation, merger or transfer of assets and upon the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee
endorsed upon the Notes and the due and punctual performance of all of the
covenants and conditions of this Indenture to be performed by such Guarantor,
such successor corporation shall succeed to and be substituted for such
63
<PAGE>
Guarantor with the same effect as if it had been named herein as a Guarantor.
Such successor corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder
which theretofore shall not have been signed by the Company and delivered to the
Trustee. All the Subsidiary Guarantees so issued shall in all respects have the
same legal rank and benefit under this Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of this Indenture
as though all of such Subsidiary Guarantees had been issued at the date of the
execution hereof.
(c) The Trustee, subject to the provisions of Section 11.04 hereof,
shall be entitled to receive an Officers' Certificate and an Opinion of Counsel
as conclusive evidence that any such consolidation, merger, sale or conveyance,
and any such assumption of Obligations, comply with the provisions of this
Section 11.03. Such certificate and opinion shall comply with the provisions of
Section 11.05.
SECTION 11.04 RELEASES FOLLOWING SALE OF ASSETS
Upon the sale or disposition (whether by merger, stock purchase, asset
sale or otherwise) of a Guarantor of all of its assets to an entity which is not
a Guarantor or the designation of a Guarantor to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with this Indenture
(including, without limitation, the provisions of Section 4.08), such Guarantor
shall be deemed released from its obligations under its Guarantee of the Notes
or Section 11.03 hereof, as the case may be; provided, however, that any such
termination shall occur only in the event that all obligations of such Guarantor
under all of its Guarantees of, and under all of its pledges of assets or other
security interests which secure, any Indebtedness of the Company or any other
Subsidiary of the Company shall also terminate upon such release, sale or
transfer. In the event of an Asset Sale, the Net Cash Proceeds from such sale or
other disposition are treated in accordance with the provisions of Section 4.08
hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate
and Opinion of Counsel, each to the effect that such sale or other disposition
was made by the Company in accordance with the provisions of this Indenture,
including without limitation Section 4.08 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any such
Guarantor from its obligations under its Subsidiary Guarantee. Any Guarantor not
released from its obligations under its Subsidiary Guarantee shall remain liable
for the full amount of principal of and interest on the Notes and for the other
obligations of any Guarantor under this Indenture as provided in this Article
11.
SECTION 11.05 LIMITATION OF GUARANTOR'S LIABILITY
Each Guarantor, and by its acceptance hereof each Holder, hereby
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent
transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law. To effectuate the foregoing intention, the Holders and such Guarantor
hereby irrevocably agree that the obligations of such Guarantor under this
Article 11 shall be limited to the maximum amount as will, after giving effect
to all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the Obligations of such other Guarantor under this
Article 11, result in the Obligations
64
<PAGE>
of such Guarantor under the Subsidiary Guarantee of such Guarantor not
constituting a fraudulent transfer or conveyance.
SECTION 11.06 APPLICATION OF CERTAIN TERMS AND PROVISIONS TO THE GUARANTOR
(a) For purposes of any provision of this Indenture which provides for
the delivery by any Guarantor of an Officers' Certificate and/or an Opinion of
Counsel, the definitions of such terms in Section 1.01 shall apply to such
Guarantor as if references therein to the Company were references to such
Guarantor.
(b) Any request, direction, order or demand which by any provision of
this Indenture is to be made by any Guarantor, shall be sufficient if evidenced
as described in Section 12.02 as if references therein to the Company were
references to such Guarantor.
(c) Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the Holders to
or on any Guarantor may be given or served as described in Section 12.02 as if
references therein to the Company were references to such Guarantor.
(d) Upon any demand, request or application by any Guarantor to the
Trustee to take any action under this Indenture, such Guarantor shall furnish to
the Trustee such certificates and opinions as are required in Section 11.04
hereof as if all references therein to the Company were references to such
Guarantor.
SECTION 11.07 SUBORDINATION OF SUBSIDIARY GUARANTEES
The Obligations of each Guarantor under its Subsidiary Guarantee
pursuant to this Article 11 shall be junior and subordinated to all obligations
in respect of the Senior Indebtedness of such Guarantor on the same basis as the
Notes are junior and subordinated to all obligations in respect of the Senior
Indebtedness of the Company. For the purposes of the foregoing sentence, (a)
each Guarantor may make, and the Trustee and the Holders of the Notes shall have
the right to receive and/or retain, payments by any of the Guarantors only at
such times as they may receive and/or retain payments in respect of the Notes
pursuant to this Indenture, including Article 10 hereof, and (b) the rights and
obligations of the relevant parties relative to the Subsidiary Guarantees shall
be the same as their respective rights and obligations relative to the Notes and
Senior Indebtedness of the Company pursuant to Article 10.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA ss. 318(c), the imposed duties shall control.
65
<PAGE>
SECTION 12.02 NOTICES
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested, postage prepaid),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the other's address:
If to the Company:
Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, Washington 98801
Telephone No.: (509) 667-9600
Telecopier No.: (509) 667-9696
Attention: GENERAL COUNSEL
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, NY 10004
Telephone No.: (212) 858-2784
Telecopier No.: (212) 858-2952
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA ss. 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time. If the Trustee or an
Agent mails a notice or communication to Holders, it shall mail a copy to the
Company at the same time.
66
<PAGE>
SECTION 12.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other relevant Person shall have the protection
of TIA ss. 312(c).
SECTION 12.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 12.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 12.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 12.06 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
67
<PAGE>
SECTION 12.07 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS
No direct or indirect shareholder, employee, officer or director, as
such, past, present or future of the Company, the Guarantors or any successor
entity shall have any personal liability in respect of the Obligations of the
Company or the Guarantors under this Indenture or the Notes solely by reason of
his or its status as such shareholder, employee, officer or director, except
that this provision shall in no way limit the Obligation of any Guarantor
pursuant to any guarantee of the Notes.
SECTION 12.08 GOVERNING LAW
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES, WITHOUT REGARD
TO THE CONFLICTS OF LAWS PROVISIONS THEREOF TO THE EXTENT THAT THE APPLICATION
OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. IF ANY ACTION OR
PROCEEDING SHALL BE BROUGHT BY A HOLDER OF ANY OF THE NOTES OR BY THE TRUSTEE IN
ORDER TO ENFORCE ANY RIGHT OR REMEDY UNDER THIS INDENTURE OR UNDER THE NOTES,
THE COMPANY AND THE GUARANTORS HEREBY CONSENT AND WILL SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF NEW
YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK. THE COMPANY AND THE
GUARANTORS HEREBY AGREE TO ACCEPT SERVICE OF PROCESS BY NOTICE GIVEN TO THE
COMPANY PURSUANT TO THE PROVISIONS OF SECTION 12.02.
SECTION 12.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 12.10 SUCCESSORS
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.11 SEVERABILITY
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
68
<PAGE>
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following pages]
69
<PAGE>
IN WITNESS WHEREOF, each of the parties have executed this Indenture
as of the date first written above.
THE COMPANY:
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald Wright
Chief Executive Officer and President
THE GUARANTORS:
BALO PRECISION PARTS, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
CASHMERE MANUFACTURING CO., INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
CERAMIC DEVICES, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
ELECTRONIC SPECIALTY CORPORATION
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
70
<PAGE>
MOREL INDUSTRIES, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
NORTHWEST TECHNICAL INDUSTRIES, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
Executive Vice President
PA&E INTERNATIONAL, INC.
By: /s/ DONALD A. WRIGHT
--------------------------------------------
Donald A. Wright
President
71
<PAGE>
THE TRUSTEE:
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ STEPHEN J. GIURLANDO
--------------------------------------------
Name: Stephen J. Guirlando
Title: Assistant Vice President
72
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
--------------- -----------------
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 12.02
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.05
(b) 12.03
(c) 12.03
313(a) 7.06
(b)(1) N.A.
(b)(2) 7.06
(c) 7.06; 12.02
(d) 7.06
314(a) 4.09; 12.02
(b) N.A.
(c)(1) 12.04
(c)(2) 7.02; 12.04
(c)(3) N.A.
(d) N.A.
(e) 12.05
(f) N.A.
315(a) 7.01(2)
(b) 7.05; 12.02
(c) 7.01(1)
(d) 7.01(3)
(e) 6.11
316(a)(last sentence) 2.09
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
317(a)(1) 6.08
(a)(2) 6.09
(b) 2.04
318(a) 12.01
- ---------------------
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
73
<PAGE>
(Face of Note)
______% [Series A] [Series B] Senior Subordinated Notes due 2005
No. $75,000,000
PACIFIC AEROSPACE & ELECTRONICS, INC.
promises to pay to Cede & Co. or registered assigns, the principal sum
of ___________________ Dollars on __________, 2005
Interest Payment Dates: __________ and __________
Record Dates: __________ and __________
Dated: ____________, 1998
PACIFIC AEROSPACE & ELECTRONICS, INC.
By:
----------------------------------------------
Donald Wright
Chief Executive Officer and President
By:
----------------------------------------------
Nick A. Gerde
Chief Financial Officer, Vice President
Finance, Treasurer and Assistant Secretary
This is one of the ______% Senior
Subordinated Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By:
---------------------------------------
Name:
Title:
1
<PAGE>
(Back of Note)
______% [Series A] [Series B] Senior Subordinated Notes due 2005
[THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OR A DEPOSITARY OR A SUCCESSOR DEPOSITARY. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR NOTES IN CERTIFICATED FORM, THIS NOTE MAY NOT
BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]1
[THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993,
AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS OR ANY OTHER
APPLICABLE SECURITIES LAW. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.] [For Series A
Notes only]
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER THIS NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE
DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) SO LONG AS THIS NOTE IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
<F1>Include this paragraph only if the certificate represents a Global Note.
2
<PAGE>
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT OR
(E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
UNDER THE SECURITIES ACT, SUBJECT TO THE RIGHT OF THE COMPANY PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) ABOVE TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO ERISA OR (ii) THE ACQUISITION AND HOLDING OF THIS NOTE BY IT IS NOT
PROHIBITED BY EITHER SECTION 406 OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED ("ERISA") OR OTHER ARRANGEMENT THAT IS SUBJECT TO ERISA OR
SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR IS EXEMPT
FROM ANY SUCH PROHIBITION.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF ANY OF THE FOREGOING.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Pacific Aerospace & Electronics, Inc., a Washington
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 11 1/4% per annum from July 30, 1998 until maturity and shall pay
the Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay interest
and Liquidated Damages semi-annually on February 1 and August 1 of each year, or
if any such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be February 1, 1999. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1% per annum in excess of the rate then in
effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
3
<PAGE>
2. Method of Payment. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the January 15 or
July 15 next preceding the Interest Payment Date, even if such Notes are
cancelled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium, if any, interest
and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York,
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set forth
upon the registry books of the Company, provided that payment by wire transfer
of immediately available funds will be required with respect to principal of,
interest, premium, if any, and Liquidated Damages, if any, on all Global Notes
and all other Notes the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Such payment shall be in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
of July 30, 1998 ("Indenture") between the Company and the Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. The
Notes are unsecured obligations of the Company limited to $75,000,000 in
aggregate principal amount.
5. Optional Redemption.
(a) Except as set forth in clause (b) of this Section of this Note,
the Company shall not have the option to redeem the Notes prior to August 1,
2003 other than out of the Net Cash Proceeds of a Qualified Equity Offering of
common stock. Thereafter, the Notes will be redeemable for cash at the option of
the Company, in whole or in part, at any time on or after August 1, 2003 upon
not less than 30 days nor more than 60 days notice to each holder of Notes, at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the 12-month period commencing August 1 of the years
indicated below, in each case (subject to the right of holders of record on a
Record Date to receive the corresponding interest due (and corresponding
Liquidated Damages, if any) on an Interest Payment Date corresponding to such
Record Date that is on or prior to such Redemption Date) together with accrued
and unpaid interest and Liquidated Damages, if any, thereon to the Redemption
Date:
Year Percentage
---- ----------
2003.............................. 105.625%
2004.............................. 102.813%
2005.............................. 100.000%
4
<PAGE>
(b) Notwithstanding the provisions of clause (a) of this Section of
the Notes, until August 1, 2001, upon a Qualified Equity Offering of common
stock for cash, up to 20% of the aggregate principal amount of the Notes
originally outstanding may be redeemed at the option of the Company within 90
days after the closing of such Qualified Equity Offering, on not less than 30
days, but not more than 60 days, notice to each Holder of the Notes to be
redeemed, with cash from the Net Cash Proceeds to the Company of such Qualified
Equity Offering, at a redemption price equal to 111.25% of the principal amount
thereof, (subject to the right of Holders of record on a Record Date to receive
interest due on an Interest Payment Date that is on or prior to such Redemption
Date) together with accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption; provided, however, that immediately following such
redemption, not less than 80% of the original aggregate principal amount of the
Notes remain outstanding.
(c) Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose Notes are to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of Holder
thereof upon cancellation of the original Note. Notes in denominations larger
than $1,000 may be redeemed in part but only in integral multiples of $1,000,
unless all of the Notes held by a Holder are to be redeemed. On and after the
redemption date interest ceases to accrue on Notes or portions thereof called
for redemption unless the Company defaults in such payments due on the
redemption date.
6. Mandatory Redemption.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
7. Repurchase at Option of Holder Upon Certain Events.
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right, at such Holder's option, pursuant to an offer (subject only to
conditions required by applicable law, if any) by the Company (the "Change of
Control Offer"), to require the Company to repurchase all or any part of such
Holder's Notes (provided that the principal amount of such Notes must be $1,000
or an integral multiple thereof) on a date (the "Change of Control Purchase
Date") that is no later than 35 Business Days after the occurrence of such
Change of Control, at a cash price equal to 101% of the principal amount thereof
(the "Change of Control Purchase Price"), together with accrued and unpaid
interest and Liquidated Damages, if any, to the Change of Control Purchase Date.
The Change of Control Offer shall be made within 10 Business Days following a
Change of Control and shall remain open for 20 Business Days following its
commencement (the "Change of Control Offer Period"). Upon expiration of the
Change of Control Offer Period, the Company promptly shall purchase all Notes
properly tendered in response to the Change of Control Offer. The Company will
comply with the applicable requirements of Regulation 14E under the Exchange Act
and rules and regulations thereunder and all other federal and state securities
laws. To the extent that the provisions of any securities laws or regulations
conflict with the provisions of this paragraph, compliance by the Company or any
of the Guarantors with such laws and regulations shall not in and of itself
cause a breach of its obligations under such covenant.
5
<PAGE>
On or before the Change of Control Purchase Date, the Company shall
(i) accept for payment Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient
to pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any), of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Company. The Paying
Agent promptly will pay the Holders of Notes so accepted an amount equal to the
Change of Control Purchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any), and the Trustee promptly will authenticate and
deliver to such Holders a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be delivered
promptly by the Company to the Holder thereof. The Company publicly will
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
(b) The Company and the Guarantors shall not, and shall not permit any
of their Subsidiaries to, in one or a series of related transactions, convey,
sell, transfer, assign or otherwise dispose of, directly or indirectly, any of
their property, business or assets, including by merger or consolidation (in the
case of a Subsidiary of the Company), and including any sale or other transfer
or issuance of any Equity Interests of any Subsidiary of the Company, whether by
the Company or a Subsidiary of either or through the issuance, sale or transfer
of Equity Interests by a Subsidiary of the Company, and including any sale and
leaseback transaction (any of the foregoing, an "Asset Sale"), unless (1)(a) the
Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied (i)
within 270 days after the date of such Asset Sale to the optional redemption of
the Notes in accordance with the terms of the Indenture and other Indebtedness
of the Company ranking on a parity with the Notes and with similar provisions
requiring the Company to redeem such Indebtedness with the proceeds for asset
sales, pro rata in proportion to the respective principal amounts (or accreted
values in the case of Indebtedness issued with an original issue discount) of
the Notes and such other Indebtedness then outstanding or (ii) within 300 days
after the date of such Asset Sale to the repurchase of the Notes and such other
Indebtedness on a parity with the Notes and with similar provisions requiring
the Company to make an offer to purchase such Indebtedness with the proceeds for
asset sales pursuant to a cash offer (subject only to conditions required by
applicable law, if any) (pro rata in proportion to the respective principal
amounts (or accreted values in the case of Indebtedness issued with an original
issue discount) of the Notes and such other Indebtedness then outstanding) (the
"Asset Sale Offer") at a purchase price of 100% of principal amount (or accreted
value in the case of Indebtedness issued with an original issue discount) (the
"Asset Sale Offer Price") together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of payment, made within 270 days of such
Asset Sale or (b) within 270 days following such Asset Sale, the Asset Sale
Offer Amount is (i) invested (or committed, pursuant to a binding commitment
subject only to reasonable, customary closing conditions, to be invested, and in
fact is so invested, within an additional 90 days) in tangible assets and
property other than notes, bonds, obligations and securities) which in the good
faith reasonable judgment of the Board of Directors of the Company will
immediately constitute or be a part of a Related Business of the Company or such
Subsidiary (if it continues to be a Subsidiary) immediately following such
transaction or (ii) used to retire and permanently reduce the amount of such
Senior Indebtedness (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is so permanently
reduced by such amount), (2) at least 90% of the consideration for such Asset
Sale or series of related Asset Sales consists of cash or Cash Equivalents, (3)
no Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect, on a pro forma basis, to such Asset
A-6
<PAGE>
Sale, and (4) the Board of Directors of the Company determines in good faith
that the Company or such Subsidiary, as applicable, will receive fair market
value for such Asset Sale. Notwithstanding anything to the contrary herein, the
Company will not, and will not permit Aeromet, to consummate an Asset Sale of
all or substantially all of the property, business or assets of Aeromet, except
with the consent of the Holders of not less than a majority in an aggregate
principal amount of the Notes at the time outstanding.
An acquisition of Notes pursuant to an Asset Sale Offer may be
deferred until the accumulated Net Cash Proceeds from Asset Sales not applied to
the uses set forth in (l)(a)(i) or (l)(b) of paragraph (b) (the "Excess
Proceeds") exceed $5.0 million and that each Asset Sale Offer shall remain open
for 20 Business Days following its commencement (the "Asset Sale Offer Period").
Upon expiration of the Asset Sale Offer Period, the Company shall apply the
Asset Sale Offer Amount plus an amount equal to accrued and unpaid interest and
Liquidated Damages, if any, to the purchase of all Indebtedness properly
tendered (on a pro rata basis if the Asset Sale Offer Amount is insufficient to
purchase all Indebtedness so tendered) at the Asset Sale Offer Price (together
with accrued interest and Liquidated Damages, if any). To the extent that the
aggregate amount of Notes and such other pari passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the
Company may use any remaining Net Cash Proceeds for general corporate purposes
as otherwise permitted by the Indenture and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero.
Notwithstanding, and without complying with, the provisions of this
Section 7(b):
(1) the Company and its Subsidiaries may, in the ordinary course
of business, (a) convey, sell, transfer, assign or otherwise dispose of
inventory and other assets acquired and held for resale in the ordinary
course of business and (b) liquidate Cash Equivalents;
(2) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with
Section 5.01 of the Indenture;
(3) the Company and its Subsidiaries may sell or dispose of
damaged, worn out, scrap or other obsolete property in the ordinary course
of business so long as such property is no longer necessary for the proper
conduct of the business of the Company or such Subsidiary, as applicable;
(4) the Company and its Subsidiaries may convey, sell, transfer,
assign or otherwise dispose of assets to the Company or any of its wholly
owned Guarantors;
(5) the Company and its Subsidiaries, in the ordinary course of
business, may convey, sell, transfer, assign, or otherwise dispose of
assets (or related assets in related transactions) with a fair market value
of less than $250,000; and
(6) the Company and its Subsidiaries may surrender or waive
contract rights or settle, release or surrender contract, tort or other
claims of any kind or grant Liens not prohibited by the Indenture.
7
<PAGE>
In addition to the foregoing and notwithstanding anything herein
to the contrary, the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly make any Asset Sale of any of the
Equity Interests of any Subsidiary of the Company (other than to a
Wholly-owned Subsidiary) except pursuant to an Asset Sale of all the Equity
Interests of such Subsidiary.
Any Asset Sale Offer shall be made in compliance with all
applicable laws, rules, and regulations, including, if applicable,
Regulation 14E of the Exchange Act and the rules and regulations thereunder
and all other applicable Federal and state securities laws. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this paragraph, compliance by the Company or any of its
subsidiaries with such laws and regulations shall not in and of itself
cause a breach of its obligations under this Section 7(b).
If the payment date in connection with an Asset Sale Offer
hereunder is on or after an interest payment Record Date and on or before
the associated Interest Payment Date, any accrued and unpaid interest (and
Liquidated Damages, if any, due on such Interest Payment Date) will be paid
to the Person in whose name a Note is registered at the close of business
on such Record Date, and such interest (or Liquidated Damages, if
applicable) will not be payable to Holders of the Notes who tender Notes
pursuant to such Asset Sale Offer.
8. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
10. Amendment, Supplement and Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of a majority in aggregate principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, the Indenture or the Notes may be amended
or supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of the Notes
in case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Notes (including the
addition of any Guarantors) or that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the
8
<PAGE>
Trust Indenture Act or to evidence and provide for acceptance of, the
appointment of a successor Trustee.
11. Defaults and Remedies. An "Event of Default" is defined as (i) the
failure by the Company to pay any installment of interest (or Liquidated
Damages, if any) on the Notes as and when the same becomes due and payable and
the continuance of any such failure for 30 days, (ii) the failure by the Company
to pay all or any part of the principal, or premium, if any, on the Notes when
and as the same becomes due and payable at maturity, redemption, by acceleration
or otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise, (iii) the failure by
the Company or any Subsidiary of the Company to observe or perform any other
covenant or agreement contained in the Notes or the Indenture and, subject to
certain exceptions, the continuance of such failure for a period of 30 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in aggregate principal amount of
the Notes outstanding, (iv) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Subsidiaries,
(v) a default in any issue of Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $5.0 million (a)
resulting from the failure to pay principal at maturity or (b) as a result of
which the maturity of such Indebtedness has been accelerated prior to its stated
maturity, and (vi) final unsatisfied judgments not covered by insurance
aggregating in excess of $5.0 million, at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged within
60 days.
If an Event of Default occurs and is continuing (other than an Event
of Default specified in clause (iv) of the prior paragraph relating to the
Company or any of its Significant Subsidiaries,) then in every such case, unless
the principal of all of the Notes shall have already become due and payable,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of the Notes then outstanding, by notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest (and Liquidated
Damages, if any) thereon to be due and payable immediately; provided, however,
that if any Bank Indebtedness is outstanding, upon a declaration of such
acceleration, such principal and interest shall be due and payable upon the
earlier of (x) the third Business Day after the sending to the Company and the
holders of such Bank Indebtedness or their representative of such written
notice, unless such Event of Default is cured or waived prior to such date and
(y) the date of acceleration of any Bank Indebtedness. If an Event of Default
specified in clause (iv) of the prior paragraph relating to the Company or any
of its Significant Subsidiaries occurs, all principal and accrued interest (and
Liquidated Damages, if any) thereon will be immediately due and payable on all
outstanding Notes without any declaration or other act on the part of Trustee or
the holders of the Notes. The holders of a majority in aggregate principal
amount of Notes generally are authorized to rescind such acceleration if all
existing Events of Default, other than the non-payment of the principal of,
premium, if any, and interest on the Notes which have become due solely by such
acceleration and except on default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, have been cured or waived.
12. Subordination. The payment of principal of, premium, if any, and
interest on the Notes will be subordinated in right of payment to the prior
payment in full of Senior Indebtedness as set forth in Article 10 of the
Indenture.
9
<PAGE>
13. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or shareholder, of the Company, as such, shall not have any
liability for any Obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such Obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. This waiver and release are part of the consideration for the
issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Transfer Restricted Notes. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transfer Restricted Notes shall have all the rights set forth in the
Registration Rights Agreement dated as of the date of the Indenture, between the
Company and the parties named on the signature pages thereof (the "Registration
Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Pacific Aerospace & Electronics, Inc.
430 Olds Station Road
Wenatchee, Washington 98801
Telephone No.: (509) 667-9600
Telecopier No.: (509) 667-9696
Attention: GENERAL COUNSEL
10
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTE
The following exchanges of a part of this Global Note for Certificated
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Signature of
Amount of decrease in Amount of increase in Global Note following authorized officer of
Principal Amount of Principal Amount of such decrease Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- --------------------- --------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C>
</TABLE>
11
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint
---------------------------------------------------------
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
---------------
Your Signature:
------------------------------------------------------------
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
12
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.07 or 4.08 of the Indenture, check the box below:
o Section 4.07 o Section 4.08
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.07 or Section 4.08 of the Indenture, state the
amount you elect to have purchased:
$
-------------
Date: Your Signature:
------------- ----------------------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No.:
--------------------------------------
Signature Guarantee.
13
REGISTRATION RIGHTS AGREEMENT
Dated as of July 30, 1998
by and among
PACIFIC AEROSPACE & ELECTRONICS, INC.
as Issuer
BALO PRECISION PARTS, INC.
CERAMIC DEVICES, INC.
CASHMERE MANUFACTURING CO., INC.
ELECTRONIC SPECIALTY CORPORATION
MOREL INDUSTRIES, INC.
NORTHWEST TECHNICAL INDUSTRIES, INC.
PA&E INTERNATIONAL, INC.
PACIFIC COAST TECHNOLOGIES, INC.
SEISMIC SAFETY PRODUCTS, INC.
as Guarantors
and
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
BANCBOSTON SECURITIES INC.
as Initial Purchasers
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of July 30, 1998, by and among Pacific Aerospace & Electronics,
Inc., a Washington corporation (the "Company"), and Balo Precision Parts, Inc.,
Cashmere Manufacturing Co., Inc., Ceramic Devices, Inc., Electronic Specialty
Corporation, Morel Industries, Inc., Northwest Technical Industries, Inc., PA&E
International, Inc., Pacific Coast Technologies, Inc., and Seismic Safety
Products, Inc., each as Guarantors (the "Guarantors"), and Friedman, Billings,
Ramsey & Co., Inc. and BancBoston Securities Inc. (the "Initial Purchasers") who
have agreed to purchase the Company's 11 1/4% Senior Subordinated Notes due 2005
(the "Series A Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated July
23, 1998 (the "Purchase Agreement"), by and among the Company, the Guarantors,
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Series A Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers set forth in Section
6 of the Purchase Agreement. Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to them in the Indenture, dated July 30,
1998, between the Company, the Guarantors and IBJ Schroder Bank & Trust Company,
as Trustee, relating to the Series A Notes and the Series B Notes (the
"Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Affiliate: As defined in Rule 144 of the Act.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Certificated Securities: Certificated Notes, as defined in the
Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of
1
<PAGE>
the Exchange Offer Registration Statement relating to the Series B Notes to be
issued in the Exchange Offer, (b) the maintenance of such Exchange Offer
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the period required pursuant to Section
3(b) hereof, (c) the delivery by the Company to the Trustee under the Indenture
of Series B Notes in the same aggregate principal amount as the aggregate
principal amount of Series A Notes tendered by Holders thereof pursuant to the
Exchange Offer, and (d) the authentication and delivery by the Trustee of such
Series B Notes to such tendering Holders pursuant to the Exchange Offer.
Consummation Deadline: As defined in Section 3(b) hereof.
Effectiveness Deadline: As defined in Section 3(a) and 4(a) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The exchange and issuance by the Company of a
principal amount of the Series B Notes (which shall be registered pursuant to
the Exchange Offer Registration Statement) equal to the outstanding principal
amount of Series A Notes that are tendered by such Holders in connection with
such exchange and issuance.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Filing Deadline: As defined in Sections 3(a) and 4(a) hereof.
Guarantors: Balo Precision Parts, Inc., Cashmere Manufacturing Co.,
Inc., Ceramic Devices, Inc., Electronic Specialty Corporation, Morel Industries,
Inc., Northwest Technical Industries, Inc., PA&E International, Inc., Pacific
Coast Technologies, Inc., and Seismic Safety Products, Inc. and any other
Subsidiary of the Company that becomes a Guarantor under the Indenture.
Holders: As defined in Section 2 hereof.
Indenture: The Indenture, dated as of July 30, 1998, by and among the
Company, the Guarantors and IBJ Schroder Bank & Trust Company, as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time in accordance with the terms thereof.
Liquidated Damages: As defined in Section 5 hereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus
2
<PAGE>
supplement and by all other amendments thereto, including post-effective
amendments, and all material incorporated by reference into such Prospectus.
Recommencement Date: As defined in Section 6(d) hereof.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to the Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) that is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer that holds Series B Notes
that were acquired in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
Rule 144: Rule 144 promulgated under the Act.
Series B Notes: The Company's 11 1/4% Series B Senior Subordinated
Notes due 2005 to be issued pursuant to the Indenture in the Exchange Offer.
Shelf Registration Statement: As defined in Section 4 hereof.
Suspension Notice: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Series A Note, until the earliest
of the date on which (i) such Series A Note is exchanged in the Exchange Offer
for a Series B Note that is entitled to be resold to the public by the Holder
thereof without complying with the prospectus delivery requirements of the Act,
(ii) such Series A Note has been disposed of in accordance with the Shelf
Registration Statement, (iii) such Series A Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (iv) such Series A Note is eligible for distribution to
the public without registration pursuant to Rule 144 under the Act.
3
<PAGE>
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer is not permitted by applicable federal
law or policy of the Commission (after the procedures set forth in Section 6(a)
below have been complied with), the Company and the Guarantors shall (i) cause
the Exchange Offer Registration Statement to be filed with the Commission as
soon as practicable after the Closing Date (the "Exchange Offer Filing Date"),
but in no event later than 120 days after the Closing Date (such 120th day being
the "Filing Deadline"), (ii) use its best efforts to cause such Exchange Offer
Registration Statement to become effective at the earliest possible time, but in
no event later than 180 days after the Closing Date (such 180th day being the
"Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting
registration of the Series B Notes to be offered in exchange for Series A Notes
that are Transfer Restricted Securities and to permit resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter (such 30th day being the "Consummation Deadline").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such
4
<PAGE>
Broker-Dealer as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from the
Company or any Affiliate of the Company), may exchange such Transfer Restricted
Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus to be provided by the Company, meeting the requirements of
the Act in connection with its initial sale of any Series B Notes received by
such Broker-Dealer in the Exchange Offer and that the Prospectus contained in
the Exchange Offer Registration Statement may be used by such Broker-Dealer to
satisfy such prospectus delivery requirement. Such "Plan of Distribution"
section shall also contain all other information with respect to such sales by
such Broker-Dealers that the Commission may require in order to permit such
sales pursuant thereto, but such "Plan of Distribution" shall not name any such
Broker-Dealer or disclose the amount of Transfer Restricted Securities held by
any such Broker-Dealer, except to the extent required by the Commission as a
result of a change in policy, rules or regulations after the date of this
Agreement.
To the extent necessary to ensure that the Prospectus contained in the
Exchange Offer Registration Statement is continuously available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 6(c) hereof and in conformity with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year from the Consummation
Deadline, or such shorter period as will terminate when a Broker-Dealer is not
required to deliver a prospectus in connection with market-making or other
trading activities. The Company shall promptly provide sufficient copies of the
latest version of such Prospectus to such Broker-Dealer promptly upon request,
and in no event later than two days after such request, at any time during such
period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) (A) the Exchange Offer is not permitted
by applicable law or Commission policy (after the Company and the Guarantors
have complied with the procedures set forth in Section 6(a) below) or (B) for
any other reason the Exchange Offer is not Consummated by the Consummation
Deadline or (ii) if any Holder notifies the Company prior to the 20th business
day following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer,
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus, and that the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder, or (C) such Holder is
a Broker-Dealer and holds Series A Notes acquired directly from the Company or
any of its Affiliates, then the Company shall as promptly as practicable deliver
to the Holders and the Trustee written notice thereof (the "Shelf Notice"), and
the Company shall:
5
<PAGE>
(x) cause to be filed, on or prior to 30 days after the earlier
of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above,
and (ii) the date on which the Company receives the notice specified in
clause (a) (ii) above, (the "Filing Deadline"), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to
the Exchange Offer Registration Statement (the "Shelf Registration
Statement")), relating to all Transfer Restricted Securities, the Holders
of which have complied with Section 4(b), and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission on or
prior to 120 days after the obligation to file a shelf registration
statement arises (such 120th day the "Effectiveness Deadline").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law or
Commission policy (i.e. clause (a)(i)(A) above), then the filing of the Exchange
Offer Registration Statement shall be deemed to satisfy the requirements of
clause (x) above; provided that, in such event, the Company shall remain
obligated to meet the Effectiveness Deadline set forth in clause (y).
The Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years (as extended pursuant to Section 6(d)) following
the Closing Date or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Shelf Registration Statement have been
sold pursuant thereto (the "Effectiveness Period"). No securities other than
Transfer Restricted Securities shall be included in any Shelf Registration
Statement.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder may include any of its Transfer
Restricted Securities in any Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 20 days after receipt of a request therefor, the information specified in
Item 507 or 508 of Regulation S-K, as applicable, of the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have provided all such information. Each selling Holder agrees
6
<PAGE>
to promptly furnish additional information required to be disclosed in order to
make the information previously furnished to the Company by such Holder not
materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but thereafter ceases to be effective or fails to be usable
for its intended purpose within the period specified in the second paragraph of
Section 3(c) and the last paragraph of Section 4(a) without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective immediately (each such
event referred to in clauses (i) through (iv), a "Registration Default"), then
the Company and the Guarantors hereby jointly and severally agree to pay to each
Holder of Transfer Restricted Securities affected thereby liquidated damages
("Liquidated Damages") in an amount equal to $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by such Holder for each
week or portion thereof that the Registration Default continues for the first
90-day period immediately following the occurrence of such Registration Default.
The amount of the Liquidated Damages shall increase by an additional $.05 per
week per $1,000 in principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $.50 per week per
$1,000 in principal amount of Transfer Restricted Securities; provided that the
Company and the Guarantors shall in no event be required to pay Liquidated
Damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the accrual of Liquidated
Damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All Liquidated Damages set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
7
<PAGE>
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered Series A Notes in the Exchange Offer that such
Broker-Dealers acquired for their own account as a result of their market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is permitted
by applicable federal law, the Company and the Guarantors hereby agree to
seek a no-action letter or other favorable decision from the Commission
allowing the Company and the Guarantors to Consummate an Exchange Offer for
such Transfer Restricted Securities. The Company and the Guarantors hereby
agree to take reasonable measures to obtain such a favorable decision from
the Commission staff. In connection with the foregoing, the Company and the
Guarantors hereby agree to take all such other actions as may be requested
by the Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursuing a resolution (which need
not be favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker-Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and the Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the Series B Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
In addition, all such Holders shall cooperate in the Company's preparations
for the Exchange Offer. Each Holder using the Exchange Offer to participate
in a distribution of the Series B Notes hereby acknowledges and agrees
that, if the resales are of Series B Notes obtained by such Holder in
exchange for Series A Notes acquired directly from the Company or an
Affiliate thereof, it (1) could not, under Commission policy as in effect
on
8
<PAGE>
the date of this Agreement, rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted
in the Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action letter
obtained pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action
letter obtained pursuant to clause (i) above, (B) including a
representation that neither the Company nor any Guarantor has entered into
any arrangement or understanding with any Person to distribute the Series B
Notes to be received by a Holder in the Exchange Offer and that, to the
best of the Company's and the Guarantors information and belief, each
Holder participating in the Exchange Offer is acquiring the Series B Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall (x) comply with all
the provisions of Section 6(c) below and (y) use their respective best efforts
to effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the periods
9
<PAGE>
specified in Section 3 or 4 of this Agreement, as applicable. Upon the
occurrence of any event that would cause any such Registration Statement or
the Prospectus contained therein (A) to contain a material misstatement or
omission or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement, the
Company shall file promptly an appropriate amendment to such Registration
Statement curing such defect, and, if Commission review is required, use
their best efforts to cause such amendment to be declared effective as soon
as practicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as the case may be;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth
in such Registration Statement or supplement to the Prospectus;
(iii) advise the selling Holders promptly and, if requested by
such Persons, confirm such advice in writing, (A) when the Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and,
with respect to any applicable Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request
by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information
relating thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the Act or
of the suspension by any state securities commission of the qualification
of the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, (D) of the existence of any fact or the happening of any event
that makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto or any
document incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement in
order to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky laws,
the Company and the Guarantors shall use their respective best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
10
<PAGE>
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(v) furnish to the Initial Purchasers and each selling Holder
named in any Registration Statement or Prospectus in connection with such
exchange or sale, if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments
or supplements to any such Registration Statement or Prospectus (including
all documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review and
comment of such selling Holders in connection with such sale, if any, for a
period of at least five Business Days, and the Company will not file any
such Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such selling Holders shall reasonably
object in writing to the Company within five Business Days after the
receipt thereof. A selling Holder shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed, contains
a material misstatement or omission or fails to comply with the applicable
requirements of the Act;
(vi) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders in connection with
such exchange or sale, if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders may reasonably
request;
(vii) upon at least two Business Days prior written notice, make
available at reasonable times for inspection by the selling Holders
participating in any disposition pursuant to such Registration Statement
and any attorney or accountant retained by such selling Holders, all
financial and other records, pertinent corporate documents of the Company
and the Guarantors and cause the Company's and the Guarantors' officers,
directors and employees to supply all information reasonably requested by
any such selling Holder, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto subsequent
to the filing thereof and prior to its effectiveness;
11
<PAGE>
(viii) if requested by any selling Holders in connection with
such exchange or sale, promptly include in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders may reasonably request
to have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities, and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(ix) furnish to each selling Holder in connection with such
exchange or sale, without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein and all
exhibits (including exhibits incorporated therein by reference);
(x) deliver to each selling Holder, without charge, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably may request; the
Company and the Guarantors hereby consent to the use (in accordance with
law) of the Prospectus and any amendment or supplement thereto by each of
the selling Holders in connection with the offering and the sale of the
Transfer Restricted Securities covered by the Prospectus or any amendment
or supplement thereto;
(xi) in the case of a Shelf Registration Statement only, upon the
request of any selling Holder, enter into such agreements and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to such Shelf Registration
Statement contemplated by this Agreement as may be reasonably requested by
any Holder in connection with any sale or resale pursuant to such Shelf
Registration Statement. In such connection, the Company and the Guarantors
shall:
(A) upon request of any selling Holder, furnish (or in the
case of paragraphs (2) and (3), use its best efforts to cause to be
furnished) to each selling Holder, upon Consummation of the Exchange
Offer or upon the effectiveness of the Shelf Registration Statement,
as the case may be:
(1) a certificate, dated as of the date of Consummation
of the Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed on behalf of
the Company and the Guarantors by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company and such Guarantor, confirming, as of the date
thereof, the matters set forth in Section 1 and Section 6 of the
Purchase Agreement and such other similar matters as the selling
Holders may reasonably request;
12
<PAGE>
(2) an opinion, dated as of the date of Consummation of
the Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantors covering matters similar to those set
forth in paragraph (a) of Section 6 of the Purchase Agreement and
such other matter as the selling Holders may reasonably request,
and in any event including a statement to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company and the Guarantors,
representatives of the independent public accountants for the
Company and the Guarantors and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to the extent such counsel deems appropriate
upon the statements of officers and other representatives of the
Company and the Guarantors and without independent check or
verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective and, in the
case of the Exchange Offer Registration Statement, as of the date
of Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus contained in such
Registration Statement as of its date and, in the case of the
opinion dated the date of Consummation of the Exchange Offer, as
of the date of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included
in any Registration Statement contemplated by this Agreement or
the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set forth in
the
13
<PAGE>
comfort letters delivered pursuant to Section 6(e) of the
Purchase Agreement; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with clause (A) above and with any customary conditions contained in
the any agreement entered into by the Company and the Guarantors
pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor any Guarantor shall be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiii) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this Agreement,
Series B Notes having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes surrendered to the Company by such
Holder in exchange therefor or being sold by such Holder; such Series B
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Series B Notes, as the case may be; in return, the
Series A Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and to reissue such Transfer Restricted Securities in such denominations
and such names as the selling Holders may request at least two Business
Days after the consummation of such sale of Transfer Restricted Securities;
(xv) use their respective best efforts to cause the disposition
of the Transfer Restricted Securities covered by the Registration Statement
to be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof to
consummate the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
14
<PAGE>
(xvi) otherwise use their respective best efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to security holders of the Company and/or the Guarantors, with
regard to any applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158 of the
Act (which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable such
Indenture to be so qualified in a timely manner;
(xix) use their respective commercially reasonable efforts to
cause the Transfer Restricted Securities or the Series B Notes, as
applicable, covered by an effective Registration Statement required by
Section 3 or Section 4 hereof to be rated by one or two rating agencies, if
and as so requested by the Holders of a majority in aggregate principal
amount of Transfer Restricted Securities relating to such Registration
Statement or the managing underwriters in connection therewith, if any;
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act; and
(xxii) use their respective best efforts to take all other steps
necessary to effect the exchange or registration of the Transfer Restricted
Securities pursuant to a Registration Statement contemplated hereby.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"Suspension Notice"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until the date that (i) such Holder has received copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder
is advised in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the Prospectus (in each case, the
"Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees
that it will either (i) destroy any
15
<PAGE>
Prospectuses, other than permanent file copies, then in such Holder's possession
which have been replaced by the Company with more recently dated Prospectuses or
(ii) deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Holder's possession of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of the Suspension Notice. The time period regarding the effectiveness of
such Registration Statement set forth in Section 3 or 4 hereof, as applicable,
shall be extended by a number of days equal to the number of days in the period
from and including the date of delivery of the Suspension Notice to the
Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Transfer Restricted Securities or Series B Notes); (iii) all expenses of
printing (including printing certificates for the Series B Notes to be issued in
the Exchange Offer and printing of Prospectuses, messenger and delivery services
and telephone expenses); (iv) all fees and disbursements of counsel for the
Company and the Guarantors; (v) all application and filing fees in connection
with listing the Series B Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; (vi) the fees and expenses
of any "qualified independent underwriter" or other independent appraiser
required to participate in an offering pursuant to the NASD's Rules of Fair
Practice; (vii) any rating agency fees; and (viii) all fees and disbursements of
independent certified public accountants of the Company and the Guarantors
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company and the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Milbank, Tweed, Hadley
& McCloy unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Registration Statement is being prepared.
16
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless each Holder, its directors, its officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act)(collectively referred to herein as
the "Indemnified Holders"), from and against any and all losses, claims,
damages, liabilities, judgments, (including without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Company to any holder or any prospective purchaser of Series B
Notes, or caused by any omission or any alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by an untrue statement or omission or alleged untrue
statement or omission that is based upon information relating to any of the
Holders furnished in writing to the Company by any of the Indemnified Holders or
its agents, if any.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company or the Guarantors, to the same extent as the foregoing
indemnity from the Company and the Guarantors to each of the Indemnified
Holders, but only with reference to information relating to such Indemnified
Holder furnished in writing to the Company by such Indemnified Holder expressly
for use in any Registration Statement. In no event shall any Indemnified Holder
be liable or responsible for any amount in excess of the amount by which the
total amount received by such Indemnified Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Indemnified Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Indemnified Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
(provided that the failure to give such notice shall not relieve the
indemnifying party of its obligations under Section 8 (a) or (b) unless and only
to the extent that the indemnifying party is materially prejudiced by the
failure to notify). The indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel, as
incurred. However, in the case of any action in respect of which indemnity may
be sought pursuant
17
<PAGE>
to both Sections 8(a) and 8(b), an indemnified party shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the indemnified party. Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to promptly assume the defense of such action or employ
counsel reasonably satisfactory to the indemnified party or (iii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party, and the indemnified party shall
have been advised by such separate counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by a majority of the Indemnified Holders, in
the case of the parties indemnified pursuant to Section 8(a), and by the
Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement by the indemnified party of any action effected with
the indemnifying party's written consent. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) Subject to Section 8(e), to the extent that the indemnification
provided for in Sections 8(a),(b) and (c) is unavailable to an indemnified party
in respect of any losses, claims, damages, liabilities or judgments referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or judgments (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Guarantors, on the one
18
<PAGE>
hand, and the Holders, on the other hand, from their sale of Transfer Restricted
Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company and the Guarantors, on the one hand, and of the Indemnified
Holder, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative fault of the Company
and the Guarantors, on the one hand, and of the Indemnified Holder, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
and the Guarantors, on the one hand, or by the Indemnified Holder, on the other
hand, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
judgments referred to above shall be deemed to include, subject to the
limitations set forth in Section 8(c), any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.
(e) The Company, the Guarantors and each Holder agree that it would
not be just and equitable if contribution pursuant to this Section 8(e) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in this Section 8 shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any request for indemnity under this
Section 8, including any action that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
Section 8(d), no Holder or its related Indemnified Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect to the sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds the sum of (A) the
amount paid by such Holder for such Transfer Restricted Securities plus (B) the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to Section 8(d) are several in proportion to
the respective principal amount of Transfer Restricted Securities held by each
of the Holders hereunder and not joint.
SECTION 9. RULE 144 and RULE 144A
The Company agrees with each Holder, that for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit
19
<PAGE>
resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii)
is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantor's obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor the Guarantor has previously entered into any other
agreement granting any registration rights with respect to its securities to any
Person, except than as described in the Offering Memorandum. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's and the
Guarantors securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company of its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the Exchange Offer
and that does not affect directly or indirectly the rights of other Holders
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to
20
<PAGE>
the extent they may deem such enforcement necessary or advisable to protect the
rights of Holders hereunder.
(e) Notices. All notices, requests and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail (registered or certified, return receipt requested), telex,
telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
Pacific Aerospace & Electronics, Inc.
434 Olds Station Road
Wenatchee, Washington 98801
Telecopier No.: (509) 667-9696
Attention: General Counsel
With a copy to:
Stoel Rives LLP
600 University Street
Suite 3600
Seattle, WA 98101-4295
Telecopier No.: (206) 386-7500
Attention: L. John Stevenson, Jr., Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Upon the date of filing of a Registration Statement, notice shall be
delivered to Friedman, Billings, Ramsey & Co., Inc., on behalf of the Initial
Purchasers (in the form attached hereto as Exhibit A) and shall be addressed to:
Attention: Compliance Department, Potomac Tower, 1001 Nineteenth Street North,
Arlington, Virginia 22209.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
21
<PAGE>
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Transfer Restricted Securities in violation of the Act, any state securities
laws, the terms hereof or of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the 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.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
PACIFIC AEROSPACE & ELECTRONICS, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
President & Chief Executive Officer
BALO PRECISION PARTS, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
CASHMERE MANUFACTURING CO., INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
23
<PAGE>
CERAMIC DEVICES, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
ELECTRONIC SPECIALTY CORPORATION
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
MOREL INDUSTRIES, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
NORTHWEST TECHNICAL INDUSTRIES, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
24
<PAGE>
PACIFIC COAST TECHNOLOGIES, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
SEISMIC SAFETY PRODUCTS, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
Executive Vice President
PA&E INTERNATIONAL, INC.
By: /s/ DONALD A. WRIGHT
-------------------------------------
Donald A. Wright
President
25
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
By: /s/ JAMES R. KLEEBLATT
-------------------------------------
26
<PAGE>
BANCBOSTON SECURITIES INC.
By: /s/ GREGORY C. FOY
-------------------------------------
Gregory C. Foy
Managing Director
27
Exhibit 23
The Board of Directors
Pacific Aerospace & Electronics, Inc.
Consent of Independent Accountants
We consent to the inclusion of our report dated March 19, 1998, with respect to
the balance sheets of Aeromet International PLC as of December 31, 1997 and
1996, and the related statements of operations, shareholder's equity,
comprehensive income/loss, and cash flows for each of the years in the two year
period ended December 31, 1997, which report appears in the Form 8-K of Pacific
Aerospace & Electronics, Inc. dated August 13, 1998.
Yours sincerely,
/s/ KPMG AUDIT PLC
KPMG Audit Plc
Birmingham, England
August 13, 1998
Exhibit 99.1
FOR IMMEDIATE RELEASE
CONTACT:
Don Wright - President/CEO
Nick Gerde - Vice President/CFO
Phone: 509-667-9600 Fax: 509-667-9696
Liviakis Financial Communications, Inc.
John Liviakis or Robert Prag
Phone: 916-448-6084 Fax: 916-448-6089
PACIFIC AEROSPACE & ELECTRONICS POSTS ACQUIRES UK
AEROSPACE MANUFACTURER
WENATCHEE, WA August 3, 1998 Pacific Aerospace & Electronics, Inc. (NASDAQ: PCTH
and PCTHW), announced today that it has completed its acquisition of UK
aerospace manufacturer Aeromet International plc for UK 42 million pounds
sterling, or approximately $69 million in cash. The acquisition closed on July
30, 1998.
Aeromet operates from five sites in England and is one of the UK's leading
suppliers of magnesium and aluminum precision sand and investment castings, and
titanium and aluminum formed sheet products, for the aerospace, defense, and
motorsport industries in Europe. Aeromet had revenues of $49 million in its
fiscal year ended December 31, 1997, while Pacific Aerospace & Electronics had
$54 million in revenues in its fiscal year ended May 31, 1998. After giving pro
forma effect to the Aeromet acquisition as if it had occurred on June 1, 1997,
the Company's pro forma revenues for fiscal 1998 would have been $115.5 million.
The combined company has backlog of approximately $110 million, of which $80
million is expected to be shipped to customers in fiscal 1999.
"The Aeromet acquisition will significantly expand our customer base to
nearly 600 accounts world wide, with the largest customer, Boeing, comprising
about 13% of our consolidated revenue base," said Don Wright, President and CEO
of Pacific Aerospace & Electronics, Inc. "Aeromet also adds to our already blue
chip customer base new customers such as British Aerospace, Rolls Royce, and
Lucas Aerospace."
"We believe that, as a result of this acquisition, the Company is
positioned to be a supplier, either directly or indirectly, to nearly every
major aerospace and defense electronics manufacturer in the world," said Wright.
"Aeromet's casting and forming technologies and products are complementary
extensions of our existing product lines. Its licensed Sophia casting process
fits well with the existing 32 patents and proprietary processes already owned
by Pacific Aerospace & Electronics. We believe that we will increase our ability
to produce higher value systems incorporating products of both companies. We
also believe that we are ideally positioned
<PAGE>
to build on the combined strengths and manufacturing capabilities of Pacific
Aerospace & Electronics and Aeromet to enhance our competitive position,
particularly in the consolidating aerospace and defense electronics markets."
Wright added: "We are pleased that a strong and experienced Aeromet
management team will continue to build Aeromet's businesses. We look forward to
working with Duncan Crighton, who will continue in his role as president of our
Aeromet group. Mr. Crighton has over 30 years experience in the aerospace
industry in the United States and Europe, and we are honored to have him join
the Company's senior management team."
Pacific Aerospace & Electronics financed the Aeromet acquisition through
the issuance to qualified institutional buyers of $75 million of 11.25% Senior
Subordinated Notes, which will become due in 2005. Interest is payable on the
notes semiannually. The financing transaction was managed by the investment
banking firms of Friedman, Billings, Ramsey & Co., Inc. and BancBoston
Securities, Inc.
Pacific Aerospace & Electronics is a highly diversified manufacturing
company that develops, manufactures and markets high-performance electronics and
metal components and assemblies for the aerospace, defense, electronics and
transportation industries. Prior to the Aeromet acquisition, the Company's
primary businesses were organized in two operational and marketing units. The
Electronics Group develops, manufactures and sells a broad range of precision
components, filtering devices, electronic assemblies, and explosively bonded
materials designed to operate with a high degree of reliability in harsh
environments such as the ocean, space and the human body. The Aerospace Group
provides machined and cast aluminum and metal parts and component assemblies for
commercial and military aircraft, heavy trucking and automotive uses. Aeromet
will become a third operational group and will continue to provide magnesium and
aluminum precision cast parts and formed titanium and aluminum sheet products to
the aerospace, defense and motorsport industries.
The Company's common stock trades on the Nasdaq National Market System
under the symbol PCTH, and its warrants trade under the symbol PCTHW.
Forward-looking statements in this release concerning trends or anticipated
operating results are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
not guarantees of future performance and are subject to risks and uncertainties
related to the Company's operations. These risks and uncertainties include, but
are not limited to, competitive factors (including the possibility of increased
competition or technological development, competitors, and price pressures);
legal factors (such as limited protection of the Company's proprietary
technology and changes in government regulation); and the Company's dependence
on key personnel and significant customers.
